Park Supply of America, a south Minneapolis plumbing and heating supply distributor, was in trouble several years ago.
But after the company hired business lawyer James Dada in 2017, it started a slow turnaround.
Then came COVID-19, and like many businesses, the disruption was too much. Park Supply, also under pressure from its principal lender, filed for bankruptcy protection.
"Our backs were against the wall," said Dada, now the CEO. "Bankruptcy was the last resort."
But in an interesting case, Park Supply avoided liquidation. The company's restructuring plan, also benefiting from COVID-19-related streamlined bankruptcy rules, was approved this month.
It should prove a better result than dissolution for remaining creditors, employees and other stakeholders.
"Our employees have done an amazing job of keeping us afloat for the last 18 months,'' Dada said. "The customers and vendors who stuck with us were critical."
Park Supply, which specializes in parts for older commercial systems, was especially hurt by the pandemic because many of its customers are schools and commercial buildings that were shut down by state order in 2020.
By 2021, Dada had cut debt to longtime lender Sunrise Banks from more than $4 million to about $2.4 million, partly through reducing its employee count and unprofitable business. Park Supply also shuttered two Denver facilities after the loss of a big customer in 2018.
But Sunrise a year ago declared Park Supply in default on its loans and filed suit to foreclose. Sunrise had discounted $600,000 in "slower moving" inventory as loan collateral, triggering the default.
Park Supply could not repay the loan, which spurred the January bankruptcy filing that sought protection from creditors. Park Supply, located in an industrial park in the Seward neighborhood, listed assets of $1.7 million and liabilities of $2.6 million.
A consultant connected to the Sunrise foreclosure concluded that Park Supply would be worth more as a restructured business. The sole bidder for its assets offered $1.2 million.
So, Dada decided to go the bankruptcy restructuring route.
In June, Sunrise sold its loan to DCR Mortgage of Florida for an unspecified amount.
Mark Hooley, attorney for Park Supply, said Sunrise Banks could have done better through a negotiated settlement last fall, without forcing Park Supply into bankruptcy.
Sunrise declined comment, other than to say through an email response: "As is fairly common in the industry, we assigned the loan documents to DCR earlier this year. Our understanding, based on the publicly available bankruptcy filings, is that DCR and Park Supply have resolved the disputes."
Through the restructuring process, Dada succeeded former Park Supply owner Bradley Parkhill as CEO and now owns 78% of the company. Employees will get 10% ownership through a distribution of new shares.
Dada, an African American who moved from New York to the Twin Cities several years ago after his wife accepted a corporate job, has certified Park Supply as a minority-owned firm. That can help with customers seeking to diversify their suppliers.
Dada said revenue, which peaked at $18 million in 2017, before the shutdown of the Denver facilities and the pandemic, is down dramatically since then. But the company has become more productive and profitable, he said.
Employment has declined from 75 to 17 workers.
The bankruptcy plan calls for retiring DCR's $2.4 million claim through unspecified asset sales and repayment of the $1.25 million secured portion of the claim at 6% interest. Unsecured creditors, including a portion of the DCR debt, will be repaid at a discounted amount of $790,052 between 2023 and 2027.
Park Supply will need profitable growth to dig out of the hole.
Dada's sales manager is working with manufacturers' representatives, suppliers and old and new customers to rekindle old business and find new customers.
"We have a good brand that is known in the Twin Cities and the Midwest," Dada said. "We have dedicated employees. We supply everyday brands and parts that are hard to find for older systems. We know how to source those parts."
In other words, a new plan is in place, and now it's time to execute it.