DETROIT -- A decade of strategic stumbles sent Tower Automotive Inc. into Chapter 11 bankruptcy-court protection on Wednesday. Spiraling steel prices were just its latest challenge.
The company filed its bankruptcy request in New York and said it arranged for $725 million in debtor-in-possession financing from JPMorgan. Tower's operations in Europe, Canada, Asia and Brazil are not included in the bankruptcy.
Tower, with global original equipment sales of $2 billion in 2003, is the latest and largest steel casting or steel bending company to seek court protection from creditors since late 2004. Tower's filing follows months of delicate but unsuccessful negations with its banks and bond holders.
The Big 3, especially Ford Motor Co., will be scrutinizing Tower to assure that this key supplier of frames, assemblies and suspension modules survives. Tower supplies body structures for the Ford Five Hundred and Ford Freestyle.
Tower's crisis was sparked during the recent holidays when customer plant shutdowns were extended longer than expected, reducing its cash holdings by $40 million, according to a research note by bond analyst Shelly Lombard of Gimme Credit Publications Inc.
That prompted rating firms to cut its debt ratings even deeper into "junk" rating territory. Such actions can boost a company's borrowing costs.
Tower lists $630 million of bank debt and about $835 million of unsecured bond debt. As measured by debt to capital ratio, Tower ranked third highest among auto suppliers, behind Tenneco Automotive Inc. and Dura Automotive Systems Inc., according to Key Banc Capital Markets.
Novi, Mich.-based Tower said that the elimination of automakers' early payment plans, a program designed to speed cash payment to suppliers, cost the company an additional $17 million of cash.
But Tower has stumbled repeatedly over the past decade, according to industry experts. The company was hurt by a flawed growth strategy and challenges integrating its acquisitions, poor job quoting, and troubled launches, according to a source familiar with the company.
"It all came together as a train wreck," he says.
Tower's strategy of becoming a global parts integrator drove a series of acquisitions during the 1990s that loaded its balance sheet with debt.
One of those deals, A.O. Smith, was a troubled company that consumed Tower's time and capital to integrate. Worse, A.O. Smith put Tower in the automotive frame business, a sector that requires lots of capital but generates thin profit margins due to intense competition.
With a need to impress Wall Street, Tower drove revenues higher by aggressively bidding for new work in large, integrated body structures. But the hoped-for profits did not follow.
That's because automakers bid the work piecemeal - doors, engine cradles and the like - instead of an integrated unit.
For the first nine months of 2004, Tower reported losses of $10.8 million on $2.29 billion in sales. The company has not yet reported full-year financial figures.
The stamping industry has suffered in the face of the twin headwinds of Big 3 pricing pressures and rising steel prices. But that has not stopped Magna International Inc., one of North America's largest stamping suppliers, from being a profitable company, according to the source.
Tower is a supplier to the Big 3, Toyota Motor Corp., DaimlerChrysler AG's Mercedes-Benz division and BMW AG.
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