The Briggs & Stratton sell off is affecting many more people than you would expect.
Including former executives, that in may cases left the company well beyond recent memory. Many of these executives it seems still draw a hefty premium for the efforts they put in several decades ago.
These former executives belong to an exclusive enclave as part of what is known as the Briggs & Stratton’s supplemental executive retirement plan. But more on this later
Currently in play is an effort to deliver an improved financial outcome for the company’s trade creditors as Briggs & Stratton’s largest unsecured creditors are pushing for a company reorganisation over an asset auction.
Currently, Briggs & Stratton is proposing to sell most of its assets to private equity firm KPS Capital Partners for US$550 million. KPS would also provide additional financing to keep the company running.
The creditors making the proposal hold US$195 million in senior unsecured notes and say that if the bankruptcy court judge approves the Briggs and KPS deal, the company’s retiree benefits plan, pension obligations and trade creditors “stand to receive very little if anything.”
A company reorganisation could instead claw back more value by either selling distinct businesses like lawn and turf care separately, or selling non-core assets and putting a focus on rejuvenating the company’s core engine-building business.
The creditors also question why Briggs is claiming a need to allocate US$275 million to maintain its product inventory when the company reported large inventory levels for the quarter ending March 31.
As it stands at present, the company’s board voted prior to filing for Chapter 11 bankruptcy to terminate the company’s group insurance plan for retirees, which provides retiree health and welfare benefits. With the termination, benefits are set to cease on August 31, 2020
This simply doesn’t sit well with the Briggs & Stratton’s supplemental executive retirement plan. Not many realise this includes payments well beyond the company’s regular pension plan for executives and other employees.
The annual payments to retired executives under this plan can run from $180,000 to $200,000 each. The company’s proxy statements show cumulative lifetime payments ranging anywhere from $1 million to $2 million or more to each executives, depending on their longevity and salary from their years with the company.
The supplemental executive retirement plan is also at risk under the current proposed way forward for Briggs & Stratton.
It is treated differently to payments made to former executives through the company’s main pension plan where there is a guarantee in place up to $60,000 by the federal Pension Benefit Guarantee Corp, as are payments to other Briggs & Stratton retirees.
As it currently stands the PBGC is the largest unsecured creditor in the Chapter 11 case with a claim of over $200 million.
Some of the higher-profile executives holding a stake in the supplemental executive retirement plan include former Briggs & Stratton Corp. CEOs Fred Stratton and John Shiely, along with former senior vice president Vince Shiely, former CFO John Wright, former vice president of communications George Thompson and former executive vice president James Wier, who also was CEO of Briggs acquisition Simplicity Manufacturing.
The high-profile executives in the plan risk losing millions, that is if they lived long enough to collect from a scheme just keeps on giving.