The Las Vegas company that made a hostile takeover bid for automotive molder Newcor Inc. now is providing the financing to keep it in operation within Chapter 11, and also plans to provide the cash to help it re-emerge from bankruptcy later this year.
Newcor filed for protection from creditors in U.S. Bankruptcy Court in Wilmington, Del., on Feb. 25, listing $181 million in liabilities and $141 million in assets at the end of 2001. It saw $47 million in net losses for 2001 on sales of $177 million.
Those sales were down dramatically from just a year earlier, when the Bloomfield Hills, Mich.-based supplier had sales of $238.1 million and a net loss of nearly $6.6 million. It has not posted a profit since the second quarter of 2000, when it listed net income of $193,000.
Some 19 percent of Newcor's sales come from its rubber and plastics division, with injection molding, dip molding and cast molding of steering column parts, gearshift lever seals, air-conditioning ducts, transmission shift boots and a mixture of clips and brackets. It also produces metal components and manufacturing equipment.
Newcor already has undergone more than five months of heavy bargaining with its lenders since missing an interest payment on a loan in early September.
``We are committed and determined to return Newcor to profitability and this means working through this reorganization as quickly and smoothly as possible,'' Co-Chief Executive Officers David Segal and James Connor said in a written statement. ``Newcor is a company that has taken a number of cost-reduction steps and consolidations and therefore is well-positioned operationally.''
The Chapter 11 filing also is likely to give greater control to Segal's other company, the multi-industry holding group EXX Inc. EXX is providing the debtor-in-possession financing that is needed to keep Newcor rolling and in its court filing.
Connor noted Newcor's restructuring plan ``provides for a potential new equity investment by EXX.''
EXX launched a bid to buy out Newcor stock for $4 per share in April 2000 - when the stock was selling at between $1.87 and $2.75. But the board rebuffed the deal. Instead, EXX continued buying shares on the open market. The stock was selling for 36 cents per share on Feb. 25.
The holdings were big enough a year ago to bring Segal onto the board and by July EXX-backed executives took over the Newcor board.
EXX now owns 31 percent of Newcor's stock.
The combination of board control and financing through the Chapter 11 process is unusual, said David Eberly, managing director of GMA Capital LLC, a Farmington Hills, Mich., consulting and buyout group. Typically creditors want funds to come from an unconnected third party - not a group in position to control the day-to-day operations.
In court documents, Newcor officials stated the company believed EXX would offer the most favorable terms.
By early 2001 executives had admitted the auto supplier was struggling to replace contracts and find new business as the economy slowed across all of its customer bases.
``All in all, not a real positive outlook for our markets in this coming year,'' Connor said at Newcor's annual meeting in May. ``We will have to continue our cost focus, driving waste from the organization and aggressively attacking scrap, inefficiencies and improving productivity in the face of declining sales.''
In late August, Newcor announced it did not have the cash to make a $6.1 million interest payment on a $125 million loan on schedule, noting it was in negotiations to ``actively explore available alternatives.''
With its Chapter 11 filing, executives said the publicly traded firm was continuing its talks with creditors, aimed at a refinancing that would allow it to re-emerge as a profitable company.
``The debt level, given the revenue generated in our business, is simply too large'' even after cutting costs, according to the release from Connor and Segal. ``After considering a wide range of alternatives ... it became clear that this course of action was the only way to truly resolve the company's most challenging problems.''
But the restructuring may not be enough to guarantee long-term survival.
As automakers look to reduce the number of companies in the supply base, only those with something exceptional will thrive, said Jeff Mengel, a partner with consulting company Plante & Moran LLP in Auburn Hills, Mich.
``That's what it comes down to,'' he said. ``It's not just enough to firm up the balance sheet; otherwise, you'll be back in the same place.''