Plastech Engineered Products' $290 million term loan "B" rose a point to 95-96.75 after the company made a play to buy Collins & Aikman for $1 billion last week. But the overriding market sentiment was bewilderment, as investors tried to figure out why a company the size of Plastech would try to buy a much bigger, and bankrupt Collins & Aikman. "Everyone is scratching their head on this one," said one investor. Calls to officials at Plastech and Collins & Aikman were not returned by press time.
Among the handful of concerns investors expressed, timing was a big one. Collins & Aikman entered bankruptcy in May and just recently secured debtor-in-possession financing. "It is way premature in terms of Collins & Aikman's bankruptcy to be getting involved," a portfolio manager said. "The dust has barely settled on the paperwork." Collins & Aikman's term loan "B" had been volatile even before the bid. It bounced around last week before settling down at 81.7-83.5 at press time.
Investors also noted that Plastech has hit its own bumps in the bank market. In April, the company faced opposition from lenders on the terms of an amendment that would loosen covenants and reduce pricing on its loans. The amendment would provide for lower EBTIDA and in exchange lenders would receive higher pricing than the original spread but a reduction on the current rates. "The company has its own issues apart from what is going on at Collins & Aikman," one portfolio manager said. "I think the company itself occupies a valuable niche in the industry...but it is clearly gotten overlevered and wrestled with a share of issues relating to changes." Moody's Investors Service placed Plastech on review for possible downgrade following the bid. "Though it is uncertain at this point whether the offer will result in an actual transaction, Moody's will consider Plastech's interest in pursuing such an offer in light of the continued difficult operating environment for automotive suppliers," Moody's said in its report.
The deal would likely need a hefty equity contribution in order to get done, another portfolio manager noted. "I think it would be inconceivable to do an all-debt acquisition of [Collins & Aikman]," he said. Another investor gave it a 50/50 chance of making it through the market, which is eager to lend. But lenders will have to get their hands around the big or small question everyone seemed to be asking last week. "How does a small company in a troubled sector whose debt is trading in the mid 90s make a play for something this complex?" one investor asked. Another summed it up this way: "The minnow wants to buy the whale."
