Hudson's Furniture filing Chapter 11 to restructure real estate debt

Retailer is current on debt to industry suppliers

Clint Engel -- Furniture Today, March 2, 2010

SANFORD, Fla. — The CEO of Hudson's Furniture Showrooms here said the company is filing for voluntary Chapter 11 bankruptcy protection today, aiming to restructure real estate debt.

But in a rare move, the midpriced to upscale retailer said it is current on all its debt to industry suppliers - something it worked to achieve during a turnaround phase last summer and fall.

It has made payments on recent orders, too, so that its vendors will receive priority claims status during the bankruptcy process.

Fred Hudson, CEO and founder of the 13-store Florida chain, operating as Broyhill Furniture Galleries by Hudson's, said the company does not plan to lay anyone off or close stores. In 60 to 90 days, the retailer plans to unveil a "leaner, stronger new Hudson's" after remodeling nine of its 12 full-line showrooms. The stores will features boarder merchandise styles and updated logo, among other things. Hudson's also operates a clearance center.

The new company will be led by Hudson's son Joshua Hudson, former executive vice president and now president, according to a release. Consultant Britt Beemer, CEO of Americas Research Group, will be an advisor to management.

Fred Hudson said Hudson's has "large cash reserves," although he wouldn't disclose the dollar amount, and "zero past due vendor debt." He said all vendors with the exception of Broyhill - which will be a secured creditor - have been paid on a 20-day-terms basis heading into bankruptcy. All are supporting the plan "100%," he said.

Broyhill is its largest supplier. Other key industry suppliers are Lane, Lexington Home Brands, American Drew, Best Home Furnishings, AICO, USA Leather, Bernhardt, Universal, Sealy and Simmons.

"The only reason for filing Chapter 11 is to restructure real estate debt," Hudson said. "After months of working with the banks on reducing real estate expense - with no success - we finally had only one possible solution."

Hudson's said it paid all vendors prior to filing so that their remaining account balances qualify as administrative claims. With that status, vendors typically are paid in full during the course of the bankruptcy, the retailer said.

"The only people that won't be paid in full are real estate mortgage providers," Hudson said. He wouldn't name the lenders, but said there are six and that one refused to sign on to the restructuring plan.

In October, four limited liability companies owned by Hudson and serving as the landlord to four of the Florida stores filed for bankruptcy in an effort to restructure real estate debt after a lender began foreclosure proceedings on the locations.

Hudson told Furniture/Today Tuesday he was hoping that the earlier move would be enough to correct the debt problem, but said a lender has continued to be stubborn in negotiating a restructuring.

In 2008, Hudson's closed its four Atlanta stores, and in December it closed its one North Carolina store in Pineville, near Charlotte.

"Real estate debt was just too high for today's business conditions," Hudson said. He said the company had placed additional debt on the Florida real estate in order to pay off its creditor and exit Georgia.

Dave Carpenter, director of credit for La-Z-Boy High Point, called the Hudson's filing "unfortunate" for the industry. He said it "seems to be a reflection of many banks' reluctance to modify or renegotiate commercial real estate loans."

Carpenter said that while the underlying economy - outside of housing - is improving and retail sales have increased, the credit system is still not healed.

"Hudson's has been a valued customer of La-Z-Boy's American Drew and Lea Inds. divisions for numerous years, and we plan to support their post-petition reorganization efforts and plans," he said. "Trade credit remains a critically important source of credit for businesses during this cycle."