Meridian Seeks Chapter 11 Aid

From Detroit Free Press

DEARBORN, MI — In what is becoming a fairly regular and disconcerting occurrence in today’s auto industry, Meridian Automotive Systems Inc. filed for Chapter 11 bankruptcy protection Tuesday, citing the high cost of steel and increased pricing pressure from its automaker customers.

The Dearborn, Mich.-based auto parts maker said its bankruptcy petition would focus on restructuring the company’s balance sheet, due to higher steel and resin prices.

Meridian, which had been mentioned by an industry lawyer, auto economists and other observers as a possible candidate for bankruptcy for several months, said the cancellation of the early payment program instituted by Ford Motor Co., General Motors Corp. and DaimlerChrysler AG, as well as declining auto production and shrinking market share for domestic automakers were reasons for the filing.

The early payment program established in 2001 allowed automakers to pay suppliers such as Meridian early for products and thereby receive a discount.

“We need to reduce our debt and simplify our capital structure in order to remain competitive under current market conditions,” Meridian CEO Thomas Divird said in a statement. “After considering many options, we determined that Chapter 11 provides Meridian with the most prudent approach to restructure our balance sheet while maintaining normal operations.”

Meridian, which manufactures steering parts for cars and trucks, also said it has secured commitments for as much as $375 million in debtor-possession financing from JP Morgan Chase & Co. to pay off portions of Meridian’s existing debt.

News of the bankruptcy filing led to Standard & Poor’s credit rating service to lower Meridian’s credit worthiness from CCC+ to D. Any credit rating below BBB is considered junk status.

The law firm of Sidley Austin Brown & Wood LLP was retained as Meridian’s restructuring counsel. FTI Consulting will serve as the company’s financial adviser.

Meridian, a privately held company, has about $600 million in debt and annual revenues of about $1 billion. The company employs 5,400 people at 22 plants worldwide, with 4,700 workers in the United States. There are about 2,400 people working in Michigan at facilities in Dearborn, Grand Rapids, Canton, Detroit and Ionia.

Company officials said there are no plans for layoffs or plant closings. But they said that they would evaluate all operations and make case-by-case determinations.

“This is very much a financially driven restructuring,” said Doug Morris, a spokesman for Meridian. “Obviously, we will continue to look at all areas of the business and make a determination in the future.”

The company said it expects to continue employee pay and benefits.

Meridian is the latest among medium-size auto suppliers — between $500 million and $2 billion in annual revenues — to file for bankruptcy in the last half-decade.

“I do think it’s a trend,” said Joel Applebaum, a bankruptcy attorney with Pepper Hamilton in Detroit. “Whenever you have reduced production by automakers it has an immediate and dramatic effect on suppliers. With reduced production quotas and increased costs of steel and plastics, suppliers are getting squeezed from both ends.”

Suppliers are at the mercy of automakers in an era of financial and market tumult in the industry, some observers say.

Along with internal pricing pressures, concerns over rising energy prices are beginning to affect consumer vehicle purchases, as evidenced by the slide in sales of large sport-utility vehicles in recent months.

Meanwhile, foreign nameplates continue to eat away at market share of carmakers. Some auto economists call the problems of the supplier base the tip of the iceberg for an industry that is in flux in the U.S. market.

The increased financial pressures facing the auto supplier industry and the subsequent increase in high-profile bankruptcy filings counter the trend in other parts of the economy. Nationally, there were 8,474 Chapter 11 filings of businesses in 2003, down from 10,286 the year before.

The future looks cloudy for growing numbers of midsize suppliers.

Some experts predict that the universe of suppliers will contract significantly in the next decade, resulting in an industry in which domestic automakers rely less on U.S.-based parts suppliers and more on overseas companies that will be able to deliver products more cheaply.

“It doesn’t take a rocket scientist to know that the bulk of the marketplace isn’t in North America any longer,” said Jim McTevia, a corporate turnaround specialist and chairman of McTevia & Associates in Eastpointe.

“Asia is where the automotive future is going to lie in the next 10 to 15 years. Unfortunately, Detroit just won’t be the automotive capital of the world.”

_______________________________________

Click here to view the rest of today’s headlines.