Libbey Inc., one of the largest table glass and stemware manufacturers in the world and a company that helped give Toledo its “Glass City” nickname, declared bankruptcy Monday for the first time in its storied 202-year history.
In a petition filed just after midnight in Wilmington, Del., where Libbey has been incorporated since 1987, the company sought Chapter 11 bankruptcy protection as a way to deal with its mounting debt load.
The company, whose headquarters is at 300 Madison Ave. downtown, indicated that its assets are between $100 million and $500 million, and its liabilities are now between $500 million and $1 billion. It listed the number of creditors as between 10,000 and 25,000.
The bankruptcy is limited to Libbey and its 11 U.S. subsidiaries. The firm said its international subsidiaries in China, Canada, Mexico, Portugal and the Netherlands are not involved and are operating normally.
Libbey’s bankruptcy was mostly prepackaged. That is, it already had worked out a cooperative arrangement with its lenders and creditors prior to filing.
In fact, it had arranged with lenders to delay for two months a $12 million payment on its term loan so that it could use that time to quietly put together its bankruptcy plan.
Libbey said its existing lenders have arranged to provide up to $160 million in debtor-in-possession financing, including a $100 million revolving credit facility and a $60 million term loan.
The company expects to obtain $30 million of the term loan as soon as the court approves its plan, and use the money as early as this week to pay vendors for goods and services. The case was assigned to Judge Laurie Silverstein of U.S. Bankruptcy Court for the district of Delaware.
In a follow-up First Day Pleadings submission, Libbey gave notice as to how it expects to proceed in bankruptcy, how it will manage financially, and what it might look like upon exiting Chapter 11 — which it stated it wants to do by Sept. 13.
Libbey had sales of $782.4 million in 2019 but still posted a net loss of $69 million, compared to a loss of just $8 million the year before. The company was struggling under the weight of trade wars, shifting consumer patterns, and growing competition before the coronavirus pandemic severely damaged its sales to restaurants.
Over the last five years its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), an important metric for the company, had been steadily dropping from $116 million in 2015 to $70 million last year.
In a statement, Libbey CEO Mike Bauer said company officials believed they were headed for a strong year in 2020, but then sales were crippled by the pandemic.
"While we entered 2020 with positive momentum from our strong finish in 2019, the dramatic and prolonged impact of COVID-19 on the demand for our products and on our business is truly unprecedented in Libbey's more than 200-year history. As a result, entering this process is a necessary step to address our liquidity, strengthen our balance sheet and better position Libbey for the future,” Mr. Bauer said in a statement. “We believe this process will help Libbey become an even stronger, more influential partner to our customers, vendors and end users, and ensure we continue to create the most rewarding experiences with our extensive line of high-quality glassware and other tabletop products," he said.
Approximately 78 percent of the company’s sales were to customers in North America and the bulk of that is the foodservice industry. With restaurants throughout the United States and Canada shutting down in mid-March, Libbey’s sales plummeted.
For the weeks of Feb. 8 through March 14, Libbey’s sales were averaging about $10 million per week. The week of March 21 they dropped to below $4 million and the week of March 28 they were below $1 million. After that they exceeded $4 million just once through May 16, the bankruptcy filing showed.
Mr. Bauer said Libbey already is seeing some improvement in its end markets with the gradual lifting of stay-at-home restrictions, and during the last few weeks it has reopened its U.S. distribution centers and restarted several production lines at its two U.S. plants located in Toledo and in Shreveport, La.
The CEO thanked “all of our employees for their continued dedication and tireless efforts, especially during the unprecedented uncertainty we are collectively facing due to COVID-19. I also would like to thank our lenders for their continued support and look forward to working with them and all our stakeholders as we move forward.”
However, Libbey, which employs 5,543 people worldwide, could be headed for a rocky time with the 1,188 hourly workers in Toledo and Shreveport which are represented by five labor unions, the United Steelworkers and the Machinist unions.
In its filing, Libbey said its stated goal is to “reduce overall expenditures” in its union and retiree benefit obligations. It has about 2,100 retirees now receiving retirement benefits.
Libbey’s “goal is to negotiate consensual changes to their collective bargaining agreements and other retiree related programs and will begin this process within 10 days…” If a resolution cannot be reached, Libbey stated it may petition the court to reduce the size of its labor obligation within 90 days.
Libbey’s last contract with its unions was reached in 2016 after a two-week strike by workers.
The company also said in filings that its overall goal is to reach a “consensual, value-maximizing transaction with the creditor constituencies” that preserves Libbey as an ongoing concern that ultimately benefits all of its stakeholders.
Shareholders, though, are unlikely to be happy.
Libbey, which had been trading at 80 cents a share for much of last week on the New York Stock Exchange, and closed at 80 cents on Monday down from the 52-week high of $3.59.
However, that may not matter much because the company said it anticipated that its common stock will be delisted from the NYSE American very shortly and going forward its shares are expected to be traded on the Over-The-Counter Bulletin Board, otherwise known as the “pink sheets.”
Libbey added that it expects its equity shareholders will suffer “a complete loss on their investment,” depending on the outcome of the Chapter 11 case.
And Libbey’s future as a public company also may be in doubt.
Libbey began in 1818 as a private firm named the New England Glass Company, located in East Cambridge, Mass. In 1888, Edward Drummond Libbey moved the company’s operations to Toledo to become part of the Libbey-Owens-Ford Co. where it remained until 1935 when it was acquired by the Owens-Illinois Glass Co. and became known as O-I’s Libbey Glass division.
In 1987, Libbey Inc. and its subsidiary Libbey Glass were incorporated in Delaware, and in 1993 they were spun off from O-I and became a public company trading on the New York Stock Exchange under the ticker symbol “LBY.”
Monday, in a filing with the Securities and Exchange Commission, Libbey hinted that it could become a private company once more.
In a page titled “Cost Reduction Actions,” Libbey stated that its management has developed (a) plan to achieve $14.5 million of annualized cost savings. A bulleted point states that the plan “Assumes private company status post reorganization.”
Whether Libbey plans to go private in September is unknown. But Libbey also disclosed in its bankruptcy filing that over the last two months it considered a sale of the company to outside buyers.
In March, Libbey was informed by its lenders of “certain inbound merger and acquisition proposals from strategic buyers.” The company said it chose not to pursue those offers because, among other reasons “they were insufficient to pay the company’s …term loans in full, thus requiring lender consent and the Lender Group did not believe it was in the company's best interest to pursue such a transaction.”
Prior to that, Libbey already had borrowed $66.9 million on its $100 million line of credit with JPMorgan Chase Bank. Under borrowing restrictions, it had just $1.4 million that it could tap.
Last fall, the company had attempted to refinance its term loans but could not and abandoned the idea. After Jan. 1 it tried other strategic transactions involving its overseas operations but also to no avail.
By January it was already working with its corporate counsel to evaluate all restructuring options. Libbey said at the time it was being hurt by the impending Brexit no-deal in Europe, President Trump’s trade war with China, a growing trend in take-out food, shifting consumer preferences in Europe, and more competition from China and Mexico.
Then the pandemic hit and by March 3 Moody’s downgraded its corporate rating to negative from stable.
Kara Bruce, a University of Toledo professor of bankruptcy law who has been watching Libbey with the belief that it might be headed to bankruptcy, said the company’s filings make clear that the pandemic has hurt big companies and small businesses alike.
“I think we knew that COVID-19 was just going to have an unprecedented effect on all businesses. Now we see how the shut down is interacting with manufacturing,” Ms. Bruce said. “You can just imagine all the different types of pressure that will affect a company like Libbey. It must be very difficult to run a factory with social distancing in place.”
However, Libbey has good debtor-in-possession loans and all of their messaging seems positive, Ms. Bruce said. “There’s a lot that the Chapter 11 process does to make sure that the company’s operations will continue.”
Ms. Bruce said it makes sense for Libbey to file bankruptcy in Delaware, rather than Toledo where it is headquartered.
“Delaware and the Southern District of New York are the two most active bankruptcy courts in the nation. Some people think these cases should be handled closer to home so that creditors and shareholders can more easily attend the proceedings,” Ms. Bruce said. “But on the other side of the argument, businesses have an interest in bringing their case before a court with a lot of experience so they can predict how the court might rule.”
The law firm of Latham & Watkins is Libbey’s bankruptcy advisor while the firm of Alvarez & Marsal is the company’s restructuring advisor.
Last week, Libbey announced it had awarded key executives a combined $3.1 million in bonuses to dissuade them from leaving the company as it navigates through disruptions to its business model, which now includes bankruptcy.
Retention bonuses are usually a prelude to a bankruptcy filing. For example, nursing home chain HCR ManorCare provided retention bonuses shortly before filing for bankruptcy in 2018.
First Published June 1, 2020, 4:48 a.m.
