Hobbico files for bankruptcy; layoffs next?


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Biz tips? Email Ben Zigterman at bzigterman@news-gazette.com


CHAMPAIGN — Hobbico filed for bankruptcy protection Wednesday, which could result in 332 layoffs at its Champaign facility.

In a statement, Hobbico said that it plans to sell the company and will continue operating throughout the bankruptcy process.

Hobbico also said that as it has grown, it has added too much debt and hasn’t been able to succesfully restructure, especially facing "an increasingly competitive industry, market headwinds and a series of one-off events with key suppliers."

In its filing with the United States Bankruptcy Court in Delaware, Hobbico said it has an estimated 200 to 999 creditors, $10 to $50 million in assets, and $100 to $500 million in liabilities.

"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, Hobbico’s president. "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."

In a notice sent to employees Wednesday, the distributor of hobby products said the layoffs, if they happen, could begin in April.

Hobbico "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," wrote human resources Director Howard Salazar in a letter dated Wednesday obtained by The News-Gazette.

The letters were sent as a formal notice under the Illinois Worker Adjustment and Retraining Notification Act, which requires employers to notify employees and the Illinois Department of Commerce and Economic Opportunity 60 days before they plan to make mass layoffs.

"I can't speak for the company, but it's usually one of the last steps," said Jacquelyn Reineke, spokeswoman for the IDCEO. "Most of the time, it's pretty serious."

Hobbico said it could avoid the layoffs, as it has been trying over the past several months to restructure the company's obligations to creditors.

"That plan provides for continued funding during the bankruptcy case to support the Company's business operations, including the preservation of employee jobs and related wages and benefits, until the Company can be sold," Salazar wrote.

However, Hobbico said that it can't assure that the buyer would continue employing people at its Champaign location.

"Thus, upon 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," Salazar wrote.

Additionally, Hobbico said that to continue receiving funding, it has to meet several conditions, "which cannot be assured," Salazar wrote.

"If those conditions are not met, then it is possible that the Company may lose access to those funds, and the Company may be forced to shut down its operations."

In closing, Salazar reiterated that the company hopes to stay open.

"We 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," he wrote.

In its statement, Hobbico said filing for bankruptcy protection "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," Brownstone said. "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."

Hobbico was formed in 1986 when Clint Atkins combined two companies he bought: Don Anderson's Great Planes Model Distributors and Bruce Holecek's Tower Hobbies, which was founded in 1971.

According to its website, Hobbico is the largest U.S. distributor of hobby products and has 12 different facilities, including five in Champaign-Urbana and others in Germany, the United Kingdom, California, Colorado and Nevada.

And according to the latest top employers report from the Champaign County Economic Development Corporation, Hobbico is the 19th-largest employer in the county.

But it has been in a rough patch lately.

The U.S. Department of Labor is investigating Hobbico's employee stock-ownership plan after the company deferred payments.

After deferring those payments at the end of 2016, then-CEO Wayne Hemming wrote to employees that, "It is expected that 2017 will also be a challenging year for the business."

The share value of employee stocks recently declined by more than 80 percent, with one former employee saying the value of her ESOP account dropped from just over $27,000 to less than $5,000.

Hobbico also recently announced it will close its 200,000-square-foot distribution facility in Reno, Nev., on Feb. 28.

"This 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," HR manager Megan Huppert wrote Jan. 4 in an email to employees obtained by The News-Gazette.

"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."

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