American Axle cuts leverage, has strong cash flow as acquisition nears

By Devika Patel

Knoxville, Tenn., Feb. 10 – American Axle & Manufacturing, Inc. has ample free cash flow as it heads into fiscal 2017, even with its planned acquisition of Metaldyne Performance Group Inc., which is expected to close in the first half of 2017.

Also, the company noted that it has averaged a net leverage reduction of over half a turn and has reduced net leverage by 2.5x since 2012.

“Over the last three years, AAM has generated over half a billion dollars in free cash flow.” vice president and chief financial officer Christopher J. May said on the company’s fourth quarter earnings conference call on Friday.

“AAM is certainly hitting its stride on the free cash flow delivery and is looking forward to continuing that trend in 2017, May said.

May also noted that the company’s net leverage has been reduced significantly over the last four years.

“Since the end of 2012, AAM has averaged a net leverage reduction over half a turn and has reduced net leverage by 2.5x total for this four-year period,” May said.

The company’s net leverage ratio was about 1.5x at the end of 2016.

May also said that the company is financially well positioned to contemplate “significant strategic actions” as well as take on the planned acquisition of Metaldyne.

Under the agreement, Metaldyne is being bought for about $1.6 billion in cash and stock, plus the assumption of $1.7 billion in net debt. Each share of Metaldyne’s common stock will be converted into the right to receive $13.50 per share in cash and 0.5 of a share of American Axle common stock.

American Axle reported in November that it expects the combined company to generate significant operating profitability and cash flow that will facilitate rapid debt reduction and is targeting a net debt to adjusted EBITDA ratio of 2 times by the end of 2019.

“In 2016, we continued to strengthen the balance sheet and provide the company with the flexibility to consider significant strategic actions,” May said.

“We are well positioned financially heading into 2017 and towards our transformational acquisition of MPG,” May said.

“From a cash perspective, AAM closed out the year with solid cash flow performance,” chairman of the board and chief executive officer David C. Dauch added on the call.

Adjusted free cash flow for the full year of 2016 was $198.6 million as compared to $189.5 million for the full year of 2015.

In the fourth quarter of 2016, AAM’s adjusted EBITDA was $148.2 million, or 15.7% of sales, as compared to $137.5 million, or 14.3% of sales, in the fourth quarter of 2015.

For the full year 2016, AAM’s adjusted EBITDA was $619.4 million, or 15.7% of sales, as compared to $571.1 million, or 14.6% of sales, for the full year of 2015.

Debt facilities

On Nov. 15, American Axle announced that it planned to obtain a $2.45 billion senior secured credit facility and received a commitment for a $1.2 billion senior unsecured bridge facility to help fund its acquisition of Metaldyne.

The credit facility consists of an $800 million revolver, a $100 million term loan A and a $1.55 billion term loan B.

Metaldyne’s existing bank debt will be refinanced with this transaction.

J.P Morgan Securities LLC is the lead bank on the debt.

American Axle is a Detroit-based producer of driveline and drivetrain systems and related components and chassis modules for the automotive industry.

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