From AFX News Limited

WASHINGTON -- The judge overseeing reorganization efforts of Meridian Automotive Systems Inc. approved changes in its bankruptcy financing that will help the auto-parts supplier stay competitive as it navigates turmoil in the industry.

Judge Mary Walrath's order Wednesday allows the Dearborn, MI-based company to take advantage of the full $75 million of its debtor-in-possession loan, and it extends the maturity date of the financing package to Dec. 31. The agreement was set to expire Oct. 31.

The changes also allows for the loan to be extended up to March 31. Fees on the amended DIP deal add up to $387,000. Meridian Automotive has also agreed to pay an additional 0.50 percent interest on any portion of the loan that is above what it could have tapped had the original borrowing terms remained intact.

During court hearings Meridian said the need to change its financing package is driven by efforts to exit creditor protection and production cutbacks by the major auto manufacturers, such as Dearborn-based Ford Motor Co.

Meridian restructuring executive Jeffery Stegenga said the company needed "to demonstrate to our key constituencies in light of the Ford production cutbacks that we will continue to have adequate liquidity." His comments were made during a hearing last week in the U.S. Bankruptcy Court in Wilmington, DE.

The company recently abandoned a proposal to pay off creditors that had been slated for confirmation, as ongoing tumult in the auto industry put exit financing out of reach. Meridian replaced that proposal with a new Chapter 11 turnaround plan that is based on scaled-back expectations. Changes to the DIP loan will give Meridian much-needed operating capital as it goes through the process of sending out the replacement plan for a vote by creditors.

Meridian pulled its exit plan just days short of a planned confirmation hearing. It submitted a new proposal on Sept. 8.

"We believe we have reached agreement with our chief constituencies in the first- and second-lien debt groups to make this a consensual plan," said Stegenga, the company's restructuring adviser.

The company's new plan is based on $255 million in secured exit financing, according to court papers. That includes a $75 million senior secured revolving loan, a $150 million secured term loan and a letter-of-credit facility of about $30 million.

Meridian Automotive's new Chapter 11 plan is a drastic change from earlier versions, which had the backing of some major holders of second-lien debt but drew fire from first-lien-debt holders.

Under the new plan, holders of first-lien debt stand to get $98 million in cash and 95.5 percent of the stock in the reorganized Meridian Automotive, unless the second-lien holders vote "no" on the company's Chapter 11 plan.

If second-lien holders reject the plan, the first-lien holders will get 100 percent of the reorganized company, plan documents say.

A "yes" vote from holders of second-lien debt will get them 4.5 percent of the reorganized company, plus a share of warrants and a piece of a litigation trust that will be set up under Meridian Automotive's Chapter 11 plan.

According to Meridian Automotive's calculations, the first-lien-debt holders will recover 80 percent of the approximately $294.6 million they're owed.

Holders of second-lien debt, owed $179.8 million, will get a recovery of 7.2 percent, the company says.

There is no percentage estimate of recovery for general unsecured creditors, who are owed $96 million (while $172.9 million worth of subordinated debt will go unpaid), under Meridian Automotive's new plan.

A court hearing on the disclosure statement, which explains the new Chapter 11 plan to creditors who are entitled to vote, is scheduled for Oct. 10.

Copyright 2006 AFX News Limited. All Rights Reserved.