Pioneer Cos.' liquidity problems prompt going concern warning

By Carlise Newman

Chicago, May 15 - Pioneer Cos. Inc. said Wednesday uncertainties affecting its liquidity as a result of financial covenant violations and redemption obligations raise questions about its ability to continue as a going concern.

Pioneer's revolving credit facility requires it to generate at least $10.64 million of net earnings before extraordinary gains during the quarter ending March 31 and $21.55 million of lender-defined EBITDA for the 12 months ending March 31, 2003 and for the 12 months to the end of each fiscal quarter after that.

Pioneer reported negative lender-defined EBITDA of $41.4 million and $40.2 million for the three months and 12 months ended March 31, respectively.

During the quarter ended March 31, both product prices and energy costs experienced significant increases, the company said in a Securities and Exchange Commission filing. If electricity costs increase further without product price increases, Pioneer said it may be unable to meet all its operational funding and debt service obligations for the rest of 2003.

In that case, the company would likely need to obtain additional amendments or waivers for its credit facility or defer interest payments.

Pioneer emerged from Chapter 11 on Dec. 31, 2001 with a revolving credit facility - which had $5.3 million outstanding on March 31 - $45.4 million of senior guaranteed notes, $4.6 million of senior floating notes and $150 million of 10% senior secured notes.

As of March 31, Pioneer Industries had $2 million outstanding under its unsecured non-interest bearing instrument payable to a vendor, which contains a covenant that allows the vendor to demand immediate repayment and begin charging interest at a rate of 9.3% if liquidity falls below $5 million; $1 million payable over several years to another vendor; and $5.1 million of notes maturing in various years through 2014.

The Houston chemical company also had $3.4 million of promissory notes outstanding in fees owed to professionals. One note was repaid on April 17, leaving a $0.6 million note outstanding. That has been extended to Nov. 15 from July 1, with interest at Libor plus 350 basis points up to July 1 and 9% after that.

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