Construction slowdown blamed in Vegas bankruptcies

By Steve Green

Published Tuesday, May 19, 2009 | 1:13 p.m.

Updated Tuesday, May 19, 2009 | 2:22 p.m.

The slowdown in new home construction nationwide has led to a massive bankruptcy filing involving at least seven Las Vegas-area companies with hundreds of employees.

Stock Building Supply said that as part of the bankruptcy it plans to sell or close seven Las Vegas-area operations, which are:

- Vegas Phase KB Framing with 132 employees

- Vegas Crew K & K Framing with 114 employees

- Vegas Electric with 91 employees

- Vegas Plumbing with 89 employees

- Vegas Door and Trim with 53 employees

- Vegas Yard with 3 employees

- Mc Gwire Supply with 3 employees

Stock Building Supply Holdings LLC of Raleigh, N.C., announced May 6 a reorganization in which it filed for bankruptcy protection and that an affiliate of private equity shop The Gores Group LLC of Los Angeles acquired 51 percent of Stock from previous owner Wolseley Plc, a building materials supplier listed on the London Stock Exchange.

Stock said it is one of the largest suppliers of building products to professional builders, contractors and other customers in the United States, with revenue of $3.5 billion for the business being acquired by Gores during the fiscal year ended July 31. The company, which also offers contracting services in some markets, posted an operating loss of $744 million for that fiscal year and has been struggling with liabilities and debt totaling $1.947 billion as of Jan. 31.

The Gores' investment of $75 million and a $125 million revolving credit bridge facility are conditioned on completion of the bankruptcy.

"We are very excited about today’s announcement and look forward to working with Gores to develop the business," Stock President Joe Appelmann said in a statement May 6. "Gores’ strong operational expertise and focus will help position the company during this unprecedented downturn and to outperform the market."

"Stock has been providing the U.S. market with the highest quality building materials for more than 80 years. As one of the United States’ leading suppliers of building materials to professional home builders and contractors, Stock presents a compelling investment opportunity, particularly at this point in the economy," Ian R. Weingarten, managing director of The Gores Group, said in a statement. "The company has taken aggressive actions to mitigate the effects of the housing downturn by continuing to diversify its business and streamline its operations. These steps taken by the Stock team in tandem with Gores’ focus and operational expertise will position the business to achieve its full potential and continue to deliver high quality products and service to its customers."

"Executing a joint-venture agreement with Gores and completing this recapitalization will allow Stock to emerge financially stronger from this economic down cycle," said Chip Hornsby, group chief executive officer of Wolseley, which plans to maintain a 49 percent stake in Stock. "We look forward to working with Gores to move forward with the business."

"The bankruptcy provides Stock with the flexibility to shed the company's operations associated with its closed locations and underperforming markets as well as inject fresh, needed capital. The new capital is intended to ensure a stable ongoing business model as well as permit the company to pay all of its creditors their claims in full as allowed by the bankruptcy laws," Stock said in a statement.

In a statement Tuesday, the company said: "Stock will be closing stores in select under-performing markets in order to focus on those markets with the strongest prospect for growth. We've made these decisions now to ensure Stock is well-positioned for the housing market upturn."

In court filings, Stock described how its business has been hurt by the recession:

"Beginning in October 2006, Stock began restructuring its business in response to ... negative market conditions. Overcapacity in numerous markets led to branch closures and workforce reductions. Unfortunately, the downturn proved more significant than first anticipated and Stock was forced to continue restructuring efforts. Stock implemented an additional restructuring program in October 2008 which included, among other things, a reduction in headcount of over 5,000 positions to current levels of approximately 7,000, and the closure of over 90 branches, including exits from 16 markets across the country. This brought cumulative branch closures to more than 150 since October 2006 and cumulative headcount reductions to more than 11,000 positions since peaking in June 2006. Despite these restructuring initiatives, costs of the business continue to exceed revenues.''

It's unclear when the turnaround in housing construction will happen. The Commerce Department on Tuesday said new housing unit starts in April totaled 494,000 at an annual rate, down 3.3 percent from March and down 50 percent from April 2008.

After selling or closing the seven businesses, Stock plans to exit the Las Vegas market, a spokeswoman said.

In the Las Vegas area, 12,537 units were permitted in 2008, down from 24,089 in 2007, the agency said.