New owners, investment funds KKR and Allegro, indicate they will keep the business going if the receiver, McGrathNicol, sells it back to them without the debt.
In a classic phoenix play the investment funds, collectively known as KKRM, want GEON without any major liabilities. They acquired the company from former owner, Gresham, for a supposedly nominal sum after buying the outstanding bank debt of $92 million for an estimated $5 million in a distressed debt sale from Bank of Scotland International (BOSI).
Presumably this debt is to be extinguished along with others by the process of bankruptcy. Doubts remain as to whether the other debt to be disappeared might include employee benefits such as long service and holiday pay. Trade suppliers are likely to take a jaundiced view if their outstanding bills are also to be wiped. Any default to suppliers from a company the size of GEON would trigger a tsunami of bad debts that would severely weaken the supply sector.
Graham Morgan (pictured), GEON CEO, in an internal memo to the employees confirmed that KKRM has made an offer to the receiver, but no details of what it involves are available. He expresses his confidence in the process, identifying KKRM as long-term believers in this business. He describes the offer as reinforcing the positive view KKRM has for the future of GEON. The funds are looking for a speedy take up of their offer.
He compares the current process as being similar to the default of the other major PE-funded player, Blue Star, which recently was picked up by former owners. In that case the Geoff Selig-led buyout assured all trade creditors their bills would be met.
Morgan maintains KKRM will retain the current management. They say the distressed state of GEON is because of the capital structure from when the company was set up in 2007 rather than anything that has happened since.
Update – dateline 13:58 February 22
IPMG chief executive, Stephen Anstice, is calling on GEON to pay all of its creditors if it is to be re-purchased by KKRM following the McGrathNicol receivership.
In a statement, released on 22 February, Anstice said:
“IPMG has been staggered by the reported news surrounding the appointment of receivers to GEON.
“We cannot conceive how the reported plan of KKR and Allegro to emerge as the new owners of GEON can be allowed without all creditors being paid and have called on the PIA to explore what action can be taken to protect the suppliers and staff of GEON.
“Many suppliers will be facing bankruptcy as the impact of this receivership is felt throughout the industry and its knock on effects could lead to serious consequences for many other suppliers, staff and customers.
“IPMG is considering instituting a policy where we will not support any suppliers who decide to do business with GEON should it re-emerge under the ownership of KKR and Allegro leaving creditors unpaid,” he said.
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