United Grounds More Planes and News on Other Financially Challenged U.S. Companies for June 5

The items below are taken from the Credit Manager’s Weekly Summary of Financially Challenged Companies. A full issue contains information on more than 200 companies. Please visit the insideARM bookstore for information on subscribing to the Summary.

Borders Group Inc., the Ann Arbor, Mich.-based bookseller, announced that it will reduce corporate staff by more than 270 positions (2% of its full-time workforce), as it tries to reduce expenses by $120 million. Borders, facing liquidity difficulties, recently put itself up for sale and has been trying to find buyers for some of its assets, including the bulk of its international business.

Empire Resorts Inc., Henderson, Nev., reported a first quarter net loss of $3.8 million. Revenue declined 14%–to $15.7 million.

Home Interiors & Gifts Inc., a Carrollton, Texas seller of home-decor products, is cutting two dozen jobs in Carrollton by 8/1.  Home Interiors, which filed Chapter 11 two months ago, recently said it would cut more than eighty local jobs and last month announced the closure of its Dallas Woodcraft Co. unit, resulting in the loss of another 100 jobs.

Ford Motor Co., while trying to overcome steep drops in SUV and pickup truck sales, hasn’t been getting much help from its Ford Motor Credit business. Ford Motor Credit has often been a lucrative business for the parent company, paying the carmaker a total of more than $16 billion in dividends between 1998 and 2006. Ford Motor Credit didn’t suffer from the mortgage crisis, having stayed out of that business, but it has suffered from rising car-loan defaults and repossessions. As a result, Ford Motor Credit didn’t make a payout to the parent company last year and apparently doesn’t expect to make one this year either. With its finances under stress, Ford Motor Credit, with $24 billion in cash and available lines of credit during the first quarter, has had to buck up its finances by selling off some assets, borrowing $1.1 billion of high-interest unsecured debt and boosting its secured loans by $5.3 billion. Still, Ford Motor Co. considers the credit arm a strategic asset and has no plans to spin it off, as rival General Motors Corp. did with its GMAC business.

General Motors Corp.’s decision to phase out production at four of its plants in North America that make SUVs and pickup trucks seems to indicate that the era of the SUV is really coming to an end, as high gas prices have knocked the bottom out of the SUV and big-pickup-truck markets. For example, six years ago GM sold 600,000 full-size SUVs but at the rate it’s selling now GM will only sell about 250,000 of them this year. Overall, the Detroit, Mi. carmaker is cutting out a half million vehicles from its production capacity in North America, hoping to yield another $1 billion in savings on top of $5 billion in savings it had targeted by 2011. The firm will focus much more on smaller cars, and in fact GM has announced it will boost production and add shifts at some plants that manufacture mid-sized sedans and compacts. The plant shutdowns, which will affect about 8,000 workers, come only days after the firm said it was looking forward to running at full production by the middle of the month at about twenty facilities where production had been reduced or idled because of a parts shortage stemming from the recently ended labor strike at American Axle & Manufacturing Holdings Inc. The American Axle strike caused interruptions at thirty-three GM plants, which cost the carmaker an estimated $2.6 billion.

Hovnanian Enterprises Inc., the Red Bank, N.J. homebuilder, reported a widened second quarter net loss of $341 million, compared to a loss of $28 million in the year-earlier period.  The results included more than $250 million in pretax land-related charges. Revenue sank 30%–to $777 million.

Metromedia Restaurant Group, the privately-held operator of the Bennigan’s, Ponderosa and Steak Ale chains, is reportedly in negotiations with GE Capital Solutions to rectify its credit situation and stay out of bankruptcy. The firm’s eateries have suffered as consumers cut back on spending in the casual-dining segment. It has about 750 company-owned and franchised restaurants across the U.S. and brings in annual sales of about $1 billion. The firm, which is owned by billionaire John Kluge’s Metromedia Co. holding company, has a bankruptcy filing ready to go if need be.

Plastech Engineered Products Inc. asked for the okay from the U.S. Bankruptcy Court on a settlement with its lenders and main customers that will help Plastech in its efforts to sell off its assets and wind down its business. The wind-down settlement with big customers, including Ford Motor Co., General Motors Co., Chrysler LLC and Johnson Controls, amounts to $17 million.

River View at Miami LLC, a developer in South Florida, filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Florida. The firm listed assets and liabilities of between $1 million and $100 million each. The case number is 08-17115. The company’s owner, Recaredo Gutierrez, also filed bankruptcy for himself and four other related companies.

Steinway Musical Instruments Inc. of Waltham, Mass. is closing its Conn-Selmer Inc. plant in Elkhorn, Wis. in a consolidation move to boost efficiency. The closure of the plant, which makes brass instruments, will result in the loss of seventy jobs. At the beginning of the year Conn-Selmer announced plans to shutter a woodwind instrument factory in Kenosha, Wis. The closure of the Elkhorn facility will result in extra charges of between $1.3 million and $1.7 million, to be taken in the second and third quarters.

Stemwinder Homes, West Palm Beach, Fla., filed Chapter 7, blaming customer defaults and high costs for materials. The firm listed assets and liabilities of between about $1 million and $10 million each.

Thor Industries Inc., a Jackson Center, Ohio maker of recreational vehicles, reported its third quarter net income declined 22%–to $28 million. Revenue fell 10%–to $708 million.

Torrent Energy Corp. filed Chapter 11 in the U.S. Bankruptcy Court in Oregon and hopes to soon file its reorganization plan as it intends to continue operating if it can find the appropriate financing. The plan will likely call for a debtor-in-possession credit and guarantee agreement with Torrent working out financing for working capital and other uses. The company’s Methane Energy Corp. and Cascadia Energy Corp. subsidiaries are also seeking bankruptcy protection. According to the filing, under case number 08-32638, the company has liabilities of less than $1 million and assets of about $36 million.

United Airlines will ground another seventy of its planes, bringing to more than ninety the number of aircraft it’s cutting, particularly older gas hogs, as it seeks to conserve cash amid soaring costs for jet fuel.  By the fourth quarter, United’s mainline capacity will be down 10%. That reduction of its fleet will likely lead to a large number of job cuts as well, on top of up to 1,600 reductions it announced for its salaried workers and managers. The firm also recently said it would seek 500 job reductions. The Chicago-based carrier recently reported that traffic in May dropped 4%, with its load factor, or the percentage of seats filled, slipping to 82.6%. The firm is trying to work out a go-it-alone strategy after a number of merger opportunities didn’t pan out. Giving up on a recent merger possibility with US Airways Group Inc., it will try to hammer out an alliance with Continental Airlines Inc.  United and Continental, which have been in talks for some time (Continental nixed an outright merger with United two months ago), expect to reach an agreement within weeks that would bring Continental into Star Alliance, a worldwide marketing arrangement. However, various problems with contracts and regulators could delay an official team up until sometime next year. For example, Continental won’t be able to get out of its existing alliance with Delta Air Lines Inc. and Northwester Airlines Inc. until those two carriers consummate their planned merger. As for the benefits of such a pact, while a marketing alliance could help boost revenue, it’s unlikely that it would do much to reduce expenses.