Adient - Strong liquidity - Raising $500m extra

All,

Please refer to our updated analysis of Adient here.

With $1.6bn at the end of March Adient’s cash on balance sheet position is E300m better than we had expected, which is presumably due drawing the remaining E175m of European RCF and $125m US FILO. 

Conclusion:

- We have been meaning to buy a position in the Adient unsecureds and should they fall as a result of today’s announcement, we should take that as a signal.

Mild negative surprise:

- We have been estimating that this liquidity position should be more than sufficient for Adient, given it expects another $575m from asset sales (incl. its interiors business) before the end of summer.  Adient also enjoys $1.6bn in cash in its Chinese JVs. If not entirely unexpected, Adient’s decision to raise an additional $500m of financing is therefore still a mild negative surprise for us. Of course the new notes will sit Sr. Secured too, thus be layering the SUNs. With an advertised maturity in 2025, the new bonds are also set to mature before the 7% 2026  SSNs taken up in 2019. 

Data points on the Automotive Industry:

- Management estimate volumes to be 20% below pre-Corona levels and assume a return to similar levels over the coming two years.

- Adient is supposed to be NCF neutral in such a scenario - based on current downsizing measures.

- In China, All plants are back up and running, 86% of workers have returned, producing 75% of output. 

- In China, rebounds at premium manufacturers and Japanese brands have outperformed those of other manufacturers.

The company is out with the deal now, which we are thinking off as pure extra liquidity buffer and not immediately needed. 

Wolfgang