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Parent of Jim Walter Corp. Faces Chapter 11 Bankruptcy

December 20, 1989

TAMPA, Fla. (AP) _ Jim Walter Corp.’s parent company said Wednesday it was prepared to file for Chapter 11 bankruptcy protection in what would be a first among large firms taken private by buyout specialists Kohlberg, Kravis, Roberts & Co.

Kohlberg Kravis formed Hillsborough Holdings Corp. as part of its $2.4 billion takeover of the building materials company last year. A bankruptcy court filing by the company could inject fresh jitters into the junk-bond market that has financed such takeovers.

Hillsborough officials said the bankruptcy filing was expected to be made Dec. 27 if an exchange offer for $624 million worth of the company’s bonds was not accepted by at least 80 percent of the company’s bondholders.

Kohlberg Kravis has apparently failed to persuade a group of Hillsborough’s senior bondholders to accept a proposed financial restructuring of the company.

″If the pending exchange offers are not consummated on their current terms and conditions, Hillsborough and certain of its subsidiaries may have no alternative but to file voluntary petitions for reorganization under Chapter 11,″ said Hillsborough’s spokesman David Townsend.

If the offer is not accepted, Hillsborough faces the prospect of having to repay its notes in full, which it told bondholders at a meeting Tuesday that it could not do.

A Chapter 11 filing would blemish the record of Kohlberg Kravis, considered the dean of the leveraged buyout artists with the $25 billion RJR Nabisco deal to its credit. But the Hillsborough firm has some peculiar problems, which are not necessarily symptomatic of widespread weakness among LBOs, experts said.

″It’s not going to be that devastating,″ said James Grant, publisher of a New York interest rate newsletter and a critic of leveraged buyouts. ″Hillsborough Holdings had problems of its own that had nothing to do with the takeover.″

The biggest problem, Grant said, came last summer when Jim Walter was hit with a $3 billion asbestos-related lawsuit. Because of the class-action suit, Kohlberg Kravis has been unable to sell off Jim Walter’s assets. And without the proceeds from the sales, the company cannot meet its upcoming debt payments.

Hillsborough is the third company owned by Kohlberg Kravis to encounter financial difficulties in recent months.

In August, Kohlberg Kravis confirmed that Seaman Furniture Co., a leading furniture retailer, could not meet its debt payments and might not be able to continue operating. The company’s debt payments were later rescheduled successfully.

SCI Television Inc., of which Kohlberg Kravis owns 45 percent, is also involved in an exchange offer that is facing resistance from bondholders.

But neither of those Kohlberg Kravis holdings is as large as Hillsborough.

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