EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In re: )
) Case No. 04-67597
INTERMET CORPORATION et al., ) Chapter 11
) (Jointly Administered)
)
Debtors. ) Honorable Marci B. McIvor
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DEBTORS' BUSINESS PLAN
Pursuant to the directives of the Office of the United States Trustee
(the "U.S. Trustee"), Rule 2015(3) of the Federal Rules of Bankruptcy Procedure,
and 11 U.S.C. Section 704(8) which is expressly made applicable to debtors in
possession by 11 U.S.C. Sections 1107(a) and 1106(a)(1), the Debtors hereby
submit their Business Plan (the "Business Plan"). As required by the U.S.
Trustee, the Business Plan is divided into three main categories: (a)
identification of problems; (b) proposed actions; and (c) proposed timetable.
I. IDENTIFICATION OF PROBLEMS
A. BACKGROUND
On September 29, 2004 (the "Petition Date") the Debtors(1) filed
voluntary petitions in this Court for relief under chapter 11 of title 11 of the
United States Code, 11 U.S.C. Sections 101-1330, as amended (the "Bankruptcy
Code"). The Debtors continue to manage and operate their businesses as
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
The Debtors, together with their direct and indirect subsidiaries and affiliates
(collectively, "Intermet"), constitute one of the largest independent producers
of ductile iron, aluminum, magnesium and zinc castings in the world. Intermet
also provides machining and tooling services and products related to its casting
business, along with a range of other products and services for the automotive
and industrial markets. Intermet specializes in the design and manufacture of
highly engineered, cast automotive components for the global light truck,
passenger car, light vehicle and heavy-duty vehicle markets. For the fiscal year
ended December 31, 2003, Intermet had sales from continuing operations of
approximately $731 million.
Intermet directly and indirectly provides products and services to
every major North American automotive original equipment manufacturer ("OEM"),
several major European and Japanese OEMs, and several leading suppliers to the
OEMs (also known as "Tier 1" or "Tier 2" suppliers, and collectively with the
OEMs, the "Customers"). Intermet directly or indirectly operates 18
manufacturing facilities in the United States, Germany and Portugal. Intermet's
principal executive offices are located in Troy, Michigan. As of the Petition
Date, Intermet employed, directly or indirectly, approximately 5,400 people
worldwide, including approximately 4,200 employees in the United States.
B. THE DEBTORS' FINANCING ARRANGEMENTS AND PRE-PETITION OBLIGATIONS
Prior to the Petition Date, the Debtors' operations were financed, in
part, by a senior credit facility (the "Prepetition Credit Facility"), in which
approximately 20 lenders (the "Prepetition Lenders") participate (whether
pursuant to direct agreements or instruments with the Debtors, or through
participation with the lenders in contractual privity with the Debtors), and for
which the Bank of Nova Scotia is the Administrative Agent (the "Agent"). The
Prepetition
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(1) The Debtors are Intermet Corporation, Alexander City Casting
Company, Inc., Cast-Matic Corporation, Columbus Foundry, L.P., Diversified
Diemakers, Inc., Ganton Technologies, Inc., Intermet Holding Company, Intermet
Illinois, Inc., Intermet International, Inc., Intermet U.S. Holding, Inc.,
Ironton Iron, Inc., Lynchburg Foundry Company, Northern Castings Corporation,
Sudbury, Inc., SUDM, Inc., Tool Products, Inc., Wagner Castings Company, and
Wagner Havana, Inc., as debtors and debtors-in-possession.
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Credit Facility consists of a $90 million revolving credit line and a $120
million term loan. As of the Petition Date, the Debtors had borrowed
approximately $41 million under the aforementioned revolver. In addition, as of
the Petition Date, the Debtors had approximately $27 million of principal and
interest outstanding under various letters of credit issued under the
aforementioned revolver. Intermet Corporation is the principal obligor under the
Prepetition Credit Facility. The remaining Debtors are joint and several
guarantors of the obligations under the Prepetition Credit Facility, which is
secured by certain of the Debtors' United States domestic assets and pledges of
65% of the stock of certain of the Debtors' foreign subsidiaries.
Intermet is also a party to a $35.6 million Letter of Credit Facility
Agreement dated January 8, 2004 (the "L/C Facility Agreement"). Pursuant to the
L/C Facility Agreement, the Bank of Nova Scotia issued a letter of credit on
behalf of Intermet in the face amount of $35.6 million to secure Intermet's
obligations under the Columbus Foundry Bond (as defined below) (the "Georgia
LC"). The Georgia LC was secured solely by an account of Intermet holding $35.6
million of Intermet's funds (the "L/C Cash Collateral"). The L/C Cash Collateral
did not secure the Prepetition Credit Facility.
As of the Petition Date, one of the Debtors, Columbus Foundry, L.P.,
had obligations relating to indebtedness under variable rate limited obligation
revenue bonds in the approximate outstanding principal amount of $35 million,
which were secured by the Georgia LC. (the "Columbus Foundry Bonds"). On October
29, 2004, the Columbus Foundry Bonds were accelerated by the obligor and the
Bank of Nova Scotia was required to pay off such bonds pursuant to the Georgia
LC. On November 5, 2004, the Bank of Nova Scotia was granted relief from the
automatic stay and permitted to off-set Intermet's reimbursement obligation to
the Bank of Nova Scotia for the draw against the L/C Cash Collateral.
Another of the Debtors, Lynchburg Foundry Company, has approximately $2
million outstanding under industrial development revenue bonds in favor of
SunTrust Bank as trustee, which are secured by letters of credit.
Furthermore, as part of an asset purchase transaction, the Debtor
entity now known as Tool Products, Inc. assumed obligations relating to certain
industrial development revenue bond debt in favor of U.S. Bank, National
Association, as trustee, of which approximately $1.5 million in principal and
interest is outstanding.
The Debtors have also used the capital markets to finance their
operations and have indebtedness under a series of unsecured notes issued on
June 13, 2002 (the "Senior Notes")2, in the aggregate outstanding amount of
principal and interest of approximately $175 million. U.S. Bank National
Association (the "Indenture Trustee") is the trustee under the indenture for the
Senior Notes. A default under the Senior Notes constitutes a default under the
Prepetition Credit Facility, and the acceleration of indebtedness under the
Prepetition Credit Facility would constitute a default under the Senior Notes.
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(2) The only Debtors that are not obligors or guarantors of the Senior
Notes are Intermet Holding Company and Intermet International, Inc.
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As of the Petition Date, the Debtors had trade debt in the approximate
amount of $56 million.
With respect to post-petition financing, on November 5, 2004, the
Bankruptcy Court entered the Final Order Pursuant to Bankruptcy Code Sections
105, 361, 363, 364, 503 and 507: (a) Authorizing Debtors-in-Possession to (i)
Obtain Senior and Junior Secured Post-Petition Financing and (ii) Utilize Cash
Collateral, (b) Granting Superpriority Claims to Post-Petition Lenders and (c)
Granting Adequate Protection to Pre-Petition Lenders (the "Final DIP Order").
Pursuant to the Final DIP Order, the Debtors have obtained a $60 million
debtor-in-possession line of credit (the "DIP Facility") from a group of lenders
led by Deutsche Bank Trust Company Americas ("Deutsche Bank") and The Bank of
Nova Scotia ("BNS" but collectively with Deutsche Bank, the "DIP Lenders"). This
DIP Facility is split into two tranches - a first tranche comprised of $20
million in availability ("Tranche 1") and a second tranche of a further $40
million ("Tranche 2").
The Debtors have completed all of the necessary conditions precedent to
effect Tranche 1. The Debtors have substantially completed the necessary
requirements for availability of funds under Tranche 2. A condition precedent to
availability of funds under Tranche 2 is that the Debtors reach agreement with
their major customers satisfactory to the DIP Lenders, on or before December 31,
2004. As discussed below, the Debtors are working intensely with their Customers
to reach such agreements.
C. EVENTS LEADING TO THE CHAPTER 11 FILINGS AND RESTRUCTURING
INITIATIVES
The primary contributors to the Debtors' bankruptcy filings are
substantial increases in costs of raw materials used by the Debtors, especially
unprecedented increases in prices for steel scrap, which the Debtors use
extensively in their businesses, as well as losses at the Debtors' Racine and
Decatur facilities. The foregoing issues put significant financial strains upon
the Debtors such that the Debtors' ability to draw on the revolver portion of
the Prepetition Credit Facility became impaired. As a result, the Debtors sought
a waiver of certain conditions to receiving additional funds from the
Prepetition Lenders. The Debtors were unable to obtain such a waiver in order to
obtain additional funds under the Prepetition Credit Facility, which
necessitated the Debtors' bankruptcy filings.
The Debtors intend to maximize the benefits of their restructuring in
these cases by extensively reviewing all aspects of their businesses for
opportunities to improve performance. Among other things, the Debtors will seek
to restructure their secured and unsecured debt, rationalize their costs
(including labor costs and facility costs) and their manufacturing capacity with
their business needs, effect a customer strategy focused upon scrap steel
recovery and other commercial and financial issues, reject onerous contracts and
explore refinancing and equity investment opportunities.
II. PROPOSED ACTIONS
Intermet's proposed actions to resolve existing business issues fall
into three principal categories: (a) customer matters, (b) operational issues,
and (c) balance sheet de-levering.
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A. CUSTOMER MATTERS
Intermet's 11 major Customers comprise approximately 80% of sales
revenues for Intermet's North American operations. As part of their business of
supplying Customers, the Debtors are parties to numerous pre-petition contracts
with their Customers (the "Contracts"). The Debtors estimate that they have over
300 executory Contracts with approximately 100 different Customers. The
Contracts take many different forms, including purchase orders (the "Purchase
Orders"), releases and various other documents pursuant to which Intermet
supplies component parts to its Customers.
In connection with these bankruptcy cases, the Debtors have begun the
lengthy process of reviewing all of their Contracts in order to analyze the
benefits and burdens of each and to perform an assumption/rejection analysis in
accordance with 11 U.S.C. Section 365. Through this process, the Debtors have
determined that, absent particular changes to the Contracts that have been
identified with respect to each of the Customers, certain Contracts are
burdensome to the Debtors' estates because the pricing terms do not permit the
Debtors to generate a sufficient, or in some cases any, profit from their main
business source -- the manufacture and supply of component parts.
This determination is based, in large part on the fact that (a) the
price of scrap steel, one of Intermet's primary raw materials, has risen
substantially since Intermet has begun producing the component parts under the
existing Contracts, and such Contracts either do not allow, or are inadequately
or not timely in allowing, Intermet to pass such cost increases through to such
Customer, (b) pricing for certain of the component parts under certain Contracts
is well below market and/or the cost to produce such parts do not provide
adequate contribution margin, (c) the timing of payments under certain Contracts
is too slow, in light of the fact that Intermet is no longer able to avail
itself of accelerated payment terms which were previously available, and (d)
certain Customers have demanded other economic concessions from the Debtors,
which are onerous to Intermet under the circumstances.
The Debtors cannot successfully reorganize with certain Contracts in
their current form. The Debtors commenced negotiations and have engaged in
discussions with their Customers to address the inadequacies of such Contracts,
but as of November 17, 2004, the Customers had not yet agreed to the
modifications requested by the Debtors which would extinguish or relieve the
burden to the estates. Consequently, on November 17, 2004, the Debtors filed a
Motion for Authority to Reject Executory Customer Supply Contracts (the
"Motion"). In the Motion, the Debtors seek authority to reject all of the
Contracts with the 11 major Customers listed on Exhibit B to the Motion, such
Contracts which are to be identified in a notice (the "Rejected Supply Contract
Notice") that will be filed with the Court and served on the relevant Customer,
at least five (5) days before a hearing to consider the Motion (the "Rejection
Notice Date"). This process will allow the Debtors and the Customers to continue
negotiating with the Customers while simultaneously providing the requisite
notice that, absent the implementation of the changes requested by the Debtors,
the Debtors can no longer afford to honor the Contracts.
As noted above, such Contracts are burdensome to the estates because
they do not allow the Debtors to generate a profit through the sale of component
parts -- the Debtors' primary business. The price of raw materials, and in
particular steel, has significantly increased the cost
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of production. For example, the cost of steel has increased from approximately
$231/net ton in January, 2004 to $439/net ton in November, 2004. The Contracts
do not adequately, or at all in certain circumstances, take into account the
rising cost of raw materials.
B. OPERATIONAL ISSUES
The Debtors are executing on plant consolidation and other cost
rationalization strategies to assist in their restructuring efforts. On October
14, 2004, Intermet announced a plan to close its Columbus Machining plant in
Columbus Georgia during the first quarter of 2005. The primary reason for the
closure is to achieve rationalization of excess production capacity and reduce
costs. As of October 14, 2004, the Columbus facility employed 86 people,
including hourly and salaried staff. The Debtors continue to review other plant
consolidation strategies. Finally, the Debtors are reviewing all executory
contracts including collective bargaining agreements in an effort to capitalize
on the powers afforded debtors under the Bankruptcy Code. Further, the Debtors
are in discussions to effect changes at their Racine facility and are
considering other cost rationalization strategies at their other facilities
which strategies will become finalized pending the outcome of negotiations with
the Debtors' major Customers concerning the economics of the existing, and the
prospective, book of business.
C. BALANCE SHEET DE-LEVERING
The Debtors have initiated discussions with the Prepetition Lenders and
the Official Committee of Unsecured Creditors' (the "Committee") to develop a
Plan of Reorganization that would restructure Intermet's balance sheet to
de-lever Intermet and align its capital structure relative to the assets and
cash flows of the Debtors. This de-levering may involve the conversion of a
substantial portion of Intermet's debt into various equity securities in order
to reduce financial leverage, effectively meet restructured debt service
requirements, and increase cash flows available for use in the operations of the
Debtors' businesses. Moreover, any financing arrangements that would become
effective at the exit of the Chapter 11 proceedings would require additional
funds above and beyond the pre-petition debt amounts.
The Debtors also intend to maintain their status as leading suppliers
of highly engineered component parts. As part of the realization of this goal,
Intermet's management continues to work to ensure that there is no disruption to
the timely supply of component parts to Intermet's Customers.
The Debtors have made significant progress in developing and
implementing their strategies with respect to Customer matters and operational
cost rationalizations. The Debtors are proceeding rapidly to propose a Plan of
Reorganization that they believe will gain the acceptance of their major
creditors and other important constituents, including Customers.
III. PROPOSED TIMETABLE
Implementation of the cost-cutting measures described above has begun
in earnest and will continue during the Chapter 11 proceedings and beyond.
Intermet continues to engage in discussions with its 11 major Customers with
respect to amending certain Contracts on terms satisfactory to the Debtors and
the particular Customer, and within the context of prevailing
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market conditions. During the months of November and December, the Debtors have
and will advance these initiatives, together with negotiating exit financing and
will seek to execute definitive agreements with their Customers. In addition,
Intermet will negotiate with the various levels of creditors with the view of
filing a Plan of Reorganization by January 31, 2005. Barring unforeseen
difficulties, Intermet anticipates that if those arrangements can be negotiated
successfully, it will exit Chapter 11 by April 30, 2005.
Respectfully Submitted,
INTERMET CORPORATION, et al.,
Debtors and Debtors-In-Possession
DATE: November 30, 2004 By: /s/ David Dragich
One of Their Attorneys
Judy A. O'Neill (P32142)
David G. Dragich (P63234)
FOLEY & LARDNER LLP
150 West Jefferson Ave., Suite 1000
Detroit, Michigan 48226
(313) 963-6200
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