PROVIDENCE – Nortek Inc. and its parent company, NTK Holdings Inc., have set the stage for a “pre-packaged Chapter 11 filing” by reaching an agreement with a “substantial portion of its bond holders” to convert debt into equity, thus relieving the pressure on the manufacturer of residential and commercial ventilation, HVAC and home technology products.
In a release, the company announced that it has entered into a forbearance agreement for a $26.5 million interest payment due Sept. 1 on its 8.5 percent notes, adding that its operating divisions have sufficient cash on hand (in excess of $170 million, according to the company) to continue operating and pay employees and vendors on time and in full.
The much larger part of the release, however, detailed the exchange of debt for equity in the company, which was taken private in January 2003 by its current chairman and chief executive officer Richard L. Bready and other senior managment, along with Kelso & Co. The company was subsequently bought by Thomas H. Lee Partners, along with Bready and other senior managers.
According to the company’s most recent 10-K filing with the Securities and Exchange Commission, NTK Holdings, as of July 4, had long-term debt of $2.08 billion, in addition to short-term debt and other obligations (such as accounts payable) of $701.7 million, against assets of $1.66 billion.
The company posted a loss of $215.7 million in the second quarter, on revenue that had fallen 25 percent from a year earlier to $487.8, as the collapse of the housing market and the concomitant slowdown in commercial construction has battered the company.
The restructuring of NTK Holdings encompasses debt that matures in 2011, 2013 and 2014, and according to the company, it has secured the agreement for conversion from a substantial portion of the holders of those notes.
The completion of the exchange, according to Bready, “will immediately rebuild Nortek’s financial strength, providing us the flexibility for growth and a solid foundation for long-term stability.”
Following the solicitation of the rest of its bondholders to make the exchange, NTK expects to enter Chapter 11, according to the statement.
NTK Holdings Inc., a Delaware corporation that has its headquarters in Providence, is the parent of Nortek Holdings Inc. and Nortek Inc., a maker of branded residential and commercial merchandise including HVAC, ventilation and home security products. Additional information can be found at www.nortek-inc.com.
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To me, this is a sad story. Founded, I believe, in 1967 by Ralph Papitto and built into one of the great Rhode Island public companies, Nortek was one of a handful of NYSE corporations in our state. Papitto started it with himself and a secretary from an office in the old Industrial National Bank building. I hope this maneuver succeeds.