Troubles mount for Michigan automotive supplier facing insolvency

Unique Fabricating Inc. is facing insolvency after failing to make loan payments and dealing with allegations of improperly reporting finances, on top of being investigated for alleged labor rights violations at a manufacturing plant in Mexico.

The Auburn Hills, Mich.-based supplier of plastics, rubber and foam — whose customers include Rivian Automotive Inc. and Bosch — told investors at the end of March that its financial statements for November were being investigated for inaccuracy, according to a Form 8-K filed with the U.S. Securities and Exchange Commission.

As a result, the filing said, the company would be unable to file its financial report for the fiscal year ended Dec. 31 — a major red flag for investors.

Unique Fabricating stock was trading at just 15 cents per share as of early April 5, having lost nearly all of its value since launching its initial public offering in 2015 at $11 per share.

The company, which operates plants and warehouses in Michigan, Georgia and Kentucky, as well as Mexico and Ontario, is also in default with its lender, whose patience appears to be wearing thin.

After several forbearance agreements with Citizens Bank NA, the lender issued notice to the company March 23 that it was in default on payments for a loan principal of $44.1 million.

"The notice stated that as of its date, the agent and the lenders will no longer allow automatic advances under the revolving line of credit," according to the Form 8-K filing. "… Any further advances under the revolving line of credit will be at the discretion of the lenders and subject to such additional terms and conditions as may be required by the lenders for any such advances."

Unique Fabricating could not be reached for comment.

In its most recent financial report — the one under review — company executives said it took a $6.2 million operating loss and $10.6 million net loss in the third quarter, with projected full-year sales of $136 million. It had just $500,000 in cash and $1.3 million in liquidity under its revolving credit facility, now being reined in by lenders.

On a November call with investors, CEO Doug Cain expressed optimism about getting its debt in order and winning new business. About 90 percent of revenue is tied to automotive, with the rest composed of home appliance and consumer off-road.

Like other automotive suppliers, Unique Fabricating was struggling with production volatility, shrinking volumes and inflation, according to executives.

Cain said Unique Fabricating recently won a takeover project, launching Dec. 22, to supply electric vehicle maker Rivian with shaped foam HVAC ducts.

Rivian spokesman Peebles Squire declined to comment on the deal. "We do not have anything to add at this time," he said in an email.

On the November call, Cain said: "We are optimistic about completing the comprehensive debt refinancing that we expect to benefit all our commercial activities."

Now, the writing appears to be on the wall, said Van Conway, CEO of Birmingham-based turnaround firm Van Conway & Partners.

"The stock price kind of says it all," Conway said. "It looks like they're not gonna be able to cross the river here. Once you get under $2, it's kind of pre-Chapter 11 [bankruptcy] pricing."

Meanwhile, Unique Fabricating also has trouble in Mexico.

The U.S.-Mexico-Canada Agreement's Interagency Labor Committee for Monitoring and Enforcement announced in March that it requested a review by Mexican authorities into accusations that the supplier was "obstructing workers' freedom of association and right to collective bargaining," according to a news release.

The action was the result of a petition filed by the union Transformación Sindical, accusing the company of refusing to grant it access to the plant.

The USMCA Rapid Response Labor Mechanism allows the U.S. to take enforcement actions against individual factories if they fail to comply with domestic freedom of association and collective bargaining laws. The federal agency's request last month marks the seventh time it has used the mechanism since the pact was signed in 2020.

"The government of Mexico is currently conducting their review of the Unique case," a U.S. Department of Labor official said in a Tuesday email to Crain's. "It has until April 20, 2023, to complete its review and share its findings with the US government."

Despite daunting hurdles, the first priority for the company's lender and customers is to keep the business going, Conway said.

"All the customer cares about is continuity of supply, and all the bank cares about is getting their money," he said.