I've written about Xerium Technologies (XRM) in the past, and surprisingly actually profited in this security, following the emergence from bankruptcy. The stock is interesting once again primarily because it has plummeted in the last year from $19 all the way to $3. Presumably, the Market has been pricing in a repeat bankruptcy for XRM.
Incidentally, XRM is one of those fascinating Wall Street stories, that proves one of my basic beliefs: Wall Streets loves creating credit crises, bankruptcies, and garbage companies. The fees are simply huge for everyone involved in any sort of major credit event or corporate bankruptcy or financing event. If a company doesn't need financing, why would Wall Street ever like the company? So, companies like XRM are a gold mine for Wall Street and XRM's top management (notice how highly paid all of XRM's top management is, even though they continue to drive this company into the ground), both of whom can shuffle the company in and out of bankruptcy every few years. Everyone makes money, except for those poor buy and hold shareholders.
What's Changed: Credit Amendment
Anyway, back to XRM. As mentioned, the steep decline in the stock price makes this an interesting situation. I quickly peaked at the horrendous balance sheet, and noticed that most of XRM's debt is not due for another five years! So apparently fears of an imminent bankruptcy are overblown (though I fully expect that XRM will once again be worthless in a few years). Presumably, the problem with XRM is that it needs to be able to restructure operations without violating credit terms, the violation of which would, in theory, trigger a major credit event. However, just yesterday, the company announced a credit facility amendment. This should put to rest the fear of a credit event, and now XRM is poised to move forward with another restructuring. Since imminent bankruptcy is, as mentioned, virtually impossible at this time, the amendment should provide some relief for the battered stock.
XRM is Not an Investment
Based on the above, depending upon the price action, XRM could make an interesting trade. However, it is important to remember that XRM's business is in general terrible (despite the good cash flow which the bankers and management take advantage of routinely to "milk" the company thru various restructurings and bankruptcies), so this is not a long-term investment. The paper industry is a cyclical industry that is in terminal decline (except for certain markets), and the products that XRM provides are increasingly coming under scrutiny by the paper manufacturers, as per XRM's 10-K.
