Applied Extrusion Technologies, a developer and manufacturer of plastics, is suffering from tight liquidity and may be challenged to remain in compliance with minimum EBITDA levels for its $100 million credit agreement led by GE Capital. Applied Extrusion's liquidity is very weak, according to Paul Blake, a Standard & Poor's analyst. But Brian Crescenzo, Applied Extrusion's v.p. of finance, secretary and treasurer, said the company is not at the point of needing a waiver.
Blake said the company has very little room under financial covenants and may have to seek amendments if operating results fall below expectations in the near term. Applied Extrusion has to make quarterly cash requirements of $1.6 million on a $50 million term loan and $15 million semi-annual coupon payments on $275 million of senior secured notes. For the fiscal year 2004, Applied Extrusion's minimum EBITDA covenant is $49 million. The 2003 EBITDA was $37.4 million.
"Applied Extrusion's main challenge would be to decrease its inventory levels to increase their liquidity," said Blake. "Due to the extremely challenging business environment, which includes industry overcapacity and soft demand, it will be challenging for Applied Extrusion to meet their obligations," he added.
Crescenzo said the company will neither issue nor raise its cost of debt in order to meet its liquidity obligations. Instead, the strategy will be to "substantially increase its sales volume and revenue." According to Crescenzo, increased revenues will bring the revolver down and increase liquidity.
Liley Mehta, also an S&P analyst, attributed Applied Extrusion's underperformance to product competition, pricing pressure and low demand. She said the main issue in 2003 was the high resin prices that Applied Extrusion was unable to pass to customers. S&P has lowered its corporate credit ratings to B- from B and the senior unsecured debt rating to CCC from B-.