Credit Suisse First Boston is shopping two credits for J.L. French Automotive Castings that the car parts maker needs by the end of the year to steer itself away from bankruptcy court. CSFB is in the market with an $85 million "C" loan and a $100 million second lien term loan the company will use to meet debt payments and pay down debt. "The big issue is amortization," said a banker. J.L. French missed a bond interest payment last week and has until year-end to cure the default. "They could meet the interest payment, but the company also has a $13 million bank debt amortization on Dec. 31, they might not have the money to make," he added. J.L. French is a Hidden Creek Industries portfolio company that makes car parts, such as oil pans and transmission cases. Repeated calls to the private equity shop and Mark Burgess, J.L. French's cfo, were not returned.
The "C" loan is being shopped to both existing investors and also distressed debt shops, with a banker noting, "It is generally more appealing to the distressed side." The spreads on the lines could not be ascertained, but bankers said it is very attractively priced for distressed funds and far higher than the current LIBOR plus 23 /4% spread on the "B" loan. A banker also said the line is close to completion, but levels of commitments were uncertain. Bank of America and J.P. Morgan lead the existing $150 million "B", which is trading in the 84-86 range, according to an investor. The debt has been inching up from the mid-70s since October, he added. The company also has $125 million remaining on the "A" loan and a $90 million revolver.
The company is fundamentally sound, said an investor. "I've seen companies in worse shape," he said. "They are really good manufacturers with a decent EBITDA range." But auto markets have been tough and there is lender fatigue after multiple amendments, he noted. The company planned an initial public offering in the summer, but that was nixed due to the volatile equity markets, he said. The high-yield market also remained closed to the single-B issuer, he added, and now the company is struggling with the amortization. The current syndication has not been helped by Standard & Poor's decision last week to lower the corporate credit rating to CCC+ from B, conceded a banker. "There is a high likelihood that without an equity infusion or refinancing of its debt obligations, the company will be unable to cure the event of default on the bonds," stated S&P analyst Eric Ballantine.
CSFB was selected to lead the rescue lines, due to its expertise on the second lien side, said a banker. A J.P. Morgan spokesman referred questions to CSFB, and a B of A banker did not return calls. The second lien is pari passu in right of payment with the senior bank debt, but subordinated in terms of the collateral.