OGLEBAY NORTON: PosterChild for Illiquidity

By Roger King, Credit Sights High Yield Research

Oglebay Norton learned the price of liquidity in 2002: 18% interest with a second lien.

On the surface it should not have been this way. With a decades-long lead banking relationship at Key Bank and its predecessors, a highly levered but historically stable business, hard assets, and LTM EBITDA coverage of interest and capital expenditures during 2002, it only seemed a distant threat that the bank line would not be refinanced at maturity in 2Q03. However, the banks pulled the plug. They demanded a $75 million paydown to roll out only 18 months into 4Q04. It took 18% interest (13% cash and 5% pay-in-kind) with a second lien on all assets to raise the money in the private market.

The banks have their hands on the ripcord again. First quarter results were weak, but attributed to poor weather in the Southeast and Great Lakes. However, on flat revenues LTM operating income and EBITDA for the first quarter are both down $20 million since 2000. LTM operating income for the Great Lakes segment is off $10 million over the same period. The banks gave covenant waivers until June 15. If results do not rebound by then, they could very well take Oglebay down again. Oglebay is a descendant of an old-line Cleveland industrial enterprise founded in 1854. At one time it milled taconite pellets in Minnesota in partnership with the Rockefellers, and transported them to Great Lakes ports on its ore boat fleet. It owned coal mines, railcars and a barge fleet. The founding family took the company public in 1958 and created a family trust which remains a significant shareholder. Under non- family management, Oglebay exited most traditional business lines while retaining its ore boat fleet; moved into aggregates and specialty minerals in the Great Lakes region to internally generate back hauls for the fleet; expanded this business line nationally; and funded all this with a high yield issue in 1999.

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