Note to employees of U.S. public companies: When your board of directors hires Robert S. "Steve" Miller as CEO, it's time to update your resumes.
As I detailed in "Your Incredible Vanishing Pension" a few months ago, Miller was the man brought in to save Bethlehem Steel in 2001. Instead, he became the man who undertook the thankless task of admitting that years of mismanagement had crippled the metals giant. He was the man who ended up explaining, "We do not have the money to make good on all the promises made by this corporation over the last 50 years," and handing over Bethlehem's pension obligations to the Pension Benefits Guaranty Corporation for decimation. (Bethlehem itself, after entering bankruptcy, changed hands twice and now resides in the ownership of Mittal Steel
That sad Pennsylvanian history now appears to be repeating itself in Troy, Mich., where Miller is now steering auto-parts maker Delphi
The talks don't appear to be going well. Miller is today expected to recommend to his company's board that, unless progress is made in the talks, Delphi should file for Chapter 11 bankruptcy protection on or before Oct. 17. In preparation, Delphi has reportedly retained heavyweight law firm Skadden Arps, the firm that advised Kmart -- now part of Sears Holdings
While it's depressing even to look at the numbers, they also make it easy to see why Miller might take this step. Over the past 12 months, Delphi recorded losses amounting to $5.7 billion under GAAP. Its free cash flow situation is better, but it's still far from good. The past four quarters have seen Delphi generate just $68 million in free cash flow (cash from operations minus capital expenditures), according to Capital IQ. Thus, the company has little current ability to pay down its $3 billion debt.
Nor can investors be expected to step in and recapitalize the company at this point. The company sports a price-to-free cash flow ratio of 23 -- pricey for a company expected to grow its profits at just 7% per annum over the next five years. And with its $2.9 billion in net debt, Delphi has an enterprise value-to-free cash flow ratio that comes out at a ridiculous 66.
Delphi's in an awfully precarious situation, folks. It has to find a way to cut its expenses, so as to make the eventual repayment of its debts a realistic possibility -- or find another way to ditch the debt. Given Miller's past history, this Fool would lay his bet on Chapter 11.
Fool contributor Rich Smith does not own shares of any company named above.