On September 9, 2013, Furniture Brands International (“Furniture Brands”) and various related entities filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. Faced with a slowing economy and mounting debt, Furniture Brands hopes to sell some most of its assets through a section 363 bankruptcy auction. Relying on papers filed by Furniture Brands with the Bankruptcy Court, this post will look at Furniture Brands’ business, why the company filed for bankruptcy, the company’s finances and what the company hopes to achieve while in bankruptcy.
One of the first court filings Furniture Brand filed with the Delaware Bankruptcy Court was a Declaration of its Senior Vice President and Chief Financial Officer in Support of Chapter 11 Petitions and First-Day Motions (the “Declaration” or “Decl.”). In addition to the Declaration, Furniture Brands also filed a Petition for Bankruptcy. According to the Petition, Furniture Brands heads in to bankruptcy with over $546 million in debt and $550 million in liabilities. The company operates in nine countries and throughout the United States selling brands that include Thomasville, Broyhill, Drexel Heritage, Hickory Chair and Lane Venture to name a few. Decl. at *3. Through its furniture lines, the company offers products that include sofas, sectionals, chairs along with bedroom, dining and living room furniture. Id.
Furniture Brands sells its home furnishing goods through different channels. Some merchandise is sold through specialized interior designers, while others are sold at single brand stores and independent retailers. Id. at *4. Retailers carrying the company’s product lines range from small, independently owned retailers to national retail chains and department stores. Id. at *5. The company utilizes a “diverse manufacturing strategy” that uses both domestic and offshore manufacturers. Domestic manufacturing occurs in Furniture Brands’ facilities in Mississippi and North Carolina, while international production takes place primarily in the Philippines, Indonesia and Mexico. Decl. at *5-6.
Furniture Brands is a publicly held corporation whose stock previously traded on the New York Stock Exchange. Decl. at *7. On September 9th, Furniture Brands’ funded debt outstanding totaled $142 million, approximately one third of which was owed under a term loan debt facility and two-thirds owed under a revolving facility. Decl. at *9. The company has unfunded pension obligations totaling $200 million and approximately $100 million in trade debt. Id.
Events Leading to Bankruptcy
As a furniture retailer, Furniture Brands’ success is tied closely to the performance of the U.S. economy in general and the housing market in particular. Home sales, new home construction and consumer discretionary spending all play a significant role in the company’s performance. Decl. at *13. The company notes that while the U.S. economy has begun to recover, lower home prices, continued foreclosures, weak home sales and limited access to consumer credit have negatively affected the company’s earnings and liquidity. Decl. at *14.
Objectives in Bankruptcy
Like with most debtors, one of Furniture Brands’ immediate challenges is addressing liquidity concerns. In August, Furniture Brands’ borrowing base fell below a threshold limit, which required it to set a $4.3 million reserve. Decl. at *15. The company had previously considered selling certain assets outside of bankruptcy, however, potential lenders and asset purchasers were reluctant to assist outside of a chapter 11 bankruptcy. Decl. at *17. Realizing that bankruptcy was the most feasible option, Furniture Brands began contacting different groups regarding financing proposals. Decl. at *18.
After soliciting different offers, Furniture Brands determined that a stalking horse purchasing agreement from Oaktree Capital “provided the best overall outcome to the Debtors.” Decl. at *19. Under the Oaktree proposal, Furniture Brands will receive $140 million in debtor-in-possession bankruptcy financing and an agreement by Oaktree to act as the stalking horse bidder on certain of the company’s assets. Id. Oaktree is proposing to purchase substantially all of the Debtors’ assets, subject to exceptions such as the Lane business, for a purchase price of $166 million. Decl. at *20. Like with all bankruptcy auctions, Oaktree’s offer is subject to better and higher offers through a competitive bidding process.
The Furniture Brands bankruptcy is before the Honorable Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware. This case is proceeding under case no. 13-12329(CSS). Furniture Brands is represented by the law firms Paul Hastings and Young Conaway Stargatt & Taylor, LLP.
Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida. You can reach Jason at 302 427 5512 or firstname.lastname@example.org.
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