Armstrong update: Consequences loom if no buyer emerges

Home Featured Post Armstrong update: Consequences loom if no buyer emerges

Armstrong Flooring bankruptcyArmstrong Flooring, which filed for Chapter 11 bankruptcy protection and reorganization on May 9, submitted a WARN (Worker Adjustment and Retraining Notification) notice with the Pennsylvania Department of Labor & Industry on May 20. This means 606 people, virtually all of its Lancaster employees, would be permanently laid off at three facilities (including headquarters) in Lancaster between June 17 and July 1 if the company cannot find a buyer.

The WARN notice is the latest development in a frenetic period for Armstrong Flooring, which is in the midst of several crucial bankruptcy hearings. Armstrong Flooring is seeking Delaware bankruptcy court approval to sell off assets and reorganize to address $317.8 million in debt, including $160 million in long-term debt. Armstrong said it had assets worth $517 million.

Two key hearings—scheduled for May 26 and June 3—are expected to result in an order by a judge for a timeline and procedures to sell the assets. The June 3 meeting will also address paying employee wages and benefits, utilities, insurance, critical vendors and shippers.

Armstrong Flooring had been approved for $24 million in interim debtor-in-possession (DIP) financing, with a final decision on the DIP financing expected during the June 3 meeting. Armstrong also has interim approval to pay $9 million to critical vendors; another $5 million will be up for approval, also on June 3. If the proposed plans are approved, the company is on course for a June 20 sale approval, with auction bids due June 14.

Another hearing slated for June 9 will allow creditors to question Armstrong Flooring principals.

Publicly held Armstrong Flooring reported that selling the company’s assets is the best way to maximize value for stake-holders, and that it has to keep going to maintain the value of the company. The company confirmed to Lancaster Online that it is still hiring as part of its strategy to maximize its value for an eventual sale.

Among its assets are seven manufacturing plants in three countries. Two plants are in Pennsylvania, as well as one plant each in Illinois, Mississippi and Oklahoma and one plant each in China and Australia. Armstrong filed a WARN notice in Oklahoma, stating that 128 employees would be affected there. Armstrong also maintains offices in Canada, which is part of the bankruptcy.

Note: The plants in China and Australia are not part of the bankruptcy.

Potential bidders?

Armstrong has said there are two potential bidders with whom it has been in talks. A court filing from its pre-bankruptcy lenders said that the only expression of interest for certain assets is a nonbinding letter of intent from a well-known liquidator.

Armstrong Flooring has detailed in court papers its efforts to sell the company or enter into some other arrangement. On Oct. 29, 2021, the company engaged investment bank Houlihan Lokey Capital to act as its financial advisor in connection with a sale process and evaluation of other strategic alternatives.

According to court documents, Armstrong Flooring wants to end all post-employment benefits, including life insurance and health insurance to retirees but will continue to make required payments until the matter is decided, which is expected at the June 3 hearing. As of January 2021, there were 2,043 retirees receiving life insurance and 1,028 retirees, 563 spouses and 72 surviving spouses receiving health insurance, Armstrong said. Without a buyer, Armstrong said it is likely to stop operations. And, even if there is a buyer, the new ownership could cut jobs or even shut down the company and liquidate the assets.

Armstrong Flooring’s financial predicament worsened during the outset of COVID-19 pandemic in 2020, after the company had spend significant resources to implement a plan to modernize its operations and increase profits, according to a statement from Michel Vermette, president and CEO. Among other things, the company faced extended shutdowns of certain manufacturing facilities, supply chain disruptions, inflation and an overall decline in sales of flooring products, according to Vermette.

In response, the company cut costs and began to see some improvement in 2021. However, profits were still hampered by inflationary pressures and ongoing supply chain problems. Armstrong Flooring began negotiations with its lenders and ultimately reached an agreement in December of 2021 that significantly restricted its business operations, in part imposing what the president and CEO termed as an “onerous” cash dominion arrangement and requiring Armstrong Flooring to keep certain levels of inventory and accounts receivable.

Separately, The New York Stock Exchange announced on May 20 that it was immediately suspending trading in the common stock of Armstrong Flooring (ticker symbol: AFI). On May 9, the NYSE announced that it was commencing proceedings to delist the company. Armstrong Flooring had the right to request a review of this determination by a committee of the board of directors of the Exchange until May 23. However, on May 20, Armstrong confirmed that it would not exercise that right. Accordingly, the NYSE has now suspended trading in the common stock and said it will now move to file a delisting application with the Securities and Exchange Commission.

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May 23/30, 2022

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