KGI Achieves Successful Turnaround with American Home
American Home, the Southwest's premier home furnishings retailer, had expanded to a peak of 11 stores, 674 employees, $133M in Sales and $3.7M in EBITDA before the recession took its toll on the business.
The company was founded in 1936 in Albuquerque and expanded from New Mexico and into Arizona in 1993. In 2005, American Home was sold to a private equity group just before the pending economic downturn began to significantly impact the business in 2006. By 2007, the stores in Arizona were registering 20-32% declines in same-store sales and some of the worst retail locations were at 60% of the forecast. By the time American Home filed for Chapter 11 Bankruptcy protection, it had amassed $39.3M in debt and some creditors were actively pushing for a total liquidation of the business. Today, the business stands as 3 profitable locations generating $31M in Sales and continues its legacy of leadership through unique product selection, everyday low prices and knowledgeable sales associates.
The company embarked on a radical downsizing plan that focused on the locations that could achieve consistent four-wall profitability in the midst of one of the most difficult economies in thelast century. KGIís Dick Alstonís acted as the CRO (Chief Restructuring Officer) and led development of a new business plan, negotiated with secured and unsecured creditors, helped manage cash flow and assisted with the bankruptcy process.
The company elected Chapter 11 Bankruptcy Protection in October 2008 and had its Plan of Reorganization (POR) confirmed by the courts in July 2009. After completing the reorganization and stabilizing the operations with a steady-flow of EBITDA, KGI is stepping back from its leading role as Chief Restructuring Officer.
The major actions taken included:
- Eliminating 8 locations and generating cash to pay-down debt. We quickly identified those stores that were not achieving four-wall profitability and assessed the liquidated value of their inventory.
- Serving as Interim Chief Restructuring Officer. We offered rightsizing and program management expertise, prompting quick actions and decisions to best support the business and its many years of banking relationships. KGI provided turnaround and interim management during a mission-critical period.
- Reducing overhead expenses. We made radical and deep expense cuts in the finance, human resources, IT and management costs.
- Advising senior management on restructuring negotiations. We led the strategic discussions on possibilities with secured and unsecured creditors and plan development.
- Delivering a successful exit from Chapter 11. We achieved a clean balance sheet for the new entity.
- Maintaining control of the company and retaining value in the companyís equity.
- Avoiding liquidation enabled the American Home to maintain a significant level of employment and continue to serve as a pillar to the community.
- Paying the secured lender 100% within 4 weeks.
This is yet another successful example where middle-market companies leverage Chapter 11 to reorganize and drive solutions, often where the existing owners retain ownership and the creditors agree upon a new debt structure. Ultimately, these solutions result in all parties being much better off and achieving better payouts than if the companies were to liquidate.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.