LatinFinance - July 2013 - 22

Debt restructuring

swap into new paper. The firm bought
back $128.6 million of paper at 35%
of face value, paying bondholders $45
million.
At the same time, it swapped $123.7
million of paper into an 8% $47.6 million
2010 note and a 7% $76.2 million 2011
convertible. If not paid at maturity or in
the event of a default, the convertible
was structured to flip into series B shares
worth 51% of the equity of SISA.
Also as part of its restructuring, it
severed its mining ties, selling its stake
in Minas Luismin and other exploration
projects, to Canadian firm Wheaton River
Minerals for $75 million in cash and $15
million in stock. The company used a
chunk of the cash to pay bondholders.
LatinFinance crowned the operation
Corporate Restructuring of the Year in
February 2004, describing the process
as a “landmark transaction” that tested
Mexico’s newly implemented bankruptcy
code.
The accolade was also awarded for the
company’s use of international protocol:
negotiating with a creditor committee
and taking a “transparent and consensual
approach” to the restructuring.

In late June 2010, SISA missed a
payment on the 8% 2010 senior note
issued in the earlier restructuring, which
had grown to $88 million in size from
accruing payment in kind coupons.
That prompted a cross-default of the
convertible debenture also issued in
the previous restructuring, which had
principal of $132 million.
By then, the company had amended
some of the terms and conditions on
the convertible, removing the threat of
immediate equity conversion if SISA
breached any covenants. Instead, the debt
was accelerated, and SISA was required to

“We reacted very fast with
comprehensive measures to
mitigate this downturn [but]
it was not enough to support
the drop in demand”
Francisco Freyre, SanLuis

Short-lived success

Yet the effects of the restructuring were
not as long-lasting as anyone hoped.
By the time 2008 rolled around,
market conditions again severely
hampered SanLuis’s access to its
traditional funding sources. Lines of
credit, under which it normally operated
historically, were cancelled.
As a main supplier of suspension
components to DaimlerChrysler, Ford and
General Motors, SanLuis still generated
at least 70% of its revenues from the big
three. As the 2008 credit crunch took hold
in North America, the company quickly
found itself again with dangerously low
liquidity levels.
“Even though we reacted very fast with
comprehensive measures to mitigate this
downturn it was not enough to support
the drop in demand,” says SanLuis
investor relations head Francisco Freyre.
“We explored all possible alternatives.”
That drop in demand ultimately
impaired its ability to meet its payment
obligations to lenders.

22 LatinFinance

July 2013

pay the principal and interest immediately
in cash.
SISA filed for concurso mercantil
bankruptcy proceedings in August
2010, which lasted close to a year. SISA
creditors representing 67.6% of total debt
outstanding approved the restructuring.
The company offered to swap the
defaulted 2010 and 2011 notes for $43.2
million of new 7% unsecured paper due in
2020 and for new 7% secured notes due
2017.

Reshaping the business

Executives say the company has
examined its business from all angles
and has learned its lesson in its latest
restructuring. It has adjusted its business
model to transform the company into a
leaner, more resilient organization that
is able to adapt to and endure future
economic downturns.
“During the last restructuring period,
we restructured operations in a very
clever manner,” says SanLuis’s Freyre.

Cost controls have cut the earnings
necessary for the company to break even,
for example. Between 2008 and 2012,
the suspension business’ breakeven point
fell from 46% of installed capacity to
33%. Breakeven for the brakes business
dropped from 59% to 32% over the same
period.
The lower cost structure means the
firm can withstand a 50% drop in annual
production volume, to seven million light
vehicles in the North America region, and
still break even.
Meanwhile, pass-through steel
agreements, which link prices for end
products to a benchmark price for steel,
have allowed SanLuis’s profit margins to
become less volatile.
At the same time, the company
is expanding in the Americas and
considering entering the German market
as it looks at growth opportunities.
It has already diversified its customer
base to reduce dependence on the big
three. Those firms accounted for 71% of
SanLuis’ revenues in 2007 and made up
64% of revenues in the first quarter of
2013.
American Axle, Bosch, Nissan, Toyota,
TRW and Volkswagen, among other
new customers, have allowed SanLuis
to reduce overexposure to individual
manufacturers.
The firm is targeting a reduction in its
debt as a proportion of earnings. Net debt
equaled 2.2 times Ebitda in 2012. SanLuis
plans to cut that to 1.5 times Ebitda in the
short term through debt pre-payments.
Its pricing model is more favorable
today compared to several years ago,
allowing for margin expansion, the
company says.
If SanLuis stays on track with its
growth momentum, it will have a better
chance to access the international debt
markets, says Fitch’s Moreno.
Moody’s also sees positives ahead
for the firm. In its Ba3 rating, the
agency notes the company’s leading
market share for leaf spring suspension
components in the NAFTA region and
in Brazil, recovery of its operating
performance and credit metrics over the
last couple of years, and solid near-term
performance prospects as various supply
agreements for new manufacturers come
LatinFinance - July 2013

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