Is it game-over for Norwalk Furniture?

NORWALK Norwalk Furniture is on the ropes -- but is it game over? It is unlikely Norw
Cory Frolik
May 24, 2010

NORWALK

Norwalk Furniture is on the ropes -- but is it game over?

It is unlikely Norwalk Furniture will be able to overcome the $11 million debt owed to its bank, Comerica, said Charles Rowe Jr., president of IRG Capital Group. IRG is one of the two private equity firms that recently backed out of negotiations to buy the furniture company.

The breakdown in negotiations was primarily the bank's doing, since it frustrated attempts to finalize a deal by introducing all kinds of new business hurdles, Rowe said.

"They made some unilateral changes that were not in the spirit of the agreement," he said.

The bank could be more interested in liquidating the firm than in arranging its sale, Rowe said.

"When IRG Capital came into this process, the bank was three days into its liquidation plan. I think the bank's ultimate goal or intention was to continue that process. The bank has always maintained their collateral position with Norwalk Furniture's assets was sufficient to fully satisfy the debt," Rowe said. "I think they feel very comfortable that with the liquidation they'll get all their money back."

Comerica killed Norwalk Furniture's original line of credit in July, then killed it again recently, causing production to shut down Wednesday. Payroll could not be covered, and employees were told to stay home.

Later Wednesday afternoon, IRG Capital and Blackbird Capital Partners ended negotiations to buy the company.

"I don't think there's anything left. During the two weeks after the first (letter of intent) while we were trying to get funding restored, every day you had franchisees dropping from the system, going out of business, dealers taking our product off their showroom floors. You had reps quitting, employees quitting -- time was of the essence, always. The only thing holding the company together was the confidence that the shutdown wasn't going to happen again," Rowe said.

The problems all trace back to the Aug. 15 expiration of the original letter of intent, Rowe said.

Even though Blackbird Capital and IRG Capital signed a revised letter of intent to purchase the furniture company several days later, the bank wanted a more restrictive forbearance agreement.

The bank has not provided Norwalk Furniture with any access to funding since Aug. 15, Rowe said.

A forbearance agreement is a deal reached between a mortgage lender and delinquent borrower. Under these agreements, the lender refrains from foreclosing on a mortgage in exchange for some type of payment plan.

Rowe claims the bank kept tacking on new conditions to this agreement, and a deal was never struck. No forbearance agreement meant no new line of credit.

Despite his firm's intention to pay back the full $11 million in debt over time, Rowe said Comerica may be convinced that it can recoup its debt faster by liquidating the company. He said that could explain the bank's decision to complicate business negotiations.

Scott Talley, assistant vice president of corporate communications for Comerica, said "corporate policy is not to discuss customer relationships."

Even in its most troubled state, Norwalk Furniture remained a viable company, Rowe said. While it was on track to make only a fraction of the $160 million in sales it had in the past, it still had promise, he said. But the $11 million in debt is likely too great an obstacle at this point.

Though he refused to release the exact amount of his firm's investment, Rowe said it was a seven-figure number.

Furniture company officials did not immediately respond to requests for comment Friday.

Bethany Dentler, Norwalk's economic development director, said just because IRG and Blackbird didn't work out, doesn't mean there aren't firms out there that could.

"The company and local and state officials are all still working together on finding other investors, and we're cautiously optimistic that we'll make some progress," Dentler said.