At least three potential buyers interested in Palmer Johnson

Palmer Johnson Inc. executives are working to emerge from Chapter 11 bankruptcy. During the spring they met with three potential buyers who would restructure the yacht builder’s finances, according to Phil Friedman, president and chief executive officer.
The potential buyers include a boatbuilding company, an investor group and a syndicate of yachtsmen, Friedman said during an interview with Boating Industry.
Meanwhile, Palmer Johnson’s 200 or so employees remained busy working on the four partially completed yachts in its yard in Sturgeon Bay, Wisc.
Although the company needed to file for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code early this year, Palmer Johnson has been able to keep operating using working capital provided by the buyers of the four yachts. The yacht buyers agreed to pay Palmer Johnson for work as it is completed, instead of waiting until after their yacht is finished to pay the entire amount owed, Friedman said.
Palmer Johnson launched a 125-foot yacht during April and delivery to the buyer was expected during May.
Palmer Johnson’s employees also continued working on a 120-footer, a 141-footer and a 151-foot yacht. “We’ll finish the last one in the early spring of 2004,” Friedman said.
The yacht buyers’ agreement to help finance Palmer Johnson’s continuing operations “is testimony to the high level of [company] productivity and the quality of Palmer Johnson yachts,” Friedman added.
After the yachts currently in its yard are completed, Palmer Johnson has no contracts to build additional boats, although Friedman said, “We have prospects waiting for the company to emerge from Chapter 11.”
Consequently, Friedman believes there is a “better than even chance” the company will have orders to fill early next year.
“When it emerges [from bankruptcy], it [Palmer Johnson] will be more stable financially than it has been in 10 years,” Friedman predicts.
Friedman declined to predict when Palmer Johnson might emerge from bankruptcy because he said that decision would be made by the U.S. Bankruptcy Court in Milwaukee.
Palmer Johnson currently is owned by Andrew McKelvey, who also is chairman of TMP Worldwide, a New York-based company that includes the job-search Web site among its assets.
McKelvey acquired Palmer Johnson during 2000 from Mike Kelsey Sr. who died during July 2002, and Bill Parsons.
“Palmer Johnson was not a robust, flourishing company in 2000 when Andy McKelvey bought it,” Friedman said. “In fact, Andy rescued it from imminent failure.”
McKelvey assumed all of Palmer Johnson’s $18 million in debts when he acquired the firm including “losses built into [yacht construction] contracts we assumed,” Friedman said.
Since the acquisition, McKelvey has invested more than $25 million of his own money in Palmer Johnson in the form of cash and personal loan guarantees, according to Friedman.
Prior to the bankruptcy filing, Palmer Johnson sold its yacht brokerage business and its repair yard business in Savannah, Ga., for “several million dollars, all of which went into Palmer Johnson Inc. or the first secured creditor,” Friedman said.
Secured creditors have a contract with the borrower that requires that they be paid first if the borrower goes bankrupt.
Suppliers to manufacturing companies typically are unsecured creditors because they ship materials and components to their customers with the verbal agreement that they will be paid in 30 to 90 days.
Palmer Johnson got into financial difficulties during the late 1990s when it went from being a manufacturer of yachts in the 50- to 80-foot range into being a custom builder of megayachts. During that time, Palmer Johnson completed the 195-foot La Baronessa, the largest all-aluminum hull motoryacht ever built for a private owner.
However, the capital-intensive and cyclical nature of the megayacht business “put the company in [dire] straits in 2000,” Friedman said. — BY Jeff Kurowski

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