Flexible polyurethane manufacturer Foamex International Inc. is trapped between the proverbial "rock" of debt and "hard place" of high material prices.
The Linwood-based firm could file for Chapter 11 protection from creditors soon, the firm said recently when it disclosed it is unable to pay the $51.6 million principal on senior subordinated notes that matured Aug. 15.
Foamex already has been granted leniency from senior lenders Bank of America N.A. and Silver Point Finance L.L.C. They amended the firm's credit agreements and allowed it to spend $38.5 million, which Foamex acquired from selling its rubber and felt carpet cushion businesses in May to Leggett & Platt Inc., on working capital. The money was supposed to be used to pay down Foamex's $788.4 million debt.
"I would say it's a very good chance that (Foamex) will declare bankruptcy," said Matt Wirz of Debtwire, a distressed debt intelligence firm. "They're trying to work out a mutual deal with their creditors."
Foamex is in discussions with its senior lenders and hopes to convert debt held by them into equity.
"The only thing standing between (Foamex) and bankruptcy now is Silver Point," said Shelly Lombard of Gimme Credit Publications Inc. "Silver Point has bailed them out in the past."
Lombard said external forces limited Foamex's options. "They got caught by those rising raw-material prices and the maturity coming due," she said. "They have no options. They're basically out of cash."
Tom Chorman, Foamex president and CEO, said for the past year the firm encountered rising chemical raw material prices and unrelenting marketing pressures.
"While we have implemented several measures to offset these pressures (including selling the rubber and carpet cushion businesses), our legacy balance sheet and high debt carrying cost have substantially limited our ability to reinvest."
But Foamex's troubles have been ongoing. Though its stock was worth more than $10 in 2001, it traded for 17 cents a share on Aug. 17.
For now the company can continue day-to-day production. Even if Foamex does file for Chapter 11 bankruptcy, Silver Point and Bank of America have committed to provide debtor-in-possession financing, according to the company's statement.
"No one thinks Foamex should liquidate," Wirz said. "They're still a viable company. They just have too much debt."
"It's a lesson on the evils of high-leverage (loans). It amplifies every mistake," Lombard said.
This story was written by Jason Lea, a staff member of Plastics News.