JL French Automotive (“JLF”), the Wisconsin-based automotive supplier, filed for bankruptcy on July 13, 2009. JLF filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to the Declaration in Support of First Day Motions (the “Declaration”), JLF previously filed for bankruptcy in Delaware in February of 2006. On April 17, 2009, less than three months before JLF commenced its current bankruptcy proceeding, the Delaware Bankruptcy Court entered final orders closing the bankruptcy proceeding that began in 2006.
As stated in its Declaration, JLF designs and produces high pressure, aluminum die-castings. JLF began as a family-owned business in 1968, manufacturing die-castings at its facility in Sheboygan, Wisconsin. Eventually, JLF opened a second manufacuturing facility in Wisconsin and a third facility in Kentucky. With the expansion of its operations, JLF’s product offering grew to include engine blocks, oil pans, transmission cases, engine covers, bedplates and cam covers.
In addition to manufacturing automotive parts, JLF operates an aluminum smelting facility which provides JLF with aluminum needed for its die-casting operations. In order to meet expected production capacity, JLF made significant investments in aluminum separation and shredding equipment. JLF invested in the new equipment to meet its own aluminum requirements, as well as provide aluminum to third party manufacturers.
Events Leading to Bankruptcy
Like the auto part suppliers that filed for bankruptcy before it, JLF’s revenues are closely tied to the auto industry. According to its Declaration, 95% of JLF’s revenue comes from four customers: Ford, GM, Chrysler and Magna International. JLF designs its products for a particular auto manufacturer’s vehicle. To tailor its products to one manufacturer’s design requires JLF to make substantial investments years prior to production.
In papers filed with the Bankruptcy Court, JLF cites forecasts for the auto industry predicting vehicle sales in 2009 to drop to 4.2 million vehicles, representing a 44% drop in production compared to 2008, and a 55% drop compared to 2007. JLF made considerable investment in die-casting and smelting equipment in the years leading up to the present recession assuming its production would grow. Instead, the company is faced with drops in revenue that leave JLF unable to satisfy its debt obligations (JLF’s secured debt at the time it filed for bankruptcy totals $264 million).
Days prior to filing for bankruptcy, JLF entered into a “Restructuring Lock-up Agreement” with its first and second lien lenders. Under the agreement, JLF intends to convert the lenders’ debt to equity in the reorganized company. JLF intends to file its plan and disclosure statement soon after the commencement of its bankruptcy. This proceeding is before the Honorable Kevin Gross.