Battery Maker Exide, With $500M Financing Deal In Place, Files Chapter 11 Petition

by Tara Arick on June 12, 2013 · 0 comments

in Bankruptcy

- From LexisNexis® Mealey’s™ Daily Legal News.

Battery maker Exide Technologies filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on June 10, despite citing debts more than $ 1.14 billion and assets more than $ 1.89 billion. The company also says it has lined up $ 500 million in post-petition financing from JPMorgan Chase Bank (In Re: Exide Technologies, No. 13-11482, Chapter 11, D. Del. Bkcy.).

Liquidity Decline

Exide is a battery manufacturer that describes itself as a global leader in “stored electrical energy solutions.” Exide contends that at the time it filed for bankruptcy, it operated 13 manufacturing facilities in the United States and 74 branches that sell and distribute the company’s products in North America.

Exide Executive Vice President and Chief Financial Officer Phillip A. Damaska filed a first-day declaration in which he said that in recent years, a number of factors have contributed to a decline in Exide’s earnings and liquidity position, making bankruptcy a necessary step for Exide to “de-lever its balance sheet and implement an operational restructuring plan with the tools available” under the Bankruptcy Code.

Costs

Specifically, rising production costs, such as the cost of lead, as well as costs associated with spent-battery disposal have “put pressure on” Exide’s margins, Damaska says. Furthermore, he says that competition in the battery industry has intensified in the last few years, particularly in the auto parts retail and mass merchandise markets, where large customers are able to use their buying power to negotiate lower prices and longer payment terms.

One of Exide’s former customers, Wal-Mart Stores Inc., chose Johnson Controls – Exide’s principal competitor – as its sole supplier of transportation batteries and stopped carrying Exide’s transportation products, Damaska says. That switch resulted in Exide’s loss of approximately $ 160 million in annual revenue, Damaska contends. More significantly, in addition to the revenue lost from Wal-Mart sales, Exide lost an important and reliable source of battery cores under a captive-core arrangement with Wal-Mart, he adds.

Damaska says that Exide’s poor financial performance in 2012 made it apparent that a successful out-of-court restructuring was unlikely. Therefore, the company retained Alvarez & Marsal North America LLC (A&M) and Skadden, Arps, Slate, Meagher & Flom to provide financial and legal restructuring advice, respectively.

Restructuring Attempts

Damaska adds that Exide suspended 401(k) safe-harbor and matching contributions, effective June 1, 2013, suspended suspending merit-based pay increases for employees not subject to collective bargaining agreements, discontinued production of its Vortex line of batteries at its Bristol, Tenn., plant and prepared to close that plant by July. He says the company also implemented other, unnamed programs to improve efficiencies in its other facilities.

As Exide moved closer to bankruptcy, Damaska says, the company sought post-petition financing, also known as debtor-in-possession (DIP) financing, from JPMorgan Chase Bank valued at $ 500 million.

DIP Financing

The DIP financing comprises $ 225 million in what is called a “first-out asset-based” revolving loan and $ 275 million in what is called a “second-out” term loan, Damaska says.

Damaska says Exide projects an initial DIP financing need of $ 170 million upon approval of the DIP financing, with a maximum DIP financing draw of approximately $ 375 million in September, driven largely by seasonal aspect of the company’s working capital cycle.

Exide is represented by Anthony W. Clark of Skadden Arps Slate Meagher & Flom in Wilmington.

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