Accuride 2Q20 EBITDA shrivels, but covenant relief and sponsor support buoys loans

Accuride reported steep year-over-year declines in revenue and EBITDA for 2Q20, said three sources familiar with the matter. However, a recent covenant amendment that outlines continuing sponsor support has underpinned a months-long rally in the issuer’s term loans from deeply distressed levels earlier this year, they said.   

Revenue for the quarter ended 30 June clocked in at USD 133.2m, down 52.8% from USD 281.8m in 2Q19, according to two of the sources and an additional source.   

The trucking parts manufacturer generated USD 5.2m in adjusted EBITDA, down from USD 44.4m in 2Q19, two of the sources said. But after stripping out certain add-backs, sources calculated adjusted EBITDA turned negative, to the tune of approximately USD 4m-USD 5m, two of the sources said.   

In recent years, Accuride has added back significantly to its EBITDA, including more than USD 185m in 2019 added on to a negative unadjusted figure, said three of the sources. The company added back nearly USD 30m in 2Q20 linked to the European operations, they added.  

Accuride struggled integrating its acquisition of Germany-based Mefro in 2019, in addition to high input costs related to steel and aluminum prices and uneven customer demand. In December 2019, Moody’s forecast that Accuride would burn about USD 60m of cash in 2020 as it “attempted to undertake restructuring actions during a cyclical downturn in the industry.”  

The company’s USD 351m Libor+ 525bps TLB due 2023 has moved up to the 72.5/75.7 context today from quotes in the 68.563/70.625 context on 13 August before the earnings report, and 40/44 in late May before the covenant relief, according to Markit.   

The recovery in trading levels comes in part as the trucking space bounces back from its trough, along with the assurance that sponsor Crestview Partners is willing to step in with further capital support, the sources said.   

Crestview has invested upwards of USD 300m since acquiring Accuride in 2016, one of the sources said. The firm made roughly USD 33m of equity cures in the first half of 2020, the source and an additional source said.   

The amendment to Accuride’s loan facility, inked in May, provides a covenant holiday through 1Q21 that suspends leverage and interest coverage tests, three of the sources said. In addition, the company has a minimum liquidity requirement of USD 25m, which the sponsor has agreed to backstop, the sources said. If the company’s liquidity falls to USD 20m, the sponsor will provide either equity or a second lien debt piece, at the sponsor’s option, one of the sources added. 

The amendment was negotiated with a steering group comprised of the two largest lenders, making up more than 50% of the outstanding loans. In a somewhat unusual incentive for existing lenders to not sell out, the amendment provides for a 1% backend fee payable at the end of the covenant holiday. 

As of 30 June, Accuride’s liquidity totaled USD 45m through USD 29m of cash and USD 16m of revolver availability, two of the sources said. Leverage totaled 5.2x, based on USD 432m of total debt and USD 82.6m of LTM adjusted EBITDA, they added.   

Crestview acquired Accuride in 2016 for roughly USD 450m, backed by a USD 225m L+ 700bps (1% floor) term loan due 2023 and the USD 65m revolver (originally due 2021), with pro forma leverage pegged at 3.4x, according to Debtwire data.   

Subsequently, the issuer placed a USD 135m ABL due 2023 along with USD 140m in additional term loan debt.  

A representative from Crestview declined to comment. 

2020 Debtwire

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