Liquidity Crunch Threatens Oxford - aftermarketNews

Liquidity Crunch Threatens Oxford

Oxford Automotive Inc. could face its second bankruptcy filing in three years if it's not able to sell some of its assets or secure new funding in the coming months. Faced with the prospect that Oxford will default on a $16.8 million interest payment on Oct. 15 and that the Troy, Mich.-based company is in the midst of a liquidity crunch despite landing a $1.3 billion auto parts contract with Mercedes-Benz, bondholders have hired Rothschild LLC and AlixPartners LLC as financial advisers and Fried, Frank, Harris, Shriver & Jacobson LLP as its legal counsel to represent them in debt restructuring talks, sources confirmed.

From TheDeal.com

TROY, MI — Oxford Automotive Inc. could face its second bankruptcy filing in three years if it’s not able to sell some of its assets or secure new funding in the coming months.

Faced with the prospect that Oxford will default on a $16.8 million interest payment on Oct. 15 and that the Troy, Mich.-based company is in the midst of a liquidity crunch despite landing a $1.3 billion auto parts contract with Mercedes-Benz, bondholders have hired Rothschild LLC and AlixPartners LLC as financial advisers and Fried, Frank, Harris, Shriver & Jacobson LLP as its legal counsel to represent them in debt restructuring talks, sources confirmed.

Making matters worse is that Oxford’s primary lender, Silver Point Capital LP, is unlikely to ease restrictions on its $60 million loan to allow a restructuring of the $280 million of second-lien notes to occur, according to a research note by Moody’s Investors Service.

Given Oxford’s woes, one source familiar with the situation said the company would actually have a smoother time of it by restructuring under bankruptcy court protection given its mounting pension and liability costs.

This could be especially true given Oxford’s desire to dump assets.

“Any buyer is going to want those things [such as pension costs] taken care of,” the source said in reference to the fact that such liabilities are automatically stayed in the bankruptcy court.

Oxford management, meanwhile, has already held two meetings with its bondholders and its advisers and is confident it can deliver Mercedes parts in December.

“We are evaluating our entire capital structure and considering all alternatives to the situation,” said Oxford CEO David Treadwell, who was only installed in the post Aug. 20.

It was the high costs associated with readying a plant in McCalla, Ala., to fill the Mercedes order that put Oxford into a liquidity crunch in the first place.

Oxford’s controlling shareholder, MatlinPatterson LLC, injected $75 million into the company last November to help it complete the factory, which will make undercarriages for two Mercedes models.

Only months later, however, MatlinPatterson brought in Goldman, Sachs & Co. to help sell assets and recoup the $200 million or so the fund put into Oxford since its emergence from bankruptcy in July 2002, according to a source close to the situation.

Even when Oxford has sold assets, however, it hasn’t met expectations. For example, the company sold a plant in Ramos Arizpe, Mexico, for $40 million, which was well below book value, according to the Moody’s note.

Oxford has also had lower production volumes on certain parts it has built for Ford Motor Co., Nissan Motor Co. Ltd. and Saturn Corp., while having problems generating new business, Moody’s reported.

“Other than the McCalla [plant], Oxford has a series of aging plants in North America that have been underperforming,” a source familiar with the situation said.

Oxford has annual sales of $1 billion, with half coming from overseas. The contract with Mercedes would add $175 million in annualized revenue and $1.3 billion over the life of the contract.

“However, any launch of this size requires lots of capital, management time and operating expenses,” one source familiar with the company said.

Oxford hired Detroit crisis management firm Conway MacKenzie & Dunleavy in June.

Copyright 2004 The Deal, LLC. All Rights Reserved.

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