Executives at Venture Holdings Co. LLC were surprised when managers at their Peguform GmbH unit filed for insolvency for their German operations, some analysts say, and Venture officials maintain the move was unwarranted.
Despite the extraordinary difference of opinion, the move by Venture's German unit has had an impact: Venture's credit rating has dropped and it has delayed delivery of a loan payment originally due June 3. The troubles have created ``significant new uncertainty regarding the company's financial condition and prospects,'' said analysts with New York-based Moody's Investors Service.
Meanwhile, union and workers' council representatives in Germany have blamed the American parent company for the financial problems there, stating in interviews with Automobilwoche, a German-language sister publication of Plastics News, that Venture has siphoned profits from Peguform to the United States.
Four members of the operating group of Peguform of BÃ¶tzingen, Germany, filed for insolvency, similar to reorganization under Chapter 11 of the U.S. Bankruptcy Code, claiming a lost line of credit on May 8 left the business unable to pay creditors and suppliers in a timely fashion. The filing affects only the seven Peguform plants in Germany.
In its only public acknowledgement of the move, Fraser, Mich.-based Venture stated the German managers acted in error, based on ``grounds of a perceived imminent insolvency rather than an existing insolvency,'' according to a brief report filed June 6 with the Securities and Exchange Commission.
``We believe these petitions were not properly filed under applicable law,'' the company stated.
Venture has filed an objection to the filing, but a final decision on the case could take 90 days, tying up cash from the plants that, Moody's says, are responsible for 40 percent of Venture's sales.
Venture Holdings is parent to both Peguform and Venture Industries Corp.
Financial services group Standard & Poor's downgraded Venture's credit rating June 3 to CCC from B+, while Moody's continued a review of the firm with the potential for a ratings fall.
Venture is a global supplier of plastic parts, with Peguform standing as one of the biggest producers of bumper systems in Europe. The privately held firm bought Peguform in 1999 for $445 million. The European group retained its own name and operates as a wholly owned subsidiary.
Peguform has continued to grow since the purchase, and Venture is rumored to be among the potential bidders for French auto supplier Matra Automobile of St. Quentin en Yvelines - which would give it the potential to produce entire vehicle bodies.
But on May 8, London-based Hermes Credit Insurance and Guarantee plc, the insurer providing Venture's suppliers with credit insurance, withdrew its coverage. That move left Peguform unable to pay its suppliers in the time allowed under German law, and prompted the four executives to seek insolvency. The move does not affect other Peguform operations throughout Europe, nor does it affect operations in Mexico and Brazil.
German law holds that managers of a borrower can be held criminally liable if it is found they negligently delayed filing for insolvency. The German court must investigate the insolvency filing and determine whether to finalize the request. German automakers, meeting June 4, agreed to provide cash to keep production rolling at Peguform. Officials would not say how much money was promised.
Moody's maintains it cannot determine at this time if Venture's claims will hold true. If the court agrees the Peguform units are insolvent, the entire corporation will face a shakeup. Venture had a $14 million bond coupon payment due June 3, which it now states it will pay by June 28, within its 30-day grace period. Its lender has provided a waiver allowing the delay, the company stated in its SEC document.
There is a lot riding on the finding of the German court, Moody's reported.
``A negative resolution to the German administrator's investigation ... would likely have extremely serious and damaging implications for the company,'' the report states. ``Moody's does have significant concern about Venture's ability to continue operating during the period the company is awaiting a decision."