Continental AG is close to agreeing to new financing after banks offered more loans than it asked for, according to three people familiar with the talks.
The German tiremaker and parts supplier is seeking to secure cheaper terms and replace loans coming due next year, one of the people said, declining to be identified because the talks are private. The company, which requested 6 billion euros ($8.5 billion), was offered about 8.5 billion euros in loans, that person said.
The rebound in the auto industry last year has boosted Continental's sales and earnings. The company reported revenue and profit that beat analyst estimates for the fourth quarter and predicted rising sales from Asia this year will compensate for additional costs from surging rubber prices. An announcement may come as early as tomorrow, said the people. A spokesman for Continental declined to comment.
Continental is controlled by the closely held Schaeffler Group, the world's second-biggest maker of roller bearings. Hanover, Germany-based Continental was seeking 6 billion euros of term loans and revolving credits from lenders for as long as three years to replace maturing debt, people familiar with the matter told Bloomberg News on March 10.
Standard & Poor's rates Continental's debt B, or five steps below investment grade. Moody's Investors Service ranks it one step higher at B1. Both have a stable outlook on the ratings. Continental aims to return to investment grade by 2012.
One part of the credit coming due is a 4.06 billion-euro term loan. The other is a forward-start credit line of 2.5 billion euros signed in December 2009.
Continental agreed to pay interest of between 475 basis points and 500 basis points more than benchmark lending rates for the loans, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The debt stems from Continental's 2007 acquisition of Siemens AG's VDO unit for 11.4 billion euros. Citigroup Inc. and Deutsche Bank AG are coordinating the refinancing for the Hanover, Germany-based company, people familiar with the discussions told Bloomberg on March 9.