$46 Million Plywood Manufacturer

Chapter 11 bankruptcy and sale to new owner

HAMSTREET ROLES:  Assessment, Interim Management, Operational Turnaround, Financial Restructuring

SUMMARY:  This company was heavily overleveraged and suffered a fire before it could get new machinery online. Crippled by its loss and the insurance company’s refusal to pay, the firm spiraled into the red and was forced into bankruptcy by its lenders. Hamstreet assessed the business, returned operations to profitability, restored creditor confidence, and found a buyer. Our successful lawsuit against the insurer then increased payment to creditors.

THE BACKGROUND:  Formerly the nation’s leader in plywood production, Oregon’s mills suffered irreversible setbacks in the late 1990’s. New environmental regulations drastically reduced timber supply, while the growing use of oriented strand board in home construction diminished plywood demand. Liquidation of plywood and saw mills became commonplace, with closures occurring at a rate of 20 per year. Foreseeing the impending danger, this plywood producer’s management team invested in equipment to produce a more stable and valuable sanded product, while also strengthening the company’s basis in veneers. Before the new machinery went online, however, a fire damaged its principal mill, and the insurance company denied the claim. Efforts to maintain operations pending insurance settlement and facility repair resulted in mounting losses, accumulating debt, strained creditor and customer relationships, and, finally, bankruptcy. As a major employer and business presence in its local community, the company’s downward spiral towards liquidation threatened to engulf many other people.

THE CHALLENGE:  Company management had collapsed during the fall and stopped keeping financial records. When Hamstreet took over as Chapter 11 trustee, the firm had a new executive team and a three-month black hole in its accounting information. Even so, immediate decisions had to be made about the future. The company’s hard luck and rapid disintegration, combined with the desperate plight of the state’s forest products industry, convinced most observers that it could not reorganize. The firm’s three mills would be chalked up as further victims of the larger economic crisis. Our assessment, however, revealed that our client had a viable operation with significant value as a going concern. Absent the fire and the insurance company’s refusal to pay, bankruptcy would not have been necessary.

THE RESULTS:  Convinced that these mills did not have to close, we worked aggressively to support our beliefs and bring others onto our side. We negotiated successfully with lenders to maintain working capital, and we vigorously pursued the insurance company, ultimately winning a favorable judgment. At the same time, we repaired relationships with suppliers, distributors, and other groups suspicious of our client’s prospects for success. We solicited interest from five buyers and received written offers from two. The company’s sale to the highest bidder preserved jobs in the area and paid creditors over four times more than they expected.