Recently, New York-based automotive replacement parts manufacturer and distributor Standard Motor Products (SMP) announced the repayment at maturity of all remaining outstanding 6.75% convertible subordinated debentures due July 15, 2009.

About $32.1 million aggregate principal amount plus all accrued and unpaid interest on the debentures was paid at maturity. The company financed the repayment using its existing credit facility with General Electric Corporation (GE).

Standard Motor had an intake of $90 million in debt through a public offering of 6.75% convertible subordinated debentures in July 1999. As of April this year, the company repurchased $45.6 million principal amount of the debentures, leaving a balance of $44.4 million due in July 2009.

Of the balance, the company concluded an exchange offer in May, in which holders of $12.3 million aggregate principal amount elected to exchange the debentures for a principal amount of newly issued 15% convertible subordinated debentures due 2011. Following this, about $32.1 million aggregate principal amount of 6.75% convertible subordinated debentures remained outstanding.

Over the years, Standard Motor has undertaken several measures to raise liquidity. It has aggressively reduced debt to increase cash flow.

Standard Motor has also sought cost-cutting initiatives by focusing on inventory management, sourcing from low-cost countries such as in Hong Kong and moving plant locations to Reynosa, Mexico and Poland in its European division. It sold its Puerto Rico and Long Island City facilities in 2008 following the relocation of manufacturing operations to Reynosa, Mexico to reap the benefits of a cheaper labor economy. With the shift to Mexico, the company expects annual cost savings of $9 million in 2009.

All these have reduced the borrowing needs of Standard Motor. In June, the company has amended its credit facility to reduce the aggregate amount of credit from $263 million to $190 million while allowing the extension of the maturity date of the credit agreement to March 20, 2013.

We continue to recommend SMP as a Hold with a six-month target price of $7.00.
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