Auto supplier Harvard Industries Inc. of Tampa, Fla., last week stepped out from a crushing debt obligation and filed for Chapter 11 bankruptcy protection.
The metal-castings company has defaulted on $384 million in long-term debt. Most of it came from Harvard's purchase of another supplier, Doehler-Jarvis Inc. of Toledo, Ohio.
By filing now, Harvard escapes more than $17 million in debt payments that were due in July and August. In recent weeks, analysts have expressed doubts that Harvard would be able to make those payments. The company's cash flow for the most recent quarter was just $2.5 million.
'I think a lot of people have been expecting this,' said David Bitterman, a bond analyst with Bear Stearns. 'The question now is, what does an OEM do with a bankrupt supplier?'
BUSINESS IS FOR SALE
In a statement, Harvard Chairman John Adams blamed the bankruptcy on continuing operating losses at Doehler. He announced that the business, acquired in 1995, is now for sale.
Ford Motor Co. and General Motors rely on the subsidiary for several aluminum castings.
Harvard and Doehler were brought together in July 1995 by their common chairman, Vince Naimoli, at a price of $218 million. But Doehler had operating problems. It failed to meet customer schedules, lost business and tried to catch up by running its machinery around the clock without proper maintenance, according to company documents.
Adams last week cited the 'impairment of long-lived assets' as one reason for the bankruptcy. For the quarter ended March 31, 1997, Harvard wrote off some of its assets and declared a loss of $172.3 million on net sales of $209.2 million. A year earlier, the company posted a loss of $24.6 million on sales of $200.8 million.
Adams said he expects the bankruptcy to 'increase the company's liquidity and permit us to focus on our highly successful core business.'
Harvard ranks No. 48 on the Automotive News list of top original equipment suppliers to North America.
Bond analysts last week speculated that the bankruptcy filing will not end Harvard's troubles. 'I fully expect to see a shareholders' lawsuit over this,' said Tom Klamka an analyst with Donaldson, Lufkin and Jenrette.
WHO'S TO BLAME?
Harvard itself raised the thorny issue of blame in a printed list of questions and answers circulated to the investment community last week. The company wrote, 'No one person is responsible for Harvard's lack of success with the Doehler-Jarvis acquisition.'
The document reads:
'Q: What happened to Vince Naimoli?
'A: Mr. Naimoli elected to resign as CEO of Harvard to pursue personal interests such as the Devil Rays baseball team and other civic activities.'
While managing the two automotive companies, Naimoli was assembling a group of investors to launch the new Tampa Bay Devil Rays major league baseball team, of which he now is managing general partner.
The document goes on to ask:
'Q: Was the Harvard bankruptcy precipitated by Vince Naimoli's preoccupation with baseball?
'A: (See answer to question #1.)'
'Question #1' had asked for a reason for the bankruptcy. The answer: 'To protect the core business of Harvard Industries against continued losses related to its Doehler-Jarvis acquisition.'
When reached at his home in Tampa last week, Naimoli said that he is a consultant to Harvard Industries. He declined to discuss the company.
Last week, analysts pondered how much Doehler-Jarvis will now sell for. Klamka suggested that even half of its 1995 sale price of $218 million would be too high. Bear Stearns' Bitterman agreed, noting that it will require considerable capital investment to improve its condition.