Subsidiary Restructures Debt, Makes Payment to Pension Fund : Analysts Say Signs Point to Harvester Recovery
International Harvester, a vastly different organization than the one that suffered a loss of $1.7 billion three years ago, appears to be headed for recovery, stock analysts said Thursday.
Harvester announced Thursday that its financing subsidiary, International Harvester Credit Corp., is restructuring its debt and making a $350-million cash dividend payment to its parent for its vested pension fund, moves that stock analysts greeted with optimism.
“It’s a whole series of steps back toward financial respectability . . . from the basket case they were two or three years ago,” said David Healy, a stock analyst in New York with Drexel Burnham Lambert.
“It reflects that they’ve been pretty solidly profitable for the last few quarters,” Healy said.
Harvester said it will pay more than $350 million to the vested pension fund, which, with interest, will reduce its $900-million liability to the fund by more than $500 million.
Its refinancing also will enable the truck manufacturer to re-enter the commercial paper market, Harvester said. Commercial paper, a form of corporate IOU, is a prime source of short-term funds.
James C. Cotting, vice chairman and chief financial officer, said: “The steps outlined today are a reflection of Harvester’s improved financial position, which has been achieved by the disposition of International Harvester’s former agricultural business and the ongoing profitability of the company’s continuing operations.”
“It’s certainly bullish news--in more ways than one,” said Larry Hollis, a stock analyst in Milwaukee with Baird & Associates. “It shows that the management is somewhat optimistic in terms of the truck market and the company’s ability to generate cash,” he said. “You don’t pay off a 40-year obligation if you can’t make the payroll next month,” he said.
Harvester, a 155-year-old company that was a longtime leader in the agricultural equipment business, sold its farm manufacturing division to Tenneco last year and today builds and sells medium- and heavy-duty trucks.
Harvester’s fiscal year ended Thursday, and annual results should be posted in about a month. In the first nine months, Harvester lost $421 million on sales of $2.64 billion. However, the loss included a provision of $479 million related to the sale of the agricultural equipment business, making Harvester’s ongoing operations profitable.
Harvester’s common stock closed Thursday at $7.25 a share, up 37.5 cents from Wednesday’s close.
In its announcement Thursday, Harvester said its financing subsidiary will raise cash by issuing debentures. The subsidiary also has raised cash recently by selling some of the receivable accounts generated when Harvester was still in the farm equipment business.
The credit corporation also will reduce its bank borrowings and interest costs by replacing its $1.5-billion revolving credit line with a $1.2-billion credit line that expires in 1989.
Healy noted also that its ability to borrow using corporate paper instead of bank loans will further reduce its interest costs.
In 1984, the company lost $55 million on sales of $4.8 billion, compared to a $485-million loss in 1983 on sales of $3.6 billion. Its worst year was 1982, when it lost $1.7 billion on sales of $4.3 billion.