By Robert Sherefkin, Automotive News
Detroit, Michigan -- After a wave of supplier bankruptcies last year, workout specialists expect a surge of financing to support companies looking to emerge from creditor protection this year.
Late last year, exit loans began to flow for some bankrupt suppliers. Now more loans are being arranged for several large suppliers, although negotiations with smaller ones face a rough road. This doesn't mean fewer suppliers will file for bankruptcy, but those going in may be able to get out more easily now.
"Money is available now," said workout specialist John Groustra. "There is pressure on the part of investors in private-equity firms to do some deals, to put money to work."
The smart money is lining up behind companies seen as winners, says Groustra, a partner with the turnaround firm Conway MacKenzie Inc. in suburban Detroit. Those winning suppliers have the technological capabilities and financial stability that auto makers desire.
Most bankruptcy exits are financed by investors who, in return, take an equity position in the company, said Michael Fleming, a partner with the law firm Plunkett Cooney, of suburban Detroit.
Moreover, over the past year, the stock prices of suppliers have surged. That, in turn, has encouraged investors to put money behind strong suppliers, even those in bankruptcy.
The Original Equipment Suppliers Association counted nearly 50 North American bankruptcies last year among auto parts suppliers. That has created a pipeline of needy companies, some of which have cleansed their balance sheets and are now attractive candidates for additional financing.
The money hasn't always been there. Delphi Corp. languished in bankruptcy for four years in part because of wrangling over who should pay how much toward its exit financing. The company emerged from Chapter 11 in October.
That same month, Stant Corp.'s senior lenders and private-equity sponsor HIG Capital helped finance the company's emergence from bankruptcy. The maker of fuel caps and other parts had spent just 90 days in Chapter 11 protection.
Interiors supplier Lear Corp. followed in November and wheel maker Hayes Lemmerz International Inc. a month later.
Now Cooper-Standard Automotive, a fluid-handling supplier that sought court protection in August, is seeking $350 million to $450 million in exit financing from its current lenders, including private-equity groups, said a source familiar with the discussions.
A spokeswoman for the resin giant LyondellBasell confirmed that the supplier wants to line up exit financing. The chemical company's US operations and some of its European holding companies filed for bankruptcy in January 2009.
Smaller parts makers, though, still struggle to find exit financing. Joe Bione, president of the suburban Detroit restructuring company Whitehall Group, said small companies are marching to orderly liquidations. Banks are not lending, and private-equity sponsors do not find small deals economical, he said.
As a result, smaller suppliers need other strategies.
Take Turchan Technologies Group Inc: according to court records, the suburban Detroit machining company, which employs advanced materials manufacturing, is set to emerge from Chapter 11 within 30 days by tapping its own cash flow rather than outside financing, a rare arrangement today. Owner Manuel Turchan said the company's planned exit from bankruptcy is possible because of support from customers such as General Motors Co.