The Unofficial Airfix Modellers' Forum

I just saw that Hobbico in the United States has filed Chapter 11 bankruptcy protection. They own both Revell-Monogram and Revell of Germany in addition to being the American distributor for Hasegawa and Italeri. My big worry is how this will affect Revell of Germany.

http://www.wandtv.com/story/37239385/ho ... n-the-line

Apparently, quite badly - Hobbico bought back RoG in 2012. We watch with unease.

Not good. Hopefully the model manufacturing side of the business can be sold if necessary and can keep going.

To be fair, that often seems to be the case.

Don't forget that in the US, Chapter 11 is not bankruptcy itself (or liquidation as we say in the UK). It's a court procedure that stops the creditors of the business from placing the business into bankruptcy/liquidation. It's usually referred to as Chapter 11 Bankruptcy Protection. Many businesses emerge in one piece from Chapter 11.

Eric Mc wrote:Not good. Hopefully the model manufacturing side of the business can be sold if necessary and can keep going.

To be fair, that often seems to be the case.

Don't forget that in the US, Chapter 11 is not bankruptcy itself (or liquidation as we say in the UK). It's a court procedure that stops the creditors of the business from placing the business into bankruptcy/liquidation. It's usually referred to as Chapter 11 Bankruptcy Protection. Many businesses emerge in one piece from Chapter 11.

Indeed, I seem to recall BP used it during the fallout from Deep Water Horizon

I saw this. Not the best of news. Hopefully, the brand will continue, but it seems like a tough time for model manufacturers, like Airfix / Hornby and Revell.

I don't think it is a particularly tough time for plastic kit manufacturers. Nearly all the problems suffered by these companies are nothing to do with fluctuations in plastic kit buying or fluctuations in cost of raw materials or labour.

Almost without exception, they are due to problems with the holding companies that invariably own the plastic kit manufacturing subsidiary as part of a portfolio of different businesses.

What brings these companies down are factors such as -

a) fundamentally bad decisions made when funding mergers and acquisitions - such as borrowing at too expensive a rate
b) paying too much to buy a new business
c) poor due diligence when making that purchase (commonly known as "buying a pup")
e) gambling on a product line that doesn't pay off (Hornby and its "Olympic debacle" comes to mind)

Remember, FROG went out of business in 1976, which was probably the moment when model building was at its peak point - especially in the UK. It was problems in the holding company that brought it down, not a drop in the sales of its kits.

Airfix's woes in the early 1980s and again in the mid 2000s were also caused by poor decsiion making by the holding company in matters totally unrelated to manufacturing plastic kits.

I have seen/heard that some of Hobbico's problems might be a patent infringement with Traxxas or something like that.

Hobbico is more than just a couple plastic model companies, being into R/C and the like. The weakness could be anywhere in the structure.

Full disclosure: I worked part-time for Hobbico from 1993-2000 before it became an employee-owned company.

I've been doing some digging through the public articles and company filings and am more or less convinced that this BK is, in part, a vehicle to ditch Hobbico's obligations to its ESOP holders. Hobbico is an employee-owned company so all its employees get tax advantaged contributions of stock in the company. The catch is that when an employee leaves or is laid off (and Hobbico has laid off a lot of people over the last couple of years) they are entitled to a payout of the value of their ESOP shares 60 months after their termination date. Hobbico failed to make scheduled payouts from the ESOP at the end of 2016 and the share value plummeted by 80%. I discovered that in 2015 the total value of shares in the ESOP was $70 million with 700 holders of shares for an average value per person of $100,000.
In the bankruptcy, claims of the ESOP holders are subordinate to all other creditors. Assuming Hobbico finds a buyer, the ESOP shares remain with the bankrupt company and the shareholders get whatever is left after all other creditors have been paid. Hobbico just received permission from the bankruptcy court to access $70 million in debtor-in-possession financincing to keep the restructuring going and find a buyer. This financing is senior to all other debt the company has and, presumably coincidentally, is about the same as the ESOP valuation in 2015. The sale of the company will also free it from the ongoing investigation by the Federal government into mismanagement of the ESOP.
So my guess is that Hobbico is sold and survives in some form, although maybe it won't remain in Champaign, IL, but spare a thought for the 700 or so current and former employees who are going to see a good chunk of their retirement savings wiped out by this move. Note that, like stocks in 401k's, ESOPs are not covered by Federal government pension guarantees.

Sounds like my pension fund; taken over by an American company and robbed blind.

Employees get ripped off - where have I heard that before.

Spoke to the manager of my LMS today - he has had a call from the RoG rep to tell him not to worry - at least RoG will be in business for the foreseeable future and probably RoA and Monogram too. He said it was a dodge on behalf of Hobbico management to get out of pension obligations, much as VMA131 suggested. Politics aside, that is probably the most miserable reason for filing bankruptcy I can think of. May the managers who dreamed this up be cursed with sleepless nights, but somehow I think they'll sleep just fine. :(

Eric Mc wrote:Employees get ripped off - where have I heard that before.

Everywhere?.

Sadly - possibly true.