In response to U.S. automotive production declines and industry-wide credit restrictions, aluminum automotive components manufacturer J.L. French Automotive Castings Inc. on July 13 announced plans to reduce its secured debt from approximately $280 million to approximately $65 million via debt-for-equity swaps with first and second lien term loan lenders to provide a stable financial foundation for the company’s future operations. The company and its domestic affiliates will complete a prenegotiated restructuring under Chapter 11 and on July 13 filed voluntary petitions in the U.S. Bankruptcy Court for the District of Delaware. The company intends to file its Chapter 11 Plan of Reorganization (“Chapter 11 Plan”) and Disclosure Statement within the week.
None of the company’s foreign operations, particularly its subsidiary in Spain and its joint venture in China, are included in the Chapter 11 filing. These businesses will remain unaffected by the filings and will continue operations as usual.
J.L. French also announced an agreement with certain first lien lenders for a $15 million debtor-in-possession (DIP) facility to fund working capital needs that may arise during the reorganization. This facility will also serve as the foundation for the company’s exit financing.
“We are very pleased to have reached sufficient agreement with our lenders and customers to offer a Plan of Reorganization and Disclosure Statement very shortly,” stated Thomas Musgrave, chairman, president, and chief executive officer of J.L. French. “Our company has a strong business model with distinct technological and quality advantages that position us well with our customer base. However, sales have dropped commensurate with the dramatic decline in the North American automotive production to the extent that we cannot service the existing debt structure. By significantly reducing our debt, we will remove the balance sheet barriers that have historically prevented us from securing awards of certain new business contracts, and will provide the company with additional operating liquidity. The new financial structure will significantly enhance customer and vendor confidence and enable J.L. French to focus its resources to consolidating its operations, research and development, new customer programs and other strategic initiatives. In fact, our major customers support the proposed Chapter 11 Plan.”
Musgrave further noted that, “We intend to complete our reorganization in a matter of months – we expect to emerge from Chapter 11 protection within 90 days. In so doing, we will contain reorganization costs and minimize any disruption to our business.”
J.L. French is filing motions immediately with the court to request permission to pay certain prepetition claims, including employee wages and benefits, shipping fees, and essential vendor claims. Under these “first day motions,” the company is proposing that the prepetition claims of essential trade creditors be paid in full in the ordinary course of business. In addition, under the Chapter 11 Plan, the company will assume its contracts with its essential trade creditors and the customers that entered into accommodations agreements with the company.
The company has executed a lock-up agreement with its first and second lien lenders; this agreement is reflected in the Chapter 11 Plan, which the lenders have agreed to support. The Chapter 11 Plan calls for the exchange of more than $215 million in first and second lien term loan debt for substantially all of the equity in the company. Under the Chapter 11 Plan, the company’s first lien lenders would receive 95 percent of the common stock in the newly reorganized company. Second lien term loan lenders would receive five percent of the common stock in the new company. Additionally, the company’s existing first lien revolving lender will amend and extend its $50 million credit facility through November 2013 and convert the revolver to a term loan.
Holders of second lien term loan debt would receive warrants for up to 15 percent of the common stock in the new company, structured in three tranches, each with five-year terms, exercisable according to individual enterprise valuations.
Founded in 1968, J.L. French Automotive Castings, Inc., based in Sheboygan, Wis., is a leading global designer and manufacturer of highly engineered aluminum die cast automotive parts including oil pans, engine front covers, engine blocks and transmission cases. The company employs more than 800 people in its U.S. operations.
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