Payless Cashways, Inc. Files for Chapter 11 Reorganization under Bankruptcy Code
Quaid, Dennis E., Delnero, John S., Business Credit
PAYLESS CASHWAYS, INC. (PAYLESS Cashways) filed on July 21, 1997, a Chapter 11 petition with the United States Bankruptcy Court for the Western District of Missouri (Kansas City, MO). The Case Number is 97-50543 and the case has been assigned to Bankruptcy Judge Arthur Federman.
Payless Cashways operates under the names of Payless Cashways, Furrow, Lumber Jack, Hugh M. Woods, Somerville Lumber, and Knox Lumber and Contractor's Supply. The company operates in 22 states, utilizing 194 building materials stores located in the Midwest, Southwest, Pacific Coast, Rocky Mountain region and New England areas. The company offers a full line of building materials as a specialty retailer concentrating on remodelers, residential and commercial contractors, property managers, industrial firms and do-it-yourself home improvement individuals. Headquarters are located in Kansas City, Missouri and employ 1,700 people throughout its operations.
The cause of the filing was a highly leveraged balance sheet. The company carries long-term debt of $665 million, consisting of $391 million of bank debt, $100 million as a mortgage loan and $174 million of senior subordinated notes earning 9-1/8 percent.
Although the company has been experiencing positive EBITDA cashflow through the second quarter of 1997, it also experienced a loss through the first half of 1997, of $21.4 million. The company blamed part of the loss on non-cash items, including the need to pay income taxes on income created due to the nondeductibility of good will resulting from its acquisition.
Counsel for Payless Cashways is Benjamin F. Mann, Esq., Michael M. Tamburini, Esq. and Catherine B. Bussing, Esq. of the Kansas City firm of Blackwell, Sanders, Matheny, Weary and Lombardi, L.L.P. in Kansas City.
A Creditors' Committee was selected by the United States Trustee on July 22, 1997, consisting of Georgia Pacific, United States Gypsum, Macmillian Dunkin, Jelco, Elger Industries, ABT, Cellotex, GAF, Weyerhauser and two others. Counsel for the Committee is Jenner & Block of Chicago and the accountants/financial advisors to the Committee are Arthur Andersen.
The usual first day orders have been entered by the Bankruptcy Court allowing the use of cash collateral, providing for notice procedures and providing for preliminary approval of debtor in possession financing in the sum of $125 million. The lenders are a consortium led by Canadian Imperial Bank of Commerce and the financing, if approved in the full amount, would be used for the purchase of merchandise and working capital purposes during the Chapter 11 case. Ninety million dollars of the new financing has been approved and should be available to Payless. A final hearing to approve the total financing will be conducted in August.
The next hearing is set for August 20, 1997 to consider the employment of professionals for the Debtor, establishing a compensation system for the Debtor's professionals, extending time to assume or reject the leases of the Debtor's various locations, adopting an employee retention plan and establishing reclamation procedures.
More importantly, the Debtor filed a Plan of Reorganization simultaneously with its petition. The Plan proposes to issue new stock to unsecured creditors and to restructure its other debt. Although the return to unsecured creditors is uncertain, the initial estimate is in the range of 20 percent, but payable in stock of the reorganized company. Third parties are offering to purchase claims of creditors for current cash payments of slightly less than 20 percent.
It is anticipated that the balance sheet of the Debtor will be simplified by the discharge of unsecured debt and the reduction of its long-term institutional debt, leaving the Debtor with approximately $500 million of assets and $500 million of liabilities. The return to creditors is, therefore, totally dependent on the continued viability of the company after its emergence from bankruptcy and its future profitability. …