Automotive supplier Key Plastics LLC has told its creditors it is in "dire financial circumstances" and wants 90 days to reorganize its debts. In a March 1 meeting with 30 vendors, top Key officials warned that the company could not pay all of its bills if forced into bankruptcy, according to a March 7 letter addressed to "unsecured trade creditors" from the National Association of Credit Management. The letter was obtained by Crain's Detroit Business.
"Key provided those in attendance [March 1] with a `liquidation' analysis of the company, which indicated that if the company were effectively shut down and liquidated as part of a bankruptcy or other process, no monies would be available, after payment of senior debt, to pay unsecured creditors," stated the letter signed by Elizabeth Hedko of NACM-Great Lakes, secretary of the Informal Unsecured Creditors' Committee.
Key representatives at the March 1 meeting included Chief Executive Officer David Benoir, Chief Financial Officer Larry Schentor, lawyer Ronald Rose and financial consultant Donald MacKenzie of turnaround specialist Conway, Mackenzie and Dunleavy.
Key executives did not respond to requests for comment.
Small and large suppliers to Key, owed anywhere from $5,000 to several hundred thousand dollars, say they are worried the company may be near a bankruptcy filing.
"I don't want to see Key file Chapter 11, because then I won't see the money they owe me. They are asking for 90 days as part of a pre-Chapter 11 filing, I think," said a tooling supplier who wished to remain anonymous.
"Key stopped paying me six months ago, and now they're asking me to sit tight."
Novi, Mich.-based Key Plastics molds interior and exterior automotive trim. In September, the company listed $428 million in debts. Key reported $550.8 million in sales for 1999, up from $422.6 a year earlier.
Key asked its creditors at the March 1 meeting to hold off from collecting payment for 90 days to give the business time to restructure its debts.
During a March 3 meeting with the creditors' committee, Key representatives stated they would have an investment banker on board by March 10 to seek a sale of the business.
The committee agreed to the freeze, with 10 demands to Key, according to the letter. Among them were:
Key must give the committee financial and operational projections.
Key cannot increase its indebtedness significantly.
There must be no material adverse change in Key's financial condition or in its operations.
Key must satisfy the committee that it is progressing toward a plan to repay unsecured debtors.
Key also agreed to pay for the committee's lawyer, financial consultants and secretary.
"There are very intense negotiations going on between the company, their lenders and their customers," said David Eberly, managing director for GMA Capital LLC of Farmington Hills, Mich. Eberly is working with companies that are both suppliers and customers of Key.
Eberly described Key's strategy as "a hardball tactic utilized by potential Chapter 11 filers so they go into 11 under their own terms."
"Once they get to this point, they are basically acknowledging they have some very serious troubles," he said.
Last year Key made the biggest acquisition in its history, buying Foggini Group of Turin, Italy, an injection molder serving automakers throughout Europe.
March 10 marked the third deadline Key had to secure more capital. Creditors had extended deadlines in January and Feb. 15.
Crain's Detroit Business reporter Jeffrey McCracken contributed to this report.