Unsecured creditors left out in the cold

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28_creditors_01Some suppliers are leary of working with Irwin Jacobs again; others want to get back to business

Though the final chapter of the Genmar bankruptcy is finished and the new owners of the boat lines are looking to the future, some 4,000 unsecured creditors are left with claims of more than $140 million – and no recourse to collect their money.

Genmar’s assets sold for $77.05 million, which will go toward the secured claims against the company, most notably money owed to banks. In the bankruptcy filings last June, Wells Fargo and Fifth Third Bank were listed as being owed a combined $75 million. The new owners purchased the Genmar assets free and clear of all liens, including any debts owed to unsecured creditors.

“The sales resulted in no additional funds for the unsecured [creditors],” says Gary Potter, chairman of the Official Committee of Unsecured Creditors in the case. “Before the unsecured get anything, the bank would have to get something and, at this point, there’s nothing to get. In terms of the unsecured, they are at a 100 percent loss.”

29_creditors_02Potter, who is general manager of EZ Loader Boat Trailers, says the committee had initially supported the sale of Genmar’s assets, but with so few bidders involved in the process, the sale price didn’t rise as high as the committee had hoped.

“As soon as we walked in the door [of the auction] and saw there were only two bidders, I knew we were done, because they’re not going to bid each other up,” he says. “We’re not mad at anybody. It’s the economics. It’s the world. There’s just nobody out there ready to spend anything.”

The committee filed an objection to the sales process, but the auction was approved by the court in January. The unsecured claims range from millions of dollars to a few thousand and the companies affected run the gamut from large international corporations to small mom-and-pop-type shops.

“I’m a small business – $170,000 is not a lot of money to Genmar, but it’s a lot of money to me,” says one unsecured creditor, who asked not to be named. “We had to scale back, cut wages and lay off people.”

Another small-business owner, who also asked not to be named, says he is owed more than $100,000, and it also has had a major impact on his business. “That alone accounted for at least six people losing their jobs. Also, it put us in a real tight cash flow situation,” he says.

29_creditors_03Even larger companies say they have felt the impact of having to write off the money they are owed. “It’s a lot of money no matter how big your company is, but it’s not life-threatening to us by any stretch of the imagination,” says Clint Moore, president and CEO of Volvo Penta of the Americas, the largest unsecured creditor, with more than $6 million in claims.

“When the bankruptcy was announced … we took the decision in that month to write off the entire debt, which we did,” he says. “That doesn’t mean we weren’t hopeful for some recovery. We were, but we were prepared for zero recovery.”

Potter, whose company also was one of the top unsecured creditors, agrees that it has an effect no matter how big or small the company. “You can’t get over a six- or seven-figure loss in one minute,” he says. “I don’t care what size company you are – when you are losing that kind of money it’s going to take awhile to recover from it. It’s not going to break the company, but it made us a lot smarter.”

Going forward

With the new owners of the Genmar assets in place, businesses must decide if they want to work with these boat companies again. Some have said they will, though they have adjusted their procedures – for example, doing business on a cash-on-delivery basis.

“If you’re a marine business, the [group] of people you can sell to is not that big. Who else are you going to sell product to?” asks one vendor, who is now on a COD basis with the boat companies he sells to.

Another business owner says he’s still deciding what to do, at least in the case of the brands bought by Genmar founder Irwin Jacobs and his business partner through their company J&D Acquisitions. “If we do decide to continue selling to them, the terms will be completely different,” the business owner says. “Terms for the Jacobs brands will be … COD to begin with. Small credit limits eventually – after a year, but probably two-week payment terms with any credit. Furthermore, those brands had good parts prices due to Genmar volume on other brands. They will lose those big volume discounts, so they will have to pay more for parts.”

29_creditors_04He says he expects this will be the norm, having spoken with several other suppliers. “Once bitten, twice shy is putting it mildly.”

Jacobs, in an early-February letter to suppliers, says he understands people have been hurt by Genmar’s bankruptcy and that he also lost money – tens of millions of dollars. However, he says, the new companies are well-capitalized and financially strong.

“If you have any concern about our boat companies’ financial capabilities to pay you for your products on a timely basis, I suggest your company offer us a cash discount, and we’ll be pleased to honor your cash discount terms at least until you are once again completely comfortable in offering normal credit terms to our boat companies in the future,” Jacobs says in the letter. Jacobs also says priority would be given to previous Genmar suppliers offering competitive prices and money owed to them.

Many suppliers, he says, have expressed interest in doing business with the new venture. “Unsolicited, we’re getting a lot of calls from other vendors in the industry who are asking to become our suppliers, who haven’t been, and some that used to be [have] asked to come back, and people who cut us off during the process are asking to come back,” he says.

David Huls, president and CEO of Platinum Equity’s new boating enterprise, says that while it could not honor obligations that existed at the time of the bankruptcy, it would “assume those obligations that were incurred during the course of the bankruptcy process related to the businesses that were acquired.”

Huls says suppliers have expressed support for the new company since the acquisition was completed. “They understand very clearly that this is a new company with new owners and it’s a new beginning,” he says.

John Dorton, CEO of newly acquired Hydra-Sports, says he will work with dealers to clear up warranty issues and hopes to set up new relationships with previous suppliers.

“I do believe for us and for many others, [Genmar's bankruptcy] was a wake-up call that said you better get your credit and your credit limits and your policies in place, because you don’t want this to happen again,” says Potter. “This was a $1.3 billion corporation just a few years ago and here they are reduced to selling for [$77.05] million. That just shows you the times.”

It also shows you nobody’s infallible, says Potter. “Sometimes these things make you stronger and I think the industry will be stronger,” he says.

This article originally appeared in the March 2010 issue.

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