By Patrick Fitzgerald and Peg Brickley
UCI International LLC, a maker of replacement auto parts owned
by New Zealand's richest man, filed for bankruptcy protection late
on Wednesday night, after talks with bondholders about a
balance-sheet restructuring failed.
The Lake Forest, Ill., company, said it was forced to file for
chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del.,
after it was unable to reach an out-of-court deal with bondholders
who include funds managed by BlackRock Inc., J.P. Morgan Chase
& Co., and Credit Suisse Asset Management
UCI skipped a $17.25 million interest payment to the
bondholders, who are owed $400 million, in February, according to
Brian Whittman, the company's chief restructuring officer. The bond
debt is left over from a 2011 leveraged buyout led by New Zealand
billionaire Graeme Hart, whose Rank Group acquired UCI a little
more than five years ago in deal valued at $980 million.
The bankruptcy proceedings includes UCI's U.S. businesses --
Airtex Products, ASC Industries and Champion Laboratories -- which
supply filtration parts and pumps to aftermarket retailers and
General Motors Co.
Mr. Hart's Autoparts Holdings Ltd., which markets the Autolite
brand of spark plugs and FRAM brand of oil, air and fuel filters,
isn't part of the bankruptcy case.
Efforts to renegotiate UCI's debt load took place against a
backdrop of industry trends including lower-cost competition from
China, a decline in the number of U.S.-made vehicles, increasingly
concentrated customer buying power and longer life for parts thanks
to better technology.
UCI also ran into trouble over the past year with its three
biggest customers: aftermarket retailers AutoZone Inc. and Advance
Stores Co. and General Motors Co.
AutoZone and Advance each stopped selling the company's Airtex
fuel pumps, and UCI failed to win a contract to supply GM with a
new-generation water pump, Mr. Whittman said in an affidavit filed
with the bankruptcy court. The loss of the Advance business alone
is expected to cost UCI $80 million in sales this year.
The company says it might not need bankruptcy financing to make
it through chapter 11, if it can keep its accounts receivable
factoring arrangements in place. Bondholders have offered to
finance the bankruptcy proceeding, if UCI does need a chapter 11
loan, court papers say.
Such bankruptcy, or debtor-in-possession, loans often give the
lenders leverage in a chapter 11 restructuring. However, the
company needs to use its cash and doesn't have permission from
senior lenders to do so.
The nearly $32 million in cash UCI has on hand is claimed as
collateral by lenders of $69.4 million in senior loans. When it
walks into court on Friday for its first hearing before a judge,
UCI could be in for a fight with its lenders, which includes Credit
Suisse AG. Mr. Hart's Rank Group Finance Holdings Ltd. is also a
lender.
Lenders with a claim on the cash of distressed companies are
able to exact extra payments as a condition of allowing the
business to continue to use the funds. UCI has offered its lenders
a package of protections, but, as of early Thursday, the lenders
hadn't accepted the offer.
The chapter 11 filing notwithstanding, UCI remains in "active
discussions" with its bondholders over the terms of a plan of
reorganization plan that will allow the company to exit bankruptcy
proceedings as a going concern, Mr. Whittman said.
While in bankruptcy proceedings, UCI needs to cut its debt load
to get the balance sheet in line with gloomier prospects, court
papers say. The company's annual interest expense is about $38
million, or about $9 million higher than its adjusted earnings
forecast for 2016, which reflects business losses. UCI, with assets
of $435.3 million and debts of $716.8 million, posted a loss of
$501.3 million last year on sales of $784.7 million.
The bankruptcy filing marks a stumble for Mr. Hart, a packaging
tycoon with a fortune that Forbes magazine recently estimated at
$7.2 billion.
In February, the same month cash-strapped UCI skipped its
payment to bondholders, Mr. Hart's Autoparts Holdings agreed to
sell its Prestone Products Corp., a maker of antifreeze, coolants
and other performance chemicals for vehicles, to private-equity
firm Centerbridge Partners for $230 million. He acquired that
business in 2011 when he bought the auto consumer products business
of Honeywell International Inc. for $950 million.
UCI, which employs about 1,800 people, all in the U.S., said it
would remain open during its bankruptcy case, and the company
doesn't expect the bankruptcy filing to have an impact on its
day-to-day operations. Among its initial bankruptcy requests, the
company is seeking court approval on Friday to continue paying its
suppliers and employees.
The law firm of Sidley Austin is handing the chapter 11 case and
UCI has hired investment bank Moelis & Co. and Alvarez &
Marsal as its financial adviser. The case number is 16-11354 and
Judge Mary F. Walrath has been assigned the case.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com and
Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
June 02, 2016 16:31 ET (20:31 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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