Madison Dearborn’s Hines files Chapter 11

The Southern California plant nursery operator, partly owned by CalSTRS, has selected turnaround specialist Black Diamond as its stalking horse bidder. Hines has also secured $62 million in debtor in possession financing from its lenders, which include Cerberus-owned GMAC Commercial Finance.

Madison Dearborn Capital Partners portfolio company Hines Horticulture has filed for Chapter 11 bankruptcy protection after failing to secure an emergency capital infusion to keep the company afloat.

The Southern California-based plant nursery operator, which Madison Dearborn has at least partially owned for roughly 13 years, has selected distressed debt and turnaround specialist Black Diamond Capital Management as its stalking horse bidder for substantially all of the company’s assets.

Black Diamond is currently the company’s largest unsecured creditor, holding a majority of the company’s 10.25 percent notes. The amount of Black Diamond’s leading bid was unknown at time of press.

Hines has also secured $62 million (€42 million) in debtor in possession financing from three of its largest creditors: Bank of America, PNCS Bank and GMAC Commercial Finance, according to bankruptcy documents. GMAC, formerly the banking affiliate of automobile giant General Motors, is currently a portfolio company of private equity firm Cerberus Capital Management.

Irvine, California-based Hines Horticulture operates several commercial nurseries throughout the US, specialising in ornamental shrubs, color plants and container-grown plants. The company, which employs up to 3,000 during peak gardening seasons, sells products to several major home décor retail outlets including Home Depot, Lowe’s and Wal-Mart and owns nurseries in Arizona, California, Oregon, South Carolina and Texas.

Hines blamed a drop in consumer spending and a spate of bad weather as the primary reasons behind its collapse. However, the company said that an unexpected tightening of its agreement with its creditors precipitated a liquidity crisis that ultimately led to bankruptcy.

Hines reported $297 million in total assets and $217 million in liabilities as of March of this year, according to bankruptcy documents. The company said that it had tried unsuccessfully to broker an agreement between potential equity sponsors, including Black Diamond, and lenders to avoid a Chapter 11 filing.  

Chicago-based Madison Dearborn purchased Hines for roughly $205 million in 1995, subsequently steering the company through four add-on acquisitions.

In 1998, the firm took Hines public with a $56 million debut on the NASDAQ stock exchange.  As part of that public offering, the California State Teachers’ Retirement System upped its co-investment in Hines to an 11.4 percent stake, according to data source provider Dealogic.

Madison Dearborn could not be reached for comment.   

The buyout shop and CalSTRS currently own 48.9 percent and 11.4 percent of Hines, respectively, according to bankruptcy filings.

Despite the poor public performance of Hines over the last few years – the company’ stock is currently trading on the Pink Sheets at three cents per share – Madison Dearborn has been one of CalSTRS' most profitable managers, with the firm’s first two funds returning 28 percent and 20 percent for the pension, respectively.

The firm has reportedly lowered its fundraising target for its latest buyout fund, to $7.5 billion from $10 billion.

Hines represents the second Madison portfolio company to collapse in recent months. In July, ready-to-eat food maker Pierre Foods filed for Chapter 11.