Date: 2013-08-01

Schaeffler May Get Help from State, Conti

Struggling Schaeffler Group (parent of LuK, INA and FAG Bearings) may get some breathing room to help cover its debt service and ill-timed takeover of Continental AG.

Finding little or no interest in privately placed financing, the company said it needs temporary state aid until the economy recovers and it is able to find private investment. Schaeffler has been struggling with the cash flow needed service its more than #8364;10 billion debt.

Schaeffler said the "global economic crisis and the dysfunctional financial and credit markets" are causing "massive difficulties."

Schaeffler holds its maximum-agreed 49.9% stake in Continental after a contentious takeover battle. But both companies are now saddled with a combined debt of around #8364; 22 billion (USD $28 billion): Schaeffler's #8364;10 billion funding for Continental, plus the #8364;12 billion prior debt load Continental took on to acquire VDO from Siemens AG.

Schaeffler said it will offer a sustainable business plan to the German federal government and the German states, again reinforcing that the aid is temporary and will not become a long-term burden for German taxpayers. The company expected to request approximately #8364;4 billion in state aid and/or credit guarantees.

So far, the request has been met with caution, but politicians in general were in favor of a properly structured bridge loan.

For its part, Continental has offered to help. Karl-Thomas Neumann, CEO of Conti, said: "We are interested in the stability of the Schaeffler / Continental construction and try to contribute our share." Their first step will be to combine their purchasing efforts where possible.

With major positions in the global auto industry supply chain, both companies are struggling to find the cash flow to service debt and continue operating as smoothly as possible. For 2008, Conti reported a net loss of #8364;1.1 billion.

Mr. Von Neumann went on to comment that if the automotive market stabilized within the next few months, both companies' situations could stabilize, no more asset writedowns would be needed, and Conti might even finish 2009 with a small profit.

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