Key Plastics LLC and its creditors are continuing their financial dance to determine the custom molder's future, taking steps that could waltz them into bankruptcy proceedings. The Novi, Mich.-based business admitted March 13 it is "experiencing a liquidity crunch" and said it would miss its $6.8 million loan payment due March 15 on a $125 million debt.
"The company truly regrets that it will not be able to make this coupon payment," Chief Executive Officer David C. Benoit said in the March 13 written statement. "We are working closely with our lenders to try to develop a long-term solution to our liquidity problems and hope to be able to share some solutions with the bondholders soon."
It has hired Peter J. Solomon Co. of New York as its investment banker to help develop a long-term strategy.
But even as Solomon seeks potential buyers or cash infusions, creditors are pondering whether they should take legal action against the business.
"It just doesn't look good," said one member of an informal unsecured creditors committee, who did not want his name revealed. "There are too many hostage payments [due] right now."
Other suppliers said they are considering going to court to get liens on Key properties in order to secure their debts. Analysts familiar with the company expect some restructuring may take place within the business.
Key has a seven-day waiver from its major lenders, and its unsecured creditors have promised a 90-day freeze on collections, starting March 1.
That does not leave much time for negotiations, said David Eberly, managing director for GMA Capital LLC of Farmington Hills, Mich.
"At this point they've got to work very rapidly, which is going to be difficult," said Eberly, who has worked with Key suppliers and customers.
Key listed $428 million in debt at the end of September. It has not filed final reports for 1999, but listed $550.8 million in total sales for the year.
Key officials did not returned calls to the media, but issued a statement signed by Benoit to workers in at least one York, Pa., plant March 13 seeking to reassure them:
"We have received an extremely high vote of confidence by our customers. Our customers have agreed to make certain accommodations on our behalf in order to ensure continued uninterrupted operations with them. ... Although you will probably hear from our creditors about these concessions, we believe that both the customers and the creditors will continue to support the company.
"We do not know what specific changes will occur in the days ahead, but you can be assured that our goal is continued uninterrupted production. In addition, we can promise you that we will keep you advised on a timely basis of any changes."
Business is continuing, with supplies coming in strictly on a cash-on-delivery basis, Benoit told workers.
Analysts familiar with the negotiations said much of the company's problems stem from losses with Foggini Group of Turin, Italy, a maker of molded air louvers and interior trim products that Key bought in 1999.
Foggini had $140 million in sales in 1998. Key has not released updated sales data from its European division.