Troy, MI, May 18--Collins & Aikman Corp. filed for Chapter 11 bankruptcy protection Tuesday, the latest auto supplier to fall victim in a climate of high costs and stiff competition.
Standard & Poor's Ratings Services responded by downgrading Collins & Aikman's credit rating further into "junk" status, from a CCC- rating to D.
Collins & Aikman said it will continue to operate during bankruptcy proceedings. The company told its 23,000 employees Tuesday it plans no immediate layoffs or closures of its 80 manufacturing facilities, spokeswoman Sandra Sternberg said.
"We do not anticipate that customers and suppliers will experience a change in the way we do business with them," acting chief executive Charles Becker said.
Becker took over last week after former chairman and CEO David Stockman resigned. Stockman is a former Republican congressman who served as White House budget director during Ronald Reagan's first term. He had served as Collins & Aikman's chairman since 2002.
The company, based in Troy, Mich., is one of the top 15 auto suppliers in North America, according to Neil De Koker, president of the Original Equipment Suppliers Association. The company had total sales of $3.9 billion last year.
Collins & Aikman formed in 1891 as an upholstery manufacturer and now provides automotive flooring, fabric, instrument panels and other equipment to the Big Three automakers as well as Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. Collins & Aikman products are in 90 percent of the vehicles sold in North America, according to the company's Web site.
De Koker said Collins & Aikman is at least the fifth auto supplier to go bankrupt since last fall. Tower Automotive Inc., which made around $3 billion in 2004 and has half the employees of Collins & Aikman, filed for bankruptcy in February.
"Certainly this is of great concern to both our customers as well as to suppliers of the company," De Koker said. "We hope they will be able to move quickly through the process."
Ripples from the bankruptcy were already being felt Tuesday. Textron Inc., maker of Cessna aircraft, reduced its earnings-per-share guidance because it holds preferred stock in several Collins & Aikman businesses, including an automotive trim business worth $39 million.
Ford Motor Co. and DaimlerChrysler AG's Chrysler Group said they will cooperate with the company.
Collins & Aikman said it has received a commitment from JPMorgan Chase & Co. for up to $300 million in debtor-in-possession financing. With court approval, the financing deal will allow the company to meet its supplier obligations as well as employee salaries and benefits, Collins & Aikman said.
The filing was widely expected for the troubled supplier, which has been struggling with the high cost of steel and other raw materials and production cuts at Ford and General Motors Corp. When Stockman resigned Thursday, Collins & Aikman said it was seeking a waiver from creditors because of lower-than-expected first-quarter results. The company has not yet released those results.
The New York Stock Exchange delisted Collins & Aikman's shares Thursday, citing the company's financial uncertainty. The shares had closed at 78 cents the day before.
Collins & Aikman's shares were worth about $6 apiece last summer but have sunk since the company announced it was investigating accounting problems and said it likely would have to restate earnings for 2003 and 2004, reducing results for both periods.
As of last week, Collins & Aikman had $13.4 million in cash available under its financing arrangements. The company's total debt is around $2 billion, according to S&P.
James McTevia, a Michigan-based adviser to restructuring companies, said Collins & Aikman likely faces substantial reorganization and layoffs. Auto suppliers must learn to be aggressive globally and seek business in fast-growing areas like Asia, he said.
