It was Friday afternoon and Michael Kramer was ready to hit the beach. The president and CEO of Kellwood Co. was taking his family and heading to Southern California for a weekend of sun and sand.
It was then that a phone call turned the life of Kramer and his 1,200-employee apparel marketing company completely upside down.
“It was the fact that $140 million in bonds were becoming due,” Kramer says. “We had been negotiating with our bondholders to extend those bonds for another five years at a very attractive rate, a rate higher than they had been getting.”
The uncertain economy was making everyone in the financial sector nervous, and so the negotiations had suddenly been brought to a stop. The lenders wanted their money — all of it — and they wanted it now.
“There was no emotion to it,” Kramer says. “They did it at the very last minute, which precluded us from going out and finding alternative measures. So I faced a tough challenge: Do I threaten these guys and say, ‘OK, I’m just going to go bankrupt and you get pennies on the dollar.’ There’s risk with that if we call their bluff. The risk was to do that, in order to make it effective, I had to go public. When you go public saying you could potentially go bankrupt, there’s so much risk.
“Particularly in my industry, you’ve got manufacturers out there that are buying raw products and raw materials to manufacture my goods. If they get wind of the fact that there is a financial crisis on the horizon, they just might say, ‘Oh, I’m not making any more for them.’ It could be a compounding problem.”
Suddenly, the beach was the furthest thing from Kramer’s mind. He was facing the very real possibility that his business, which is a portfolio company of Sun Capital Partners Inc., might have to shut its doors.
“I was stunned,” Kramer says. “I just sat here, and I said, ‘How do I tell my staff? How do I tell my people?’ In the last 12 months, I had brought in a lot of old colleagues and people were excited and invigorated about what we were doing having no anticipation that this liquidity crisis would ever happen. Why would a bank turn us down? We were profitable. We could more than cover our debt costs. There was no problem. Why would they do this?”
Somewhere in the back of his mind, Kramer knew he had to act. But it was still too fresh to think about that just yet.
