# Going Bankrupt by Missing Debt Coupon Payments

#### dstefan

##### Baruch MFE Director
Dura Auto Files for Bankruptcy as Parts Demand Falls
2006-10-30 04:42 (New York)

By Jeff Bennett

Oct. 30 (Bloomberg) -- Dura Automotive Systems Inc. filed for bankruptcy today, becoming the fifth major U.S. auto-parts company since February 2005 to seek protection from creditors.
Dura, after missing a $17.3 million interest payment on$400 million in notes Oct. 16, listed liabilities of $1.73 billion and assets of$1.99 billion in papers filed with the U.S. Bankruptcy court in Delaware. The company makes parking brakes, door hinges, seat recliners and other vehicle components and had 8,000 workers as of the end of last year.
The partsmaker posted a $138.3 million loss in the first half of the year, after profit fell 85 percent in 2005 and 48 percent in 2004, partly because of production cuts at Ford Motor Co. and General Motors Corp. Chief Executive Officer Larry Denton has said he plans to close 10 plants, trim 2,000 jobs and shift work to lower-cost countries to revive earnings. Dura, based in Rochester Hills, Michigan, joins Tower Automotive Inc., Collins & Aikman Corp., Dana Corp. and Delphi Corp. in seeking bankruptcy protection over the past year and a half. All cited falling demand from GM and Ford as a cause for having to reorganize. The automakers, which began reducing North American production in the second half of 2004 because of slowing sales, are buying fewer parts. Dura was formed in 1990 and expanded from making parking brakes to producing pedals, doors, windows, seat components, steering parts and other products. It bought 19 companies or units of other companies from 1994 through 2003, increasing sales 10-fold while piling up debt to make the acquisitions. Sales were$2.34 billion in 2005.

Dura's History

The company posted one annual loss from 1997 through 2004 and 18 consecutive quarterly profits beginning in 1997. It began
showing signs of financial strain at the start of 2005 because of the automakers' cutbacks. Ford and GM accounted for more than
30 percent of Dura's sales last year.
The company's largest unsecured creditor was U.S. Bank Corporate Trust Services, a unit of U.S. Bancorp, with a claim of $523 million, according to the filing. The cost of raw materials has also risen in the past two years, further reducing Dura's profitability. Steel prices more than doubled from 2003 to 2005, and resins used in plastic parts have also become more expensive. Denton announced a restructuring he called 50-Cubed'' in February 2006. Under the plan, 50 percent of the company's sales would come from low-cost plants, and earnings before taxes would increase by 50 percent by 2008. The job cuts and factory shutdowns were part of the restructuring. Denton surprised Wall Street analysts on July 27 when he reported a second-quarter loss of$131.3 million, compared with a \$2.96 million profit a year earlier. Denton blamed higher spending for materials and an unidentified automaker scrapping a contract during the quarter. The company's shares dropped 56 percent that day and hit a low of 37 cents on Aug. 14.
On Aug. 15, the company said it had hired the turnaround firm Miller Buckfire for advice on how to handle its debt. On Aug. 28, the company hired a second consultant, Glass & Associates, to help shrink its operations.

#### Hien

So much for the 18 consecutive quarterly profits. They expanded too fast and loaded up too much debt that they can't react quickly enough to adverse business conditions. I wonder if their debts were rated by Moody's and if they were placed in the monitoring list by the same 'monitoring group' as mentioned in this thread http://www.quantnet.com/forum/viewtopic.php?t=810 :smt102

#### RussianMike

I was trying to value the CDS on bbg its CDSW and you have to put in bond and counterparty etc. You can enter default probabilities and CDS spreads (a CDS spread curve if you will?) Does anyone do this for a living and can elaborate further?

#### Hien

RussianMike said:
I was trying to value the CDS on bbg its CDSW and you have to put in bond and counterparty etc. You can enter default probabilities and CDS spreads (a CDS spread curve if you will?) Does anyone do this for a living and can elaborate further?

You can calculate the implied default probabilities from the bond prices, and from there you can price the CDS.

BTW, What's a CDSW?

#### RussianMike

Sorry CDSW is the command u hit on bbg to price the CDS, I actually would have to fill that in on bbg

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