Detroit, MI, August 17--Southfield, Michigan-based Lear Corp. threw its hat in the ring becoming the player to make a bid for bankrupt auto-parts supplier Collins & Aikman Corp., joining bidder Plastech Engineered Products, according to the Deal.
In a letter filed with the Securities and Exchange Commission, Lear CFO David C. Wajsgras expressed interest in joining the Collins & Aikman sweepstakes.
"If Collins & Aikman wants to consider Plastech's offer or any other transaction proposal, we would welcome the opportunity to participate in that process," wrote Wasjgras.
Whether Lear has filed a formal bid for Collins & Aikman, and what the details of such a bid might include, isn't clear. Neither company returned calls.
But last week, Dearborn, Mich.-based Plastech said it would pony up close to $1 billion for Collins & Aikman, which is in Troy, near Detroit.
"Both companies have to be considered serious bidders," said Jim Gillette, a consultant to the automotive industry for CSM Worldwide in Grand Rapids, Mich.
Both Lear and Plastech specialize in providing the parts for automobile interiors.
"About 50% of the Big Three's flooring and acoustics is provided by Collins & Aikman," added Gillette. "The move makes a lot of sense for both Plastech and Lear."
But can either afford the hefty price tag?
Both are highly leveraged. Closely held Plastech, which is roughly one-third the size of Collins & Aikman, borrowed about $515 million to fund its acquisition of LDM Technologies in early 2004.
Earlier this month, both Moody's Investors Service and Standard & Poor's dropped Lear's credit rating and senior unsecured debt rating. According to Moody's, Lear is seeking to hike its maximum allowable debt to 3.75 times its operating profit, even though its bank covenants require a ratio of 3.25 to 1.
If neither company proves able to come up with the money, others could enter the bidding.
"It wouldn't surprise me at all to see a handful of others get involved," said Gillette, pointing to a Swiss company called Rieter Group, which provides auto interior products to a host of European car manufacturers. "Right now, I'm speculating, but Collins definitely would fit well into a lot of companies' portfolios."
At this point, Wilbur Ross is a bit of a dark horse. The financier, who in recent years has financed rollups in the steel, textile and coal industries, owns about $750 million worth of Collins & Aikman bank debt. And in July, Ross provided postpetition financing to the company's U.K. affiliate around the same time he told fellow distressed-debt investors about his interest in the auto-parts sector.
"A lot of [the auto parts sectors'] problems are the same problems that faced the steel industry," Ross said before the Distressed Debt Investment Forum in New York. "It's on our radar screen."
Collins & Aikman filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Eastern District of Michigan in Detroit on May 17.
From the outset, however, the company was saddled with liquidity issues. Two days prior to its filing, the company reported having a scant $13 million on hand.
It next burned through a $150 million debtor-in-possession loan extended by J.P. Morgan Chase & Co., which held back another $150 million it committed to providing because of how fast Collins & Aikman spent the first half of the financing.
Collins & Aikman's customers — Ford Motor Co., General Motors Corp., DaimlerChrysler AG, Toyota AG, Nissan Motor Co. Ltd. and Honda Motor Co. — then jumped into the breach and lent the company about $305 million in credit, price increases and cost reductions.
