27 Automotive Suppliers File Chapter 11 Bankruptcies in 2009; End of Year Status Summary; Likelihood of Bankruptcy Preference Recovery

Pressures in the global automotive industry forced 27 FN1 automotive parts and component manufacturers and 2 automakers to seek Chapter 11 bankruptcy protection in 2009.  The number of filings is only the headline of the story.  While estimated trade creditor distributions on prepetition claims swung the spectrum of 100% to 0%, estimated recoveries of less than 2 percent predominate.  And more trade creditor pain looms in several bankruptcies, as bankruptcy preference action recoveries are either included in liquidation budgets, are necessary to avoid administrative insolvency or are likely to be sought by plan administrators and liquidation trustees.

This article provides a comprehensive list of the 27 automotive supplier Chapter 11 bankruptcies in 2009, together with status at the end of 2009, estimated trade creditor recoveries and the potential for avoidance actions.

Fluid Routing Solutions – Bankruptcy to Convert to 7, Preference Claims Coming

The other shoe in the Fluid Routing Solutions (now know as Carolina Fluid Handling Intermediate Holding Corp.) bankruptcy has finally dropped. On September 14, 2009, slightly more than 5 months from the 363 sale of most it operations, the Debtors filed a motion for an order converting the Debtors’ chapter 11 cases to cases under chapter 7 of the Bankruptcy Code. The motion was granted on September 28, 2009 and the trustee was appointed on October 2, 2008. We have provided a DocSheet for the period after the conversion of the Fluid Routing Chapter 11 to Chapter 7.

For suppliers, this is not the worst of the bad news. The really bad news for suppliers – the only hope of the Debtors’ trustee to avoid administrative insolvency is recovery of $2.5 million in preference claims.

Fluid Routing Solutions’ Purchaser Takes Automakers Off List

We discussed in a prior post the completion of the auction and bankruptcy court approval of sale of assets to an affiliate of Fluid Routing Solutions.  Despite its success in getting the sale approved, Fluid Routing Solutions was unable to obtain the concurrence of its automaker customers to the Proposed Sale Order. Fluid Routing Solutions advised the bankruptcy court in submitting the Proposed Sale Order to the bankruptcy court that Toyota, Chrysler, Ford and General Motors (the “Automaker Customers”) provided comments to the proposed order that were “wholly inconsistent with, and went far beyond, the requirements of the Agreement”.

Fluid Routing Solutions – Auction Over, Asset Sale Approved

On March 26, 2009, 48 days after the Chapter 11 filing, the sale of the fluid routing business and assets of Fluid Routing Solutions was approved. The winning bidder a/k/a the only bidder was FRS Holding Corp., (“FRS Deux”) who was the “stalking horse bidder” and an admitted “affiliate of an insider of the Debtors” and affiliate of the DIP lender, Sun Fluid Routing Finance, LLC (“Sun”). The purchase price is $11 million “less Cure Amounts less Prorated Taxes, minus/plus the Closing Net Assets Shortfall/Surplus.”

Fluid Routing Solutions Bankruptcy – Summary Post

In our posts on the bankruptcy of Fluid Routing Solutions, we have discussed unique aspects of this case that made it worthy of study.  These aspects include the following:

  • apparent inability to get institutional financing despite strengths;
  • sophistication of the overall bankruptcy strategy;
  • first day motions that were specifically directed at keeping the supplier base in place;
  • challenges of a bankruptcy of a supplier in the automotive sector;
  • being part of the investment portfolio of a major, private equity player, Sun Capital Partners;
  • DIP financing from a Sun Capital Partners affiliate;
  • close scrutiny given the case by Chrysler, Ford and Toyota;
  • presence of the UAW,
  • speed at which the case was moving. 

Fluid Routing Solutions Bankruptcy – Automakers are Paying Attention; DIP Financing Approved;

Feb. 10, 2009 – This case already is being closely followed by the automaker customers of Fluid Routing Solutions. Three notices of appearance have been filed – counsel to Ford Motor Company, counsel to Toyota Motor Engineering & Manufacturing North America, Inc. and counsel to Chrysler LLC.  An even stronger demonstration of automaker interest is the attendance at Monday mornings’ hearing (February 9, 2009) of counsel for both Chrysler and Toyota.

We would expect that the automakers do not want to see a repeat of the disaster that occurred with Cadence Innovation LLC, where Chrysler and GM ended up in a race to see who could pull their tooling first, and Cadence was left with no alternative but a straight liquidation. While they would never admit it, the automakers are probably monitoring each other as closely as they are monitoring Fluid Routing Solutions to make sure that no one makes any sudden moves.

Fluid Routing Solutions Bankruptcy – A Picture Emerges – But Blurry

Feb. 09, 2009 – The portions of the docket available on Friday, February 6, 2009 presented an incomplete picture of the intended direction of the Chapter 11 Bankruptcy filing of Fluid Routing Solutions Intermediate Holding Corp., Fluid Routing Solutions, Inc., Fluid Routing Solutions Automotive, LLC a/k/a Mark IV Automotive, LLC) and Detroit Fuel, Inc.

The docket is now complete through close of business on Friday. One of the last motions filed on Friday was:

Fluid Routing Solutions Bankruptcy – First Day Motion to Pay Certain Supplier Administrative Priority Claims

Feb. 08, 2009 – Through two “First Day Motions”, Fluid Routing Solutions, Inc. and its affiliated filers (“Fluid Routing Solutions”) are taking steps to hold their own supplier base in place and avoid disruption to its manufacturing operations. The two motions are:

  1. Motion for Order Pursuant to Sections 105(a), 503(b), and 507(a) of the Bankruptcy Code Authorizing Debtors to Pay Certain Prepetition Claims of Suppliers and Vendors of Goods and Services Entitled to Administrative Priority
  2. Motion for Order Pursuant to Sections 105, 363 and 506(b) of the Bankruptcy Code for an Order Authorizing the Debtors to Elevate Certain Prepetition Claims of Certain Critical Vendors to Administrative Priority

This post addresses the first of these motions.

Fluid Routing Solutions, Inc. Bankruptcy – Background; Financial Picture

The bankruptcy filing on February 6, 2009 of Fluid Routing Solutions, Inc. demonstrates that the ability of US automotive suppliers to obtain institutional financing has reached the “lowest possible point”. By analogy, the “lowest possible temperature” is defined as that point when all atomic motion ceases. This bankruptcy filing shows that all institutional financing options have ceased for a US automotive supplier whose customer base consists of domestic automakers.