Xerium Applies for Bankrupcty under Prearranged Conditions

Under a prearranged agreement with its lenders, industrial textiles manufacturer Xerium Technologies applied for Chapter 11 bankruptcy protection Tuesday at the bankruptcy court in Delaware.  According to the prearranged deal, Xerium’s debts would be reduced by about $150 million.

In court papers, Xerium declared that its core business is heavily dependent upon the paper production industry.  Paper mills have seen the demands for their own products drastically reduce due to major shifts towards electronic media.  All traditionally paper intensive sectors, including newsprint, printing and writing, print advertising and even packaging materials have registered significant drops in sales due to the global economic slowdown.  All this has had a severe effect on Xerium’s operations.

In response to this, over the years Xerium has undertaken various cost cutting measures to stay solvent.  These include shutting down a total of 12 manufacturing plants between 2002 and 2008.  Xerium has 32 manufacturing plants in 13 countries that employ over 3,370 employees worldwide.

Xerium’s Chapter 11 bankruptcy restructuring will involve its branch companies in the United States, Canada, Austria and its non-operating holding companies in Italy and Germany.  However, its operational companies in Europe, South America, Asia, Italy and Germany are not involved in the bankruptcy process.  The bankruptcy process is expected to take 30 to 60 days to complete.

According to its bankruptcy filing, Xerium has total assets worth $693.5 million.  On the other hand, its debts amount to $813.2 million in total.  According to the restructuring plan, about $620 million of its debts would be given up in exchange for $10 million in cash, $410 million in new term loans that are set to expire in 2015 and 82.6% of the company’s common stock.

In addition, the company has also filed motions seeking the bankruptcy court’s approval for a term and revolving credit facility of $80 million it secured from its lenders.  Current shareholders would see their interests in the company drastically reduced, retaining only about 17.4% equity in the company.  But they would be offered warrants to buy up an additional 10% of the company’s common stock.

The company generated net sales of over $500 million for the fiscal year ended Dec. 31, 2009.  The parent company, Xerium Technologies Inc. has directly or indirectly spawned 45 subsidiaries around the world.

The case is In re: Xerium Technologies Inc, U.S. Bankruptcy Court, District of Delaware (Delaware), No: 10-11031.