Penford Amends Credit Agreement; Updates Q2 Outlook
February 27 2009 - 11:50AM
Business Wire
Penford Corporation (Nasdaq: PENX), a global leader in
renewable, natural-based ingredient systems for industrial and food
applications, has announced that its banking group unanimously
approved an amendment to its existing credit agreement effective on
February 26, 2009.
Among other things, the amendment revises certain covenant
calculations to reflect the financial impact of the June, 2008
flood event at the Company�s Cedar Rapids Industrial Ingredients
manufacturing facility. The amendment also relaxes the Company�s
funded debt ratio covenant for the last two quarters of fiscal 2009
and the first quarter of fiscal 2010. The need for this amendment
was driven in part by slower than expected insurance recoveries
from the flood. The Company filed suit in January, 2009 in Cedar
Rapids against certain insurers to advance the insurance recovery
process.
Under terms of the amendment the Company will pay additional
arrangement fees and commitment fees of $550,000. The amortization
of these fees over the remaining term of the debt will increase
annual interest expense by $170,000. Additionally, the maximum
commitment fee for undrawn balances will increase by 10 basis
points. The maximum LIBOR margin payable on outstanding debt will
increase by 100 basis points. The incremental annual interest
expense from these pricing changes is estimated at $0.8 million per
annum, based on current outstanding borrowings.
The Administrative Agent for the credit facility is Bank of
Montreal. The following banks also participate in the facility:
Australia and New Zealand Banking Group, Bank of America, Rabobank
Nederland, and U.S. Bank. Under its credit agreement, the Company
has $43.0 million outstanding on a capital expansion loan due
December 31, 2012, $7.4 million term debt maturing December 31,
2011 and has drawn $33.5 million under a $60.0 million revolving
credit facility expiring December 31, 2011.
Second Quarter Fiscal 2009 Segment Operating Outlook
Food Ingredients � North America
The North American Food Ingredients business is contributing
solid performance in the current economic environment. Second
quarter sales and operating profit are expected to compare
favorably to the prior year period. The Company�s focus on
differentiated products that provide functionality and low
cost-in-use continues to provide value to our customers, especially
in current market conditions.
Industrial Ingredients � North America
Paper industry conditions remain extremely challenging. Recent
statistics show coated and uncoated free-sheet paper consumption
declining by more than 20% from a year ago. The Company�s paper
customers have attempted to balance production with weaker demand
for their products through mill closures and curtailments, and
significant market related downtime is expected to continue in the
near term. As a result, customer demand for Penford�s industrial
starch is well below expectations. The sharp decline in energy and
fuel markets has also impacted ethanol selling prices, and margins
on ethanol fell short of break-even for most of the second
quarter.
The Industrial Ingredients segment is now expected to report an
operating loss for the second quarter of fiscal 2009. This business
is pursuing additional new sales opportunities, reducing
manufacturing expenses by working with suppliers to adjust to new
costing requirements, and limiting discretionary expenditures.
External sources forecast generally improving ethanol margins as
seasonal demand increases and unit production costs fall.
In February the Company completed the sale of its dextrose
business for approximately $2.9 million. The Cedar Rapids based
dextrose production assets became non-strategic to Penford
following the flood last June.
Australia/New Zealand Operations
High grain input costs throughout the quarter and unfavorable
manufacturing variances, particularly in December, will result in
operating losses for the Australia and New Zealand segment during
the second quarter that exceed those reported in the first fiscal
quarter of 2009. Raw material input costs are beginning to decrease
and should contribute during the second half of fiscal 2009. As
part of a continuing program to maximize asset values and returns
the Company is examining a range of operating and strategic choices
for this business.
�The operating environment is intensely challenging and
dynamic. We must assist our customers with cost effective
value-added products, re-base our cost structures, and effectively
manage through the irregularities of the current supply/demand
conditions,� said Tom Malkoski, Penford Corporation President and
Chief Executive Officer. �I would like to thank our entire
workforce for their sustained efforts underway and our bank group
for their strong support of our business.�
About Penford Corporation
Penford Corporation develops, manufactures and markets
specialty, natural-based ingredient systems for a variety of
industrial and food applications. Penford has nine manufacturing
and/or research locations in the United States, Australia and New
Zealand.
The statements contained in this release that are not historical
facts are forward-looking statements that represent management�s
beliefs and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words
such as �believes,� �may,� �will,� �looks,� �should,� �could,�
�anticipates,� �expects,� or comparable terminology or by
discussions of strategies or trends. Although the Company believes
that the expectations reflected in such forward-looking statements
are reasonable, it cannot give any assurances that these
expectations will prove to be correct. Such statements by their
nature involve substantial risks and uncertainties that could
significantly affect expected results. Actual future results could
differ materially from those described in such forward-looking
statements, and the Company does not intend to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Among the factors that could cause
actual results to differ materially are the risks and uncertainties
discussed in this release and those described from time to time in
other filings with the Securities and Exchange Commission which
include, but are not limited to, competition; the possibility of
interruption of business activities due to equipment problems,
accidents, strikes, weather or other factors; product development
risk; changes in corn and other raw material prices and
availability; expectations regarding the construction cost of the
ethanol facility and the timing of ethanol production; changes in
general economic conditions or developments with respect to
specific industries or customers affecting demand for the Company�s
products, including unfavorable shifts in product mix;
unanticipated costs, expenses or third party claims; the risk that
results may be affected by construction delays, cost overruns,
technical difficulties, nonperformance by contractors or changes in
capital improvement project requirements or specifications;
interest rate, chemical and energy cost volatility; foreign
currency exchange rate fluctuations; changes in assumptions used
for determining employee benefit expense and obligations; other
unforeseen developments in the industries in which Penford
operates; and other factors described in the �Risk Factors� section
in reports filed by the Company with the Securities and Exchange
Commission.
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