RIVERSIDE, Calif. – The day his company announced it filed for Chapter 11 bankruptcy protection, Fleetwood RV Group President Paul Eskritt says the company had approximately $23 million in bank cash at the end of January. But the firm reached a point where it had to do something to ensure that it wouldn’t eventually run out of cash.

“We’ve been in a turnaround situation for years,” he told RV Industry News this afternoon. “But the past few years, the travel trailer segment has been a cash burn on our business. As a company, we sat down and looked at where we were with towables, motorhomes and manufactured housing. We decided that if we had to exit one segment to focus on the others, we would need to exit the towable segment.”

Eskritt said the company’s market share in the travel trailers and fifth wheels had dwindled to just 4.1 percent last year, while motorhomes actually held strong at 16.2 percent.

The decision was based on cash flow, said Eskritt. “I think our folks did a great job in the last year or two. It was a bittersweet decision because the management team in travel trailers felt as though they had finally turned the corner, but they couldn’t complete the turn fast enough in this type of market.”

If the market had been better, Eskritt said he was confident the travel trailer segment would have improved because of changes the firm had made in construction and in product development.

“It wasn’t any one or two competitors which forced us to come to this conclusion, rather it was the market in general,” he explained. “When we started to see a 70 percent reduction in the towable market, it quickly became apparent there were too many players fighting for fewer customers. As a result, manufacturers were engaged in aggressive discounting, which further eroded margins.

“If we were competing in a normal market in a normal operating position, we would have continued our travel trailer business,” said Eskritt. “But the cash crunch, economic conditions and credit restrictions greatly impacted our ability to make money in this market despite the fact there are far more travel trailers sold industrywide than motorhomes.”

As a result of the decision to exit the travel trailer market, Fleetwood will shut down three production facilities – two in Oregon and one in Ohio. Two service centers will also be discontinued in Crawfordsville, Ind., and Rialto, Calif.

In all, 675 people were employed in Fleetwood’s travel trailer segment. Yesterday, 225 were released immediately, Eskritt said. The others will be gradually reduced as the factories build out their orders and the service centers complete their current jobs. He expects the entire travel trailer segment to completely shut down within 30 to 45 days.

Once closed, Eskritt said the company will likely seek buyers for the facilities because the firm has ample production capacity in its motorhome and manufactured housing plants.

Eskritt said he has been involved in a number of conference calls with dealers today, and that he values the firm’s commitment to communicate directly with the impacted players. “One thing about our management team is that we don’t shy away from communication,” he explained. “We feel it’s important to do so effectively and first-hand so that everyone understands what the game plan is going forward.”

He said he remains confident the company will be in a stronger position when it either emerges from bankruptcy or is acquired by another buyer. Fleetwood engineered significant changes the past year to take weight out of motorhomes, making them more aerodynamic, and ensuring that new construction methods will reduce warranty costs.

“In our minds, the ability to take weight out, improve quality and cut costs are home runs for Fleetwood,” said Eskritt. “We are one of the top motorhome manufacturers in the United States, and we have grown our Class C market share over the past 12 months.”

Although it is unlikely that Fleetwood would ever re-enter the travel trailer market, Eskritt wouldn’t rule it out five to 10 years from now once the firm is restructured through bankruptcy.

“Our decision to file Chapter 11 will give us more financial flexibility and allow us to reach out to potential buyers concerned about the amount of secured debt we have,” said Eskritt. He noted that the firm restructured some debt in December in which the holders of unsecured notes had their investments backed by secured collateral. They became first in line among most creditors, except the bank, in terms of some assets. That fact made Fleetwood unattractive to potential buyers.

“It meant the firm had less collateral upon which to borrow against. By filing Chapter 11, it now gives us a 90-day window to revisit that debt,” he explained. Doing so will help the company either emerge stronger from bankruptcy or be in a better position for possible acquisition, he added.

Although people often jump to conclusions when they hear a firm has filed bankruptcy, Eskritt said dealers, suppliers and customers should not write off Fleetwood.

“We have a sufficient amount of cash to operate in the near term,” he explained. “We are working with banks and other sources to assume new debtor in possession financing that will supplement our current working capital until we emerge or a buyer is found.”

“We are not out of cash today, which forced us into bankruptcy. I want to make that clear,” Eskritt said. “The situation is that because of the market and current economic conditions, if we didn’t do something, we would eventually run out of cash.”

As it stands, Fleetwood has made several motions to the bankruptcy judge for permission to continue paying staff and paying dealers for warranty work and to pay suppliers, said Eskritt. “We have every intent of remaining in business and we need to rely upon our dealer partners, our suppliers and our customers to do so,” he added. “We expect the judge to allow us to continue supporting our customers, dealers and business partners throughout the process.”

Eskritt sent a letter to all Fleetwood dealers today outlining the three major restructuring activities underway at corporate headquarters. Here is the text of that letter:

“Today, Fleetwood announced three major restructuring events:

• ”Regrettably, we must exit our travel trailer business, which has not been profitable for several years despite our best efforts to turn it around. If you had a sales agreement with us in that business, you already received a letter to this effect.

• “We have voluntarily filed petitions under Chapter 11 of the U.S. Bankruptcy Code. Chapter 11 protection will give us more financial flexibility and facilitate the closure of our travel trailer division.

• “We have reached out to potential buyers for all or part of our company. We don’t know yet what will transpire, as it’s still too early in the process. We expect to continue to operate our motor home and manufactured housing businesses while we seek buyers.

“Since my last letter to you in December, a great deal has taken place. Business conditions have continued to erode significantly. As you are aware, RV industry shipments continue to decline due to low consumer confidence and constrained wholesale and retail financing. Lender and dealer invoked RV repurchases have been high for both Fleetwood and the industry. In addition, we have been unable to reach agreement with a major floorplan lender on the new terms they are insisting on for repurchases. All told, this makes for a perfect storm.

“There is no question that these announcements are difficult for everyone involved with Fleetwood’s business. But reality is stark, and we are moving quickly to preserve our future and that of our industry. For Fleetwood, though, our current debt structure has not allowed us the flexibility to react as we have needed to in this current environment.

“Let’s talk about what happens now. First, as of Jan. 25, 2009, we had approximately $23.0 million in bank cash, enough to operate our businesses. And we’re talking with our senior secured lenders to provide new financing to supplement our existing working capital. Under Chapter 11, while we cannot pay for amounts owed at the time of the filing, we must pay for all goods and services received from this point forward, regardless of what may have been owed in the past.

“Fleetwood has always prided itself on paying its bills on time, and we plan to continue making payments on a timely basis because it is what good partners do. We are also talking with our largest floorplan lender, Bank of America, to continue to provide financing during the reorganization period.

“We know how important it is for you to get your inventory levels down to match retail activity and manage floorplan costs. We have made every effort not to overbuild and thereby push inventory on to you. We are starting to see our inventory bottom out, which bodes well for both of us in the near term.

“Some of your customers may ask questions about Fleetwood’s situation. To make it easier for you, we have prepared an FAQ that you can deliver to them. The existing warranty service for motor homes will remain in effect, assuming Court approval.

“These are challenging times, but we must focus on our day-to-day business and move forward for our mutual benefit. The Fleetwood name has been valued for nearly 60 years, and we will make every effort to preserve that value. As we work through our reorganization, we invite you to stay updated through a website at www.kccllc.net/fleetwood which will host all Court documents and related company materials.

“Your support has never been more appreciated than now. We are available to speak with you at any time. Thank you for your ongoing partnership.”