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Furniture Brands expects to sell Lane assets within 30 days

ST. LOUIS - Furniture Brands International expects to sell its Lane assets within 30 days and the rest of its assets within 140 days, the company said in bankruptcy court documents filed Monday.

Furniture Brands, the parent of companies including Lane, Broyhill, Thomasville, Drexel Heritage, Henredon and Maitland-Smith, filed for Chapter 11 protection Monday after years of declining sales and net losses, and more recently a liquidity crisis that threatened its ability to keep operating. (Read earlier article about bankruptcy filing.)

In a declaration by company Chief Financial Officer Vance Johnston, FBI said it expects to complete an auction to sell the Lane business within 30 days, although it didn't identify a buyer.

It said it expects to sell the other assets to Oaktree Capital Management and affiliates for $166 million, although the deal would be subject to higher offers.

Johnston's declaration also described the events that led to the Chapter 11 filing, from the company's sagging financial performance to its recent trouble keeping enough cash coming in to pay its bills.

Since peaking in 2004 at $2.4 billion, Furniture Brands' sales declined by more than half to $1.07 billion in 2012. The company took the sharpest hits in 2008 and 2009, but has been unable to recover from the recession. In the second quarter of this year, sales were down 11.3% from the same period a year earlier.

The company said the sagging economy and consumer reluctance to purchase big-ticket items were factors, but added, "some of the company's larger brands have lost some of their market share primarily due to competition from suppliers who are able to produce similar products at lower costs." It also cited competition from large furniture retailers that offer store-brand products.

Declining sales led to the liquidity crunch, according to the declaration. A significant part of Furniture Brands' liquidity is tied to its asset-based loan facility. The sales declines meant that as the company reappraised its assets it had to write down their value, which reduced the amount it could borrow under the facility.

In August, the borrowing base under the facility dipped below $25 million, which imposed a reserve requirement of $4.3 million - which "further constricted the company's already strained liquidity position," the declaration said.

In addition, the company also faced another new reserve requirement from American Express. Much of Furniture Brands' sales are paid for by credit or debit cards, and it had agreements that allowed credit card companies including American Express to refund purchases of returned or disputed merchandise, charging the amount back to Furniture Brands.

In the weeks leading up to the bankruptcy filing, American Express had begun to establish reserves for the chargebacks by holding back funds owed to FBI - which led to another constraint on liquidity, according to the documents.

Johnston's declaration also cited the company's projected pension obligations to employees, which as of the end of last year exceeded the value of plan assets by $191.8 million. In its second-quarter financial report, the pension obligation was listed at $208.7 million.

 

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