Package company looking to sell 20%

Sweetheart Cup seeking cash to pay down loans

$179 million due March 1

February 21, 2003|By Robert Little | Robert Little,SUN STAFF

Noting "difficult market conditions" and a continuing decline in leisure travel and away-from-home dining, Sweetheart Cup Co. said yesterday that it is trying to sell nearly one fifth of its business and delay payment on a $179 million debt due March 1.

Officials with the Owings Mills-based packaging manufacturer said the company is "on track to improve" but must sell some of its assets to raise cash and pay down loans. The company has asked creditors for a four-month extension of next month's due date while it pursues the sale and tries to reissue other debt.

"We're going to be a little bit smaller, but we'll be more stable," Dennis Mehiel, Sweetheart's chairman and chief executive officer, said in a conference call with analysts yesterday. "We believe that's in the interest of all our constituencies."

The longtime Maryland company would not say which product lines it hopes to sell. Sweetheart operates manufacturing facilities throughout North America, including a 1,600-employee plant in Owings Mills, and makes products under various brand names, including Sweetheart, Lily, Trophy, Preference and Centerpiece.

The businesses for sale account for roughly $220 million in annual revenue and $25 million in profit, company officials said. Sweetheart reported sales last year of $1.28 billion, and earnings before interest, taxes and depreciation of $69 million.

Competitors and officials in the packaging industry say that Sweetheart's interest in selling has been well-known for several months and that companies already are investigating potential deals.

"I've heard rumors of various companies sniffing around - either sniffing around the whole business or just parts of it," said John R. Burke, president of the Foodservice & Packaging Institute in Falls Church, Va.

Sweetheart makes a variety of cups, lids, plates, bowls, cutlery and food containers made from paper, plastic and foam, and sells them primarily to institutional food service companies or retail customers such as supermarkets, warehouse clubs and mass merchandisers. According to statements filed with the Securities and Exchange Commission, its business has declined slightly since 2001, along with most of the economy.

The company reported earnings for the quarter that ended Dec. 29 of $1.4 million, down from $3.5 million in the comparable quarter a year earlier. Sales declined slightly to $320 million, while costs increased.

The company's most pressing concerns, however, are a $110 million bond issue that is due in September and $179 million in bank loans that are due March 1. Sweetheart has tried and failed to exchange its bonds, which could cause bank lenders to demand repayment of their loans. Sweetheart has filed notice with the SEC of another bond exchange offer and has asked its bank lenders to wait while the process moves forward.

"I'm sure the banks are saying to them: `You need to extend the maturity of that bond issue,'" said Mary Ross Gilbert, an analyst and senior vice president for Imperial Capital LLC in Los Angeles.

In filings with the SEC, which are required of the privately held company because of its public debt, Sweetheart also said it is "evaluating various strategic options" that could include debt restructuring, a public offering, joint venture transactions or a sale of the entire business. Mehiel said in the conference call, however, that the bond exchange and a limited asset sale are the company's primary strategies.

"We believe that our results for 2003 will improve over 2002," he said. "We think we're on track."

Sweetheart Cup's history in Maryland dates to 1919, when the Maryland Baking Co. was founded to make ice cream cones. It later expanded into the production of paper straws and cups and changed its name to Maryland Cup Corp. in the 1950s.

In 1983, after Maryland Cup had expanded into plastic plates, cutlery and other products, the company was acquired by Fort Howard Paper Co. Its name was changed to Sweetheart Cup in 1989, and it is now privately held.

The company borrowed $2 million from the Maryland Department of Business and Economic Development last year to expand its plant in Owings Mills, a loan that requires the company to maintain at least 1,600 employees there through 2007.

Burke said that the Sweetheart name is a valuable commodity in the competitive packaging business and that most industry executives expect it to endure.

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