Automotive supplier Chivas Products Ltd., mired in Chapter 11 bankruptcy protection since October, plans to sell much of its assets to a new joint venture firm that will include its former chairman as a majority shareholder.
The company, a supplier of plastic interior trim parts, will close its molding plant in Canton, Mich., within 60 days after failing to come up with a workable reorganization plan. The 37,500-square-foot molding plant employs 115.
Those steps, detailed in a Feb. 17 filing at U.S. Bankruptcy Court in Detroit, essentially would spell the end for Chivas Products and the start of a new, minority-owned auto supplier. In the filing, the company said it had no recourse but to sell some assets now and liquidate the rest after being pushed to do so by General Motors Corp. and Chrysler Corp.
According to the filing, the automakers insisted the molder be sold quickly or they would stop doing business with Chivas immediately. The companies, which had provided $3.6 million in a revolving credit line to keep Chivas afloat, had decided to cut off any more funds, the filing stated. Chivas owes both GM and Chrysler $900,000 in secured debt.
Chivas Chairman Joseph Anderson Jr. will own 46 percent of the new company, tentatively known as CPL Acquisition Co. LLC. Plymouth, Mich.-based Johnson Controls Inc. would hold another 44 percent interest, with the other 10 percent ownership share to be determined.
The asset sale price still is to be decided, with an initial estimate of $11.6 million, the document said. The group plans to work from Chivas' Sterling Heights, Mich., headquarters plant.
JCI and Chivas jointly had been awarded a $900 million seating contract from GM, set to begin next year in Detroit's Empowerment Zone. The new joint venture, which would apply for minority-business status, would take over that contract, the documents said. The contract was the largest ever awarded a minority supplier.
``We are excited about this opportunity for a fresh start — and to continue our operations through a new joint venture,'' Anderson said in a prepared statement. Anderson and a lawyer for the company both were unavailable late last week.
While Chivas' directors tentatively have approved the sale, an auction will be held March 4 to determine whether there are higher bidders for the firm's assets. The auction was urged by a committee of more than 300 unsecured Chivas creditors, who complained that they may not see a dime after the sale is completed, said Jack Gibson, a lawyer representing the creditor's group.
The sale is scheduled to be closed by March 14 if no other bidders come forward, according to the documents.
``We'd like to see the most profitable value brought to the transaction,'' Gibson said. ``It doesn't mean the creditors committee is happy. We're very saddened by the fact that this deal gives them nothing.''
If another offer is made, a bankruptcy judge could make the final call on which offer will be accepted, he said. Bids must be at least $300,000 higher than that offered by the joint venture company.
Chivas owes about $18 million in secured debt to major creditors that include GM, Chrysler, Detroit-based Comerica Bank and the Detroit Investment Fund, a for-profit financing group. The group of unsecured creditors, which would be paid next, is owed $8.9 million
Unsecured creditors include Dublin, Ohio-based resin supplier Ashland Chemical Co., which is owed $180,000; auto supplier Textron Co. of Troy, Mich., $274,000; and supplier Brooklyn Products Inc. of Brooklyn, Mich., $456,000.
As of Jan. 31, Chivas had $13.3 million in assets and $35.4 million in liabilities. It lost $2.3 million for the three months following the bankruptcy filing, the documents said. In January and February, it lost an additional $1 million.
``No doubt, time was of the essence to sell the company,'' Gibson said. ``Chivas couldn't drag it out month after month. In this case, there was too much continual bleeding.''
One unsecured creditor, injection molder Brighton Molded Plastics Inc. of Brighton, Mich., would like to continue working with the new company. Owner Robert Nakon said the asset sale to JCI and Anderson could be the only recourse to preserve the firm.
``I felt all along that they might land on their feet,'' said Nakon, whose firm is owed more than $50,000. ``The best way for me to recover money lost would be to take on new projects with the company. It doesn't do any good to complain, because there are only so many dollars to go around.''
Meanwhile, Chivas delivered a notice Feb. 17 to employees of the Canton plant stating that it would close by mid-April. According to a 1996 Plastics News story, the plant has 18 injection presses and molds interior trim and lighting products. Its Sterling Heights facility is primarily a plastics assembly operation.
Chivas recorded 1997 sales of $47 million at the two facilities.
JCI's interest in forming a new joint venture firm could stem from its desire to work with a minority supplier. Big Three automakers have set goals to work with minority firms and frequently award contracts based on that, said Craig Fitzgerald, a partner with auto supplier consultant Plante & Moran LLC in Southfield, Mich.
``Suppliers are being encouraged by their customers to share their purchase contract with a minority company,'' Fitzgerald said. ``It makes business sense, when you look at the demographics of the car-buying community, and it's the morally right thing to do. When JCI can work with a guy as impressive as Joe Anderson, it's a nice platform to demonstrate the firm's commitment to the minority community.''