Fleetwood Enterprises, the second-largest manufactured home producer in the U.S., has filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. The Riverside, Calif.-based supplier, along with its 44 subsidiary companies, filed in U.S. Bankruptcy Court in California's Central district.
In its bankruptcy filing, Fleetwood states that it has more than 60,000 creditors, including Bank of America, its largest unsecured creditor, whose claim is $62.2 million. Fleetwood's filing also states that the company, which was founded in 1950, had assets of $558.3 million and liabilities of $518 million as of October 26.
Fleetwood hasn't reported a net profit since 2001 and has been in the midst of a three-year restructuring effort that included reducing its workforce by 70% to around 3,000 employees, selling non-core businesses, and closing plants. The company stated that filing Chapter 11 allows it to close its travel-trailer division, which has lost more than $82 million in the last two fiscal years.
Fleetwood controls about 15% of the manufactured housing market's sales, which it transacts through a network of 2,150 dealers in the U.S. and Canada. Through the six months ended October 26, 2008, its shipments were down 23% to 5,995 units over the same period the previous year. Revenue for its housing division during that six months was down 24% to $222.4 million, and it reported a $3.76 million operating loss, compared to a $10.6 million gain for the same period a year earlier.
The company's Chapter 11 filing was precipitated, it said, by a debt exchange offer last December, during which it issued new senior notes. However, the terms of those notes was restricting Fleetwood's ability to seek new investments in its businesses, which became more pressing as economic conditions worsened. It had 90 days from the offer's effective closing on December 12 to revisit those terms.
However, debt wasn't Fleetwood's only problem. Its recreational vehicles business has been spiraling downward in recent years. (Unit sales in that division plummeted by 72% in November alone to their lowest level since 1978.)
Rivian Bell, a company spokeswoman, tells BUILDER that Fleetwood has had discussions with several parties that are interested in acquiring different components of its business. "It is unlikely that Fleetwood would come out of Chapter 11 as the company it is today," she says. She declined to identify which parties might be interested in parts of Fleetwood's operations.
Fleetwood's fall occurs at a time when the manufactured housing sector is struggling with a decade-long decline. Sales of manufactured homes in the U.S. were off last year by about 10% to roughly 81,900 units. The industry’s leading supplier, Clayton Homes, controls about 34% of a market that Warren Buffett, chairman of Clayton's parent company Berkshire Hathaway, says is in "acute distress." However, Thayer Long, executive director of the Manufactured Housing Institute, says there's room for optimism about this sector's future.
A decade ago, suppliers were shipping around 400,000 manufactured homes per year. But the industry then went through exactly the same cycle that now plagues the site-built sector: overbuilding and overselling to too many buyers with poor credit and insufficient incomes. Long tells BUILDER that just when it looked like the market was starting to recover, around 2003, home builders started enticing customers with subprime and alt-A loans. Many were entry-level buyers who might otherwise have considered purchasing a manufactured or modular house.
Besides Fleetwood, there has been some fallout among other manufactured home companies, including Chapter 11 filings by Patriot Homes and Four Seasons Homes. Another supplier, All-American Homes, recently closed its large plant in North Carolina, Long says.
But he believes that once the market returns to some semblance of normal, manufactured housing should bounce back. He noted that as a percentage of all new homes sold, manufactured homes increased its market share in 2008 to 14% from 10% in 2007. He also points to a change in the FHA's Manufactured Home Loan program, which raises the borrowing limit to $69,000.
"We're definitely closer to the end [of the downturn] than the beginning," he says.
John Caulfield is senior editor at BUILDER magazine.