Lake Forest, Illinois, March 30, 2010 – Tenneco Inc. (NYSE: TEN) announced today that the company has modified its U.S. trade accounts receivable securitization program to extend the revolving terms of the program to March 25, 2011, add an additional bank investor and increase the available financing under the facility by $10 million to a total of $110 million.
In addition, as permitted under the revised first priority facility, the company has added a second priority facility, which provides up to an additional $40 million of financing against accounts receivable generated in the U.S. and Canada that would otherwise be ineligible under the first priority facility. The new second priority facility, which also expires on March 25, 2011, is subordinated to the existing securitization facility. Tenneco’s accounts receivable securitization programs, both in North America and Europe, provide the company with financing at costs that are generally favorable to alternative sources of financing and allow the company to reduce borrowings under its revolving credit agreements.
Under Statement of Financial Accounting Standards (FAS) No. 166, "Accounting for Transfers of Financial Assets - an amendment to ASC Topic 860," which becomes effective for Tenneco in the quarter ending March 31, 2010, Tenneco's accounts receivable securitization programs in North America and Europe must be accounted for as secured borrowings. Under the previous guidance of ASC Topic 860 (FAS 140), these programs were accounted for as sale transactions and disclosed in the footnotes to the company's financial statements.
The impact of the new accounting rules on the company's consolidated financial statements will be to increase both receivables and short-term debt on its balance sheet and to decrease the loss on sale of receivables and increase interest expense on its income statement. In addition, under the new accounting rules, changes in the funding levels provided by the accounts receivable securitization programs will be reflected as a change in short-term debt and included in net cash provided by financing activities on the company's cash flow statement rather than reflected as a change in receivables and included in net cash provided by operating activities as under the previous guidance. Had FAS 166 been in effect in 2009, reported receivables and short-term debt would both have been $137 million higher as of December 31, 2009 and the loss on sale of receivables would have been $9 million lower, offset by a $9 million increase to interest expense in 2009.
The higher reported levels of debt and interest expense resulting from the change in accounting guidance will have no effect on Tenneco's debt covenant ratios because the definitions of those ratios in the company’s debt agreements are based on U.S GAAP in effect on the date the agreements were executed, which preceded the effective date of FAS 166.
Tenneco is a $4.6 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 21,000 employees worldwide. Tenneco is one of the world’s largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and the aftermarket. Tenneco markets its products principally under the Monroe®, Walker®, Gillet™ and Clevite®Elastomer brand names.