Plastech Engineered Products is facing opposition from lenders over the terms of an amendment that will loosen covenants and reduce pricing on its loans. The Dearborn, Mich.-based firm, which produces plastic interior and exterior trim components for the auto industry, is in default on $515 million of loans due to relatively weak EBITDA and 2004 revenues and has been paying juiced up pricing since tripping covenants.
"The company is seeking some amendments to the credit agreement because the business is underperforming and the company is paying default interest rates," said an investor with a position in the loan. The amendment would provide for lower EBITDA. In exchange, lenders would receive higher pricing than the original spread, but a reduction on the current rates.
The request was made during a conference call last week and has irritated lenders. "I would guess they would come back with a revised proposal. It was a long haul and a lot of lenders expressed frustration with the company," said the investor. "I don't think they can pass the amendment as it is currently structured." Company officials did not return calls.
Plastech was provided with temporary waivers until mid-April after breaking covenants at the end of last year. Default pricing was put in place that increased the spread on the the first-lien debt by 200 basis points. The $290 million "B" loan is currently paying LIBOR plus 4 3/4% and the $50 million second-lien is at prime plus 5 1/2%. When Bank of America syndicated the credit in January 2004, pricing was set at LIBOR plus 2 3/4% on the "B" loan and LIBOR plus 4 1/2% on the Goldman Sachs-led second lien. Both tranches flexed downwards in syndication. The credit also consists of a $100 million revolver and a $75 million "A" loan. The lenders are now being offered LIBOR plus 3 3/4% on the first lien and LIBOR plus 6 1/2% on the second-lien.
"When they did the deal a year ago, the projections were rosier than how the company is performing now," said the lender. Plastech's "B" loan is quoted at a discount and traded at 98-99, down a point after the request. The second-lien was quoted at 97-98. Bank of America officials declined comment. Goldman officials did not return calls.
According to Nancy Messer, a Standard & Poor's analyst, the company's liquidity deteriorated significantly last year. Plastech is experiencing similar problems to the other auto-parts companies, such as high material costs and reduced production schedules from OEMs. But Plastech was also hurt by delayed launches for new vehicles for Ford Freestyle and the Mercedes M class. This will not recur in 2005, she said. There are also other positives. Plastech has a sourcing agreement with Johnson Controls that should support sales growth in the long term. Plastic content per vehicle is also likely to increase because the material has a lower cost than steel.