Patriarch portfolio company files for Chapter 11

Fire engine maker American LaFrance, a portfolio company of distressed player Patriarch Partners, has filed for Chapter 11 protection in the US Bankruptcy Court in Delaware. Patriarch, which first acquired ALF in January 2006, has agreed to provide a $50 million (€34 million) revolving credit facility for the company while it evaluates strategic alternatives, according to a filing.

ALF, one of the oldest fire equipment manufacturers in the US, was formerly a division of Freightliner. After Patriarch acquired the unit, ALF contracted Freightliner to continue to provide back office services for the business through June 2007, at which time ALF contracted IBM to help ALF take these functions in-house. As soon as ALF changed over to the new system however, the company encountered “serious deficiencies with the system that had a crippling impact on ALF’s operations”. ALF was unable to retrieve critical inventory and customer data and was consequently unable to fill customer orders.

ALF also said the relocation of its headquarters, a pending lawsuit brought by Freightliner last December claiming $10 million in relation to the outsourcing agreement, and a downturn in the emergency vehicle industry have also contributed to its current situation.

The company owes around $100 million to more than 1000 creditors. ALF said it will furlough the majority of its manufacturing employees until the end of February, during which time Patriarch will help the company complete a physical inventory, streamline the production process, implement new accounting and tracking processes, and determine which of its divisions represent core businesses.

As the US economy looks to be heading toward or in the midst of recession, more firms are having difficulty keeping weak or over-levered portfolio companies solvent. Last week, call center service provider PRC, a portfolio company of DLJ spinout Diamond Castle Holdings, filed for Chapter 11 protection. PRC said it faced a massive liquidity crisis after losing one of its major clients in late 2006.

Patriarch is based in New York and Charlotte, North Carolina. The firm was launched in 2000 by Goldman Sachs and Merrill Lynch veteran Lynn Tilton. The distressed specialist manages a private equity fund and more than 10 collateralized debt obligation vehicles, and currently has roughly $5 billion of assets under management.