Aurora Capital gained control of Lexington Precision Corp., a deal that was months in the making, as Aurora first started accumulating the company’s debt on the secondary markets. Aurora followed up with a direct cash investment in the rubber component manufacturer to fund its reorganization and emergence from bankruptcy protection. Terms of the transaction were not disclosed.
Lexington manufacturers high-tolerance rubber components used in automotive, industrial and medical applications. The company was struggling even before the credit crisis took hold. In April 2006, according to an article in Rubber & Plastic News at the time, the company warned that bankruptcy loomed as its sales posted a double digit drop in 2005. Lexington’s largest customer at the time was Delphi Corp., underscoring the company’s exposure to the troubled auto sector. Lexington, however, didn’t file for bankruptcy until April, 2008.
The private equity firm is investing out of its Aurora Resurgence Fund, a sister-fund to Aurora’s primary buyout vehicle. Gerald Parsky launched the distressed vehicle in 2007, and brought in HIG Capital’s Anthony DiSimone and Goldman Sachs’ Steven Martinez to oversee the effort. As of June, last year, the fund had closed on nearly $500 million, according to Securities and Exchange Commission filings. Past investments include the acquisition of Norwood Promotional Products.
While Lexington has a diversified business, the deal underscores the stabilization of the auto parts space. John Hoffecker, a managing director with AlixPartners in its Southfield, Mich. office, was scheduled to speak at JPMorgan’s annual auto conference on Tuesday. According to his prepared slides, the restructuring in the automotive space has resulted in profits that exceed 2006 levels, industry wide. This improvement follows significant rationalization in the sector that has translated into 35% less volume.
The industry still faces hurdles in the form of the “refinancing crunch,” in which 85% of the industry’s debt is coming due over the next five years. Hoffecker predicts that there will be more “loan-to-own” opportunities that arise, in addition to other restructuring plays.
A call to Aurora’s spokeswoman was not returned by press time.
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