Cooper Standard

The situation

Cooper Standard makes the rubber and plastic seals around a car’s doors and windows, and the lines that carry its fuel, brake fluid and coolant. It sells 86% of its output straight to carmakers. Ford, GM and Stellantis together were 56% of 2025 sales.

For three years the credit story was a wall of expensive debt due in 2027. That ended on March 4, 2026. The company sold $1.1bn of 9.25% first lien notes due March 2031 and used the proceeds, with cash on hand, to redeem all three of its old bonds: $617mm of 13.5% first lien notes, $392mm of third lien notes, and the last $43mm of unsecured notes due 2026. In September it extended its undrawn ABL to 2031 and raised it to $200mm.

What is left is simple. One bond, an undrawn revolver, and $60mm of leases and local bank lines.

The operating story has gone the other way. Adjusted EBITDA for the first nine months of 2026 was $158mm, down from $175mm a year earlier. The company blames higher prices for petroleum-based raw materials since the second quarter, general inflation and weaker volume and mix. North American vehicle production fell 4.7% in the third quarter. On November 4 management cut its 2026 EBITDA guidance to between $235mm and $245mm, from $265mm to $295mm.

What matters

The fourth quarter has to be very good. Guidance leaves $77mm to $87mm to earn in the fourth quarter. The third quarter was $53mm. The fourth quarter of 2025 was $35mm. Management points to cost recoveries from customers and savings from plant closures. If the quarter lands, leverage falls from 6.0x to about 4.8x at year end. If it looks like the third quarter, full-year EBITDA is about $211mm and leverage is 5.5x.

Cash is going out. Free cash flow was negative $88mm through September. Operations used $34mm and capital spending took $54mm. Cash fell from $192mm to $112mm. Restructuring is part of it: $32mm has been paid this year for plant closures in Europe and North America, and $42mm is still accrued. Payments for customer tooling programs took most of the rest.

The first coupon has not been paid yet. Interest on the new notes is due each May and November, starting November 15, 2026. That first payment covers more than eight months and comes to about $71mm. None of it is in the nine-month cash flow.

Breakeven is about $217mm of EBITDA. The fixed calls on cash are $102mm of interest, $66mm of capital spending, about $18mm of taxes and about $33mm of restructuring. On trailing EBITDA of $193mm the business burns about $25mm a year before working capital. At the guidance midpoint of $240mm it makes about $23mm.

Liquidity is not the problem. Cash of $112mm and $193mm available on the ABL give $305mm. Nothing is due before 2031 apart from $43mm of local bank lines that are renewed each year.

Two things sit outside the debt number. The company sells receivables through a European factoring program, with $71mm outstanding at September 30. Counting that as debt takes leverage to 6.4x. Pension plans, mostly unfunded ones outside the US, were $93mm short at the end of 2025.

A note on the numbers: the balance sheet shows debt of $1,146mm. Our $1,160mm is face value, which adds back $14mm of unamortized issuance costs on the notes. Our interest figure is the coupon on the notes only and leaves out a few million dollars on leases and local lines. Taxes and restructuring are the midpoints of management’s 2026 guidance.

Relative value

There is one bond, so the question is price.

The notes are issued by the main US operating company and guaranteed by its US subsidiaries. They have a first lien on US plants and equipment and a second lien, behind the ABL, on US receivables and inventory. Subsidiaries outside the US do not guarantee them, apart from an unsecured guarantee from a Dutch holding company. Ahead of the notes are the ABL, which is undrawn, and $60mm of local bank lines and leases.

At par, the notes create the business at 5.4x trailing EBITDA and 4.4x the guidance midpoint. Each five points of discount takes about 0.3 turns off that.

On value, the notes need the business to be worth 6.0x what it earned over the last twelve months to be covered in full. At 4.5x they recover 73 cents.

The equity market is more generous. At $19.73 a share on November 10 the market value of the equity was about $351mm. That puts enterprise value at $1.40bn, or 7.3x trailing EBITDA and 5.8x the guidance midpoint. The shares are priced as if guidance will be met. The bond does not need that much.

What the documents allow

The notes have no financial maintenance tests. Everything below is a limit on what the company may do next, taken from the indenture. We measure each one against reported adjusted EBITDA of $193mm. The indenture’s own definition adds back restructuring costs and projected cost savings with no stated cap, so the company’s math will be more generous than ours.

Limit	Test	Where it stands
ABL and other debt with first claim on receivables and inventory	Greater of $300mm and the borrowing base	$200mm committed, none drawn
More first lien debt alongside the notes	First lien net leverage of 4.40x or less	5.1x. Closed
Secured debt, general basket	Greater of $125mm and 62.5% of EBITDA	Open. May share the notes’ collateral, or rank ahead of them on receivables and inventory
Junior lien debt	Secured net leverage of 5.00x or less	About 5.2x. Closed
Unsecured debt, ratio test	Fixed charge coverage of 2.0x or more	About 1.9x. Closed
Any debt, general basket	Greater of $175mm and 75% of EBITDA	Open
Debt at subsidiaries outside the US	Greater of $105mm and 50% of EBITDA, for working capital only	$43mm of local lines outstanding today
Dividends and buybacks, general basket	Greater of $105mm and 50% of EBITDA	Open
Investments, general basket	Greater of $210mm and 100% of EBITDA	Open

Three things follow.

The route past the notes runs through receivables and inventory. The ABL basket is $300mm against a $200mm facility with nothing drawn, and the $125mm general basket can be secured ahead of the notes on the same collateral. That is up to $425mm with a first claim on the most liquid assets, where today there is none.

On plants and equipment the notes can be diluted but not primed. New debt can share the first lien only through the $125mm basket, or once first lien net leverage is back under 4.40x. With today’s cash that takes about $225mm of EBITDA. At the $240mm guidance midpoint the room is about $68mm. Changing the priority of the notes’ liens, or releasing all or substantially all of the collateral, takes the consent of 80% of holders, a higher bar than the usual two thirds.

Value can move, within limits. The company may invest up to $210mm outside the restricted group and pay out $105mm. Investments in restricted subsidiaries are not capped, including those that do not guarantee the notes. Against that, material intellectual property cannot be transferred out of the restricted group, no material subsidiary can be made unrestricted, and the basket for debt at foreign subsidiaries cannot be used in a liability management deal. Asset sales need only 50% of the price in cash. The company then has a year to reinvest the proceeds, and must offer them to noteholders only once unspent proceeds pass $100mm.

Call terms. The notes cannot be called before March 1, 2028. From then the price is 104.625, stepping down to 102.313 in March 2029 and par from March 2030. Before 2028 the company may redeem 10% of the issue each year at 103, up to 35% at 109.25 with the proceeds of an equity offering, or any amount by paying a make-whole premium. Holders can put the notes at 101 on a change of control. Other debt of $100mm or more that is accelerated, or not paid at maturity, is a default under the notes.

What would change our mind

• A fourth quarter well short of $77mm. Leverage stays near 6x into 2027 and the cash burn continues.
• A draw on the ABL. It is undrawn today. Borrowing against receivables to fund restructuring or interest would put new debt ahead of the notes on the most liquid collateral, and the documents leave room for up to $425mm of it.
• Raw material costs that customers do not reimburse. Management says it is renegotiating its index-based pricing agreements. The third quarter shows they do not yet cover the gap.
• Lower production at the Detroit carmakers. More than half of sales depend on three customers.
• In the other direction: 2027 guidance above $250mm with positive free cash flow would put leverage on a path to the mid-4s.