Navistar ends Q4 with $800 million of manufacturing cash; weighs options on 2018-19 convertibles

By Paul Deckelman

New York, Dec. 20 – Navistar International Corp. ended its 2016 fiscal fourth quarter and fiscal year with $800 million of cash at its Navistar Inc. manufacturing arm and anticipates ending the current 2017 fiscal year next October with about the same amount of cash, helped by a cash injection from recently announced strategic partner Volkswagen Truck & Bus.

The Lisle, Ill.-based maker of medium-and heavy truck, school buses and military vehicles, also indicates that it has no significant manufacturing-level debt coming either for the remainder of this year or next.

“Our next significant manufacturing debt maturities are our convertible notes, which come due in October 2018 and April 2019,” the company’s executive vice president and chief financial officer, Walter G. Borst, told analysts on a conference call Tuesday following the release of results for the fiscal quarter and fiscal year ended Oct. 31.

“We continue to assess our options, which include refinancing of a portion or all of these notes over the next two years,” Borst added.

As of the end of the fourth quarter, Navistar had outstanding some $189 million of 4½% senior subordinated notes due 2018, as well as $383 million of 4¾% senior subordinated convertible notes due 2019.

Navistar Inc. showed total debt of $3.096 billion as of Oct. 31 – $71 million considered to be current portion, due within one year, and $3.025 billion of debt net of the current portion.

Total manufacturing debt was down slightly from $3.162 billion a year ago.

Besides the 2018 and 2019 convertibles, the manufacturing arm’s capital structure also included $1.173 billion of 8¼% senior notes due 2022 and $1.009 billion of senior secured term loan debt due 2020, among other obligations.

Borst said that the manufacturing arm ended the year with cash of $800 million, which he said was “consistent with our latest guidance and up from Q3 reported cash of $640 million.”

The CFO said that fourth-quarter cash “rebounded largely from networking capital performance that generated positive free cash flow in the quarter. For the year, major cash uses impacting free cash flow largely fell in line with guidance provided earlier in the year, as we continued to invest in new products and address our balance sheet obligations. However, lower year-over-year [sales] volumes contributed to manufacturing cash balances declining for the year.”

Looking to the current fiscal 2017, Borst says Navistar anticipates ending the year again with about $800 million of manufacturing cash, which will include the company’s receipt of an expected $256 equity injection from Volkswagen Truck & Bus, under an alliance deal announced in September.

Borst said that for the year, Navistar foresees “the benefits of adjusted EBITDA growth and the equity injection being offset by cash outflows related to higher capital expenditures, interest and tax payments, warranty spending, pension and OPEB [i.e., non-pension employee benefit] contributions, working capital changes and other items.”

He predicted that “as we've seen in the past, we expect to consume cash in our seasonally weaker fiscal first quarter, then rebuild cash balance as over the remainder of the year.”

Navistar maintains a separate capital structure for its financing business, Navistar Financial Corp., which provides financing for its more than 1,000 dealers and for the buyers of the vehicles it manufactures.

As of the end of the fiscal fourth quarter, NFC had total debt of $1.808 billion, down from $2.093 billion a year ago.

© 2015 Prospect News.
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