Hardinge Inc.:
Precision Machine Tool Leader Files Amid Global Challenges

 

 

August 6, 2024

 

Hardinge Inc., a global leader in the precision machine tool industry, filed for chapter 11 bankruptcy protection on July 29, 2024, in the United States Bankruptcy Court for the District of Delaware. The filing includes the parent company and its U.S.-based subsidiaries as it seeks to restructure approximately $106.6 million in debt. This strategic move follows months of liquidity challenges and efforts to stabilize operations in the face of a challenging economic environment and business-specific difficulties.

 

From Watchmakers' Tools to Global Powerhouse: Hardinge's Journey

 

Founded in 1890 by Henry and Franklin Hardinge, the company has evolved into a global powerhouse in designing, manufacturing, and distributing advanced metal-cutting machine tool solutions. With operations spanning the globe, including the United States, England, France, Germany, Switzerland, China, and India, Hardinge provides high-precision solutions to industries including aerospace, automotive, industrial, and defense.

 

The company's diverse portfolio includes renowned brands such as Kellenberger®, Hardinge®, Buck Chuck®, Forkardt®, and Ohio Tool Works®. Hardinge engineers and supplies computer-controlled metalcutting turning machines, grinding machines, machining centers, collets, chucks, index fixtures, repair parts, and other industrial products. Despite generating approximately $330 million in annual revenue and serving a customer base of over 15,000 customers worldwide through its seven business segments, Hardinge faced mounting pressures that led to its bankruptcy filing. The company currently has over $220 million in order backlogs due to liquidity constraints.

 

Perfect Storm: Factors Precipitating Hardinge's Financial Distress

 

Several factors contributed to Hardinge's financial distress:

 

• Failed Sale of Hardinge China: In 2023, the company initiated a sale process for its Chinese subsidiary. Despite substantial interest from both financial and strategic buyers, regulatory hurdles, particularly with the Chinese Securities Regulatory Commission (CSRC), derailed the deal. The failure to close this transaction led to a liquidity crisis, with Hardinge unable to access anticipated funds to pay down its debt and address working capital needs.

 

• Weisser Acquisition Complications: In October 2021, Hardinge acquired Weisser, a German tool company that was in the process of restructuring. The capital requirements for turning Weisser into a profitable operation significantly exceeded expectations, placing further strain on Hardinge's financial health. By the second half of 2023, the cash being provided to Weisser by the rest of Hardinge's business lines had created significant working capital issues for the company as a whole.

 

• European Capital Requirements: Hardinge's European operations, particularly the Kellenberger facility consolidation in Switzerland, required substantial capital investment. The buildup of unsold finished goods inventory ahead of the facility consolidation tied up significant capital, contributing to the company's constrained liquidity position.

 

• Macroeconomic and Market Pressures: Hardinge also faced broader challenges, including macroeconomic pressures in the Chinese market and significant vendor and manufacturing disruptions. These factors tightened the company's liquidity, complicated vendor relationships, and impacted manufacturing operations.

 

Charting a New Course: Hardinge's Restructuring Efforts

 

In May 2024, recognizing the need for a long-term solution, Hardinge's board appointed Ankura Consulting Group as restructuring advisor, with Adrian Frankum named as Chief Restructuring Officer. The company also engaged Ropes & Gray LLP as restructuring legal counsel and Houlihan Lokey Capital, Inc. as investment banker to explore strategic alternatives, including asset sales.

 

During the pre-bankruptcy period, Hardinge worked to secure bridge financing and ultimately negotiated an approximately $2.9 million loan with Centre Lane Partners V, L.P., the company's new senior secured lender. This financing provided Hardinge with the liquidity necessary to maintain operations while pursuing a restructuring or sale under chapter 11.

 

Navigating Chapter 11: Objectives and Sale Process

 

The chapter 11 process aims to facilitate the sale of Hardinge's assets, with a stalking horse bid expected to set the floor for potential offers. The company has received significant interest from prospective buyers and seeks to complete a value-maximizing transaction within the timeline set by the debtor-in-possession (DIP) financing milestones.

 

Throughout the bankruptcy, Hardinge intends to continue its operations without interruption, preserving its relationships with customers, employees, and vendors. The company employs approximately 1,700 people and operates ten manufacturing sites across the globe, including locations in New York, Illinois, Michigan, Ohio, Germany, China, Switzerland, and India.

 

Keeping the Gears Turning: First Day Motions

 

To support its restructuring efforts, Hardinge filed several first-day motions aimed at ensuring business continuity. These include:

 

• A motion to continue its cash management system

 

• Authorization to pay employee wages and benefits

 

• Permission to honor prepetition obligations to critical vendors

 

• Approval of a DIP financing facility of up to $27,350,000 to stabilize liquidity during the bankruptcy proceedings

 

If approved, $24,200,000 of the DIP facility would be available upon entry of the interim order, with the remainder available upon entry of the final order.

 

Forging Ahead: Hardinge's Path Forward

 

Hardinge Inc. remains focused on minimizing disruption to its operations and maximizing the value of its assets through a successful sale or restructuring. The company's management, led by Chief Restructuring Officer Adrian Frankum, is committed to navigating the chapter 11 process efficiently. The outcome of these proceedings will be crucial in determining the future of this 130-year-old company and its ability to continue serving its global customer base in the precision machine tool industry.