Wauwatosa-based Briggs & Stratton Corp. says it might have to file for bankruptcy if it cannot come to an agreement with its debtors.
The producer of small gasoline engines for outdoor power equipment owes its lenders a $6.7 million interest payment, which was due on Wednesday. However, the banks, led by JP Morgan Chase, have given Briggs an extension with payment now due on Sunday, July 19, according to documents filed with the U.S. Securities and Exchange Commission.
The company says it is still negotiating with its lenders to raise additional funds needed to relieve the economic pressure generated by the COVID-19 pandemic. However, Briggs says there is no guarantee it will reach an agreement with the banks, which could lead to a bankruptcy filing, the company stated in an SEC document.
A reporter for Reorg Research Inc. reported recently that “Briggs & Stratton has lined up KPS Capital Partners as stalking horse bidder to purchase all of its assets for $550 million in expected chapter 11 filing, per people familiar with the matter,” in a tweet.
Reorg Research reported that Briggs had a July 15 deadline “to obtain approval from the (asset-based lending) lenders on a capital raise of at least $100 million and close the transaction to avoid an event of default under the facility.” Reorg Research also reported that the $6.7 million interest payment was on $195.5 million 6.875% unsecured notes due December 2020…As of June 12, the company had $305.1 million of borrowings and $53 million of letters of credit outstanding on the ABL, with $61.9 million of availability.”
In an SEC filing, Briggs & Stratton said, “the company and its subsidiaries had $271.3 million of borrowings and $50.1 million of letters of credit outstanding under the Credit Agreement. As a result, availability under the Credit Agreement was $65.6 million as of July 14, 2020.”
In June, Briggs & Stratton made public that it planned to pay out more than $5 million in retention awards to top executives and other key employees. The company also said it would restore the base salaries of its named executive officers starting July 1.
In late March, Briggs said Todd Teske, chairman, president and chief executive officer of the company, would take a 40% pay cut as the company navigated the COVID-19 pandemic. Four other top executives also took 35% pay cuts.
A document obtained by BizTimes in June also detailed additional pay cuts for salaried employees, reductions of which were to be restored July 1.
The cash retention awards approved by Briggs’ board offered four of the five top executives $2.65 million combined, provided they stay with the company for the next year. Teske was to receive the largest disclosed award at $1.2 million.
Rick Carpenter, vice president of corporate marketing at Briggs, noted in an email that the retention awards “are to ensure that the company retains the commitment, experience and expertise as a group to help align the company in these tough economic times.”
However, as Briggs & Stratton indicated that it would be doling out retention awards, the company also said it would use a 30-day grace period to delay the $6.7 million interest payment, which was initially due on June 15.
“Our decision to take advantage of the month grace period does not affect compliance with our Revolving Credit Agreement as this is a contractually-allowed step for us to take,” Carpenter previously told BizTimes.
The company also announced in June that it will move production for several product lines from its Wauwatosa headquarters to existing facilities in New York State. The move will result in eliminating 120 jobs for employees of the staffing firm Adecco. The company said the transition would impact around 200 union positions and 40 salaried positions. Briggs plans to add 125 jobs in New York State.
Even though banks have allotted additional time for Briggs to repay its debt, analysts suspect the company will likely file for chapter 11 bankruptcy. When asked why Briggs & Stratton would be dispersing retention awards, Baird analyst Timothy Wojs said, “I’m not a restructuring guy, but my sense would be because they are preparing themselves to go into bankruptcy.”
Briggs has faced significant challenges in recent years from the shift away from walk-mowers, where Briggs has enjoyed a larger market share, to the growing trend of battery-powered outdoor equipment, which continues to gain steam, Wojs said.
Wojs also noted that the company’s bonds have fallen to 17 cents today from 31 yesterday, which is when the company filed documents with the SEC.
“In terms of what people think of a recovery potential, the unsecureds (bonds) are down nearly 50 percent since they filed that 8K,” Wojs said.
