Saturday, December 13, 2008

Replacement Windows

It’s been pushed off the front pages partly because the situation has been resolved and partly by the Blagojevich brouhaha but I’m still wondering about Republic Windows and Doors.

On Wednesday, December 3, the Chicago Tribune reported that Republic would close on Friday. Republic told its employees that Bank of America had cancelled its line of credit because business at the plant had fallen off sharply: sales fell from $70 million last year to $44 million this year. According to the Tribune story, the workers “are directing their ire at Bank of America, not Republic.” The workers staged a sit-in demanding that they receive the 60-day notice required under The Worker Adjustment and Retraining Acts (Federal and Illinois) along with the severance and vacation pay owed them.

Over the weekend, support for the workers grew and Bank of America was cast more and more strongly as the villain. Monday, December 8, was a busy day:

Bank of America released a statement explaining that it was up to management to honor its commitments to employees; that Bank of America had “provided the maximum amount of funding [they] can under the terms of [their] agreement”; that it was clear Republic was “unable to operate profitably”; and that Bank of America had been working with Republic and “sharing” concerns for the past several months.

Republic Windows released its own account of its dealings with Bank of America in the form of a chronology. According to Republic, it had been trying to wind down operations in an orderly fashion since October 16 but Bank of American rejected all wind-down plans and refused to allow Republic to pay employees for owed vacation time.

Some Chicago aldermen announced they would prohibit the City from doing business with Bank of America. Illinois Governor Rod Blagojevich announced the State would stop doing business with the bank also.

The statements made by Bank of America and Republic Windows on December 8 partially contradict each other. While Republic is claiming that BofA refused to allow Republic to pay employees for accrued vacation pay, Bank of America’s statement said:

When a company faces such a dire situation, its lender is not empowered to direct the company's management how to manage its affairs and what obligations should be paid. Such decisions belong to the management and owners of the company.

More interesting, I don’t know what Republic means when it claims that Bank of America refused to accept Republic’s orderly wind-down plans. BofA could not have literally stopped Republic from announcing to employees on October 16 that the plant would shut down 60 days later on December 11. Rather Bank of America’s leverage with Republic probably came from the debt Republic seems to have already owed BofA. Republic’s chronology is out of order but if you look at the dates you see that the current chain of events began on October 15 when Republic “Informed Bank of America that Republic had a 10/24/08R buyer for the existing Note for ±$3.0M, discount of $1.5M.” This is a little obscure but it sounds like Republic owed Bank of America $4.5 million and had found someone who was willing to buy the debt from BofA for $3 million. Bank of America rejected this and demanded a plan for an orderly shutdown. I would very much like to know who that buyer was, how much Republic currently owes Bank of America, and whether any hope exists that Republic will repay all the money it owes to Bank of America.

The rationale behind blaming Bank of America for the short notice and lack of vacation and severance pay was that Bank of America received $25 billion from the TARP bailout and therefore had an obligation to continue lending to businesses. I don’t necessarily have a problem with that logic. In my BUB posts, I said that if we’re going to give money to people who did stupid things I’d rather it go to homeowners than to large financial institutions. Similarly I’d rather money given to banks to make loans actually be used to make loans rather than hoarded and certainly a small local company seems like a good business to keep afloat.

The problem with applying that logic to Republic Windows and Doors is two-fold. First, Bank of American determined Republic was not viable: loaning money to a company with no hope of success is not a good use of funds from the government - or from depositors. Second, Republic may not be a small local company looking to be kept afloat. Richard Gillman, the man who owns Republic, has formed another window company, Echo Manufacturing, LLC, and has bought a manufacturing facility in Iowa. According to a report at Omaha Newstand, Echo Manufacturing was registered with the State of Illinois on November 18. On December 3, Red Oak Real Estate (“another company linked to Republic Windows”) purchased the Traco Window Plant in Red Oak, Iowa.

This raises some interesting questions. Did Republic decide to relocate to Iowa after Bank of America refused to sell their debt? Or was Republic planning to relocate and finding a buyer for their debt was the first step in doing so? If Republic Windows didn’t have the money to keep their Chicago plant going or even have the money to give their employees the legal notice required and pay them their vacation and severance pay, how could they afford to buy another window company? And if Republic Windows did have the money, why is Bank of America the bad guy?

By the way, the workers union, the owners of Republic, and Bank of America finally negotiated a deal that paid $1.75 million to the workers for vacation, severance, and temporary health care benefits. That’s a little over $7000 for each of the 240 employees. At an average hourly wage of $13.80, each employee got the equivalent of about 13 weeks of pay.

Meanwhile, Bank of America announced it will reduce its workforce by up to 35,000 jobs over the next three years.

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