Film producer Pliant Corp. of Schaumburg, Ill., could file for Chapter 11 bankruptcy protection if it is not able to execute a debt-for-equity conversion with an ad hoc committee of its note holders.
The company outlined its reasons in a Nov. 21 filing of its third-quarter results. Hampered by debt, it has struggled with price increases for resin, freight and energy. It has hired investment banking firm Jefferies & Co. Inc. to advise it on its options, including Chapter 11 protection.
``Increases in raw material, freight and energy costs that the company could not pass on immediately to customers ... exacerbated by the continued high prices of oil and the impact of Hurricane Katrina'' were among problems the company cited.
For instance, raw material costs as a percentage of sales increased to 55 percent for the third quarter of 2005, from 51.8 percent for the comparable period of 2004, according to the filing.
Pliant officials did not return calls before deadline.
Standard & Poor's Rating Services of New York on Nov. 23 lowered Pliant's credit rating to CC from CCC+ and placed all ratings on Credit Watch with negative implications.
``Post-hurricanes, that really caused additional problems,'' said Liley Mehta, Standard & Poor's credit analyst, in a Nov. 23 telephone interview. ``[Pliant has] been implementing cost-reduction measures within the challenging environment. Clearly, it's the resin pressures that have put pressure on liquidity.''
Pliant has a lot of debt, Mehta said, with significant interest payments. ``[It's] clearly a big drain, obviously, on cash flow,'' she said, noting that the company expected more growth in earnings, but volume growth was lower than expected and margin growth was challenged.
One industry consultant said Chapter 11 reorganization may be inevitable. The new management under President Harold Bevis has been doing more to rationalize capacity. Operationally, the company has one of the best reputations in terms of being a low-cost producer, but it has struggled for better margins in stretch film. Although barrier films offer higher margins, some of those technologies take a while to pay off.
On Nov. 21, Pliant entered a new revolving credit facility for up to $140 million that matures in May 2007, according to S&P. Pliant had about $22 million available under the credit line Nov. 21. The credit line replaced its 2004 arrangement.
