An investment from OpenGate Capital’s first fund, Hufcor, is insolvent more than a year after the firm moved the bulk of the company’s operations to Mexico, and the firm is working with a court-appointed receiver to pay its bills, according to court filings.
Hufcor voluntarily filed for receivership in Wisconsin, which was granted by a circuit court judge. The court-appointed receiver, Rebecca DeMarb, is in charge of selling off inventory and paying off creditors. She also has authority to file for Chapter 11 protection from creditors. DeMarb is a senior managing director with Development Specialists, which agreed to a fee of $425 an hour for DeMarb’s work, according to court documents.
The Wisconsin-based business, along with subsidiaries in Australia and New Zealand, is liquidating, according to court filings. The company has subsidiaries in Germany, Malaysia, UK, Hong Kong, Macau, China and Singapore, court documents said. It is not clear if those businesses are being liquidated.
Hufcor needed receivership protection for several reasons, according to court documents: to address a potential strike at its Mexico facility; to give confidence to senior secured lenders to permit their cash collateral to fund operating costs, including payment of wages; to prevent mass employee resignations; and to pay utilities.
“Entry of the order on an emergency basis is necessary to prevent diminution in value of [Hufcor’s] assets and authorize continued operation of [Hufcor’s] business as a going concern by the receiver,” the documents said.
The receivership proceedings are the latest in a controversial investment for OpenGate. The company, formed in 1900, makes moveable partitions for indoor spaces like offices.
OpenGate acquired the company, based in Janesville, Wisconsin, in 2017. Hufcor had more than $5 million in EBITDA, OpenGate said in an activity report in 2020. In June filings, Hufcor showed that as of April, it had assets totaling about $64 million and total liabilities of about $80 million.
Last year, OpenGate decided to relocate the bulk of Hufcor’s operations to Mexico, leaving a skeleton crew in its headquarters of Janesville, Wisconsin. The decision set off a firestorm of criticism from the union that worked the location, as well as politicians who saw the move as an example of private equity profiting from offshoring businesses.
“OpenGate Capital is an out of state, predatory private equity firm that has a history of shutting down businesses in Wisconsin and laying off workers. Now, they are taking it a step further and pulling the rug out from the hard working Wisconsinites, stripping away their healthcare and failing to keep up their end of the bargain,” Wisconsin Senator Tammy Baldwin told the Wisconsin Examiner last year.
Hufcor took a major hit in the pandemic, which cut into sales of its products. “Hufcor manufactures and sells movable partitions, which go into places like office buildings, conference rooms, convention centers and hotels,” a source said last year. “There was a complete stoppage not just in the US but around the world, a complete stoppage in the need for those materials.”
The impact of Hufcor’s receivership on OpenGate’s first fund is not clear. The firm has traditionally pursued a strategy of buying business operations and companies cheaply and building them up through add-ons. Because the firm buys at discount (including paying $1 for TV Guide), the loss of one business generally isn’t a material hit to the overall fund. The reputational impact, however, can be outsized.