Thursday, July 09, 2009


Buckingham is out with a major call on American Axle (NYSE:AXL) reiterating Strong Buy and a whopping $9 target on the name:

- Firm believes AXL’s recently extended credit agreement is the first step in a more permanent re-negotiated credit facility. they believe the company could be granted a revised credit facility that will result in higher borrowing costs, but could also extend the company’s current maturities.

- They believe it is highly likely that management drew down most (if not all) of its available revolver credit facility during 2Q09. AXL’s credit facility is expected to step-down to $370M (from $475M) in April 2010, and as a result the company will have a $105M debt maturity in 2Q10 under the current credit agreement.

- Based on firm's quarterly liquidity analysis, they believe AXL has adequate liquidity to survive beyond its 2Q10 debt maturity (assuming the revolver is fully drawn). At the end of 2Q09, AXL had $280M of liquidity.

- They believe GM could provide some financial assistance to allow AXL to avoid a formal bankruptcy filing. Given the troubles that GM had with Delphi since they filed for bankruptcy in 2005, they believe GM will be reluctant to see AXL follow down the same path, especially given GM’s expected emergence from bankruptcy and production ramp-up of its most profitable full-size trucks.

- Firm believes management elected to draw down the remaining portion of its credit facility, as it bolsters its chances of getting a revised credit agreement.

Additionally, the analyst notes they would argue that AXL is a much more important auto part supplier to GM, as it produces axles for GM’s most profitable vehicles, full-size trucks. Once GM emerges from bankruptcy, they believe GM’s success is still reliant on the production of GM’s full-size trucks, as the Automotive Task Force and GM’s executives are well aware of this fact.

They believe once the “New GM” emerges from bankruptcy, which could be as early as this Friday, AXL’s re-negotiated credit agreement could shortly follow. Firm believes AXL could likely rally with the announcement of its extended credit agreement maturities. At which point, they believe management could evaluate the possibility of improving its capital structure through the issuance of equity and/or convertible debt.

Notablecalls: I'm going to call this one ACTIONABLE LONG IDEA. This one could zoom higher by 20-30% as soon as today on this call.

No firm covers autos or auto parts better than Buckingham Research Group.

1 comment:

blacktruck said...

punishing this AH over the old GM delisting ?