Report: Congoleum able to maintain liquidity, refinance funded debt

By Caroline Salls

Pittsburgh, May 28 - Congoleum Corp. should be able to maintain enough liquidity to operate as a going concern and refinance its funded debt through 2014, according to a plan of reorganization feasibility study filed Friday with the Securities and Exchange Commission.

The study was performed by SSG Capital Advisors, LLC at Congoleum's request.

The financial projections included in the report assume a June 30 plan effective date.

Capital structure

According to the report, the company's post-confirmation capital structure assumptions include:

• On the plan effective date, Congoleum expects to have access to a $40 million revolving credit facility from debtor-in-possession lender Wells Fargo Capital Finance;

• A $7.7 million note payable related to reorganization and legal fees will be issued;

• The company will issue $33 million of new senior notes due Dec. 31, 2017. There will be no interest due for the first six months after the effective date, and, from the interest payment due one year after the effective date through the payment due 30 months after the effective date, Congoleum will have the option to pay interest in kind by the issuance of additional senior notes.

However, SSG said the company's projection model assumes that it will not exercise this option; and

• Starting with the end of the fiscal year ending Dec. 31, 2011, the company will issue senior notes in an amount equal to its net debt capacity, less the amount of total debt.

SSG said the projections indicate that the company will issue $3.2 million of senior notes in 2013 and $8.6 million of senior notes in 2014.

Liquidity

In connection with the question of liquidity, SSG said Congoleum expects to maintain a cash balance plus excess availability on its revolver during the projection period, yielding an adequate liquidity cushion.

SSG added, "Assuming the company could maintain its expected initial advance on fixed assets through the projection period, the company's liquidity profile would be improved."

According to its projections, Congoleum will have $15.5 million of total pro forma liquidity at Dec. 31, 2010, $13.74 million at Dec. 31, 2011, $11.4 million at Dec. 31, 2012, $14.07 million at Dec. 31, 2013 and $16.77 million at Dec. 31, 2014.

SSG said the projections yield annual fixed-charge coverage ratios that indicate sufficient cash flow in conjunction with excess liquidity to operate as a going-concern through the projection period.

The company's projections show $11.4 million in EBITDA at Dec. 31, 2011, $9.28 million at Dec. 31, 2012, $11.48 million at Dec. 31, 2013 and $12.71 million at Dec. 31, 2012.

Debt refinancing

To gauge the company's ability to refinance its debt through the projection period, SSG said the leverage multiple of four times average EBITDA must be compared to historical leverage multiples of middle-market loans.

During the projected timeframe, SSG said Congoleum's average leverage multiple was 4.2x and the range of multiples was 3.6x to 4.8x. As a result, the average leverage multiple exceeded 4x in nine of 13 years, or 69.2% of the time.

"Although it is impossible to predict the condition of the capital marketplace during the projection period, utilizing the assumptions in the company's projection model as well as a reasonable range of capital market conditions based on history, this analysis establishes that it is reasonable to conclude that the company will be able to refinance its indebtedness during the projection period," SSG said in the report.

SSG's report was prepared by managing director J. Scott Victor, managing director Michael S. Goodman and analyst Bobby Mannepalli.

Congoleum, a Mercerville, N.J.-based flooring company, filed for bankruptcy on Dec. 31, 2003 in the U.S. Bankruptcy Court for the District of New Jersey. Its Chapter 11 case number is 03-51524.

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