Applied Extrusion Technologies Inc., already threatened with a delisting from Nasdaq, is facing an uncertain future unless it can renegotiate its bond covenants before reaching an impending deadline, according to sources familiar with the company.
AET did not make a July 1 interest payment on its senior notes, and officials at the New Castle, Del.-based company said its current credit facility restricts its ability to make that payment. The company has a 30-day grace period, lasting through July 30, to meet its obligations or face default on its bonds.
The company is discussing a recapitalization of those notes with an ad hoc committee of bondholders, according to a news release from AET.
AET Chief Financial Officer Brian Crescenzo and other officials did not return telephone calls to discuss the situation. But several sources familiar with AET said the company either must pay its bondholders much less than under its current terms or face other, difficult decisions.
New York-based credit firm Standard & Poor's has already lowered the company's rating to a D, reflecting the fact that its latest bond payment is in default, packaging analyst Liley Mehta said July 23. She said that AET's future ratings - as well as the company's status -will depend on negotiations with bondholders and other investors.
Mehta did not want to speculate on what could happen to the company if negotiations do not bear fruit. ``They are in grave difficulty,'' she said.
Others said the alternatives could include a forced sale. The company does not want to reach that point, said Huston Keith, principal of Marietta-Ga.-based consulting firm Keymark Associates Inc. AET is one of North America's largest extruders of oriented polypropylene film.
``It's a situation where they have to get bondholders to accept some kind of new terms or convert bonds to equity,'' Keith said. ``Or that would trigger a default, and it may trigger a sale.''
AET has amended its credit facility with GE Commercial Finance, leaving the company with the limited ability to make interest payments under the current, $20 million facility, AET officials said.
The company has hired outside legal and financial advisers to assist with what it calls a deleveraging transaction.
In 2002, AET received several unsolicited expressions of interest to buy the company. Ultimately, those bids were rejected, and the company remained under current ownership.
AET recently lowered earnings expectations for the second half of its fiscal year, ending Sept. 30. A combination of lower-than-expected shipments and high PP resin costs led to the news, AET officials said June 16.
On July 20, AET also received notice from Nasdaq that it will be delisted on or before Jan. 18 if its stock price continues to trade at below the minimum $1 per share, AET officials said. AET's stock was trading at about 30 cents per share on July 22.
AET ranked 24th on Plastics News' most recent listing of top North American film and sheet manufacturers with estimated film sales of $230 million in fiscal 2003.