Exide Technologies Bankruptcy | Chapter 11 | June 10, 2013
Exide Technologies files Chapter 11 Bankruptcy on June 10, 2013.
Exide Technologies filed for protection under Chapter 11 of the United States Bankruptcy Code on June 10, 2013. The bankruptcy case is pending under Case No. 13-11482, United States Bankruptcy Court, District of Delaware.
According to its pleadings, as of March 31, Exide had $1.9 billion in assets and $1.1 billion in liabilities
Exide has operations in more than 80 countries, and is a global leader in stored electrical energy solutions and one of the world’s largest producers and recyclers of leadacid batteries.
The Debtor, headquartered in Milton, Georgia, operates 13 manufacturing facilities in the United States. The Debtor also operates approximately 74 branches4 throughout North America, which sell and distribute batteries and other products to customers, battery specialists, retail stores, and OEM dealers. In addition, branch locations collect spent batteries for the Debtor’s recycling facilities. On average, branch locations are approximately 20,000 square feet in size and are generally leased for periods of 29 to 42 months.
Exide, a Delaware corporation organized in 1966, and the successor in interest to a New Jersey corporation originally founded in 1888, is the parent corporation of seven Domestic Subsidiaries and five Foreign Subsidiaries. The Foreign Subsidiaries have numerous direct and indirect subsidiaries and joint venture interests in various parts of the world, including Asia, Europe, Australia, New Zealand, Mexico, and Canada.
Exide Business Groups
The Company has four global business groups—Transportation Americas, Transportation Europe and Rest of World (“ROW”), Industrial Energy Americas, and Industrial Energy Europe and ROW, which provide a comprehensive range of stored electrical energy products and services for industrial and transportation applications. The Company manufactures and distributes transportation and industrial batteries in North America, Europe, Asia, the Middle East, India, Australia, and New Zealand. In the transportation segments, the Company distributes and markets transportation batteries, which include starting, lighting, and ignition batteries for cars, trucks, off-road vehicles, agricultural and construction vehicles, motorcycles, recreational vehicles, marine, and other applications to a broad range of retailers, distributors of replacement or after-market batteries, and automotive original equipment manufacturers (“OEM”). The Company’s industrial batteries consist of motive power batteries and network power applications. Motive power batteries are used in the material handling industry for equipment such as electric fork-lift trucks as well as in other machinery, including floor cleaning machinery, powered wheelchairs, railroad locomotives, mining equipment, and electric road vehicles. Network power batteries provide energy storage solutions for critical systems that require uninterrupted power supply and are used to power, among other things, telecommunications systems, computer installations and data centers, hospitals, air traffic control systems, security systems, electric utilities, railways, and various military applications.
Exide Customer Base
The Company has a diverse customer base comprised of a number of major end-user and retail customers, including market winners and industry leaders.
Exide has five smelters, three of which are currently active battery collection and recycling facilities.5 These facilities reclaim lead by recycling spent lead-acid batteries, which are obtained for recycling from Exide’s customers and outside spent-battery collectors.
In fiscal year 2013, approximately 530,575 tons of batteries, plant scrap, and range lead were recycled at Exide’s smelters or by a third party at Exide’s request, which efforts enabled Exide to better control the cost of the principal raw material—lead—used in making its products. In the United States, the Debtor historically has obtained the vast majority of its lead requirements from its recycling operations.
Overall, the Company employs approximately 9,300 people globally. Of this number, 5,700 are in Europe and
ROW are not employed by the Debtor.
Secured and Convertible Debt
As of the Petition Date, the Debtor’s principal debt obligations are as follows:
|Facility||Funded Debt ($ millions)|
|The ABL Facility||$160|
|The Senior Secured Notes||$675|
|The Convertible Notes||$51.9|
|Total Funded Debt:||$886.9|
Events Leading to Exide’s Chapter 11 Filing
Exide asserts that the factors contributing to its decline in earnings are (a) rising production costs resulting in compressed margins; (b) intense competition; (c) exposure to the recent negative downturn in the European market; and (d) constrained liquidity.
With respect to competition, one of Exide’s then major customers, Wal-Mart Stores Inc., designated Johnson Controls—Exide’s principal competitor—its sole-source supplier of transportation batteries and stopped carrying Exide’s transportation products.
On April 24, 2013, the California Department of Toxic Substances Control (“CDTSC”) issued an order suspending operations at its Vernon, California secondary lead-recycling facility alleging that the facility’s underground storm-water system was not in compliance with state requirements and that the Company’s furnace emissions are not meeting applicable CDTSC health-risk standards.16 As a result of the Vernon shutdown, Exide had to source lead requirements from its remaining recycling facilities, open-market purchases of refined lead, and third-party lead recyclers to make up for the lost capacity increasing its costs
Exide has retained Alverez & Marsal to provide financial and Skadden, Arps to provide legal restructuring advice.
Initial restructuring efforts included (a) suspending 401(k) safe-harbor and matching contributions, effective June 1, 2013; (b) suspending merit-based pay increases for employees not subject to collective bargaining agreements; (c) discontinuing production of its Vortex line of batteries at its Bristol, Tennessee plant and preparing for closure of the plant by July 2013; and (d) implementing programs to improve efficiencies in its other existing facilities.
Exide has selected JPMorgan Chase Bank, N.A. to provide DIP financing to the Debtor. The DIP Financing will enhance Exide’s liquidity with $500 million in new capital—comprised of a $225 million first-out asset-based revolving credit facility and a $275 million second-out term loan facility—putting it on a path to achieve its restructuring goals. JPMorgan has agreed to syndicate the term loan facility to holders of the Senior Secured Notes and the Debtor anticipates that many of them will participate by lending new money and supporting the Company in its restructuring efforts. The Company projects an initial DIP Financing need of $170 million upon approval of the DIP Financing. The Company projects a maximum DIP Financing draw of approximately $375 million in September 2013, driven largely by seasonality in the Company’s working capital cycle, and the DIP Financing draw is projected to decline to $275 million by March 2014.
Chapter 11 Strategy
Therefore, after securing a fully-committed $500 million in DIP Financing, the Debtor determined it was time to enter into chapter 11 and implement a restructuring that would result in a de-levered balance sheet and a sustainable capital structure. In addition, prior to filing the Chapter 11 Case, Exide appointed A&M’s Robert M. Caruso as its chief restructuring officer.
“Our restructuring will allow us to strengthen our balance sheet and complete the operational changes that build upon the strategies that we have been pursuing,” James R. Bolch, Exide’s chief executive, said in a statement. “Over and above these efforts, we intend to become even more aggressive in reducing costs, taking actions with respect to underperforming business segments and to focus on the most attractive areas for future growth.”