Cerberus To Buy Tower Automotive For $1 Billion

Private equity firm Cerberus Capital Management has agreed to buy bankrupt U.S. auto parts maker Tower Automotive in a deal valued at about $1 billion, the company said.

Tower, a maker of autobody frames that filed for bankruptcy protection in February 2005, said the sale requires U.S. Bankruptcy Court approval and is subject to an auction should other investors submit qualified bids.

Bids would be accepted through June 15, and an auction held on June 21, Tower said on Wednesday. The company wants to complete the sale by the end of July, a few days before its current debtor-in-possession financing agreement expires.

Cerberus already is co-leader of an investor group planning an investment of up to $3.4 billion to support U.S. auto parts maker Delphi Corp.'s emergence from bankruptcy in exchange for a controlling stake in the reorganized company.

The private equity firm also may seek to buy the Chrysler Group, and a source familiar with the matter has said Cerberus is lead bidder for bankrupt auto parts maker Collins & Aikman Corp.'s flooring and acoustic components unit.

And many other private equity firms are eyeing the auto parts sector, including billionaire financiers Wilbur Ross and Carl Icahn.

The proposed Tower sale provides for full payment to the providers of Tower's debtor-in-possession financing and second-lien loan facility, assumption of its pensions and some recovery for unsecured creditors, Tower said.

The committee representing unsecured creditors has supported the transaction, said Novi, Michigan-based Tower.

The agreement with Cerberus includes no breakup fee or expense reimbursement and represents a significant increase in value over an equity proposal that was terminated in January, Tower said in court papers filed on Wednesday afternoon.

The proposed sale terms include repayment of $650 million of outstanding debtor-in-possession financing, $41 million of a second lien term loan, and up to $4 million of nonlegal professional fees tied to that term loan.

The agreement also calls for repayment of $43.8 million of industrial revenue bonds, though those could be replaced by letters of credit at closing at Cerberus' option. Cerberus also would assume $40 million of pension underfunding.

Unsecured creditors could recover $10 million cash among other potential recoveries, according to the court documents.

Tower plans to ask the bankruptcy court to approve the basic sale agreement and auction process on March 30.

The company said it had actively negotiated proposals with four different investor parties, including one plan to fund its emergence as a stand-alone enterprise, before reaching the deal to sell the company to Cerberus.

The company also said it expects to file a reorganization plan that reflects the sale plans by April 20 with the U.S. Bankruptcy Court for the Southern District of New York.

Tower sustained losses due to heavy debt and production cuts by its automaker customers. It has trimmed plants, sold some businesses and negotiated deals with labor unions to cut costs.