By Linda Lipp, Greater Fort Wayne Business Weekly
lindal@fwbusiness.com
A Huntington employer that filed for Chapter 11 bankruptcy protection April 9 has already asked the court to approve procedures to auction off its assets this summer.
CFM Corp., Huntington County's third-largest employer, sent a Workers Adjustment and Retraining Notification Act notice to Huntington Mayor Steve Updike on the same day it filed bankruptcy. The WARN Act notice said the company could eliminate many or all of the 390 jobs at its Huntington plant between June 15 and July 31.
"There is the probability of either mass (layoffs) or of complete plant closure of the Huntington facility," the letter from the Canada-based company read.
A hearing on the motion establishing procedures and a schedule for the liquidation of "substantially all" of the assets of CFM U.S. Corp. and CFM Majestic was scheduled for April 18 in bankruptcy court in Delaware, according to court documents.
CFM Majestic, perhaps Huntington's oldest manufacturer, has received local tax abatements worth about $12 million since 2001 - the last one in June 2007 when the company promised to create more than 210 new jobs there by bringing in work that had been done in Canada.
There has been no discussion yet of trying to revoke those abatements.
"I think, at this time, until they actually close the doors, the abatements will still prevail for them," Updike said.
The Indiana Economic Development Corp. also offered the company up to $2.4 million in performance-based tax credits and up to $145,000 in training grants in 2007.
The business, which makes fireplaces, stoves and other hearth-related products, already had added about half the jobs it promised last year. So it was a shock to Updike when he received the WARN Act notice informing him the Canadian parent company and its U.S. and Canadian subsidiaries all had filed bankruptcy.
"Everything had seemed fine, and then all of a sudden ... this," Updike said.
Mark Wickersham, executive director of Huntington County United Economic Development, said the move also came as a surprise to him. Although Wickersham has been with HCUED for less than a month, he was the northeast Indiana director for the IEDC when it awarded the company tax credits and training grants last year.
There were some worries consolidating operations in Huntington that had been done in Ontario might present a problem for the Canada-based company, Wickersham recalled.
"And there were obvious concerns, and still are, about the housing market," he said.
The manufacturer traces its history in Huntington back 100 years when it was founded as the Majestic Co. A pillar of the city's employment base, the business has experienced ups and downs over the past few years, however.
In 2004, the company cut 215 jobs at the Huntington plant and announced plans to transfer work to a Mexican facility it had bought out of bankruptcy. The business changed hands the following year and had begun boosting employment in Huntington again even before last year's job-creation announcement.
"I thought their coming in here would show good faith," Updike said.
But about 70 percent of the revenue of the specialty business of CFM Majestic's Canadian parent, CFM Group, comes from new housing starts, which have dropped off sharply since 2006.
Additionally, the company has had trouble rebounding from the financial problems and customer losses that preceded its 2005 acquisition by the Ontario Teachers Pension Plan Board, which now owns 98 percent of its Class B stock and 30 percent of its Class A stock.
The company also has been hurt by the rise of the Canadian dollar relative to the U.S. dollar. The majority of its overhead costs are incurred in Canadian dollars and the majority of its revenue is in U.S. dollars, according to the declaration from interim chief financial officer John Walker that accompanied the bankruptcy filing.
The company has experienced higher than expected costs from the consolidation of its manufacturing operations, and also lost money when it abandoned its mass-market barbecue business in 2006, Walker's declaration read.
Operating losses in 2005, 2006 and 2007 forced the business to continue borrowing money to cover operating expenses. The company now has exhausted its financial resources, has insufficient funding available to it under its credit facility and there is no further funding available from the Ontario teachers pension fund.
"Without access to the additional borrowing, CFM Group is not able to finance its day-to-day operations, service its debt load or meet its debts as they become due," Walker's declaration continued.
The company and its U.S. and Canadian subsidiaries filed bankruptcy in both countries simultaneously. CFM Canada listed assets as of Dec. 31 of $324 million and liabilities of $343 million. The book value of the assets of CFM U.S. Corp. was estimated at $84.8 million and liabilities totaled more than $300 million.
The U.S. company's largest unsecured creditor is the U.S. Sheet Metal Workers' Pension Fund, owed $8.9 million. Its fifth-largest unsecured creditor is another Huntington company, Midwest Industrial Metal Fabrication, owed more than $441,000.
The company filed the usual first-day bankruptcy court motions and obtained authorization April 10 to administer the bankruptcy cases jointly, pay employee wages and administrative salaries, obtain debtor-in-possession financing and use its bank accounts to continue day-to-day operations as it works through the bankruptcy process.
The WARN Act notice said the company would confirm closure or layoff dates as additional information became available.
Wickersham is hopeful the company will find a way to stay in business or, alternatively, a buyer for the Huntington operations.
"Regardless of how it presents itself in bankruptcy court, it's a company with a good product and a skilled work force," Wickersham said. "And if, in fact, there is anything the community can do, it would of course help."