Indiana limestone is well-known in architectural circles as the “nation’s building stone” and is used today as a durable and energy-efficient dimensional building stone cladding the exteriors of institutional, commercial and residential structures across the country. Notable buildings featuring Indiana limestone include the Chicago Tribune Tower, the Ronald Reagan Building in Washington D.C., the Empire State Building, the Pentagon and the U.S. Holocaust Memorial Museum, as well as 35 U.S. state capitol buildings. Notable architects Robert A. M. Stern recently utilized it on a high-rise at 15 Central Park West in New York City.
Indiana Limestone Company (ILCO), headquartered in south central Indiana, owns eight quarries and controls 70% of all Indiana limestone reserves. Indiana is the home of one of the richest and highest quality dimensional limestone deposits in the world. When the Great Recession hit, the U.S. construction industry and ILCO were hit hard. To pay off its creditors and sustain operations, ILCO severely cut back on its operations and sold off inventory — a short-term solution that didn’t turn out well when the U.S. construction industry failed to recover. In early 2013, ILCO was out of options. Despite selling off nearly all of its inventory, it continued to suffer from a high debt load left over from prior leveraged buyouts in 2006 and 2010. ILCO’s owner, a private equity firm, was unwilling to provide any more financial support, and in the late fall of 2013, ILCO commenced a sale process.
Chapter 11 and a DIP Facility
Wynnchurch Capital’s investment team visited ILCO’s operations in early December 2013 and quickly concluded that in order to save the company and maximize value for stakeholders, the right course was to buy the debt of ILCO, assist ILCO with its Chapter 11 bankruptcy and immediately fund the restart of ILCO’s quarrying operations through a DIP facility provided by an affiliate of Wynnchurch. ILCO’s lenders accepted Wynnchurch’s proposal to acquire ILCO’s debt just before New Year’s Day and Wynnchurch and its advisors were on site January 2, 2014, initiating diligence. Wynnchurch closed the note sale transaction by the end of January, and ILCO filed for bankruptcy two weeks later.
Wynnchurch’s transaction provided significant value to ILCO’s lenders. First, ILCO’s quarrying operations were essentially shut down and ILCO had minimal net borrowing availability. The company was selling everything it could at a discount to generate cash to fund payroll. If a typical process of signing up a stalking horse and then filing Chapter 11 with a DIP provided by the existing lenders (“bridging” ILCO to a sale) had been followed, the lenders would have been faced with an expensive Hobson’s choice of either: 1) increasing the exposure to ILCO to fund new quarrying with no increase in exit value, or 2) not funding the business and facing continued erosion of ILCO’s enterprise value. Both options were going to reduce the lenders’ recovery. Second, the certainty of a transaction closing in January rather than in May (the minimum timeline required by the bankruptcy court for completion of a §363 sale process) was very attractive to the lender group. Finally, costs related to the lenders’ respective financial advisors and legal counsel were eliminated as soon as the note sale was closed.
As the largest Indiana limestone quarrier, when ILCO filed for bankruptcy protection and announced it would lay off its 166 employee workforce in the Bloomington area by mid-May, 2014, this could have been a severe economic blow in an area where thousands of workers make a living in the industry. As both a DIP lender and the eventual buyer of the assets, Wynnchurch was also able to provide significant value to the local economy.
Few private equity firms are able to accomplish this type of transaction. Wynnchurch is willing to perform transactions like this because of the opportunity to generate value, not only employing the Chapter 11 §363 bankruptcy sale process to convert debt to equity, but also to use the power of the bankruptcy code to rehabilitate the company and quickly effectuate significant change and value improvement to the enterprise. Wynnchurch has internal capabilities and the experience to complete these types of transactions and successfully manage change at the same time.
During the course of the bankruptcy, ILCO implemented fundamental changes to its business. The company successfully consolidated two stone fabrication operations into one smaller location, creating the opportunity to reject expensive leases and setting the stage to significantly improve production efficiency. ILCO also exited its unprofitable cut stone business, using the bankruptcy court to reject a large number of money-losing contracts. ILCO’s participation in cut stone had also caused havoc in ILCO’s sales channel as it was directly competing with its most profitable customers and steadily causing ILCO to lose market share in slab and block sales.
Outside of the daily bankruptcy grind, Wynnchurch was searching for a new CEO and CFO to supplement ILCO’s experienced management team. This process had actually started immediately after Wynnchurch had first visited ILCO in December 2013 and continued throughout the case.
Rehiring Employees, Winning Back Customers
On May 2, 2014, an affiliate of Wynnchurch acquired the assets of ILCO out of bankruptcy. Just prior to the sale, the company technically closed and laid off all of its workers, but after an intervening weekend, the company restarted operations under new ownership and rehired most of its employees. When the company reopened, Tom Quigley introduced himself to ILCO employees as the new CEO. Quigley is a building products industry veteran who held leadership positions at Owens Corning and Ingersoll Rand. His expertise is proving to be critical in driving growth.
To win back the confidence of its past and potential new customers, ILCO invited them on-site for an event that included tours of its limestone quarries and fabrication operations, and an opportunity to meet the new team. Early on, Quigley and his team recognized that it was imperative for customers to see firsthand that ILCO’s operations had already improved, were expected to continue to improve, and that ILCO would be able to deliver the superior products required for high-end commercial and institutional projects. The event was very successful and in addition to stone currently being quarried from ILCO’s Oolitic and Empire sites, ILCO is considering reopening a third quarry in 2015 on 400 acres that ILCO owns in Bloomington.
Longer-term goals include developing and executing more aggressive and comprehensive sales and marketing strategies to better communicate the superiority of the company’s product. For example, the company is building its sales force, with an emphasis on architects and other specifiers and is becoming more involved in projects early on. Additionally, a marketing company has been retained to develop and implement a new branding strategy.
Initial efforts have paid off very well. Today, the pipeline is strong, ILCO is winning back customers it had previously lost and it is significantly exceeding plan for the year.
Tom Schnatzmeyer, executive director of the Indiana Limestone Institute of America Inc., a Bedford, IN-based trade group, is optimistic about the future now that ILCO is ramping up its production to meet heightened demand for its limestone. “ILCO is one of the largest producers and largest fabricators in the industry,” says Schnatzmeyer. “When they are stable, it is good for everyone in the industry.”
Erin Murphy and Duncan Bourne are managing directors at Wynnchurch Capital.