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Xerium Technologies Inc. Message Board

  • investor.gator investor.gator Aug 15, 2012 11:57 AM Flag

    Outlook, part I of II

    Challenges

    (1) High leverage: although the company ended 12/31/11 with a 4.43x Leverage Ratio and a 2.92x Interest Coverage against covenants of 5.5x and 2.25x respectively, a 'zero growth' two year forecast (european price and volume declines are offset by Asian increases) indicates potential covenant issues in Q4'13 Q1'14

    1H'2012 Adjusted EBITDA: $44.2M. Implied 2012 Full Year EBITDA: ~$95M (assumes 3Q and 4Q EBITDA will match or slightly exceed 2Q EBITDA).

    Total Debt as of 2Q'12: ~464.2M (assumes $112.5 on US Term Loan, $99.2M on Euro Term Loan, $240M on 8.75% Notes, $12.5M on Revolver undrawn but supporting letters of credit and effectively no US cash above $25M)

    Estimated total debt as of 12/31/12: $463M (assumes scheduled principal repayment of $0.6M per quarter on term loans and no voluntary prepayment, mandatory prepayments or other reductions in principal)

    Estimated Leverage Ratio @ 12/31/12: 4.87x
    Estimated Interest Coverage @ 12/31/12: 2.57x

    The company's ammended Leverage Ratio covenants are as follows:
    Fiscal Quarter ending Leverage Ratio

    September 30, 2012 5.50 to 1.00
    December 31, 2012 5.50 to 1.00
    March 31, 2013 5.50 to 1.00
    June 30, 2013 5.25 to 1.00
    September 30, 2013 5.00 to 1.00
    December 31, 2013 5.00 to 1.00
    March 31, 2014 4.50 to 1.00<----
    June 30, 2014 4.50 to 1.00
    September 30, 2014 4.25 to 1.00
    December 31, 2014 4.25 to 1.00


    The Company's ammended Interest Coverage Ratio covenants are as follows
    September 30, 2012 2.25 to 1.00
    December 31, 2012 2.25 to 1.00
    March 31, 2013 2.50 to 1.00
    June 30, 2013 2.50 to 1.00
    September 30, 2013 2.50 to 1.00
    December 31, 2013 2.75 to 1.00<-----
    March 31, 2014 2.75 to 1.00
    June 30, 2014 2.75 to 1.00
    September 30, 2014 2.75 to 1.00
    December 31, 2014 2.75 to 1.00


    (2) Minimal Free Cash Generation

    Using 2Q'12's recovery in margin and cash flow as a proxy for the rest of the year and assuming zero growth through 2014 (geographically: european price and volume declines are offset by Asian increases; secularaly: declines in writing and printing grade tonnage are offset by shipping grade tonnage) the following is a 'next ~24 months' quarterly free cash summary

    ($Ms- Quarterly)

    Net Income: 2.25
    D&A: 10.2
    Other noncash 0 (stock based comp offset by deferred taxes, equipment gains. Provision for doubtful accounts neutral)

    Working capital 0 (consistent with 'zero growth')
    Cash from ops 12.5

    CapEx (6) (required maintenance capex at $4M per quarter, management guidance of $7.5M per quarter but 'as a toggle')
    Pension (2.25)
    Term loan (0.6)

    Quarterly free cash generation next ~24 months: $3.6M

    Note: In 2011 with $107.7M of Adjusted EBITDA annually, the company generated approximately $45.2M cash flow from operations (versus above assumption of $50M so management is getting credit for operations improvements).

 
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