Layoffs loom at Coe Newnes

April 30, 2008

Major employer: Company goes to court for creditor protection, lender to decide future.

For workers at Coe Newnes McGehee, even the best-case scenario is bad.

At a three-hour, all-employee meeting on Saturday afternoon, employees were told that the company can no longer meet its financial obligations. Shawn Casey, chair and CEO, explained to the Observer Monday afternoon what is happening with the company.

Although the company also has operations in Ohio, Oregon and Georgia, it is just the local operation which is currently in trouble. Salmon Arm is the largest site and is almost exclusively focused on producing equipment for dimensional lumber production.

The incorporated Salmon Arm company of Coe Newnes McGehee has filed with BC Supreme Court “a notice of intent to make a proposal,” Casey said.

“The idea behind that is to seek protection from parties who have claims against the company and for the company to operate under a court-supervised process.”

He said it tells creditors the company is formulating a next step.

“It’s not clear what the next step will be. There is genuine interest from customers, from suppliers, from the lender and from employees for the company to be able to operate in some form in the future.”

He said the company is in discussions with its lender, Golden Tree Capital Solutions in New York City, as to what the best method will be for the company to continue to operate.

He said options include declaring bankruptcy and closing its doors, which isn’t favoured, or to continue to operate under what’s known as the Companies Creditors Arrangement Act, or CCAA.

He said while the company is now operating under a form of creditor protection, under the CCAA process, a business plan is developed to which the majority of shareholders must agree.

“The focus and effort would be on becoming financially viable so it can pay its obligations.”

Asked what are the worst and best options the employees face, he said the worst would be that everyone is laid off and the doors are closed.

“But again there’s not a lot of interest on the part of the major stakeholders for that to happen,” he said. “It’s virtually on whether the lender wants to continue the operation of the company under the CCAA.”

The best case, he said, would be for the company to retain one-third of its 330 employees. He said the company usually does $80 to $90 million in annual sales volume, but it likely won’t do more than $30 million over the next year or two.

“It would be important to retain enough people and capability to respond to an upturn in the market should that occur - it’s unlikely we’d see any upturn until 2010.”

Asked if employees will be paid what’s owing to them, he said employees are usually paid in arrears, meaning they get paid after about a week’s work.

He said it will depend on what the lender decides to do.

Casey said employees who are owed money – himself included – will become unsecured creditors.

“Lawyers and advisors in the court proceedings will obviously be paid first. Then the secured creditor – the lender, Golden Tree...,” he said.

After that, the unsecured creditors, meaning the employees, will have to compete with anyone else, such as suppliers, who may be owed money.

Asked if the staff are reduced by two-thirds, would wages be cut back as well, Casey said he doesn’t know because under the CCAA process, the lender would be in control.

Casey said he’ll be resigning once a decision is made by the courts as to what direction the company will be heading, and he’s not sure when the decision will be made – possibly today, Wednesday.

“I can’t continue to operate as a director and officer when someone else is in control. I don’t want to be responsible for what they do and what they say.”

While the company had new business bookings in March, some in North America and some farther afield, customers decided to delay their spending plans because of the terrible market conditions in the U.S., Casey said.

“I was really hopeful leading up to March we would be able to survive this. Seeing our March opportunities evaporate, it became clear we weren’t going to get through this without some kind of major restructuring.”

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Layoffs loom at Coe Newnes

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