Welsh Graphics opens page to Chapter 11.

Seventh-largest local printer staggers under debt load

Pasadena-based Welsh Graphics Inc., plagued by heavy debt and a hypercompetitive printing industry, has filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

Welsh, with annual sales of $33 million (the same volume it posted in 1990), ranked seventh in the Business Journal's latest List of the largest printing firms (see pages 23, 24). It mainly prints non-publication materials such as annual reports and marketing collateral for clients such as the Los Angeles Dodgers and The Broadway Department Stores.

Collectively, Welsh has $20.1 million in liabilities and $14.8 million in assets, according to the bankruptcy court documents. Only $8 million of the liabilities is secured. The assets still haven't been itemized in the bankruptcy file.

In a prepared statement, owner Robert Welsh said the firm had to file for bankruptcy because of payment disputes with one of its bankers and one of its suppliers. Welsh wouldn't answer telephone calls to identify the uncooperative creditors.

After the Feb. 12 Chapter 11 filing, Community Bank agreed to extend Welsh a $4.2 million line of credit so it could pay employees and suppliers.

"With this financing in place, and with the support of our 'family' of clients, suppliers and employees, I am confident that we will emerge from these reorganization proceedings as a financially healthy and profitable organization," Welsh said in the prepared statement.

According to the documents filed in the Welsh bankruptcy, the firm has more than 1,000 unsecured creditors. They range from office supply firms that are owed just a few hundred dollars to paper suppliers owed more than $1 million.

Los Angeles printing experts familiar with Welsh's operations, who asked not to be identified, claim it bought too much equipment in the late 1980s just before the recession started. Once business started dropping throughout the industry and printers had to cut prices to stay competitive, Welsh had more debt than it could handle, they said.

Welsh's attorney, David W. Levene of Los Angeles-based Levene & Eisenberg, said the company filed Chapter 11 so it could finalize the $4.2 million loan agreement with Pasadena-based Community Bank.

Lisa Hill Fenning, the bankruptcy court judge assigned to the case, will review the Welsh statement of affairs and reorganization plan in late March or early April, Levene said.

Welsh doesn't owe all 1,000 creditors listed in the filing. Levene said federal bankruptcy law makes filing parties list all entities, including federal, state and local taxing entities, that the firm might owe money. Levene said Welsh is working out repayment schedules and signing personal guarantees with creditors, including its own law firm which is charging Welsh $120,000 for its services, according to the bankruptcy file.

Not all debtors, including the five holding total secured debt of $8 million, have filed claims in the proceedings, Levene said. The five secured creditors haven't yet filed claims and weren't identified either by Welsh, Levene or the bankruptcy file.

The unsecured debts list shows Welsh couldn't find $1.3 million to pay its paper bill to the Zellerbach Corp. in Los Angeles. Nevertheless, it scraped together $5,096 for dues and fees to the San Diego Yacht Club.

Zellerbach Credit Manager Ken MacLaughlin said the Welsh Graphics bankruptcy is a true indicator of the tough financial times faced by printers. "Personally, I think Bob Welsh is a nice guy, but I won't have any idea if his company will be able to pay us until after the reorganization plan is filed," he said.

Jack Fong, manager of City of Industry-based WWF Paper, thinks Welsh can turn his company around. Welsh Graphics owes WWF $530,839, according to the bankruptcy court filing.

"Welsh is a viable company. We still do business with them but only on a cash-on-delivery basis," Fong said.

Court records show some of Welsh's larger creditors include City of Industry-based Unisource Corp., $498,964; City of Commerce-based Lithography Development & Research $439,140; and Bell-based Ink Systems, $328,951.

Welsh is not the only printer facing tough times. Chris Madison, president and owner of Los Angeles-based Color Graphics, said all printers' clients in general are cutting back in quality and in quantity. Faced with plummeting revenues, printers have to cut administrative jobs and sometimes production jobs, Madison said.

Though business has dropped off, printers still have to keep buying the latest computer technology or they can't survive.

In general, the Los Angeles printing industry is shrinking. "There are too many weaker sisters. The middle-sized printers will get smashed," Madison said.

Small and mid-sized printers are hit harder by government regulations than are their big brothers, Madison said. They must pay as much to deal with the toxic disposal of solvents, silver plates, air pollution and noise generated by a printing plant as their larger competitors.

"Take a look at the 1980s. Everybody in the printing business spent hundreds of thousands of dollars buying the newest equipment and took on lots of debt over eight- to 10-year periods. The companies who bought lots of equipment, and didn't have the marketing to sell product and keep it running, are going out of business," Madison said.