Tenneco Automotive Successfully Amends Senior Credit Agreement
24 October 2000
Tenneco Automotive Successfully Amends Senior Credit Agreement
LAKE FOREST, Ill., Oct. 24 Tenneco Automotive
announced today that it has agreed with its senior lenders to amend certain
terms of its senior credit facility. These amendments allow the company to
implement worldwide cost reduction initiatives, some of which were outlined in
its third quarter earnings announcement today, and relax the financial
covenant ratios under the facility beginning in the fourth quarter of 2000.
The amendments, which required the approval of lenders representing a
majority of commitments under the senior credit facility, were approved by
87 percent.
"While we are successfully executing the key initiatives underlying our
business plan, we must accelerate our efforts to improve our cost structure by
implementing work force reductions, and further rationalizing the
manufacturing, distribution, and administrative facilities of our businesses
worldwide," said Mark A. McCollum, senior vice president, and chief financial
officer for Tenneco Automotive. "It is particularly important now as we face
very difficult industry and market conditions, including higher interest
rates, a weak euro, softness in the global aftermarket, a significant decline
in the heavy-duty truck market, and slowing in North American light vehicle
production."
The senior credit agreement has been amended to exclude from the
calculation of the company's financial covenant ratios through 2001 the cash
portion -- up to $80 million before taxes -- of the charges and expenses
related to cost reduction initiatives. As outlined in its third quarter
earnings announcement today, the company has begun to implement some of these
initiatives and anticipates implementing additional initiatives throughout the
remainder of the fourth quarter and during 2001. The company anticipates
taking up to a $60 million charge (of which up to $30 million could be in
cash) in the fourth quarter to cover many of these restructuring actions.
Other initiatives are being evaluated for 2001 and will require review and
approval by the Board of Directors.
The amendments also include certain minor technical corrections to certain
provisions in the agreement relating to the permitted receivable
securitization transactions. The senior lenders also agreed to relax the
financial covenant ratios beginning in the fourth quarter of 2000 in
anticipation of the current difficult market conditions continuing into next
year.
Tenneco Automotive is required to meet three financial ratios under its
senior credit agreement: a maximum leverage ratio (total debt/EBITDA); a
minimum interest coverage ratio (EBITDA/cash interest payments); and a minimum
fixed charge coverage ratio (EBITDA - capital expenditures/cash interest
payments). For the fourth quarter, the maximum leverage ratio was increased
from 4.75 to 4.90; the minimum interest coverage ratio was reduced from 2.00
to 1.70; and the minimum fixed charge coverage ratio was reduced from 1.00
to .75. The attached table shows the ratio adjustments in 2001 and beyond.
In return for these revisions, Tenneco Automotive agreed to increase the
current interest rate margins on the $500 million revolving facility and the
$450 million A term loans by 25 basis points. This increase in interest rate
margins will apply through the first quarter of 2001, after which these
margins will be subject to adjustment under the existing terms of the senior
credit agreement based on the company's leverage ratio. The interest rate
margins on the $300 million B and C term loans were increased by 25 basis
points for the full terms of these loans. The company paid each lender that
approved the amendments a fee equal to 0.2 percent of that lender's loan
commitment under the senior credit facility, for an aggregate fee to all
consenting lenders of approximately $3 million.
Tenneco Automotive also agreed to lower the limit on annual capital
expenditures from $275 million to $200 million in 2000; $225 million in each
of 2001, 2002, and 2003; and to $150 million in 2004.
Tenneco Automotive is a $3.3 billion manufacturing company headquartered
in Lake Forest, Ill., with 24,000 employees worldwide. Tenneco Automotive is
one of the world's largest producers and marketers of ride control and exhaust
systems and products, which are sold under the Monroe(R) and Walker(R) global
brand names. Among its products are Sensa-Trac(R) and Reflex(R) shocks and
struts, Rancho(R) shock absorbers, Walker(R) Quiet-Flow(TM) mufflers and
DynoMax(TM) performance exhaust products, and Monroe(R) Clevite(TM) vibration
control components.
2001 2002 2003 2004
Q1 Q2 Q3 Q4
Leverage Ratio
Prior Covenant 4.25 4.25 4.25 4.25 3.75 3.50 3.50
Revised Covenant 4.75 4.50 4.50 4.25 3.75 3.50 3.50
Interest Coverage Ratio
Prior Covenant 2.25 2.25 2.25 2.25 2.75 3.25 3.50**
Revised Covenant 1.70 1.80 1.80 1.90 2.50* 2.75 3.00**
Fixed Charge Coverage Ratio
Prior Covenant 1.00 1.00 1.00 1.00 1.25 1.50 1.75
Revised Covenant 0.75 0.85 0.85 1.00 1.25 1.50 1.75
* The interest coverage ratio in the first, second and third quarters of
2001 was reduced from 2.75 to 2.20
* *Interest coverage ratio was reduced from 3.50 to 3.00 in 2005 through
2008.