Under an agreement reached through court-ordered mediation, plastics recycler Nicos Polymers Group has emerged from its short-term bankruptcy after just seven weeks, and sold its assets at auction to a new company formed by its main creditor Fifth Street Finance Corp. and Fifth Street Mezzanine Partners II LP.
But there will be no change in the management of the company, insisted Nicos CEO Kevin Cronin, in a phone interview after the auction took place Dec. 2 the day after Nicos emerged from bankruptcy.
Nicos will continue to operate uninterrupted and with the same management, Cronin said.
Two things will change both of them for the positive, Cronin said.
First, Nicos' primary lender now has a majority ownership stake 51 percent in the new company, still unnamed, that will own Nicos. The remainder of the company will initially be owned by David Krinsky, one of the principal investors in CrownBrook Debco LLC which had purchased Nicos 31/2 years ago.
Second, without erasing the debt that triggered the bankruptcy filing in October, the agreement restructures and relieves the long-term debt burden on the company that was more than $20 million.
This is very positive, Cronin said. The high debt burden was precluding us from moving forward. And we're now cleared from that. We will now be a well-capitalized entity with a strong balance sheet.
In a document filed by the U.S. Bankruptcy Court in New York, the court said that Krinsky and Ron Schinik the other majority stakeholder in CrownBrook Debco acknowledged and agreed that they are validly and justly indebted to Fifth Street for $20.3 million in debt. However, as part of the agreement, $10 million of that secured debt will be converted to a seven-year loan that the newly formed company will owe to Fifth Street.
Fifth Street also will provide a three-year revolving loan to the company in an initial amount of $1 million. In addition, the lease of the Nicos property and recycling plant in Nazareth, Pa., will be transferred to the new company.
There was a realization on both sides as to what would make most sense for the business, given the current economic environment, Cronin said.
The new company will have a three-man board: Krinksy and two people appointed by Fifth Street.
Schinik managing director of CrownBook Debco LLC will not be on the board, but will be a board observer for two years.
Together, Krinsky and Schinik, own approximately 75 percent of the membership interest of CrownBrook Debco. They also own 93 percent of the membership interests of CrownBook Acquisition, the holding company for CrownBrook Debco.
This is all very fresh, said Cronin. A lot of the details still need to be worked out. In the next week or so, there will be a lot of clarity. But the lender [Fifth Street] is very positive about the business and supportive of where the business is headed.
Nicos Polymers initially filed for bankruptcy Oct. 13 when negotiations to restructure its outstanding long-term debt stalled. As of Oct. 13, Nicos had debts of more than $22 million compared to an aggregate net book value of cash, accounts receivable, inventory, fixed assets and other assets of just $4.3 million.
Nicos is the 20th-largest recycler on the Plastics News rankings, based on pounds of material recycled annually, which the company said was 72 million pounds in 2009. At the time of their purchases by CrownBrook, Debco was recycling 7 million pounds of plastic annually and Nicos 90 million pounds. The Debco operation was moved into the Nicos plant in Nazareth, Pa., during 2007.
Debco and Nicos had sales of $7.5 million and $13 million, respectively, before they were purchased by CrownBrook in 2007.