UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 9)*
Philip Services Corp.
(Name of Issuer)
Common Shares
(Title of Class of Securities)
717906 10 1
(CUSIP Number)
Marc Weitzen, Esq.
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street, 20th Floor
New York, New York 10036
(212) 626-0800
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
January 14, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
NOTE: Six copies of this statement, including all exhibits, should
be filed with the Commission. See Rule 13d-1(a) for other parties
to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
(Amendment No. 9)
Item 1. Security and Issuer
The Schedule 13D filed with the U.S. Securities and Exchange Commission
on June 15, 1998, by High River Limited Partnership, a Delaware limited
partnership ("High River"), Riverdale LLC, a New York limited liability company
("Riverdale"), and Carl C. Icahn, a citizen of the United States of America
(collectively, the "Registrants"), as previously amended, relating to the common
shares, no par value (the "Shares"), of Philip Services Corp. (the "Issuer"), is
amended to furnish the additional information set forth herein. All capitalized
terms contained herein but not otherwise defined shall have the meaning ascribed
to such terms in the previously filed statement on Schedule 13D, as amended.
Item 4. Purpose of Transaction.
Item 4 is hereby amended to add the following:
After discussions between Registrants and officers of the Issuer, on
January 14, 1999 High River and Foothill Partners III, L.P. (an entity
unaffiliated with Registrants) delivered a letter (a form of which is attached
hereto as Exhibit 1 and incorporated in its entirety herein by reference) to 82
holders of the Issuer's bank debt.
Subsequently, in a January 15, 1999 conversation with Carl Icahn, Alan
Fracassi, CEO of Issuer, again voiced his deep concerns with the affordability
of the plan contemplated by the current term sheet being distributed to the
holders of the bank debt by CIBC, their agent, and indicated that he would
readily support and recommend a plan providing for substantially less debt.
Registrants currently intend to propose such a plan in the near future.
Affiliates of Mr. Icahn and Foothill, which together own approximately $238
million (or 19.7%) of the outstanding bank debt, will not support the plan being
distributed by CIBC. Additionally, Mr. Icahn has spoken to other large holders
of bank debt who indicated that they would support a plan with a subtantially
smaller debt load and would not support the plan currently being distributed by
CIBC. Mr. Icahn believes that even a freefall bankruptcy would be preferable to
the plan currently being distributed by CIBC, in which the Issuer emerges with a
debt load which is not affordable, does not give the Issuer a chance to succeed
and could very possibly be a precursor to a second reorganization.
<PAGE>
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to Securities of the Issuer
Item 6 is hereby amended to add the following:
The paragraph set forth under Item 4 of this Amendment No. 9 is hereby
incorporated herein by reference.
Item 7. Material to Be Filed as Exhibits
Exhibit 1. Letter dated January 14, 1999, from High River
Limited Partnership and Foothill Partners III,
L.P. to the Members of the Bank Group.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: January 15, 1998
HIGH RIVER LIMITED PARTNERSHIP
By: RIVERDALE LLC,
General Partner
By: /S/ CARL C. ICAHN
Name: Carl C. Icahn
Title: Member
RIVERDALE LLC
By: /S/ CARL C. ICAHN
Name: Carl C. Icahn
Title: Member
/S/ CARL C. ICAHN
CARL C. ICAHN
[Signature Page of Amendment No. 9 to Schedule 13D with respect to
Philip Services Corp.]
TO: The Members of the Bank Group
DATE: January 14, 1999
RE: OFFER TO PURCHASE
- --------------------------------------------------------------------------------
On November 13, 1998 the undersigned determined to put Philip Services into
bankruptcy. The company immediately argued that a bankruptcy would be harmful to
the company since it would cause the loss of employees, suppliers, etc. We
agreed with that argument, but believed that even a bankruptcy was better than
leaving the company in "limbo" and watching its business evaporate. The company
then signed onto a "pre-pak" plan it would accept which was communicated to the
bank group. The bank group rejected the pre-pak plan. The undersigned then gave
the company until December 15, 1998 to arrive at a pre-pak plan acceptable to
both sides and withheld filing for bankruptcy. The undersigned also received the
right to recommend two members to Philip's Board which it has done. No progress
had been made by December 15, 1998 and we extended the deadline to January 8,
1999.
Philip Services is currently in a very precarious position, which I believe
most of you realize. The one thing that both the company and the banks do agree
on is that something must be done quickly to shore up the confidence of
suppliers, customers and most importantly the hundreds of employees who are
responsible for and have the relationship with the numerous customers at ISG.
ISG is a service business. Once our employees lose confidence and start moving
to competitors, so "goes" our business. Management has told us that there is
imminent danger of this occurring. Allen Fracassi stated to me at a recent
meeting that "there is very little time left, something must be done." Yet
despite our January 8 deadline, no real progress has been made. It is true a so
called term sheet has been agreed on between the company and the lenders, but
Bob Knauss, Allen Fracassi, Derrick Rolfe and other board members have told me
THE COMPANY WILL NOT ENTER INTO ANY AGREEMENT THAT IS NOT "AFFORDABLE" AND THEY
ARE FAR FROM CERTAIN THE AGREEMENT CONTEMPLATED BY THE TERM SHEET IS AFFORDABLE.
All the current term sheet is, is an agreement to keep negotiating.(1) The term
sheet contemplates placing over $700 million of debt on the company. We believe
this is a prescription for disaster. Even if the company does finally agree to
take on all of this debt, which we doubt they will, we do not believe this plan
will even pass the test of feasibility. The plan calls for $36 million of annual
cash interest expense. This is almost ludicrous given the company's own
projections for 1998 EBITDA (less Cap Ex) of $37 million and for 1999 EBITDA
(less Cap Ex) of $31 million. Additionally, projections in this company have
never been on target. ALLEN FRACASSI HAS TOLD ME
- ---------------------
(1) Incredibly, it appears from a communication received last evening from
CIBC that the lenders may be asked to sign a "lock-up" agreement without the
terms of the debt being fully spelled-out and subject to further negotiations.
<PAGE>
REPEATEDLY THAT, "IN THIS COMPANY, I DON'T EVEN KNOW WHAT MY ORDER BOOKS LOOK
LIKE 2 WEEKS OUT." AND, CERTAINLY NO ONE CAN ACCURATELY FORECAST FUTURE METAL
PRICES.
We find ourselves at a very critical and dangerous juncture. All we have at
this time is a so called term sheet which calls for a great deal of further
negotiations. But time is of the essence and even if the plan as it now stands
is finally agreed to, it will in our opinion have a great deal of difficulty
passing the test of feasibility. While these arguments go on the company will
continue to evaporate.
The solution is that we approve a plan with far less debt on the company.
The company is currently in a fragile position, but with a reasonable debt load,
we believe in time it can again be very successful. We understand there are
certain lenders who for one reason or another, do not wish to accept any plan
that does not contemplate a great deal of debt on the balance sheet. While it
has long been our rule that one should not throw good money after bad, this is
the exception that proves the rule because it is imperative that something must
be done and done quickly. WE, THEREFORE, ARE PREPARED TO PURCHASE PHILIP'S
SENIOR SECURED REVOLVING CREDIT COMMITMENT AT A PRICE EQUAL TO 50% OF THE FUNDED
AMOUNT (LESS THE CUSTOMARY DISCOUNT FOR THE UNFUNDED PORTION OF SUCH COMMITMENT)
ON A FIRST COME FIRST SERVE BASIS. ONCE WE BELIEVE WE HAVE 2/3, EITHER THROUGH
THOSE GRANTING US A PROXY OR THROUGH THESE PURCHASES, WE WILL NO LONGER BE
OBLIGATED TO MAKE FURTHER PURCHASES. We believe 50 is a very fair bid for those
concerned with near or intermediate term performance. The reasons are as follow:
Even if the board agrees with the proposal as it now stands and 2/3 of the
lenders approve the plan (the undersigned and AREP, who together own $237.7
million equating to 19.8% of the total commitment will not vote in favor of the
plan), there is certain to be a long, drawn out and debilitating feasibility
fight which will probably be brought on by the equity. As pointed out above the
company's own projections show that income will not cover interest and these
projections do not take into account the possibility of a recession. (As I write
this Brazil has just devalued by 10%). Indeed in the company's projections, an
increase in metal prices of 10% has been assumed, but what if metal prices
decrease instead of increase? Interestingly, Brian McDonough in arguing for a
high debt load on the company has stated a major reason for this is that if the
company goes bankrupt again, the bank lenders will come ahead of other
creditors. But it should be realized that when a plan is proposed it is
disingenuous to be thinking of a second bankruptcy. Not only can this fact be
used against you in a feasibility fight, but it may well be a self-fulfilling
prophecy. What will the uncertainty during a debilitating feasibility fight do
to the company and what will this uncertainty do to the bank debt price,
especially to that portion subject to a lock-up agreement? We doubt under these
circumstances they will sell anywhere near 50. And even if the plan being
contemplated is confirmed and the company survives the feasibility fight, what
will the package of securities trade at? Debt that may not pay interest
generally trades at a discount. PIK debt trades at even greater discounts.
FURTHERMORE WITH A HIGH POST-RESTRUCTURING DEBT LOAD EMPLOYEES, BONDING
COMPANIES, CUSTOMERS AND SUPPLIERS WILL CONTINUE TO HAVE CONCERNS WITH RESPECT
TO THE COMPANY'S FINANCIAL VIABILITY.
The plan that we have put forth admittedly has many creditors in the bank
group unhappy. As recently as November, a block of approximately $35 million of
bank debt traded as low as $38
<PAGE>
(less the discount, this equates to less than $31 1/2). Some say it traded this
low because of the plan we are advocating. It has been suggested that if our
plan is confirmed, the package lenders will receive will initially trade at
values worth even less than $38 because many banks will sell equity. This may or
may not be true, but when dealing with a company of this fragility, the
bankruptcy plan should be primarily concerned with feasibility, not short term
trading considerations. Admittedly our plan is not a short term fix but it will
give the company a fighting chance to survive. A STRONG BALANCE SHEET IS A
NECESSITY FOR THIS COMPANY'S SURVIVAL AND QUICK ACTION IS ANOTHER EVEN MORE
IMPORTANT NECESSITY. We can not speak for the short term, but we believe those
who stay the course will profit meaningfully in the long term.
We invite you to call us to discuss our plan in more detail and hopefully
join us in saving this company before it is too late. We also invite any of
those who are willing to support our plan to join with us in purchasing the bank
debt that is tendered if they are so inclined.
HIGH RIVER LIMITED PARTNERSHIP FOOTHILL PARTNERS III, L.P.
BY: RIVERDALE L.L.C. BY: DENNIS R. ASCHER
ITS: GENERAL PARTNER ITS: MANAGING GENERAL PARTNER
/s/ Carl Icahn /s/ Dennis R. Ascher
If you are interested in selling, please contact Ed Mattner at (212)702-4311.
