GenCorp to use asset-sale proceeds to pay down debt, claims ample liquidity

By Paul Deckelman

New York, Oct. 7 - GenCorp Inc. said Friday that it hopes to soon complete its previously announced sale of its fine chemicals unit to American Pacific Corp., and expects to use a portion of the proceeds to pay down debt.

The Rancho Cordova, Calif.-based defense contractor's chief financial officer, Yasmin Seyal, told analysts on a conference call following the release of its fiscal third-quarter results that the company has an $80 million revolving credit agreement, of which just $10 million had been drawn as of Aug. 31, the end of the quarter.

"The undrawn portion of the revolver, and the anticipated proceeds from the sale of our fine chemicals business, which is expected to be completed in October, will give us more than sufficient liquidity as we continue to pursue our strategy," which involves the divestiture of non-core assets, such as the chemicals business and its GDX automotive business, which was divested 14 months ago.

The sales are intended to allow the company to concentrate on its two core areas - its propulsion technology unit, which makes rocket engines and does other defense-related work, and its real estate operations in the Sacramento, Calif., area.

Seyal said that the terms of the fine chemicals sale had been changed from what was first announced. While originally American Pacific was to have paid GenCorp $100 million in cash and a $19 million note, the company will now receive $89 million in cash, a $25 million note and the remainder as an earnout - a contingent payment of up to $5 million if the business achieves specified earning targets in the 12-month period ending Sept. 30, 2006.

Term loan repayment required

She said that the company plans to use some of the proceeds to cut debt. GenCorp is required to pay down a term loan of about $25 million; after it does that, she said, the company will "keep the cash on our balance sheet for the time being."

Asked by an analyst during the question-and-answer portion of the call following the official presentation by Seyal and chief executive officer Terry Hall whether GenCorp will also pay down the revolver debt, she answered in the affirmative.

Seyal said that the terms of the note that American Pacific will give to GenCorp as part of the payment for the fine chemicals business have not been disclosed and will not be until the closing of the transaction.

"We hopefully will be collecting sooner rather than later," she said.

GenCorp said its interest expense decreased to $6 million in the 2005 fiscal third quarter from $9 million a year earlier. In the first nine months of the fiscal year, which began last Dec. 1, interest expense decreased to $19 million from $25 million a year earlier. The decrease in both periods "reflects the impact of lower average debt and interest rates as a result of the sale of the GDX Automotive business in August 2004" and the use of those sale proceeds to pay down debt, "and the benefits resulting from the company's recapitalization transactions from November 2004 to February 2005," the company said in a statement.

Net debt rises

Seyal said that net debt as of Aug. 31 was $421 million, up somewhat from $408 million at the end of the 2005 fiscal second quarter on May 31, due to the company's use of $13 million in cash during the quarter. She said that the company's continuing operations were cash generators, to the tune of $3 million, while $16 million of cash expenditures were mostly attributable to investments in fine chemicals, "which will obviously be a non-recurring event for us as we go forward."

GenCorp posted a net loss for the latest fiscal third quarter of $29 million (53 cents per share), down from its year-ago net loss for the period of $47 million ($1.05 per share). Seyal said that just looking at continuing operations, the loss was $5 million (eight cents per share), down from $15 million (33 cents per share) a year ago. Excluding certain items, she said, the company actually earned seven cents a share on a continuing operations basis, versus breaking even a year before.

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