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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