Federal-Mogul files for bankruptcy protection

There has been speculation for months that auto-parts supplier Federal-Mogul Corp. (FMO) would seek bankruptcy protection, and now many observers are wondering if the supplier will re-emerge after the…

There has been speculation for months that auto-parts supplier Federal-Mogul Corp. (FMO) would seek bankruptcy protection, and now many observers are wondering if the supplier will re-emerge after the reorganization. Analysts say this depends, in part, on whether Federal-Mogul will be able to secure new business throughout the bankruptcy proceedings. It is likely the auto makers will be a bit cautious about handing out new business if there are concerns about whether it can fulfil its obligations, analysts say. Federal-Mogul said that falling sales from the Big Three auto makers, higher litigation costs and a change in the control of the US Senate forced the company to file for Chapter 11 bankruptcy protection. An official at a Big Three auto maker said he had “little concern” that Federal-Mogul would not be able to handle its current contracts and that it was a smart move for the company to file for bankruptcy because it separates the asbestos liability from its core business. The source also said that the company would likely receive new business despite the filing. Federal-Mogul said it plans to fulfil its contracts with customers, as well as seek new business. The company said it already has US$ 300 million booked in new business next year. Federal-Mogul said it made US$ 351 million in asbestos payments in 2000 and it expects to make US$ 380 million in payments this year. Because so many companies filed for bankruptcy protection due to asbestos claims, Federal-Mogul became more vulnerable because it was one of the few companies people could still sue, said S&P Equity Group analyst Efraim Levy. While the auto makers might diversify their sourcing so that they won“t be dependent only on Federal-Mogul for any parts or systems, Levy said the auto makers are likely to keep contracts with the company to keep it going. “That way, Federal-Mogul will be financially strong enough to honour existing agreements,” he said. The company said it had no intention of going out of business or liquidating assets. Federal-Mogul shares hit a 52-week low of 45 cents in the wake of the filing.