Court Approves Nortek’s Chapter 11 Reorganization Plans

Nortek is well on the way to reorganization after its chapter 11 bankruptcy plans were approved on December 3.

The approval was granted by the US Bankruptcy Court for the District of Delaware for NTK Holdings, Inc., Nortek Holdings, Inc., Nortek, Inc., and Nortek’s domestic subsidiaries.

Those subsidiaries include a group of electronics companies collectively known as Home Technologies Products (HTP), operated by Linear LLC: ELAN Home Systems, Gefen, HomeLogic, Imerge, Linear, LiteTouch, Niles Audio, OmniMount, Panamax, SpeakerCraft, Sunfire, Xantech and others.

The Court's approval of the Nortek reorganization follows a number of motions by the debtors requesting permission to pay trade creditors any balances that were incurred prior to the debtors’ chapter 11 filings on October 21, 2009; pay all salaries and wages to employees; honor all customer programs and product warranties; and continue to use cash on hand for general business operations.

Nortek said in a statement that the company "expects to emerge from bankruptcy as a reorganized company as expeditiously as possible."

Nortek has a commitment for a $250 million asset-backed credit facility which will be available for general business operations when the debtors emerge from bankruptcy.

From comments on various CE Pro articles about Nortek's woes, dealers have been concerned about the viability of some subsidiaries in the wake of the chapter 11 filing – fueled in part, allegedly, by rumor-mongering among competitors.

Leaders of several HTP companies have maintained all along that Nortek's bankruptcy would not affect the subsidiaries negatively; in fact, the reorganization would be beneficial.

Elan CEO Bob Farinelli presented his perspective, following "much speculation in the media."

Under the terms of a pre-packaged Chapter 11 filing this month, much of NTK Holding’s outstanding debt will be converted into equity. This reduces interest payments due to creditors, strengthens the balance sheet and improves cash-flow in the organization. Any time debt is converted to equity an organization’s overall financial strength is improved – providing working capital to help grow the business (including the possibility of new acquisitions down the road)

Before Nortek filed for chapter 11 protection, Grant Rummell, chairman of Linear LLC told CE Pro, "Nortek is Nortek. It is not going to have an effect on the subsidiaries. We have money in the bank."

On Dec. 3, one day before the Court approved its reorganization plan, Nortek filed results for the third quarter ended Sept. 30, 2009. The company had net sales of $452 million compared to the $583 million recorded in 2008. For the first nine months of 2009, Nortek reported net sales of about $1.4 billion compared to the $1.8 billion recorded in the first nine months of 2008.

Chairman and CEO Richard L. Bready said in a statement:

Nortek continues to manage its business effectively as the residential and commercial markets continue to struggle. Nortek’s focus on cost-reduction initiatives, working capital management, manufacturing efficiency improvements and strategic sourcing actions have resulted in positive liquidity and improving margins. Recovery of the housing market is uneven, but more positive than negative. Additionally, the North American commercial construction market continues its downward trend. Our continuing long-term strategy is to maintain our distinctive brand leadership, hold market share and emerge from bankruptcy ready to grow in a rising future economy.

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