John D. Boyd | Jul 02, 2009 10:38AM EDT
Pacer International, one of the top consolidators of domestic intermodal shipments on the nation’s railroads, said it has negotiated a compliance waiver for its credit leverage amount with a syndicate led by Bank of America.
Brian Kane, Pacer’s chief financial officer, said the company is negotiating with its lead credit arranger to either “amend or replace the existing credit facility with an acceptable longer term financing package before the Aug. 31 expiration of the waiver of compliance with the leverage ratio covenant.”
The moves triggered alerts by stock analysts, and at least one suggested Pacer could be at risk of bankruptcy.
Thomas R. Wadewitz of J.P. Morgan Securities said the terms of the revised credit agreement “appear harsh,” and told clients that “in our view, the banks appear to be tightening their grip” on Pacer.
He also said that “the rising financial pressures on (Pacer) and potential for bankruptcy” could lift stock prices for intermodal industry rivals J.B. Hunt and Hub Group.
Kane said Pacer is moving ahead with cost-cutting initiatives and streamlining its organization for the freight market downturn “to scale our cost structure to current market and competitive conditions.”
In a filing with the Securities and Exchange Commission, Pacer also said that on June 25 it entered into an amended deal with its information technology software provider, SAP America, that limited Pacer’s SAP license to financial and accounting applications already implemented. As a result, SAP reimbursed Pacer $22.5 million in capital expenses.
The intermodal middleman firm said that “going forward, Pacer is exploring various options for its enterprisewide transportation system needs,” and that could include some SAP transport management software.
Wadewitz said that as the banks agreed to raise the firm’s maximum debt ratio, they also cut Pacer’s credit line to $150 million from $250 million, and raised fees and the collateral they required. And given how much money Morgan estimates that Pacer may have already drawn down, Wadewitz said, “the remaining capacity in the credit facility is likely well below $50 million.”
Analyst Jon A. Langenfeld of Robert W. Baird & Co. said Pacer’s breach of its previous debt convenant and subsequent waiver “was expected” and did not change his “underperform” rating on its stock. But he also said Pacer’s success in its reorganization plans “is essential to ensure the viability of the firm.”
For now, Langenfeld said, “we recommend investors avoid the stock given the risk profile, significant profitability pressure, and increasing questions about model viability.”
Contact John D. Boyd at jboyd@joc.com.