Furniture Brand International Inc., the maker of furniture brands such as Thomasville, Broyhill, Lane and Drexel Heritage has filed for Chapter 11 bankruptcy protection. The company is one of the largest furniture manufactures in the U.S.. The St. Louis based company, struggled like many other companies after the collapse of the housing market and foreign competition. The furniture maker is selling all but its Lane business to Los Angeles based distressed-debt investor Oaktree, subject to higher bids at a bankruptcy auction. The furniture brands listed assets of $546.7 million and debt of $550.1 million in its initial petition.
Firms that specialize in investing in distressed debt are sometimes referred to as vulture funds. They buy the debt at a huge discount and hope to regain a high return if the company does not go bankrupt or defaults. Investors try to influence the process in which the issuer restructure its debts, and may also invest new capital in the struggling company in the form of debt or equity.
Furniture Brands had sales of about $1 billion in 2012, roughly half its total a decade ago. The company lost more than $91 million in its last two fiscal years, and analysts are predicting another loss in 2013. It hasn’t made a profit since 2006. Further, the company owes more than $200 million in unpaid pension obligations. At the end of 2012, the company employed 5,600 people in the U.S. and another 3,500 overseas.
In a situation like this, the bankruptcy process is a viable long-term solution, which addresses it liquidity challenges. Furniture Brands’ portfolio includes some of the most well-respected brands in the furniture industry, and should find itself in a better financial position once Oaktree steps in.