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MorrisAnderson Steers Automotive Supplier Through 363 Sale
The problem: Blackhawk Automotive Plastics, a $170 million automotive supplier, acquired approximately $40 million in transfer business when other suppliers failed, but the process of launching the new business in an already troubled industry taxed its cash flow.
Before the market-leading plastic injection molder could recover, the financial distress endemic to the North American automotive industry caused raw material vendors to change their payment plans. Not only were Blackhawk and other suppliers no longer granted their customary 30- to 45-day payment terms, in some cases they were required to pay cash in advance to guarantee future shipments.
Eventually, the combination of greater-than-expected start-up costs for the new business, pricing issues that necessitated some increase in receivables time, and pressures on working capital proved insurmountable. Blackhawk, by this time bleeding approximately $500,000 per month, filed for Chapter 11 bankruptcy.
The solution: MorrisAnderson, who initially had been hired to oversee cash management, was appointed Chief Restructuring Officer and Financial Adviser to the debtor during the bankruptcy and resultant 363 sale. Four months later, Blackhawk, with the assistance of an investment banker and the guidance of Morris Anderson, was sold to a multi-billion-dollar Canadian automotive supplier. Not only did this help senior lenders in the recovery of their loans, it also saved 800 jobs and ensured that Blackhawk remained an active presence in a small town in Ohio and a viable competitor in the highly competitive automotive industry.
It was not an easy undertaking. Blackhawk was a Tier 1 supplier to General Motors and a Tier 2 supplier to International Automotive Components. It operated manufacturing plants in Mason and Salem, Ohio, and a technology center in Troy, Michigan. The manufacturing plants had separate management teams and product lines, but shared purchasing, sales and marketing, and some administrative resources.
The majority of the unprofitable transfer business was at the Mason manufacturing plant, where the cost pressures were most severe. The Salem plant was faring better, because its operations were more focused on the company’s established core products being produced for more popular platforms.
One of MorrisAnderson’s primary concerns was to keep Blackhawk viable until it could be sold. Sale of a going concern would not only maximize value for the owners but bring a better result for creditors, and closing operations would have created ripples in an industry that was already coping with a general downturn. The automotive industry relies heavily on single-source, just-in-time suppliers. If Blackhawk had closed its doors the major manufacturers it supplied would have experienced immediate shut-down losses while they located another supplier.
Morris Anderson managed cash flow and maintained relationships with the DIP lenders and suppliers throughout this sale process. The team monitored bank collateral and maintained cash forecasting visibility to ensure that sufficient liquidity was available to support the business and Blackhawk’s manufacturing operations until the sale was consummated.
At the same time, the MorrisAnderson team worked with Blackhawk executives throughout the company’s sale process ensuring compliance with 363 bankruptcy rules and other structured agreements. Another challenge arose when two other plastic injection molding companies also filed for bankruptcy during this period, placing further valuation pressure on Blackhawk.
Despite all the challenges, including some fairly contentious dealings among stakeholders, MorrisAnderson was able to manage the operations until Blackhawk’s sale to another Tier 1 supplier. The new owner consolidated some of the Mason manufacturing facility’s more profitable business to the Salem plant, and now has a $100 million company with 800 jobs and run-rate EBITDA of about 12 percent.
In addition, when the remaining assets — primarily accounts receivable and real estate — are liquidated, it is anticipated that Blackhawk’s senior debt will be repaid in its entirety.
Dealing with an economic downturn, a beleaguered industry, and a distressed company, MorrisAnderson’s efforts yielded a sale that benefited the company, the senior creditors, the customers and a small town in Ohio.
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