Genmar Holdings Inc., the Minneapolis-based boat manufacturer founded and headed by Twin Cities businessman Irwin Jacobs, Monday filed for protection from its creditors under federal bankruptcy laws.
Jacobs said the credit collapse and weak economy have decimated sales of everything in Genmar's product line, which includes 12-foot fishing boats, runabouts for water skiing and tubing and luxury yachts for millionaires in the United States and 40 other countries. The sales decline began in 2008 but has worsened in recent months, which are typically a peak sales period for Genmar and others in the boat business.
Jacobs, who made his name buying bankrupt businesses, said he never thought this day would come for Genmar.
"Even up until the last few weeks, this is something I never even dreamt was a remote possibility," he said.
Jacobs is the largest shareholder in privately held Genmar, with about 40 percent of its 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 holdings at about 15 percent.
The company's Chapter 11 petition filed in U.S. Bankruptcy Court in St. Paul 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 values were determined recently by Wells Fargo & Co., its lead banker. Wells Fargo and Fifth Third Bank are the only secured creditors, owed $75 million.
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."
Representatives of Wells Fargo declined to comment Monday.
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 that the company can continue to operate.
Genmar is one of several companies controlled by Jacobs that operate independently of each other. None of the others -- Jacobs Trading, Jacobs Management, Watkins, FLW Outdoors or Jacobs Interactive -- is included in the bankruptcy filing.
The bankruptcy filing also doesn't include VEC Technology, 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 revenue 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.
Expenses slashed
Genmar has responded to the downturn by slashing expenses, including closing plants in Florida and Oregon and cutting its workforce in the past 18 months from about 4,500 to about 1,500, Jacobs said. Its workforce in Little Falls, Minn., where it has been a major employer for decades, has dropped from about 800 to around 200, he said.
Genmar 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 -- so 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, Wells Fargo told him a few weeks ago that 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.
Susan Feyder • 612-673-1723