Furniture Brands files for Chapter 11 bankruptcy, sets up sale to Oaktree
Furniture Brands International Inc., once the nation’s dominant home-furnishings manufacturer with more than 3,000 Triad employees, filed Monday for Chapter 11 bankruptcy protection, the company announced on Monday.
The St. Louis company, which has three major divisions located in North Carolina, announced its plans to sell all of its businesses outside Lane Furniture to a private-equity group managed by Oaktree Capital Management LP.
Furniture Brands announced it has received a commitment from Oaktree for $140 million in Debtor-in-Possession (DIP) financing, including $50 million of new liquidity. The new facility, which is subject to court approval, will enable the Company to operate business uninterrupted and continue to meet its financial obligations, including the timely payment of employee wages and benefits, continued servicing of customer orders and shipments, and other obligations.
The sale is expected to go through an auction process, at which time there could be other bidders for the Furniture Brands assets. The company said it has received interest from potential acquirers for the Lane division.
“The new facility, which is subject to court approval, will enable the company to operate business uninterrupted and continue to meet its financial obligations, including the timely payment of employee wages and benefits, continued servicing of customer orders and shipments, and other obligations.”
The company was in the early 2000s the largest U.S. furniture manufacturer at $2.2 billion in annual sales, primarily from divisions Broyhill Furniture Industries Inc., HDM Furniture Industries Inc. and Thomasville Furniture Industries Inc.
However, it had seen eight years of revenue declines, according to John Baugh, an analyst with Stifel Nicolaus. “We believe 2013 will be another down year,” he said.
For the past two months, analysts have speculated that the company would be forced into bankruptcy and possibly liquidation, particularly as it began to have problems getting raw materials from suppliers. The company reported a $40 million loss in the second quarter.
“After careful consideration of a range of alternatives, we firmly believe that our Chapter 11 process represents the best long-term solution for Furniture Brands to address its liquidity challenges, strengthen its operations and continue to provide our customers with the highest-quality products and service that they have come to expect from us,” said Ralph Scozzafava, the company’s chairman and chief executive.
“We are highly confident that as a result of these actions, we will protect our valuable franchise and emerge as an even stronger company.”
The deal, if approved, would expand Oaktree’s already major industry presence.
The company, along with Bain Capital, formed International Market Centers LP in May 2011 as part of a $1 billion strategic gamble to unify the main showroom buildings at the High Point and Las Vegas markets.
Tom Conley, president of the High Point Market Authority, said it is likely that a different part of Oaktree is providing the financing to Furniture Brands than owns the High Point and Las Vegas building properties.
“Oaktree owned the high-priced slice of the debt, and this is the type of transaction that they have been very successful doing,” said Jerry Epperson, an industry analyst and managing partner of Mann, Armistead and Epperson of Richmond, Va.
In the past 12 years, Furniture Brands has eliminated at least 8,860 jobs in North Carolina, including at least 2,874 in the Triad, in pursuit of lower labor costs in Asia that have not contributed to increased sales.
Scozzafava told analysts in August that the company had conducted “a thorough review of our portfolio of assets with our board, and outside advisers are in the process of executing on specific initiatives that were the output of this review. These include possible sales of non-core or underperforming assets.”
The company ended the quarter with a cash balance of $8.8 million and debt of $117.7 million.
One probable consequence of the Chapter 11 filing could be Furniture Brands requesting that the federal Pension Benefit Guaranty Corp. take over more than $200 million in pension obligations for about 20,000 participants, many of whom live in the Triad and Hickory area.
Baugh said asset sales are complicated by the fact that the pension is underfunded by about $200 million, and it will no doubt want to get paid in front of the other creditors, which can likely only be resolved via the bankruptcy process.
Even though Furniture Brands said it plans to contribute between $6 million and $6.5 million to its pension plan this year, Scozzafava acknowledged to analysts that “we’ve got a large underfunded pension obligation.” The Pension Benefit Guaranty Corp. insures pensions and assumes responsibility for plans that can no longer pay benefits. Its maximum benefit guarantee is set each year under provisions of ERISA.
The maximum guarantee applicable to a plan is fixed as of that plan’s termination date except for cases where termination occurs during a plan sponsor’s bankruptcy, in which case the maximum guarantee may be fixed as of the date the sponsor entered bankruptcy.
For 2013, the maximum guaranteed amount is $4,789.77 per month for workers who begin receiving payments from PBGC at age 65.
Edwin Allman III, a Winston-Salem attorney who serves as a bankruptcy trustee, said in August that pensioners may have their best chance at getting a higher level of payout if the company sells off its iconic brands through liquidation. Furniture Brands also owns some of its Asian manufacturing plants.
The company’s Drexel Heritage store in High Point is closed.
An executive at Furnitureland South told “Furniture Today,” that everything in the Drexel store is now for sale at Furnitureland South’s outlet center.
The Winston-Salem Journal contributed to this report.