Loss-making Pfleiderer admits it could breach lending covenants

Pfleiderer, the world’s second biggest producer of chipboard and fibreboard, admits that it is in danger of breaching its lending agreements unless there is a sustained improvement in markets.

The €1.4bn turnover German company, which also produces MDF and laminate flooring, reported a pre-tax loss of €28m for the third quarter and even suggested a worst-case scenario where the company’s existence might be compromised.

Pfleiderer said it was examining various restructuring options which, in combination with economic developments, could lead to impairment charges and restructuring expenses.

“We do not exclude the possibility that if there is no sustained improvement in the market situation, we may be unable to fulfill the financial covenants agreed upon with the banks in the future, and may have to resume negotiations,” it said in a trading statement.

“This would lead to credit lines becoming more expensive or even falling due. In the worst case, it might jeopardise the company’s continuing existence.”

However, the company said it assumed it would be able to reach an agreement with the banks should it find itself unable to meet its financial covenants.

Pfleiderer, whose business includes the Pergo flooring brand, currently has debts of €914.5m.

It does not forsee any significant recovery of the raw chipboard market in the short term, while margins were also being pressured by increasing raw material costs (wood and chemicals).

“An additional factor is that the economic situation in North Amercia has not developed in line with our expectations,” it added.

The company recently announced closure plans for the Ebersdorf and Nidda plants in Germany.

The group made a pre-tax loss of €64.9m in 2009.