THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, September 1, 1995 TAG: 9509010522
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 82 lines
Marine Hydraulics International Inc. may get a third lease on life.
The small Norfolk shipyard and the committee representing its unsecured creditors have agreed to reorganize MHI's finances so it can emerge from bankruptcy. MHI sought Chapter 11 protection from its creditors in January.
It's the second time that MHI has been in bankruptcy. The first was in 1983. The yard emerged about a year later and paid off its creditors 56 months ahead of schedule.
A successful reorganization this time is still far from certain.
``No one can predict with any certainty the future of any shipyard, much less MHI,'' said Ross C. Reeves, lawyer for the unsecured creditors committee.
Employment is about 130 at MHI, which is eking by on a trickle of work ranging from small repair jobs for the Navy to assembling Ping-Pong tables for the city of Chesapeake. Its sales in the first half of 1995 were less than $5 million, a far cry from its nearly $40 million for all of 1994.
All issues have been resolved between the creditors committee, MHI and the firm's principal owner and biggest secured creditor, Robert S. Walker, who is also MHI's chairman and president, Reeves said.
Looming large is the Sept. 30 end of the federal fiscal year after which a torrent of Navy repair contracts are expected to be awarded. Walker believes getting some of that work is vital to MHI's survival. The yard was unable to get some contracts this year because of the uncertainty surrounding its bankruptcy.
Standing between MHI and approval of its reorganization are a legal dispute with Newport News Shipbuilding and its fired chief executive, James Hong.
In a hearing Thursday in Norfolk's federal bankruptcy court, Judge Stephen S. Mitchell rejected nearly all objections by Newport News Shipbuilding and Hong to MHI's preliminary disclosure statement, a document related to the reorganization plan.
The dispute with Newport News Shipbuilding, stemming from work MHI did at the giant Peninsula shipyard from 1992 to 1994, helped bring about the bankruptcy. The two yards sued each other in March 1994, each alleging the other owes it millions of dollars.
With its $3.2 million claim against MHI, Newport News Shipbuilding could block creditor approval of the reorganization plan. MHI objects to Newport News' claim and says the giant yard actually owes it nearly $5 million. MHI could resort to a legal procedure known as a ``cram down'' to get its reorganization plan approved.
Meanwhile, a series of complex transactions among MHI, Walker, Hong and related companies are being scrutinized by the parties to the bankruptcy.
For example, a partnership of companies owned by Hong and Walker bought from MHI an office building on Indian River Road in Norfolk. In exchange, the partnership forgave $750,000 in debt. That transaction is now in question.
The unsecured creditors committee is engaged in an extensive examination of other insider transactions, Reeves said.
MHI has already moved to void some of those transactions, which occurred in the year before the bankruptcy. Hong, who was fired in June, might contest that action because he is the majority owner in many of the related firms.
MHI has also requested an injunction against certain transactions among certain companies principally owned by Hong while the matter is settled. A bankruptcy court hearing on that request is scheduled for today.
As part of the proposed reorganization plan, Walker, but not Hong, would be released from future liability in the bankruptcy.
The reorganization plan, which even Judge Mitchell called very complicated, calls for Walker to put off recovery of the $1.2 million he is owed until after other creditors are paid off. As owner of the land the shipyard leases, he also agreed to reduce MHI's rent to about his costs.
Under the plan, MHI would pay $2.4 million over 10 years to a trust representing about 300 unsecured creditors owed about $4 million. These payments are secured by a second mortgage on the shipyard property owned by Walker.
The creditors trust would also get a 43 percent stake in MHI that could be bought out later by MHI.
Walker's 57.5 percent stake in the company would be reduced to 53 percent. Hong's 35.1 percent stake in the company would be eliminated.
``That's a problem,'' said Hong's lawyer Donna J. Hall, who will address it at a later hearing. by CNB