Chesapeake plywood plant files for bankruptcy

Chesapeake Hardwood Products Inc., which halted operations at its Dexter Street plywood plant almost two years ago, sought Chapter 11 protection from its creditors last week in U.S. Bankruptcy Court in Norfolk.

The Chesapeake-based company said it hopes to use money  from leasing its factory space to repay creditors. Its filing lists liabilities of $13.6 million and assets of $6.1 million, including its 445,000-square-foot plant in the city’s Portlock section.

Its creditors include more than 120 former employees owed a combined $1.15 million in severance payments. In addition, the Pension Benefit Guaranty Corp. has made a $405,619 claim for an underfunded pension plan at Chesapeake Hardwood.

The company said its assets consist of the Chesapeake plant, valued at $6 million, and nearly 90 acres of land in Vermont, valued at $76,900.

Chapter 11 of the bankruptcy code allows a business to restructure its debts under court supervision while maintaining control of its operations.

Before it closed in August 2008, Chesapeake Hardwood produced plywood for cabinets, wall paneling and commercial applications. The company said two years ago that it was shutting down because of  the deteriorating economy and a downturn in homebuilding.

Karen Crowley, a bankruptcy attorney for Chesapeake Hardwood, said Tuesday that one of the company’s options is to sell the Chesapeake facility, which sits on 21 acres. However, demand has been weak, and the company had no desire to liquidate the property at a fire-sale price, she said.

Another option, Crowley said, is to enhance the property’s value by leasing the factory-and-office space and attempting to refinance its debt. A third option is to lease the property and gradually pay creditors from the cash flow that the leases generate, she said.

Chesapeake Hardwood already has liquidated its accounts receivable, inventory and machinery to pay down what it owes Wells Fargo Bank, which still holds $2.37 million of secured debt and $500,000 of secured fees.

While some modest assets could be liquidated, its factory “is the only meaningful source of recovery for repayment to the creditors,”  Chesapeake Hardwood said in a court filing on Friday. The company is seeking court approval to continue using money  from leasing space while it works out a repayment plan for creditors.

Chesapeake Hardwood’s obligations to Wells Fargo are secured by a deed of trust on the plant, an assignment of rents and a blanket lien on all of the company’s personal property, according to the court filing on Friday. 

An affiliate of Chesapeake Hardwood, Pearl Avenue USA Ltd., already leases 100,000 square feet to manufacture and distribute wood products. Another company, Eden Fuels, agreed in December to lease 60,000 square feet to produce wood pellets for fuel and horse bedding.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com