As automakers in the U.S. and Europe have suffered, so have their suppliers. Turnaround investment firm Sun Capital Partners Inc.'s Mark IV Industries Inc. was no exception. Mark IV filed for Chapter 11 in April, becoming the first major private equity-owned auto parts company in the U.S. to crash this year.

Sun Capital bought Mark IV from European private equity firm BC Partners Ltd. in a secondary buyout valued at about $1.4 billion in December 2007. At the time, the U.S. auto industry was already showing signs of trouble, though Europe still looked to be "holding on," says Standard & Poor's analyst Gregg Lemos Stein.

Not until the second half of last year did demand in Europe fall, particularly in the fourth quarter. With credit markets tight, suppliers' inability to obtain short-term financing to cover inventory expenses and accounts receivables aggravated their woes.

Mark IV of Amherst, N.Y., does more original equipment business with European car manufacturers, such as Renault SA and Fiat SpA. But overall, its $1.2 billion of revenue from its four major business lines -- power transmission, air intake and cooling, E-ZPass toll collection systems and information display systems -- were about equally split between the U.S. and Europe in fiscal year 2007.

The dramatic headwinds at the end of last year buffeted the company's efforts to improve liquidity, reduce overhead expenses and increase operating efficiencies. It had achieved $50 million in annualized cost reductions and raised $75 million of capital from European lenders last year, according to a source.

"While these measures showed good progress through November 2008, Mark IV subsequently suffered from the impact of the global recession leading to an unforeseen, persistent and steep deterioration in the automotive industry, including in Europe, its core market," Sun Capital said in a statement.

Revenue fell 26% and its Ebitda plunged 42% in the fourth quarter last year, compared with the same period in 2007, the source says. Sun Capital said the sharp drop in demand made it difficult to service the debt it took on when it was taken private about nine years ago.

In 2000, a group led by BC Partners purchased the company for roughly $2 billion, including the assumption of $950 million of debt. At the end of February, Mark IV held $1.1 billion in liabilities and $301 million in assets.

Sun Capital owns pieces of Mark IV's first- and second-lien debt, as well as an equity stake of less than $100 million, according to some. The latter was wiped out. Recovery on Mark IV's first-lien loans will likely range from 10% to 30%, according to S&P, while second-lien lenders stand to recoup up to 10%.

The company, which filed for bankruptcy protection in New York on April 30, has won court approval for $90 million of debtor-in-possession financing. "Given Mark IV's liquidity challenges and continued weakness in its end markets, we believe that reorganization under Chapter 11 will allow the company to emerge as a stronger, viable business with good prospects for continued success," Sun Capital said in a statement. S&P estimates Mark IV, assuming it emerges whole, would have a gross enterprise value of $455 million. That's mainly thanks to its foreign subsidiaries, which carry about 80% of the valuation.

In May alone, three auto suppliers went belly-up. Hayes Lemmerz International Inc., the world's largest automotive wheel producer, filed for Chapter 11 a second time -- known commonly as a Chapter 22 -- on May 11. Plymouth, Mich.-based Metaldyne Corp., indirectly backed by publicly traded Belgian private equity fund RHJ International SA, followed on May 27, and Van Buren Township, Mich.-based Visteon Corp. on May 28. Carlyle Group's Edscha AG in February filed for insolvency for its 14 European plants and headquarters in Remscheid, Germany.

Mark IV's failure may be a harbinger. The Obama administration may have believed General Motors Corp. and Chrysler LLC were too big to fail, at least without government help. But the administration isn't inclined to be as generous to auto parts makers, many of which may not survive the summer without more assistance on loan guarantees.

Suppliers such as Cooper Standard Automotive Inc., backed by Cypress Group LLC and Goldman Sachs Capital Partners, and Blackstone Group LP portfolio company TRW Automotive Holdings Corp., are struggling to stave off defaults. Whether they follow in Mark IV's tracks remains to be seen.

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