German Model Train Maker Goes Broke

Märklin, the 150-year-old German model train manufacturer, declared bankruptcy on Wednesday after talks with banks to extend a €50 million line of credit broke down.

There may be light at the end of the tunnel: Märklin executives say they intend to go on selling model trains. "We are determined to restructure our traditional company...using the instruments of German insolvency law and establish it permanently in the market," said Märklin boss Dietmar Mundil in a statement.

In spite of strong sales in 2008—the company posted a turnover of €128 million ($165 million)—Märklin was in talks by December to extend a €50 million line of credit. It obtained one extension through January 31, but even in January the firm couldn't cover salaries to its roughly 650 employees. Talks for a further credit extension ended without a deal.

Märklin releases no profit statements, but Kingsbridge Capital of Britain and the New York investment bank Goldman Sachs (GS) bought the company in 2006. That takeover failed to solve credit problems that had plagued the company since 2004. Märklin closed a major factory in Sonneberg, Thuringia, in the former East Germany, in 2007—part of a round of cuts that led to the loss of 400 jobs.

Märklin is based in the Swabian town of Göppingen, in Germany's southwest, but also has operations in Hungary. The firm started in 1859 as a small factory producing dollhouse kitchens. In 1891 it started to build model trains, and in 1935 introduced its famous electrified "HO" line of scale-model miniatures.

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