Issue: May 2011


Martinrea International Inc. Purchases Assets of Honsel AG



by Steve Barclay

Martinrea International Inc. a leader in the production of high quality metal parts, assemblies and modules and fluid systems focused primarily on the automotive sector, today announced that it has signed a purchase and transfer agreement for all of the assets of Honsel AG, a German-based leading supplier of aluminum components for the automotive and industrial sectors. Martinrea has partnered with Anchorage Capital Group, L.L.C. ("Anchorage") in the transaction, which is valued at approximately EUR130 million ($179 million), comprised of EUR101 million ($139 million) in cash and the balance in assumed liabilities. In 2010, Honsel sales exceeded EUR600 million ($825 million).

Upon closing, which is expected to occur in July 2011, Martinrea will own 55% of the entity purchasing Honsel, with Anchorage owning the remaining 45%. Completion of the transaction is subject to regulatory approval of European merger authorities and delivery of the assets free and clear of encumbrances. Martinrea's cash contribution to the purchase price will be approximately EUR56 million, or approximately $77 million, and will be funded from credit funding sources arranged by Martinrea. The entity purchasing Honsel will not utilize debt financing in its purchase.

Honsel develops and manufactures complex aluminum and magnesium products using state-of-the-art production technologies including high pressure die-casting, permanent mold and sand casting as well as extruding and rolling. Honsel produces four major product lines: engine products such as engine blocks, cylinder heads and oil pans; transmission products, such as housings and control parts; suspension products, such as engine cradles; and body parts, such as front boards and extrusion profiles.

Honsel has seven production sites globally, including four in Germany, and one each in Spain, Mexico and Brazil, employing approximately 4,000 people. Honsel's head office and largest operation is located in Meschede, Germany. Honsel also has plants in Nuremberg, Soest and Nuttlar in Germany, as well as Madrid, Spain; Queretaro, Mexico and Monte Mor, Brazil.

Honsel is presently in insolvency proceedings in Germany. Pursuant to the insolvency process, offers for the Honsel assets were sought from interested bidders. After extensive diligence and negotiation, Martinrea, with its partner Anchorage, was selected by the administrator in the insolvency proceedings to finalize a purchase agreement.

Anchorage is a registered investment adviser with offices in New York and London. The firm manages private investment funds across the credit, special situations and illiquid investment markets of North America and Europe, with particular focus on defaulted and leveraged issuers. Upon completion, this transaction will represent the fifth restructuring Anchorage has conducted in Germany since 2009.

Nick Orlando, Martinrea's Chief Executive Officer, stated: "We are happy to announce the pending acquisition of a world quality business. Honsel is one of the leading global suppliers of light metal components, primarily for the automotive industry but also for other industrial sectors. Honsel focuses on aluminum and magnesium products using advanced production technologies. We believe we are acquiring a substantial asset base for good value, as we expand geographically into Europe primarily, and as we expand our product mix in metal forming. Components from Honsel are predominantly focused on reducing the weight of vehicles, which leads to reduced fuel consumption and exhaust emissions. We believe Honsel is well positioned to capture future growth opportunities, as our industry faces higher fuel costs and tighter environmental regulations. Martinrea is already heavily focused on reducing vehicle weight in our existing metal forming business, for example through the use of higher strength steels or metal forming techniques such as hot stamping or hydroforming. We believe this is a good fit for us and will help better position us as a supplier of choice to our customers, over a broader range of product offerings."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We believe this is a positive step to become the best supplier we can be to our customers. We have recently indicated we were seeing many opportunities, and that we would take advantage of those that make sense to us. We believe this transaction reflects our prudent approach to growth, as we add assets and capabilities that will strengthen our Company and increase our long term value. We believe this acquisition will be accretive over time, is not dilutive as no equity issue is contemplated, and permits us to maintain a strong balance sheet as increased debt is covered by an increased asset base. Honsel has some excellent people, solid research and development capability, and substantial technical know-how. It is a company that has fallen on hard times in the past automotive recession, in part because it was over-leveraged. Coming out of insolvency, Honsel will be substantially debt-free. The Company has a solid base to build on. We look forward to working with the Honsel people, and we welcome them to the expanded Martinrea team."

Tony Davis, President of Anchorage, said: "We are pleased to partner with Martinrea and believe that Honsel - with a near-debt free balance sheet and substantial new investment - can return to its place of prominence in the German automotive supply industry."

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