Even though Monaco Coach Corp. has struck a deal to sell its major assets to a subsidiary of Navistar International for $52 million, the Coburg, Ore.-based RV maker is racing to close the deal before it runs out of money and creditors run out of patience, according to The Register-Guard, Eugene, Ore.
At a hearing Friday (April 24) in U.S. Bankruptcy Court in Delaware, an attorney for Monaco said the company had signed an asset purchase agreement with Workhorse International Holding Co., a Navistar subsidiary. The company’s main secured lenders – Bank of America and Ableco – have agreed to provide it with at least one more week of operating cash while Monaco officials try to “get them comfortable” with what they would be paid in the sale, said Robert Orgel, one of Monaco’s bankruptcy attorneys.
“How much they are to be paid is the key issue,” Orgel said. “The amount it takes to satisfy them may well be harder to achieve the longer it takes us to close a sale because we are incurring expenses every day and the ability to sell assets is limited.”
When it filed for Chapter 11 bankruptcy on March 5, Monaco owed Bank of America $38 million and Ableco $37 million. In a Chapter 11 case, a financially stressed company is given protection from creditors while it reorganizes its finances.
Orgel asked Judge Kevin Carey for an expedited schedule so the company could be put up for auction and the deal could be consummated by June 1. If the sale doesn’t close by then, creditors could move to liquidate Monaco.
But an attorney for the committee for unsecured creditors, Donald Detweiler, told the judge that the sale appears to benefit only the two lenders. Liquidation of Monaco’s assets or some other alternative may provide a better return to unsecured creditors, he said.
“There may be a better way to see value than what’s being proposed here,” he said.
Carey said he expects any reorganization plan to provide some value for unsecured creditors.
“The court can’t create value when value isn’t there, but I want a fair shot at unsecured creditors getting there,” he said.
Unsecured creditors are those that don’t have any legal claim on a company’s land, buildings or equipment. They get paid only after creditors with secured positions, often banks, get paid. If they get paid, unsecured creditors are likely to get something less than the total amount they’re owed. The company has thousands of unsecured creditors.
In a court filing, Monaco attorneys argued that an asset sale to a buyer that would operate the RV maker as a going business would provide the most benefit to everyone concerned. Doing so would “create direct value for creditors, saving 2,000 or more jobs in communities in Oregon and Indiana … and creating ongoing value and revenue for a large number of (Monaco) vendors, dealers and other creditors.”
It’s not clear from the company’s court filings how many people would be employed in Coburg and Indiana if the factory were to resume production.
Navistar, a massive Illinois corporation that builds diesel engines, school buses, heavy trucks and military vehicles, announced a month ago that it had signed a nonbinding letter of intent to buy Monaco’s core assets for up to $50 million. On Wednesday (April 22), Monaco signed an asset purchase agreement with Workhorse, a Navistar subsidiary serving as a “stalking horse” purchaser. In bankruptcy cases, a stalking horse bid sets a threshold price so that other potential bidders can’t low-ball the purchase price.
Judge Carey will conduct another hearing this week on bid procedures and other issues, including whether the secured creditors are willing to extend additional operating credit to Monaco while the sale moves forward. A sales auction would be conducted in mid-May, followed by another hearing May 22 at which Monaco would be seeking court approval for a sale and creditors could seek to block it.
Under the terms of the deal, Navistar would obtain certain manufacturing facilities located in Indiana and Oregon. In addition, Navistar will acquire all brands, intellectual property, inventories and equipment relating to Monaco’s motorized and towable recreational vehicle segments.
The deal would not include Monaco’s resort properties, which the company is attempting to auction separately. Nor would it include its Roadmaster Cargo Trailer business and several industrial properties.
“We are excited to move forward with the tremendous resources of Navistar supporting our great products,” Monaco CEO Kay Toolson said. “Everyone at the company is ready and committed to again build the highest quality RVs in the industry, offer the best customer support and bring jobs back into the communities in which we operate. We appreciate the patience of our employees, dealers, suppliers and RV owners as we navigated through this challenging environment.”
The company said it appears that no proceeds from the sale would be available for distribution to shareholders.
Monaco Coach Corp., which terminated 2,000 employees and filed for bankruptcy protection earlier this month, has received a letter from a large company interested in buying the Coburg, Ore.-based RV maker for $50 million.
The proposed purchase plan by the unnamed company is outlined in parts of a 60-page document filed Wednesday (March 25) by Monaco in U.S. Bankruptcy Court in Delaware, according to the Register-Guard, Eugene, Ore. The overall document is a routine motion, asking the court for permission to use money from sales of RVs to pay the bills and keep operating at a scaled-back level.
But portions of the filing refer to the letter of intent received Monday from “a major public company” that would pay cash or stock for “substantially all assets of (Monaco) related to (the company’s) core RV manufacturing business.”
The proposed sale would enable Monaco’s secured lenders – Bank of America and Ableco – to be repaid “all or a material part” of what the RV maker owes them, according to the court papers.
In addition, the document says, “jobs would be preserved for the local communities so heavily affected by the … current circumstances and certain creditors would be benefited by the continuation of (Monaco’s) business lines.”
Monaco spokesman Craig Wanichek declined to discuss the proposed sale on Wednesday, but hinted that a deal may be close.
“We’re not going to make an announcement (on Wednesday),” Wanichek said. “We intend that the announcement will be forthcoming (Thursday) or Friday.”
He would not address questions regarding the number of employees that might be rehired if a sale is completed or to what extent the purchasing company might resume operations. He also would not discuss the unnamed company that is mentioned in the court documents.
“That will be in our announcement,” Wanichek said. “Obviously, there’s a lot of different parties involved (in bankruptcy negotiations).”
Monaco currently owes Ableco $37.4 million on a $39.3 million, fixed-term loan that was obtained last November. The company owes Bank of America and other lenders another $36.3 million on an $80 million revolving loan fund that was also negotiated in November.
In its bankruptcy filing, Monaco estimated that it has 25,000 to 50,000 creditors.
Its factory in Coburg and its service center in Harrisburg have both been idle since December. A holiday furlough was extended three times before the company terminated 2,000 of its 2,145 employees on March 2. Three days later, the company filed for Chapter 11 bankruptcy protection in Delaware – the state where it filed incorporation papers.
In the documents filed Wednesday, Monaco laid out alternate budgets that account for operations with or without the sale of its assets. The company could file a motion in Bankruptcy Court by April 15 to allow a sale to go forward. A sale could be completed by June 19, according to the papers.
The documents mention dates this spring for bidding and an auction related to the “major asset sale.” Wanichek would not say whether those actions will be necessary if the proposed sale of Monaco is accepted by the bankruptcy court.
Monaco was founded in 1968 in Junction City as Caribou Manufacturing Co., and builds motorhomes and trailers under the brand names Monaco, Beaver, Safari, Holiday Rambler, McKenzie and R-Vision. It also operates motorhome resorts in California, Florida, Nevada and Michigan.
But it closed three Indiana factories last summer, idling 1,400 workers, then suspended its dividend and cut production in half. The company began cutting jobs last April, laying off 600 workers in Indiana and Oregon after the first in a series of quarterly losses.
Early this year, Monaco hired the investment banking firm Imperial Capital to help it find a buyer.
Its stock was trading for $10 per share a year ago on the New York Stock Exchange, but it was delisted when its share price fell to 6 cents after this month’s layoffs. It now trades under the ticker symbol MCOA on the Pink Sheets, where its stock rose by a penny per share on Wednesday to 9.5 cents.
Also on Wednesday, Monaco filed notice with the Securities and Exchange Commission that it has been unable to complete its year-end 10-K financial report due to the bankruptcy filing and related issues. Also, the company said, key people in its accounting department have resigned, including employees who handle SEC filings. The company indicated that it would file a completed report by or after April 3.