Masonite Corporation, one of the world’s largest door manufacturers, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 16, 2009. Masonite manufactures interior and exterior doors, door components and insulated glass inserts. Its products are sold in over 70 countries under two brands: Masonite and Premdor.
Events Leading to Bankruptcy
The steep decline in housing and construction was a leading cause of Masonite’s drop in revenue. In 2006, Masonite sold 55 million doors, however, that number dropped to 36 million by 2008. In addition to the slowdown in residential construction, Masonite’s troubles worsened when Home Depot, one of its largest customers (accounting for 11% of Masonite’s revenue), stopped purchasing from Masonite and began purchasing from a competitor.
Despite the drop in sales, revenue for 2008 reached $1.82 billion, 65% of which came from operations in the United States and Canada. Masonite’s drop in revenue (when compared to 2006 and 2007) made it difficult for the company to meet its debt obligations. According to its Declaration in Support of First Day Motions (the “Bankruptcy Declaration”), Masonite’s debt totaled $2.2 billion at the time it filed for bankruptcy.
Masonite’s $2.2 billion debt consists of $1.5 billion in secured bank debt and $770 million in unsecured subordinated notes. Masonite’s secured debt includes a credit agreement providing $350 million in revolving credit and a $1.2 billion term loan. Masonite’s obligations under the credit agreement mature in 2013.
In June 2008, Masonite defaulted under two covenants in its credit agreement. According to its Bankruptcy Declaration, Masonite’s drop in sales increased its debt-to-income ratio to impermissible levels, triggering a default under the credit agreement. Once in default, Masonite’s lenders could immediately call the entire loan. Were the lenders to seek repayment, the noteholders would be permitted to seek repayment as well. By September 2008, Masonite and its lenders entered into a forbearance agreement in an effort to avoid bankruptcy. One month later, Masonite entered into a forbearance agreement with a majority of its noteholders.
After months of negotiations, Masonite, its lenders and an informal committee of noteholders reached an agreement for the restructuring of its debt. As stated in the Bankruptcy Declaration, the parties executed a restructuring and lock-up agreement supported by 75% of Masonite’s lenders and 83% of its noteholders. Through the lock-up and restructuring agreements, Masonite believes it has enough support to confirm a plan of reorganization.
First Steps In Bankruptcy
Under its agreement with its lenders and noteholders, Masonite must file a disclosure statement within 40 days of its petition date. Further, Masonite’s plan of reorganization must be confirmed within 40 days from the date that the disclosure statement is approved by the Court. Masonite expects to confirm its plan in short order as the plan reflects the agreement of the key stakeholders. Further, unsecured creditors will be paid 100% of the amount of allowed claims.
Masonite’s bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court.