Grove Worldwide has filed for Chapter 11 protection from bankruptcy to enable it to restructure its balance sheet. The move follows it failure to meet a 1 May interest payment to its lenders. But the company is working hard to stress the positive aspects of the news.

Owner Keystone Group, which bought the company for $600m three years ago, has decided to walk away from Grove and the crane industry, taking a hit estimated at $75m.

Under a deal that has been some months in the planning, Grove’s lenders will convert their debt to equity in the company. Grove’s debt reduces from $584m to $205m, increasing its attractiveness as a takeover target once the reorganisation is completed.

The filing affects all operations in the USA, including National Crane, but not its operations in Europe, Asia and Australia.

Suppliers and employers can be comforted by the fact that $35m of debtor-in-possession financing (DIP) has been secured from a group of pre-petition lenders led by The Chase Manhattan Bank to enable the company to continue operating during the reorganisation. It may take several months before Grove emerges from Chapter 11 with its new financial structure in place.

The prime losers are the holders of junior (junk) bonds. No jobs are being lost at this point, beyond those previously announced.

Debt has been Grove’s burden since Keystone (a group of investors led by Texan billionaire Robert Bass) took ownership in 1998. With hindsight it has become apparent that far too high a price was paid to former owner Hanson. Though Grove had not, until 1 May, defaulted on any payments, it had had to renegotiate the schedule, and the size of interest charges on its debt impeded its ability to move forward.

For this reason, the company is firmly portraying the Chapter 11 filing as good news. Chairman and chief executive officer Jeff Bust said that the company already had an agreement on its restructuring in place with its secured lender banks, and was working on a similar agreement with its bondholders.

“The pre-negotiated plan of reorganisation represents good news for our employees and our customers, and will result in a much stronger company,” Bust said.

“It directly addresses our balance sheet issues and removes the uncertainties and concerns created by our burdensome debt obligations, which have placed significant financial pressure on the company and have inhibited our ability to implement our growth strategy.

“It will permit Grove Worldwide to effectively put the challenges of the past behind it, and provide our company with a more appropriate capital structure and sufficient financial resources to help secure our future.

“Moreover, because the proposed reorganisation plan has the support of our secured lenders, we are optimistic that our reorganisation will move forward expeditiously toward a successful conclusion.” Bust added: “During the restructuring period and beyond, we will continue our commitment to provide the highest quality product and service that out customers have come to expect. Our daily operations will continue as usual without interruption and our vendors will be paid for all supplies furnished and services rendered subsequent to the filing.” Bust stressed that “ours is a balance sheet problem, not an operational one. From an operational standpoint the company has never been stronger”.

With its debt burden, no potential buyers would consider buying Grove. With this problem now being removed, it is expected that the bankers taking ownership of Grove will receive acquisition offers from several parties, with Manitowoc at the head of the queue. Terex is also sure to be interested but is more likely to encounter difficulties with the competition authorities.