33129 Delbrück, de
+49 (5250) 9762-141
paragon aims for self-administered insolvency plan
- Criticism for the fully incomprehensible actions of certain financers
- Pro-active plan to streamline the banking syndicate
- Increased new orders and pilot contracts for newest products
The Managing Board of paragon AG has ended eight months of intensive negotiations with banks on refinancing the Company by filing for structured insolvency. Despite the fact that the Company has registered a significant increase in new orders in recent weeks and even has pilot contracts for its newest products, it has not been possible to come to a satisfactory agreement with lenders. "Our restructuring is taking effect, but the banks are not fulfilling their responsibility to medium-sized companies," commented Managing Board Chairman Klaus Dieter Frers on paragon's pro-active course of action.
Even in the wake of the global financial crisis, in 2008 paragon initially succeeded in continuing the impressive growth course it had maintained since the Company's IPO in November 2000. The automotive supplier's nine-month figures showed that revenues for 2008 were up 11.0% on the previous year, with earnings having increased even more (EBITDA +16.2%, EBIT +27.3%). Not until the second week of November 2008 did paragon begin experiencing rapid order declines, which also affected the first half of 2009. In the first six months of the current year, Group revenues declined 39.2% on the previous year and more than 50% compared with the forecast issued by renowned consulting institute Oliver Wyman and confirmed in July 2008. This alone resulted in a shortfall of €14.0 million in the Company's contribution margin.
Against this backdrop, Frers entered into intensive negotiations with paragon's banks in an attempt to maintain current credit lines and obtain additional liquidity to help overcome the crisis. At the same time, paragon initiated a strict cost reduction plan, which has already resulted in net savings of €14.4 million in 2009. Despite these efforts, however, the Company has thus far not managed to bring its group of 15 lenders to agree on a joint solution. Frers has therefore come to the following conclusion: "The banks triggered the financial crisis and were bailed out by policymakers on the condition that they support medium-sized companies by providing them with credit. Some banks, however, are by no means fulfilling this task, as seen in the case of paragon."
This has occurred in spite of the fact that paragon has evidently already overcome the worst of the crisis, as has the entire automotive industry. Since the second quarter of 2009, which closed with clearly positive cash flows for the automotive segment, the Company has registered a significant rise in new orders. At present, paragon's plants are operating three shifts. In addition, the Company has already seen success with the products it developed in the midst of the crisis. Pilot customer Audi, for instance, presented the "belt-mic" belt microphone to the world for the first time ever in its R8 Spyder at the IAA 2009 just ended; paragon is the sole supplier of this product. paragon also presented a new type of locking sensor for transmission systems at the world's largest automotive fair. The new sensor will be used in start-stop systems and hybrid vehicles. "With these new products alone, we could - from a current perspective - be generating revenues of €80 million in 2015," commented Frers on the existing potential.
In order to eliminate its dependency on a widely diversified group of lenders, the Managing Board is striving for a self-administered insolvency plan aimed at strengthening the Company's future prospects. As Frers explained, "We plan to work closely with Deutsche Kreditbank AG and Commerzbank AG, our main financers, and the preliminary insolvency administrator to keep adverse effects on employees, customers, and suppliers as low as possible." Both banks will provide debtor-in-possession financing. As opposed to traditional insolvency proceedings, the Managing Board will remain in office and the shares in the Company will retain their value. "I am convinced that we will survive the restructuring process, upon which our share price will once again rise significantly," emphasized the Managing Board Chairman.
paragon has reinforced its management team in order to meet these challenges. Frers will in the future be supported by attorney-at-law Andrew Seidl, who will be the temporary chief restructuring officer, and Marcus Werner, who will be the new chief financial officer. Werner is a business administration specialist who has already been acting as commercial director for several months and has extensive refinancing experience. paragon intends to accomplish the restructuring of the Company within the next four months with the help of the pre-packaged insolvency plan. It is planned to have concluded the insolvency process by January or February of 2010.
As a key restructuring measure, paragon has closed down its foreign locations in France, Italy, and Japan as well as its subsidiary in the United States. The Company was able to reduce headcount from 660 employees in October 2008 to 496 in August 2009, particularly by letting temporary workers go. The current goal is to achieve sustainable profitability at lower volumes, to which additional cost reductions and portfolio adjustments are expected to contribute. Starting in 2010, paragon wants to take advantage of opportunities arising out of the crisis and position itself for new growth. To implement this goal, the Company will focus on the field of sensors and actuators, instrumentation systems, and operating controls.
The next immediate steps are to obtain approval of the annual financial statements for fiscal year 2008, which according to the Managing Board should be ready by the end of October, and to send out invitations to the Annual General Meeting, which could take place as early as December.
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