Intermet Warning Triggers Sell-Off, Bankruptcy is a Threat, Says Analyst

Add one more name to the list of struggling Detroit-area auto suppliers. Troy, Mich.-based Intermet Corp., a maker of metal brake and suspension parts, has warned Wall Street that it will lose tens of millions of dollars this quarter and needs a new credit agreement from its banks to avoid bankruptcy. Intermet blamed higher-than-expected steel costs and unspecified "operational problems" at some North American plants for its financial predicament.

From Detroit Free Press

TROY, MI — Add one more name to the list of struggling Detroit-area auto suppliers.

Troy, Mich.-based Intermet Corp., a maker of metal brake and suspension parts, has warned Wall Street that it will lose tens of millions of dollars this quarter and needs a new credit agreement from its banks to avoid bankruptcy. Intermet blamed higher-than-expected steel costs and unspecified “operational problems” at some North American plants for its financial predicament.

Investors pummeled Intermet stock, which lost more than half its value on Monday. Intermet stock plunged 65 percent to close at 76 cents per share, down from $2.16 per share when the day began. It traded above $5 on Jan. 1.

Intermet also said it has recently hired the restructuring firm of Conway Mackenzie & Dunleavy to help come up with a restructuring plan, which could lead to some plants or operations being closed. Intermet, which employs 6,000 worldwide including 200 in Michigan, has an office in Troy and an aluminum-processing plant in Stevensville.

The company would not comment further on its restructuring plans or which plants were having the problems.

“At this point we don’t anticipate layoffs, but we are in discussion with our lenders to develop a long-term plan,” said Mike Kelly, communications director.

Though the company raised the specter of bankruptcy in its own press release, Kelly said he wouldn’t comment on “that kind of speculation.”

The key credit-rating agency Standard & Poors Corp. downgraded its rating on Intermet and said bankruptcy was a possibility for the company.

“Bankruptcy is a very real threat. There’s a chance they are so overleveraged they can’t recover and get out this problem without a Chapter 11 bankruptcy. That’s why we lowered them to a triple CCC rating,” said Heather Henyon, an S&P credit analyst. CCC means a company is a very high risk borrower.

“They said earlier in the year they’d be able to recover some of their higher steel costs, but when they do, it takes four to six months. I also don’t think they have been all that successful at collecting the higher costs from automakers,” said Henyon.

Intermet said it is now paying $395 for a ton of scrap steel, compared to $210 at the end of 2003. That’s a jump of 88 percent in the first nine months of the year, or about $24 million more than the company spent in the same period of 2003.

Intermet said it could default on its loans if it doesn’t receive a waiver from its lenders. That default would begin a process the company said could lead to “voluntary bankruptcy proceedings,” the company said. Kelly said it hopes to get a waiver from its lenders this week.

Intermet had sales of last year of $731 million.

For the first nine months of the year it will have sales of $625 million, but expects to lose between $33 million and $38 million for that period.

Some suppliers in trouble, such as Visteon Corp. or Tower Automotive, have simply continued to miss their own financial guidance to Wall Street and have warned in the last few weeks that they will lose more money than expected. Others, like Oxford Automotive, are unable to make payments to their lenders and may be heading toward bankruptcy.

The third group are those that have gone under or fallen into bankruptcy, like Fraser-based Venture Corp., which fell into bankruptcy in March 2003 and has yet to emerge.

Each has its own particular issue; according to analysts Intermet spent more than expected earlier this year closing a foundry in Havana, Ill.

But that is exacerbated by industry-wide problems such as higher costs for steel and oil, too much bank debt and lower-than-expected production by automakers like Ford Motor Co. and General Motors Corp.

“It’s a difficult time for suppliers who are trying to grow their way out of problems now. Firms that had higher production numbers the previous years got themselves straightened out. Now there is lower production and banks are getting impatient with them,” said Jim Gillette, supplier analyst for CSM Worldwide.

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