GST Autoleather’s USD 135m refinancing led by ING Bank stalls

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The USD 135m refinancing led by ING Bank for car seat maker GST Autoleather has skidded to a halt, with a volatile market and the company’s delicate finances causing interested banks to step back, Debtwire reports.

The European sovereign debt crisis is just the latest setback for the Michigan, US-based company, which this summer had to mortgage receivable to stay afloat, two sources familiar with the matter said. Efforts to refinance the loans backing private equity firm Advantage Partners’ USD 300m purchase of GST in April 2008 stalled following the Japan earthquake and tsunami in March. The disaster caused GST’s main Japanese clients – Toyota and Honda – to drastically scale back production and cut orders, two other sources said.

ING, which co-arranged with GE Capital a USD 172m debt package to back Tokyo-based Advantage Partners’ buyout, resumed its pitches to potential investors in Hong Kong and Tokyo over the summer, the sources said. The latest deal on the table - a USD 95m term loan and a USD 40m revolver, indicated at Libor+ 500bps with five-year tenors – attracted interest from European and Japanese banks, but none proved to be takers, the first two sources said. An upfront fee of 5.5% is on offer as part of the 3.5x debt-to-EBITDA package, as reported.

“Some banks are still considering the transaction, but it looks like it’s 2012 business – hopefully,” a third source said.

A post-quake liquidity scare at GST is likely to have further unnerved investors, who were already skittish due to the company’s history of financial fragility and broader concerns about the automotive sector. “GST got stuck with a whole lot of inventory when the earthquake happened, and inventory levels eventually shot through the roof as GST continued to produce, even as its clients were cutting back,” one of the two sources said. With insufficient liquidity to cover working capital, the manufacturer and its sponsor turned to a Hong Kong-based hedge fund for help, the first two sources said. The rescue investor agreed to throw a USD 20m lifeline to the group in exchange for preferred stock with no voting rights, the first source said. An additional USD 15m was raised by factoring receivables with a counterparty in the US, the first and the third sources said. The factoring facility was placed in August and expires in February 2012, according to the first and third sources.

It wasn’t the first time that the company has required financial triage since the acquisition. A slide in Toyota’s sales impacted GST severely in 2008, causing it to breach financial covenants at the end of that year, as reported. To avoid a default, Advantage Partners in April 2009 injected new equity into a GST parent company and paid down USD 32m of USD 130m senior loan facilities, while repurchasing a portion of the USD 42m seven-year mezzanine loan at a slight discount to par. Advantage Partners, which housed the repurchased mezzanine debt under the parent company, effectively became an indirect lender to GST Autoleather - albeit a subordinated one vis-à-vis other mezzanine investors, with no voting or cash rights.

The business had begun to stabilize since then, although its costs have been higher than expected, according to the first source. The acquisition of Seton Autoleather in early January has helped group income, and given GST additional business with premium carmakers in Germany, the source said. “Whether or not it has really recovered remains to be seen,” he said.

Approximately USD 20m of the term loan, USD 30m of the revolver and USD 41m-USD 42m of the mezzanine (including PIK) is outstanding.

Advantage Partners, via Cayman-registered GST AutoLeather Cayman, obtained the acquisition financing in 2007. At launch, GST’s USD 172m LBO facility consisted of a USD 130m six-year senior secured facility paying L+ 500bps and a USD 42m seven-year mezzanine loan returning L+ 1100bps. The USD 130m senior was split into a USD 100m term loan and a USD 30m revolving facility. In addition to the leads, holders of the USD 130m senior include Development Bank of Japan, State Bank of India (Osaka Branch), Tokyo Star Bank, and Woori Bank. ING and GE were left holding the mezzanine, of which L+ 500bps is cash and the remainder a combination of PIK and warrants.

Advantage Partners’ attempts at salvaging some of its portfolio of 30-odd companies have not always been successful. It was forced to cede control of Tokyo Star Bank to creditors earlier this year after failing to de-leverage the bank and deal with its toxic assets.

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