Champion Enterprises, the biggest producer of modular homes in the country and one of the largest manufactured-housing companies, filed Chapter 11 in U.S. Bankruptcy Court in Delaware on Monday. It plans to restructure its debts and then sell its U.S. operations in a court-supervised sale.
According to court documents, the Troy, Mich.-based public company has $577 million in assets and $521 million in debts for its U.S operations. Its largest creditor is Wells Fargo bank, to which Champion owes $183 million.
Champion also operates in Canada and the United Kingdom, but those businesses, which Champion intends to keep, were not included in the Chapter 11 filing. It also builds modular homes in the United States under the Genesis brand.
The reasons for the filing sound familiar to anyone in the housing industry: declining demand, too much debt, and tight credit conditions for buyers, its retailers, and the company itself, which has seen its business erode in recent years. In 2008, Champion shipped 6,399 manufactured homes (down 36% compared to the previous year) and more than 2,500 modular homes (down 32%), according to the BUILDER 100.
“The cash losses attributed to the U.S. manufacturing operations, the unwinding of the negative working capital position at International, and reduced earnings from Canadian operations have combined with the company’s significant cash interest burden to consume Champion’s liquidity, leading to the decision to file for protection under the bankruptcy code,” court documents said.
Champion and its counterparts have been fighting difficult conditions for years. (Fleetwood Enterprises filed for Chapter 11 bankruptcy in March 2009.)
In the past decade, manufactured housing suffered its own credit crisis, encountered stiff competition from stick-built homes with low mortgage rates, and then got hit again by the general housing downturn. Champion reduced its production capacity, closing, idling or selling 15 plants. It cut nearly two-thirds of its employees, going from 6,500 in 2006 to just more than 2,000 today. That helped—the company said its U.S. operations hit break-even in July, which it projects will continue until the housing market recovers—but not enough to stave off bankruptcy and the sale of its assets.
In 2009’s second quarter, Champion lost more than $13 million before taxes on $129.5 million in revenue, compared to generating $3.6 million in pretax income and $289.2 million in revenue for the same period one year ago.
"Our company has operated for many years with a significant debt load. As we've had to downsize to keep up with the declining markets, this debt has become increasingly burdensome," explained William C. Griffiths, Champion’s chairman, president, and CEO. "Despite our best efforts to reposition the company for diversified growth, the continued challenging economic conditions both here and abroad have negatively impacted our capacity for debt.”
Champion intends to keep operating as it pursues the sale of its assets and has secured $40 million in debtor-in-possession financing to cover payroll, vendor expenses, and other essential costs.
Alison Rice is senior editor, online, at BUILDER magazine.
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