Cooper-Standard cash burn to hasten in 2021 on semiconductor shortage

Cooper-Standard Automotive’s cash burn is expected to accelerate in the latter half of 2021, as the semiconductor shortage has hobbled auto production worldwide, according to two buysiders and a sellsider.

The auto products supplier was poised for a rebound this year amid a recovery for light vehicle volumes. But now management has pulled back guidance due in part to the semiconductor shortage, resulting in a higher cash burn than previously envisioned, the sources said.

The borrower is now calling for adjusted EBITDA to hit USD 75m to USD 105m in 2021, compared to previous guidance of USD 180m to USD 200m. Capex guidance is USD 100m to USD 115m compared to previous guidance of USD 100m to USD 125m.

For 2021, the auto products supplier is now expected to report a cash drain of USD 170m-USD 220m, based on investor estimates calling for USD 75m-USD 100m of adjusted EBITDA, less USD 100m-USD 115m of capex, USD 50m of working capital charges, USD 70m of interest expense, USD 40m-USD 45m of restructuring costs and USD 10m-USD 15m of cash taxes, said the sources.

Based on the company’s earlier projections, Cooper-Standard would have burned USD 75m to USD 130m of cash, as reported.

On the top line, the issuer also lowered 2021 sales guidance to the USD 2.45bn to USD 2.6bn range, compared to previous guidance of USD 2.5bn to USD 2.7bn.

Indeed, the auto industry is facing a supply chain crisis, resulting in plant shutdowns, delayed auto shipments and rising prices for cars.

AlixPartners this month released a report, forecasting that the semiconductor shortage will cost the global auto industry USD 210bn in 2021 revenue, compared to its previous expectations in May of USD 110bn. On the vehicle front, the firm is now expecting production to lose 7.7m units, compared to 3.9m in the May forecast.

On a sequential basis, Cooper-Standard’s earnings have fumbled due in part to the chip shortage and other factors such as supply chain constraints, higher commodity costs, rising wages, general inflation and labor availability.

For 2Q21 ended 30 June, sales totaled USD 533.2m, compared to USD 669m in 1Q21 and USD 340.5m in 2Q20. Adjusted EBITDA totaled negative USD 14.7m in the latest quarter, compared to positive USD 38.5m in 1Q21 and negative USD 93.8m in 2Q20.

The company also cited a negative impact of roughly USD 200m from semiconductor-related customer shutdowns.

As of 30 June, liquidity totaled USD 452.6m through USD 117.1m ABL availability and USD 335.5m of cash.

At the time, total leverage shook out at 7.26x through USD 145m of LTM adjusted EBITDA and USD 1.053bn of total debt. Factoring in cash, net leverage came down to 4.9x.

However, sources view the company’s restructuring costs as recurring costs rather than one-time charges. After stripping out the adjustment, LTM EBITDA is estimated closer to USD 90m, pegging leverage closer to 11.7x, sources added.

Cooper-Standard has significant exposure to the OEM market with roughly 83% of its 2020 sales coming from OEMs and 54% of 2020 total sales coming from its three largest customers: Ford Motor CompanyGeneral Motors Company and Fiat Chrysler Automobiles. The remainder of its 2020 sales were to Tier I and Tier II automotive suppliers, non-automotive customers, and replacement market distributors, according to company documents.

In the near term, the issuer still faces challenges with direct exposure to the semiconductor shortage plaguing the auto industry, the sources said. The company’s free cash flow will stay at lower levels until OEM production recovers entirely and the chip shortage resolves, the sources continued.

To offset the effects of the shortage, OEMs cleared existing inventory during the first half of the year and now plan to direct production to their higher-end and more profitable models, cushioning Cooper-Standard from a larger blow to free cash flow, they noted.

In response to the chip shortage, both GM and Ford have shut down factories, laid off workers and slashed vehicle production. Each company expects up to a USD 2bn hit in sales for 2021, according to company documents.

GM expects to withhold or cut production of about 200,000 vehicles in North America during 2H21, compared to its previous expectation of 100,000. Ford said in April that it expects the semiconductor shortage to cause production losses of about 1.1 million vehicles this year, for a revenue loss of about USD 2.5bn.

Cooper-Standard’s USD 400m 5.625% senior unsecured notes due 2026 last traded on 24 September at 81.5 to yield 10.361%, compared to trades at 84.125 to yield 9.565% in early September and 91.05 to yield 7.72% in August, according to MarketAxess.

Its USD 240m 13% senior secured notes due 2024 last traded on 13 September at 110.5 to yield 6.675%, compared to trades at 109.75 to yield 8.083% on 16 August.

The borrower’s USD 323m Libor+ 200bps term loan due 2023 is quoted in the 95/97 context, according to a trader.

The company’s equity traded today at USD 22.20 per share and USD 377.16m market cap, down 2.33% from yesterday’s close.

Messages left with company were not returned.

2021 Debtwire

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