It went down to the wire, but Milacron Inc. has refinanced the substantial debt that had been hanging over the company - with a $100 million investment from a large Japanese bank and a Swiss natural resources group, in a deal announced March 12.
Meanwhile, top executive Ronald Brown spent the days after the announcement visiting Milacron operations to explain the refinancing to employees.
``I'm looking forward to spending more time with customers and employees than I have been,'' Brown said.
Milacron will use the convertible bonds to refinance $115 million in bonds that came due March 15. Another agreement, with Credit Suisse First Boston, provides a $140 million credit facility to refinance $54 million from a revolving line of credit and a sale-of-receivables credit program.
Mizuho International plc and Glencore Finance AG will gain a major ownership position in the Cincinnati-based plastics machinery maker, once the bonds they hold are converted to 40-60 percent of Milacron's stock.
Financial analysts said the refinancing means that Milacron can focus its full attention on building and selling machines, mold bases and metal-cutting fluids. A U.S. manufacturing recovery already under way will help Milacron - which generates half its sales from the United States - to meet the next big refinancing test, in April 2005, when bonds come due totaling 115 million euros (about $140 million).
``I think capital spending's going to be back this year,'' said analyst Walter Liptak, who covers Milacron for McDonald Investments in Chicago.
As the debt clock ticked closer to the March 15 deadline, some investors and financial analysts had expected the company to file for Chapter 11 bankruptcy protection from creditors if it had not been able to refinance. Kevin Gale, a McDonald bond analyst, called the deal ``the best they could do at this point; they didn't have many options.''
Brown, Milacron's chairman, president and chief executive officer, said the board of directors did study several proposals before picking Mizuho and Glencore. Brown said the cash infusion will put Milacron in a better position to benefit from an improving economy.
``With a reinvigorated capital structure, we expect Milacron to be a financially stronger company with greater flexibility to refinance our 115 million euro bonds due in April 2005,'' Brown said.
Wall Street liked the move. On March 12, Milacron's stock closed at $2.40 on the New York Stock Exchange. The company announced the refinancing just before 5 p.m. that Friday, after the markets closed. That following Monday, the stock leaped 45 percent, to close at $3.48, nearly five times the normal trading volume. The next day it settled back to a $3.17 closing price.
The news was ``a huge relief,'' said shareholder Ken McCurdy of Rochester, N.Y., a member of the Geier family, which founded Milacron in 1884. ``I'm just very, very pleased that they were going to get the deal done.'' The Geiers own about 9 percent of Milacron shares.
Milacron and other plastics machinery makers are trying to recover from a wicked U.S. sales slump that began in 2000 and saw the market collapse 40-50 percent from record levels of the late 1990s. Milacron lost more than $450 million total in 2001, 2002 and 2003. But in the fourth quarter of 2003, Milacron said sales increased in three of its four businesses: plastics machinery in North America and Europe, and industrial fluids.
Milacron officials are predicting the its sales will increase about 7 percent in 2004. They claim Milacron is growing faster than the overall U.S. market, and it is gaining market share.
One key indicator is improving. Capacity utilization at plastics and rubber plants has remained just above 80 percent since August. In February it climbed to 82.4 percent. Milacron said broad-based machinery buying should come when utilization hits 84 percent.
Two stock analysts who cover Milacron are pretty bullish. ``After three years of the most devastating downturn in plastics machinery, orders have to pick up, at least a little bit,'' said Liptak. ``I mean, if orders pick up just 10 percent, it'll be a bull market in plastics machinery. And I think Milacron's in a position where they can leverage that.''
Another analyst, Eli Lustgarten, said manufacturing companies that buy Milacron machinery are getting stronger. ``We think we're in the early stages of a recovery in the industrial sector that will begin today and accelerate through 2005 and 2006,'' said Lustgarten, who follows Milacron for J.B. Hanauer & Co. in Parsippany, N.J.
One day before announcing the deal with Glencore and Mizuho, Milacron had disclosed that its existing bondholders had rejected an offer to convert debt to a major ownership stake. That failed deal would have taken care of both the March 15 bonds and the euro bonds due in 2005, at an interest rate of 9 percent.
The interest rate on the Glencore/Mizuho refinancing is 6 percent. Lustgarten and Gale said it appears that final agreement is a better deal for Milacron than the earlier offer rejected by bondholders.
According to Milacron's 10-K filing, the winning deal is split between $70 million from Glencore, a unit of one of the world's largest producers of metals, minerals and other raw materials in Baar, Switzerland, and $30 million from Mizuho International, part of the giant Tokyo-based bank.
There is one unanswered question: How active a role will Mizuho and Glencore play with running Milacron? The board of directors will be expanded by two seats, with one each going to Mizuho and Glencore. Mizuho and Glencore officials declined to comment.
Lustgarten said the firms probably will continue to allow existing management to run things. ``These are not your typical operating companies taking over,'' he said.
Brown credited Milacron's management and employees with concentrating on business during the negotiations.
``They never did lose focus in serving the customers and providing them with what they needed. That's a great testament to them.''