| KEY POINTS |
| GSE has secured Debtor-in-Possession (DIP) financing. This is the USD $45 million pledged by investors to ensure normalized business during the Chapter 11 process. |
| Investors have purchased all $172 million of debt. The debt will be realigned and recapitalized. It will be converted to equity. |
| As a Chapter 11 proceeding, the debt realignment and recapitalization process will happen publicly under court supervision. At the end of the process, the balance sheet will be clean |
| As noted in the interview, this process is forecast to take 3 to 4 months and will not impede normal business. |
It has been big news for the geosynthetics industry: GSE, one of the largest manufacturers in the world, has filed for Chapter 11 bankruptcy protection in the United States. But what does this really mean – for GSE, for the industry, and for the consumer? How did this happen? How will reorganization succeed? Geosynthetica’s Elizabeth Peggs spoke to Steve Eckhart of GSE Environmental to gather a little more insight into the company’s plan to enter and work through the Chapter 11 process, to maintain operational continuity, and to emerge on the other side with a plan for growth. — Geosynthetica
GEOSYNTHETICA: To recap, in this reorganization GSE is cleaning up its debt, has operating capital to get through the reorganization, and has pledged to continue “business as usual” through the whole process. Clients, vendors and other interested parties are being left whole, and the debt elimination is directly with lien holders. All great news from where our readers sit, but we would like to look at why this happened and what is going to stop it from happening again? What conditions led to the current debt crisis?
ECKHART: We have identified 4 factors which combined led us to GSE’s current position:
- Global recession has impacted everyone, particularly in the European market. Sales are down for GSE in Europe. GSE Europe has traditionally been our second biggest market, but due to the recession it is not now.
- Recently, the expansion of geosynthetic manufacturing capacity in the US has been significant. In our estimation, US production capacity exceeds US demand by 30 – 40% for geomembranes and drainage products in particular.
- In 2012, GSE had a record earnings year. It was, in fact, our second “record setting” earnings year in a row! In order to service continued growth we made some very rapid strategic shifts, such as adding considerable SG&A (selling, general & administrative) costs.
- In the same period, GSE fostered production growth through CAPEX (Capital Expenditures), acquisitions and product development. In a 15 – 18-month period, GSE built a plant in China and upgraded facilities in Thailand and Egypt. We purchased Syntec, a US-based geogrid/drainage manufacturer. All while investing in the development of a number of innovative products.
GEOSYNTHETICA: Ok, so we see the perfect storm brewing – GSE is on a growth trajectory making expenditures, incurring costs, and the global economy is not supporting that growth. Pretty straightforward. Some of these items are under your control, and others are environmental and GSE has to have a successful response to navigate through. What changes are GSE making to ensure these issues have been addressed?
ECKHART: As you identified, we didn’t wake up last week and decide to file this because we were out of options. We have been working, for a number of months, on a solution to GSE’s financial situation. The company leadership, along with the investors, has worked to address these issues and establish a path forward. For instance:
- We have already instituted SG&A cost reductions to the tune of $1 million per month
- We have done a business realignment wherein there is more regional accountability. The P&L for each region stops at the respective leader.
- Our acquisitions and CAPEX investments are starting to generate business. Syntec has been fully integrated into GSE and is now successfully servicing the higher-end drainage markets. Asia-Pacific and Middle Eastern regional businesses are extraordinarily healthy and growing.
- The sales cycle for some of our new products—including Leak Location Liner, High Temperature Liner and High Performance Liner—is starting to take hold and create revenue.
GEOSYNTHETICA: What is the expected life cycle of this process? How long will GSE be working on this?
ECKHART: Because we do have so much of the work as a “pre-packaged” filing we expect this to take 3-4 months. It’s also worth noting that the investment folks have come to the table as partners in this reorganization. They are familiar with our business and want to be supportive.
GEOSYNTHETICA: Is there anything you would like to add?
ECKHART: Just to say that we will keep working with our clients to develop geosynthetic solutions that meet their needs. GSE has always been a great company – just recently we have been a great company with a lousy balance sheet. Now we will return to being a great company with a great balance sheet!
Steve Eckhart is the Vice President of Marketing. He began work for GSE in 1988 and, with the exception of a 4-year sabbatical, has worked for GSE ever since. SEckhart@GSEWorld.com
Elizabeth Peggs is the Director of Minerva—Technology, Resources & Information, publisher of Geosynthetica. Elizabeth co-founded Geosynthetica in 1999, making it the geosynthetics industry’s first online publication. Contact Us Today!
