Penford amends credit agreement covenants to reflect economic challenges, continues review process

By Jennifer Lanning Drey

Portland, Ore., July 10 - Penford Corp. amended its credit agreement, revising covenant calculations as of May 31 to reflect economic challenges and changing scheduled debt maturities, Penford chief executive officer Tom Malkoski said Friday during the company's third-quarter earnings conference call.

Meanwhile, the company is continuing to review potential strategic alternatives to enhance shareholder value but had no new details to report at the time of the call, the CEO said.

For the third quarter, Penford posted consolidated sales of $78.7 million, down from $102.8 million in the same quarter of last year.

The company said the decline in revenues reflected product mix shifts in the industrial ingredients business caused by reduced demand for starches serving paper markets, lower Australian foreign current exchange rates, the impact of passing through lower corn prices and the divestiture of the dextrose business in the North America Foods segment.

"Our company has overcome many challenges over the last several years that have included strikes, droughts, floods and wildly fluctuating commodity prices. We're now facing a new economic reality with lower demand in some key-end markets and sharp and competitive activity across all segments," Malkoski said.

Amendment details

Under the credit facility amendment executed on July 9, the maximum Libor margin payable on outstanding debt will increase by 150 basis points. The company will pay additional arrangement fees and commitment fees of $1 million.

In addition, the maximum commitment fee for undrawn balances will increase by 25 basis points.

Penford estimates that the amortization of the additional loan arrangement and commitment fees and the increased margin over Libor for existing debt will increase interest expense by $2.3 million annually, Malkoski said.

Penford had $44.9 million outstanding on its revolving credit facility at May 31.

Penford is a Centennial, Colo.-based developer, manufacturer and marketer specialty, natural-based ingredient systems for a variety of industrial and food applications.

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