Creditors Mired in Wilderness’ Bankruptcy Quicksand
Wilderness Experience in Chatsworth makes sleeping bags and other outdoor gear to protect campers from harsh realities. But the company’s recent bankruptcy filing threatens to leave creditors and shareholders out in the cold.
On June 24, Wilderness filed for protection from creditors in U.S. Bankruptcy Court after Union Bank, based in Los Angeles, sued the company to retrieve a $1.7-million loan.
Wilderness’ problems include increased competition and a lack of capital to buy new supplies. “It was a financially weak company with a bank coming to it that said, ‘We want to be taken out of this mess,’ ” said Richard Pachulski, attorney for Wilderness.
But mired in that mess are 20 companies, many of them small, that failed to sense trouble and sold Wilderness materials or services totaling $753,900. Unsecured creditors almost never recover 100% of what is owed them. Sometimes they don’t get anything back.
“I am not optimistic about our opportunity to recover our loss,” said one Wilderness creditor.
Pronto Textiles in Los Angeles sold Wilderness 3,978 yards of cotton sheeting worth $8,502 on the condition that it be paid for immediately. “The salesman told me to send the fabrics c.o.d.,” said Eshagh Yagoubieh, Pronto’s vice president. “Somehow, they fooled our trucker. They never did pay.”
Whether Yagoubieh and the other unsecured creditors ever see a penny depends entirely on Union Bank. If the company and the bank negotiate an agreement for repayment, Wilderness Experience would survive Chapter 11 and possibly pay creditors a portion of the debt owed them.
Agreement Is Key
If an agreement is not reached, Wilderness probably will have to be liquidated. Earlier this year, Price Waterhouse, the company’s accountant, said Wilderness “may be unable to continue in existence.”
“The bank calls the shots,” said a source involved in the proceedings. Wilderness attorney Pachulski said the company is close to reaching an agreement, but Union officials would not comment.
Even if Union and Wilderness strike a deal, the company still has to find money to pay back the loan, whatever its terms. Executives are counting on outside investors to bail them out in exchange for stock.
But a source familiar with Wilderness’ past dealings with prospective investors said the firm has had problems attracting outside interest. In early June, Bernard Kramer, Wilderness president, said he expected that an agreement with a private investment group would protect the company, but a deal never materialized.
Kramer refused an interview request.
Shareholders, who have watched the stock fall from $1 in 1985 to 6 cents on Monday, are in a no-win position.
If the company is liquidated, their stock is worth next to nothing. If Wilderness brings in an outside investor, it will be in exchange for stock. That would mean the company would have to issue additional shares of stock that would dilute the value of existing shares.
The largest stockholder, the Los Angeles investment group of MarBen, owns 31.6% of Wilderness stock, but officials there could not be reached for comment. Wilderness was delisted from NASDAQ in early May.
Wilderness has been beset by problems for several years. In the fiscal year ended Oct. 31, the company’s sales fell 45% to $3.8 million and the firm lost $1.1 million. Things got so bad last winter that the company lacked the money it needed to import most of its ski wear.
Steeper Labor Costs
To halt declining sales, Wilderness started selling its products to discount warehouses, which only alienated the company’s largest customer base: small shops.
Also, its labor costs are steeper than those of competitors because 80% of its products are made in Chatsworth, where wages are significantly higher than those overseas.
“I put so much effort into that company only to see it mismanaged to the point of failure,” said Jim Thomsen, one of the company’s founders. “I feel real bad about it.”
Thomsen, who now works for one of Wilderness’ competitors, used to own 1.5 million shares in the company. He has sold all but 10,000 of his shares--now worth $600. “I can’t see what they can do now to pull it out,” he said.
