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Clover bubble bursts?

July 11, 2019

Clover Technologies appoints legal advisors Kirkland & Ellis LLP and investment bank Jefferies LLC to assess the balance sheet alternatives and strategic options for the company.

Clover Technologies appoints legal advisors Kirkland & Ellis LLP and investment bank Jefferies LLC to assess the balance sheet alternatives and strategic options for the company following a preliminary earnings report that cut their current year earnings forecast. The Recycler understands that a creditors meeting is proposed for 22nd July and creditors are advised to hire their own advisors.

In September 2018 The Recycler reported that the company’s borrowing stood at $825 million (€701.3 million) with $65 million (€55.2 million) due for repayment or refinancing in May 2019 and $760 million (€646 million) due in June 2020.

The Recycler understands 4L Technologies has also cut the range of its annual earnings forecast to between $87 million and $96 million, from $135 million to $145 million back in March.

What has changed between April and July? The Recycler understands that Clover has been severely impacted by HP targeting US dealer channels with low priced OEM product in return for the dealer dropping reused products. Clovers “Silver Bullet” campaign was launched to reverse the impact of the HP strategy.  The HP Xerox tie-up is expected to impact Clover as well as they are currently a major supplier to Xerox of HP products. Clover has been in recent discussions to offload its imaging business.  

In 2010 Golden Gate Capital became the largest equity partner, and Clover acquired West Point Products, Pinpoint and ERS

In 2014 Clover acquired MSE, and they secured a loan to fund a substantial shareholder dividend and refinance its existing debt. Cash balances at the end of June stood at nearly $136 million (€115 million). Sales for the twelve months ended 31st December 2018 are reported as $820 million (€697.3million), down $300 million (€255 million) from their 2014 peak.

In 2014 The Recycler reported that Clover was on target to hit the $1.1 billion (€0.93 billion) of sales, but since then sales and profits have contracted year on year. In October 2017 Moody’s Investors Service downgraded Clovers parent company 4L Technologies Inc., citing “uncertainties related to the timing of stabilization in 4L Tech’s business after a multi-year contraction in sales and profitability.”

In April Moody’s Investors Service affirmed its B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) for 4L Technologies Inc. This followed Moody’s decision to upgrade 4L Technologies (4L Tech) from negative to stable in September last year.

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