September 11, 2018
The Kraus Group, a Waterloo, Ontario-based manufacturer of premium carpet for the commercial and residential market, obtained protection under the CCAA on September 11, owing approximately $48.2MM to Wells Fargo, its senior secured lender. Established in 1959, the Group comprises 12 entities and operates two large carpet-manufacturing and logistics facilities. The Group also has two business divisions: the manufacturing of broadloom carpets ("Broadloom Business"), which accounts for 46% of its revenues, and the distribution and sale of flooring products ("Flooring Business"), which accounts for 54%. Over the last five years, the Group has sustained substantial losses for several reasons. First, its performance was negatively impacted by the downturn in the carpet manufacturing industry due to a shift in consumer preferences to hard surface flooring and the availability of cheaper broadloom carpeting from China. Second, the Group faces significant fixed costs, including those associated with maintaining and operating its facilities. In March 2018, Hilco UK - the sole shareholder of Pinnacle Capital Resources, who is the general partner of Red Ash Capital Partners, the Group's junior secured creditor who is owed $100.0MM - engaged Deloitte Corporate Finance to assist the Group with marketing and sale of the Broadloom Business. However, due to its dire financial circumstances and the lack of a going concern transaction, the Broadloom Business ceased activity on September 8, affecting 256 workers. Florida-based QEP will acquire substantially all of the assets related to the Flooring Business. This sale provides for the continued employment of 71 Canadian employees and a cash inflow that can be used to immediately reduce the indebtedness owed to Wells Fargo. Deloitte was appointed monitor. Counsel is Cassels Brock for the Group, Miller Thomson for the monitor, and Bennett Jones for Wells Fargo and QEP.