Auto Supplier Shock Continues to Spread. Now It's TRW's Turn

Last week it was Visteon (VC), Monday it was Lear (LEA), yesterday it was TRW. The auto supplier whose secured credit facility has been on an unprecedented tear recently, filed an 8-K yesterday announcing it will likely breach covenants, and not some time in 2013 (the same year the S&P is using for its fwd multiple calculation), but Q2! In other words, they have a mere 30 days before TRW will be the next auto supplier casualty. It is interesting that TRW management waited so long, before a) announcing just how bad things are and b) taking proactive steps to fix things. From the 8-K:

On June 2, 2009, TRW Automotive Holdings Corp. (the “Company”) announced that it has initiated the process with its bank group to amend its primary credit facility. In light of the current industry conditions, it is unlikely that the Company will be in compliance with the financial covenants of its existing credit facility at the end of the second quarter of 2009 and, therefore, is seeking to amend certain terms of its primary credit agreement to position the Company for future covenant compliance through the current downturn. The Company expects to complete the amendment process prior to the end of the second quarter 2009.

Recently TRW said it had fully drawn down its revolver, with utilization now sitting at $1.3 billion. The credit facility is $2.5 billion in total, underwritten by upgrade specialists Merrill Lynch/BofA (BAC) and JPM (JPM). It will be interesting to see if the Merrill auto equities team takes a page out of the REIT book, and upgrades TRW equity to "Once In A Lifetime Dodecatuple Super Strong Buy", with a $100 price target, generating a short squeeze, doing a follow on, pocketing 10% of the equity offering and having management use the proceeds to pay down its credit facility. Stranger things have been seen in the market recently.

Comments

[Moon Kil Woong:]

If not they will use their equity raising to fund them some more thanks to political pressure. Once you go sticking your hands into quicksand expect your whole body to soon be floating in it. The government is in the free market and I don't think anyone is big enough to pull it out.

Jun 03 08:33 AM

[TeresaE:]

TRW has been slowing moving it's assets and knowledge to foreign soil anyway.

They have a multi-million dollar facility in Taiwan (or Korea, can't remember for sure) and their American R&D engineers have spent the past 2 years training their foreign replacements.

So, while the US version of TRW is eating it (again), every American tax dollar from GM & Chrysler ends up directly in Asia.

Customer-less recovery.

Jun 03 09:05 AM