Friday, June 11, 2010

National Envelope Company Bankruptcy Details

A Bloomberg story has more details on the bankruptcy that provides some guidance as to how tough the decline in mail has been on the envelope business.
  • NEC began defaulting on the bank loan agreement in 2007.  The problems facing produces of envelopes to be mailed began showing up well before the recession.
  • In May, the lenders called a default on the latest forbearance agreement when a buyer wasn’t signed to a letter of intent before the May 12 deadline. NEC received four bids in early May after extensive marketing, according to court papers.

  • Assets and debt are both less than $500 million, according to the bankruptcy petition.

  • Liabilities include $74.3 million on a secured term loan, $70.6 million on a secured revolving credit and $89 million owing on unsecured debts to trade suppliers.  Given the pressure for the sale are the secured lenders, it would appear that they have a better prospect of being paid from proceeds from a sale than from profits from ongoing operations. 

  • National Envelope has 14 plants in 11 states, plus three warehouses. Four fewer plants than two years ago.
  • National Envelope Company has 3,389 people and many of the production workers are unionized. A year ago National Envelope had 4,037 employees.    This is a 16% decline in the number of employees in just one year.  (Source on number of employees is )

  • Sales declined to $676 million last year from $867 million in 2007.  This is a 22% decline in revenue in the past two years.
  • Net losses were $44.2 million in 2009 and $6.1 million in the first four months of this year. Losses this year are less than in 2009 but are still National Envelope is not earning profits to pay back its secure creditors.

  • The Chapter 11 case will be financed with a $135 million loan.   The loan provides National Envelope Company with the ability to continue operations and pay trade suppliers while it completes the process of selling the company.  
Given the continuing losses, National Envelope Company will likely find a buyer only if that buyer can reduce costs by around 10-15% in order to return the company to profitability.  Most likely the new buyer will reduce capacity quickly in order to match current and future demand.

The bankruptcy filing in the midst of an effort to sell the company suggests that National Envelope may have to make some changes that only can occur in bankruptcy prior to sale.   Postal observers may find following this bankruptcy instructive in trying to understand the value that private investors see in a streamlined company serving mailers.

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