The debt of bankrupt auto suppliers Meridian Automotive Systems and Collins & Aikman plunged to the single digits last week, highlighting the tough market conditions these companies face as they struggle to emerge from bankruptcy protection. Meridian Automotive's second-lien debt fell to 5-7, according to a trader, after the company pulled its plan of reorganization. It is filing an amended plan, which it hopes will come into effect at the end of October. The debt was trading in the 16 1/4-22 context Aug. 15, the day the company announced the new plan. Meridian's term loan "B" fell to 85-86 from the high 80s, according to the dealer.
Collins & Aikman, an auto supplier with a business profile similar to Meridian's, saw its 10 3/4% '11 bonds fall to a low of 9 1/4 last Wednesday, before rebounding to 10. The bonds have been on a steady decline since the end of July and have fallen 10 points over the past month. Its term loan "B" fell to 55-57 from the low 60s the prior week (CIN, 8/06). The debt has fallen over concerns the company may receive less proceeds from the sale of its assets than it had initially forecast.
A trader said the market is worried about Meridian Automotive's prospects after seeing the problems at Collins & Aikman. They are also worried about poor conditions in the auto supplier sector in general, he said. Explaining why it chose to file a revised plan, Meridian said that in light of the difficult automotive environment it had concluded it should emerge from Chapter 11 with less debt and increased liquidity. It is discussing terms of a revised re-org, as well as the terms of its exit financing, with its main creditors. Calls to Richard Newsted, ceo, and a spokesman were not returned. Meridian filed its original re-org plan in March.
"People are worried about the plan," said the dealer. "People are taking a closer look at the auto supplier. They are worried about the overall sector."
Collins & Aikman is still striving to emerge from bankruptcy by either finding a buyer, or emerging as a standalone entity with the help of additional funding. It went into bankruptcy in May 2005. The concern that a buyer may not step forward is worrying investors, the dealer said. "People are speculating whether a buyer is going to step up and how much they will pay."
A Collins & Aikman spokesman would not comment on what is driving the trading of its debt. He said the company continues to wind down its fabrics business, after it failed to find a buyer for it. It is also continuing to divest non-core businesses, including its convertibles operation.
Analysts forecast a continued downturn in the auto sector going into 2007. Robert Schulz, analyst at Standard & Poor's, said market conditions for auto suppliers could get worse. Most auto part companies it rates are non-investment grade. Their problems stem from their big exposures to General Motors and Ford Motor, which are cutting back on production. High commodity prices, coupled with a large debt burden from leveraged buyouts and acquisitions, have also crippled many, Schulz said.