WILMINGTON, Del./NEW YORK (Reuters) – One of the world’s leading makers of shaving razors may file for bankruptcy as soon as next week, with a plan to sell the company to Swiss bank UBS AG (UBSN.VX), its primary lender, according to sources close to the talks.
Privately-held Personna American Safety Razor Co, which was founded in 1875 in Brooklyn, has given junior lenders and creditors until the end of the month to come up with a better offer for the company, according to two sources with direct knowledge of the negotiations.
American Safety Razor ran into trouble early this year after it lost a contract with Wal-Mart Stores Inc (WMT.N) and sales slowed. It first missed a debt covenant in the last quarter of 2009 and has been negotiating with its lenders — a group that includes Apollo Investment Corp (AINV.O) — but faces a waiver deadline of June 29.
Lion Capital, a European private equity fund, bought American Safety Razor for $625 million in 2006 from Boston-based private equity firm J.W. Childs Associates. J.W. had taken the firm private in 1999 for $173 million.
Lion Capital declined to comment.
The razor company, based in Cedar Knolls, New Jersey, did not return several phone calls requesting comment.
In addition to razor brands such as Matrix3, M5Magnum, Solara and Mystique, the company makes single-edged blades used in utility knives and surgical tools. Its shaving razors are typically sold in drug stores such as Walgreen Co (WAG.N) under the stores’ own brand.
Lion Capital typically invests in high-profile consumer products such as Jimmy Choo luxury shoes and British cereal brand Weetabix. It is also a lender to American Apparel Inc (APP.A), which has just wrapped up its own debt renegotiations.
JUNE 29 IS DEADLINE
Absent last-minute proposals from either of the two groups of junior lenders, American Safety Razor will file for bankruptcy with a plan to run an auction of the business in bankruptcy court, two of the sources said.
UBS will act as the stalking horse in the auction, several of the sources said. A stalking horse bidder establishes a floor for an auction process. The Swiss bank will make a credit bid, which is typically a bid for what it is owed, sources said.
UBS declined to comment.
Sources said UBS is the largest holder of its senior debt of about $250 million, which is nearly half of the company’s total debt, pegged by Standard & Poor’s at $540 million as of last fall.
The maker of private label disposable razors has about $175 million of second-lien debt and about a $55 million mezzanine loan. The market value of the senior loan is about $235 million, while the second-lien loan is quoted at 18 cents to 24 cents on the dollar, putting its value at about $37 million.
Apollo Investment Corp was the lender on the company’s mezzanine debt, with a par value of $57.3 million, which it said on a conference call in late May has been written down to $6.9 million. Apollo Investment Corp’s assets are managed by an investment management unit of private equity firm Apollo.
Patrick Dalton, the president of Apollo Investment Corp, said during last month’s call that the writedown reflects its expected outcome for the loan.
“To the extent there’s something more than that, that’s great, but we can’t over promise,” Dalton said on the call.
But a bankruptcy filing will likely not end the negotiation and second-lien lenders would still be able to propose an alternative plan.
American Safety Razor has been under pressure in the weak economy from larger, better financed rivals and suffered a serious blow this year when Wal-Mart, the largest U.S. retailer, dropped the company’s razors, which it sold as Personna.
Another source said Lion Capital had called in restructuring advisors late last year to advise it on operational changes at the razor company, including a shift to mass market shaving products such as those sold at Wal-Mart and away from lower volume, premium industrial blades. (Reporting by Caroline Humer; editing by Andre Grenon)