Falcon Products says bank lenders deny waivers, expects to miss coupon payment, in restructuring talks

New York, Jan. 4 - Falcon Products, Inc. said its bank lenders are unwilling to waive defaults under its credit facility, that it expects to be unable to pay the coupon on its notes within the 30-day grace period and that it is in talks with a large holder of the notes on converting the debt to equity.

The St. Louis manufacturer of commercial furniture said it has been in discussion with its bank lenders over its failure to comply with some provisions of its senior credit facility.

The lenders said that while they are reviewing the request for a waiver of the defaults they are "unwilling to provide such waivers at this time," according to a news release from the company.

Falcon Products also noted that any restatement of its earnings could result in additional defaults.

However the company does continue to have access to its revolving credit facility.

Falcon also said that it is unlikely to be able to pay the coupon on its $100 million of 11 3/8% senior subordinated notes due 2009 within the 30-day grace period. On Dec. 15, the company said it was making use of the ability to defer payment.

"Although a final determination has not yet been made as to whether the company will be able to make the interest payment prior to the expiration of the grace period on Jan. 14, 2005, it is currently likely that such payment will not be made," Falcon said in a news release.

Non-payment would result in a default on the notes and the credit facility.

Falcon said it has had preliminary discussions with a "large" holder of the notes about a transaction that would convert the notes to equity. It noted that the feasibility of such a transaction has not yet been determined.

The company also said that, with its financial advisor Imperial Capital LLC, it is "evaluating various strategic alternatives relating to a possible restructuring of the company's outstanding indebtedness."

Falcon also said it expects to record a "significant" charge for the write-down of inventory. While the amount is still under review, it is expected to be more than $20 million.

Previously, the company had disclosed deficiencies in its internal controls for accounting for inventory and said that it intended to take actions to improve inventory controls.

During its previously announced audit committee investigation, Falcon has discovered the actions were either not taken or not completely and properly implemented. As previously announced, a new chief financial officer was hired in late October whose responsibilities include addressing these deficiencies.

The write-down will likely result in the restatement of previous earnings.

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