Superior Industries International (SUP) Risk Analysis

The credit agreements governing the SSCF and the documents governing other debt that we may incur in the future, may contain a number of covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to: - incur additional indebtedness and guarantee indebtedness;- create or incur liens;- engage in mergers or consolidations or sell all or substantially all of our assets;- sell, transfer or otherwise dispose of assets;- make investments, acquisitions, loans or advances or other restricted payments;- pay dividends or distributions, repurchase our capital stock or make certain other restricted payments;- prepay, redeem, or repurchase any subordinated indebtedness;- designate our subsidiaries as unrestricted subsidiaries;- enter into agreements which limit the ability of our non-guarantor subsidiaries to pay dividends or make other payments to us;- and enter into certain transactions with our affiliates. In addition, the restrictive covenants in the credit agreements governing the SSCF require us to maintain specified financial ratios, including a quarterly secured net leverage ratio and a quarterly total net leverage ratio as well as a minimum liquidity. Our ability to meet those financial ratios and tests can be affected by events beyond our control. We may not meet those ratios and tests. If we fail to comply with these covenants and restrictions, we cannot assure you that we will be able to obtain waivers from the lenders and/or amend the covenants, which could, among other things, affect our liquidity. Moreover, in connection with any future waivers or amendments to our indebtedness that we may obtain, our lenders may modify the terms of our indebtedness or impose additional operating and financial restrictions on us. A breach of the covenants or restrictions under the credit agreements governing the SSCF or under other debt instruments could result in an event of default under the applicable indebtedness. Such a default may allow the creditors under such facility to accelerate the maturity of the related debt, which may result in the acceleration of the maturity date of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreements governing our SSCF would permit the lenders under our revolving credit facilities to terminate all commitments to extend further credit under these facilities. Furthermore, if we were unable to repay the amounts due and payable under the SSCF or under other secured debt instruments, those lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under the SSCF. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms acceptable to us. As a result of these restrictions, we may be: - limited in how we conduct our business;- unable to raise additional debt or equity financing to operate during general economic or business downturns; or - unable to compete effectively or to take advantage of new business opportunities. These restrictions, along with restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability to grow or pursue other important initiatives in accordance with our growth strategy.

The Company's capital structure is heavily leveraged as a result of debt incurred in connection with the 2017 acquisition of our European business, which was refinanced on August 14, 2024. At December 31, 2024, our capital structure consisted of: - $520.0 million Term Loan Facility (the "Term Loan Facility"), together with the Revolving Credit Facility (as defined below) referred to as the "Senior Secured Credit Facilities" or "SSCF" with an outstanding balance of $518.7 million;- redeemable preferred stock of $288.5 million (unconditionally redeemable on or after September 14, 2025 or upon the occurrence of a Redemption Right Event as defined in the Certificate of Designations, which as of December 31, 2024 would be equivalent to a $320.3 million redemption value);- finance leases of $1.1 million; and - shareholders' deficit of $276.2 million. The Company also has available unused commitments under its revolving credit facility (the "Revolving Credit Facility") of $42.5 million at December 31, 2024. The Revolving Credit Facility and the Term Loan Facility are scheduled to mature on December 15, 2027 and December 15, 2028. Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain other factors beyond our control. At the present time, we do not expect to generate sufficient cash to repay all principal due under our indebtedness, in full by the respective maturity dates, which will likely require us to refinance a portion or all of our outstanding debt. Our ability to restructure or refinance our debt will depend on the condition of the capital and credit markets and our financial condition at such time. We might not be able to restructure or refinance the debt on satisfactory terms. Any refinancing of our debt could be at higher interest rates and associated transactions costs and may require us to comply with more onerous covenants, which could further restrict our business operations and limit our financial flexibility. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit ratings, which could harm our ability to incur additional indebtedness or issue equity, or to refinance all or portions of these obligations. In the absence of sufficient cash flows, refinancing or adequate funds available under credit facilities, we could face substantial liquidity constraints and might be required to reduce or delay capital expenditures, seek additional capital, sell material assets or operations to attempt to meet our debt service and other obligations, any of which could adversely affect our business and financial condition. The credit agreements governing the SSCF restrict, and adverse market or business conditions may limit, our ability to take some or all of the aforementioned actions, including incurring additional obligations, conducting asset sales and/or using the proceeds from asset sales. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair, and any proceeds that we do receive or would be permitted to use may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our debt may accelerate our debt and, to the extent such debt is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our debt. Under the Certificate of Designations for our redeemable preferred stock, the holders may redeem such redeemable preferred stock on or after September 14, 2025 or, if earlier, as a result of the occurrence of an early redemption event (e.g., an Exchange Act report that a person or group has become the beneficial owner of more than 50% of the voting securities of the Company, recapitalization, merger, sale of all or substantially all of the Company's assets, or an adoption of a plan or proposal for liquidation or delisting of the Company's common stock from the NYSE). The redemption obligation of our redeemable preferred stock consists of a redemption price equal to the greater of (i) two times the then-current Stated Value (defined in the Certificate of Designations as $1,000 per share, plus any accumulated and unpaid dividends or dividends paid-in-kind), which as of December 31, 2024 would be equivalent to a $320.3 million redemption value, and (ii) the product of the number of shares of common stock into which the redeemable preferred stock could be converted at the time of such redemption (5.7 million shares currently) and the then-Current Market Price (defined in the Certificate of Designations as the arithmetic average of the VWAP per share of common stock for each of the thirty (30) consecutive full trading days ending on the trading day before the record date with respect to such action) of our common stock. Any redemption payment would be limited to cash legally available to pay such redemption. The shares of redeemable preferred stock that have not been redeemed would continue to receive a dividend of 9% per annum on the then-current Stated Value, as defined in the Certificate of Designations, until such shares of redeemable preferred stock are redeemed. The Board would have to evaluate periodically the ability of the Company to make any remaining payments until the full redemption amount has been paid. A redemption payment, if required, for some or all of our outstanding shares of redeemable preferred stock would negatively affect our liquidity, could result in our entering into an undesirable equity or debt refinancing transaction and could adversely affect our business, results of operations, and financial condition.

We have a significant amount of indebtedness. As of December 31, 2024, our total debt was $519.8 million ($489.4 million net of unamortized debt discount and issuance costs of $30.4 million). Additionally, we had availability of $42.5 million under the Revolving Credit Facility at December 31, 2024. A significant portion of our cash flow from operations will be used to pay our interest expense and will not be available for other business purposes. We cannot be certain that our business will generate sufficient cash flow or that we will be able to enter into future financings that will provide sufficient proceeds to meet or pay the interest on our debt. Subject to the limits contained in the credit agreements governing the SSCF, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. In addition, the credit agreements governing the SSCF contain restrictive covenants that, among other things, could limit our ability to incur liens, engage in mergers and acquisitions, sell, transfer or otherwise dispose of assets, make investments or acquisitions, redeem our capital stock, or pay dividends. In addition, the SSCF requires us to maintain appropriate insurance coverages, including insurance with respect to assets which secure the underlying debt obligations. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of the maturity of all of our debt.

Borrowings under our SSCF are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. As of December 31, 2024, $518.7 million of our debt was variable rate debt. Our anticipated annual interest expense on $518.7 million of variable rate debt at the current rate of 11.88% would be $61.6 million. We may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

The interest rates under our SSCF are calculated using SOFR (or, in certain cases, EURIBOR), or alternate base rates. The Federal Reserve Bank of New York (the "FRBNY") began to publish SOFR in April 2018. SOFR was developed for use in certain U.S. dollar derivatives and other financial contracts as an alternative to the U.S. dollar London interbank offered rate ("U.S. dollar LIBOR"). Although the FRBNY has also begun publishing historical indicative SOFR going back to 2014, such historical indicative data inherently involves assumptions, estimates and approximations. Therefore, SOFR has limited performance history and no actual investment based on the performance of SOFR was possible before April 2018. The level of SOFR in future periods may bear little or no relation to the historical level of SOFR. In addition, the differences between SOFR and U.S. dollar LIBOR may mean that market participants would not consider SOFR a suitable substitute or successor for all of the purposes for which U.S. dollar LIBOR historically has been used (including, without limitation, as a representation of the unsecured short-term funding costs of banks), which may, in turn, lessen market acceptance of SOFR or lead to changes to the method in which SOFR is determined. On September 21, 2017, the European Central Bank announced that it would be part of a new working group tasked with the identification and adoption of a "risk free overnight rate" to serve as a basis for an alternative to benchmarks used in a variety of financial instruments and contracts used in the euro area. On September 13, 2018, the working group on euro risk-free rates recommended the new euro short-term rate ("€STR") as the new risk free rate for the euro area. €STR was published for the first time on October 2, 2019. In addition, in response to regulatory scrutiny and applicable legal requirements, the European Money Markets Institute (the "EMMI"), as administrator of EURIBOR, conducted a series of consultations on a proposed reformed hybrid methodology for EURIBOR. In July 2019, EMMI published its EURIBOR Benchmark Statement setting forth its reformed hybrid methodology and received regulatory authorization for the continued administration of EURIBOR. In the future, SOFR and EURIBOR could be subject to further regulatory scrutiny, reform efforts, and/or other actions. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States, or elsewhere. To the extent these interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results, and cash flows. If SOFR or EURIBOR is discontinued or ceases to be published, there can be no assurances that we and other market participants will be adequately prepared for such discontinuance or cessation, which may have an unpredictable effect on contractual mechanics, among other adverse consequences. Further, other index providers are developing products that are perceived as competing with SOFR or EURIBOR. It is possible that market participants will prefer one of these competing products and that such competing products may become more widely accepted in the marketplace than SOFR or EURIBOR.