The turmoil in the overall housing market is making things worse for Congoleum Corp.’s struggle to emerge from Chapter 11 bankruptcy protection.
The maker of resilient sheet vinyl — commonly referred to as linoleum — reported a 75 percent decline in net income in the second quarter on an 18 percent decline in sales. The results moved Chairman Roger S. Marcus to say: “Market conditions in our three key end markets, manufactured housing, new construction, and residential remodeling, are abysmal, the weakest I’ve ever seen.”
If there’s a silver lining, it’s that the company was able to stop recording interest expense on its considerable amount of debt since it filed its most recent reorganization plan back in January. For example, the company noted that results for the quarter and six-months ended June 30, 2007, include $2.8 million and $5.7 million, respectively, of interest on its 8 5/8 percent senior notes. There was no interest expense on the senior notes for the same periods ended this past June.
On Dec. 31, 2003, Congoleum petitioned the U.S. Bankruptcy Court for the District of New Jersey for Chapter 11 relief against claims relating to the use of asbestos in its products decades ago. Under its amended reorganization plan, Congoleum will exit Chapter 11 free of liability for existing or future asbestos claims.
A trust will be created that assumes liability for Congoleum’s current and future asbestos claims. That trust will receive the proceeds of various settlements Congoleum has reached with a number of insurance carriers, and will be assigned Congoleum’s rights under its remaining policies covering asbestos product liability. The trust will also receive 50.1 percent of the newly issued common stock in reorganized Congoleum when the plan takes effect.
Holders of Congoleum’s $100 million in 8.625 percent senior notes due in August 2008 will receive on a pro rata basis $80 million in new 9.75 percent senior secured notes that mature five years from issuance. The new senior secured notes will be subordinated to the working capital facility that provides Congoleum’s financing upon exiting reorganization.
In addition, holders of the $100 million in 8.625 percent senior notes due in August 2008 will receive 49.9 percent of the common stock in reorganized Congoleum, which is a 55-percent owned subsidiary of American Biltrite Inc.
Congoleum’s obligations for the $100 million in 8.625 percent senior notes due in August 2008, including accrued interest (which amounted to $44.6 million at December 31, 2007) will be satisfied by the new senior secured notes and the common stock issued when the plan takes effect.
Under the plan, existing Class A and Class B common shares of Congoleum will be cancelled when the plan takes effect and holders of those shares, including American Biltrite, will not receive anything for their cancelled shares.