Boatbuilding for each would be moved into the Hunter plant if bankruptcy process goes favorably
Ask John Peterson what it’s been like to handle bankruptcy proceedings as both president of one of the companies filing and chief restructuring officer and he doesn’t hesitate. He calls it the “most challenging endeavor anybody could ever undertake.”
“It’s a very odd situation … looking out for the benefits of the employees, the company and the benefit of the shareholders,” says Peterson, president of Hunter Marine Corp. “There are so many legal and moral issues that come up daily. Trying to maximize the value for our unsecured creditors is the No.1 objective and No. 2 is to see that the employees survive. Hopefully, we can be successful.”
The Luhrs Marine Group — consisting of Silverton Marine Corp., Mainship Corp., Luhrs Corp., Hunter Marine Corp. and five additional subsidiaries — filed voluntary petitions April 30 to reorganize under Chapter 11 in bankruptcy court in New Jersey. Silverton, Luhrs and Mainship had ceased operations in February. “When we went into the Chapter 11 filing, Hunter Marine was the only company operating,” Peterson says. “There was not a single person in the other [eight] entities. We had to struggle to get those into the filing.”
Morgan Industries Corp. was created the following day as an umbrella group so that all nine companies could be bundled into one complex case action and proceedings could move along at a much quicker pace. The move made it possible for Morgan to hire one attorney for all of the filing companies instead of nine separate ones, which would have eaten up money, says Peterson, who was named Morgan’s chief restructuring officer and treasurer.
It also meant that all unsecured creditors, as a collective committee, could see what revenue was coming in via Hunter, the only entity producing boats since the winter, Peterson says. The sailboat builder continued to increase orders through the spring and emphasized events around the company’s 40th anniversary to let consumers know it is still “alive,” Peterson says.
Nearly all of its vendors are still dealing with the company and two-thirds are giving it credit terms, he says. “I’ve heard that’s pretty amazing when you’re in bankruptcy and it’s a testament to their loyalty to us and our brand,” Peterson says. “You’re asking people to give you money when you [already] owe.”
In May, Florida-based Tiger International Management Inc. entered an asset purchase agreement with Hunter Marine, Luhrs and Mainship, according to court documents. In what’s known as a “stalking horse agreement,” privately held Tiger was approved May 29 by courts and creditors to become a base bidder for all assets of Hunter Marine and selected assets of Luhrs and Mainship.
Any other interested suitor has until July 3 to outbid Tiger International and inherit certain privileges, according to Peterson. As of early June, 18 potential buyers had expressed an interest in assets of Morgan Industries. Peterson says if Tiger does wind up with assets, its plan is to continue operations of the brands in Hunter’s Alachua, Fla., facility.
How they fell
Listed debtors in the most recent filings were Hunter Composite Technologies Corp., Hunter Marine Corp., Luhrs Corp., Mainship Corp., Silverton Marine Corp., Morgan Industries Corp., Ovation Yachts Corp., Salisbury 10 Acres LLC and Salisbury 20 Acres LLC. Each company in the filing had been cross-collateralized, Peterson says. That means each was using the other companies’ collateral for loans from both Bank of America and GE Commercial Distribution Finance Corp. When the builders got into financial trouble, the assets were effectively promised to both.
GE had a “repurchase obligation” for all assets, which made selling individual entities legally impossible, Peterson says. “Everything was cross-collateralized,” he says. “GE had one master agreement and there was no way we could break that veil.
“Hunter signed that guarantee. That’s why we paid the powerboat guarantee and that’s the way it was set up long ago, before my time,” Peterson adds. “Those two obligations, in hindsight, shouldn’t have been made.”
If not for the arrangement, Peterson thinks the group would have been able to sell off Hunter and at least one of the powerboat companies to avoid filing for bankruptcy. “We couldn’t get over the hurdle of cross-collateralization with GE and B of A,” he says. “We were trying for weeks to sell a couple of them separately, but we couldn’t.”
The banks have been congenial and easy to work with, according to Peterson. They “could have been a lot worse,” he says. “They could’ve come in and seized assets, boats. We were shipping boats and trying to pay off debts of other companies. They could’ve taken the $200,000 paid for each boat, but they were only taking $20,000 to allow us to run our company.”
Contributing to the shortage of cash flow among the companies was “too much real estate,” Peterson says. By the time the companies realized they needed to consolidate the operations of brands under fewer roofs, the real estate market was tanking, he points out.
In 2008, Mainship and Luhrs announced that they were closing their plant in St. Augustine, Fla., and consolidating operations at the Luhrs Group’s Millville, N.J., facility. The St. Augustine plant, despite its location on a river, continued to plummet in value, Peterson says. The bank had a lien on the property and the collateral appraisals were less than the loan amount, he says.
Some of the 18 entities that were looking at the corporation’s assets in May were interested in the nine parcels of land that are still for sale, Peterson says.
Peterson is scrambling to get everything settled quickly so he can try to salvage all of the brands. Morgan has contracted with five court-approved firms, which he has had to manage and pay for, he says. Another investment banking company hired to do the marketing holds hour-long meetings every other day, which become costly, and Morgan is also footing the bills for the unsecured creditors’ attorney and litigation costs, according to Peterson. “It takes a lot of money to go bankrupt,” he says.
Peterson’s hope is that first he can get all of the companies sold to individuals for the highest and best prices and, next, that all of the companies “have a fighting chance” to succeed, he says. “If we can go and make a profit under court protection, we can certainly make some money coming out of this if we structure it right,” he says.
“It’s been challenging,” Peterson adds, but he thinks there’s a “good possibility” every company will survive in some fashion. “Will all of the factories come out of it? Absolutely not. But they have some good value. We’ll have to see with the banks how they let those assets go in the bidding process. But I think the brands will make it.”
This article originally appeared in the July 2012 issue.