GenTek saw downward movement in its bank debt levels last week based on news that its senior lenders have decided to block the company from making the Aug. 1 interest payment on its subordinated notes. Gentek's paper began sinking in response and, at last check, had fallen into the mid-60s, traders said. The paper had an average bid of 71 the previous week.
"[GenTek] has fallen into the toilet quickly," one trader said, referring to a string of events that have put pressure on the company. In mid-May, the Hampton, N.H., manufacturer of telecommunications and other industrial products reported lower revenues and earnings for the first quarter. GenTek also announced that it was in default of certain covenants contained in its credit agreement, which gives the lenders the right to accelerate the company's debt repayment obligations. By blocking the Aug. 1 interest payment, the lenders are positioning the company to also default on its sub notes, which would cause the acceleration of the principal amount and all accrued interest.
A spokesman for GenTek said the company is negotiating with its senior lenders to amend the credit, but no agreement has been reached and the company is considering various restructuring alternatives. He noted that GenTek has about $140 million of cash on hand, which should permit it to maintain existing payment terms with vendors as it explores a solution to its debt and balance sheet problems.