Northwest Hardwoods’ 4Q19 earnings highlight the issuer’s negligible EBITDA and its shriveling liquidity, according to three sources familiar with the matter. As such, investors are looking to an August coupon payment due to holders of its first lien notes as a possible trigger point for restructuring, they said.

The company booked USD 0.43m of adjusted EBITDA in 4Q19, compared to USD 1.75m in 4Q18. On an LTM basis, the company’s adjusted EBITDA declined 92% to USD 3.14m of adjusted EBITDA from USD 40m in 2018.

Its sales volumes were hit by pricing pressure and lower appetite from China, its primary overseas market, which led to lower EBITDA margins, the sources said. Similarly, its 3Q19 EBITDA was also close to break-even levels due to the trade war. Now, sources expect the company’s earnings to take another hit due to the coronavirus pandemic’s effects on trade. 

Moody’s back in May also said the company will likely need to pursue a restructuring in order to bring its capital structure more in-line with current operating performance.

As of 31 December, liquidity stood at USD 29.1m through USD 4m of cash and USD 25m of ABL availability, down from USD 57.4m of liquidity three months prior. 

Of note, Northwest’s entire debt stack becomes current in mid-2020. Its ABL has a springing maturity of June 2021 if its USD 378m 7.5% first lien notes due August 2021 are not refinanced by that date. As of 31 December, total net debt comes to USD 400m. 

The first lien notes last traded in odd lots on 23 March at 42.1, down from trades at 45.58 on 17 March, according to MarketAxess. A trader quoted the notes in the high-30s as of today. 

Messages left for Northwest Hardwoods were not returned. 

2020 Debtwire