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Fedders, the 111-year-old air treatment manufacturer, has filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
The action covers the company's North American subsidiaries, but does not include Fedders' offshore operations in China, India and the Philippines.
The vendor said the restructuring was intended to "preserve value and to continue operations" of its North American units, which it plans to put up for sale. Fedders has retained an investment bank to assist in the sale, and assured customers that shipments are expected to continue on a timely basis in the interim.
"After careful evaluation, management and the board have concluded that in order to ensure the company's business units' viability and growth prospects, an exploration of the sale of the company's businesses is in the best interest of all of its constituents," said Fedders president/CEO Michael Giordano. "The Chapter 11 process will allow time for prospective buyers to evaluate the company and its business units while day-to-day operations continue."
Giordano said the company is prepared to reorganize around its businesses and emerge from Chapter 11 protection with a new business plan should acquisition offers fall short.
The company acknowledged that it is being squeezed by a U.S. room air market that has increasingly become dominated by big-box retailers. That channel's product mix focuses primarily on small, low-priced, imported ACs, resulting in declining in pricing, margins and profitability for manufacturers.
In response to the changing environment, Fedders said it has moved beyond its core room air business by reorganizing operations around targeted, more profitable product and geographic segments of the indoor air quality and global heating, ventilation and air conditioning markets serving residential, commercial and industrial customers. The company also expanded low-cost manufacturing facilities in Asia and closed underutilized U.S. factories.
Despite those moves, "our existing capital structure is not in line with current revenue and profits," Giordano said. "The action we took today is critical to ensuring continued operations while we seek the best and highest offers for the businesses we decide to sell."
In conjunction with the filing, Fedders has obtained a $79 million debtor- in-possession financing commitment from Goldman Sachs Credit Partners L.P. The proceeds from the financing, which is subject to Bankruptcy Court approval, will be used to refinance the company's senior secured revolver and term loan, to pay fees and expenses associated with the financing and for operating expenses, including supplier obligations and employee wages, salaries and benefits.
"We are extremely grateful to the customers, employees and suppliers who have supported the company through these challenging times," Giordano said.
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