Three sources said that Continental AG, a German automotive supplier, has started talks with lenders to refinance EUR5.3 billion ($7.2 billion) in loans that are due in 2012.
Two of the sources, who requested anonymity because the negotiations are confidential, 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.
One source said the Continental may obtain cheaper loan terms because of its improved operating business and a higher availability of credit in the market.
A credit analyst at UniCredit Spa in Munich, Sven Kreitmair, wrote to clients that a bank loan refinancing to extend Continental's debt maturity profile and lower interest expense is credit positive.
Continental said it is pursuing a merger with its dominant shareholder, Herzogenaurach, Germany-based Schaeffler Group, in the medium term.
As the world’s second-biggest manufacturer of roller bearings, Schaeffler is focusing on reducing more than EUR10 billion debts accumulated from acquiring shares in Continental in 2008. It owns 75.1 percent of the stock. Continental spokesman Antje Lewe declined to comment on the company's refinancing plans.
Continental, which trails only Robert Bosch GmbH by revenue, boosted 2010 sales by about 27 percent to more than EUR25.5 billion euros, powered by growth in emerging economies like Brazil, China and a rebounding U.S. market. [via autonews - sub. required]