CONVERSE FILES CH. 11, CLOSES 3 PLANTS
Byline: Evan Clark
NEW YORK — Athletic footwear marketer Converse Inc. said Monday that it has voluntarily filed for Chapter 11 bankruptcy court protection and plans to stop manufacturing in favor of becoming an exclusive licensor of Converse-brand products — resulting in the closure of three North American plants and the loss of about 1,000 jobs.
The company, which filed for protection from its creditors in a Delaware bankruptcy court, said it expects to have the necessary financing to continue operations while it restructures. The firm has signed a post-petition credit facility with its existing lender group led by Bankers Trust Company, an affiliate of Deutsche Banc Alex.Brown.
The North Reading, Mass.-based company’s stock closed at 20 cents on Monday, up 3 cents, in over-the-counter trading. During the last year the stock’s price has ranged from 15 cents to $1.25.
Converse said the company will continue to talk with creditors regarding a financial restructuring. It said it plans to shift completely to a licensing model like the one already used in all overseas markets. Converse is seeking approval of a licensing agreement with Global Brand Marketing Inc., the licensee for Diesel Footwear. The proposed shift in business model will reduce operating costs and help further the reorganization, the firm said.
The company said it will continue to supply its U.S. retailers directly for the first half of 2001. Global Brand Marketing will begin supplying the U.S. wholesale market by June 15, which is the start of the back-to-school season. Under the agreement, the firm also will have the right to purchase Converse-operated retail outlets.
If approved, production operations will be shifted to a supplier in Asia.
Glenn Rupp, chairman and chief executive, noted in a statement: “We are proud of our company’s history as a domestic manufacturer, but to meet today’s tough industry challenges, we have no choice but to move to a more competitive system of production.”
Fifty percent of Converse footwear is already produced in Asia.
Converse plans to reduce secured debt as a result of decreased working capital needs after the transition to a licensing-only business. The company has already sold its North Reading, Mass., headquarters building for $15.1 million. Proceeds from the sale were used to reduce its secured debt. Also under consideration are various long-term financing alternatives, including a potential securitization of licensing income.
“Over the next several months, we will work with our creditors to finalize a plan of reorganization. Our goal is to emerge from this process as a leaner and financially healthier business,” said Rupp.
The ceo noted that the company’s needed to file for Chapter 11 to restructure its long-term indebtedness. Converse incurred significant debt in 1995 with the acquisition of the sports apparel company Apex One. In 1997 the company again increased its debt to meet higher working capital needs during a growth period.
The firm’s sales have been increasing. U.S. wholesale sales were up 9 percent over a year ago, while domestic backlog at the close of 2000 was 36 percent higher than a year earlier.