AMHERST, N.Y. (July 1, 2009)—Mark IV Industries Inc. has taken a major step on the road out of bankruptcy.
The company has received approval from the U.S. Bankruptcy Court for the Southern District of New York on a $90 million debtor-in-possession financing agreement the firm reached with a loan syndicate led by JP Morgan Chase. That allows it to continue running its operations, pay employee wages and benefits, and purchase goods and services as it restructures its business, a spokeswo-man said.
A portion of those funds also will be used for the firm's operation outside the U.S., she said, to ensure it has ample working capital for all its business units.
Mark IV—which makes hose, belts and molded goods—previously came to terms with a steering committee of its senior lenders on a plan of reorganization and new capital structure for the firm.
The Amherst-based company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in late April to reduce its debt, improve its capital structure and strengthen its competitive position, the spokeswoman said.
The manufacturer of engineered systems and components for power transmission, fluid transfer and filtration applications listed debt of more than $1 billion and assets of up to $500 million when it filed for bankruptcy.
Its business units outside the U.S. were excluded in the filing, she said, as was the firm's Intelligent Vehicle Highway Systems operation, a supplier of electronic toll collection equipment in North America that is doing well in the market.
Mark IV ranked as North America's 19th-largest rubber product manufacturer in 2008, in the annual listing complied by Rubber & Plastics News.
Creditors move to forefront
The bankruptcy court ruling on the financing pact essentially will give Mark IV's secured creditors about 92-percent ownership of the company while unsecured creditors would get an 8-percent stake, estimated Jesse Burbage, an attorney with the Atlanta law firm of Burbage & Weddell L.L.C.
He has represented both domestic and international auto parts suppliers, but doesn't represent Mark IV.
The ownership change officially won't occur until the firm completes its reorganization plan, which should take about 60 to 90 days because Mark IV is trying to work through an existing framework, he said. “It could take longer for a final confirmation.”
When it does happen, Burbage said, the company should be “in decent shape because the creditors are holding the key. When the creditors own the equity you've turned the entire loan into equity.”
Once the court confirms the plan, Boca Raton, Fla.-headquartered Sun Capital Partners Inc.'s equity interests in the business will be canceled and it will no longer own the firm, he said. Sun Capital purchased Mark IV in January 2008.
“Our international operations are well positioned to weather today's difficult economic conditions,” Mark IV CEO Jim Orchard said. “Once the restructuring is complete, we feel our international operations should be in an even better competitive position with the support of a parent company that will be generating free cash flow which will enable us to invest consistently and prudently to grow our business worldwide.”
On the other hand, its U.S. businesses face a balance sheet problem, not an operational one, according to Orchard. The executive said the progress made so far with senior lenders is setting a solid foundation for coming up with a capital structure to support the business in the future.
Vote of confidence
Mark IV's debt load needs to be brought in line with its cash flow, Orchard said, which is why bankruptcy was the best option. He said he is pleased with the vote of confidence the company received from its senior lenders.
“Their willingness to provide us with DIP financing and invest in the future of our company demonstrates their confidence in our business model and our ability to achieve sustainable profitability,” he said.
Burbage said the company has a reasonable chance to move forward once it has its reorganization plan in place. The manufacturer will need to find additional financing and hope its customers don't head elsewhere, particularly because it's difficult to hang on to them these days.
“Customers are out there re-sourcing when they know a supplier is in trouble,” he said.
Before entering Chapter 11, Mark IV reduced its salaried work force by 20 percent in North America, closed a factory in Canada and consolidated a number of activities and offices.
The company operates 18 manufacturing facilities in 16 countries and has a work force of more than 4,600. It had sales of $1.34 billion for the fiscal year ended Feb. 29.