(Adds analyst remarks, background)
By David Bailey
CHICAGO, Sept 30 (Reuters) - Auto parts maker Intermet Corp. on Thursday said it has filed for Chapter 11 bankruptcy reorganization, citing a record rise in raw material costs, especially for scrap steel, in North America and Europe.
Intermet, which makes powertrain, chassis, suspension and structural components, said it expects manufacturing operations to continue without interruption during the restructuring. European operations were not included in the bankruptcy.
With the filing, Intermet joins cast parts maker Citation Corp. as the second supplier in the past two weeks to blame a bankruptcy filing on the steep rise in raw materials costs. Other suppliers have said the costs would hurt earnings.
Intermet and Citation are two of the larger parts-casting companies, which are more vulnerable to price increases than other parts suppliers because of heavy use of scrap steel and open market purchases, S&P credit analyst Martin King said.
Price pressures have hurt parts suppliers in general, but the severity of the blow depends on individual circumstance and suppliers are not likely to see much relief in 2005, he said.
Intermet said its cost of scrap steel had risen to an average of $395 a ton by the end of August from about $160 a ton at the beginning of 2003.
A company spokesman said it was too soon to determine how long Troy, Michigan-based Intermet would remain under court protection or how long it would take to develop a reorganization plan. Intermet filed for Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Michigan.
Intermet has about 4,500 workers and 17 plants in North America affected by the bankruptcy filing, the spokesman said.
The plan will include improvements in manufacturing operations, capital structure and in practices for recovering the costs for raw materials, Intermet said.
Intermet said it is negotiating debtor-in-possession financing of up to $50 million to add liquidity. It said it is reviewing one firm commitment and one detailed proposal and expects to resolve financing in a matter of days.
The company has asked the court for permission to use cash collateral in the interim, with the consent of the agent for the lenders that have a security interest in the collateral. If approved, that cash should be sufficient to operate at least through mid-October, Intermet said.
The company has about 6,000 employees worldwide. The company had total sales of about $731 million in 2003.
Main customers for Intermet include auto makersMotor Co. , Corp. and DaimlerChrysler . Parts suppliers Visteon Corp. , Corp. and Metaldyne Corp. also are main customers.
Intermet shares were off 48 percent at 28 cents on the Nasdaq.
(Additional reporting by Reshma Kapadia in New York)