Orchids Paper hires new advisor, pivots to potential bankruptcy filing

 
 
Orchids Paper recently retained Houlihan Lokey as it shifts gears to consider a bankruptcy filing after prior plans aimed at an out-of-court balance sheet fix fell flat, according to two sources familiar with the matter.
 
The struggling tissue product manufacturer began exploring strategic alternatives in March and later received deadlines from its lenders to either sell itself or refinance its debtload following multiple covenant violations. Amid its struggles, Orchids secured multiple amendments over the last year, with the latest relief coming on 6 August. At the time, lenders agreed to provide the issuer with additional liquidity to access up to the full commitment on its previously expanded USD 46m revolver and deferred future interest and principal payments until 31 October.
 
Orchids remains steadfast in its pursuit of a buyer, but it is struggling to attract bids that would clear its debt stack, one of sources said. Meanwhile, auction milestones put into place by its lenders have passed, and the company has a limited liquidity runway, the source noted.
 
As of 30 June, the issuer had USD 8m in cash and USD 39.2m drawn on its USD 46m revolver due June 2020. Its debt amounted to USD 183.8m at the time, split between the revolver, as well as a term loan, delayed draw term loan and a term loan associated with the federal New Market Tax Credit Program. It generated USD 18m in LTM adjusted EBITDA through the end of 2Q18, implying leverage of around 10x.
 
The tissue product manufacturer’s earnings have suffered amid a highly competitive pricing environment, which led it to sell raw materials at lower costs. Higher expenses associated with preparing its new plant in Barnwell, South Carolina for production also cut into Orchids’ bottom line.
 
On top of its ongoing earnings and covenant problems, Orchids lost its contract as a supplier to Wal-Mart last summer. Orchids announced the departure of an unnamed customer in its 2Q18 release, stating that the business accounted for roughly 23% of its USD 40.7m converted product net sales in 2Q18. Wal-Mart, meanwhile, represented a similar 20% of Orchids’ USD 150.1m of converted product net sales for the full-year 2017, according to public filings. That made Wal-Mart the company’s second-largest customer for the year after Dollar General, and ahead of Family Dollar.
 
Polsinelli is the tissue products manufacturer’s restructuring counsel, while Huron Consulting and Katten Muchin are advisors to its lenders.
 
Orchids' stock traded up 2.9% today, since yesterday's close, reaching USD 1.63 for a market cap of USD 17.2m. The level represents an 88.3% nosedive year-to-date.
 
Orchids did not return messages seeking comment. Houlihan declined comment.  
 
by Tanvi Acharya and Hema Oza