Recently, lenders of the Detroit-based automaker American Axle (AXL) have waived the financial covenants of the company through July 30 under the revolving credit facility. However, the company is still vulnerable to bankruptcy, as suggested by the fall in its stock prices.
As at March 31, 2009, American Axle had a long term debt of $1.10 billion, a 27% increase over the year ago level. The company’s stockholder deficit rose to $452.5 million in the same period from $435.5 million at the end of fourth quarter of 2008.
Previously, rumors spread had that American Axle would possibly go bankrupt in June. However, the company assured that it would remain viable despite the ailing conditions of the auto industry. The company expects to achieve this by significantly restructuring its business through production shutdown and retrenchment. This will cost the company $300 million in sales, leading to a $90-$95 million reduction in second and third quarter operating results.
In the first quarter of 2009, American Axle’s net loss worsened 21% to $32.7 million. Net sales in the quarter decreased 32% to $402.4 million.
The bankruptcy of General Motors (GMGMQ) is expected to severely hit the company due to the extensive production shutdowns. American Axle is the largest supplier (about 75% of GM’s revenue) as well as its sixteenth largest creditor.
History has shown that auto parts suppliers with a high customer concentration such as Delphi Corp. and Visteon Corp. are the possible victims of a severely deteriorating auto industry and end in bankruptcy. Thus, American Axle’s viability is suspect.
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