Navistar shares fall on debt deal

Shares of Navistar tumble on plans to issue new notes worth $1.5 billion to repay debt

• On 12:21 pm EDT, Wednesday October 21, 2009

NEW YORK (AP) -- Shares of Navistar International Corp. fell Wednesday on investor concerns about the commercial truck maker's plans to issue $1.5 billion in new debt that it will use to repay an outstanding loan.

The Warrenville, Ohio, company said Tuesday that it will issue $1 billion of senior notes due 2021 and $500 million of senior subordinated convertible notes due 2014. The company is also offering the underwriters of the offering an overallotment option to buy an additional $75 million in convertible notes.

In midday trading, Navistar shares fell $1.81, or 4.6 percent, to $37.88 after plunging 9 percent to $36.10 earlier in the day.

But Stephen Volkmann, an analyst for Jefferies & Co., said the debt agreement is a mostly positive one for the company and its investors.

"Navistar is the purest play on any North American truck market recovery, which could start later this year, driven by pent-up replacement demand and new emissions regulations," Volkmann wrote in a note to investors. "A baseline military business provides revenue stability and additional growth opportunities. Meanwhile, Navistar is one of the cheapest stocks in the machinery universe."

The analyst said that given the size of the debt agreement and the likely difference in interest rates, the deal could add $20 million to $30 million in annual interest expense and/or result in dilution of 10 million shares if all the notes are converted.

Buzz up!