Polaroid is in talks with J.P. Morgan Chase about refinancing approximately $525 million in debt, but bankers said any deal would be a challenge as the company's bank group includes lenders that have pulled back from the market and especially from low-rated credits. A spokesman for the company said Polaroid is looking at a number of alternatives, including a bank deal. He declined to comment about a potential structure, pricing, or a date for syndication, noting that there are many issues that need to be worked through.
One of the challenges for Polaroid is that some of its relationship lenders have retooled their approach to lending. Bank of America, Mellon Bank, Bank One and PNC Bank, all participants on the existing facility, are all taking a more discriminating view of lending relationships. Most banks are looking very carefully at their relationships, pulling back from those that are not profitable, one banker said, adding, "a relationship is a two-way street." More important--especially in the case of Polaroid--is that these banks are pulling away from deteriorating loans. Standard & Poor's recently downgraded Polaroid from B- to CCC and Moody's has the former investment grade company's bank debt at Caa1. A banker at one of the relationship lenders said that fall is enough to scare away his bank. "There is no way on earth we would lend to a C rated credit," he said. Officials at B of A, Mellon, PNC and Bank One either did not return calls or declined to comment.
John Moore, an analyst with Moody's Investors Service, commented that Polaroid is in a very risky position. The banks are eyeing the figures for second quarter performance after poor first quarter results and they also want clarity on the new technologies Polaroid is launching. Cambridge, Mass.-based Polaroid has an existing $320 million revolver that expires at the end of this year and $150 million in 63/ 4% notes is due next Jan. 15. There is also a $45.8 million U.K. credit line and $9.6 million in uncommitted short-term debt. Polaroid also needs to get an amendment from lenders to approve covenant waivers before July 14. To refinance the existing debt, banks would have to pony up for the bonds maturing in January, one source noted, which is another risk.
A key for lenders, one banker said, is how much of Polaroid debt they still hold. He noted that lenders to other troubled companies, such as Rite Aid andXerox , stepped up and rolled over commitments rather than watch the company falter. He said lenders have to ask if they are "better off refinancing or being hard-nosed." The company will likely cast its net far and wide to bring in new lenders, bankers noted. A J.P. Morgan Chase spokeswoman declined comment.
Any deal would come at a steep price. Pricing on the existing credit signed in 1998 is LIBOR plus 21/ 2%. This was amended from LIBOR plus 1/2% with security added in anticipation of a ratings downgrade to BB.