Tridel Enterprises Inc.

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Tridel Enterprises Inc.

4800 Dufferin Street
Downsview, Ontario
Canada
M3H 5V9
(416) 661-9290
Fax: (416) 661-6971

Public Company
Incorporated: 1981
Employees: 1980
Sales: C$391 million (1991; US$311 million)
Stock Exchanges: Toronto Montreal

Tridel Enterprises Inc. is a residential real estate developer that builds and sells condominiums in the Toronto metropolitan area. The company has developed approximately 40 condominium projects in the Toronto area, including the Skymark Place development in North York, 130 Carlton in downtown Toronto, and the Greencroft Estates development in Etobicoke. Through its Construction Technology Division, Tridel also develops, sells, and leases shoring, forming, scaffolding, and concrete construction accessories, systems, and equipment throughout North America.

The company that became Tridel was founded by a stonemason named DelZotto from Fruili, Italy, who moved to Canada in 1934 to work in the Sudbury nickel mines of northern Ontario. DelZotto eventually moved to Toronto for its milder climate, built his own home, raised enough capital to build two more, and developed a thriving residential construction business. In the early 1950s DelZotto’s company was taken over by his three sons, Angelo, Elvio, and Leo, and named Tridel, for “the three DelZottos.”

In 1968 Tridel branched into the field of construction technology by entering into a joint venture with Alcan Aluminum, based in Montreal, to found Aluma Systems Corp Among Aluma’s first products was an extruded aluminum form for the pouring of concrete for construction, a system that saved time and money because the forms did not have to be taken apart and reassembled to be moved between floors. The venture proved successful, and in the early 1970s Tridel bought out Alcan’s share of Aluma.

The DelZotto brothers incorporated Tridel Enterprises Inc. in 1981. In 1986—the same year in which the company went public—Tridel completed a series of share exchanges in which AEL Ventures Ltd. purchased all the shares of the DelZotto brothers’ business. Tridel, in turn, acquired from AEL Ventures the entire stock of Trilan Developments Ltd., a residential property development company and owner of a residential housing bank. Tridel also acquired the entire stock of Hominal Developments Inc., in exchange for 500 common shares of Tridel. At the same time, AEL Ventures Ltd. transferred its common stock in Tridel Enterprises to a wholly owned subsidiary, Tridel Financial Corp. The shift gave the DelZotto Brothers a controlling 85 percent interest in Tridel.

The series of deals was meant to acquire funds for Aluma Systems, the construction technology side of the business. The DelZotto brothers felt that they needed to prepare for the day when Toronto’s bustling condominium market would slow. Speculating that after the end of the Cold War governments would move to stimulate a faltering economy by spending heavily on infrastructure rather than military expansion, Tridel sought to position itself to capitalize on the shift.

To implement this plan, the DelZotto brothers bought several small construction companies using funds generated from their residential real estate activities. This added to Aluma’s marketability as a supplier of scaffolding, cement, and other building trade equipment.

The strategy seemed to work, as evidenced by Tridel’s posted profits of $16.2 million on revenues of $410 million in 1987. Compared with profits of $8.5 million in 1986 on revenues of $183 million, the company was enjoying unprecedented expansion. In January 1988 Aluma Systems purchased Shepler Equipment Co., a Houston, Texas, supplier of concrete forming systems. Later that year, Burke Scaffolding Co.—a newly created Tridel U.S. subsidiary bought two years earlier for $27.6 million—bought GKN Kwidform Inc. of Orange County, California. The $12 million company provided equipment to raise and dismantle scaffolding to the construction and assembling sectors.

Later in the same year, Tridel’s leadership ceased buying land in Toronto, believing that the real estate market had peaked. Rather, the company sold off $100 million of land, or 40 percent of its standing inventory. The strategy was intended to reduce the company’s debt load and, perhaps more importantly, to avoid holding property that had been acquired at peak prices.

In 1989 Aluma continued to acquire other companies, buying Anthes Industries Inc.’s construction equipment division, for $63.4 million. Also that year, Aluma formed two joint ventures in the Soviet Union, which was then undergoing fundamental economic reform to a free-market economy.

Tridel had been investing heavily in Aluma Systems in preparation for an anticipated recession, and its forecasts proved correct in the late 1980s. Far from spending to stimulate their lagging economies, the governments of Canada and the United States cut spending to reduce debt levels. What spending there was on infrastructure proved minimal.

Fortunately, condominium sales did not decline as sharply as the DelZotto brothers initially predicted either. By 1990 the company’s assets had grown to over $1 billion for the first time, and revenues that year surpassed $650 million. Had it not been for Aluma’s losses, the company would have achieved a profit rather than the posted loss of $14.2 million for fiscal 1991.

Nevertheless, in response to the difficult economic conditions, in 1991 Tridel reduced its labor force by 240 employees. The company’s sales force was also offered sales incentive programs that stressed company profits rather than sales volume. Tridel’s marketing team worked to increase the company’s name recognition to complement its on-site advertising of residential developments. This effort included the launch of a major marketing publication to publicize Tridel developments to existing owners and prospective buyers. Also, Tridel re-emphasized after-sales service by instituting a quality awareness program for its employees.

Despite their efforts, Tridel’s Aluma subsidiary was hit hard by the weak economy, and by April 1992 Aluma had breached the terms of its loan agreements. A $45 million loan was quickly arranged to meet obligations to Aluma lenders, and plans were announced for Tridel to buy and resell some of Aluma’s manufacturing operations and other non-core assets. Tridel president Elvio DelZotto announced in June that Aluma would be taken public once it was returned to health.

In October 1992, Tridel asked its lenders to reschedule interest and principal payments on the approximately $200 million debt owed by Aluma Systems. The company admitted that it did not have the cash to repay outstanding loans if the lenders avoided rescheduling and demanded instant repayment.

Far from keeping Tridel above water during the recession, Aluma Systems now threatened to pull the DelZotto empire down. Austin Page, Aluma’s president and Tridel’s chief financial officer, explained the predicament to the Globe and Mail at the time: “Aluma still has too much equipment, too much debt and too much overhead. This has been the toughest recession I’ve ever seen, especially for the construction industry.”

By 1992 the complicated system of guarantees and pledges of collateral between the DelZotto companies forced Tridel to negotiate for extended terms with its own creditors.

The situation became critical in April 1993 when Tridel’s three principal creditors threatened to force Aluma into bankruptcy court. A month earlier, the lenders had begun legal action in Toronto to drive another Tridel subsidiary, Umacs of Canada Inc., into bankruptcy court. The move was considered necessary due to the financing agreements between Umacs and Aluma. These twin threats prompted a spate of resignations from the Tridel board.

Tridel’s chief financial officer, Austin Page, told the Globe and Mail in April 1993 that he had successfully negotiated the broad outlines of an agreement with the company’s creditors that would avoid bankruptcy proceedings. “We have a memorandum of understanding between all the lenders. It’s a draft understanding that is equitable and fair that all the lenders have worked hard to bring about.” Tridel’s lenders were careful not to signal that they might initiate bankruptcy proceedings for fear that negative publicity might further undermine confidence in the company.

The question for Tridel in late 1993 became whether the company’s officers could successfully forge a conclusive restructuring plan with lenders, especially in light of the fact that the banking community was taking few risks with property companies after numerous recent real estate failures.

Industry analysts maintained that Tridel had endured the worst of its credit problems, and were cautiously optimistic that if an agreement could be reached, Tridel could rebound despite a sluggish condominium market. As one commentator stated: “Tridel has been an astute survivor in an unpredictable market. Tridel has been the dominant player in the Toronto high-rise market for many years and they’re magnificently positioned to serve that market. They know their customers, they know what their customers want and they’ve consistently led the way with innovative designs and leading-edge marketing programs.”