Yacht builder issues SOS to vendors
Firm asks them to wait for payments until work ramps up on $118M in contracts
Thursday, July 1, 2010
Christensen Shipyards is having a hard time paying its bills on time due to a short-term cash flow “dilemma,” according to a letter sent by the company to its vendors last week.
The Vancouver-based yacht builder has laid off more than 400 of its 500 workers since August 2008 as demand fell dramatically for its multi-million-dollar luxury lines.
Reserves and revenues from previous contracts carried the company through until recently, said President Joe Foggia. Over the last seven months, Christ-ensen has secured contracts to build five yachts worth $118 million, but the contracts didn’t come soon enough to fill its financing gap between its old revenues and new expenses.
Work begins next week on three of the vessels, and Christensen plans to bring back at least 50 of its workers to fill those orders, Foggia said. In all, the contracts guarantee work for up to 250 Christensen employees until 2014.
But the down payments weren’t large enough to cover the upfront costs of building the boats, Foggia said. And so Christensen is asking some of its vendors to wait at least 90 days to collect their payments, until the company is cash-flow positive again.
“As we ramp up production on these yachts, we should, however, be able to pay not only our existing obligations, but cover the costs of ongoing materials orders,” the letter to vendors reads. “Please be assured that we are making every effort to pay the balances we owe as soon as we are able.”
Christensen in November also lost a construction defect lawsuit in U.S. Circuit Court by former customer Yacht West Ltd, that will cost the company more than $1 million, not including the company’s own legal fees. Christensen posted the money in April, but has also appealed the decision.
The payment was relatively small, however, and “hasn’t really tied up anything,” Foggia said.
Christensen’s situation is common among manufacturers that lost business during the recession. Those companies are now having a hard time finding financing to fill new orders. The cash-flow problems then trickle down to suppliers, making the whole chain sluggish in response to the recovery.
Several years of reduced sales can leave a company without working capital, said Suzy Oubre, owner of Alliance Commercial Credit Group in Portland. “Now, instead of paying the bills, they’re taking that money and keeping it in the company and building the cash reserve.”
Christensen is also being squeezed by its customers, who are also worried about cash. Many are hesitant to put down a full deposit on their boats so that they can keep more cash on-hand in case the economy takes another turn for the worse, Foggia said.
“Everybody is in the same situation,” Foggia said.
Christensen’s cash-flow problems don’t, however, extend to its new subsidiary Renewable Energy Composite Solutions, he said. Christensen launched RECS more than a year ago, in part to diversify away from its waning yacht-building business. That company fired up its first production line making small wind turbine blades in Vancouver in May.