Irwin Jacobs' Genmar files for Chapter 11 bankruptcy

By Susan Feyder, Minneapolis Star Tribune

Genmar Holdings Inc., the Minneapolis-based boat manufacturer founded
and headed by Twin Cities businessman Irwin Jacobs, today filed for
protection from its creditors under federal bankruptcy laws.

The company’s Chapter 11 petition filed in U.S. Bankruptcy Court in
Minnesota listed assets of $237.5 million and liabilities of $216.5
million. Jacobs said the bankruptcy petition does not include more than
$400 million in intangible assets, whose value were determined recently
by Wells Fargo & Co., its lead banke r. Wells Fargo and Fifth Third bank
are the only secured creditors, owed $75 million.

“Even up until the last few weeks this is something I never even dreamt
was a remote possibility,” Jacobs said Monday. He said Genmar, like many
other boat manufacturers, has suffered a rapid deterioration in sales
due to the credit crisis and weak economy.

But in court filings, Genmar also said tighter requirements from its
banks propelled it into bankruptcy. “Despite restructuring steps and
infusion of significant equity, the bank reduced [credit] availability
,” the documents said. “The bank rejected all... proposals for making
adequate capital available and continued to reduce the borrowing base.”

Jacobs is the largest shareholder in privately-held Genmar with about 40
percent of it stock. Other stockholders include employees and private
investors, including the family of the late Carl Pohlad, a longtime
business associate who was an original investor. Jacobs estimated the
Pohlad family’s current holdings at about 15 percent.

Jacobs said Genmar is asking the bankruptcy court to approve
debtor-in-possession financing from Wells Fargo and Fifth Third to
supplement more than $100 million in cash and current assets so the
company can continue to operate.

Genmar is one of several companies that operate independently of each
other that are controlled by Jacobs. None of the others – Jacobs
Trading, Jacobs Management, Watkins, FLW Outdoors or Jacobs Interactive
– are included in the bankruptcy filing.

The bankruptcy filing also doesn’t include VEC Technology LLC, a Genmar
subsidiary that has developed a high-tech process for manufacturing
fiberglass boats. The bankruptcy is focused on Genmar’s core boat
manufacturing business, the second largest in the world, with brands
that include Ranger, Larson and Glastron.

Jacobs said Genmar’s revenues for the year ending June 30 should drop by
more than half to about $460 million. The company will have a cash
operating loss of $32 million to $35 million, compared with a cash
operating profit of $9.7 million in 2008, he said.

The dismal results are in line with the rest of the boating industry
which has suffered from higher gasoline prices and the economic
recession. The National Marine Manufacturers Association has said sales
of new boats fell 30 percent in 2008 and are expected to drop another 20
percent this year. Brunswick Corp., the world’s biggest boatmaker, last
month reported a 52 percent drop in marine sales for its first quarter.

Genmar has responded to the downturn by slashing expenses, including
closing plants in Florida and Oregon and cutting its workforce in the
last 18 months from about 4,500 to about 1,500, Jacobs said. Its
workforce in Little Falls, where it has been a major employer for
decades, has dropped from about 800 to around 200, he said.

Genmar currently has more than 1,000 dealers, but that’s about 20
percent fewer than it had in early 2008. Jacobs said it’s likely that
more will go out of business in the coming months and said about 30
percent of Genmar’s current dealers “are just hanging on.” As dealers
have gone out of business, more repossessed boats have flooded the
market, depressing profits, he said.

Jake Jacobson, general manager of Rapid Sport Marine in Ham Lake, said
business the last few weeks has picked up enough that the dealership’s
sales this year may equal those for 2008. “But we and everybody else
came out of the gate slow this year,” he said. .
Jacobs said another significant problem for dealers has been the fewer
firms that provide them short-term loans — so-called floor plan
financing — that they can stock inventory and pay boat companies.
Jacobs said Genmar hasn’t missed any payments on the $100 million loan
it got from Wells Fargo and Fifth Third Bank. But for several months the
company has not met certain requirements in the loan covenant because of
its eroded financial results, he said.

Jacobs said that early this year Wells Fargo had a consultant analyze
Genmar and subsequently told him more capital had to be injected into
the business to offset the losses. Jacobs said about $40 million has
been added in the last few months through the sale of convertible
preferred stock and short-term loans from himself and other private
investors.

According to Jacobs, a few weeks ago Wells Fargo told him Genmar
required another $25 million capital infusion by June 15. He began
negotiations with an investment banking firm for a $150 million senior
debt offering that would have paid off the $75 million balance of the
banks’ loan and provide Genmar with another $75 million in capital. But
the deal could not be completed in time to meet Wells Fargo’s deadline,
he said. That also was the case for another Jacobs’ proposal to raise
capital through the public sale of some stock in Genmar’s VEC Technology
subsidiary.

He said the bankruptcy filing will allow Genmar to put together a
business plan that will resolve the loan issue with Wells Fargo.
“We believe that once Genmar exits Chapter 11 we will be a better and
stronger company than ever before,” he said.