Another Bankruptcy For Golden Gate Capital

Atrium Companies Inc., a maker of windows and patio doors, filed for Chapter 11 bankruptcy on Jan.13 in another setback for San Francisco buyout shop Golden Gate Capital.

Atrium announced the news after reaching an agreement with lenders to cut its debt through a prearranged restructuring plan, according to Reuters. The plan, which will shave the company’s debt by more than $350 million, or more than 50 percent, is expected to be completed within the next three to four months.

Golden Gate and co-investor Kenner & Co. Inc. will pump $125 million of fresh equity into the company as part of the reorganization, granting the firms a 92.5 percent stake. Atrium Cos. also announced it had secured $40 million in debtor-in-possession financing, which will fund day-to-day operations while the company restructures under bankruptcy. The company does not expect layoffs or facility closings and management will remain in place, according to Reuters.

“The balance sheet restructuring announced today will substantially reduce our outstanding debt and put Atrium in a much stronger financial position to grow our business over the long term,” Chief Executive Gregory Faherty said in a prepared statement.

Golden Gate has enjoyed an excellent reputation with limited partners since its founders left Bain Capital and Bain & Co. in 2000 to invest in a variety of industries, including software, retail and direct marketing. Some of the firm’s deals produced spectacular returns: In 2004, the buyout shop scored a 550 percent return on its initial public offering of Herbalife, as previously reported in Buyouts. Golden Gate has also had little trouble raising successively larger funds, starting with a $700 million fund raised in 2000, then raising a $1.8 billion vehicle in 2004 before moving on to a $5.5 billion pool of capital for its third fund, according to CapitalIQ.

But in 2008, the economic downturn, coupled with burdensome debt loads, took a toll on two of the firm’s holdings. Golden Gate’s equity investment in Eos Airlines Inc., a Purchase, N.Y.-based company that operates planes flying between New York and London, was wiped out when that company filed for Chapter 11 bankruptcy in May. And in March, the firm and co-investor North Castle Partners each lost $132.5 million in equity when Leiner Health Products, a maker of over-the-counter drugs, filed for Chapter 11, weighed down by leverage and a federal investigation of alleged manufacturing violations. (The company ultimately pleaded guilty to mail fraud and agreed to pay $10 million in relation to Food & Drug Administration violations. It was later acquired in a June 2008 auction by NBTY Inc., maker of Nature’s Bounty and other lines of vitamins and supplements).

Atrium Cos., which makes residential window and door products for builders, has been struggling with the housing downturn and debt stemming from Kenner & Co.’s acquisition of the company in a 2003 deal valued at around $600 million. The company closed facilities in Florida and Connecticut and cut its work force to 3,990 from a peak of 7,300 in 2006, according to Dow Jones Daily Bankruptcy Review.

Golden Gate has nonetheless remained very active on the buy-side, with seven investments in 2009, according to CapitalIQ. These included its acquisition of the assets of retailer Eddie Bauer Holdings Inc. out of bankruptcy for $286 million in cash, and the wireline communication unit of Infineon Technologies AG for $344 million.

Executives at Golden Gate did not return requests for comment.