Armstrong: Retirees could lose benefits in potential sale
As Armstrong Flooring seeks a buyer through the Chapter 11 bankruptcy sale process, a Lancaster attorney, Pa. established company in legal proceedings that interested buyers of the company do not want to pay health and life insurance benefits to retirees.
This latest development, which occurred in U.S. bankruptcy court in Wilmington, Del., on June 3, affects an estimated 1,660 Armstrong Flooring retirees receiving health insurance benefits and approximately 2,000 receiving life insurance benefits.
Ron Meisler, an attorney at Skadden, Arps, Slate, Meagher & Flom LLP, who represents Armstrong Flooring in its Chapter 11 lawsuit, said at the hearing that all bidders that Armstrong Flooring has heard of have stated that they do not wish to assume the guilt of the pension benefits. The ongoing expenses required under the retirement plans — nearly $245,000 a month — are prohibitive given the company’s lack of cash and budget constraints on funding, Meisler argued.
In addition to the health and life insurance benefits, Meisler said the health benefits are a liability of about $15 million and life insurance is a liability of $40 million. In addition, there are $2 million to $3 million in annual administration fees.
At Armstrong Flooring’s request, the court authorized the US trustee to appoint a committee of retirees to negotiate with the company; the commission would only include non-union retirees. The United Steelworkers union and the International Association of Machinists and Aerospace Workers are representing their retirees in this case.
The deadline for bids is June 14th with an auction, if necessary, before June 16th. If the successful buyer doesn’t take the blame, Armstrong Flooring will likely return to court to waive or reduce the liability, Meisler said.
As reported by Lancaster Online, other matters discussed at the June 3 hearing included payments to critical suppliers and rent payments to High Properties, the landlord of Armstrong Flooring’s headquarters at 1770 Hempstead Road in East Lampeter Township. Armstrong Flooring is in the process of paying unpaid rent incurred prior to its May 8 bankruptcy filing.
Armstrong Flooring aims to sell its North American, Chinese and Australian assets as a going concern, and bidders for each asset include going concern buyers, which would keep the business operational. Armstrong Flooring acknowledged that there could be bidders trying to liquidate its assets.
Armstrong Flooring’s turnaround adviser, investment bank Houlihan Lokey, said there are 100 interested parties that have been investigating or actively investigating participation in the sale process, and that it has nearly 70 nondisclosure agreements with such parties.
In May, Armstrong informed all of its employees that they could be fired before the end of June if the company could not find a buyer to keep it going.
Lancaster Online reported that during the June 3 hearing, Armstrong proposed paying bonuses to as many as 50 “key personnel,” equating to about $14,900 per person. The bonuses would range from 8% to 12% of the annual base salary of key individuals deemed important by executives and their consultants to assist in the sale and settlement of the business.
This proposal is independent of the bonuses already received by top managers. According to court records, Armstrong Flooring senior executives received $3.4 million in retention bonuses in February 2022, in addition to the $1.4 million they received a few days before the bankruptcy filing. The withholding amounts must be refunded if the executive resigns for cause or is terminated by the company for cause before September 3.
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