Today’s Debt-Laden Companies Find Few Ways Out : Finance: Firms that went heavily into the red in the freewheeling ‘80s are going into bankruptcy in the newly cautious ‘90s.
Interco Corp. was a manufacturing and retailing conglomerate in 1988, turning out well-known brands of clothes, shoes and furniture and taking in more than $3 billion in sales a year.
Today the company is a shadow of its former self, saddled with debts following a $2.8-billion recapitalization. The company is trying to cut deals with bankers while seeking buyers for its assets.
In another case, Doskocil Cos., a food-processing firm that took over the larger Wilson Foods Corp. in 1988, filed recently for protection from creditors under Chapter 11 of the federal bankruptcy law.
Doskocil bought Wilson for $133 million, assumed millions of dollars in Wilson’s debts, then defaulted on a loan. The company, like Interco, has had trouble selling assets, and its lower-than-expected income hasn’t been enough to pay bills.
These companies aren’t as well-known as investment firm Drexel Burnham Lambert or retailer Campeau Corp., both forced into bankruptcy court recently by credit problems. They are nonetheless casualties of the debt-dominated 1980s.
Interco once made a broad array of products ranging from Converse sneakers to Ethan Allen dining sets. It did not go into debt by choice but rather to thwart a hostile takeover by a pair of unfriendly Washington investors.
The company borrowed $2 billion to pay shareholders a special dividend and expected to foot the bill partly through asset sales.
But Interco also expected business to be stronger than it turned out to be. Although divisions like Ethan Allen went fast, it hasn’t been easy to sell some of its other businesses that are still on the block.
Like most companies, Interco also did not anticipate the collapse of the junk-bond market last year and the new caution toward acquisitions that followed.
That caution has made banks more reluctant to lend money and would-be acquirers more hesitant about taking on new debt to buy other businesses. This has left companies like Interco strapped, because they need cash.
Robert Raiff, who follows Interco for C.J. Lawrence, Morgan Grenfell Inc., blames the company’s lack of foresight for its problems.
“They’re in a position that, long-term, won’t allow them to operate without a very major restructuring of the debt,” Raiff said.
Interco wants to retain its Converse and Florsheim footwear manufacturers and Broyhill and Lane furniture companies as core businesses.
The company recently persuaded lenders to relax the terms of a $244.5-million bridge loan payment. But even when that payment is made--it is due in May--Interco still will have a heavy debt burden.
