LEA Lear: Color on discontinuation of dividend and diveting of European Interiors business (18.68 +1.73) -Update-
Calyon notes that LEA announced the inevitable discontinuation of its dividend which the firm has been calling for for some time. They believe the dividend elimination is a long overdue action which should save the co approximately $70 mln annually.Firm says LEA's credit facility will be amended, which should spare the co from the almost inevitable violation of its previous debt covenants. They believe these actions underscore just how precarious the situation at LEA was before this refinancing. Although this new deal will remove near-term liquidity risk and likely covenant default, firm ests that it comes at a high incremental borrowing cost and even higher incremental cash interest outlays in 2006 and beyond. LEA also announced restructuring of its European interiors business. They see the terms of this deal as further evidence that LEA's European interiors business is unprofitable but not as much of a drain as the co's U.S. interiors operation. They also expect LEA will likely incur even higher below-the-line costs associated with losses at its interior operations as well as the J.V. business. They remain confident that LEA is facing some difficult operational challenges that they do not expect to subside anytime soon.