UPDATE: Hudson's Furniture files Chapter 11
Owes $5.1 million to industry creditors, led by Broyhill
Clint Engel -- Furniture Today, March 5, 2010
SANFORD, Fla. — Hudson's Furniture Showroom here filed for voluntary Chapter 11 bankruptcy protection last week, aiming to restructure its real estate debt.
But in a rare move, the midpriced to upscale retailer is current on nearly all of its debt to industry suppliers, according to Fred Hudson, CEO and founder of the 13-store Florida chain. It has made payments on recent orders, too, so that its vendors will receive a favored claims status during the bankruptcy process.
The bankruptcy petition lists eight industry suppliers among Hudson's 20 largest unsecured creditors with claims totaling $5.1 million. Broyhill is by far the largest with two claims - one listed as disputed for $4.36 million and other as trade debt for $361,217.
Hudson said the company doesn't plan to lay anyone off or close stores - which operate as Broyhill Furniture Galleries by Hudson's. 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 broader merchandise styles and an 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. Fred Hudson, who was president, has been named CEO. Consultant Britt Beemer, CEO of America's Research Group, will be an advisor to management.
Fred Hudson said Hudson's has "zero past due vendor debt" and that all vendors except Broyhill have been paid on a 20-day-terms basis heading into bankruptcy.
Broyhill, part of Furniture Brands International, is the retailer's 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 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 a 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 bankruptcy documents, Hudson's said the rapid decline in the economy significantly affected its business over the past six months. "Due largely to the decrease in sales (Hudson's) has had difficulty servicing its debt, including, but not limited to rent payments" to the various companies it set up as owners of retail real estate.
Hudson's said in the documents that it's essential it continue operating without interruption, and to do so will require the use of funds on hand and money it expects to receive. It noted that those funds "may be subject to a lien in favor of Furniture Brands." The retailer estimated in one document that it owes Furniture Brands International, parent company of Broyhill, about $1.75 million.
It was unclear from the bankruptcy documents whether the FBI debt is included in the total listed as owed to Broyhill.
Hudson's estimated that the funds it has available, including cash on hand, total $1.05 million and that the value of the collateral that Furniture Brands has a lien on, including cash collateral, is about $15.5 million. Hudson's said it "has been unable to obtain FBI's consent to use cash collateral."
A Furniture Brands spokesman declined to comment for this story.
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. Fred Hudson told Furniture/Today that he had hoped the earlier move would be enough to correct the debt problem, but said a lender remained stubborn in negotiating a restructuring, forcing the latest Chapter 11 filing.
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 creditors and exit Georgia.
Hudson's has the cash to be self-funded during the bankruptcy process and won't need a debtor-in-possession lender, he said. Sales have been improving at the existing stores, and Hudson said the company expects larger increases once it introduces its revamped look.
"I've had very little experience in bankruptcy proceedings where the company filing has put so much effort into softening the blow to its vendors," Ron Teglas, director of credit for Lexington Home Brands, said last week.
Teglas said he imagines the mortgage lenders will challenge the payments vendors received, but added, "I think the records will show that Hudson's consistently paid their vendors in the same fashion over the past six months."
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 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."
Joshua Hudson said in a press release, "The economic crisis has caused a radical disruption, but it has also created the opportunity for us to reinvent our business."
According to the petition, Hudson's owes $5.1 million to its largest industry unsecured creditors, including:
Broyhill (disputed claim): $4.36 million
Broyhill (trade debt): $361,217
Lane: $144,890
Best Home Furnishings: $83,498
Hooker: $36,288
Lexington Home Brands: $32,853
American Drew: $30,511
Tropitone: $25,006
Bradington-Young: $23,335
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Hudson's in Chapter 11
Mar 8, 2010
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