As Armstrong Flooring seeks a buyer through the Chapter 11 bankruptcy sale process, an attorney for the Lancaster, Pa.-based company said in court proceedings that interested buyers of the company do not want to pay retiree health and life insurance benefits.
This latest development, which took place June 3 in U.S. bankruptcy court in Wilmington, Del., affects an estimated 1,660 Armstrong Flooring retirees receiving health insurance benefits and about 2,000 receiving life insurance benefits.
Ron Meisler, attorney at Skadden, Arps, Slate, Meagher & Flom LLP, which is representing Armstrong Flooring in its Chapter 11 case, said during the hearing that all of the bidders that Armstrong Flooring has heard from have stated they do not want to assume the debt of retiree benefits. The ongoing expenditures required under the retiree plans—nearly $245,000 per month—are cost-prohibitive given the company’s lack of cash and the constraints imposed by the budget under its financing, Meisler argued.
In addition to the health and life insurance benefits, Meisler said the health benefits amount to about a $15 million obligation and life insurance amount to a $40 million obligation. What’s more, there are $2 million to $3 million in annual administration expenses.
At Armstrong Flooring’s request, the court authorized the U.S. Trustee to appoint a committee of retirees that would negotiate with the company; the committee would include only non-union retirees. The United Steelworkers union and International Association of Machinists and Aerospace Workers are representing their retirees in the matter.
The deadline for bids is June 14 with an auction, if necessary, set for June 16. If the successful buyer doesn’t assume the debt, Armstrong Flooring would likely return to court to do away with or lessen the obligation, according to Meisler.
As reported by Lancaster Online, other matters discussed during the June 3 hearing included payments to critical vendors and rental payments to High Properties, the landlord for Armstrong Flooring’s headquarters at 1770 Hempstead Road in East Lampeter Township. Armstrong Flooring is in the process of paying unpaid rent incurred prior to its May 8 bankruptcy filing.
Armstrong Flooring is seeking to sell its North American, Chinese and Australian assets as going concerns, and bidders for each asset include going concern purchasers, which would keep the company operating. Armstrong Flooring acknowledged that there could be bidders who would seek to liquidate its assets.
Armstrong Flooring’s turn-around consultant, investment bank Houlihan Lokey, said it had 100 interested parties that have explored—or are actively exploring—participation in the sale process, and it has entered into nearly 70 non-disclosure agreements with such parties.
In May, Armstrong notified all its workers that they could be permanently laid off before the end of June if the company could not find a buyer interested in keeping it going.
Lancaster Online reported that during the June 3 hearing, Armstrong proposed paying bonuses to as many as 50 “key personnel,” amounting to about $14,900 per person. The bonuses would range from 8% to 12% of the annual base level salary of key people that executives and their consultants deemed important to assist in the sale and wind down of the company.
This proposal is apart from the bonuses already received by top executives. According to court filings, in addition to the $1.4 million it received a few days before the bankruptcy filing, senior Armstrong Flooring executives also received $3.4 million in retention bonuses in February 2022. The retention amounts must be repaid if the executive resigns from employment for any reason or is terminated by the company for cause prior to Sept. 3.