A financial house of cards appears to have fallen at plastics compounder Gitto Global Corp. of Lunenburg, Mass.
The firm filed for Chapter 11 protection from creditors Sept. 24, claiming debts of at least $50 million. The firm had stopped production and laid off its 75 employees Sept. 17. Company officers Gary Gitto and Frank Miller resigned that same day.
In a filing with U.S. Bankruptcy Court in Worcester, Mass., a lawyer handling the firm's restructuring estimated that Gitto Global had been overstating its sales for several years. Most recently, Gitto Global officials said the firm's annual sales were around $100 million, when in reality they were no more than $40 million, according to the affidavit filed by lawyer Thomas Doherty.
On Sept. 30, U.S. Bankruptcy Judge Joel Rosenthal approved interim financing of almost $3 million that will allow Gitto Global to reopen. That financing will come from LaSalle Business Credit LLC of Chicago, a lending unit of LaSalle Bank Corp. that Gitto Global already owes more than $28 million.
Gitto Global had been seeking emergency financing of $5 million that would allow it to operate for the next 60 days. A final financing hearing has been set for Oct. 21, according to James Lynch, clerk for the U.S. Bankruptcy Court in Boston. Judge Rosenthal also approved a payment of $95,000 to allow Gitto Global to meet its last payroll, Lynch said.
In an Oct. 1 telephone interview, Doherty said he expects the company to be back in full production this week. He added that he has been contacted by seven or eight potential buyers, including both rival compounders and private equity firms. He hopes to find a buyer within 90 days.
Gitto Global ``appears to have viability,'' Doherty wrote in the affidavit, because of its existing sales base of $30 million to $40 million annually, 40-50 customers and an existing customer order backlog of $4 million. Doherty also said he has talked with a number of customers and vendors who ``support efforts to sustain the business.''
Gary Gitto could not be reached for comment, but his lawyer, David Nickless of Fitchburg, Mass., said Gitto is not involved in the day-to-day operations of the company. According to Nickless, Miller owns half of the company, with Gary Gitto owning 40 percent and Gitto's sister Nancy Gitto-Panagiotes owning the remaining 10 percent.
On the firm's Web site, Gary Gitto is listed as chief executive officer and treasurer, while Miller's title is given as chief operating officer and president. Gitto-Panagiotes is listed as vice president.
Gary Gitto's father, Charles, is listed as chairman, but his lawyer, Juliane Balliro of Boston, said Charles Gitto has no connection to Gitto Global, although he does own the building and property. Balliro said Charles Gitto's title as chairman is ``more of an honorary title.''
Phone calls made to Miller's lawyer and to other Gitto Global personnel were not returned.
Court documents showed Gitto Global owes almost $11 million to its 20 largest unsecured creditors. That list includes resin makers Shintech Inc., ExxonMobil Chemical Co. and BASF Corp.
John Monaghan, a Boston-based lawyer with equipment financier CIT Group, said Gitto owes CIT $1.5 million for two production lines in Lunenburg.
Gitto makes proprietary compounds based on PVC, polyethylene, polypropylene, thermoplastic olefins and other specialty resins.
The firm sells into a number of markets, with wire and cable and medical being the most prominent. Charles Gitto previously said the firm is the country's largest supplier of flame-retardant polypropylene compounds for industrial battery cases.
The Gitto family has a long history in the New England plastics industry. Charles Gitto founded PVC compounder Gary Chemical - named after his son - in Leominster, Mass., in 1979. He sold it in 1990, and today the firm, renamed AlphaGary, is part of Kohlberg Kravis Roberts & Co.'s Rockwood Specialties Inc. unit.