GEO Specialty Chemicals is waiting on approval from its senior lenders for a loan commitment that would help it avoid defaulting on a senior notes payment. Deutsche Bank and Citigroup lead GEO's existing $125 million credit, which includes a $105 million term loan priced at LIBOR plus 6%. GEO was in violation of credit facility covenants as of last June 30 and it missed an interest payment on its notes on Aug. 1. Now, the company is looking for approval of a new loan, which has been committed, so it can make the interest payment within a 30-day grace period. If GEO does not make the payment--$6.1 million--within the grace period, it will be in an event of default under a governing indenture.
The loan is subject to negotiations between the company and its senior lenders regarding amendments to GEO's credit facility. GEO also received a covenant waiver on its credit. William Eckman, GEO's cfo, did not return calls for comment.
Debt issues materialized for GEO after suffering from profitability weakness in its main businesses, especially gallium and peroxy chemicals, according to Standard & Poor's. S&P downgraded GEO's corporate credit rating from B to CCC+ after the manufacturer and marketer of specialty chemicals missed the payment on its 101/8%, $120 million subordinated notes.
GEO cited in a release that it has faced weak demand in its electronic and wire cable additives businesses, along with "extraordinary price increases in key raw materials and energy costs [that] curtailed its first half profit performance." The release further states that, "management indicated that it expects the full impact of its recent price increases and cost reduction actions will improve second half earnings." A Deutsche Bank official declined comment and a Citi banker did not return calls.