Three years of precipitous declines in the residential construction market have taken their toll on distributors reliant on that sector. In the past three months, at least four distributors have filed for Chapter 11 bankruptcy protection, with two filing in mid-June.
On June 16, Building Materials Holding Corp., Boise, ID, filed for reorganization in the U.S. Bankruptcy Court in the District of Delaware. The building materials and construction services supplier has seen sales decline by more than 50 percent since 2006, from $3 billion annually to $1.3 billion in 2008.
The prior week, Western Tool Supply, Salem, OR, submitted a petition to the U.S. Bankruptcy Court in the District of Oregon. Sales for the distributor of tools, fasteners and related parts to contractors fell off 25 percent from 2007 to 2008.
Building Materials Holding Corp.
The filing by BMHC is the culmination of a series of unforeseen and, unfortunately, unavoidable events" that began with the downturn in the U.S. housing market, according to documents filed by BMHC on June 16. As of March 2009, single-family starts were below 400,000 – the lowest rate since World War II.
"The restructuring will provide us with increased liquidity to navigate the current market challenges while creating a capital structure that will better support our long-term growth objectives," says CEO Robert E. Mellor.
"Importantly, this agreement caps a series of actions we have taken to aggressively respond during this unprecedented housing downturn."
Actions by the company outside of the court include reducing its workforce by more than 75 percent – from a peak of 22,824 employees in June 2006 to current levels around 5,500 – and selling, closing or consolidating 78 business units.
BMHC reached an agreement with secured debtors to receive debtor-in-possession financing for the pre-negotiated reorganization plan submitted with the voluntary petition. The financing plan received interim approval from the bankruptcy court on June 17.
Under the proposed plan, BMHC will maintain normal operations and continue to pay employee wages, salaries and benefits in the usual manner.
The company intends to make payment for goods received and services provided to it on or after the filing date in the normal course of business and in accordance with the terms of existing supplier agreements.
In addition, under its proposed Plan of Reorganization, BMHC expects to pay in full suppliers of goods provided in the 20 days before filing and those with claims of under $5,000.
Currently, there are no plans to further reduce headcount, though it remains a possibility if conditions continue to deteriorate.
According to a June 10 filing, submitted to the court by Western Tool Supply President Kevin Kiker, the distributor of tools, fasteners and related parts to contractor customers has seen sales drop "precipitously" in 2009. Gross sales in 2007 were $67.5 million, and in 2008 fell to $50.8 million. No figure was provided for year-to-date sales in 2009.
At its peak, the distributor had 61 stores in 13 states through U.S., and additional locations in Canada. Canada’s locations were named House of Tools; the Canadian unit filed for bankruptcy in that country in May 2009, according to a separate court filing.
As of the bankruptcy filing, Western Tool operated 32 stores. It reduced its headcount from 174 on Jan. 1, 2009, to 98 as of June 9, 2009.
The goal of the Ch. 11 filing, according to Kiker, is to preserve cash, stabilize operations, get out of unprofitable leases, and utilize the resources available under the Bankruptcy Code.
The reorganization strategy includes closing remaining East Coast stores and warehouses, terminating the leases of underperforming stores in California and the Pacific Northwest, reducing staff, evaluating the company’s marketing strategy and implementing other necessary changes.
The company expects to emerge from Ch. 11 "as a lean, but profitable, business entity," according to the filing.