Auto parts suppliers may face second bankruptcy

NEW YORK (Reuters) - U.S. auto parts makers that have already restructured under bankruptcy could find themselves back in bankruptcy court as the global economy weakens and U.S. auto sales decline, bankruptcy and restructuring specialists say.

"This is the most precarious operating environment for the automotive industry in recent memory," said Randall Eisenberg, senior managing director for restructuring advisor FTI Consulting. "Those companies that are not nimble enough to react to the dramatic overall volume change and consumer demand shift are the ones more susceptible to filing a second time."

Private U.S. auto supplier Intermet Corp, for one, filed for creditor protection on August 12. The company had already reorganized under bankruptcy in 2005.

"You come out of Chapter 11 with a certain sense of what the market is likely to be and the (emergence) plan is designed around that projection," said Richard Mikels, chairman of the bankruptcy practice at the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.

"But if that projection turns out to be wrong because the environment is significantly worse than anticipated, then Chapter 22s are very likely." He declined to give specific company examples.

Chapter 22 is an unofficial term used by bankruptcy professionals to describe a company that files a second time for protection from creditors.

The largest U.S. automakers have cut production as gasoline prices reduced demand for SUVs and trucks and soaring commodity costs ate into the profit margins of auto parts manufacturers.

Parts suppliers were also caught unprepared for the shift by U.S. consumers to smaller, more fuel-efficient cars from gas guzzlers.

NAVIGATING

Companies that significantly cut their debt in a Chapter 11 restructuring will be better able to navigate the current economic slowdown, said Roger Frankel, chair of the bankruptcy group at law firm Orrick, Herrington and Sutcliffe LLP.

"But the companies that emerged with a leveraged balance sheet absolutely have (going back into Chapter 11) as a possibility," Frankel said.

Frankel declined to give specific examples, saying only that "anyone that's got a junk-bond rating and is in that industry ... is going to be a candidate for a filing because that rating would indicate that they have a lot of debt on their balance sheet and indicate that they're in a challenging industry."

Dana Holding Corp (DAN.N) has a "BB-minus" rating from credit rating agency Standard & Poor's, three notches below investment grade. The maker of vehicle axles, driveshafts and gaskets emerged from bankruptcy protection in February. In August, it cut its full-year revenue forecast and posted a quarterly net loss.

Company spokesman Chuck Hartlage said the company has no plans to file for Chapter 11 bankruptcy protection again.

"Since we emerged, the market has gone down considerably and steel has continued to climb in price," said Hartlage. "We have a long way to go but we're managing that as best we can."

Hartlage added that the company has about $1.2 billion in cash and it continues to consolidate its business.

Dura Automotive, a supplier of manual seat adjusters and pedals, is another company that emerged from Chapter 11 this year. Standard & Poor's does not have a credit rating on Dura, which the company says is traded on Pink Sheets.

"Dura has a much stronger balance sheet, has diversified its customer base and its debt has been substantially reduced," said Dura spokeswoman Marge Sorge, adding that the company has no plans to file for Chapter 11 again. "It's become a very global company and is growing overseas, particularly in Europe."

STUCK?

Companies that have already filed for Chapter 11 could have trouble emerging, said restructuring experts.

"It has become much more difficult to complete restructurings given the lack of appetite by the capital markets in financing the automotive industry," said Eisenberg.

Dura had planned to exit bankruptcy at the end of 2007, but ran into difficulty because of credit market turmoil. And a plan that would have provided up to $2.55 billion to support bankrupt auto parts maker Delphi Corp's DPHIQ.PK reorganization and emergence from bankruptcy unraveled in April when Appaloosa Management LP and other investors pulled out.

"The likelihood of successful emergence from Chapter 11 is even less than it was a few years ago and it was even good, then," said Mikels, who declined to name specific companies.

(Editing by Gary Hill)