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< Return to Firm News ST&G Confirms Chapter 11 Plan for Falcon Industries November 15, 2005 On November 15, 2005, ST&G client Falcon Products, Inc., a St. Louis-based furniture maker, announced that its plan of reorganization had become effective and that it had thus emerged from chapter 11. The confirmation of the Falcon plan marks yet another instance of ST&G confirming a consensual plan of reorganization for a client.
Falcon filed for bankruptcy on January 31, 2005, after experiencing severe liquidity problems resulting from a downturn in revenues and profits. A contributing factor was the financial burden of debt taken on in connection with prior acquisitions. At the time of its filing, Falcon had approximately $300 million in debt, in addition to substantial under funded pension liabilities.
During the course of the case, Falcon was able to implement a multitude of new operational initiatives designed to improve sales and profitability, including closing certain locations and re-sourcing the manufacture of some product lines to foreign countries. With ST&G's assistance, Falcon was also able to negotiate certain economic concessions from its labor unions, and to obtain Bankruptcy Court approval of changes to its collective bargaining agreements, all without any labor disruptions. With regard to its financial problems, the major constituencies were able to reach agreement fairly quickly with respect to the basic terms of the reorganization plan.
However, the issue of Falcon's under funded pension liabilities remained a major impediment to plan confirmation. Even after giving effect to its recently implemented operational initiatives and proposed financial restructuring, Falcon believed it could not operate successfully as long as it was obligated to contribute to its 3 defined benefit pension plans, which were under funded by over $30 million. Falcon's lenders were in accord with Falcon on this point, and so conditioned their agreement to fund the chapter 11 plan upon the pension plans being terminated.
The problem was the Pension Benefit Guaranty Corp. ("PBGC"). Under applicable law, if Falcon's pension plans were terminated, the PBGC would have to assume most of Falcon's more than $30 million in pension obligations to employees, and would be left with an unsecured claim for a like amount, which claim would be worth very little under the plan. The PBGC thus refused to allow Falcon to terminate the pension plans, and contended that Falcon in fact could afford to maintain the pension plans.
ST&G thus commenced litigation with the PBGC in order to obtain a court order providing for the termination of the pension plans. Given the exigencies of the case (Falcon needed to emerge from chapter 11 promptly), this litigation was conducted on a very accelerated basis. At the end of the day, as a result of ST&G's efforts, Falcon prevailed over the PBGC in a trial conducted before the Bankruptcy Court, and the pension plans were terminated, thus paving the way for Falcon to emerge from chapter 11.
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