Bondholders of Morris Material Handling are expected to decide around the end of April whether to accept a takeover bid for the company or convert their debt to equity and take ownership themselves. Either way, Morris is set to spend 90 days in structured Chapter 11 bankruptcy protection during May, June and July as the restructuring is carried out.
The company stressed that it would continue to trade as normal during this period. “We will continue to trade, to pay suppliers, to hire employees, it will be business as usual,” president and chief executive officer Jack Stinnett told HOIST. Stinnett added that whatever the outcome, Morris’s debt problems will be a thing of the past once the restructuring or change in ownership is complete. The Morris business in the UK will not go into any form of receivership as part of the restructuring process.
Morris (formerly P&H) Material Handling engaged financial advisers Donaldson, Lufkin & Jenrette Securities Corp. at the beginning of February to explore debt restructuring or sale options. Drastic measures were called for after the company announced a net loss of $98m for the year to 31 October 1999 on net sales down 7% to $294m. Demand and prices achievable are both depressed, the company said. However the key problem is the crippling debt burden taken on by the current owner, Chartwell Investments, when it bought the company from Harnischfeger Industries in April 1998.
The net loss included $1.3m of one-off charges as Morris tried to turn itself around.
The company secured an extension on its credit facilities last year but patience now appears to have run out. The company said in February that it anticipated defaulting on its bank credit agreement “for the foreseeable future”.
Stinnett said that both options, a sale or a debt-to-equity conversion, were being explored simultaneously with equal vigour. “The process is proceeding on schedule with prospective buyers and representatives of the bondholder group,” he said.
Althouth debt in Morris is publicly traded, it only has a few bondholders and they are financial institutions experienced in such situations, rather than disparate, private shareholders. This should make any transition of control from the equity group to the bondholder group significantly easier.
The end of April is a key date because it represents 30 days after default on its credit agreement, which had previously been extended to 29 March.
Morris Material Handling has also completed the sale of its Canadian subsidiary, Mondel Engineering.
