GEO Specialty Chemicals is in discussions with its senior bank lenders and its equity sponsor Charter Oak Partners to obtain funds to cure a default after it failed to make the February interest payment on its $120 million subordinated notes. But a loan investor familiar with the company said she is not confident GEO will pull it off, citing covenant problems in the past and a difficult environment for the business.
"Gallium drove the EBITDA of the company during the telecom phase," she noted, adding that Gallium is used for telecom-related products. "This is not a well diversified company," she said. William Eckman, cfo of GEO, and Anthony Dowd, managing general partner at Charter Oak did not return calls.
Deutsche Bank,US Bank and Citigroup lead GEO's existing $125 million credit, which includes a $105 million term loan. The facility was amended last year to limit further acquisitions, reduce the amount of cash GEO can retain and increase the spread paid to lenders (LMW, 8/11). GEO's interest rates under the term debt and revolver are approximately 71/2% and 6%, respectively. A Deutsche Bank spokesman declined comment. Spokeswomen for Citi and US Bank did not return calls.
The company has not revealed a specific plan that would enable it to secure the funds, says Standard & Poor's analyst Franco DiMartino, in a report on the company. "Due to significant deterioration in the company's operating performance and numerous violations of the financial covenants in its bank credit agreement over the past few years, GEO faces considerable challenges to obtain the necessary funds that would allow it to make the missed interest payment in a timely fashion," the report states. He declined comment beyond the report. The company has 30 days to cure this situation before it becomes an event of default under the indenture.