SAN FRANCISCO, May 11, 2009
This is a statement from Wells Fargo & Company (NYSE: WFC) on Hartmarx Corp.:
Wells Fargo empathizes with the employees and communities affected by the decisions made by Hartmarx, which has been in Chapter 11 since January 2009. We believe these are internal business matters which Hartmarx must resolve for itself as it explores its options in a very difficult economy. Unfortunately, Hartmarx has been in default of its loan obligations to banks in the group that have provided it credit, including Wachovia Capital Finance, part of Wells Fargo.
Nevertheless, we have continued to finance the operations of Hartmarx, both before and after the Chapter 11 filing, even though it is now apparent that Hartmarx is unable to repay more than $114 million which it owes the bank group.
Wells Fargo works with its customers who are having financial difficulties whenever circumstances prudently permit. We want them to stay in business so we can earn all of their business and help them succeed financially.
About Wells Fargo’s relationship with Hartmarx [made public in the company’s bankruptcy proceeding]:
- Hartmarx borrowed up to $200 million of revolving loans from lenders in the bank group, including Wachovia, since 2002.
- Before Hartmarx filed for Chapter 11 relief, the bank group continued to lend to Hartmarx even though in 2007 and 2008 Hartmarx lost more than $30 million and its revenue dropped over 20 percent.
- Hartmarx was unable to attract new capital or find a buyer for its businesses and filed under Chapter 11 of the Bankruptcy Code on January 23, 2009.
- The bank group agreed to provide Hartmarx with Debtor-In-Possession (DIP) financing, including $20 million in additional funding (at 1-23-09), to avoid the immediate liquidation of the company and give Hartmarx time to find a new source of financing or sell its businesses.
- Hartmarx has been in default of its obligations under the DIP financing agreement as approved by the court for the last several weeks. This increased the expected losses of Hartmarx’s creditors, including Wachovia.
- The additional DIP funding allowed Hartmarx to purchase inventory to restock for its busy spring-selling season while it explored sale and refinancing options.
- Despite extensive marketing, Hartmarx has no credible offers to be acquired, but the bank group continues to work with Hartmarx to find potential buyers.
- Financial institutions must lend prudently, consistent with safety and soundness principles. Advancing more funds with no reasonable likelihood of being repaid is not consistent with sound banking.
Wells Fargo Foothill and Wachovia Capital Finance are part of the Asset-Based Lending (ABL) Group of Wells Fargo Wholesale Banking, which provides credit facilities from $10 million to $1 billion and more. While traditional bank loans are based primarily on financial performance, the credit available under an asset-based loan depends on the value of a company’s assets, usually accounts receivable and inventory. Asset-based lending gives a company the flexibility to achieve a variety of objectives, ranging from growth by expansion or acquisition to facilitating a turnaround or restructuring. As with any loan secured by collateral, if the borrower can’t repay the loan, the lender must ultimately look to the value of the collateral for repayment.
Wells Fargo & Company acquired Wachovia Corporation December 31, 2008.
