Chesterfield business carted off

By David Ress

Published: January 4, 2009

At Rehrig International Inc., the slide started with something tens of millions of shoppers saw but few probably noticed.

About three years ago, Wal-Mart Stores Inc., the world's largest retailer, decided to switch back to shopping carts made of metal.

For Chesterfield County-based Rehrig, among the first to develop plastic carts, that decision would soon be followed by a doubling of the cost of raw material and a piling up of IOUs from a change of ownership and a merger.

And though its bankers this fall increased credit lines and extended deadlines, Rehrig could not convince them it could work out a plan to stay afloat.

The company filed for Chapter 11 protection in the U.S. Bankruptcy Court in Wilmington, Del., to reorganize its business.

The reorganization effort didn't work. Two days before Christmas, the 33-year-old company closed its doors and put more than 100 employees out of work.

"They [company managers] told me that after 5 p.m., the bank owned Rehrig," said Christina Mattox, an 11-year veteran of the company's assembly line.

She'd been on bereavement leave, and her supervisor wanted to let her know she had until 5 that evening to pick up her things in Rehrig's remaining plant in Chesterfield County.

. . .

Rehrig's senior lender, Bank of America, had increased loans and credit lines in November by $1.5 million to a total of $12.2 million, bankruptcy court records show. The bank had become Rehrig's senior lender when it acquired LaSalle Bank in October 2007.

Bank of America had just two months earlier agreed to finance the company through the end of 2008 while it tried to restructure itself in bankruptcy court, even after discovering the company had $2 million less in inventory to secure its IOUs than it had thought, court records show.

But Rehrig and the bank still had to come to terms with financing for 2009. The deadline was Dec. 19; Bank of America extended it for four days.

The two sides couldn't agree.

"During the term of our relationship with Rehrig . . . Bank of America made multiple financial accommodations," BofA senior vice president Tina Buck said. "The company defaulted under the terms of the senior loan agreement multiple times which ultimately led to a conversion of the Chapter 11 case to Chapter 7."

Rehrig had assets of $38 million. But its liabilities total $41 million, including $16 million owed to the Massachusetts investment firm that acquired the company in 2007 and merged it with a Michigan cart-maker called United Steel and Wire.

The combined companies' revenue had been running at a $50-million-annual pace in 2008, after losing roughly 30 percent of business when Wal-Mart, quickly followed by other major national chains, switched away from plastic carts.

Rehrig's new owners thought the merger would let them cut costs, mainly by shutting down some of the Michigan company's production lines and supplying its customers with Rehrig's plastic carts.

But Rehrig had trouble winning over United's customers to its plastic carts, and United found Rehrig's clients didn't want its wire carts, bankruptcy court filings show.

As raw material prices soared, Rehrig wasn't able to pass the increases on to its customers, bankruptcy court filings show.

Rehrig Chief Executive Kevin S. Flannery said in court documents that steel prices increased 130 percent and raw material for plastic by 80 percent in the months after the United merger in May 2007.

Many of the retailers who bought Rehrig's carts had long-term supply contracts, which limited the company's ability to boost prices, even after the merger with United.

The only give was where Rehrig took it: the company extended terms on which it paid suppliers from 30 days after delivery to 45 days. Eventually, that became 60 days.

Eventually, suppliers worried they weren't going to be paid at all and started demanding cash up front.

. . .

In early 2008, Flannery took over as CEO and found things were a mess.

The company didn't really know what its costs were, and its profit margins on its carts, baskets and dollies were too low.

Flannery, who refused to comment last week, told the bankruptcy court that he found another major problem in August. An audit of United's inventory found it had been overstated by $2 million, roughly a third of the company's total inventory.

Because Bank of America's loans were pegged to the size of the combined companies' inventory, that meant the company suddenly owed its banker $1.2 million.

The way out was bankruptcy court, and a restructuring that closed the Michigan plant last month and cut employment at its Chesterfield plant.

In return, Bank of America agreed to lend up to $10.7 million in debtor-in-possession financing, up slightly from the credit limit Rehrig previously had. The interest rate charged was at a premium.

But within days of the September bankruptcy filing, Wall Street investment bank Lehman Brothers collapsed, insurance giant AIG was tottering and the Bush administration was launching a $750 billion bailout program for the nation's credit markets.

Businesses of all kinds responded by trying to conserve cash, slashing spending on all kinds of things, including shopping carts.

Still, Rehrig scrambled.

. . .

By the end of October, revenue was running at $1.6 million a week, but a third was from accounts that customers owed but hadn't yet paid.

Rehrig paid about $1 million a week to its vendors and spent about $160,000 a week on payroll.

Although its costs through November ran well above budget, the company slashed away and brought its spending down.

In late November, Bank of America agreed to a $1.5 million increase to the $10.7 million of loans and credit lines it extended in September. It gave Rehrig four days beyond a Dec. 19 deadline to agree on a financing plan for 2009.

"They had us working all these hours to get orders out," said Mattox, the assembly line worker. She said the company was running three shifts and offering people overtime.

Rehrig laid off 18 people Dec. 18. At a companywide meeting the next day, employees were told their jobs were safe, Mattox said.

But company and bank officials couldn't come to an agreement.

The bankruptcy court ordered Rehrig to be liquidated on Dec. 23 -- the day the company laid off workers and shut down operations. A court trustee will cash in all Rehrig's assets to settle its bills and debts.

"I feel really really concerned for the people who were there at the end," said Mark Rynearson, the former executive vice president for operations who was let go in August.

"They are really really good, dedicated people. They'd been there 15, 20 years and now they're out on the street without any kind of severance or anything," he said. "But I guess that's the way the world is now."
Contact David Ress at (804) 649-6051 or .

Staff writer Louis Llovio contributed to this report.