Two years ago, Schwing had to turn away orders for its equipment because its plants were at capacity. The parking lot was jammed and workers put in lots of overtime. For now, those days are past.
Glen Stubbe, Star Tribune
Schwing files for bankruptcy
- Article by: CHRIS SERRES
- Star Tribune
- September 30, 2009 - 9:29 PM
Nearly two years after the bottom fell out of the construction market, Brian Hazelton still can't get used to the eerie silence that envelops him each time he walks onto the factory floor of Schwing America Inc. in White Bear Township.
The chief executive of the construction-equipment maker remembers when the steady pounding of air wrenches and power tools made it virtually impossible to hear inside Schwing's giant factory, where welders and mechanics transform beams of steel into 100,000-pound pumps capable of shooting mixed concrete 200 feet into the air.
Today, the most conspicuous sound at Schwing -- the largest producer of concrete-mixing equipment in North America -- is the buzz of fluorescent lights above a factory floor largely devoid of workers. "We're past the bone now," Hazelton said, as he toured the plant. "We're down to the marrow."
Earlier this week, this American subsidiary of German company Schwing GmbH, which manufactured many of the trucks and hydraulic equipment that helped rebuild the I-35W bridge and that is now being used at the Freedom Tower in New York City, sought bankruptcy protection after a precipitous drop in sales and a long and difficult bout with its lenders. The company's employment has plunged from 660 in 2007 to 130 today. Revenue fell from $276 million in 2007 to $183 million last year. This year it's projecting $65 million in sales.
Schwing's sharp descent illustrates how even formidable companies, with global trading partners, sophisticated products and dominant market shares, have been caught off guard by the severity and speed of the national decline in construction spending; and how the easy financing that fueled much of the boom can just as easily become a source of distress.
Two years ago, Schwing America had to turn away orders for its equipment because its plants were at capacity. Welders were booking so much overtime that a few wives wrote letters, urging the company to give their husbands a break. The employee parking lot was so full that workers had to park on curbs and in nearby fields.
The same banks financing the houses and strip malls that fueled the real estate boom were also the ones that supplied Schwing with the money to purchase its heavy equipment. Once these banks decided to pull back on construction lending, says Hazelton, both Schwing and its customers were left in the lurch.
Executives at Schwing said its primary lender, Wells Fargo & Co., began tightening terms a year ago, after its three-year loan agreement with the company expired. At the bank's urging, Schwing paid down its line of credit with the bank to $21 million from about $45 million. Then, about two months ago, Wells Fargo began "sweeping" Schwing's operating account of cash in an effort to reduce its revolving line of credit with the company. Schwing had a 20 year relationship with Wells Fargo.
Schwing has never missed a payment on its credit line, though it did violate several of its loan covenants, said Brian Mogensen, the company's chief financial officer. Banks such as Wells Fargo have been under increased pressure to move problem loans off their books before they become losses and erode their capital.
According to Hazelton, Wells Fargo's actions left the company so starved for cash that it was reluctant to book new sales for fear the bank would take the cash. Wells Fargo had a secured interest in all of the company's cash collateral. Had the company not filed for Chapter 11, it might have been unable to make payroll. "We were slowly being put out of business," said Mogensen.
A Wells Fargo spokesman issued the following statement: "We continue working with our customer directly. We want them to stay in business and help them succeed financially. Beyond that, we can't comment further, because our customer relationships are confidential."
In August, Hazelton fired off a three-page letter to President Obama, U.S. Treasury Secretary Timothy Geithner, U.S. Sens. Amy Klobuchar and Al Franken and Gov. Tim Pawlenty.
"It is distressing that American banks, which have been supported by American bailout monies, refuse to invest in profitable American industry which provides strong jobs," he wrote.
Hazelton said he got a call from Klobuchar's office, but he did not hear back from the other elected officials. "It made me feel better as I was writing it," he said.
The company filed Chapter 11 bankruptcy documents in St. Paul Monday, listing assets of $131 million against debts of $90.9 million. After a companywide meeting announcing the filing, Hazelton and his team began calling customers -- 130 or so in less than 48 hours.
Schwing paid well, which makes its decline that much more painful. The average wage was about $20 an hour, not including 401(k) contributions and other benefits.
The company insists it has no plans for further layoffs. In the headquarters building adjacent to the factory, there are rows of empty cubicles, with moving boxes still on desks.
"It's painful because you know there is a family behind each and every one of those jobs," Hazelton said.
However, the company hopes bankruptcy will give it some breathing room. At a court hearing today, Schwing executives intend to ask a bankruptcy judge's permission to borrow from its parent and to use funds generated from its business to pay operating expenses.
Meanwhile, the company is currently raising new financing from a consortium of European lenders through its parent. Schwing GmbH also makes concrete-pumping equipment. "The intent is to repay everyone we owe," Hazelton said.
Chris Serres • 612-673-4308
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