KPS is sole bidder for Furniture Brands

Nov. 22, 2013 @ 11:46 AM

Unless a bankruptcy court judge agrees with an objection that the sale of Furniture Brands International has taken place too quickly, the company's new owner will be KPS Capital Partners, a New York-base private equity firm that focuses on turning around troubled manufacturers.

And the federal Pension Benefit Guaranty Corp. said Thursday that it will cover $270 million of the $272 million funding shortfall of the bankrupt company, guaranteeing the full pensions for more than 19,000 current and future retirees.

No other qualified bids were received in U.S. Bankruptcy Court by Wednesday's deadline other than the $280 million bid of KPS Capital Partners, which became the lead bidder Oct. 2 by topping the initial bidder, Oaktree Capital Management.

A hearing is scheduled for today on a number of issues, including the objection by Broadbill Investment Partners, a major shareholder, that the rapid sale of Furniture Brands did not leave enough time for other companies to prepare bids that might have been better for shareholders and creditors and might even save the employee pension fund without the PBGC’s intervention.

KPS’ bid did not include assuming the pension plan. The PBGC said it will pay all pension benefits earned by Furniture Brands retirees up to the legal maximum of about $57,500 a year for a 65-year-old. Retirees will continue to get benefits without interruption.

The PBGC is financed by insurance premiums, investment income, and assets and recoveries from failed plans, not by taxpayer money.

KPS has not publicly given details of its plans for Furniture Brands. On its website, the company describes its approach as creating "business plans based on cost reduction, productivity improvement and optimal asset utilization." One passage from the site would appear to perfectly describe the situation at Furniture Brands:

"The balance of our investments are the result of creating new companies to buy underperforming or distressed assets or companies, companies operating in bankruptcy, in default of obligations to creditors or with a history of recurring operating losses. KPS is not deterred from pursuing an opportunity because a company’s immediate future appears troubled or uncertain or the solutions to its operational or financial problems are complex."

Samson Holding Ltd., the top stakeholder of Furniture Brands, had said Nov. 1 that would make a bid "with terms that are the same or better than the stalking-horse bidder." But on Nov. 5, Furniture Brands had the bid deadline moved from Dec. 10 to Nov. 20. A spokesman for Samson said Wednesday that the change in the date of the auction didn't leave Samson time to get the details of its bid pulled together.

The potential entrance of Samson as a bidder gave creditors and pensioners of Furniture Brands hope that the sale price of the company would go higher, but if Samson had prevailed it may have been bad for workers in Furniture Brands' existing plants. Analysts said Samson probably would have shifted Furniture Brands' production to Samson's plants as part of improving efficiency and lowering costs.

Furniture Brands has more than $200 million in underfunded pension obligations for about 20,000 participants.

Furniture Brands filed for Chapter 11 protection Sept. 9. The company in the early 2000s was the largest U.S. furniture manufacturer at $2.2 billion in annual sales, primarily from Broyhill, HDM and Thomasville, but by the time of its filing it had seen eight years of revenue declines and had been losing money for more than six years.

In the past 12 years, Furniture Brands eliminated at least 8,860 jobs in North Carolina in pursuit of lower labor costs in Asia.