Kellwood Co., the Sun Capital Partners portfolio company that is also parent of American Recreation Products, said it was unable to renegotiate and extend its bond issue that matured Wednesday and its board extended the deadline for acceptance of a proposed debt exchange until midnight Friday.
The company also negotiated a forbearance agreement with its bank group, led by Bank of America Corp., while it explores alternatives to strengthen its balance sheet.
CEO Michael Kramer said the extension would give Deutsche Bank, a large bondholder, time to reverse its position and “accept the deal they helped structure and told us all along that they supported.”
He pointed out that debt maturity — not Kellwood's business performance — was pressuring the balance sheet. “Our operations and supply chain are strong and we are currently a profitable company,” Kramer added.
There is broad speculation that Kellwood could be forced to file for bankruptcy protection if it cannot to reach an agreement with bondholders.
Kellwood was taken private in February 2008 by buyout firm Sun Capital Partners Inc. and American Recreation was split out from Kellwood. Although ARP reports separately and is operated separately, ARP is still legally owned by Kellwood Corp. and is not a separately-owned entity under Sun Capital so outdoor industry concerns about the debt exchange offer are understandable.
A source close to the situation to The B.O.S.S. Report that ARP's earnings “continue to be very healthy and the businesses are very viable.” Finally, the source doesn't believe Kellwood will have to file for Chapter 11, believing Deutsche Bank's move is a negotiating tactic and noting that several other potential lenders are now involved in the negotiations.
In December 2008, ARP started a massive restructuring initiative that included replaced dozens of outside reps with an in-house sales force and several changes in marketing and product development. Sources claim that this was a bid to cut costs and reach earnings targets of Sun Capital Securities Group LLC.
