Armstrong Flooring announced this week that it and “certain of its subsidiaries” have filed for “voluntary protection under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.” The decision is part of a larger effort to pursue “an efficient and value-maximizing sale of its business,” according to the company’s press release.
While Armstrong’s decision to file for Chapter 11 is news, it wasn’t totally unexpected (and as a side note, will not include the company’s businesses in China and Australia; though, they will be included in the eventual sale).
Persisting supply chain disruptions, “inflation,” and “headwinds from the COVID-19 pandemic” have challenged the company, according to Michel Vermette, president and CEO of Armstrong Flooring. It led to the company retaining Houlihan Lokey Capital Inc in December 2021 to, as it read in the company’s recent announcement, “assist with a process for the sale of the Company along with the consideration of other strategic alternatives.” It was always a possibility that sales process would include filing bankruptcy, but that outcome didn’t become the clear likelihood until May 2, when Armstrong filed a Form 8-K with the US Securities and Exchange Commission that included an update on the state of the company’s financial situation. It read:
Although no definitive decision has been made, and no course of action has been approved by the Company’s Board of Directors, based on the state of discussions with the Company’s lenders, the liquidity needs of the Company and the requirements of the Amended ABL Credit Facility and the Amended Term Loan Facility, it is likely that the Company will seek bankruptcy protection under chapter 11 of the U.S. Bankruptcy Code, and will seek to implement one or more such transactions through a competitive sale process in bankruptcy.
In a statement from Vermette (included in Armstrong Flooring’s bankruptcy decision announcement) the company’s chief executive, while reaffirming the strategy behind the Chapter 11 decision, provided a bit of insight into the company’s plans moving forward.
Since Armstrong Flooring's May 2 Form 8-K filing, the company's stock price has declined 91.5% from $1.64 a share to, on May 10, $0.14.
The Path Forward
“As we have said previously, we firmly believe in the value and potential of Armstrong Flooring—and we are confident that this definitive action puts us in the best possible position to preserve and maximize value for our stakeholders,” said Vermette. “In the meantime, we are open for business and remain firmly committed to our customers, vendors and employees as we navigate the path forward.”
In support of that end, Armstrong Flooring, pending Bankruptcy Court approval, is poised to enter a credit agreement guaranteeing the company $30 million of debtor-in-possession financing (i.e., “the necessary liquidity to operate and cover administrative expenses as it pursues a value-maximizing sale,” according to the company’s press release).