Private equity-backed GSE Holding Inc. is exploring the sale of its assets and will use the proceeds to repay its debt after attempts to refinance it failed.
The Houston-based provider of highly engineered geosynthetic containment solutions for environmental protection and confinement applications, which are used in landfills and for other liquid and solid containment, is pursuing the sale of its assets with the help of Moelis & Co. LLC, it disclosed in filings with the Securities and Exchange Commission on Jan. 10.
David Faris, Mark Hootnick, Jonathan Kaye and Vincent Lima at Moelis are advising the company, The Deal has learned.
Under a recent amendment provided by its lenders, GSE must distribute a final confidential information memorandum to prospective buyers by Jan. 17. Letters of intent for the sale, meanwhile, are due by Feb. 21. A sale must be completed by March 30 if the GSE wants to avoid defaulting on its debt.
GSE, which is more than 50%-owned by Chicago PE firm Code Hennessy & Simmons LLC, has been working with Moelis since July in an attempt to raise additional unsecured mezzanine indebtedness or other subordinated additional capital. The company has also been trying to refinance its debt, but it has not yet been successful.
While the company is still exploring the refinancing, "it appears unlikely that the refinancing will be completed on acceptable terms," it said in SEC filings.
GSE has $172.2 million outstanding on its first-lien credit facility with General Electric Capital Corp., Jefferies Finance LLC and other lenders. The first-lien debt, which comes due on May 27, 2016, is priced at Libor plus 550 basis points.
A $192 million first-lien senior secured credit facility consists of a $157 million term loan and a $35 million revolver. In April 2012, the company increased the first-lien term loan to $157 million from $135 million in order to repay the amount outstanding on its $40 million in second-lien debt.
GSE currently owes $153.4 million on the term loan and $18.8 million on the revolver.
The other lenders include Wells Fargo Principal Lending LLC, Nationwide Mutual Insurance Co., Harleysville Life Insurance Co., Littlejohn Opportunities Master Fund LP, SG Distressed Fund LP, Cetus Capital II LLC, SUNS SPV LLC, Black Diamond Capital Management LLC, Fifth Street Funding II LLC and ING Capital LLC, SEC filings said.
GSE's lenders on Jan. 10 granted it a waiver on its maximum total leverage ratio and minimum interest coverage ratio covenants through March 30.
"While I don't know what the company's maximum leverage ratio was as of Dec. 31, it seems it wasn't compliant as it pursued a covenant waiver for that period," said Moody's Investors Service Inc. analyst Zev Halstuch in a phone interview. "GSE's maximum leverage ratio was at 6.26 times as of Sept. 30 and the covenant tightened to a max of 6.25 times as of Dec. 31. The company was required to have a minimum of 2 times interest coverage for Sept. 30 and they had 2.49 times, so it may not have violated that as of Dec. 31."
GSE also secured a $15 million secured revolving superpriority credit facility from GE Capital on Jan. 10 in order to provide it with liquidity until it can sell its assets. The new revolver is priced at either Libor plus 800 basis points or a base rate plus 700 basis points. It matures the earliest of the sale closing or April 30.
Alvarez & Marsal Holdings LLC is financial adviser to GE Capital, SEC filings said.
"It's reasonable to assume the company has close to $35 million in liquidity through its cash on hand and new $15 million super senior revolver," Halstuch said. "Reported cash was about $19 million on Sept. 30 and it also tends to generate cash from working capital in the fourth quarter, so even if it was a breakeven quarter, cash plus the new facility would result in that liquidity. This should give us comfort that they won't hit a liquidity squeeze over the next 90 days while they look for a buyer."
Halstuch said that, while he didn't know who the potential buyers might be, he didn't "see this is as a liquidation story."
"It will just depend on the right price," he asserted. "I do think there is long-term potential here and this is a legitimate business that has historically done much better but is at a low point right now."
According to its latest quarterly report, filed with the Securities and Exchange Commission on Nov. 14, GSE has $296.54 million in assets and $265.42 million in liabilities as of Sept. 30. The company reported a $72.16 million net loss for the nine months ending Sept. 30.
"The company's adjusted Ebitda for the first three quarters of 2013 was $15 million, compared to $36 million for the same period in 2012, or a 60% decline," Halstuch. "The company's Ebitda decline is quite large."
The company, which manufactures its products at facilities located in the U.S., Germany, Thailand, Chile and Egypt, "is struggling due to the increasing competitive pressures in the business and because the volume of trash disposal is down. The volume of trash in the US is only growing around 1% per year because of the economy and the fact that there is not that much new commercial construction going on right now. When the economy grows at a faster pace, more trash is produced," he said.
According to Halstuch, "People aren't spending money on GSE's technology, which includes sensors on their liners, and people aren't spending money on the new applications out there for the liners, such as containing fracking water and fly ash."
The stock, which trades on the New York Stock Exchange under the symbol GSE, closed at $1.39 on Friday upon the news of the sale process, down from $2.06 on Thursday. It traded down even further Monday, closing at $0.78.
GSE has been a public company since February 2012, when it did an initial public offering and Code Hennessy sold off nearly half its stake. Code Hennessy had merged GSE with its GEO Holdings Corp. unit in a deal valued at $224.8 million in cash on Dec. 31, 2003.
GSE's senior vice president and CFO, Daniel Storey, couldn't be reached for comment.
Christopher Butler at Kirkland & Ellis LLP is legal counsel to GSE.
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