Palm Harbor Homes, the Dallas-based manufactured housing supplier, does not intend to make changes to either its products or services as it reorganizes its business under Chapter 11 of the U.S. Bankruptcy Code.
The 33-year-old company and five subsidiaries on Monday filed for protection from creditors in U.S. Bankruptcy Court in Delaware. It has received $50 million in debtor-in-possession financing from another manufactured-home producer, Fleetwood Homes. That financial commitment, which could increase to $55 million, will allow Palm Harbor to pay off its credit facility with Textron Financial Corporation, which has $34 million outstanding; and to continue running its business, which includes nine plants, 86 company-owned retail parks and 150 independent retailers.
“We’re actually gaining market share and doing quite well, but we were leveraged for a different time,” explains Colleen Rogers, Palm Harbor’s vice president of marketing and communications.
Palm Harbor entered Chapter 11 with $321.3 million in assets and $280.3 million in liabilities. The company has nearly 23 million shares of common stock outstanding, of which Capital Southwest Corporation and Capital Southwest Venture Corporation control 34.2%, according to Palm Harbor’s court documents. (Before Palm Harbor’s stock stopped trading on NASDAQ, it was selling for 14 cents per share.) Raymond James is representing the company as its investment banker during the bankruptcy, and the turnaround specialist Alvarez & Marsal is acting as its financial advisor.
Its Chapter 11 petition was Palm Harbor’s first step towards eventually selling its assets. Fleetwood Homes, a subsidiary of Cavco Industries, has signed an agreement to purchase substantially all of Palm Harbor’s assets, including its insurance and mortgage financing businesses that were not including in the bankruptcy. Cavco and Third Avenue Value Fund, which owns 50% of Fleetwood, have made a joint $57.5 million “stalking horse” bid for Palm Harbor’s assets.
Rogers, though, tells BUILDER that over the past few months several other companies have expressed interest in acquiring Palm Harbor.
She says that Palm Harbor expects to file its plan for reorganization later this week, and anticipates the bankruptcy court will set a date for the auction of its assets soon after that.
BUILDER was unable to contact Brian Cejka of Alvarez & Marsal, who was appointed the company’s chief restructuring officer. In a prepared statement, Larry Keener, Palm Harbor’s CEO, blamed “prolonged poor industry conditions” that depleted his company’s capital as the primary reason why he and the company’s board decided to file for bankruptcy as a prelude to selling off its assets.
Its most recent financial statement testifies to how difficult business has been in recent years. Through the six months ended September 24, 2010, Palm Harbor reported a net loss of $16.7 million (on top of a $20.4 million loss for the same period a year earlier), on revenue that declined by 4.2% to $150.6 million.
During those six months, Palm Harbor had sold, either through its company stores or affiliated dealers, 1,635 homes, a 9.3% gain over the same period a year earlier. That total included 351 modular homes, with the rest either single- or multi-section factory built units.
The average selling price for Palm Harbor's modular homes, at $159,000, was down from $168,000 in the first half of fiscal 2009. (The price of its homes to builders and developers stood at $72,000, off slightly from $74,000 in 2009.)
Palm Harbor sells homes in 20 states and in recent years has attempted to raise its profile as a supplier of quality modular homes. Every year since 2006, it has built and displayed modular models at the International Builders Show. In messages that it posted online to vendors and builders, Palm Harbor stated that entering Chapter 11 would neither disrupt its business nor would lead to changes in its modular designs, services, or manufacturing. The company is seeking court approval to continue to honor its warranties.
Riverside, Calif.-based Fleetwood, which has been in business since 1950, continues to specialize in affordable manufactured housing products. In August 2009, Cavco—which at the time was producing manufactured housing, park model homes, and vacation cabins out of two plants—and its investment partner Third Avenue paid $26.6 million to acquire Fleetwood Homes, which was in Chapter 11 bankruptcy. (That total included a $4.8 million payment to acquire an idled Fleetwood plant.)
The Manufactured Housing Institute recently awarded Cavco its 2010 Manufacturer of the Year. BUILDER was unable to reach Cavco’s CEO Joseph Stegmayer at presstime.
John Caulfield is senior editor for BUILDER magazine