A series of small trades of Harnischfeger Industries' bank debt has pushed the price up to 50 as the market smells an exit from Chapter 11 bankruptcy soon and vultures see an equity play. Ken Hiltz, cfo, said the company recently went through three days of confirmation hearings in bankruptcy court. "We're just awaiting a judge's decision. We're optimistic about it," he said, adding that the company submitted a reorganization plan in December to its creditors and that it was voted on and approved.
Hiltz said according to the company's restructuring plan, the recovery of secured claims would be 50-60 cents on the dollar. "They're going to get it when it's distributed and in the form of stocks. What they're assessing is the value of an equity play in Harnischfeger," Hiltz said of the buyers. "We've made no offers to pay back the bank debt, which is fundamental to our filing for bankruptcy. The loss of value in the old business made the company unable to pay off its debt."
The sniff of equity has been enough for buyers--who dealers say are mostly vulture shops--to buy up the existing bank debt. "The banks thought they'd have 50 cents at the end of the day," one dealer said. "So people were buying it at 42-44, thinking they'd get a nice return." He added that the buyers later figured they'd get a return higher than 50 cents and began paying up more for the bank debt. A market player said about 20 banks have sold off their exposure, each at about $15 million.
Levels are said to have inched up since March, starting with a trade at 44 on March 8, and a trade at 46 1/2 a week later. Two weeks ago there was a trade at 48, and a dealer says the levels hit a high of 50 last week. "Who knows how long it will take the company [to get out of bankruptcy]?" he said. "The banks think they're going to get 50 cents if can sell it today. Money is worth it to them now, rather than two years from now."
Hiltz said the company has also made considerable changes in its operations, eliminating its under performing paper-making business and focusing on mining operations. "The paper making equipment business was losing significant amounts of money and prospects for a near-term turnaround were slim," he said.
Harnischfeger's subsidiary Joy Mining Machinery produces 55% of its sales, while the other 45% comes from P&H Mining Equipment. Harnischfeger has a $750 million facility which breaks down into three tranches. It is priced at LIBOR plus 2 3/4 %. J.P. Morgan Chase leads the deal, according to Capital DATA Loanware. A bank spokeswoman could not be reached by press time.