Mitchell Gold bankruptcy declaration: Chapter 11 process will help preserve its assets

Document also explains the lengths the company went through to work with its lender to continue and sustain its operations

TAYLORSVILLE, N.C. — The chief restructuring officer of Mitchell Gold Co. has offered an optimistic assessment of the brand’s future through an orderly bankruptcy sale and liquidation process that aims to preserve its many assets.

“Ultimately, this Chapter 11 case will prevent a rush to the courthouse by the debtors’ various creditor constituencies — a process that will inevitably create winners and losers,” said Dalton Edgecomb, the recently named chief restructuring officer, in a Sept. 12 declaration filed with the U.S. Bankruptcy Court for the District of Delaware. “Instead, this Chapter 11 case will provide the structure and breathing spell to allow the debtors to engage in an orderly liquidation and sale process to realize the maximum value for its assets. This Chapter 11 case should allow MG’s brand to survive, its facilities to continue operations under new management and ownership, its workforce to find new work and placement with any of the various parties interested in MG’s highly skilled and expertly trained employee base, and will maximize the recoveries of MG’s creditors and stakeholders.”

The document also offered a detailed description of the circumstances leading up to its lender PNC Bank deciding not to further finance the operation, which culminated in the company abruptly ceasing operations around Aug. 25 and its subsequent Sept. 6 filing for Chapter 11 bankruptcy protection.

At the time of its closing, the company had more than 800 employees nationwide, including 533 based in its North Carolina manufacturing and distribution facilities. Others were employed at a network of 24 retail stores, six retail outlets and nearly 20 virtual store service locations. The declaration noted that the company had nearly $200 million in sales over the past year.

In addition to leaving people out of work, the shutdown has left an unknown number of customers allegedly having paid deposits, but still awaiting their furniture. The company said that it ceased taking deposits from customers around Aug. 25, “the moment MG believed in good faith that it would no longer be able to fill new orders for which a customer paid a deposit.”

It noted that it has maintained store operations as a “vehicle to generate cash through anticipated inventory sales.” However, it was unclear to what extent the stores remain open as many have either not returned phone calls or recently have had voice mailboxes that are full and unable to take messages.

The closing occurred despite what company officials have described as a major $20 million cash infusion from its owner, the Stephens Group that paid down its $23 million debt owed to PNC as of April to around $3 million in June.

Even though the company paid down this portion of the debt, Edgecomb said, “PNC began stonewalling MG’s extraordinary efforts to reposition the company’s operations. PNC’s position was entirely contrary to the understanding of MG and SG — TMGC, that PNC would, following the infusion of SG-TMGC’s capital, provide a better funding foundation and credit facility terms to MG to assist in MG’s strategic market repositioning. PNC within weeks of the SG-TMGC’s cash infusion deployed restrictive lending tactics, which placed undue extreme pressure on the management teams of MG and SG-TMGC, and which ultimately caused extraordinary financial stress on MG because MG was entirely reliant on PNC’s funding and PNC’s control of MG’s cash under its debt facility.”

He added that Mitchell Gold Co. was unable to access its own cash unless PNC permitted access through the debt facility.

Much of the declaration explains the length that the company went to working with the bank to continue funding its operations.

“MG had a reasonable basis to believe PNC was not going to force MG out of business under the circumstances that existed with the substantial pay-down that had just occurred,” the declaration stated. “Nothing more than nonmonetary defaults that were addressed within hours of such declaration of default and the $18 million in borrowing capacity that existed under PNC’s own borrowing-based calculations. Therefore, MG continued in good faith to operate its business as best it could under the circumstances to preserve going concern value. …”

PNC declined to comment on the bankruptcy proceeding, stating it does not comment on pending litigation.

The ultimately unsuccessful negotiations with the bank took place as the company was having discussions with parties interested in acquiring the business earlier this past summer.

The declaration identified SB360 Capital Partners as among the potential parties that continue to be interested in various company assets. SB360 was involved in the liquidation of United Furniture’s assets earlier this year and also purchased the Thomasville, Henredon and Drexel brands as part of the Heritage Home Group bankruptcy in July 2018.

“The debtors anticipate continuing its dialogue and negotiations with SB360 and other suitors that have expressed an interest in the company’s assets to maximize the value of its current inventory and provide for as orderly a sales process for such inventory as possible,” the declaration stated.

Edgecomb said the company believes that the Chapter 11 proceeding “will realize and maximize the value of the debtors’ operations and assets for the benefit of the debtors’ credit body and will additionally preserve the debtors’ claims against PNC.”

As previously reported in Home News Now, the declaration also noted that the company has hired merger and acquisition specialist Stump & Co. as a consultant and investment banker to market and sell the debtors’ assets, which include its inventory, its retail store lease interests, its manufacturing and distribution facilities, its intellectual property and branding as well as access to its former workforce.

The declaration said that Stump & Co. has identified about 20 potential buyers for its manufacturing operations, about 10 prospects for its retail operations and nearly 30 additional prospective buyers for other various company assets. It added that 17 of the prospective buyers have contacted the firm to express interest in various assets.

“Further, numerous inquiries have come into employees, managers and equity holders of MG expressing interest in the assets of the business,” the declaration stated.

It concluded with the following assessment of the Chapter 11 proceeding:

“Without the orderly process that can only be accomplished through this Chapter 11 case, the value to be derived from the debtors’ assets — and the interest already generated in the same — will be lost, and with it, MG’s brand, its goodwill and the recoveries available for much of the debtors’ creditor constituencies, including, most importantly, its customers and employees.”