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A New Model for Auto Supplier DIP Financing?
Without any reservation, it is safe to say that insolvency crisis facing the U.S. auto industry ' from myriad Tier 2 suppliers right up to the legacy-burdened OEMs ' has become the cause c'l'bre of the professional restructuring community, and for objectively good reason. In this year alone, at least eight parts makers (among them, Collins & Aikman Corp., Meridian Automotive Systems, Inc., Tower Automotive, Inc., Jernberg Industries, Inc., Harvard Industries, Inc., Jacobs Industries, Inc., and Delphi Corp.) filed for Chapter 11 relief. And many industry experts believe that these cases represent merely a harbinger of even bigger things to come. See, eg, Whiteman L: GM Could Seize the Opportunity. TheDeal.com (Oct. 10, 2005) (reporting that Bank of America Securities LLC analyst Ronald Tadross raised the odds of a GM bankruptcy from 10% to 30% following Delphi's Chapter 11 filing); Benson MD, Houdek TA: Automotive OEM and Tier 1 Consolidation ' Tip of the Iceberg. (Stout Risius Ross, Inc. Client Advisory) (2005); Houlihan, Lokey, Howard & Zukin, Inc.: Automotive Supplier Quarterly Update at 1 (Second Quarter 2005).
As more and more of the industry's Tier 1 and 2 players progress towards or work through major restructurings, the availability of financing for ongoing operations has become a critical concern, especially in the face of high materials costs and unusually burdensome OEM traditions (like requiring suppliers to bear crushing tooling and other ramp-up capital expenditures for months or even years in advance of new product launches). Within these parameters, bank financing is not always a given.
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