Suppliers generally aren't using the cash to strike deals or expand production. Most are taking advantage of low interest rates to slash debt servicing costs. That improves their cash positions and gives them breathing room on their debt deadlines as they await signs of a more sure-footed recovery.
Tenneco, for example, got a 7.75 percent rate on a $225 million private offering of senior notes. The suburban Chicago supplier of suspension and exhaust systems will use that to repay a 10.25 percent note, saving $6 million a year in interest expenses.
Stoneridge, of Cleveland, last month sold $175 million in notes at a 9.5 percent interest rate, paying off debt that had an 11.5 percent rate.
That will save the supplier of electrical systems $4 million to $6 million annually through 2017, when the new debt comes due, said Brett Hoselton, an analyst at KeyBanc Capital Markets. Stoneridge lost $32.4 million last year on revenue of $475.2 million.
The improved access to capital "allows suppliers to be much better positioned to work their way through the next year or two and be ready to take advantage of opportunities as the market improves," said Thomas Gordy, a senior managing director at the turnaround consulting firm Conway MacKenzie Inc. in suburban Detroit.
Suppliers also are taking advantage of the cheap cash to prepare for an expected wave of deal making.
For example, when BorgWarner issued $250 million in new debt at a 4.625 percent rate, it cited strategic acquisitions as one possible use of the cash, which will "increase BorgWarner's financial flexibility and strengthen its liquidity."
A number of suppliers also have had their credit ratings upgraded in recent months, making it easier and cheaper for them to tap the debt markets. S&P last month raised its ratings on American Axle & Manufacturing Holdings Inc. two notches, to B+, and on Lear Corp. one notch to BB-. S&P said improving vehicle demand and a better cost structure put both suppliers on firmer ground.
"The market is seeing that these entities have shown they can not only survive but demonstrate profitability at volumes that nobody ever thought could be profitable," Gordy said.
The exception: small suppliers. Generally, companies with less than $100 million in annual revenue are struggling to line up bank financing for much-needed working capital, said Dave Andrea, senior vice president of industry analysis and economics at the Original Equipment Suppliers Association.
"With all the talk about supplier consolidation, the lenders still see significant risk down through the supply chain," Andrea said.