The financing agreement Briggs & Stratton Corp. reached with its lenders and KPS Capital Partners will allow the company to continue operating even as it enters bankruptcy with around $16.5 million in cash on hand.
Briggs estimates it will have around $110 million in operating expenses in just the first four weeks of its bankruptcy case. The company is seeking court approval to pay $25.6 million in employee obligations; $53.2 million in customer program costs and $35 million in vendor claims through the end of the year.
The Wauwatosa-based maker of small engines and lawn and garden products filed for Chapter 11 bankruptcy Monday. The company announced a $677.5 million debtor-in-possession financing deal with its lenders and KPS, which also agreed to acquire most of Briggs’ assets for $550 million.
Briggs had been facing looming financial challenges for the last several months that were only exacerbated by the COVID-19 pandemic. The company faced a $195 million debt maturity in December and was negotiating with lenders to address its financing needs. Those negotiations set June 15 and subsequently July 15 and July 19 deadlines for the company to reach a deal.
As early as late May, the company determined a Chapter 11 process was likely its only option, according to court filings.
In letters and materials for customers and vendors, Briggs stressed that its operations would continue as normal. KPS, which counts Life Fitness and TaylorMade Golf Co. in its portfolio, says it works to acquire and improve businesses that manufacture products in an array of industries.
"We intend to capitalize on the Company's many attractive growth opportunities and to support its already substantial investment in research and development, technology and new product development. KPS intends to grow the new Briggs & Stratton aggressively through strategic acquisitions," Michael Psaros, co-founder and co-managing partner of KPS, said in a statement.
KPS also reached a new collective bargaining agreement with the United Steelworkers, which represents around 520 employees at Milwaukee-area Briggs facilities. The previous deal had expired in 2017 and negotiations with Briggs ended in 2018.
"Steelworkers, our families and communities cannot afford to allow these good, union jobs to continue to disappear," said Tom Conway, USW International president. "KPS brings experience and a long-term business plan geared toward keeping our plant viable and employment secure."
Michael Bolton, USW District 2 director, praised workers for continuing to focus on safety during Briggs’ recent financial struggles.
"Our union is committed to working with KPS to ensure that the proud tradition of engine-making is preserved for future generations of USW members here in Milwaukee," Bolton said. "As long as workers remain united in solidarity, there are no limits to what we can accomplish."
The union’s ranks in the area are already set to take a hit as Briggs moves some production out of its Burleigh plant and to New York State. According to court filings, there will be around 300 union employees in the area by the end of the year.
Around 3,840 Briggs employees work for the company’s operations included in the bankruptcy filing, plus another 820 at entities around the world that are not part of the filing.
Within the filing companies, around 1,240 are salaried and another 2,610 are hourly.
Briggs has around 2,400 people working as part of its supplemental workforce as of Monday, including third party sales representatives, independent contractors, consultants and temporary workers.
While operations will continue as normal, those who worked for Briggs in the past will see changes to their benefits. While there are some temporary restrictions on pension distributions, the more immediate change comes with the ending of retiree health and life insurance as of Aug. 31.
According to court filings, around 450 retirees have health coverage through the company and 4,000 have life insurance coverage. Another 245 active employees would be eligible for health coverage as retirees and 250 would be eligible for retiree life insurance.
“In situations such as this, difficult decisions need to be made and we are unable to pass along the liability of some of our retiree benefits. We understand this is unfortunate news to hear but would like to express our continued gratitude for your years of service and dedication to the company despite this outcome,” Briggs said in materials sent to retirees.
The company said in court filings that retiree health and welfare benefits cost around $650,000 per month and have a total unfunded status of around $50 million. Briggs says the plan gives the company the unilateral right to terminate or modify the retiree benefits.
Briggs says that with the current $550 million price to be paid by KPS, unsecured creditors will likely only receive a small fraction of their claims and there likely would not be money left to fund the retiree benefits.
“The debtors, therefor, had no choice but to terminate the Retiree Group Insurance Plan in an effort conserve their cash resources to avoid the possibility of administrative insolvency,” a Briggs court filing says.
