By Patrick Fitzgerald
A bankruptcy judge said Furniture Brands International Inc., the
furniture manufacturer that hasn't made a profit in six years, can
pay more than $5 million in bonuses to key employees, including
several company insiders.
Judge Christopher Sontchi of the U.S. Bankruptcy Court in
Wilmington, Del., Friday approved the St. Louis-based company
furniture maker's request to pay bonuses to dozens of employees,
including seven company insiders--namely, corporate officers and
directors--pending the sale of its assets at a bankruptcy
auction.
The St. Louis-based furniture maker--whose brands include
Broyhill, Lane, Drexel Heritage and Thomasville--filed for
bankruptcy last month with a deal to sell most of its assets to
Oaktree Capital Management. But New York buyout firm KPS Capital
Partners, which has bid $280 million for the company, has replaced
Oaktree as the lead bidder at an upcoming bankruptcy auction.
Exactly who's in line for the bonuses wasn't disclosed publicly.
Furniture Brands said it's keeping the names of the employees under
wraps to "protect" their privacy and to "preserve company
morale."
The bankruptcy bonuses would be paid from two separate plans: an
incentive plan tied to the sale of the company for seven senior
management employees, including insiders, and a retention plan. The
incentive bonuses could total $3.5 million, according to court
papers. Up to $2.1 million in retention bonuses are earmarked for
48 non-insider employees.
Key-employee retention plans, dubbed KERPs, have long been a
controversial feature of big Chapter 11 cases. Bankruptcy-law
changes that took effect in October 2005 were meant to curtail a
company's ability to pay bonuses to senior executives while
shortchanging rank-and-file workers.
But judges have wide latitude to approve the plans and Delaware
bankruptcy judges routinely sign off on bonuses for executives of
failed companies. Bankruptcy judges approved several rounds of
bonuses to unnamed executives at Tribune Co. and Nortel Networks
Corp. despite a history of controversy over senior executives'
pay.
Judge Sontchi also Friday approved Furniture's Brands' $144.5
million bankruptcy loan, the bulk of which will go to pay off the
company's existing lenders, including Wells Fargo & Co. (WFC),
Bank of America Corp. (BAC) and General Electric Co. unit GE
Capital.
Furniture Brands filed for bankruptcy with a so-called
debtor-in-possession loan from Oaktree, but KPS replaced the Los
Angles-based buyout firm as the DIP lender after being named the
stalking horse, or lead, bidder for the company's assets.
Like other manufacturers, Furniture Brands has suffered from the
lingering effects of the recession and foreign competition. The
company had sales of about $1 billion in 2012, roughly half of what
the company brought in a decade ago.
But the manufacturer's financial difficulties run deeper than
the ups and downs of the business cycle. Furniture Brands hasn't
made a profit in six years and analysts are predicting another loss
in 2013. The company, which employs some 9,000 people in the U.S
and abroad, also owes more than $200 million in unpaid pension
obligations.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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