Schaumburg, Ill.-based packaging film extruder Pliant Corp. has filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The company said a pre-negotiated package will allow it to eliminate all of its high-yield debt, or $674 million of long-term bonds.
This is a transformational event for Pliant, the company said in a Feb. 11 news release. The plan also calls for Pliant to cut costs, consolidate plants, invest in new equipment and expand globally. It is the company's second Chapter 11 filing in the past three years.
The company filed for Chapter 11 in Delaware, listing assets of $688.6 million and debts totaling $1.03 billion. Pliant's largest creditors are Bank of New York Trust Co., owed $24 million; and Dow Chemical Co., owed $8 million.
All of the company's plants are open and will operate as usual. Pliant has arranged for access to $75 million of interim financing.
This all dates back to when John Huntsman sold the packaging business to J.P. Morgan in 2000, said Tim Burns, a research analyst with Cranial Capital Inc. in Solon, Ohio, in a Feb. 11 telephone interview. Huntsman's packaging was really just a conglomerate of individual flexible packaging, tape and coatings businesses. Back then, it was OK to put a lot of stuff together, even if there was not rhyme or reason.
Basically it was: Get big and be buyers of resin. That strategy was pretty easy. Then, when you got big enough, you sold it.
The Chapter 11 reorganization will squeeze out a layer of debt holders forcing some to take equity shares of Pliant and will improve the company's balance sheet and cash flow, Burns said.
It gives them a lifeline, he said.
This is a similar play to Pliant's Chapter 11 filing in January 2006, when the company blamed resin costs and a heavy debt load.
President and Chief Executive Officer Harold Bevis said Pliant has been burdened by a significant amount of debt which has limited our ability to advance our company at the pace we want. This restructuring will allow us to significantly improve our financial position.
Burns called Pliant interesting and said it could be a very good company. But Bevis has his work cut out for him, Burns added.
They're running around with a gorilla on their back, and that gorilla is too much debt, he said. The future is for Bevis and his team to continue to modify the portfolio in a way that the proceeds of a sale of an asset are more than the lost cash flow.
There will be tough times ahead, Burns said.
Bevis is like a firefighter going into a very hot warehouse and trying to save people. It's not going to be easy, he said.
Standard & Poor's Ratings Services lowered its corporate credit rating on Pliant to 'D' from 'CCC' on Feb. 12.
Pliant has 21 plants and research and development facilities worldwide and employs about 2,900.