WILMINGTON, Del. (Reuters) – Two U.S. manufacturers filed for bankruptcy on Monday with combined debts of about $600 million, both victims of the economic recession and frozen credit markets.
One of the companies is RathGibson Inc of Lincolnshire, Illinois, which manufactures custom tubing and pipes for the chemical, energy and pharmaceutical industries, among others. RathGibson, which is owned by senior management and DLJ Merchant Banking Partners, a unit of Credit Suisse Group AG(CSGN.VX), said in court documents its revenues were cut by the economic slowdown and the value of its inventory dropped, leaving it unable to borrow.
“This is seen as very very positive for us to emerge stronger on the backside of this,” said Kirk Thorne, a RathGibson spokesman, said of the filing.
He said the company was caught between its high leverage as a result of its acquisition by DLJ and a steep decline in business at many of its customers, which include Dow Chemical Co (DOW.N) and BASF (BASF.DE).
To fund its operations during bankruptcy, it plans to borrow $80 million from Wayzata Opportunities Fund II, which recently acquired the company’s secured debt. Wayzata will own the majority of the company’s equity under its planned reorganization, according to court documents.
The company said it had $305.1 million of assets and $319.2 million of debt as of April 30, with 521 full-time employees.
The second company filing for bankruptcy is J.L. French Automotive Castings Inc of Sheboygan, Wisconsin, which produces aluminum die-cast auto parts and has suffered as the demand for light vehicles in the United States has dropped sharply in recent years.
The J.L. French filing adds to a string of recent failures of auto parts suppliers, reflecting the pressure on the sector from sharply curtailed production and bankruptcies at automakers General Motors Corp (GMGMQ.PK) and Chrysler LLC.
The company said in an affidavit that about 95 percent of its 2008 sales revenue came from General Motors, Chrysler, Ford Motor Co (F.N) and Magna International Inc (MGa.TO).
J.L. French, which employs more than 800 in the United States, filed for bankruptcy in 2006 and several funds that invest in distressed companies own stakes of 10 percent or more.
The company said in a statement it had secured debts of about $280 million, and that it plans to give 95 percent of the reorganized company to lenders owed $154 million. Other lenders will get the remaining 5 percent of the reorganized company as well as warrants.
J.L. French could not be reached for comment.
Both companies filed in the U.S. Bankruptcy Court for the District of Delaware. In re: RathGibson Inc, No. 09-12452 and In re: J.L. French Automotive Castings Inc, No. 09-12445.
By Tom Hals
(Additional reporting by Ajay Kamalakaran in Bangalore; Editing by Steve Orlofsky)