FRANKFURT/LONDON (Bloomberg) – The German automotive supplier Continental AG has begun negotiations with lenders to refinance 5.3 billion euros ($7.2 billion) in loans coming due next year, three people with knowledge of the discussions said.
The talks are at an exploratory stage and the company hasn't decided on terms of the refinancing which may lead to the extension of loan maturities or a reduction in borrowing costs, said two of the people, who asked not to be identified because the negotiations are confidential.
Continental may obtain cheaper loan terms because of its improved operating business and because of a higher availability of credit in the market, one person said.
The supplier, which trails only Robert Bosch GmbH by revenue, boosted 2010 sales about 27 percent to more than 25.5 billion euros, powered by growth in emerging economies such as China, Brazil and a rebounding U.S. market.
“A bank loan refinancing to extend Conti's debt maturity profile and lower interest expense is credit positive,” Sven Kreitmair, a credit analyst at UniCredit SpA in Munich, wrote in a note to clients Monday.
Antje Lewe, a Continental spokesman, declined to comment on the company's refinancing plans.
The company has said it's pursuing a merger with its dominant shareholder, Herzogenaurach, Germany-based Schaeffler Group, in the medium term. Schaeffler, the world's second- biggest maker of roller bearings, is focusing on reducing more than 10 billion euros in debt accumulated from acquiring shares in Continental in 2008. It owns 75.1 percent of the stock.
Banks increased the amount they lent to non-investment grade companies in Europe by 11 percent in 2010 to $109 billion, according to Bloomberg data.
Continental's loans stem from the 2007 acquisition of Siemens AG's VDO unit for 11.4 billion euros, which lifted the manufacturer to become the second-biggest maker of auto parts in Europe after Bosch.
Continental sold 1.1 billion euros in new shares last year, followed by a total of 3 billion euros in high-yield bonds. That helped lower the amount needing to be refinanced in August 2012 to 5.3 billion euros, CFO Wolfgang Schaefer said in November.