Navistar is tapping into the private debt market to raise working capital as a strategy for navigating the coronavirus-pandemic recession.
The company is using a provision in the US federal Securities Act of 1933 that allows them to offer private debt instruments without Securities and Exchange Commission or state registration.
Navistar, which has navigated years of roller coaster economics and has sailed perilously close to financial extinction on several occasions, is working to raise cash to manage through the sudden turndown in its operations as a result of Covid.
Navistar has said recently that it completed a private offering of $AUD919 million ($US 600 million) at a 9.5 per cent interest rate. The offering was $AUD153 million more than Navistar first sought. The notes come due in 2025..
“This is a strategy to bolster working capital. It’s also a proactive measure to preserve the health of the company during this uncertain time,” Navistar said in a statement.
Navistar said it is looking shore up working capital because truck demand has plunged due to the recession in the USA. It has to be said that the company’s sales in Australia have been so modest since its re-entry to the local market that any drop could hardly be described as a plunge, with the brands sales hovering in single figures most months.
The company ended its first fiscal quarter in the US on 31 January with about $AUD1.5 billion ($US1 billion) of cash, according to an SEC filing.
Ratings agency Fitch recently downgraded Navistar’s existing ratings to reflect the negative impact of the coronavirus pandemic on the company’s heavy-duty truck market. The corporate credit rating service said it believes Navistar’s earnings and liquidity will be constrained for at least two years.
The fund raising efforts come at a time when Navistar is facing the proposal from Volkswagen’s truck subsidiary, Traton to acquire the company to give the German operation a major footprint in the US truck market. Traton of course was the subject of an IPO that saw 11.5 per cent of the company offered to the market which raised $AUD 2.4 billion ($US1.55 billion) from listing that valued the German auto giant’s truck unit at $AUD21.89 billion (13.5 billion euros).
Traton, submitted a proposal in January year to acquire Navistar, offering a $US2.9 billion cash offer to buy Navistar at roughly $US35 a share. Virus-inspired fear has left the stock price well down, with Navistar having shed close to $US18 per share.
With Navistar’s share price dropping so much it may be that the deal from Traton may be more attractive to Navistar stock holders. However some say the potential deal could be delayed due to the coronavirus pandemic.