Atlantis Plastics ends third quarter in violation of financial covenants; believes resolution is close

By Jennifer Lanning Drey

Portland, Ore., Nov. 20 - Atlantis Plastics, Inc. ended the third quarter in default of financial covenants related to its secured credit facility and industrial development bonds but believes it is close to reaching a resolution with its bank group, Paul G. Saari, Atlantis' chief financial officer, said Tuesday during the company's third-quarter earnings conference call.

"We continue to work with our bank group to restructure the financial covenants as well as provide a comprehensive solution that will address the company's liquidity situation," Saari said during the call.

Atlantis' cash balance stood at $500,000 at the end of the third quarter, and the company had $4.4 million, net of outstanding letters of credit of about $5.1 million, available under its senior secured credit facility, according to the company's form 10-Q filed with the Securities and Exchange Commission.

If Atlantis is not successful in negotiating an appropriate amendment and waiver to the financial covenants, the company's lenders could require immediate repayment of the outstanding amount. At Sept. 30, Atlantis had $207.8 million in outstanding debt under the credit facilities, all of which will be classified as current debt until the company is able to obtain the desired amendments and waivers.

Additionally, the company had $6.3 million in industrial development bonds outstanding, which has also been reclassified as current debt while the company negotiates the appropriate bank covenant amendments and waivers with its lenders.

"We believe we're getting very close to a resolution there and think we'll be successful in getting that behind us to avoid any further disruptions to our business," Saari said.

During the third quarter, Atlantis' lenders exercised their right to charge default interest of 200 basis points per annum above the applicable rates of interest on the facility, according to the 10-Q.

Atlantis reported an $11.0 million operating loss for the third quarter, compared with operating income of $2.3 million in the third quarter of 2006.

The company's chief executive officer, Bud Philbrook, said Atlantis' operations were negatively affected by the downturn in the housing market, as about 40% of the company's business is tied to that sector.

Not expecting a recovery in the housing market before 2009, Philbrook said Atlantis will focus on gaining marketshare across all of its business units and operating at peak efficiencies in 2008.

Atlantis Plastics is an Atlanta-based manufacturer of polyethylene stretch and custom films and molded plastic products.

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