GE Commercial Finance, Black Diamond Capital Management and Merrill Lynch Capital are sticking with Applied Extrusion Technologies as the company goes through a prepackaged Chapter 11 filing that will see the company delever through a debt-for-equity swap. "We've got a relationship with GE," stated Brian Crescenzo, Applied Extrusion's cfo. "They understand our business. They've been working with us in both the DIP and the exit and they've offered us a market facility. We are interested in continuing that relationship and having them assist us in our recapitalization."
GE, which led the $110 million pre-petition facility with the other two institutions participating, will now lead a $110 million debtor-in-possession facility with the two firms. GE will also provide a $110 million exit facility for the plastics developer when it emerges from Chapter 11. "The DIP will be used to pay down the $110 million pre-petition bank facility and will provide liquidity to implement the company's strategy in accordance to the pre-packaged bankruptcy plan," Crescenzo stated.
Applied Extrusion had to recapitalize because of high leverage and lower margins due to the dramatic price increase of polypropylene, the company's main input, caused by the increased cost of oil, Crescenzo explained. In June, the company retained Miller Buckfire Lewis Ying & Co. as financial advisor and restated financial covenants on the bank agreement. In July it did not make interest payments on its notes. As part of the reorganization, the $273 million of bonds will be exchanged for 100% equity in the company. Holders of these notes include Post Advisory Group, Barclays, DDJ Capital Management, Xerion Partners, Trust Company of the West and Pequot Capital Management. In addition to the equity, the funds will receive $50 million of new notes.
The bondholders bought in the distressed market in the last six months, according to one participant. "The enterprise was facing difficulty because they were impacted on the supply side by oil prices," he added, noting the bonds traded as low as the 50s. "We like to invest in overleveraged business and deleverage and convert to equity. We think its fabulous value."
GE will conduct a best-efforts syndication to raise an extra $15 million for the DIP and the exit, said Crescenzo. The DIP will comprise a $55 million revolver priced at LIBOR plus 3 1/2%, a $50 million "A" loan priced at LIBOR plus 4 1/2% and a $20 million tranche with pricing to be determined.
