THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, February 24, 1995 TAG: 9502240528
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 83 lines
Marine Hydraulics International Inc., the Elizabeth River shipyard that declared bankruptcy in January, lost a contract that would have given it work well into the summer, its attorney said this week.
The shipyard, known as MHI, had been counting on the contract for repairs on the guided-missile frigate Carr. It has little other work on the horizon once it completes an ongoing overhaul of the Navy auxiliary tanker Mount Washington.
``If we are able to get the Carr, our backlog will be very strong,'' said MHI President James Hong when the yard sought bankruptcy.
``It's obviously important because it's a lot of work,'' he said Thursday. ``But we are getting other work, also.''
MHI expects to hear soon whether it will win a smaller, short-term contract, he said.
Located in Norfolk's Berkley section, MHI employment has fallen to about 60 from about 250 when it sought bankruptcy.
MHI was the low bidder on the Carr contract, but had to be certified as financially responsible by the Small Business Administration before the Navy would award the contract to the yard.
The SBA declined to approve the yard, said C. Grigsby Scifres, MHI's bankruptcy attorney.
``Our understanding from MHI is that they can survive the year without the Carr,'' said Ross C. Reeves, the attorney representing the unsecured creditors in the bankruptcy case. ``But this would have been a substantial piece of business. It's going to hurt them.''
The contract, which would have been worth more than $5 million to MHI, was awarded to a shipyard in South Carolina.
``I'm not sure if I agree with the SBA's reasoning,'' Scifres said.
He said that MHI's loss has a double impact. Not only does MHI not get the business, but shipyard suppliers in Hampton Roads won't be providing services to the South Carolina yard.
MHI had expected that its filing for Chapter 11 bankruptcy protection would help it win the SBA certification.
By automatically staying the pile of suits that had been filed against MHI and freeing up its cash flow, MHI had expected to be deemed financially responsible.
But the SBA was concerned about MHI's ability to control its own fate, Hong said. Work on the Carr contract is scheduled to last until October.
That is well beyond the 120-day period after the bankruptcy filing that MHI has the exclusive right to file a plan of reorganization, Scifres said.
After that period, someone could choose to try to liquidate the company. Also, the SBA was concerned that MHI's unsecured creditors would rather liquidate the company than take less than 100 cents on the dollar for what they are owed, Scifres said.
He called both possibilities unlikely.
``If I had to read between the lines, I'd say the SBA decided rather than stick their neck out for MHI, they'd let the contract go to another shipyard that will end up costing the Navy more,'' Scifres said.
MHI met the SBA's requirements for working capital, Hong said.
The SBA's decision appears to close the door on any other long-term federal contracts for which MHI could bid. But it could still win short-term jobs.
``The message it sends to the company is that we need to get a reorganization plan formulated, filed and approved as soon as possible,'' Scifres said.
MHI did about $40 million of ship-repair work for the federal government in 1994. It sought bankruptcy Jan. 6 with liabilities of $8.8 million and assets of $6.4 million.
Like other shipyards scrambling for jobs in the wake of defense downsizing, MHI had been bidding jobs at razor-thin profit margins. That puts it at risk of losing money if the job ends up costing it more than it expected.
MHI got behind on payments to suppliers and other creditors and wound up being sued for nonpayment by about 50 creditors.
MHI also found itself in a big dispute with Newport News Shipbuilding over work it did in the giant Peninsula shipyard. The two are suing each other, claiming each owes the other several million dollars.
MHI's losses from its dealings with Newport News Shipbuilding caused it to lose its line of credit in early 1994. Without the cash reserve the credit line provided to cover bills until it was paid, MHI slowly spiraled into bankruptcy.
It's negotiating to get another line of credit. by CNB