Key Plastics LLC has entered Chapter 11 seeking reorganization and protection from its creditors. The Novi, Mich.-based company filed a voluntary petition with U.S. Bankruptcy Court in Detroit on March 23. It also has received a proposed commitment from its lenders for up to $125 million of debtor-in-possession financing to cover its costs during restructuring.
Work will continue, Chief Executive Officer David C. Benoit said in a written statement.
"This decision will enable our company to maintain engineering and manufacturing of our products without significant interruption, while addressing the burden of our interest charges and debt amortization," he said.
"We expect to work constructively and garner the continued support of our employees, customers, vendors, shareholders and creditors. Their support is extremely gratifying, particularly from our customers who are referring new business and who have shown outstanding professionalism and support throughout this experience."
Key posted an estimated $550 million in sales in 1999. In its bankruptcy filing, the company listed total assets of $313.4 million at the end of December and nearly $353.2 million in total debt split among more than 1,000 creditors.
Its top unsecured debt, for $125 million on senior subordinated notes due 2007, is to HSBC Bank USA of New York, formerly Marine Midland Bank.
Other large unsecured creditors are: GE Plastics, $3.4 million for resin; BASF Corp., $2.8 million for resin; Motor City Mold of Livonia, Mich., $1.1 million for tools; and M.A. Hanna Co., $1 million for resin.
Most companies making the top 20 list are resin suppliers or toolmakers, but the list also takes in paint suppliers, freight haulers and packaging businesses.
New York-based Standard & Poor's lowered the company's credit rating to a D from CCC-plus when Key missed a $6.8 million payment due March 15. The rating was B at the end of January.
"D means default," said Standard & Poor's analyst Lisa Jenkins. "That's as low as it can go. It's a challenging business, especially when you're carrying that much debt."
Key has hired Peter J. Solomon Co. of New York as its investment banker to develop a long-term strategy.
"They haven't been telling us anything," said Betty Smith, president of Local 7639 of the International Union of United Paper Workers, which represents employees at two Key plants in Plymouth, Mich.
"We've been waiting just like everybody else."
The Chapter 11 filing didn't surprise Key's suppliers. Company representatives met with unsecured creditors March 1 to warn them of its problems.
"We all knew it was coming a few weeks ago," said one creditor who did not want his name revealed. "It was inevitable."
Suppliers are continuing working with Key on a cash-on-delivery basis, he said.
Key's debt jumped from $280 million at the end of 1998 with the purchase of Foggini Group, a Turin, Italy-based maker of interior, exterior and under-the-hood injection molded plastics for European automakers.
Key paid $113 million for the family-owned company, according to 1999 reports filed with the Securities and Exchange Commission. The price included a cash payment of about $45 million, assumed debt and a 35 percent stake in the newly formed European subsidiary, Key-Foggini Europe, which takes in all of Key's European holdings.
Foggini had sales of $130 million in 1998.
The purchase was just the last in a series of acquisitions that took Key Plastics from $217 million in sales in 1996 to an estimated $550 million in 1999.
In 1996, Key acquired Clearplas Ltd. of Coventry, England, and a share of Materias Plasticas SA of Leiria, Portugal.
In 1997, it wrapped up three purchases: T.D. Shea Manufacturing Inc. of Troy, Clearplas France SA of Belleme, France, and three Aeroquip Corp. plants, one in Chihuahua, Mexico, and two in Michigan — in Port Huron and Chesterfield Township, near New Baltimore.
Three more purchases came in 1998: Acco Plastics Ltd. of Markham, Ontario; a Howell, Mich., factory owned by Libralter Plastics; and Concentric plc's Moulded Plastics subsidiary of Tamworth, England, plus Concentric operations in Chicago and San Luis Potosi, Mexico.