Sinking Intermark Seeks to Surface Via Bankruptcy : Debts: But first the investment firm needs to get bondholders to agree to a reorganization plan that would slash the value of their holdings.
Admitting it is drowning in debt, Intermark said Tuesday that it will seek Bankruptcy Court protection from creditors in June--if it can get bondholders to first agree to a reorganization plan that would reduce the value of their investments by more than half.
In announcing the possible Chapter 11 filing, the company also said its true net worth is negative $111 million because its debt is so much larger than the current value of its assets. “We’re $111 million under water,” president John Stiska said at a press conference Tuesday.
Intermark, a San Diego-based miniconglomerate that owns all or part of seven companies, has suffered a triple whammy in recent years of falling asset values, tougher bank lending policies and a souring economy that has caused big operating losses. In the nine months ended Dec. 31, the company lost $28.4 million on revenue of $211.3 million.
Last June, Intermark was forced to sell its 52% interest in Ft. Worth-based Pier 1 Imports, its “crown jewel,” after banks called loans due. Ever since, the company has struggled to pay off about $26 million in annual bond interest payments by selling off other assets.
Although the company has enough cash to make bond interest payments through June, it’s only a matter of time before it defaults. “The stars have lined up exactly wrong, and we got caught, “ chief financial officer Michael M. Earley said Tuesday.
If bondholders go along with the “prepackaged reorganization,” as the filing is called, they would exchange about $211 million in unsecured bond debt for an estimated $85 million worth of assets that would be placed in a self-liquidating trust. The bondholders would receive certificates that would be traded over the counter as the trust sells off assets, a process that could take three years.
The exchange would relieve Intermark of the bond interest payments and give the unsecured bondholders, who number about 500, a degree of “certainty and some principal back,” Stiska said.
The proposed reorganization would take from two to 13 months and result in roughly 85% of the $100 million in Intermark’s assets being assigned to bondholders through the liquidating trust. Intermark shareholders would retain the remaining assets totaling about $15 million.
The liquidating trust would allow for a more orderly sale of Intermark’s assets than if creditors caused a “fire sale,” Intermark officials said at the press conference.
In American Stock Exchange trading Tuesday, Intermark shares closed at 69 cents, unchanged.
The company’s practice over the years has been to buy interests in companies, build up their value through management, then sell or spin off the stock at a profit. But, over the past two years, Intermark’s game plan has produced little but losses.
After paying $135 million cash in 1989 for a 26% interest in Atlanta-based Fuqua Industries, a conglomerate best known for photo processing and its Snapper lawn mowers, the company has since seen the value of its investment slide to $65 million, a $70 million loss.
Intermark’s investment in Western Sizzlin’ steakhouse chain has dropped in value by $45 million, and Liquor Barn, a retail chain that is two-thirds owned by Intermark, has closed 35 of its 63 branches since Intermark entered the picture.
Stiska said that no management changes are expected at Intermark, and that the reorganization will have little impact on Intermark’s corporate staff of 14. Charles R. (Red) Scott retired as Intermark’s chief executive last April but remains Intermark’s unsalaried chairman and largest shareholder.
