Unisys Asks Bank Group to Ease Terms on Unsecured Credit Line
Unisys Corp., whose poor performance and aggressive asset sales are threatening to violate loan agreements, is asking its bankers to ease the terms on an unsecured $1.25 billion credit line.
The computer manufacturer's 23-member bank syndicate is likely to provide more breathing room if Unisys agrees to secure the revolving line with some form of collateral, according to bankers in the group.
Net-Worth Minimum
The lending agreement requires Unisys to maintain a net worth of $3.5 billion or else be subject to immediate repayment of any borrowings.
The company's net worth had slipped to $3.6 billion on March 31 after it posted a quarterly loss of $98.2 million. Unisys is also expected to post a loss for the second quarter.
Also, in an effort to reduce its high debt levels, the company recently announced a spate of asset sales, some of which are expected to be booked as losses.
On Monday, the company said it had agreed to sell Timeplex Inc. for $207 million, increasing to $500 million the amount of asset sales announced since March 31.
Some of the lenders expressed confidence that a compromise would be struck. "There will be flexibility shown on both sides," said one member of the bank syndicate.
The syndicate is led by Morgan Guaranty Trust Co. and National Westminster Bank. Other members include Continental Bank Corp., First Chicago Corp., and Manufacturers Hanover Corp.
A spokesman for Morgan declined to comment, but a bank official earlier this year said that the group would likely remain flexible.
Asking for Forbearance
Unisys, based in Blue Bell, Pa., said in a regulatory filing in early May that "it will begin discussions with its lenders in order to seek their forbearance."
Burt Traub, a spokesman for the company, said on Monday that Unisys "would not speculate" on its talks, but that it is in almost daily contact with its banks. "Our banks are very supportive," he said.
As of March 31, Unisys had tapped $675 million of the credit line, which has senior status but is unsecured.
Unisys wants its lenders to reduce the level of net worth that it must maintain. It is believed that only two-thirds of the syndicate must approve an amendment.
"We don't have many choices," said one member of the bank group.
Liquid Collateral Sought
In return, the lenders are likely to seek domestic receivables and inventory receivables as collateral, banking sources said. Rather than seek hard assets such as plant and equipment, the banks would rather be secured by more liquid collateral, they said.
That would put the banks ahead of the senior unsecured creditors, but give the lenders additional comfort until the company reduced its high debt load. Total debt stood at $3.87 billion as of March 31.
|Crash the Covenant'
The company indicated that it intends to sell at least another $100 million to $200 million in assets this year.
Unisys is expected to post an operating loss for the second quarter. Analysts expect the asset sales and operating loss to force the company's net worth below the $3.5 billion threshold.
Those two factors "will probably make them crash the covenant," said Byron Walker, an analyst at Moody's Investors Services Inc.
