Window shutter maker American Home Products LLC filed for Chapter 11 protection to continue operations as it faces more than 200 creditors and liabilities of $27 million.
Based in Gainesville, Ga., the manufacturer of plastic and wood products did business as the Louver Shop Inc. and Danmer Inc. after being acquired in 2015 by MCM Capital Partners of Beachwood, Ohio. At the time, MCM said the acquisitions made American Home Products the country's largest supplier of direct-to-consumer custom interior plantation shutters, exterior shutters and window treatments.
Danmer produced its Thermalite polymer shutter systems at a 104,000-square-foot facility in California, while Louvre made dense polymer foam shutters at a 70,000-square-foot plant in Georgia. Annual sales were listed at about $36 million, with 80 percent of sales being plantation shutters and 20 percent blinds and shades from third-party sources.
However, sales nosedived under the new owners because of production and quality problems as well as recent contract issues with retailer Home Depot. After downsizing and ceasing unprofitable business lines, annual sales will fall to about $18 million, Chief Restructuring Officer Wayne Tanner wrote in a 23-page declaration filed May 29 at the U.S. Bankruptcy Court in Gainesville.
Tanner, a director at Aurora Management Partners Inc. in Atlanta, was appointed by the debtor on Jan. 18 to help with restructuring and find a buyer for the business, which went through three CEOs in 2018. He says one challenge American Home Products could not overcome was the need to rework certain contracts with Home Depot to sell through its store channels.
"Unfortunately, the margins on these contracts did not prove to be profitable and the debtor attempted to negotiate a revised deal with the Home Depot, but was ultimately unsuccessful," Tanner said in the court filing, adding the business relationship was severed.
The downsizing followed in February, when the Danmer division, which primarily served the West Coast, was shut down "due to economic factors." The cost-cutting move and shift of operations to Georgia caused employee relations, production, shipping and quality problems in the Southeast.
"The debtor began to experience production and quality issues driven in part by poor implementation after consolidating all production to the Gainesville facility," Tanner told the court. "Done primarily as a cost-saving measure that would reduce overhead and create efficiencies, the shift to a single manufacturing facility located in the Southeastern part of the country led to labor turnover, extended lead times, missed delivery dates and an increase in the number of damaged or non-compliant goods due to having to ship product all the way across the country."
These challenges, coupled with a high secured debt load, caught up with American Home Products and in late 2018, the company defaulted on a credit agreement with its original senior lender. The company filed for bankruptcy to maintain the going concern value of its business, preserve jobs, avoid a piecemeal liquidation of assets and conduct a process to maximize value for stakeholders, the court filing said.
Aurora and company officials contacted more than 25 potential investors and buyers, according to Tanner. Sixteen parties executed confidentiality agreements and were given operational, organizational and financial information. Five parties visited facilities and two made offers.
One offer comes from a stalking horse bidder, which seeks to acquire all assets for $8 million and hire "substantially all" 113 employees at their prevailing wage rates if other higher and better bids aren't received.
If a sales deal can't be cut with any party, American Home Products will likely cease operations and begin liquidating assets.
In the meantime, the stalking horse bidder has agreed to provide the company with a $400,000 loan to operate during bankruptcy proceedings. American Home Products is asking the court to allow it to make an initial draw of $200,000 to fund operations.
"The continued viability of the debtor's business and the success of its restructuring efforts hinges upon the debtor's ability to immediately access financing," Tanner told the court. "Absent an immediate infusion of capital or access to financing, the debtor will be irreparably harmed because it simply would not be able to operate its business for the duration of the Chapter 11 case to get to a sale closing."