By Aaron Waldron
The News-Gazette, a daily newspaper based in Champaign and serving East Central Illinois, reported earlier this morning that Hobbico filed for protection under chapter 11 of the United States Bankruptcy Code.
(Photo by: Stephen Haas/The News-Gazette Hobbico, Inc. Corporate Campus, 2904 Research Road in Champaign, Tuesday, Dec. 19, 2017.)
The newspaper’s article continued to say that it had obtained an internal letter sent to employees earlier today from Hobbico’s human resources director Howard Salazar saying the company "has determined that it may be necessary in the near future to permanently close and discontinue all of its operations in connection with a bankruptcy case to be filed under chapter 11 of the United States Bankruptcy Code.”
Hobbico published a statement on its website saying the following:
|Hobbico, Inc. ("Hobbico" or "the Company") announced today that it has filed a petition for relief under Chapter 11 of the United States Bankruptcy Code while it seeks an orderly finalization and implementation of its comprehensive restructuring plan. The petition was filed today with the United States Bankruptcy Court – Wilmington of Delaware In conjunction, Hobbico also announced its plan to sell the company.
Since 1971, Hobbico has grown in to one of the largest United States distributors of radio-control and general hobby products. Built up over time and with the best intentions to further grow its business, Hobbico’s debt has added too much leverage for the Company, and it has been unable to successfully restructure to help meet its financial obligations. With the added impact over the last few years of an increasingly competitive industry, market headwinds and a series of one-off events with key suppliers, Hobbico’s current financial position is unsustainable.
"Despite Hobbico’s core strengths, our business has faced a number of challenges in the last few years, and we have taken steps to ensure all available options to restore the stability of the Company have been exhausted," said Louis Brownstone, President of Hobbico, Inc. "However, while these efforts were taken to rebuild revenue and profitability, they did not sufficiently address our challenges and we decided to pursue a Chapter 11 reorganization and attempt to attract new capital investment."
By filing for Chapter 11, Hobbico is seeking protection from its creditors in order to allow for an orderly finalization and implementation of its restructuring plan. This approach allows the Company to continue to operate the business throughout the bankruptcy process. Hobbico intends to use the bankruptcy filing and possible sale of the business to reduce debt, restructure liabilities, attract new capital investment and position the company for future growth. The filing and potential sale also aim to preserve Hobbico’s industry-leading business, including allowing the Company to invest in new products and continue supporting all of its customers and extended business network.
"Taking the necessary step to file for bankruptcy is difficult, but it will help preserve the value of our business and it’s the right thing to do for our company and our employees," added Brownstone. "Under the process afforded to us under Chapter 11, we hope to reach an agreement with our creditors that will allow us to implement a restructuring plan that fully addresses our financial challenges while simultaneously identifying a prospective buyer that shares our vision of providing the best possible outcome for our employees and the future of Hobbico."
The news comes following other financial setbacks over the last couple of years, as documented in the News-Gazette article, including the deferment of employee stock-ownership payments at the end of 2016, which have since dropped by more than 80 percent, as well as the closure of the company’s 200,000 square-foot warehouse in Reno, Nevada (about which we reported last week — you can read it here: www.liverc.com/news/special_features/BREAKING%3A_Hobbico_closed_warehouse_in_Reno/).
The article also states that Salazar’s email also said, “(U)pon the sale of the company, it is possible that there will be a permanent shut down of all Hobbico operations and locations and the permanent termination of all Hobbico employees, including the permanent layoff of all 332 employees assigned to the Company's facility at 2904 Research Road, Champaign," and that “(w)e realize that the uncertainty regarding the future of the Company may be concerning to employees, and we hope to be able to keep the business open through the bankruptcy and sale of the business, in order to minimize the disruption to the lives of our employees and their families.”
On January 4, in another email obtained by the News-Gazette, Hobbico HR manager Megan Huppert told employees about the Reno warehouse closure that “(t)his step follows a number of actions Hobbico has taken over the past 18 months to control our costs, reduce our debt and improve our overall financial position. Among other things, we have taken steps to refinance our debt, increase product pricing and improve product profitability, improve operational efficiencies and develop new product lines to address declining sales. Despite these efforts, our business continues to face significant challenges. As we have shared before, we are experiencing increasing competition and our leading product lines have been negatively impacted by market headwinds and a series of one-time events with key suppliers."
You can read the full News-Gazette article here: