Related Stories and Links
- Stock's New Majority Owner Looks to Grow
- Stock: Expect More Store Closures
- Chapter 11 filings and notices.
- Information page on Stock's website.
- Timeline of Stock's acquisitions since 1985.
- Wolseley Takes $262mln Hit on Stock Deal
- 51% of Stock Sold; Dealer Files Ch. 11
A federal bankruptcy judge issued several orders this afternoon designed to let Stock Building Supply continue operating normally while it enters Chapter 11 bankruptcy law protection and gets a new 51% owner. Judge Mary F. Walrath also scheduled a hearing at 4 p.m. ET June 15 to hear discussions on Stock's reorganization plan and set deadlines for filing objections.
Walrath's actions, issued in Wilmington, Del., among other things enable but do not require Stock to pay up to a total of $70 million in general claims made to debtors as they come due, plus a total of $4.2 million worth of obligations to customers that were incurred before it filed for bankruptcy on Wednesday. Other orders will let Stock pay up to $22 million in employee wages and benefits, contribute to employee benefit programs, pay up to $11.7 million in taxes imposed before its filing, and bar utilitiy companies from altering or cutting off service. Another order permitted the continued maintenance of Stock's existing bank accounts, continued use of Stock's cash management system, the continuation of certain intercompany deals and setoff rights, administrative status to make intercompany transactions, and continued use of business forms. Walrath's order also waives for 60 days the usual investment and deposit requirements. By that time, Stock expects it will be out of Chapter 11 status.
A slew of stickier issues remain to be heard, including Stock's request to terminate lease agreements at roughly 155 facilities that Stock either has closed since 2007 or intended to close soon.
Stock's creditors already have begun to file documents with the bankruptcy court asking to be kept apprised of the case. In a document on Stock's website containing answers frequently asked questions, Stock stressed that all vendors will be paid at the very least at the end of the Chapter 11 process for any deliveries they made prior to May 5.
" We fully expect the court to allow payment of vendors for pre-filing deliveries during the Chapter 11," Stock's statement adds. "All post-filing deliveries will be paid in the ordinary course. Wolseley has made available to Stock up to $100 million of debtor-in-possession ("DIP") financing to ensure it is business as usual through our 45- to 60-day recapitalization period."
Today's orders came a day after Wolseley announced it had entered into joint venture with an affiliate of The Gores Group of Los Angeles in which Gores, a private equity firm, would take a 51% interest in Stock, invest $75 million in Stock and provide a $125 million revolving credit bridge facility. That agreement was contingent upon Stock making its Chapter 11 bankruptcy law filing, which protects it from creditors while it reorganizes itself--and in this case, gets the Gores Group as a new boss.
"The bankruptcy provides Stock with the flexibility to shed the company's operations associated with its closed locations and underperforming markets as well as inject fresh, needed capital," a statement from Stock said. "The new capital is intended to ensure a stable ongoing business model as well as permit the company to pay all of its creditors their claims in full as allowed by the bankruptcy laws.
"Integral to the pre-packaged plan is the stipulation that all trade creditors, suppliers, customers and employees will receive the full allowed amounts owed to them," the statement added. "As a result, creditors are not required to vote on the plan."
Stock is America's No. 2 building supply company, with operations in 27 states; Wolseley bought it in 1986 when Stock was still known as Carolina Builders. In the just-released ProSales 100 report, Stock said it had sales totaling $3.2 billion in calendar year 2008. In the six months through Jan. 31--the first half of its current fiscal year--Stock's revenue fell 25.5% to $1.34 billion, leading the company to record an operating loss of $129 million. Its employee count has shrank from 13,000 at the end of 2007 to about 8,700 at the end of 2008. one of the Chapter 11 petitions says.
Stock has shed roughly 161 locations--100 of them since August 2008. Now it has roughly 200, and it's likely that more will be closed. On a Frequently Asked Questions page for Stock customers, the company states: "Stock senior management has presented The Gores Group with a financial plan which requires us to take the hard actions this housing downturn dictates. We will be exiting or reducing capacity in some markets. In the coming days and weeks, we will be determining the best way to exit these locations, which may involve either a sale or orderly wind down of the operations. We are in the process of communicating this to our effected locations and associates and are not sharing any other information at this time. We will release more information after the process is complete."
While Stock wasn't the only part of Wolseley's global operations to have troubles, its difficulties were a big burden on the company because Wolseley gets 10% of its revenue worlwide from Stock alone. Stock's losses, compounded by troubles later in other parts of the world, put Wolseley in potential violation of its lending covenants.
As a result, the company announced March 6 that it is seeking a joint-venture partner in Stock, and that if it didn't find such an investor by Aug. 1 it will exit the company.
Builders Merchant Journal, a U.K.-based trade journal, noted Wednesday that Wolseley's next statement will include a pre-tax exceptional loss of 175 million pounds ($262 milllion) as a result of the deal. In addition, Wolseley's statement noted that the Stock deal excludes Stock's construction lending division, which employees 54 people and was being wound down. As of last July 31, it had $391 million worth of loans outstanding.