Adient - tidying up the debt structure.
All,
Please see our unchanged analysis of Adient here.
The Adient trade has played out very well for us, but aside from a very small stub position that is earning a little bit of call constraint running yield, we are no longer following the name actively. The position is marked for exit.
The company has amended, extended and increased the size of its term loan B. The facility has been extended to April 2028. The facility has also been upsized to USD1bn from USD786m.
The additional USD214m will be used to retire part of the Adient 7.00% 2026 bonds (USD800m outstanding) and for GCP. Adient successfully tendered for USD640m of these bonds at 107.00 (including a 5 point early tender payment). The tender offer closed on 29 March.
The term loan facility has also seen Eurodollar Rate Loan margins cut 75bp to 3.25%-3.50% (depending on leverage). Base rate loans were also cut 75bps to 2.25%-2.50%. The facility has a debt incurrence test with a fixed charge coverage ratio of 2:1, although there are significant carve-outs. The activation covenant for the restricted payments test has been loosened from net leverage of 2.5x to 3.5x.
The refinancing reflects the subsiding of risks to the automotive sector and a higher appetite from investors. It does not change our positive view of the name. Automotive interiors will be among the faster-growing segments in automotive, although admittedly seats may not be. We expect Adient to continue to transition into a more conventional High Yield profile from now on.
Feel free to reach out if you would like to exchange ideas on the name.
Aengus
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E: amcmahon@sarria.co.uk
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