Last year, MW Johnson Construction closed 260 homes for $61 million in revenue, according to BUILDER 100 research, but those numbers weren’t enough to keep the builder afloat in 2008. Last Friday, the Lakeville, Minn.-based firm filed for Chapter 11 in U.S. Bankruptcy Court in Minneapolis. It also filed for Chapter 11 for its Florida division.
"The companies filed now because the lenders would only provide more working capital in a Chapter 11," Michael L. Meyer, MW Johnson’s attorney, told BUILDER Tuesday."We had no choice as we were out of money."
"We are deeply saddened by this outcome, as it will have a tremendous impact on our ability to maintain our commitments to our customers, subcontractors, employees, and suppliers," company owner Bill Johnson added in a statement obtained by the Minneapolis Star Tribune.
While Chapter 11 is typically used for restructuring, the future of MW Johnson, which was founded in 1971, is uncertain. In a bankruptcy court filing seeking permission to pay back wages to employees and cover company health insurance costs, MW Johnson acknowledges that "[d]ebtor intends to continue its operations in the ordinary course of business for a period of four months in order to affect an orderly liquidation of its assets, all for the benefit of creditors." (The builder owes its hourly and salaried employees approximately $131,000 in wages, back pay, and benefits. It currently employs 30 people.)
When asked by BUILDER whether the company planned to reorganize or simply continue operating until it had sold its assets, Meyer said such issues hadn't been resolved yet. "We are focused on delivering homes to our buyers and planning the sale of the inventory we have," he said. "A decision on restructuring will be made later."
According to court records, MW Johnson has between 200 and 999 creditors, which are owed $50 million to $100 million. It also has between $50 million and $100 million in assets, but acknowledges it does not expect to have money left over to pay its unsecured creditors. That's bad news for firms such as Lakeville's Pyramid Enterprises, to which MW Johnson owes $1.2 million for siding, or Wenzel Heating and Plumbing of Eagan, which is owed $360,000, according to the list of the builder's 20 largest unsecured creditors.
(MW Johnson' Florida division is in similar circumstances. This division lists between 200 and 999 creditors, but less debt—between $10 million and $50 million—and fewer assets, which are also valued at between $10 million and $50 million.)
The company's secured creditors have already been trying to cut their losses. Earlier this year, lender KeyBank packaged two overdue MW Johnson loans with a balance of $12.6 million and bundled them for sale with distressed debt from a variety of builders and developers across the country.
Alison Rice is senior editor, online, for BUILDER magazine.
Learn more about markets featured in this article: Minneapolis-St. Paul, MN.