Navistar Misstep Raises Yields

Truckmaker faces liquidity problems after design flaw as Icahn expands influence.

Navistar International Corp. bond yields are rising while those of other U.S. junk-rated truckmakers fall as investors penalize it for an engine design flaw and Carl Icahn expands his influence in the industry.

Yields on its notes are up 2 percentage points this year as those on the 20 most-indebted high-yield automotive companies fall, according to Bank of America Merrill Lynch index data. Icahn, who owns 14.8 percent of Navistar’s shares, is offering $3 billion for Oshkosh Corp. after a failed bid last year prompted speculation of a merger between the two companies.

Liquidity Strain

The company’s liquidity strain is exacerbated by mandatory pension payments and cash costs associated with the overhaul of product lines and restructuring-related outlays, Bryan wrote in an Oct. 25 report. Its unfunded pensions and other postemployment benefits exceed the company’s market value, she wrote.

Icahn, Rachesky

Icahn and Mark Rachesky’s MHR Fund Management LLC each purchased 1.6 million additional shares in the company after the new offering, giving each about a 14.8 percent stake. A so-called poison pill provision, adopted by the company in June to prevent “coercive takeover tactics,” would be triggered if a shareholder acquired 15 percent or more. The provision would allow existing owners to buy more stock at half the market price.

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