Carpets of Dalton faces $40 million suit

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Carpets of Dalton, the behemoth retailer in Dalton, Ga., has defaulted on $40 million in loans and is now the subject of a federal court lawsuit seeking to recover the money.

Hennon & Brown Properties and its four subsidiary companies are named in the lawsuit filed by BB&T bank in U.S. District Court in Rome, Ga.

The lawsuit states that the companies, led by founder James Lamar Hennon, borrowed heavily in 2006 and 2007, but by 2010 there had been "various defaults" that led the bank to seek payment in full within 10 days.

The Hennon companies didn't come up with the money in time, and now the case is headed to court as Hennon seeks to restructure the debt.

The retailer, located along Interstate 75, continues to operate.

Hennon and his son-in-law and partner, Ken Brown, were out of the office Thursday but released a written statement.

"During these unprecedented economic times and high unemployment, all of us have been or are currently facing financial challenges," said Hennon, who founded the carpet retailer in the 1970s.

The lawsuit names Hennon & Brown, Carpets of Dalton, American Home Showplace and Campus Pointe, an apartment complex near the campus of Western Kentucky University in Bowling Green, Ky., an apparent investment owned by Hennon & Brown.

Hennon said the company is taking steps to right its financial house, including cutting noncore investments, improving internal operations and seeking to redesign its capital structure.

"As we are all aware, the banking industry is having its share of issues during these strange economic times," Hennon wrote. "As a result, rightsizing of our capital structure initiative is taking longer than we estimated."

He said he hoped to have the company's finances squared away by early 2011.

Calls to two lawyers representing BB&T were not returned Thursday.

In the lawsuit, BB&T asks the court to award it the balance of Hennon's companies' loans, including interest and attorney fees.

The national recession hit the flooring industry, the keystone of Dalton's economy, especially hard, leading to widespread layoffs and plant closures.

Metro Dalton still has the state's highest unemployment rate and one of the highest home foreclosure rates.

"There are a lot of businesses in our community that are having to go to their banks and lenders and renegotiate their loans," said Whitfield County Commission Chairman Mike Babb. "Carpets of Dalton has been a big part of our economy for a long time. It's a good business, and we have confidence they will work everything out."

In Dalton, Hennon's store anchors the strip of retailers, but the family also are players nationwide.

"This is a huge retailer. They are in the top 100 in the country," said Kemp Harr, publisher of industry magazine Floor Focus.

Harr said the flooring business overall was down 35 percent and specialty flooring retailers were down 20 percent across the country. Floor Focus estimates the retailer's sales at $24 million for 2010, down $5 million from the year before.

But Carpets of Dalton still ranked No. 68 in Floor Focus' annual ranking of the 100 largest flooring retailers. Home Depot was No. 1.

"I'll say they will survive this," Harr said. "They've been a major player in this business for a long time."

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