Paint manufacturer The Merit Group and its subsidiaries have filed for Chapter 11 bankruptcy protection after over-extending the company's resources in acquiring coatings and construction sundries maker Five Star Products of Delaware.
Merit, a distributor and manufacturer based in Spartanburg, SC, is carrying $100 million in debt to more than 1,100 creditors, affecting dozens of suppliers throughout the paint and coatings industry, according to the petition filed Tuesday (May 17) in U.S. Bankruptcy Court for the District of South Carolina.
Photos: Five Star Products
Five Star provides cement and epoxy-based products for the global industrial, infrastructure and marine markets.
The action covers The Merit Group Inc. (formerly known as Lancaster Distributing Co. and Lancaster Paint Sundries Inc.) and its subsidiaries: Merit Transportation Inc., Merit Paint Sundries LLC, Merit Supply Company LLC, Merit Pro Finishing Tools and Five Star Products Inc.
Loan Obtained, Sale Considered
Merit has distribution centers in eight states and says its normal operations are continuing throughout the bankruptcy proceedings.
The company says it has received a $55 million debtor-in-possession facility from its senior lender, Regions Bank, which will allow it to operate for at least 90 days while it reorganizes. During that time, the management team and advisers will focus on selling the business or on a strategic investment, the company said in a release.
“For over 58 years, Merit has served the needs of the paint sundries industry through its commitment to premier service and product diversity," president and CEO Mitch Jolley said in the statement. "This next step will allow the organization time to evaluate all alternatives to position Merit for future success.”
Merit reported revenue of $200 million in 2010, but the company says that the January 2010 acquisition of Five Star Products from National Patent Development Corp. proved more costly than anticipated.
According to court documents, Merit's top 10 creditors and their claims as of May 14 are:
• Rust-Oleum Corp. ($3.2 million);
• DAP ($2.2 million);
• Minwax ($1.8 million);
• Wooster ($1.3 million);
• 3M ($1.2 million);
• Masterchem Industries $1.2 million);
• Duckback Acquisition Corp. ($1.1 million);
• Tianjin Jinmao Group Co. Ltd. ($887,821);
• Packing Service Co. ($783,176); and
• Old Masters ($729,210).
Merit sought to reassure vendors that it was not going out of business, but noted that payment to creditors would require the court’s direction and “is a complex process that takes time.”
Creditors will be paid based on priority after the bankruptcy proceedings are complete, the company said.
It could not say how much vendors would eventually be paid.
Meanwhile, Merit said, “management has taken steps in recent months in order to make the company leaner and better able to compete in these extraordinarily difficult times.”
It added: “Transactions that occur in the ordinary course of business will go on just as before the filing.”
The company has established a Vendor Hotline at (888) 595-6937.
Merit advised customers that it intended “to meet our commitments to our customers on time – in the U.S. and in all other locations we serve customers around the world.”
It called the bankruptcy filing a “positive” step for customers, “because it means we have greater financial stability and less uncertainty about our future.”
No management changes are anticipated, the company said. Merit has established a Customer Hotline at (888) 344-4678.
Editor’s Note: This article was updated at 12:45 p.m. May 19, 2011. See also http://www.paintsquare.com/news/?fuseaction=view&id=5626.