Questron Seeks Equity, Debt Restructuring or Sale

John Wolz

Questron Technology Inc. � which dropped from 3.00 at the start of the year to 0.43 at the close of 2001 � ended the year by announcing it reached agreements with senior lenders and a majority of senior note holders to defer certain payment obligations until February 14, 2002.\
It was the third time Questron missed payments since June 30, 2001.
CIBC World Markets� industrial distribution researchers stated �Questron�s effort to remain a public entity is clearly strained, with a couple aspects of its model making climbing from its hole difficult.�
CIBC noted that Questron is �plagued by confluent down cycles in the majority of its businesses� and said its �infrastructure is not as variable as is the case for many distribution models. When volumes drop, the same amount of labor is required to fill bins and provide kits.�
�With diverse customers there is little inventory overlap meaning �inventory burn, and the resulting cash generation, takes longer than in a typical distribution.�
�These issues, for the most part, are out of management�s reach and correctable in the event of a market rebound,� CIBC noted. �However, we continue to question the ongoing drive for rapid sales growth. Management worries that once a competitor is in it is difficult to knock it out, so refusing business when it presents itself could be detrimental to the firm�s future. Our perspective, though, is integrated supply and Questron are both in their infancies.�
CIBC predicts that integrated supply will still be growing in five years, but �Questron, on the other hand, is risking not being a part of it if it cannot solve its capital issues.�
Questron is working with an investment banker to explore such alternatives as equity investments, restructuring debt or sale of the company or assets.
The company �has received several indications of interest concerning possible transactions� but does not have �any definitive proposals.�
One holder of a minority of the senior subordinated notes agreed to defer payment and could declare default. �Although there can be no assurance, the company believes it is unlikely that the minority note holder would declare such a default at this time, and any such declaration would not affect the deferral otherwise granted to the company,� according to a company statement.
CEO Dominic Polimeni said he is �pleased� with the agreements with lenders and that �they remain supportive during these difficult and challenging economic times.� The agreements �afford the company additional time to evaluate the indications of interest that have been presented and to seek to enter into an investment, financing or sale transaction. � 2002 FastenerNews.com