Struggling apparatus manufacturer American LaFrance LLC sought protection from its creditors in late January when it filed a Chapter 11 petition in U.S. Bankruptcy Court in Delaware, heightening uncertainty about its ability to fulfill pending fire department orders, many already long overdue.
At the same time, the company, which is based in Summerville, S.C., tried to reassure its suppliers, dealers and customers by declaring it would get more money, reorganize and emerge from bankruptcy in less than 90 days, prepared to honor its commitments, including warranties.
But for American LaFrance, which lost more than $100 million over the past two years, survival is a formidable task, and the company’s customers said they are not sure what to make of the situation.
For Kenneth Stach, chief of the Clay Volunteer Fire Department in Clay, N.Y., news of American LaFrance’s bankruptcy was somewhat of a surprise.
“I knew they were having some trouble,” he said, “but I really didn’t know how much trouble they were in until this.”
His department ordered a rescue pumper and an aerial in the fall of 2006 with a price tag of nearly $1 million for the two units. The rescue pumper, built on an ALF custom Eagle cab and chassis, was delivered last summer, four and a half months later than expected, and he said he is still waiting for the aerial, a 110-foot straight stick, which is “really overdue.”
“The last I heard about the aerial was in October,” Stach said. “The dealer told me the cab and chassis was in and they were working on it.”
The Clay Volunteer Fire Department is listed in the bankruptcy filing as one of American LaFrance’s top 20 creditors because it gave the company a $629,360 deposit for the two apparatus. Stach said the bidding was extremely close and a substantial discount offered by American LaFrance for the up-front deposit gave the company the financial edge – and the contract.
He said his department backed up the contract with a performance bond, so he’s confident it will be protected. Nevertheless, he said the department has hired a lawyer to help protect its investment.
George Stevens, the fire administrator for Lamar County, Miss., is hopeful 10 Liberty pumpers he ordered from American LaFrance are delivered as expected in June.
Lamar County signed a $1.83 million contract in November for the rescue pumpers, which are to be built on Freightliner M2 Business Class cabs and chassis.
Stevens, interviewed by phone the day after American LaFrance filed for Chapter 11, said he “didn’t have a clue” the company was having trouble until he heard second-hand about the bankruptcy. He said he then called his dealer, Empire American LaFrance of Richland, Miss., and was told “there were some computer scheduling problems and everything would be ironed out in a couple of weeks.” He said the dealer advised him “not to worry,” that his trucks would still be built.
Stevens said Lamar County had not given any money to American LaFrance and did not have a performance bond on the contract. The trucks were ordered, he said, to help protect the burgeoning population, mostly people who moved inland in the wake of Hurricane Katrina.
“I hope all is well,” Stevens said, “because we surely need those trucks.”
Chuck Bennett, the administrator for Lamar County, said, “If they are not able to deliver the trucks in a timely fashion, we will go back to the state and ask for permission to rebid.”
In a statement issued the day it entered bankruptcy, American LaFrance said it “intends to honor its obligations to supply vehicles that are supported by performance bonds.”
American LaFrance’s financial troubles became evident in mid-December, when the company announced temporary layoffs of many of its production employees.
Complex And Expensive
On Jan. 28 the company filed its petition for Chapter 11 protection, a provision of the bankruptcy code that suspends debt collection efforts in order to give a financially-distressed company an opportunity to develop a reorganization plan acceptable to its creditors that would allow it to continue to operate.
Chapter 11 is an extremely complicated area of the law and an expensive one, often requiring the services of high-priced specialty lawyers, accountants and consultants. Many companies never recover from Chapter 11, having their cases converted to Chapter 7 liquidations so creditors can collect some percentage of the money they are owed.
American Lafrance, which is called ALF in the bankruptcy filings, is represented in its Chapter 11 case by two law firms, one from Delaware and the other from Texas, and it hired a bankruptcy specialist, William Snyder, who assumed the title of chief restructuring officer for the company. Snyder is a managing partner of CRG Partners Group LLC, which has offices in Dallas and other cities.
Snyder submitted an affidavit in support of the Chapter 11 petition regarding ALF’s dire financial situation. “In 2006, despite sales of over $233 million, ALF experienced a net loss of over $48 million,” he said. “In 2007, sales decreased to less than $195 million, and ALF experienced a net loss of over $56 million.”
In its Bankruptcy Court filings, American LaFrance said it had more than 1,000 creditors, liabilities of more than $100 million and would seek an additional $50 million from its lenders to try to reorganize. It also told the court its assets are for sale.
The company published a series of questions and answers in the “news” section of its Web site, www.americanlafrance.com, saying it intends to resume production on March 10, while retaining about 800 employees company-wide.
The questions address a range of issues, giving the company’s explanation of how it got into trouble – difficulties arising from a change of ownership two years ago – and declaring, “We are not just a bunch of ‘newbies’ hiding behind the historic American LaFrance name.”
The company traces its origin to 1832 with its ownership going through a number of changes since the 1950s. Freightliner LLC bought the business in 1995 and sold it in December 2005 to Patriarch Partners LLC, a private equity and investment firm with offices in New York, North Carolina and Texas.
In December 2007, one month before the Chapter 11 petition was filed, Freightliner sued American Lafrance, seeking $10 million in claims relating to a transition agreement negotiated as part of the sale. The agreement, according to American LaFrance, called for Freightliner to provide accounting, inventory, payroll and manufacturing process services to American LaFrance through June 2007.
American LaFrance said it is considering a lawsuit against Freightliner, which is listed as one of ALF’s largest creditors at $10.6 million.
The bankruptcy filing refers to Patriarch Partners Agency Services LLC as the administrative agent for a group of lenders that provided over $150 million of funding through a credit agreement signed in December 2005.
A statement submitted to the Bankruptcy Court by American Lafrance’s lawyers contains a section headed “ALF’s Objectives in Chapter 11.” It said ALF intends to ask for an additional $50 million from Patriarch as part of an effort to sell the company.
“ALF,” it said, “intends to continue operating its manufacturing facilities while completing its efforts to secure a definitive agreement for the purchase of the company or its assets.”
The statement also said Patriarch was in part responsible for the bankruptcy filing.
“[Patriarch] and its participating lenders have refused to provide additional operational financing outside of a Chapter 11 proceeding,” the lawyers wrote, “and ALF is aware of no other lenders willing to advance funds on an unsecured or junior secured basis.”
ALF in A Nutshell:
American LaFrance President Bill Hinz and Scott Barnes, vice president of sales, made the following points in interviews at the company’s Summerville, S.C. plant with Fire Apparatus & Emergency Equipment one day after the Chapter 11 filing:
Apparatus On Order:
- There are 290 fire truck orders awaiting production slots. They can’t be scheduled until an inventory of parts and component systems is matched with what each truck needs to determine what components must be ordered.
- ALF is committed to completing all apparatus that are subject to performance bonds. However, company officials believe all 290 units on order will be built and delivered if the court agrees to the reorganization plan.
- Updates on apparatus orders will go to customers from their dealers. Each customer will get a new delivery order date that the company will be able to meet.
- As of Aug. 1, 2008, all new orders placed for apparatus will be completed in 200 days or less, assuming the reorganization plan is approved within 60 to 90 days of filing.
- Due to lack of parts, at best two fire trucks a day were being completed when the bankruptcy filing occurred.
- In some cases, components had been pulled off one truck on the production line to complete another that was closer to being delivered.
- Just after the bankruptcy filing, 22 of ALF’s major suppliers were assured in a conference call that a workable, court-approved plan would be drafted.
- A supply plan needs to be resolved quickly if manufacturing is to resume.
- At the time of the bankruptcy filing, ALF conducted operations at 10 owned or leased facilities. The objective is to reduce that to three locations and eliminate costly leases.
- The main production plant in Summerville, along with the aerial manufacturing plant in Ephrata, Pa., and the pumper fabrication facility in Hamburg, N.Y., near Buffalo, would be retained.
- ALF plans to close its ambulance making plant in Sanford, Fla., and discontinue its ambulance business.
- The plants in Jedburg, S.C., and Lebanon, Pa., would be consolidated into nearby facilities, while service centers and company-owned dealerships in Florida, South Carolina, California and Oregon would be reorganized with leases terminated or renegotiated.
- Orders for 700-plus Condor chassis are backed up due to a lack of parts. ALF produces the Condor chassis primarily for vocational trucks such cement mixers, dump trucks and trash haulers.
- The plant is geared to produce up to 40 Condors a day, but only three or four a day were being completed.
- The Condor production line will be tied up until there is a court-approved reorganization plan. ALF recently introduced a fire apparatus pumper built on the Condor chassis, but that will be on hold too.