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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Exide Technologies Files for Bankruptcy in Delaware

Posted in Bankruptcy Case Summaries

Introduction

On June 10, 2013, Exide Technologies (“Exide” or “Debtor”) filed a petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Exide filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. With operations in over 80 countries, Exide describes itself as “a global leader in stored electrical energy solutions and one of the world’s largest producers and recyclers of lead-acid batteries.” See Declaration of Exide’s CFO in Support of Chapter 11 Petitions and First Day Pleadings (the “Decl.”) at *2-3.

Exide’s business falls into two general categories – transportation and industrial. On the transportation side, Exide manufactures and sells batteries used in cars, trucks, recreational and marine vehicles. In its industrial divisions, the company offers motive and network power batteries. Motive power batteries are used in equipment such as electric forklifts, floor cleaning equipment and the like. Network power batteries, on the other hand, power systems used in telecommunications, computers and health care industries, among others. Decl. at *3. Exide employs over 3,600 employees in the U.S., 1,100 of which are salaried and 2,500 are paid hourly. Decl. at *4.

Events Leading to Bankruptcy

Exide attributes its bankruptcy to four primary factors: (i) increased production costs; (ii) greater competition; (iii) poor performance in Europe; and (iv) limited credit. See Decl. at *10-11. Regarding production costs, lead represents 46% of Exide’s cost of goods sold. Increased lead prices have negatively affected profits as Exide has struggled to pass these additional costs to customers. The battery industry has become highly competitive in recent years as retailers and other battery purchasers can negotiate lower prices. Wal-Mart, for example, recently designated one of Exide’s competitors as Wal-Mart’s sole source supplier of transportation business, costing Exide approximately $160 million in lost annual revenue. Decl. at *10.

Over half of Exide’s revenue comes from sales in Europe. The steady decline in European economies has negatively affected Exide’s revenue stream. Prior to filing for bankruptcy, Exide consolidated its North American operations and shutdown or took offline two of its production facilities. Despite these efforts, Exide’s fourth quarter results were well below its targets, which eventually led Moody’s to downgrade Exide’s ratings. Downgraded ratings negatively affected Exide’s trade terms with its vendors and limited its ability to receive outside financing. Decl. at *11.

Debtor in Possession Financing

Exide has approximately $31 million in interest payments coming due in August and maturity of $52 million in convertible notes in September. Once the company realized it needed to file for bankruptcy, it sought debtor in possession financing that would provide it with enough cash to implement a restructuring plan. Decl. at *13. In order to obtain financing, the company contacted 13 potential lenders, seven of which expressed interest. Exide eventually agreed to J.P. Morgan Chase Bank as its debtor in possession lender wherein the Debtor will receive $500 million in bankruptcy financing.  Decl. at *14.

The Exide bankruptcy is before Judge Kevin J. Carey. The case is proceeding under case number 13-11482. Exide is represented by the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida. You can reach Jason at 302 427 5512or jcornell@foxrothschild.com.

Below are some additional posts Jason has written on Delaware bankruptcy litigation:

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

Seeking Relief from the Automatic Stay in Delaware.

A Tale of Two Bankruptcy Auctions.

What Information is Required in a Chapter 11 Disclosure Statement?