Milacron Inc., under scrutiny from financial analysts and investor ratings services as the machinery recession drags on, announced Aug. 14 that its main lender has relaxed terms of its revolving credit line.
The banking group, which includes Deutsche Bank and PNC Bank, made the decision ``in light of the extended downturn in the plastics industries,'' Cincinnati-based Milacron announced. Its purpose is ``to allow Milacron to execute its recently announced initiatives to return to profitability.''
In quarterly conference calls, analysts have increasingly focused on Milacron's debt repayment issue - which comes on top of a depressed U.S. plastics machinery market and still-cloudy future. The Aug. 14 announcement provides some answers.
But debt remains the No. 1 issue for the largest U.S.-owned plastics machinery maker, according to Alexander Paris, one analyst who covers Milacron.
``That's the key question on the company. In order to enjoy the recovery, they have to survive until it happens,'' said Paris, president of the Chicago-based Barrington Research.
On Aug. 12, Moody's Investors Services downgraded Milacron's $75 million revolving credit line, and $115 million in unsecured bank notes. Both debts are due in March 2004. Those downgrades assumed that Milacron would obtain the bank easing to complete its restructuring program, the news that Milacron announced.
Milacron spelled out some terms of the amended loan rules. The convenant that specifies minimum levels of EBITDA (earnings before interest, taxes, depreciation and amortization) has been relaxed for the third and fourth quarters. The limit on restructuring expenses has been raised.
The revolving loan is now capped at $65 million, of which $54 million is currently utilized, Milacron said. The availability of the remaining $11 million is subject to some new restrictions based on the company's cash position.
Terms that remain unchanged include a final step-down to a $55 million cap on Dec. 15, and its expiration on March 15, 2004.
``We very much appreciate the flexibility our bank group has given us during this prolonged manufacturing recession,'' said Ronald Brown, Milacron's chairman and chief executive officer. ``This amendment enables us to move ahead with our needed profit-improvement initiatives while continuing to help our customers meet their needs as well.''
When Milacron announced its second-quarter results July 29, the company also spelled out plans to lay off about 300 people in the second half of 2003. The cost reductions are part of a plan to generate about $20 million in savings a year.
Milacron also recently announced that Harold Faig, president and chief operating officer, is taking early retirement, and the machinery maker has no current plans to replace him. Jerry Lirette, president of Milacron's mold-components business D-M-E Co., also is retiring.
Milacron has lost money the last two years, and its stock price slid to an all-time low on Aug. 5, closing at $2.40. Debt reduction was one major reason Milacron cited last year when it sold off its metal-cutting products businesses.