Note: This story is updated from the 12.23.2009 e-blast.
Industry giant Latham International has filed for Chapter 11 bankruptcy protection.
Based in Latham, N.Y., the firm owns vinyl-liner-pool producer Latham Manufacturing; fiberglass-pool maker Viking Pools, LLC; cover manufacturer Coverstar, LLC; and Kafko Corp., which makes vinyl-liner pools, covers, domes and other products.
Latham President/CEO Mark Laven said the move is pre-emptive.
“We were not forced into bankruptcy,” Laven said. “We took this action voluntarily, proactively, in order to address the amount of debt that the company had on the books.”
The plan would switch ownership of the firm’s assets to a newly formed company. As far as operations go, Laven said no changes will occur and that the company will retain its current management, staff, facilities and brands. Latham currently has 551 employees in the United States.
“[The filing] means one and only one change for the company — that it is going to have less outstanding debt on its books,” Laven said.
But speed is of the essence, and Latham officials wanted to fast-track the proceedings to protect the firm. “I believe that the debtors will run out of cash in early February 2010 if they do not emerge from Chapter 11 before then,” Laven stated in the court filing.
The company also hoped to announce bankruptcy confirmation before the Atlantic City Pool & Spa Show in late January to avoid hurting 2010 sales. This would assure customers that financial issues have been resolved, company officials stated.
To expedite the process, the firm filed a prepackaged bankruptcy plan, in which the debtor and creditors devised a reorganization strategy ahead of the filing. These types of arrangements, known to put the filing company in a stronger position, must receive approval by shareholders beforehand, and tend to move faster. If the plan is approved, Latham expects to be out of bankruptcy by Feb. 1, 2010.
Laven said he expects to hear from the court in a matter of days as to whether or not it approves the proposal.
“The company is operating very well,” Laven said. “We are profitable and current with our payments to all of our vendors, and [the] obligations that we have servicing our lenders. … All of our obligations have been met in a timely manner. As the nation’s largest manufacturer of inground swimming pools, our sales have declined, but I’m proud to say not nearly at the same rate as the overall market decline.”
In its bankruptcy filing, Latham attributed the firm’s difficulties to the economic downturn. In response to market conditions, the company “made significant head-count reductions,” trimmed its manufacturing facilities from 32 to 15, and underwent an inventory reduction initiative between 2007 and 2009, according to the filing.
The firm reported nearly $67 million in assets and $239.4 million in debt. For the 2009 fiscal year through November, Latham reported net sales of almost $90.2 million and losses of $181.4 million.
Once the arrangement is finalized, Latham’s senior lenders will own the company, while most of its current stockholders will walk away empty-handed. Those include Covington, La.-based distributor PoolCorp, which owns 37 1/2 percent of the company. This came as a result of a 2004 merger, when Latham received fellow vinyl-liner maker Fort Wayne Pools from PoolCorp in exchange for stock.
PoolCorp President/CEO Manuel J. Perez de la Mesa said that despite this reality, the decision was voted on unanimously. “It was the right thing to do for the company,” he said. “It’s in Latham’s best interest to have a much lower level of debt so it can operate with a lot more flexibility and be more successful over time, even if it means that you lose your equity value.”
Perez de la Mesa added that during last year’s third quarter, PoolCorp reported its Latham investment value as zero.
Other stockholders included Boca Raton, Fla.-based private-equity firm Brockway Moran & Partners, which also owned 37 1/2 percent. Another 4 percent is owned by Apollo Investment Corp., and the rest is held by officers, employees and former employees of Latham. Most or all of the manufacturer’s subordinated lenders will go unpaid.
Perez de la Mesa observed that like fiberglass-pool manufacturers, Latham and other vinyl-liner pool producers are vulnerable. “Those whose business is weighted heaviest in new construction are the ones that are affected the most,” he said.
But he characterized Latham as well-positioned. “Latham is still profitable before interest and taxes. But given the current level of profitability, the current level of debt was too high. So it needed to restructure. Now it will have a very manageable level of debt. They’ll continue being profitable and, as the industry recovers in three to five years, they’ll do very well.”
Latham is the largest producer of inground pool components and accessories in North America, according to company officials. In addition to the brands mentioned, the firm also is affiliated with Pacific Pools, Fort Wayne Pools, Elite, Sterling, Performance, Technician, Triac and CPC, according to the company’s Website.