German autoparts and tire maker Continental AG asked its lenders for a EUR2.5 billion forward start loan and more headroom on financial covenants when the company disclosed its refinancing plans to banks at a meeting held Tuesday, people familiar with the situation said Wednesday.
The EUR2.5 billion forward start agreement, or FSA, however, is subject to Continental raising at least EUR1 billion through a capital increase in the new year to stabilize the company's debt profile, one of the people familiar with the matter said.
Deutsche Bank and JP Morgan Chase & Co. are global coordinators on the cash call, or rights issue, the people said.
The two-year FSA is designed to extend the maturity of part of a EUR3.5 billion loan due to mature in August 2010 out to 2012, to bring it in line with the maturity of two other loan facilities, the people said.
Continental is also looking for further headroom on two financial covenants, net debt to earnings before interest depreciation and amortization, and interest cover.
Both Continental and its dominant shareholder, engineering firm Schaeffler Group, have been hit hard by the sharp contraction in demand for cars and trucks as manufacturers slashed production amid the economic downturn leading to a deterioration in trading conditions.
"Continental is looking to finalize its financing talks by the end of first quarter," said a Continental spokeswoman, but declined to give further details.
"They [Continental] are looking for greater flexibility given the difficult trading conditions," one of the people familiar with the matter said, referring to the changes in financial covenants.
Continental agreed a EUR13.5 billion loan in August 2007 to finance its acquisition of Siemens AG's VDO business. Of this financing, a three-year term loan amounting to EUR3.5 billion is due to mature in the summer of 2010, while a further five-year EUR5 billion term loan and a EUR2.5 billion five-year revolving credit facility are due to mature in 2012.
Citigroup and Goldman Sachs were mandated lead-arrangers and bookrunners on the deal.
The banks are being offered a margin of 450 basis points over Euribor on the FSA with the two other loan facilities currently priced at 400 basis points, one of the people said.
An FSA is a loan agreement between a borrower and its lenders that allows the borrower the option to draw down on a new loan facility when an existing loan expires.
The proposal includes that Continental will continue to be ringfenced from its dominant shareholder, Schaeffler, the person familiar with the matter said. Under this ringfencing, Continental cannot guarantee any Schaeffler debt and funds won't be used from Continental to pay down Schaeffler financing, the person added.
With around 50 banks attending the meeting, the feedback was positive, said a second person familiar with the matter. Banks have been given until the end of the year to reply, this person said.
As previously reported by Dow Jones Newswires, Continental's supervisory board approved a capital increase of as much as EUR1.5 billion in July. Once the company's finances have been stabilized, the company is likely to refinance and raise funding from the bond market, the people familiar with the matter said.
(Source: http://irco.biz)
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