It's Personal: Collateral damage in the Waterloo Gardens bankruptcy

Two family-owned nurseries that have been around for generations in the Philadelphia suburbs are wishing the summer hadn't brought unexpected financial heat in the form of the Waterloo Gardens bankruptcy.

Both are entangled in the Chapter 11 case filed June 26 by the debt-soaked gardening center that closed its renowned Devon store. Both landed on an unenviable list: creditors holding the 20 largest unsecured claims.

And both longtime suppliers of poinsettias, annuals, and other earthly wares to the region's onetime preeminent gardening center are coming to understand the exquisite frustration of being a little guy in a big, old bankruptcy case.

Small businesses have fewer weapons than bigger players such as banks when ensnared in a bankruptcy. Lederer Greenhouses Inc. in East Coventry Township and George Didden Greenhouses Inc. in Hatfield are learning the hard way that extending credit to an old client can sometimes sting - badly.

The $72,295.71 that Waterloo owes third-generation Lederer and the $157,776.14 owed to fourth-generation Didden are among the 20 largest unsecured Waterloo debts in a class of creditors that, according to the rules of the road, will be nearly last in line to be repaid once all is said and done. And what they get may be mere scraps.

"It really stinks for the small people," said Joe Lederer, who with his brother Christopher runs the 15-greenhouse business near Limerick founded in 1939. "They're the ones that take a big hit."

The amount Waterloo owes represents 10 percent of Lederer's annual revenue - no small chunk of change.

At Didden, Waterloo's annual purchases accounted for about 5 percent of business.

"This is probably the fifth bankruptcy we've been through," said Didden president Ken Ruch, who three decades ago took over the 98-year-old business that his great-grandfather founded.

"This is the biggest, by far," Ruch said, standing near the loading dock of his 65-greenhouse campus spread over four acres. "Not even close."

For months leading up to the Waterloo bankruptcy, both vendors had agreed to lighten terms of payment.

By extending credit - often with nothing more than a handshake and trust built over many years - it is hoped a vendor is helping a client stay healthy enough to keep ordering supplies. It's a win-win - unless, of course, it becomes a big, ugly loss.

In bankruptcy, though, such deals hurt doubly because they have no collateral attached. So, for example, the $15.8 million in secured debt owed to first-in-line lenders takes priority in the Waterloo bankruptcy, because it was backed with assets. Banks get first dibs on any sale of real estate or other assets.

There's no telling how long Waterloo's case will wend through U.S. Bankruptcy Court in the Eastern District of Pennsylvania. Could be months, could be years. But unsecured creditors often get as little as 10 cents for every dollar, or - in a really good case - 50 cents or more.

Lederer and Didden's stress that their businesses remain healthy, despite the aggravation. There have been no layoffs owing to the nonpayment of Waterloo's debt, Ruch and Lederer said.

What has been affected, though, beyond the future willingness to extend credit to needy clients, are planned improvements at both nurseries. Forget about greenhouse repairs or replacing old trucks. That's off the table.

Equally frustrating, the men said, was their sense of powerlessness.

Small businesses and suppliers lack the deep pockets to wage a bitter fight. Joe Lederer has hired no lawyer; Ruch has but hopes it won't cost too much.

During a recent interview, Joe Lederer sifted through an inch-thick manila folder of bankruptcy documents that have accumulated in his office. Most have come through the mail.

"It's all new to me," he said, with his father, Karl, looking on in a tidy but old office that betrays the generations who've pruned and peddled gardenias, poinsettias, and annuals through the decades.

"I don't understand all the legal stuff," he said, dirt-stained fingers flipping through pages of filings. "I get overwhelmed with it all."

Yet Lederer has consulted only with a friend familiar with bankruptcies. He decided to let the unsecured creditors committee hash everything out, considering that its lawyer will be paid fully by Waterloo, the debtor, as part of the bankruptcy. He said other vendors he'd spoken to were doing the same.

Longtime Philadelphia bankruptcy lawyer Claudia Springer has heard all of this and more. She understands the small creditor's unique plight. Over a three-decade career, the Reed Smith lawyer has represented an even split of large and small clients.

"Many of the smaller guys, in many situations, they feel like they get hosed, essentially," Springer said. "It's not necessarily the bankruptcy laws that do it, it's . . . the party that you've extended credit to is not able to pay its bills."

Springer called it a "tough situation" for smaller creditors, whose only way to recover from a bad debt is to generate new business. These aren't exactly boom times for that.

"In a bad economy, you can't necessarily make up for that," she said, "whereas, in a strong economy, if you're doing enough business and you have enough good customers . . . the likelihood is you'll be able to weather the storm."

Small and midsize nurseries have been working harder than ever to retain the business they have, given how the housing bust and recession have cut into demand for landscaping and gardening supplies since 2007.

Losing a big account like Waterloo - on top of losing its unpaid cash - is a double whammy.

"Ten years ago, I'd say people were paying their bills better," Ruch said. The Lederers, too, said more of their clients are on credit.

Ruch said he and others were anxious to see which other retail gardening centers would step up in the fall to bulk up orders to woo Waterloo Devon customers. That could offer some relief by boosting business for greenhouses stung by the bankruptcy.

"The real big question is, 'Where will the Devon customer base go?' " Ruch said.

Two greenhouse operators talk about the effect of Waterloo Gardens' bankruptcy on their businesses. Watch a video at www.philly.com/businessEndText

at 215-854-2431, mpanaritis@phillynews.com or follow @panaritism on Twitter.