WHX liquidity needs threaten going concern status; obtains waiver of pension plan funding requirement

By Caroline Salls

Pittsburgh, Dec. 28 - WHX Corp. said there is substantial doubt as to whether it will be able to continue as a going concern, but it received a waiver of minimum funding standards for its pension plan and subsidiary Handy & Harman obtained an additional $42 million term loan, according to a 10-K filing with the Securities and Exchange Commission and a Friday news release.

According to the 10-K, as of Sept. 30, WHX had cash of $1.6 million and current liabilities of $6.9 million.

WHX said it also has significant 2006 cash flow obligations, including the minimum funding requirement for the WHX Pension Plan, which is estimated at $20.6 million, and about $3.8 million in other administrative costs for 2006.

The Pension Benefit Guaranty Corp. filed a lien against the assets of WHX's primary business Handy & Harman (H&H) to secure the funding deficiency existing as a result of WHX's failure to make required contributions to the pension plan, and on Oct. 20, the PBGC entered into a lien subordination agreement with H&H's revolving credit facility lender that provides that the subordination provisions will not apply to any debt incurred after Dec. 31, 2006.

The company said in the 10-K that there are no current sources of cash available to satisfy these obligations, other than the sale of its subsidiary's equity investment, with an estimated market value of $5 million, possible insurance proceeds from current litigation, or the sale of H&H, which is not currently being considered.

However, according to the news release, the Internal Revenue Service has granted a waiver of the minimum funding standards for the WHX Pension Plan for the 2005 plan year, and WHX and H&H entered into a settlement agreement with the PBGC in connection with the waiver and other matters.

The PBGC settlement agreement provides for the amortization of the $15.5 million waived amount over a period of five years; the PBGC's consent to the increase in borrowings under H&H's senior credit facility to $125 million in connection with the closing of an acquisition by H&H subsidiary OMG Inc.; the resolution of any potential issues under Section 4062(e) of the Employee Retirement Income Security Act of 1974 in connection with the cessation of operations at facilities owned by WHX, H&H or their subsidiaries; and the granting to the PBGC of subordinate liens on the assets of Handy & Harman and its subsidiaries and specified assets of WHX to secure WHX's obligation to pay the waiver amount to the WHX Pension Plan and to make payments to the WHX Pension Plan in the event of its termination.

In connection with OMG's $26 million acquisition of a mechanical roofing fastener business from Illinois Tool Works Inc. and the PBGC settlement, H&H amended its loan and security agreement with Wachovia Bank, NA and its loan and security agreement with its tranche B term loan lender.

The amendments provide for an additional $42 million term loan, a portion of which was used to fund the roofing acquisition, and consent to the PBGC settlement agreement.

In addition, according to the 10-K, as of Sept. 30, H&H's availability under its revolving credit facility was $11.7 million; however, based on WHX's forecasted borrowings, these available funds may not be sufficient to fund debt service costs, working capital demands and environmental remediation costs.

The amount of availability provided by H&H's revolver limits H&H's borrowing ability and is expected to continue to limit H&H's liquidity until it can refinance this facility.

Additionally, the company said it is in violation of minimum EBITDA, fixed-charge coverage ratio and limitation on capital expenditure covenants and is subsequently in default on the credit facility, the 10-K said.

The company said in the 10-K that it is considering longer-term financing options.

WHX is a New York-based metals and construction supplies manufacturer.

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