Film producer Pliant Corp. of Schaumburg filed for Chapter 11 bankruptcy protection Jan. 3 in U.S. Bankruptcy Court in Wilmington, Del.
Hampered by debt, the company has struggled with price increases for resin, freight and energy. In its filing, Pliant listed total assets of $604.2 million and total debts of nearly $1.2 billion. Those numbers are based on unaudited financial data.
Late last year, Pliant had hired investment banking firm Jefferies & Co. Inc. to advise it on its options.
A confluence of factors in 2005, including severe increases in resin prices and tightening of trade terms with key suppliers, pushed Pliant into Chapter 11, President Harold Bevis said in a Jan. 5 telephone interview. Those higher costs could not be passed on immediately to customers, and it cut into cash provided by operations.
The cost of resin constituted nearly two-thirds of Pliant's total manufacturing costs in the first half of 2005, officials said in a news release. In a November filing with the Securities and Exchange Commission, officials said 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.
Bevis said the firm entered Chapter 11 with a pre-negotiated agreement to reduce debt by up to $578 million and reduce annual interest expense by up to $84 million. The bankruptcy filing does not include operations in Mexico, Germany or Australia.
Pliant has $70 million in debtor-in-possession financing secured from GE Commercial Finance of Stamford, Conn., officials said.
Bevis, since his October 2003 appointment, has focused on operational improvements. Pliant is the third company that has hired Bevis as a turnaround specialist, he said by telephone Jan. 5.
``The operations were not rationalized,'' he said. ``There was not a focus on cost productivity, pound-for-pound.''
Since he stepped in, the company has reduced net waste 35 percent.
``We have our footprint where we want it,'' he said. ``We have our operational improvements in place.''
Still, the company was swimming in debt, brought on by what Bevis considers poor acquisitions by previous managers. Pliant has offloaded those operating units, including decorative coatings firm Decora Inc., sold in 2004.
``We knew that we had about twice too much debt for the size of the company,'' Bevis said. ``Everyone knew we had too much debt. Everyone knew we were doing the right business improvements. It's widely known that we're making a lot of progress.''
Bevis highlighted several areas where Pliant has made strides, including government contracts now worth more than $20 million. Pliant also has been researching the use of special inhibitors, stabilizers and enhancers that can be used in film to improve shelf life and food quality.
``We're halfway through that,'' Bevis said. ``It's a multipronged initiative. There are several avenues we're pursuing.''
The company also has added 40 engineers in two years.
Still, Pliant has critics.
Alfred Teo, outspoken chairman and chief executive officer of film manufacturer Sigma Plastics Group, said by telephone Jan. 3 that Pliant's bankruptcy filing hurts the entire industry.
``This is the wrong message to send to industry,'' Teo said of the filing. ``This is not fair for responsible business owners. If you run a business so well, how come you have to file for bankruptcy? The industry as a whole is not a healthy industry, because of companies like Pliant and Tyco.''
Bevis declined to comment on Teo's statements.
Pliant already has its draft plan of reorganization. Bevis said holders of more than two-thirds of Pliant's 13 percent senior subordinated notes and holders of a majority of its preferred and common stock agreed to support the restructuring transaction and vote in favor of the reorganization plan.
``Because we enter Chapter 11 with a pre-negotiated debt-reduction agreement with several of our stakeholders, we are optimistic that we can complete the process quickly,'' Bevis said in a news release.
Standard & Poor's of New York in November lowered Pliant's credit rating to D on its Chapter 11 filing from CC and removed all ratings on its credit watch with negative implications.
``Post-hurricanes, that really caused additional problems,'' S&P credit analyst Liley Mehta said in November. ``[Pliant has] been implementing cost-reduction measures within the challenging environment. Clearly, it's the resin pressures that have put pressure on liquidity.''
Pliant's debt level has been a burden on the firm, Mehta said.
``They have a lot of debt. [It's] a big drain, obviously, on cash flow,'' she said. She noted that the company expected more growth in earnings, but volume growth was lower than expected and margins were challenged.
Industry sources said new management under Bevis has been doing more to rationalize capacity. Operationally, Pliant 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.
