The June 1st decision by Genmar to file for Chapter 11 protection of the US Bankruptcy Code meant that it was unable to service its debt and/or pay its creditors. The filing gives Genmar a period of time (usually 120 days) to propose a plan of reorganization while providing it with protection from creditors by requiring them to cease all collection attempts during this time.
When bankrupt companies reorganize they do so in part by negotiating down the debt they owe their suppliers. The suppliers most of whom are unsecured creditors are some big names in the supply side of the industry and it is these companies (and there are many of them) that are likely to get hurt. The engine manufacturers take the brunt of it with Volvo Penta of the Americas being owed U$5.2 million, Mercury Marine (a Brunswick subsidiary) U$1.89 million and Bombardier Motor U$1 million. Finance providers GE Commercial and Textron are owed U$1.5 million and U$0.5 million respectively.
There is a cruel irony to the fact that Volvo Penta of the Americas is one of the largest unsecured creditors. Their CEO, Clint Moore was on a panel of “industry giants” in November last year as was the Chairman of Genmar Holdings, Irwin Jacobs, discussing the state of the boating industry. When the subject got round to predictions for 2009 and beyond Moore said “…this is only going to get worse. We don’t see it getting better.” Jacobs responded by saying “About 30 days ago, I would have agreed with Clint, but I have changed my mind and frankly there are some things going on out there right now that are changing.” Jacobs went on to add that he “was convinced there would positive changes late in the first quarter and that they would only be felt by those who have the tools and the product”.
The real cause of the problem was that boat builders like Genmar and their dealer networks were selling boats to people that could not afford them. Banks made it too easy to borrow up to 110% of the purchase price and then pulled out of retail financing because of the default of large numbers of boat owners on their loans. With banks credit requirements for boat loans becoming much more severe fewer people qualified. This resulted in fewer buying boats thus more inventory being financed by dealers who, in turn, could not pay off their inventory loans. This has lead to repossession of dealer inventories that are today being liquidated below wholesale prices. This in turn means that dealers cannot sell their current inventory leading to more repossession and so the spiral continues……
Posted by: James
Categories:
Marine Industry