Hayes Lemmerz, one of the world’s largest wheel manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 11, 2009.  This is Hayes second time in to bankruptcy within the last ten years.  The company previously filed for bankruptcy in Delaware in 2001.  According to its Declaration in Support of First Day Pleadings (the “Declaration”), Hayes Lemmerz’s first bankruptcy was due to excessive debt, poorly integrated acquisitions and underperforming facilities.  Eight years later, Hayes is in bankruptcy again, however, this time the company claims its bankruptcy is “the result of economic forces beyond Hayes’ control and [is] necessary to implement a balance sheet restructuring.”

Hayes’ Business

Hayes entered the wheel business in 1908, making wooden spoke wheels for Ford’s Model T.  A century later, the company has grown to become a leading producer of aluminum and steel wheels for cars and light trucks.   Based in Northville, Michigan, Hayes has approximately 6,400 employees located in 23 facilities in the U.S. and throughout the world.  The company sells its products to almost every major auto maker including GM,  Ford, Chrysler, BMW, Honda and Hyundai.

Hayes’ sales in 2007 reached $2.1 billion, however by 2008 sales dropped to $1.9 billion.  As an auto parts supplier, Hayes’ sales are closely tied to the overall economy.  The decline in auto sales in 2008 directly affected the company’s performance.  Although Hayes’ sales dropped ten percent it 2008, its earnings dropped 23% from the year prior.  Worse still, the company’s stock was trading at $4.05 per share in 2008, however, it fell to $.23 per share by the time Hayes filed for bankruptcy.

Events Leading to Bankruptcy

Towards the end of 2008, Hayes sought amendments to various loan agreements.  In order for its lenders to agree to the amendments, they increased interest rates, which reduced Hayes’ profitability.  Hayes’ situation worsened further when the price of aluminum dropped, yet Hayes was required to continue purchasing aluminum above market prices due to its fix-forward contracts.

In the months prior to bankruptcy, Hayes was concerned that its customers would not enter into long term agreements with the company due to its loan defaults.  Through bankruptcy, Hayes seeks to access cash that was otherwise unavailable to it a few months ago.  According to its Declaration, Hayes hopes “that the proposed debtor-in-possession financing will … provide Hayes with sufficient liquidity to manage its operations and calm customer and supplier concerns.”

Hayes’ Financials

As reflected in Hayes’ Voluntary Bankruptcy Petition, the company has assets of $1.3 billion against liabilities of $1.4 billion.  Hayes lists its ten largest unsecured trade creditors as follows:

  1. Blue Cross/Blue Shield … $854,676
  2. Robert Bosch Co. … $801,808
  3. ADP … $490,739
  4. Heidtman – Ford … $374,687
  5. GE Capital … $374,462
  6. Timco … $365,488
  7. Lear Corporation … $358,888
  8. PPG Industries … $304,966
  9. Aleaciones y Metales … $267,580
  10. Continental Automotive … $264,543

Objectives In Bankruptcy

Although Hayes initially contemplated selling its assets, it ultimately decided to seek debtor in possession financing through bankruptcy.  With debtor in possession financing, Hayes hopes to come out of bankruptcy with less debt and greater profitability.  However, were reorganization not successful, the company estimates that it could net between $37.9 million and $86 million through a liquidation.

This bankruptcy proceeding is before the Honorable Mary F. Walrath, former Chief Judge of the United States Bankruptcy Court for the District of Delaware.