Intermet Corp. has filed for bankruptcy and cited unprecedented high steel-scrap prices for making current business conditions unstable. In September Citaton Corp., another leading supplier of automotive castings, also filed for Chapter 11 protection and blamed steel-scrap costs for its dilemma.
Intermet produces automotive powertrain, chassis/suspension, and structural components, and has about 6,000 employees worldwide. In its statement announcing the bankruptcy filing, Intermet said business would continue as ususal without interruption during its reorganization. Intermet’s European operations are not included in the filing.
A voluntary bankruptcy filing (Chapter 11) allows a company to reorganize its assets and liabilities under court administration, with protection from creditors. Intermet states its restructuring plan will include new “raw-material cost-recovery practices that will be developed in cooperation with its customers,” and that will reflect market conditions more accurately. Also, the plan will address improvements to Intermet’s manufacturing operations, and present a revised capital structure.
"After a thorough review of our options,” explained Intermet chairman and CEO Gary f. Ruff, “we decided to file under Chapter 11 because it provides a measure of stability and the best protection to all our constituents by allowing us to pursue a comprehensive restructuring. The company thus far has made every effort to mitigate the rise in the cost of raw materials, especially scrap steel. However, we operate within an extraordinarily competitive industry already challenged by relentless price and margin compression. When you add in unprecedented raw-material cost increases, it creates a situation that must be addressed."
Intermet stated that the cost of steel scarp has increased from an average of approximately $160/ton early in 2003 to approximately $395/ton in August 2004.
In a September earnings forecast Intermet warned investors that raw-materials costs would result in a projected third-quarter loss.
A proposal has been made to the federal bankruptcy court overseeing the reorganization to give Intermet access to cash collateral on an interim basis, through mid October it stated, in order to maintain operations and uninterrupted supply of products to customers.