As some global automotive suppliers begin to file for bankruptcy protection due to COVID-19 shutdowns, analysts say more will follow.
Nashotah, Wis.-based automotive injection molder Techniplas LLC filed for Chapter 11 protection on May 6 as part of a sale and to reorganize its debt. Clamart, France-based auto supplier Novares Group SA entered temporary receivership with French courts at the end of April.
"The watch word for the next three to four months is going to be liquidity within the supply base," Michael Robinet, executive director of IHS Markit automotive advisory, told Plastics News.
"I can't ever remember the industry taking such a long period off and starting all on the same day. I mean, it's going to be bedlam."
Robinet said the industry should expect more auto suppliers to file for bankruptcy through the rest of 2020.
In documents filed with U.S. Bankruptcy Court in Wilmington, Del., Techniplas listed assets of between $100 million and $500 million and debts between $100 million and $500 million.
The firm obtained up to $50 million from existing noteholders and lenders to continue operations, according to a May 6 news release. Techniplas declined to comment on if it had secured any other loans or other finances to repay debts.
The company listed North American injection molding sales of $515 million for 2018, placing it at No. 36 in the most recent Plastics News ranking. It listed seven plants in the region.
Techniplas officials said it has an agreement with noteholders who account for about 95 percent of its senior notes and have agreed to the move to create a "more sustainable capital structure."
"We are proud of the confidence represented by the agreement with our noteholders," Ali El-Haj, CEO of Techniplas, said in the release. "This solution charts a positive path forward for the company, despite the challenges presented by the global COVID-19 pandemic."'
The bankruptcy filing and restructuring does not affect the company's subsidiaries outside of the U.S., according to the release.
It took the step after struggling to find an agreement with its banks and shareholders and solve a coronavirus-related cash crunch, Novares said May 11.
"Between the talks with our banks and our shareholders, set to last until July, and our customers who are talking about a restart in May, it was hard to see a way out and that is how the judicial solution appeared," Novares CEO Pierre Boulet told Reuters.
About 12 French and foreign banks asked Novares' two main shareholders, Fund Equistone with 72 percent and French state holding company Bpifrance with 15 percent, to contribute capital to a turnaround plan, the Reuters report said.
In September 2019, Boulet said in an interview with Plastics News that the company was projecting sales for 2019 to reach 1.4 billion euros ($1.5 billion), with a strategic goal of making 2 billion euros ($2.2 billion) in sales by 2020.
The company, previously called Mecaplast Group, grew rapidly during the 2010s. In 2016, it purchased Key Plastics LLC, a U.S. auto parts supplier.
In 2017, Mecaplast took the name Novares. That same year, Plastics News named Boulet its first Automotive Newsmaker of the Year, reflecting the company's acquisitions and expansion.
In North America alone, the company ranks No. 19 in the most recent Plastics News ranking of injection molders, with an estimated $425 million in sales.
Novares, which has 12,000 employees globally, found growth by focusing on light plastic components to reduce the weight of electric and hybrid vehicles.
In early 2019, Novares purchased Miniature Precision Components Inc. in Walworth, Wis., to boost its work supplying under-the-hood parts and balance its geographic and customer footprint.
Robinet said the auto industry shutdown will present suppliers with cash flow problems.
"The supply base gets paid usually anywhere between 45-60 days after they build a part," he said. "The negative situation is while there's some cash in the bank, it's going to be extinguished pretty quick. ... You've got capital going out the door because you're bringing people back in, retraining them. You're ensuring that you've got proper safety protocols integrated so there's additional costs there.
"What happens in July and August, when the receipts are not quite so strong and the expenses are just as they were before?" Robinet said. "The industry, while it's coming back this week, there is going to be downtime in June, July and August for select facilities because we just have too much inventory. We're not going to come back to the same pace at least through the third quarter."
Some suppliers had already been impacted by the GM strike in the fourth quarter of 2019, Robinet said.
"Volumes were holding up but were becoming a bit more erratic as we entered into the last part of last year and into the first quarter," he said.
"Each bank is different, and each relationship is different," Robinet said. "But there's going to be some suppliers that have drawn their line of credit. That's going to drive OEMs and Tier 1 suppliers to have to reach down their supply base to make sure some of these companies are liquid and can restart operations and continue through the summer.
"I think this is going to be the new reality," he said. "COVID may have been a trigger for some of these activities, but some of this has been building. I think we should be ready to hear about Chapter 11 discussions or debtor in possession financing and all other types of possibilities going forward.
"I think along the way, some will have to file Chapter 11, and I wouldn't be surprised if there were a couple that go [Chapter] 7," he added.
"It's going to be a very interesting next four to six quarters," Robinet said. "And there's definitely going to be some consolidation in the supply base."