Wells Fargo Bank has agreed to loan Country Coach up to $11.5 million so it can build up to 43 coaches during the next 10 months, according to an agreement filed in U.S. Bankruptcy Court in Eugene, Ore.
Under a new business model agreed to by the bank, the Junction City, Ore. RV maker would sell the coaches directly from its factory, bypassing dealers, according to a document filed by the company’s chief financial officer. Operations would be financed by a strictly supervised $11.5 million revolving loan fund, according to The Register-Guard, Eugene.
The new loan includes the $8.5 million that Country Coach already owes to Wells Fargo, bank spokesman Tom Unger said.
The bank had been seeking to seize and sell Country Coach’s assets after the company defaulted on the original loan.
Because Country Coach is in Chapter 11 bankruptcy, the new plan and the financing must be approved by a judge. A hearing is scheduled at 10 a.m. today (March 23) in U.S. Bankruptcy Court in Eugene. Chapter 11 bankruptcy gives a company protection from creditors while it attempts to re-organize its finances.
CEO Jay Howard announced March 19 that Country Coach had reached a financing deal with Wells Fargo, but in fact the deal was not yet done until later that day. Company lawyers filed a motion after the close of business that includes a 60-page loan agreement.
In asking for a hearing today, so soon after filing a 158-page document with the court, Country Coach lawyer Brandy Sargent urged the judge to recognize what she said is the urgent nature of the request.
“Approval of this motion and the interim order in a form satisfactory to Wells Fargo Bank is, simply, the only way that Country Coach believes it can survive as an enterprise,” she wrote.
The company has no significant operating funds, no ability to borrow under any other terms, and faces the prospect of Wells Fargo pressing its effort to liquidate the company’s assets if the deal is not approved, she said.
Country Coach’s factory and its remaining 500 workers have been idle since early December.
Bank spokesman Unger said because the matter is still pending and negotiations are continuing, Wells Fargo officials would have no comment until and unless the deal wins court approval, he said.
“This thing is pretty complicated,” Unger said.
It’s complicated because the agreement involves not just Country Coach and Wells Fargo, but also Riley Investment Management, a company controlled by Los Angeles investment banker Bryant Riley. Riley is the majority owner of Country Coach but he’s also a creditor: Country Coach owes his firm about $15 million, according to court documents.
Howard said the company plans to start bringing back workers to the Junction City factory as early as today to start working on unfinished coaches that are still on the production line, with production ramping up slowly over the next few weeks. Howard said more than 100 workers would be brought back. One of the workers to be called back said he was told the company planned to run a crew of 62.
Howard said the company has 15 unfinished coaches on the production line, and another 15 chassis ready to be built.
According to a proposed budget filed with the court, Country Coach plans to start selling coaches starting this week at a rate of one to two per week, for a total of 43 coaches by the first week of January.
The budget calls for Country Coach to spend $20.3 million over the 42 weeks, of which $18 million will be for operations and $2.3 million will be for bankruptcy expenses. During that time, the company expects to collect $23.5 million.
In a separate filing, Country Coach Chief Financial Officer Mark Andersen offered some details of the company’s new business plan.
By selling directly from its factory, Country Coach eliminates the need to maintain dealer agreements as well as agreements that require the company to buy back coaches dealers can’t sell, he said.
The company also plans to eliminate obsolete floor plans and streamline its existing model line. Country Coach now offers eight different models, ranging in price from $300,000 to $1.8 million.
In addition, Country Coach plans to consolidate its manufacturing operations from three plants to one, reduce its footprint of leased facilities by 30% and negotiate a temporary 50% reduction in lease costs for the rest of 2009.
Shannon Nill, general manager of Guaranty RV in Junction City, which has been selling Country Coach vehicles since the 1970s, said he was pleased to hear that the RV maker and the bank were able to strike a deal that enables the company to resume operations.
“This news with Country Coach is very good – very good for Oregon, for our community and for Guaranty,” he said.
If the company resumes production, that increases the value of the 30 or so Country Coach RVs that Guaranty has in stock, he said.
However, Nill expressed skepticism about the company’s plan to sell coaches directly from its factory, bypassing dealers.
Factory direct sales by RV makers “generally have not worked out,” he said. “The companies that have tried generally go back to dealerships. But these are different times. If this is what is required for the business to succeed, you can’t rule out that approach.”
One unknown factor is service, he said. Without a network of dealers to provide service, owners of Country Coach RVs presumably would have to come to Junction City for warranty service. And Nill said he’s not sure what Country Coach would do with trade-ins.
“There could be a role for Guaranty to purchase trade-ins and market existing used Country Coaches,” he said.