Malden's German subsidiary files for insolvency

Goerlitz Fleece GmbH, a wholly-owned subsidiary of Malden Mills Industries, based in Goerlitz, Germany, has filed for voluntary insolvency under German law — similar to bankruptcy protection in the United States.

In a statement issued by Malden on Oct. 7, Malden Mills President and CEO Michael Spillane said, “This filing became necessary according to German law. The filing may, in the long run, significantly enhance Malden Mills’ financial and operational flexibility and meaningfully reduce our long-term debt.”

That long-term debt was listed at $16 million USD in papers filed during the time Malden was still under bankruptcy protection in the U.S. court system. However, it is important to note that the debt is a German debt tied to the Goerlitz facility, near Dresden in the area called Sachsen, and does not affect the U.S. parent company.

As of the filing for protection, the Goerlitz facility and all 275 employees are under the control and direction of a court-appointed trustee. The facility’s only customer is Malden Mills.

In the official statement issued by Malden Mills, the company stated that its “relationship with the Goerlitz facility will continue throughout the insolvency process and Goerlitz will continue to provide product to Malden Mills’ European customers.”

Nate Simmons, a representative of Malden Mills, told SNEWS® that customers in Europe would not experience any interruption in either orders or service during the restructuring of Goerlitz.

Wrote the local Goerlitz paper, the Saechsische Newspaper, in a story in German on Oct. 9: “The news exploded publicly Friday. The mayor had no idea, neither did the employment agency know of any problems.” According to the paper, only three other companies in the area employ more people than the 10-year-old Goerlitz facility. It noted that only 3.5 million meters of fleece was made this year compared to its normal of 5 million meters, and even shortened work hours at the plant weren’t enough to shore up the difference financially. Manager Heike Damman told the paper on Oct. 8 that she was certain the jobs wouldn’t be lost. The town’s mayor, Rolf Karbaum, on Oct. 8 called the news “horrible,” but he also said he hoped a way could be found to save the jobs there: “It’s a good assumption (that we can save the jobs) because of the facility, the company’s engineering capabilities and the qualifications of the employees.”

SNEWS® View: Though no one at Malden is talking, allow us to speculate a little to shed light on the Goerlitz situation if we can. The reality is Goerlitz is now paying the price for having to operate in a very competitive global economy. While the factory was built in 1994 — after the unification of East and West Germany, but in an area that was formerly part of East Germany — the fact is that during Malden’s financial challenges, very little investment could be made in updating the facility with new machinery capable of manufacturing the latest textile technologies. Factor in the rising price of the Euro against the U.S. dollar and it becomes almost more cost-effective to provide products directly from the Untied States than from a European-based factory, making the financial picture a bit clearer about what happened at Goerlitz. Add to that the knowledge that even though the Lawrence, Mass., facility was built as a state-of-the-art factory in 1996, it is still not running at full capacity. Factor in the China joint-venture factory that continues to see a growth surge as demand drives production expectations, and you begin to realize that what happened at Goerlitz is a result of a shift in global economies, nothing more, nothing less. We know that Malden would certainly like it if an entrepreneurial company would come in and upgrade the Goerlitz plant, but we doubt Malden will be willing to invest much, if any, money at all in the facility itself as that likely makes no economic sense. If no company or entity steps in, we believe it will be very likely that Goerlitz will close, and Malden will lose a manufacturing foothold in Europe, not to mention nearly 300 people will lose jobs in an area that needs them. Of course, whether that would be viewed as a blow or not depends on your perspective. Consider that the Goerlitz facility produced a mere 69 very basic product styles in the Malden line for 2004 compared to 240 styles, including the most technologically advanced fabrics, in the U.S. facility. And, with Shanghai gaining greater strength for Malden as the world economy shifts production emphasis more and more to the Far East, Goerlitz might be breathing a last gasp as it clings to a few remaining fibers of hope.