Refinancing to provide additional liquidity, financial flexibility

Navistar International is refinancing a senior secured term loan facility worth USD697.5 million of Navistar, Inc., which matures in August 2017, with a new USD1.04 billion senior secured term loan, which will mature in August 2020, the company said in a press release yesterday (20 July).

Commenting on the refinancing, chief financial officer of Navistar, Walter G. Borst, said, "The company's financial condition and results continue to improve steadily, and we have begun to generate positive cash flow. We're investing in new products and advancing on our Uptime strategy in the market, driven by our focus on connected vehicles. The term loan renewal will provide us additional flexibility to pursue these initiatives while extending our debt maturity profile."

J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC, and Credit Suisse Securities (USA) LLC will serve as joint lead arrangers and joint bookrunners for the term loan facility.

Significance: Navistar said the refinancing will extend the maturity of the term loan facility and provide the company with additional liquidity and financial flexibility. Navistar is working on a plan to reduce its fixed costs and improve its manufacturing capacity utilization to return to profitability. Following this strategy, the company is selling its foundry operations in Waukesha, Wisconsin (United States). In June, Navistar said it would complete its exit from the foundry business with the closure of operations in Indianapolis by the end of the summer. The company anticipates more than USD13 million in annual savings as a result of these closures. Navistar's operating profitability has improved lately. In the second quarter of 2015, the company's EBITDA was USD85 million versus an EBITDA loss of USD119 million in the same period a year ago. The USD204 million year-over-year improvement was driven by an increase in truck segment sales, favourable product mix and the continuation of lower warranty expense and cost reductions. In the third quarter of 2015, Navistar expects EBITDA between USD125 million and USD175 million, excluding pre-existing warranty and one-time items. Also, Navistar expects manufacturing cash, cash equivalents and marketable securities between USD750 million and USD850 million.

Earlier, the truck and engine maker ran into trouble after fallout from engines unable to meet federal diesel exhaust standards, resulting in a quick switch to new selective catalytic reduction (SCR) engines that caused a decline in sales.

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