AMHERST, N.Y. — Mark IV, parent company of belts and hose maker Dayco, has filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The company said it was taking this action to reduce its debt, improve its capital structure and further strengthen its competitive position. None of Mark IV’s operations outside of the United States were included in the filing. Mark IV’s Intelligent Vehicle Highway Systems (IVHS) operations were also excluded from the filing.
Mark IV has already reached agreement in principle with a steering committee of its senior lenders on a plan of reorganization and new capital structure for the reorganized company. The capital structure contemplated by the agreement in principle is rational and consistent with the company’s long-term operational and financial strategies.
The company noted that since it already has an agreement in principle in place on its restructuring with its secured lenders, Mark IV expects to achieve plan confirmation and successfully complete the reorganization expeditiously.
"Ours is a balance sheet problem, not an operational one. The actions we have announced today bring us closer to resolving that issue," said Chief Executive Officer of Mark IV Power Transmission, Jim Orchard. "The Chapter 11 filing and the progress we have already made with our senior lenders sets the foundation for achieving a rational capital structure to support the company’s business going forward."
Mark IV also has received commitments for up to $90 million in debtor-in-possession (DIP) financing from a group of lenders led by J.P. Morgan that will be used to fund post-petition operating expenses, and to meet its obligations to employees, customers and suppliers. A large portion of these funds will also be used outside the U.S. to help ensure the continued adequacy of working capital throughout the company’s global business units.
"Although even during these challenging economic times most of our businesses continue to generate double-digit EBITDA margins, the fact remains that our debt load must be brought in line with our current cash flows. We have been encouraged by the vote of confidence we have received from our senior lenders. Their willingness to provide us with DIP financing and invest in the future of our company demonstrates their confidence in our business model and our ability to achieve sustainable profitability," said Orchard.
The company recently took a number of steps to lower its cost structure, including a 20 percent reduction of salaried work force in its North American operations, closure of a North American factory, and consolidation of redundant activities and offices.
"While we have made significant progress in lowering our cost structure and improving our operations, the next step to achieving bottom-line, sustainable profitability after debt servicing is restructuring our balance sheet. We fully expect to emerge from Chapter 11 as a stronger company with a capital structure that supports our competitive strengths," Orchard said.
As the company’s operations outside the U.S. are not included in the filing, Mark IV said it should have no impact on the ability of its non-U.S. entities to serve customers or on its employees, vendors, and other creditors.
"Our international operations are well-positioned to weather today’s difficult economic conditions. Once the restructuring is complete, we feel our international operations should be in an even better competitive position with the support of a parent company that will be generating free cash flow which will enable us to invest consistently and prudently to grow our business worldwide," said Orchard.
The company also emphasized that its IVHS business, the largest supplier of electronic toll collection equipment in North America, is also excluded from the filing. Mark IV said that the Chapter 11 filing will have no impact on IVHS’ ability to continue to design and manufacture superior products for electronic toll collection and automated weigh station bypass on highway tolls, turnpikes, tunnels and bridges.
Mark IV said it expects the restructuring process generally will have no impact on day-to-day business operations, or its ability to fulfill its obligations to its employees or its worldwide customer base. The company said it has assured customers worldwide that it will continue to meet their scheduling, delivery and production needs in a timely manner, and remains strongly committed to providing leading-edge technology, product development, superior engineering, and outstanding service.
"With our DIP financing and the protections provided under Chapter 11 for post-petition purchases, we are confident our suppliers and customers will continue to support us while we complete our restructuring," Orchard said.
All of Mark IV’s facilities and offices remain open for business, and employees will continue to be paid and receive benefits. Through the first-day motions, the company has requested that the court authorize certain actions, including entering into the DIP financing agreement, continuing wages and benefits to employees without interruption and paying foreign suppliers in the ordinary course of business. Together these motions, along with the other first day motions that were filed with the court, are designed to ensure that daily business operations continue normally worldwide while Mark IV works to restructure its balance sheet.
The voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code were filed in the U.S. Bankruptcy Court for the Southern District of New York.
