Little Debate over Auto Parts Bankruptcies

Two car suppliers — Key Plastics and Special Devices — are among a half-dozen recent filers. No holiday joy for KB Toys employees.
Stephen TaubDecember 16, 2008

While Washington politicians try to find a way to help the U.S. auto industry avoid bankruptcy, some companies in the auto supply industry are already slipping into Chapter 11.

Among a half-dozen major recent corporate bankruptcy filings being blamed on the worsening economy are Key Plastics LLC and Special Devices Inc., both of which have major auto products lines.

Key Plastics, a maker of engineered plastic components for the global automotive industry, filed a Chapter 11 petition seeking approval of its prepackaged reorganization. It confirmed that holders of 75 percent of its Senior Secured Notes agreed to a restructuring. Under the agreement, holders will convert 100 percent of the $115 million face amount into common stock.

Once the restructuring is completed, investment firm Wayzata Investment Partners LLC will become the company’s controlling shareholder. The company expects confirmation of its prepackaged reorganization in late January. In addition, Wayzata will provide Key with debtor-in-possession financing of up to $20 million to finance ongoing operations. Wayzata also agreed to backstop a rights offering for $20 million in new equity investment in order to fund the reorganization and to provide the company with liquidity to support and grow its business operations.

“In the face of today’s economic conditions, we are pleased to have achieved such strong support for a consensual restructuring that is beneficial to our employees, customers, and suppliers by dramatically improving our balance sheet, eliminating the related debt service obligations, and enabling continued reinvestment in our products and future growth,” said Ralph Ralston, President & COO of Key’s North American operations.

Meanwhile, Special Devices on Monday said that through its Chapter 11 bankruptcy filing it will continue to operate all of its business units during the restructuring. Special Devices is a major manufacturer of airbag deployment devices, defense and aerospace products, and mining and blasting products. The company also said it has received $20 million in “debtor-in-possession” financing from Wayzata Investment Partners, its largest creditor, in connection with the bankruptcy filing.

“This financing supplements the company’s cash availability and provides the liquidity and funding necessary to carry out this balance sheet restructuring,” said Christopher Hunter, president and CEO, adding that the restructuring is aimed at its capital structure and not operations.

Elsewhere, KB Toys Inc. last week filed for Chapter 11 bankruptcy protection for the second time in four years. The 86-year-old toy retailer, which plans to close its stores, cited a “sudden drop” in sales in the past two months, according to Bloomberg News. KB emerged from its last bankruptcy three years ago it closed half of its 1,200 stores amid stiff competition from large retailers such as Wal-Mart Stores and Target Corp.

“Just about everyone I’ve talked to in the toy industry has been concerned about their survival for years,” analyst Sean McGowan of Needham & Co. told the wire service in an interview.

KB Toys, owned by Prentice Capital Management, is the latest among a rash of companies owned by private equity firms to go bankrupt this year. It is also the latest in a long line of retailers to file, and many analysts expect the list to lengthen after the holiday shopping season ends.

Also, Theater Extreme Entertainment Group Inc., Monday filed for Chapter 7 liquidation. Earlier this month, the distributor of home cinema design centers — a major luxury in a recession — suspended its operations and suspended the employment of all executive officers and employees.

Several days ago, CDX Gas LLC said it had filed for Chapter 11. The privately held independent gas company stressed it will continue normal business operations throughout the bankruptcy process while it develops a reorganization plan with its senior and junior secured lenders, as well as its senior subordinated note holders, to restructure debt and to resolve liquidity issues.

And Privately-held PPI Holdings filed for Chapter 11 as well, according to, an online database of Chapter 11 bankruptcies. The global supplier of precision metal formed components with eight manufacturing facilities nationwide, said that the filing “comes after an exhaustive exploration of options for continuing the business including a sale of its operations,” according to

PPI has obtained a commitment from General Electric Capital Corp. and Comerica Bank for up to $2 million in debtor-in-possession financing, according to the website.