"It Still Keeps Me Up at Night"
Leon Silverstein Opens Up about the Arch
Bankruptcy and His Future in the Glass Industry
by Debra Levy
When USGlass magazine first interviewed Leon Silverstein
eleven years ago (see “Anatomy of a Pusher, February 2000 USGlass, page
58), he was riding his family-owned business, Arch Aluminum & Glass
Co. Inc., through a wave of rapid expansion and success. Silverstein has
never been shy about saying what he thinks and that interview was no exception.
“Some of our competitors may be smoother, they may be more polished, but
they can’t do what we can do and they can’t do it as quickly,” he asserted
during that interview.
Everything is different today. Silverstein and his family no longer own
Arch, it having been purchased in a bankruptcy sale not by the “stalking
horse” they had so carefully cultivated but by the private equity firm
Sun Capital. That bankruptcy sent a collective chill throughout the industry
with effects that are still being felt today. And whether the result of
a push or a jump, Silverstein is no longer there. In an exclusive interview,
he spoke with USGlass in mid-June about the bankruptcy, how he is doing
and his plans for the future.
USG: How are you doing?
LS: Oh, I can’t complain. One of the first things I did when I
left Arch is I got an office outside of my house. So I do have a place
to go everyday in an office—and a staff of one—and I get to do the things
I do out of here. My pattern hasn’t changed too much.
USG: Well they say that keeping a pattern, a
routine, is very good. Let’s start by talking about the economic climate
in the glass industry.
LS: It’s hard to fathom, when you look back on the period from 2000
to 2008, that you could think that anything like this could ever have
happened. But I lived it and have a lot of thoughts about it.
USG: Well then could you explain how you see the market now?
LS: Oldcastle is the big winner in this. They are in the building
products business; they understand it. They plan to be there for the next
10, 20, 30 years to build the Oldcastle or the CRH brand. They are well-positioned
to take advantage of the turmoil of other players.
USG: I would expect that what you went through
leads to a lot of introspection. When we did our last interview years
ago you told me you weren’t a bully and that this wasn’t an industry that
you could bully. Do you still feel that way?
LS: I can be an aggressive, tough businessperson. I’ve never
considered myself a bully. Business is about helping your partners—customers,
employees and vendors—succeed. There’s no room for being a bully in that
The thing that hurts me the most about everything that went down is what
happened to the employees and the suppliers. I mean, that kills me a little
bit every day.
USG: Take me through what happened.
LS: What happened with us started in April 2009. We had just come
off a great year, by the way. 2008 was the best year Arch ever had. By
April of 2009 sales were starting to fall off. Since our buyout by a private
equity firm, we had always been heavily leveraged. Our loan was syndicated
to a seven-member bank group.
USG: There were seven different banks involved?
LS: Yes, and all seven later took TARP money. Four of them have
changed hands or disappeared since then. So we had a bank group that had
more issues than we did. Our issues weren’t as if a company was failing;
our leverage ratios were going down, which was normal. But they put pressure
on the company and we cut costs very aggressively. We just couldn’t do
it fast enough.
Well, the banks came and talked to us about the problems they had and
what was going on. They said that it was a Well, the banks came and talked
to us about the problems they had and what was going on. They said that
it was a sign of the times, across every industry, not necessarily just
the glass industry. So they said, “Okay, fine. We’ll work with you, but
you need to put more equity in.”
USG: Right. There were a lot of people getting
LS: Okay, so put in more equity. Well, the problem is the Silverstein
family had most of the family’s equity in the business. The only person
we could go to and ask for more equity was our private equity partner.
But they were in the process of exiting and getting the last of their
portfolio companies out of the fund. They were more interested in liquidating.
I wasn’t involved in the discussions between our banks and the private
equity firm, but the banks ended up feeling very angry towards the private
USG: The bank got mad?
LS: The bank got mad. So by summer, we were tripping covenants.
They were giving us 30-day threats, 30-day forbearance agreements and
then they just started to kill us with fees.
Also during the summer, we started to worry that if the bank gave us a
hard time and threatened us, we would have to file for bankruptcy. When
you’re a CEO of a company—and this is something I don’t think a lot of
people know—you have a fiduciary responsibility that extends to all constituents.
This includes the banks, but also the vendors and the employees. If you
don’t do things right, you can end up with a serious problem.
USG: Even a criminal one, I believe.
LS: You got it. A CEO in a distressed company is in a very difficult
position. You owe allegiance to all stakeholders in the company and have
to do everything humanly possible to protect their positions, and you
face the reality that any wrong move could lead to very serious personal
consequences. You don’t want to have to worry about sharing a cell with
Bubba down the road.
The bank made us put a chief restructuring officer (CRO) in place. Anybody
who has to put a CRO in place should call me. They come in, they tell
you how wonderful they are and how they’re going to help the company.
But they don’t really care. They only care about two things: maximizing
the return to the bank and lining their pockets with as many professional
fees as they can … At the end of the day, CROs get their next work by
what they did for the bank, not by what they did for the customer. The
bank is their real customer.
USG: Did you know that at the time?
LS: Kind of but … look, I’ve gotten a very, very expensive education
in the last two years. It’s not all bad … I mean, I’ve learned things
that could help other people.
If you remember when this happened, it was the end of 2008, beginning
of 2009. Everybody thought the economy was going to be better in the next
six to nine months. So the banks, at the time, went along for the ride.
But here is the other sad part about the banking industry: once your loan
goes into workout or becomes an un-performing loan or however they reclassified
a loan, they actually write that loan down. They discount it. Okay?
So these guys in their restructuring departments say, “Okay, that loan’s
worth forty cents on the dollar, and anything we get over forty cents
in an auction or a liquidation is a bonus.”
And once these people saw the recovery was starting to approach 60 percent
or whatever, they were salivating. The bankers were happy. They were going
to force this to the end anyway because there was money to be made. The
whole ugly underside of the banking industry is that they don’t care and
that people individually make more money on other people’s misery than
And think of the money. There was more than $6 million spent in professional
fees from August of 2009 until the end of January 2010.
"A CEO in a distressed
company is in a very difficult position. You owe allegiance to all stakeholders…"
USG: Oh my goodness, $6 million?
LS: If that $6 million had stayed in the business, it would not
have had to go the way it went.
USG: Wow. How did you end up with Grey Mountain?
LS: Once all that happened, we figured that the best thing for
the company was to hire an investment banker to go find a buyer. Which
is what we did. But we also knew that if the bank was being difficult,
we would have to file because we had to protect the best interests of
the company. We didn’t want to go into a bankruptcy without having an
exit plan, and the exit plan was to sell the company to somebody who we
respected. We did our research on who we thought would be a good fit and
that was Grey Mountain. Grey Mountain did the most work to prepare to
make an investment and offered the best value for the company. The investment
banker solicited over a hundred potential buyers to make sure that we
maximized the value for all of our stakeholders, and Grey Mountain came
out on top.
USG: So Grey Mountain became the stalking horse.
LS: They’re really good guys. They’re management-friendly, they’re
good, smart operators and their motive is to be in the business and run
the business. They make money by the success of the business, not through
some financial manipulation or strategic liquidation or financial management.
They believe in getting the money from the business side of having a well-run
We found the right buyers and they still had the best prices. I actually
recused myself from picking the stalking horse because I didn’t want to
be the one who ultimately made the decision, though obviously I was part
USG: So you must have felt a bit of relief at
LS: Yeah. It would be good for the business; it would be good for
the employees. But the whole time this is going on, we thought we would
run out of money.
USG: Run out of cash?
LS: Run out of cash. We thought we’d run out of money, but we never
really did. The whole idea was that we would go in and get a debtor-in-possession
(DIP) loan. The funny part is, if you remember any of the readings, a
lot of the hearings in December and in early January were about the DIP
We were doing an aggressive job of managing the company through November,
December and January. So even though we asked for financing, we never
needed it until closing. Wait until you hear why we needed it at closing.
Grey understood that they had to deal with the vendors. You don’t want
angry vendors. If you don’t pay them or don’t work out a plan with them,
they’ll sell you … but it’s going to be a COD or very restrictive terms
and at premium prices. And, whatever they lost, they’re going to get it
back. So if you don’t deal with the vendors, you’re going to be this big
company at a competitive disadvantage because you cannot buy materials
at competitive prices.
I also felt a personal loyalty to vendors who had done so much to support
Arch through the years. They were a critical part of Arch’s past success.
"Anybody who has
to put a CRO in place should call me. They come in, they tell you how
wonderful they are and how they’re going to help the company. But they
don’t really care."
USG: Do you think Sun Capital
had you on its radar at this point?
LS: Up until the point where you pick your stalking horse, everybody
calls you, everybody wants to be your best friend. Who you choose is a
big deal because the stalking horse gets to have an advantage in the bidding.
USG: Kind of set the price, if you will.
LS: …and breakup fees and all that. So I was getting heavily solicited
by Sun Capital to pick them, which I wasn’t going to do unless they offered
the best value.
USG: It sounds like you were concerned about
LS: Yeah, and Grey was looking to take care of the vendors. You
can go back and look it up. They were looking to assume some of the contracts.
Obviously the PPG certified fabricator program (CFP) contract was one.
There was a Guardian CFP contract. There was a Bonnell supply agreement.
In other words, Grey would have put a significant amount of money aside
to pay the vendors and the only people who would have gotten upset because
of that would have been the bank. The bank would have gotten less recovery
but, in the end, the banks had already exceeded the recovery expectation.
USG: Now do you or the family have any stock
left or any ownership at all?
USG: Was that the worst day of your life?
LS: There were two. One was the day of the auction and the second
was April 26.
USG: The day you separated from the company
LS: Separated, yeah, separated from the company. I had some fairly
fundamental disagreements with the new owners about how to run the business
and told them so.
USG: That must have been very hard to say.
LS: That’s what still keeps me up at night. I have a really hard
time with what happened to our employees and our vendors.
USG: So how are you doing?
LS: I’ve been away for the most part of the year. I’ve done some
consulting; I work with some in the industry, so I actually feel pretty
good. The biggest issue I struggled with this past year is whether or
not I want to be in the industry. I could very well get out. I could probably
make, personally from an annual income standpoint, a lot more money out
of the industry using my CEO skills. I’m a CEO. I’m very much an operational
USG: There’s opportunity out there, isn’t there?
LS: Yeah there is, I see a lot of opportunity.
USG: Don’t you have a new company formed and
aren’t you getting ready to roll?
LS: I have a company called SMI, which is an impact aluminum system company,
and we recently bought a small local temperer in Florida about four weeks
[Editor’s note: now two months] ago. We’ve named it Architectural Glass
Products. I’ve got something else, but I’ll give you that later.
I want to do it more for the challenge. But I do know there are certain
things out there that I’m never going to do again. I am never going to
leverage the company again.
still go back to the history of when Arch really grew and was successful.
A lot of it was by adding the right pieces and making sure we didn’t add
too many pieces. I also don’t want to get that big again.
USG: This has got to be just so incredibly difficult
on many levels. One of them, I’m sure, is having had so many members of
your extended family who worked there for so long. Then all of a sudden
they’re feeling it in two ways then too and everybody’s keying on you.
That had to be very difficult.
LS: They recovered. My sister ended up with a very good job. My
brother-in-law ended up with skills from being the CIO. My brother is
actually the one who really runs and manages and is really the president
of SMI. I don’t even have an office there.
We learned a lot from my dad, so we’re a pretty resilient bunch. People
might have forgotten that when my dad went back in ’78, it was with sweat
equity. So we really weren’t a family of money and means, we’ve always
just been hard workers. We put a lot … in the business, but we came from
the philosophy: you did it once, you can do it again.
USG: How do you feel your relationship and SMI’s
relationship is with vendors at this point?
LS: It’s funny, the ones who put my dad in business in 1978 are
the ones that are actually very good. Those guys know a little bit more
of the story. And number two, the vendors don’t love some of our competitors
and, at the end of the day, they need someone to sell their products to.
If nothing else, we were really honest and straight with all of them except
for the things we couldn’t tell them. One vendor is still angry to this
day because we didn’t tell them early what was going on so they could
protect their interests better. In reality, I couldn’t. It’s illegal.
USG: I think I can guess who that is.
LS: In truth, I don’t blame the vendors for being angry. They got
a raw deal. Every day I wish there was something I could have done differently
to spare them their losses. If you don’t mind my taking a moment, I’d
like to personally apologize to all of the vendors who supported Arch
who ended up suffering losses. It was a personal failure on my part to
have ended up there and I’m very sorry to have let my business partners
"It was a personal
failure on my part to have ended up there and I’m very sorry to have let
my business partners down."
USG: You made a couple of different
statements that if you have time I would love to go back to. One of them
was: “We made money every year except for one year.” When I hear that
I think “Man, the punishment for that surely doesn’t fit the crime.”
LS: It didn’t have to. We actually had positive EBIDTA the year
that the company went bankrupt. The problem was between the private equity
partner and the seven-member bank group, everyone had their own agenda.
If the same scenarios were playing out now the banks would not be as quick
to shut down businesses as they were then. I’ve gone into some other companies
in other industries and looked at the books and said: “Why us?”
USG: Let me ask you, if you were running a glass
company right now and you got a call from a bank that said “Okay, hey
we’re going to do this and we want to send this CRO over,” what general
advice would you have?
LS: Stop. Think about who they’re sending and why. They give you
their suggestion list and the impression that you have to pick one of
them. You don’t. You can go out and find your own.
Just because the bank tells you to, doesn’t mean you have to. If you pick
a qualified person and it’s not theirs, they might not like it, but you
did your fiduciary duty to try to improve the company. So stop and figure
out where you’re going to go and get your own professional advice. Most
of the time, the bank is worried about their best interests, which is
eliminating risk and maximizing recovery, not your business.
USG: Unfortunately they don’t have to care about
LS: They do from the standpoint of they can maximize the recovery
and eliminate the risk, but they’re looking at it along those lines …
I just wouldn’t roll over with the CRO. I think you need to go and figure
out what kind of help you want and how to get the help, but to do it on
USG: The thing is that lots of times the banks
are putting such time pressure on the CEOs that it’s difficult.
LS: Well, tell them if they want to send me over a confidentiality
agreement so they know I won’t say anything, I’d be more than happy to
help. I would love to help. And a lot of it is just because I really care
more about people. I probably have a bigger problem with institutions
now than I do with people.
USG: Is there anything in your experience that
you can look at and you say, “Gee, if I had done this one thing differently
maybe it would be really different?”
LS: If I had a better crystal ball, I think we definitely would
have slowed down the expansion in 2006 and have opened in two or three
places instead of six and seven.
Here’s the other thing I think people probably miss. They think I was
driving the boat and making all of the decisions on my own to grow the
company. I basically was a shareholder, an employee and board member,
but I didn’t have a majority of the board. I didn’t make any or all those
decisions on my own.
Anything we did was approved by the board and I was only one member of
the board. The goal was to grow the company successfully. The reason we
brought in seven banks was that the company had more borrowing ability,
even though we didn’t need it. In hindsight, that was a mistake.
USG: So do you ever say “how could this happen?”
LS: We were always a leader. We just happened to be unfortunate
enough to lead in this area too. Look at how many companies have gone
out after us without nearly as much fanfare. We were first and we were
big, so we got a lot of attention.
USG: How are people going to grow with the banks
the way they are now?
LS: I think you have to do things differently. You can’t rely on
the idea that you’re going to leverage a company up. I think it’s got
to be a niche. You need to be nimble and you need to have a broad product
USG: What do you think happened with U.S. Aluminum?
I mean, nobody even stepped up to the plate for those guys. They’re just
gone. (Editor’s note: this interview was conducted before the purchase
of some U.S. Aluminum assets by C.R. Laurence.)
LS: I don’t know what the hell they were doing to be honest. Part
of it was that the U.S. Aluminum metal side probably had something that
could be rescued, but the International Window side, [not so much]. And
I don’t think today you want to be an extruder … it’s tough.
USG: Right, but as you know it’s the best time
to start something, right?
LS: Like I said, every day I go home and ask myself: “Do I want to
be in this industry or not?” And every time, I think the smart thing is
not to be. I have a disease.
USG: Anything else you’d like to tell the readers?
LS: I wish everybody luck. I root for the small independent. The
independents are also going to have room to grow their business. I not
only root for them, I want to be one of them.
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