International Harvester Co. averted bankruptcy yesterday when its lenders approved a financial restructuring that allows the troubled company to give the banks securities instead of paying off some of its debts.
Analysts say the restructuring is little different from a formal bankruptcy filing, however, and Harvester still could be forced into bankruptcy in the next few months if the markets for its trucks and tractors worsen from their already depressed levels, according to analysts and company statements.
Harvester officials still must convince shareholders at a special meeting Oct. 28 to approve a number of provisions of the financial restructuring.
"It's just one step in the scenario," Harvester spokeswoman Annette DeLorenzo said of yesterday's approval of the bailout plan. "Of course, it's a major accomplishment."
Harvester had to have the plan in place by yesterday or it would have defaulted on some of the conditions of its previous financial restructuring package, which likely would have forced it to file for protection under federal bankruptcy law. Harvester officials have scrambled in recent days to gain the required unanimous approval of the new bailout from its 200-plus bankers. Some smaller lenders reportedly were late holdouts.
Eli Lustgarten, an analyst at Paine Webber, said the banks went along with the restructuring as an alternative to losing control of the situation under a bankruptcy filing. So long as the banks control the situation, they will have a say in how the company's affairs are decided, Lustgarten said. In a bankruptcy filing, Harvester's fate would be in the hands of a court.
"It is now generally recognized that the company is now in de facto bankruptcy, in which we are seeing what is a free-market attempt to restructure the company rather than doing it under court protection," Lustgarten said. "You're trying to pick the lesser of evils."
Harvester has been continually revising its financial structure over the past year as losses have mounted. IH expects to lose $1.6 billion in the fiscal year that ends Oct. 31.
Under the restructuring plan approved yesterday, Harvester will be excused from paying any interest on its debt in the current quarter and pay reduced interest on its debt for the next several quarters. In addition, it will be allowed to convert $3 of debt into securities held by the banks for each dollar of concessions it can win from its suppliers, up to $350 million. Harvester so far has won several million dollars worth of concessions from suppliers.
The company estimated that the plan will save it about $200 million in interest payments in the next 18 months.
At the Oct. 28 meeting, shareholders will be asked to approve increases in the amount of the company's outstanding stock to make the restructuring plan operative.
But the new agreement, which replaces one signed 10 months ago and has been modified twice since, does little more than buy time for Harvester, the company indicated in a filing with the Securities and Exchange Commission Tuesday. It still could be forced into bankruptcy court in the next few months if it fails to recover market share as expected, IH said.
"The company's prospects for survival are in substantial doubt," the company said in the filing, which covers stock to be issued as part of the restructuring. "If there occurs a significant downward deviation from the assumptions made by the company under its strategy for survival, the company will likely be forced to seek relief under the federal bankruptcy code.
"There can be no assurance that the company will not seek relief under the federal bankruptcy code in early fiscal year 1983 or thereafter," IH said.
Analyst John McGinty of First Boston concurred, echoing the widely held belief among Harvester observers that at best the company will be forced to redraw the bailout plan once again within a few months. "It probably buys them into the middle of next year, if the markets pick up," McGinty said. And Lustgarten said, "It is unlikely, unless the economy shows more strength than we anticipate, that Harvester can avoid coming back to the well one more time."
But Harvester itself is gloomy about the chances for recovery in its primary markets, and concedes that its market forecasts have been consistently overoptimistic in the past couple of years. In the SEC filing, IH said its survival depended on a "significant recovery" in its markets in fiscal 1983 and 1984.
"The company's internal forecasts show that any significant failure of the markets for the company's principal products to recover in the manner assumed by the company under its strategy for survival, or any significant failure by the company to maintain or recover market share in the manner assumed by the company under such strategy would result in the company not having sufficient cash to continue in business," the SEC filing said.