Automotive supplier Visteon vstnsaid Monday it expects to get a "going concern" notice from its auditors, a signal that they worry the company may not last another year without filing for bankruptcy court protection.
The auto supplier, among the largest auto suppliers in North America, has delayed filing its annual earnings report with the Securities and Exchange Commission while it tries to work out deals with its debt holders around the going concern notice.
Such a notice, issued by a company's auditors when they begin to lose faith that the company can survive another year, can trigger agreements in debt covenants that force the company to immediately pay back its loans. General Motors, which recently received the same notice from its auditors, was granted waivers by its debt holders.
"You always have to take (these notices) seriously," says Doug Bernstein, a partner at Plunkett Cooney's bankruptcy practice. "But I don't think any lender or other customer of Visteon's would have expected anything to the contrary."
Last week, Visteon made a $16 million payment on $453 million of debt, quelling rumors that a bankruptcy filing was imminent.
Auto suppliers large and small are under tremendous business pressures as automakers slash vehicle production to match falling sales. When automakers shut down plants to manage inventory, there is no need for parts, and the suppliers aren't making any money. Among major suppliers just in the past week, American Axle received a going concern notice from its auditors, and Lear said it expects one. GM is a major customer for both.
GM has been helping out its biggest supplier, Delphi, which was spun off from GM as an independent company in 1999 and now is in bankruptcy reorganization, by taking over plants and infusing the parts maker with cash.
Ford Motor, which spun off Visteon in 2000, has been taking a more hands-off approach. Ford took back some Visteon workers and several Visteon plants in 2006 but won't likely make a similar move now, says Ford spokesman Todd Nissen.
About 22% of Visteon's business still comes from Ford.