People who own Milacron Inc. stock finally have an idea what closed-mouthed executives mean by saying a refinancing could create a ``significant dilution'' to their ownership.
Facing a March 15 deadline to refinance nearly $170 million in debt, Milacron put some figures in writing March 2, saying the company could boost its number of outstanding shares by more than 43 percent to make a deal happen.
The company has to disclose the information now because it sought, and received, permission from the New York Stock Exchange to issue new shares without approval from existing Milacron shareholders. Such a move is rare, permitted only when any delay ``would seriously jeopardize the financial viability of the company,'' according to a Milacron news release.
Bond industry sources said Milacron is negotiating with a committee of bondholders that wants some type of ownership in the Cincinnati-based plastics machinery maker.
As the clock ticks down, financial analysts said Milacron's options appear to boil down to:
* Converting its bonds to stock ownership through a convertible bond deal or a debt-to-equity swap.
* An influx of money from a venture capital investor.
* Issuing high-yield junk bonds.
* A pre-packaged Chapter 11 bankruptcy filing set up to give bondholders some equity.
A Milacron spokesman said the company ``is working on options that do not include Chapter 11.''
March 15 remains the big deadline, when $115 million in bonds and about $54 million from a revolving line of credit come due. Until now, Milacron executives had said very little about how they would refinance the debt, except to announce in a fourth-quarter earnings release in February that the result is likely to reduce significantly the stake that current shareholders have in the company.
``Basically, these guys have their backs up against the wall,'' said Joseph von Meister, a bond analyst with Jefferies & Co. of New York.
Milacron said it mailed a letter to shareholders March 2 notifying them of the plan to issue new shares without their approval. Ten days after the notice is mailed, the company can issue as many as 15.1 million shares of common or convertible stock. The company currently has about 34.8 million common shares outstanding.
Milacron said the transactions it currently is pursuing probably would require issuance of shares beyond the 15.1 million. Milacron would seek shareholder approval for that move, according to the release, but the company said it is unclear how many additional shares would be needed.
Because Milacron leaders have given few details, even as the March 15 deadline inches nearer, analysts, shareholders, Milacron employees and customers have been left to guess what will happen.
``It's amazing how tight-lipped everything is,'' said Kevin Gale, a Cleveland-based bond analyst with McDonald Investments. ``Usually you'll hear rumors or something at this point, as far as what's going to happen to this company. There are just no valid rumors out there. Any rumors are pure hearsay.''
Gale said a new investor may be circling. ``This is kind of the classic example of a venture capital firm coming in to inject cash in the company. They'll probably demand a couple of seats on the board.''
Analysts said Chapter 11 bankruptcy reorganization is one possibility - but not a desirable one. ``Obviously they're trying to do this outside of bankruptcy,'' said von Meister.
But what actually ends up happening is anybody's guess - even on Wall Street. ``There's nothing that's off the table,'' said Eli Lustgarten, who follows Milacron at J.B. Hanauer & Co. in Parsippany, N.J.
The lack of details is fueling uncertainty in the financial community. On Feb. 24, Moody's Investors Service downgraded all its ratings on Milacron's credit, except for the revolving credit line, which it left unchanged. Moody's said the downgrading reflects its ``escalating concerns regarding the lack of clarity'' about the company's ability to refinance the debt, along with its 2003 financial results, which the firm said fell short of the plan management had provided at the beginning of the year.
Standard & Poor's Ratings Services also lowered Milacron's credit rating Feb. 12, citing ``continuing concerns'' about the debt.
Both Moody's and Standard & Poor's said they could raise the ratings if Milacron meets the debt maturities deadline, or could lower them further if Milacron and the bondholders fail to produce a satisfactory refinancing package.
Shareholder Ken McCurdy of Rochester, N.Y., said he is optimistic about Milacron's future.
``It's in difficulties right now, but I think it can climb out of those difficulties and prosper once again. They have some great products and great people,'' said McCurdy, a member of the Geier family that founded Milacron in 1884.
McCurdy has held his shares even as the company's stock has declined the past two years. He said he thinks Milacron will benefit from the improving U.S. economy and financial markets that are more favorable to borrowers.
``The fact is that, big picture, the company has to get its refinancing done,'' he said.
Meanwhile, Milacron said its banks have extended its sale-of-receivables credit agreement until March 12. The arrangement, in which banks buy the company's receivables, was to have expired Feb. 27. PNC Bank is the main bank for the receivables program.