Kraton Polymers 'comfortably' meets covenant requirements in 2008, expects to do the same in 2009

By Jennifer Lanning Drey

Portland, Ore., March 26 - Kraton Polymers LLC's chief financial officer said Friday that solid growth in revenue and EBITDA in 2008 positioned the company comfortably in compliance with its debt covenants at Dec. 31.

Kraton posted operating revenues of $1.23 billion for 2008, representing a 12% increase over 2007. Last 12 months bank EBITDA, the measure used to determine compliance with its debt covenants, was $149 million, up 51% from the prior year, Stephen Tremblay, Kraton's chief financial officer, reported during Kraton's fourth-quarter earnings conference call.

The company ended 2008 with a leverage ratio of 3.97 times, compared to maximum allowable ratio of 4.95 times under its financial covenants.

The interest coverage ratio at year-end was 4.15 times, above the minimum 2.5 times required under the agreements. The interest coverage covenant steps down to 4.45 times at March 31, but the company expects to remain in compliance with the more difficult covenant as well, Tremblay said.

A recent transaction through which Kraton retired $30 million of its 8 1/8% notes for $11 million in cash will also help the company to meet future covenant requirements, Tremblay said.

At Dec. 31, Kraton had more than $101 million of cash on hand and net debt of $474 million. The net debt figure compared to $490 million at the end of 2007.

Kraton repaid $10 million of term debt in 2008 in addition to scheduled maturities.

During the question-and-answer portion of the call, Tremblay said the bond buyback was better classified as a one-time opportunistic action rather than a piece of a broader buyback plan.

Demand softness

Despite the full-year improvements, Kraton began experiencing demand softness in the fourth quarter that has extended into 2009, Kevin Fogarty, chief executive officer of the company, said during the call.

Kraton reported fourth-quarter operating revenues of $232 million, down 26% from the same period in 2007.

Accordingly, the company's priorities for 2009 include managing its cash, liquidity and capital structure by reducing inventory to their lowest possible levels and lowering planned capital expenditures to $45 million from a prior $70 million, Fogarty said.

Kraton will also focus on ensuring proper pricing in all markets and geographies, innovation-led topline growth and efficiency improvements, he said.

Kraton is a Houston-based producer of engineered polymers.

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