DETROIT - Supplier Collins & Aikman Corp. is surviving solely on customer loans after its main lending agent pulled out of a financing deal.
In an unusual move, a bank group led by JPMorgan Chase & Co. said it won't fund the remaining $150 million of its original $300 million debtor-in-possession agreement with the supplier, which filed for Chapter 11 reorganization May 17.
Collins & Aikman, which makes interior components, already spent the first $150 million approved by the federal bankruptcy court in Detroit.
The Troy, Mich., supplier needed a $30 million bridge loan from its automaker customers to get by until a hearing on Thursday, July 7. The company said it is working on a long-term financing plan but is not ready to disclose details.
Companies use debtor-in-possession financing to fund operations while they reorganize under Chapter 11. Without it, a company would quickly shut down.
Collins & Aikman supplies critical systems and parts to all North American automakers, especially the Chrysler group and Ford Motor Co.
People familiar with the case say the problem stems from a hasty May 17 Chapter 11 filing, which came two months after the company said that accounting irregularities would force it to restate its earnings for 2003 and 2004.
The filing came five days after the resignation of CEO David Stockman.
The company went into Chapter 11 without a reorganization plan and under the cloud of those accounting problems, said Joel Applebaum, a bankruptcy lawyer in Detroit who is not involved in the case.
Those factors make it difficult to value the company's accounts receivable and its inventory, the basis for any loan.
The fact that a debtor-in-possession lender - which gets a high payback priority when the case is over - pulled out is a signal that either the accounting issues or operations are worse than everyone thought, Applebaum said.
Collins & Aikman spokesman David Youngman said he didn't know why JPMorgan Chase pulled out of its agreement.
The lawyer for JPMorgan Chase didn't return calls seeking comment.
Years of losses
Collins & Aikman had suffered years of losses, low production, high raw-material costs and high debt when it filed its Chapter 11 petition.
The company also was plagued by unprofitable contracts.
Collins & Aikman ranks No. 11 on the Automotive News list of the top 150 suppliers to North America with North American original-equipment automotive parts sales of $3.90 billion in 2004.