Hilex Poly Co. LLC, faced with a debt-heavy balance sheet, is restructuring its senior secured debt under Chapter 11 bankruptcy protection.
The Hartsville, S.C., company, which claims to be the world's biggest plastic bag maker, said it will save annual interest costs of $17 million and significantly improve cash flow as a result of the restructuring. Noteworthy to unsecured creditors, Hilex also said it will pay its suppliers in full while it continues to operate its business as usual.
``We believe the restructuring will enable us to invest more capital in the business and position Hilex as a more attractive partner for our customers and vendors,'' Hilex President and Chief Executive Officer David Pastrich said in a news release.
He added that the company will continue to focus on its ``environmentally friendly'' products including degradable T-shirt bags; Bag-2-Bag in-store, closed-loop recycling systems; and Enviro-Count rack technology.
Hilex blamed several factors that led to the reorganization. Vendors' terms have become stricter. Raw material costs have risen, a major problem because resin accounts for about 60 percent of Hilex's manufacturing cost. Competitive pricing pressures, including from Asia, and softer consumer demand, also contributed.
Adding to the debt was the 2005 purchase of Vanguard Plastics Inc., Pastrich said in a telephone interview. As part of the Vanguard integration, Hilex closed its Victoria, Texas, facility early this year, leaving it with 10 bag-making plants.
Bag production ``is a tough place to be,'' said analyst Tim Burns with Cranial Capital Inc of Solon, Ohio.
``Plastic bag production has lost the sizzle it had when it was displacing paper,'' Burns said in a telephone interview. Asian competition and environmental pressures are eroding market share. As well, the industry has lacked further developments in using bags as a way to speed up checkout lines in stores.
On May 6, Hilex voluntarily filed a prepackaged plan of reorganization and expects to complete the plan in as little as 45-60 days. It filed its petition in Delaware.
Hilex Poly Co. LLC owed $210 million in term loans and $60 million in revolving loans prior to the bankruptcy filing. Its plan is to have the operating company assume $50 million in term debt and $75 million in revolving debt after the restructuring, while the holding company, Hilex Poly Holding Co. LLC, assumes $105 million in term debt.
Morgan Stanley & Co. is the largest lender to Hilex and will be its major shareholder after the reorganization.
One banker said it is notable that the holding company has no guarantee or collateral in the operating company, which therefore operates under a better debt environment.
Hilex has arranged for debtor-in-possession financing from GE Capital and Morgan Stanley Senior Funding Inc., with an initial commitment of $140 million.
``This financing provides additional reassurance to employees, customers and suppliers that we can meet all of our ongoing commitments,'' Pastrich said.
Pastrich joined Hilex in September, leaving his previous post as vice president and general manager for Alcan Labels.
Hilex logged sales of $504 million in 2007, according to its bankruptcy filing. It expects sales to rise to $529.3 million in 2009, when its net loss is projected to be $15.3 million.
Among Hi-lex's major unsecured creditors are Sonoco Products Co., with a $28 million note; Equistar Chemicals, with $25 million in trade debt; and Formosa Plastics Co., with $11.7 million in trade debt.
In other bag-making news, PCL Packaging Corp. of Oakville, Ontario, will be auctioned off. Officials tried to sell the company after the firm filed for protection from creditors, but no buyer was found.
Once the largest low density PE grocery bag maker in Canada, PCL had sold most of its assets. Just the Oakville plant remained for a sale. Asset Engineering of Markham, Ontario, will hold the auction May 29. Assets include 10 blown film lines.