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Tower Automotive on path out of Chapter 11

From | April 17 , 2007

It's been a nerve-jangling ride for Tower Automotive and its president and chief executive officer, Kathleen Ligocki, but the Novi-based automotive supplier is poised to climb out of Chapter 11 bankruptcy this summer, making it the largest of the recently bankrupt auto suppliers to emerge.

If all goes according to the $1-billion private equity offer that Tower accepted March 28, the emerging company will:

Have 10,500, or about 88%, of the 12,000 employees it had when it filed for bankruptcy in February 2005.

Employ nearly 2,000 in Michigan at its Novi headquarters and plants in Plymouth, Clinton Township, Traverse City and Elkton. Tower, a manufacturer of vehicle frames and suspension components, had 2,800 Michigan workers before the bankruptcy.

Have a new investor-owner in Cerberus Capital Management of New York, which has pledged to honor Tower's pension promises to workers.

Depend on the Detroit automakers -- General Motors Corp., Ford Motor Co. and Chrysler Group -- for only 26% of total sales versus 68% a few years ago.

"We're very excited to get out and start competing normally again," Ligocki, one of the auto industry's few top-ranking female executives, said in an interview last [email protected]@[email protected]@

Bumpy road

However, she admitted that some harrowing moments occurred behind the scenes as the company worked to emerge from Chapter 11. Most recently, Tower's $725-million debtor-in-possession (DIP) financing lifeline was to expire Feb. 2, just as a restructuring plan backed by key bondholders was unraveling.

"We knew we needed more time to work on the right solution," she said, so Tower went first to its DIP lenders. "We said, 'Hey, we need six more months,' and fortunately, without a blink, they did that," she said. Next, a plea to customers: "We said, 'Listen, we need you to stick with us for this time and stay calm because you'll keep the supply chain calm.'

"If you keep your bankers calm and your customers calm, everyone else you can calm down. So they were terrific. Both of them stood with us."

After that, Tower dove into active discussions with Cerberus, the buyout firm that's been making big waves in the automotive world, with the purchase of 51% of General Motors Acceptance Corp. from General Motors and current involvement in both the Delphi Corp. bankruptcy and bidding for Chrysler Group.

"Cerberus is very organized, very professional, they do a very extensive due diligence," Ligocki said, noting that the firm had enlisted top automotive talent in former Ford executives David Thursfield and Robert Rewey, along with former Chrysler Group honcho Wolfgang Bernhard.

The Cerberus offer, valued at $1 billion, would pay off Tower's outstanding debt from the DIP loans -- about $650 million -- and assume Tower's pension obligations along with providing some payments to other creditors. But it's not a done deal. Other bids for Tower can be made until June 20, and an auction would be held June 25 if other bidders emerge. Tower hopes to close a deal to exit bankruptcy by July 31.

Pensions preserved

Ligocki said saving the pensions was a big priority for her.

"You can't always protect pensions in a bankruptcy. But to me, they should be the last thing you let go. Sometimes you have to stand for a while and fight because other people in the case won't understand how important pensions are to the people who are still working at the company," she said. Getting Cerberus to assume the pensions "we thought was a big win," she said.

It's unclear at this point whether Ligocki, 50, a former Ford vice president, will stay at Tower after the Chapter 11 exit.

"Right now," she said, "I want to get Tower out of bankruptcy. That's my goal, getting Tower out of bankruptcy -- and getting married." Her wedding to former car dealer Pete Rosenau is scheduled for July 1 in Mexico, with a small gathering of family and friends.

Cerberus, Ligocki said, has confidence in Tower's strategy and its people. "When you bid $1 billion," she said, "you're buying more than just stamping machines, right? They're clearly buying into what the potential of Tower can be."@@[email protected]@

Improving outlook

In its most recent financial statement, for the period ended Sept. 30, Tower said sales exceeded $2.1 billion, a drop of 16% from the same period a year ago. It posted a net loss of $151 million in the nine-month period, down from a $309-million loss a year earlier.

Ligocki sees parallels between Tower's pending emergence from bankruptcy and the fortunes of Detroit's automakers and other key suppliers. "As tough as things are right now, the light at the end of Tower's tunnel might also be the light at the end of the North American industry's tunnel," she said, encouraged by "the brave new money" coming from savvy private equity groups.

All of Detroit's key automotive players -- GM, Ford and Chrysler, the UAW, suppliers and dealers -- must sacrifice to survive, she said.

"All sides," Ligocki said, "will have to break through traditional thinking because fundamentally the market won't tolerate noncompetitiveness anymore. When you really have a global market -- both for your products and the money that's funding the products -- investors aren't going to subsidize it, consumers aren't going to pay for it and so you really end up having to squeeze the noncompetitiveness out of everything."

She could have pushed harder

As she enters what hopefully is the final stretch of Tower's bankruptcy process, does Ligocki have any regrets?

"My only regret is that I didn't go faster because in the end people proved that they could go faster. We entered bankruptcy thinking we could close a couple of plants, and we ended up closing half of North American" operations "and never missing a shipment, never missing a beat.

"Bankruptcy," she added, "really clarifies your vision. It gets rid of the clatter. It gets rid of the nonsense. What you'd like to be able to do is translate that clarity into non-bankruptcy situations. How do you get the same sense of urgency, the same sense of unified purpose among people before the crisis is so dire?"

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