DETROIT -- After missing a payment of $17.4 million to bondholders this month, Chassix Inc. has asked the bondholders to organize and retain advisers -- and a creditor's filing asserts that the company is taking steps toward a possible bankruptcy.
The supplier of chassis, brake and powertrain components did not make a scheduled payment twice since December on $525 million of bond debt it carries. Chassix, owned by Tom Gores' Platinum Equity LLC, is working with bondholders during a 30-day grace period to formulate a restructuring plan by early March, according to a Debtwire report.
Sources familiar with the situation told Crain's Detroit Business, an affiliate of Automotive News, that Ford Motor Co., General Motors and other automakers have been working with Chassix since September to accelerate payments and make financial accommodations to keep it operating, or monitoring the health of its trade creditors, to avoid a supply interruption.
Chassix may file bankruptcy around the time its grace period expires March 4 on $375 million worth of senior secured notes to bondholders, sources told Crain's. Chassix and Platinum Equity executives declined to comment.
"This is a delicate situation," a source who declined to be named told Crain's. "I used to hear that Tom Gores took pride in the fact that he does not put companies into bankruptcy; let's just say I haven't heard that in the last few months."
In November, Chassix urged bondholders to seek advisers as it sought to restructure debt, sources told Bloomberg News. Moody's Investor Service Inc. downgraded its Chassix credit rating to Caa in November, then withdrew all ratings for the company and its bond notes, saying it did not have sufficient information to maintain a rating.
According to Debtwire, AlixPartners LLC is advising the bondholders, San Francisco-based Golden Gate Capital, Tokyo-based Nomura Holdings Inc. and New York City-based Oaktree Capital Group LLC.
AlixPartners and Nomura subsidiary Nomura Holding America Inc. declined to comment on Chassix. Golden Gate and Oaktree Capital did not return phone calls last week.
Turning to court
Chassix has taken steps to shore up its supply chain.
The company brought six lawsuits between Nov. 14 and Dec. 22 against its own suppliers at Oakland County Circuit Court after those companies either stopped shipment on parts and materials, threatened to do so or moved to discontinue trade credit and require advance payment on future shipments.
Most of those suppliers sought financial disclosures or assurances from Chassix that it could still perform on its contracts -- and some were not encouraged by the results. Classix sued to enforce the contracts.
"(Our) review of this (financial) information confirmed what has already been publicly disclosed — that Chassix is financially unstable, highly leveraged, engaged in restructuring negotiations with its bondholders and OEM customers, among others, and is taking steps to prepare for (an) imminent bankruptcy filing," brake parts maker Akebono Brake Corp. of Farmington Hills states in a late December court filing responding to Chassix's suit.
The companies had collectively claimed more than $23 million owed on parts shipped to Chassix, with about $2 million of it past due. Chassix has settled five of the cases out of court, and a sixth, against Lake Forest, Ill.-based Tenneco Automotive Operating Co. Ltd., awaits a settlement conference Feb. 24 before Oakland County, Mich., Circuit Judge Wendy Potts.
Sources close to the dispute confirmed that the companies continue to supply parts to Chassix and that some have entered into deals that shorten payment timetables.
Shorter timetables to pay for parts shipped would mean lower outstanding balances that Chassix can carry, and likely less exposure for the other companies if Chassix does proceed to bankruptcy court.
Max Newman, partner and bankruptcy attorney for Butzel Long PC in Bloomfield Hills, said the fear of a production shutdown likely has customers and suppliers working around the clock.
"There's a heavy cost to the supply chain when a company gets in this situation," said Newman, who is not involved with the Chassix situation. "Any production shutdown can be devastatingly costly."
More to come?
Newman agreed bankruptcy is an option for Chassix. He added that a breakup is one of the options bankruptcy offers.
David Post, partner and chief investment officer at wealth management firm Telemus Capital Partners LLC, said a breakup is just one of several possibilities -- the company could also have a pre-packaged bankruptcy in development that allows it to stay largely intact, or get a new infusion of cash from its owners or reach a resolution with creditors outside of court.
While Post is not involved with the Chassix matter, he said Gores' private equity firms are strong financial performers and bondholders generally have little to fear as secured creditors in a bankruptcy.
"Bondholders are typically senior to the equity holders. In order for the (owners') equity to survive, it really comes down to the equity holder having to come to an agreement with the creditors. The bondholders are senior to (the equity holders)," he said.
A history of debt
Chassix, based in suburban Detroit, was born leveraged in April 2013, when Platinum Equity formed it by merging Diversified Machine Inc. and SMW Automotive Inc. Both companies are also based in the Detroit area.
Gores, billionaire owner of the Detroit Pistons, acquired Diversified Machine through his equity firm from The Carlyle Group in December 2011.
In 2011, Bloomberg reported that Diversified Machine sought $235 million in loans to back the sale to Platinum. More debt was taken on the following year when Platinum bought SMW and partially funded the deal through $150 million in financing secured through PNC Bank.
Carlyle formed Diversified Machine in 2005 by acquiring the assets of supplier UniBoring Inc. out of bankruptcy and adding assets from then-bankrupt Metaldyne and Hayes-Lemmerz.
Diversified Machine generated $450 million in revenue in 2010 and $335 million in 2009. Diversified and SMW together generated $1.2 billion revenue in 2012, which Chassix looked to grow to as much as $1.5 billion in 2013.
Around that time, Chassix employed 3,600 worldwide, including 1,200 at 10 Michigan locations. Then-CEO Robert Remenar told Crain's the supplier planned to hire about 200 in Michigan by this year, and spend about $96 million to expand the business.
"We're expanding our capabilities; our capital spending is double that of our competitors," he said at the time. "Our owners are doubling down on this business."
It's unclear whether Chassix followed up on the hiring or investments.
Remenar left the company in June 2014, replaced by Mark Allan, who previously served as the senior vice president of operations at Platinum.