Citation Files "Pre-Packaged" Bankruptcy

March 13, 2007
Creditors support recapitalization plan

March 14, 2007 — Citation Corp., a chain of 12 metalcasting operations, has filed a recapitalization plan it says will free up its balance sheet, in a strategy "to refocus operations, continue to win new business, build a strong financial base and invest in its core business segments." The plan was filed in U.S. Bankruptcy Court on March 12, but the company emphasizes it reflects different circumstances than the situation that forced it to seek creditor protection (Chapter 11 bankruptcy) in September 2004.

In the new filing, Citation has support for its recapitalization plan from most of its lenders, which means it can plan to be reorganized in 30 to 60 days.

The company's proposal is to convert $160 million of its approximately $190-million term debt to 100% of the common equity; the remaining $30 million in debt will be converted into PIK (payable in kind) debt maturing in 2013. Interest on the PIK debt will not be paid in cash, but rather accrues and is paid when the debt finally matures.

Citation's existing, asset-based revolving line of credit will continue under its current terms, and its current shareholders (preferred and common) will receive warrants in the new company.

Citation stresses that it will not seek concessions from customers and that it intends to continue paying suppliers on normal terms.

"This plan, which is supported overwhelmingly by more than 95% of those affected, is the best possible outcome for the company," stated president and CEO Ed Buker. "The overwhelming support of our investors demonstrates the confidence they have in the future of Citation and their continued commitment to the long-term success of the company."

After filing for Chapter 11 bankruptcy in 2004, Citation reorganized and exited bankruptcy in 2005. Since then, the company says it has managed costs well and won new business, but the credit agreements it arranged then did not anticipate automotive-industry production cuts. Buker stated that new credit agreements addresses changes in the automotive industry, and strengthens its financial position overall.