Case Studies

Automotive — Financial & Operating Restructuring

SITUATION OVERVIEW

In 2006, a middle market private equity sponsor acquired a $340 million global supplier of rubber hoses and vibration management systems to automotive OEM and Tier 1 customers. As the lead director for the sponsor, Carbide Partners’ Managing Partner, Mark Kammert, negotiated the terms of the acquisition and raised the initial senior and second lien debt financing for the transaction. A Japanese affiliate of the sponsor invested in the transaction as a minority equity co-investor.

CHALLENGES

As the North American auto industry began to weaken in late 2006, followed by the European auto sector in 2008, the company experienced declines in revenues and operating cash flow. In 2008 and 2009, as the global automotive downturn accelerated, the company experienced challenges in meeting its debt covenants and generating liquidity.

RESULTS

Working in partnership with the company’s management team, Mr. Kammert led a series of operational and financial restructurings of the company:

  • Negotiated a balance sheet recapitalization in 2007 involving a debt refinancing and an additional equity investment, which allowed the company to re-set its debt covenants and improve liquidity
  • Sold non-core real estate assets and the company’s non-strategic vibration management systems business
  • Consolidated North American manufacturing facilities and transferred production to Mexico
  • Downsized manufacturing operations in France and Spain
  • Developed cash forecasting systems and tightened working capital management to improve liquidity
  • Negotiated a second consensual restructuring in 2009, involving a debt-to-equity conversion, covenant resets and customer accommodations to improve the company’s liquidity, allowing the business to continue operations and gain market share, despite the severe auto industry downturn in 2009