Tenneco Pulls Equity Offering

Fitch Ratings has removed Tenneco Automotive's B+ rated senior secured bank facility and B senior secured notes from rating watch positive. This follows Tenneco's decision to pull a $150 million equity offering due to the volatility in the markets and the immediate impact on the equity price. The equity offering would have been used to pay down debt, reduce leverage and reduce interest expense, notes Fitch. As a result of the cancelled offering, Tenneco is also withdrawing the tender offer for its outstanding 11 5/8% senior subordinated notes. These developments do not affect Tenneco's operating performance or its good liquidity position, Fitch comments.

Ken Trammell, cfo and senior v.p. for Tenneco, explained that the equity offering would have been beneficial to the company in reducing interest expense and de-leveraging the balance sheet. But he stated it was not a necessary transaction. After breaking from the Tenneco conglomerate in 1999, the company inherited debt, including $500 million of 11 5/8% notes. "Tenneco believed there was an opportunity to refinance that debt through the equity offering and a new debt offering," Trammell said. Interest savings would have been in the $21-25 million range.

"The last three weeks in the high yield market made it apparent that it does not make sense right now," Trammell said. "We thought the new offering would have been at 7-7 1/2%, but it would have been more like 9-9 1/2%. The bonds are callable on Oct. 15, so we can still take advantage of the market when it makes sense." He explained that the proposed transaction did not relate to liquidity. "The next significant maturity is the $500 million of bonds in 2009." In terms of liquidity, "we had $400 million of revolving credit facilities and $149 million of cash on hand at the end of the first quarter," he added.

Fitch also highlights many different positive trends, Trammell commented. "Debt to EBITDA has gone from 5.5 times in 2000 to 3.7 times in the first quarter 2004. There has been improvement in the aftermarket business, which accounts for 25% of revenues and the OEM business is doing well," he concluded.