Monaco Coach Corporation, the Oregon-based RV manufacturer, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 5, 2009. Three days after filing for Bankruptcy, Monaco filed a motion seeking approval of a dealer incentive program (the “Dealer Motion”). The Bankruptcy Court approved Monaco’s Dealer Motion on March 10, 2009. In addition to the dealer incentive program, the Dealer Motion also authorizes Monaco to pay various prepetition obligations to dealers.
A Look at Debtors’ Business
Monaco is one of the largest U.S. producers of recreational vehicles (“RVs”). One month prior to filing for bankruptcy, Monaco employed approximately 2,250 employees. Since filing for bankruptcy, Monaco reduced its payroll to 220 employees. Monaco operates manufacturing facilities in Oregon and Indiana and distributes its RVs through 700 dealers in North America. Sales reached $1.32 billion in 2006 and $1.29 billion in 2007. However, by November 30, 2008, Monaco’s sales dropped to $690 million.
According to Monaco’s Motion to Use Cash Collateral, Monaco’s prepetition secured debt to Bank of America totals $35.6 million. Bank of America contends that its working capital loan is secured by a first priority security interest in Monaco’s accounts receivable and inventory. Bank of America further asserts a second priority interest in Monaco’s real estate. Ableco Finance LLC claims that it has a term loan with Debtors for approximately $36.9 million. Ableco’s loan is secured with a second priority interest on Monaco’s accounts receivables and inventory, and a first priority security interest on real estate.
Monaco’s top five trade creditors include Custom Chasis Products ($6.8 million), Quality Enterprises USA ($2.7 million), Lazydays RV Center ($1.1 million), Onan Corp. ($1.0 million) and Hardwoods Specialty Products ($815,000). Monaco’s accounts receivables totaled $6.7 million immediately prior to filing for bankruptcy.
Events Leading to Bankruptcy
Dealers in the RV industry commonly use “floor plan” financing with third party lenders to finance the dealer’s purchase of RVs from manufacturers. Floor plan loan agreements often require RV manufacturers to agree to repurchase RVs that remain unsold if the dealer defaults on the loan. Monaco has repurchase agreements with many of the floor plan lenders who loan to Monaco’s dealers. As the economy dropped, so too did demand for RVs. The decline in demand led to greater dealer defaults, in turn requiring Monaco to repurchase inventory from the dealers in default.
Other factors also contributed to Monaco’s need to file bankruptcy. At the same time that consumers were reducing their spending in 2008, fuel costs rose substantially. By the Fall of 2008, sales for Monaco’s Class A diesel motorhomes (its least fuel efficient vehicle), dropped by 43%. Monaco sells its RVs to dealers, not to consumers. As a result of the drop in consumer demand, dealer inventories grew. The overcapacity in the RV market triggered strong price competition, which further reduced revenues. Finally, the credit crisis that began in 2008 continues to limit dealer access to floor plan financing.
Objectives in Bankruptcy
At its peak in 2006, Monaco employed approximately 6,500 employees. By the time it filed for bankruptcy, it reduced its personnel down to 220. Those employees that remain will maintain certain production lines while Monaco searches for a buyer. Prior to bankruptcy, Monaco hired Imperial Capital Corporation to help Monaco sell portions of its business. Imperial will continue working with Monaco to help find it a buyer during its bankruptcy.
This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.