Financially battered relocation giant Sirva Inc., which conducts about 300,000 relocations per year, has filed for bankruptcy in an effort to reorganize and survive the U.S. real estate downturn.
The company’s stock was de-listed from the New York Stock Exchange in November, after the company reported a $10.4 million net loss for the third quarter ended Sept. 30. For the first nine months of 2007 the company reported a $45.2 million net loss, which followed a $36.5 million net loss for the first nine months of 2006.
The bankruptcy reorganization "will not impact day-to-day operations for employees, customers, agents, suppliers and general business operations in the U.S.," the company reported today.
Company officials had blamed Sirva’s poor performance and anticipated weak future results on continued weakness in the U.S. real estate market. Relocation companies work with real estate professionals to assist clients’ employees in selling their homes and finding and purchasing homes in a new location. Real estate professionals that work with relocation companies agree to pay a share of their commission income with the relocation companies in exchange for the referral of business.
In addition to its home purchase and sale services, Sirva also offers moving services, mortgage services and closing and settlement services. The company’s brands include Allied, Allied International, Global northAmerican, and northAmerican International, among others.
"As a result of challenging conditions in the real estate market and, more recently, the mortgage market, we have been taking more homes into inventory as the real estate markets continue their decline and available financing for potential buyers becomes more volatile," the company reported in an earnings statement.
"As these homes come into inventory, they impose additional capital requirements on us. The longer that these homes stay in inventory, the more likely we will realize a loss on their eventual sale, as well as incur additional carrying costs until their sale." The company cited declining home values, decreasing sales of new and existing homes, and rising levels of inventory as signs of the weak overall real estate market.
After peaking at $26 in April 2004, Sirva’s stock was de-listed from the New York Stock Exchange when it sank to pennies per share. Stock continues to be traded in an over-the-counter Pink Sheets Electronic Quotation service, and was trading at about 1.7 cents per share as of 2:23 p.m. ET today, down from 10.8 cents per share at the previous day’s close.
Sirva and its U.S. subsidiaries filed voluntary Chapter 11 bankruptcy petitions in U.S. Bankruptcy Court for the Southern District of New York, and the first day hearing is scheduled at 4 p.m. ET today. The company’s operations outside of the United States are not part of the bankruptcy filing, the company announced.
"Sirva undertook a comprehensive strategic review to evaluate all the options for restructuring our balance sheet and, after careful consideration, determined that a pre-packaged Chapter 11 filing provided the most efficient way forward for the company," said Robert W. Tieken, company CEO, in a statement.
"Sirva has sought, and expects to receive, authority to continue to operate on a normal basis during the in-court restructuring, which it expects to complete in 60 to 90 days," the company announced. Information about the bankruptcy filing is available at www.kccllc.net/sirva.
The reorganization seeks to reduce the company’s outstanding bank debt by about $200 million and annual cash interest expense by about $54 million. In its third-quarter earnings statement, the company reported that "higher borrowing spreads, coupled with higher market rates and increased debt levels have increased our annual interest expense from $18 million in 2004 to an estimated $67 million in 2007. These costs, coupled with a declining real estate market, have created a highly leveraged balance sheet."
Cris Collie, CEO for Worldwide ERC, an association for the U.S. and global employee transfer industry, said Sirva is among the top-five largest relocation companies. He said he expects that a bankruptcy for a company of Sirva’s magnitude will be "fairly isolated," adding, "I do think there is going to be increased consolidation in the real estate industry in particular and even in the relocation industry."
U.S. relocations are expected to be fairly flat this year compared to last, while global relocation is still growing. Collie said that the industry has weathered markets like this before, and has seen mortgage interest rates pass 17 percent. "We were still able to sell transferees’ homes," he said. "The industry is very innovative."
In a down market, relocation companies may incur more costs as homes take longer to sell, and in some cases relocation companies have programs that allow them to take ownership of homes that don’t sell in order to facilitate a relocation. Collie said he expects more home purchases by relocation companies — "I think they’re going to have to scale up on them — in some cases it may be the only way they can move an employee."
Also, relocation companies’ clients may wish to offer buyer incentives to help employees’ properties sell quicker. "A lot of companies are going back to techniques used in the mid-’80s and really honing their skills, pricing properties properly and getting them sold and moving on," Collie said. "What is old is new again."