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Brookstone – Notifies Court of April 1, 2019 Effectiveness Date

April 2, 2019 – The Debtors notified the Court that their Third Amended Joint Chapter 11 Plan of Liquidation became effective as of April 1, 2019 [Docket No. 1157]. The Court had previously confirmed the Chapter 11 Plan of Liquidation on March 20, 2019 [Docket No. 1138].

On August 8, 2018, Brookstone filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-11780. In its Chapter 11 Petition, the Company noted between 1000 and 5000 creditors; estimated assets between $50mn to $100mn and $1bn; and estimated liabilities between $100mn and $500mn. 

Summary of Liquidating Trust

The Disclosure Statement provides the following summary of the Plan's Liquidating Trust: "On or before the Effective Date, the Liquidating Trust shall be established to administer certain post-Effective Date responsibilities under the Plan. The Liquidating Trust shall consist of the Liquidating Trust Assets (which include, among other things, all remaining assets of each of the Debtors, Cash owned by each of the Debtors (other than to fund certain reserve accounts), and all Debtor Causes of Action that have not otherwise been released). On the Effective Date, as provided in the Implementation Memorandum, the Debtors shall transfer all of the Liquidating Trust Assets then held by the Debtors to the Liquidating Trust free and clear of all liens, claims, and encumbrances, except to the extent otherwise provided herein. 

A Liquidating Trustee and a Liquidating Trust Oversight Committee shall each be jointly appointed by the Plan Proponents to oversee the Liquidating Trust. Each of the Liquidating Trustee and Liquidating Trust Oversight Committee shall be permitted to retain professionals, as provided in the Plan and, immediately following the Effective Date, the Liquidating Trust shall retain the Retained Professionals. Names and descriptions of the Retained Professionals and the terms of their retentions are provided on Exhibit B hereto. Pursuant to the Plan, Holders of Allowed General Unsecured Claims will receive a percentage of the Liquidating Trust Interests that equals such Holder’s Allowed General Unsecured Claim when divided by the sum of all Allowed General Unsecured Claims plus all Disputed General Unsecured Claims. Pursuant to the Plan, additional Liquidating Trust Interests will be distributed to Holders of Allowed General Unsecured Claims if a Disputed General Unsecured Claim is subsequently Disallowed. If a Disputed General Unsecured Claim is subsequently Allowed, the Holder of such newly Allowed General Unsecured Claim shall receive its percentage of the Liquidating Trust Interests pursuant to the calculation above. The Liquidating Trustee will then distribute the appropriate Net Proceeds of the Liquidating Trust Assets to Holders of Allowed General Unsecured Claims in proportion to the Liquidating Trust Interests held by such Holder."

The following is a summary of classes, claims, and voting rights (defined terms are as defined in the Disclosure Statement):

Only one class of creditors was impaired and entitled to vote on the Plan, Class 3 – General Unsecured Claims. Of this class, 409 holders representing $32,354,313.83 (or 96.48%) in value and 94.46% in amount, voted in favor of the Plan. The Disclosure Statement noted an expected recovery of 16.4-22.5% for this class.

  • Class 1 (“Other Priority Claims”) was unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 2 (“Other Secured Claims)” was unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%.
  • Class 3 (“General Unsecured Claims”) was impaired and entitled to vote on the Plan. Expected recovery is 16.4-22.5%.
  • Class 4 (“Existing Equity Interests in Brookstone Subsidiaries”) was impaired and not entitled to vote on the Plan. Expected recovery in respect of Class 4 claims is 0%.
  • Class 5 (“Existing Equity Interests in Brookstone Parent”) was impaired, deemed to reject and not entitled to vote to on the Plan. Expected recovery is 0%.

Document Description File
Notice of Effectiveness Date [Docket No. 1157] Open File

CTI Foods – U.S. Trustee Objects to Retention of Professionals, Harbinger of Stricter Rules in Region 3 and beyond?

April 2, 2019 – The U.S. Trustee assigned to the CTI Foods cases filed multiple objections to the Debtors’ application for retention of professionals, arguing that those professionals have failed to properly follow rules relating to disclosing parties in interest. The Centerview objection adds a further troubling complaint for professionals serving as investment bankers, that Centerview has improperly characterized its fiduciary duty vis-a-vis the Debtors.

Each of the four objections are substantially identical (except as to the fiduciary duty point) and suggest, in Region 3 at least, that professionals are about to be held to a higher (albeit already required) standard.

The Centerview objection, signed on behalf of U.S. Trustee Andrew Vara, reads, "Rigorous compliance with professional retention rules is critical to the integrity and transparency required of the bankruptcy system.  Bankruptcy Rule 2014 requires that professionals seeking to be employed under 11 U.S.C. § 327 file a verified statement of “all of the person’s connections” to parties in interest. The Debtors seek to employ Centerview as their investment banker, but Centerview’s connection disclosures are incomplete and do not satisfy the requirements of Rule 2014.  Centerview fails to name several parties in interest that it previously or currently represents, citing concerns of confidentiality.  It is not adequate for Centerview to simply assert that certain of its connections are confidential, without also seeking leave of Court, pursuant to 11 U.S.C. § 107(b), to file such names under seal.  In addition, the U.S. Trustee objects to the term of Centerview’s engagement letter with the Debtors that provides that Centerview is not acting in a fiduciary capacity as to the Debtors."

The U.S Trustee's objections were filed in respect of the following proposed retentions:

  • Centerview Partners LLC as investment banker [Docket No. 108]
  • Weil Gotshal & Manges LLP as counsel [Docket No. 109]
  • Young Conaway Stargatt & Taylor LLP as co-counsel [Docket No. 110]
  • AP Services, LLC as chief restructuring officer [Docket No. 111]

The Court scheduled a hearing to consider the objections for April 8, 2019, with objections due bu April 2, 2019.

Document Description File
US Trustee Objection to Centerview Retention [Docket No. 108] Open File
US Trustee Objection to Weil Retention [Docket No. 109] Open File
US Trustee Objection to Young Conaway Retention [Docket No. 110] Open File
US Trustee Objection to AP Services Retention [Docket No. 111] Open File

F+W Media – Unsecured Creditors Object to DIP Financing, Seeks Adjournment of Final DIP Hearing

April 2, 2019 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected [Docket No. 103] to the Debtors' request to access $2.0mn in debtor-in-possession (“DIP”) financing [Docket No. 13], citing concerns that (i) the existing process (as memorialized in the Debtors' DIP motion and the Court's interim DIP order) unfairly benefits DIP lenders (some of whom also hold equity positions) at the expense other creditors, (ii) the DIP order gives overly generous protections to DIP lenders and (iii) that a cash forecast provided by the Debtors indicates a Plan-threatening cash shortfall. 

The objection states, “Although the Committee acknowledges that the Debtors have a legitimate business need to obtain postpetition financing, the Committee is concerned that the sole purpose of this proposed financing (the ‘DIP Facility’) is to fund a hasty foreclosure sale of the Debtors’ assets for the exclusive benefit of the DIP Lenders (and equity holders) rather than the estates as a whole. If the DIP Lenders want to use the chapter 11 process to liquidate their collateral, they must fund a process that is fair and equitable to all parties in interest, not just the DIP Lenders. Otherwise these cases should be converted to chapter 7 cases or dismissed.

The DIP Lenders have linked various Events of Default to any failure by the Debtors to meet a strict (and brief) timeline for completing two separate sale and marketing processes. The Debtors’ motions seeking approval of the bid procedures, which generally incorporate the expedited timeline, are not scheduled to be heard until April 16th (the ‘April 16th Hearing). If the DIP Motion is approved prior to that hearing, the result will be a de facto approval of the bid procedures motions because any dissonance between the DIP Facility and bid procedures will create substantial risks of default and disruption of the sale process and these chapter 11 cases.

Therefore, the Committee requests that the final hearing on approval of the DIP Motion be adjourned for approximately one week to be heard at the April 16th Hearing in conjunction with the hearing on the Debtors’ bid procedures motions.

While the Committee’s professionals are still evaluating whether the proposed sale timeline is workable and will maximize value to the estates, it is clear that premature approval of the milestones through the DIP Facility is unnecessary and inappropriate. Even if the Committee can get comfortable with the proposed timeline for the cases prior to the April 16th Hearing, under the currently proposed DIP Facility, the DIP Lenders seek protections without allowing the unsecured creditors to maintain even the hope of any recovery or confirmation that all valid administrative claims will (ultimately) be paid.  Indeed, as proposed, the DIP Facility is in direct contravention of many Bankruptcy Code tenets and appears to put the Debtors’ estates on a path towards administrative insolvency. 

If the DIP Facility is approved in its current form, not only will it grant the DIP Lenders over-market fees but it will grant liens on all remaining unencumbered assets in favor of the DIP Lenders. Further, the limited remaining cash balance at the end of the cash forecast attached to the Interim DIP Order (the “DIP Budget”) appears to provide insufficient money to fund administrative claims, a wind-down process and exit plan for these chapter 11 cases. 

The only assets that would realistically be available for a distribution to general unsecured creditors in these cases are unencumbered assets as they existed on the Petition Date, which include chapter 5 Avoidance Actions, commercial tort claims, 35% of F&W UK’s stock, and the Debtors’ 50% interest in Burda FW Media, LLC. The DIP Facility, however, proposes to grant liens and superpriority claims covering all of the unencumbered assets to the DIP Lenders (and to the prepetition lenders for any diminution in value).”

Document Description File
Interim DIP Order [Docket No. 42] Open File
DIP Motion [Docket No. 13] Open File
Creditors Committee Objection to DIP Financing [Docket No. 103] Open File

FirstEnergy Solutions – Files Third Amended Joint Chapter 11 Plan, Schedules May 20 Confirmation Hearing

April 1, 2019 - The Debtors filed a Third Amended Plan [Docket No. 2430] and a related Disclosure Statement [Docket Nos. 2430 and 2431]. The Debtors also filed redlines of those documents showing changes to versions filed on March 17, 2019 [Docket No. 2432]. The amendments do not include any changes to the treatment of classes and claims, including those of FES summarized below.

The following is an unchanged summary of FES classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class A1 (“Other Secured Claims Against FES”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
  • Class A2 (“Other Priority Claims Against FES”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
  • Class A3 (“Unsecured Bondholder Claims Against FES”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $2.2bn and the estimated recovery is 22.9%. Each holder of an allowed Unsecured PCN/FES Notes Claim Against FES will receive  New Common Stock, subject to dilution for the Management Incentive Plan, in an amount equal to its pro rata share of FES Unsecured Distributable Value, subject to the reallocation of (i) the Reallocation Pool to holders of Single Box Unsecured Claims, (ii) the FENOC-FES Claim Reallocation to holders of FES Single-Box Unsecured Claims and Holders of FENOC-FES Unsecured Claims against FES and (iii) the Mansfield Reallocation. 
  • Class A4 (“Mansfield Certificate Claims Against FES”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $786mn and the estimated recovery is 22.8%. Each holder of an allowed Mansfield Certificate Claim Against FES shall receive, New Common Stock, subject to dilution for the Management Incentive Plan, in an amount equal to its pro rata share of FES Unsecured Distributable Value, subject to the reallocation of (i) the Reallocation Pool to holders of Single Box Unsecured Claims, and (ii) the FENOC-FES Claim Reallocation to holders of FES Single-Box Unsecured Claims and Holders of FENOC-FES Unsecured Claims against FES and (iii) the Mansfield Reallocation. 
  • Class A5 (“FENOC-FES Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $138.6mn and the estimated recovery is 25.5%. Each holder of an allowed FENOC-FES Unsecured Claim Against FES shall receive cash equal to its pro rata share of (i) the FES Unsecured Distributable Value and (ii) the FENOC-FES Claim Reallocation, provided that such holders shall have the option to elect to receive their pro rata share of New Common Stock in equal amount, subject to dilution for the Management Incentive Plan. 
  • Class A6 (“FES SingleBox Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $568.6mn and the estimated recovery is 31.4%. Each holder of an allowed FES Single-Box Unsecured Claim shall receive cash equal to its pro rata share of (i) the FES Unsecured Distributable Value, (ii) the portion of the Reallocation Pool allocated to FES, (iii) the FENOC-FES Claim Reallocation, and (iv) the NG Reallocation Pool, provided that such holders shall have the option to elect to receive their pro rata share of New Common Stock in equal amount, subject to the Equity Election Conditions and subject to dilution for the Management Incentive Plan. 
  • Class A7 (“Mansfield Indemnity Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $178.0mn and the estimated recovery is 23.7%. Each Holder of an Allowed Mansfield AIndemnity Claim against FES shall receive, on the Initial Distribution Date, cash equal to its Pro Rata share of FES Unsecured Distributable Value. The aggregate amount of value available for distribution to Holders of Allowed Mansfield Indemnity Claims against FES shall be subject to the Distributable Value Adjustment Amount applicable to Class A7.
  • Class A8 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $13.9mn and the estimated recovery is 36.4%. Each holder of an allowed Convenience Claim against FES that has properly elected to be treated as such on its Ballot shall receive cash in an amount equal to 36.4% of the allowed Convenience Claim.
  • Class A9 (“Inter-Debtor Claims”) is impaired and not entitled to vote on the Plan. The estimated aggregate amount of claims is $3.2bn and the estimated recovery is 22.8%. Each holder of an allowed prepetition Inter-Debtor Claim against FES shall receive their pro rata share of the FES Unsecured Distributable Value. In lieu of Cash payment or other distribution to the Debtors holding such prepetition InterDebtor Claims against FES, the distributions on account of such prepetition Inter-Debtor Claims against FES shall be made to the Holders of allowed Unsecured Claims against the Debtor holding such prepetition InterDebtor Claims against FES by including the recovery on such prepetition Inter-Debtor Claims against FES in the calculation of the Unsecured Distributable Value relating to the Debtor holding such prepetition InterDebtor Claims against FES.
  • Class A10 (“Interests in FES”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 0%. As of the Effective Date, Interests in FES shall be cancelled and released without any distribution on account of such Interests.

The following exhibits were attached to the Plan:

  • Exhibit A: Distributable Value Splits
  • Exhibit B: FE Settlement Agreement

The following exhibits were attached to the Disclosure Statement:

  • Exhibit A: List of Debtors 
  • Exhibit B: Plan of Reorganization 
  • Exhibit C: Current Corporate Structure of the Debtors and Certain Non-Debtor Affiliates 
  • Exhibit D: Financial Projections 
  • Exhibit E: Valuation Analysis 
  • Exhibit F: Liquidation Analysis 
  • Exhibit G: Disclosure Statement Order 
  • Exhibit H: Restructuring Support Agreement 
  • Exhibit I: Letter of Official Committee of Unsecured Creditors in Support of Plan

The Court scheduled a confirmation hearing for May 20, 2019.

Document Description File
Plan [Docket No. 2430] Open File
Disclosure Statement [Docket No. 2431] Open File
Redlines of Plan and DS [Docket No. 2432] Open File

Hexion Holdings – Court Approves $600.0mn in Interim DIP Financing ($350.0mn to Repay Prepetition Debt) and Use of Cash Collateral

April 2, 2019 – The Court hearing the Hexion Holdings case issued an order authorizing the Debtors to (i) access $600.0mn in debtor-in-possession (“DIP”) financing, comprised of $250.0mn from the DIP ABL Facility and $350.0mn from the DIP Term Loan Facility, on an interim basis, and (ii) use cash collateral [Docket No. 103]. The $350.0mn accessed from the DIP Term Loan Facility will be used to repay outstandings under a prepetition ABL facility.

As previously cited from the Debtors' DIP motion [Docket No. 62], “The Debtors require immediate access to DIP Financing and the authority to use cash collateral to ensure that they have sufficient liquidity to operate their business and administer these chapter 11 cases in the ordinary course. While the Debtors typically maintain liquidity in excess of $50 million in the U.S., they are now operating with a cash balance of approximately $14 million as of the Petition Date. 

The DIP Financing has multiple components: 

  • The first is the DIP ABL Facility, under which the Debtors will have access to revolving, asset-based loans up to a maximum principal amount of $350 million (of which the Debtors are seeking authority to borrow up to $250 million on an interim basis), on substantially the same terms as the Debtors’ Prepetition ABL Facility. Like the Prepetition ABL Facility, the borrowers under this facility are Hexion Inc. and certain of its foreign non-Debtor affiliates, and the obligations of the borrowers are guaranteed by certain of Debtors (including Hexion Inc. as guarantor of the obligations of the non-Debtor borrowers). The DIP ABL Credit Agreement amends and restates the Prepetition Credit Agreement and the guarantors under the Prepetition ABL Facility are reaffirming the liens they pledged under the Prepetition Credit Agreement and related security documents as securing their obligations under the DIP ABL Facility. The collateral for the DIP ABL Facility is therefore substantially identical to the collateral for the Prepetition ABL Facility, including foreign collateral, and excludes the ‘Principal Properties’ discussed below. 
  • The second is the DIP Term Loan Facility, under which non-Debtor affiliate Hexion International Holdings B.V. (‘Hexion DutchCo’) will borrow, and certain of the Debtors will guarantee, $350 million in principal amount of term loans. The collateral for these term loans has two primary components: (a) certain of the Debtors’ plants referred to (and defined as) the 'Principal Properties' in the Debtors’ prepetition debt documents, (b) the equity interests held by Hexion DutchCo in its direct subsidiary, which is effectively a lien on the equity value in the Debtors’ foreign subsidiaries that are direct or indirect subsidiaries and (c) any other unencumbered assets of the Debtors (if any) that are not of the type pledged to the Prepetition Credit Agreement and the First Lien Notes, including 35% of the equity interests in the first-tier foreign subsidiaries of the Debtors. The proceeds of the DIP Term Loan Facility will be used to repay the outstanding loans under the Prepetition ABL Facility (with the letters of credit outstanding thereunder to be deemed issued under the DIP ABL Facility). 
  • The third component is a DIP Intercompany Loan to be entered into by Hexion DutchCo, as lender, and Hexion Inc. as borrower, pursuant to which Hexion DutchCo will loan the proceeds of the DIP Term Loan Facility to Hexion Inc. on an unsecured, superpriority (but junior to the superpriority claims in respect of the DIP Obligations) basis. 

Although complicated, by adopting it, the Debtors are able to take advantage of substantial pockets of unencumbered value to secure the financing they needed on what is effectively a non-priming basis, and featuring competitive pricing and other terms.”

Key Terms of the DIP ABL Facility

  • Borrower(s): Hexion Inc., Hexion Canada Inc., Hexion B.V., Hexion UK Limited, Borden Chemical U.K. Limited, and Hexion GmbH
  • Guarantors: Hexion LLC (“Holdings”) and each domestic and foreign subsidiary of Holdings that is party thereto, including the Debtors party thereto. The Debtors that are guarantors of the DIP ABL Facility are: Hexion Holdings LLC, Hexion LLC, Hexion Inc., Lawter International Inc., Hexion CI Holding Company (China) LLC, Hexion Deer Park LLC, Hexion Investments Inc., Hexion International Inc. and NL Coop Holdings LLC.
  • Lenders: The financial institutions party thereto from time to time
  • DIP Agent: JPMorgan Chase Bank, N.A.
  • Facility: A senior secured asset-based revolving credit facility in an aggregate principal amount of $350.0mn
  • Borrowing Limits/Availability: Maximum availability of $350.0mn ($250.0mn on an interim basis)
  • Interest Rates: 
    • ABR Loans: ABR + 1.00-1.50%
    • U.S. Base Rate Loans: U.S. Base Rate + 1.00- 1.50%                                 
    • Canadian Base Rate Loans: Canadian Base Rate + 1.00-1.50%
    • Other Base Rate Loans: applicable Base Rate + 1.00-1.50%                                  
    • Eurocurrency Revolving Loans: Adjusted Eurocurrency Rate + 2.00-2.50%
  • Maturity: The earlier of (i) the date that is 18 months following the Petition Date and (ii) the effective date of a plan of reorganization filed in the Chapter 11 Case that is confirmed pursuant to an order entered by the Bankruptcy Court.

Key Terms of the DIP Term Loan Facility

  • Guarantors: Hexion LLC (“Holdings”), Hexion Inc. and each domestic subsidiary of Holdings that is party thereto, including the Debtors party thereto. The Debtors that are guarantors of the DIP Term Loan Facility are: Hexion Holdings LLC, Hexion LLC, Hexion Inc., Lawter International Inc., Hexion CI Holding Company (China) LLC, Hexion Deer Park LLC, Hexion Investments Inc., Hexion International Inc. and NL Coop Holdings LLC.  
  • Lenders: The financial institutions party thereto from time to time
  • DIP Agent: JPMorgan Chase Bank, N.A.
  • Facility: A senior secured term loan credit facility in an aggregate principal amount of $350.0mn
  • Borrowing Limits/Availability: The aggregate amount of the Initial Term Loan Commitments on the DIP Closing Date is $350.0mn (“Initial Term Loan Commitment”)
  • Interest Rates:  
    • ABR Loans: ABR + 2%
    • Eurocurrency Loans: Adjusted LIBOR + 3%
  • Maturity: The earlier of (i) the date that is 18 months following the Petition Date and (ii) the effective date of a plan of reorganization filed in the Chapter 11 Case that is confirmed pursuant to an order entered by the Bankruptcy Court.

Document Description File
DIP Motion [Docket No. 62] Open File
Interim DIP Order [Docket No. 103] Open File

Orchids Paper Products Company – Files Chapter 11, Announces $175mn Stalking Horse Credit Bid by Black Diamond Capital Management Affiliate

April 1, 2019 − Orchids Paper Products Company (NYSE American: TIS) and two affiliated Debtors (together, “Orchids Paper” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10729. The Company, a leading national supplier of high quality consumer tissue products primarily serving the at home private label consumer market, is represented by Christopher A. Ward of Polsinelli PC. Further board-authorized engagements include (i) Richard S. Infantino of Deloitte Transactions and Business Analytics LLP ("Deloitte") to serve as interim chief strategic officer (with Deloitte engaged to assist Mr Infantino), (ii) Houlihan Lokey Capital, Inc. as investment banker and (iii) Prime Clerk LLC as claims agent.

The Company’s petition notes between 1,000 and 5,000 creditors; estimated assets of $322.0mn and estimated liabilities of $260.9mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) Fabrica De Papel ($4.4mn trade debt), (ii) Dixie Pulp & Paper ($1.6mn trade debt) and (iii) Little Rapids Corp. ($1.2mn trade debt).

Section 363 Sale and $175.0mn Stalking Horse Bid of Prepetition Lender Orchids Investment LLC

In a press release announcing the filing, Orchids Paper further announced that it had “entered into an option agreement (the ‘Option’) with Orchids Investment LLC (‘OI’). The Option gives the Company the right to execute an asset purchase agreement with OI (the ‘Purchase Agreement’), through which, should the Company exercise the Option, OI would acquire substantially all of the Company's assets in exchange for a credit bid of approximately $175,000,000 against the Company's obligations under its pre-petition secured credit facility plus other consideration. OI is indirectly owned by a fund affiliated with Black Diamond Capital Management, L.L.C. and Brant Paper Investment Company LLC.

The Company has filed a bid procedures and sale motion with the Court, and the Purchase Agreement will be subject to an auction at which higher and better offers may be made and will require Court approval. The bid by OI comprises the initial stalking horse bid in the auction process…the Company anticipates the transaction will move swiftly and aims to complete the process no later than August 2019.”

Debtor-in-Possession (“DIP”) Financing

OI also serves as the Company's pre-petition secured lender, and has agreed to provide debtor-in-possession ("DIP") financing to support the Company's day-to-day operations during the pendency of the bankruptcy case. 

Events Leading to the Chapter 11 Filing

The Debtors' press release states, "The Company began experiencing financial difficulty in late 2016 due to a number of factors, including unprecedented increases in input costs, most notably fiber and freight, which the industry has not yet been able to fully recover with price increases to customers; new competitive industry capacity driving down selling prices to defend and grow business; and construction cost overruns and start-up inefficiencies at its new production facility in Barnwell, South Carolina....Ultimately it was determined that using the chapter 11 process to facilitate a potential sale was the swiftest and most efficient way to preserve stakeholder value and sustain business operations."

In a declaration in support of the Chapter 11 filing (the “Infantino Declaration”) [Docket No. 19], Richard S. Infantino, a Managing Director of Deloitte and the Debtors’ Interim Chief Strategy Officer, detailed the events leading to [Company]’s Chapter 11 filing; including a series of operational issues which were (in turn) compounded as clients and suppliers reacted adversely to news of those issues. The operational issues included cost overruns in respect of the construction of a new facility, significantly increased raw material costs and increased transportation costs resulting from nationwide driver shortages. Further to public disclosure of these issues, the Debtors lost several key clients (including one that represented “19% of the Company’s converted product sales”) and were hit with disadvantageous credit terms from anxious suppliers.

The Declaration states, “At its new Barnwell, South Carolina facility, the two converting lines became operational in the first and third quarters of 2016, respectively. However, cost overruns in the construction of the facility and start-up inefficiencies with the operation of the converting lines and mill were, and continue to be, significant drains on the Company’s liquidity. The facility is still not running efficiently or producing product at the original equipment manufacturer’s goals. The Company continues to work with the original equipment manufacturer to address the operational issues with the converting lines and mill.

Compounding these problems have been significant industry wide price increases on various raw materials among other things. Specifically, the price of the various pulp grades and fiber substitutes used to manufacture the Company’s tissue products at both facilities has risen significantly in 2018….A majority of the Company’s tissue products are manufactured utilizing a variety of pulp substitutes including post-consumer sorted office products. From January 2018 to October 2018, the average recycle mix increased in price by about 39%. While all pulp and pulp substitute pricing began to ease at the end of 2018 and has continued to ease through February2019, current pricing of the Company’s average recycle mix is about 30% higher than at the beginning of 2018. 

At the same time there were driver shortages in the transportation industry, which have increased the Company’s freight costs and negatively impacted service levels to customers, sometimes resulting in customer penalties and chargebacks.

Significantly, on or about July 30, 2018, the Company received notice from a major customer that it intended to consolidate its supplier base and transition all of its product orders to a new supplier effective March 2019. This customer represented approximately 19% of the Company’s converted product sales. Subsequently, on or about September 2018, the Company learned that an important, yet less significant customer as a percent of sales, intended to reduce its business. On or about December 2018, the Company learned a significant customer would be pulling its towel business effective April 2019. These customer losses were not a result of product quality or customer service problems. In each instance, according to interactions with the Company’s sales personnel and management, these and other customers had expressed ongoing concern about the Company’s uncertain future based on its deteriorating financial condition as reported quarterly in the Company’s public filings.

Further exacerbating the Company’s deteriorating operating and financial condition, certain suppliers of raw materials and related manufacturing items moved the Company to CIA or significantly reduced credit terms in response to the Company’s public financial reporting. Approximately ten vendors forced the Company into CIA or reduced credit terms so the Company was effectively on CIA.”

About Orchids Paper

Orchids Paper Products Company is a leading national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to primarily to retail chains throughout the United States.

The Company is headquartered in Brentwood, Tennessee with manufacturing locations in Pryor, Oklahoma and Barnwell, South Carolina.

Document Description File
Declaration [Docket No. 19] Open File
Chapter 11 Petition [Docket No.1] - Orchids Paper Products Company (Lead Case) Open File

Orchids Paper Products Company – Seeks $11.0mn in DIP Financing, $4.0mn on Interim Basis, and Use of Cash Collateral

April 1, 2019 – The Debtors requested Court authority to access $11.0mn in debtor-in-possession (“DIP”) financing ($4.0mn on interim basis) to be provided by Orchids Investment (“OI” or the “DIP Lender”) and (ii) use of cash collateral [Docket No. 18]. OI, an affiliate of stakeholder Black Diamond Capital Management, L.L.C. , is also the presumptive stalking horse bidder (opening credit bid of $175.0mn) in a planned section 363 sale process.

The DIP motion states, “At the present time, the Debtors are unable to sufficiently generate cash to operate their business or satisfy their obligations under the Prepetition Financing Documents. Given the Debtors’ current financial condition, financing arrangements, and capital structure, the Debtors have an immediate need to obtain the DIP Facility and to use Cash Collateral to permit the Debtors to, among other things, continue the orderly operation of their business, maximize and preserve their going concern value, make payroll and satisfy other working capital and general corporate purposes, and pay other costs, fees and expenses associated with administration of the Chapter 11 Cases. In the absence of the authority of this Court to borrow under the DIP Facility and use Cash Collateral, the Debtors’ estates would suffer immediate and irreparable harm.”

Key Terms of the DIP Facility:

  • Borrower: Debtor Orchids Paper Products Company
  • Guarantors: Debtor Orchids Paper Products Company of South Carolina, Non-debtor Orchids Mexico (DE) Holdings, LLC and Non-debtor Orchids Mexico (D) Member, LLC
  • DIP Lenders: Orchids Investment LLC, as DIP lender and Black Diamond Commercial Finance, L.L.C. as DIP agent
  • Entities with Interests in Cash Collateral: Orchids Investment LLC, as prepetition lender Ankura Trust Company, as prepetition agent.
  • DIP Facility: The DIP Facility consists of a senior secured superpriority loan up to an aggregate amount of $11.0mn. with $4.0mn available on an interim basis
  • DIP Term: The DIP Facility will terminate upon September 30, 2019, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms of the DIP Credit Agreement
  • Interest Rate: A per annum rate equal to twelve percent (12%). The DIP Facility is also subject to certain fees as set forth in Section 2.4 of the DIP Credit Agreement
  • Default Rate: A per annum rate equal to two percent (2%) higher than the non-default rate

The following documents were attached to the DIP motion:

  • Exhibit No. 1: Form of Interim DIP Order
    • Exhibit A to Interim Order: DIP Credit Agreement
    • Exhibit B to Interim Order: Approved Budget
    • Exhibit C to Interim Order: Milestones
  • Exhibit No. 2: Declaration of Jeffrey Lewis in Support of Debtors for Entry of Interim and Final Orders

Document Description File
DIP Motion [Docket No. 18] Open File

Orchids Paper Products Company – Seeks Approval of Bid Procedures and $175.0mn Credit Bid from Affiliate of Black Diamond Capital Management

April 1, 2019 – The Debtors filed a motion requesting each of a bidding procedures order (the “Bidding Procedures Order”) and a sales order (the “Sales Order”) [Docket No. 25].  The Bidding Procedures order would authorize (i) proposed bidding procedures, including bid protections, (ii) entry into an agreement with stalking horse bidder (the “Option Agreement and the Stalking Horse Agreement”) further to which OI has offered to purchase the Debtors’ assets for a credit bid of $175.0mn (the “Sale”) and (iii) a proposed auction and sale schedule. The Sale Order would approve the Sale. 

The motion states, “The Debtors believe a prompt sale of the Assets may represent the best option available to maximize value for all stakeholders in these Chapter 11 Cases. Moreover, it is critical for the Debtors to execute on any sale transaction as expeditiously as possible, as the Debtors are utilizing the DIP Lender’s and the Prepetition Secured Lender’s cash collateral and additional financing in order to explore this sale process. Therefore, time is of the essence.”

Credit Bidding: Subject to the terms and conditions of this Agreement, in consideration of the sale of the Acquired Assets pursuant to the terms hereof, Purchaser shall (i) credit the amount of principal due under the Loans (as defined in clause (a) of the definition of Prepetition Credit Agreements) due under the Prepetition Credit Agreements, pursuant to a credit bid in the amount of  $175.0mn by Purchaser, in its capacity as Prepetition Secured Lender and (ii) credit an amount up to the amount outstanding under the DIP Facility at Closing, pursuant to a credit bid by Purchaser in its capacity as DIP Lender; provided, that the portion of the Loans that is not credit bid as part of the Purchase Price shall remain a Claim in the Chapter 11 Cases.

Bid Protections and Incremental Bids: Bid protections include a break-up fee equal to 3% of the purchase price (ie $175.0mn) of $5.25mn (the “Break-Up Fee”) and reimbursement of the Stalking Horse Bidder’s fees of up to $2.0mn (the “Expense Reimbursement”). The incremental bid amount is set at $500k and the initial overbid is set as up to $7.75mn which is of the sum of the Break-Up Fee, the Expense Reimbursement and an incremental bid of $500k.

Key Dates:

  • Sale Objection Deadline: June 5, 2019 
  • Bid Deadline: June 6, 2019
  • Auction: June 10, 2019
  • Sale Hearing: June 12, 2019

Document Description File
Bidding Procedures Motion [Docket No. 25] Open File

Piney Woods Resources, Inc. – Alabama Coal Operator Files Chapter 11

April 2, 2019 − Piney Woods Resources, Inc. and affiliated Debtor Jesse Creek Mining, LLC (together, “Piney Woods” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Alabama, lead case number 19-01390. Piney Woods, a privately held metallurgical and thermal coal development company with assets located near Alabaster, Alabama (the Lolley Basin), is represented by Lee R. Benton of Benton & Centeno, LLP. Further board-authorized engagements include Jackson Kelley PLLC as co-counsel. 

The Debtors' petitions note between 200 and 1,000 creditors; estimated assets between $100mn and $500mn; and estimated liabilities between $100mn and $500mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) GMS Mine Repair & Maintenance ($720k trade claim), (ii) McPherson Oil ($704k trade claim) and (iii) Tractor & Equipment Company ($611k trade claim).

In documents filed with the Court, the Debtors list the following stakeholders as holding 10% equity interests:

  • Anthony Bogolin
  • Brian O'Dea
  • Cary Harwood 
  • Everett King
  • Paul Vining
  • RCF V Annex Fund LP
  • Resource Capital Fund V LP.
  • Resource Capital Fund VI LP 
  • Ron Hite
  • Scott Spears
  • Tacoa Minerals, LLC

Resource Capital Funds is a Denver-based private mining specialist claiming $3.3bn in assets under management.

About Piney Woods

Piney Woods Resources Inc. is a privately held metallurgical and thermal coal development company with assets located near Alabaster, Alabama, USA. The company is engaged in the definition of a compliant resource base and a staged development approach for its main metallurgical coal project, the Lolley Basin.  Piney Woods also produces coal from Gurnee surface mine, a small strip and highwall mining operation.

Sizmek, Inc. – With Cash Down to $4.0mn, Seeks Access to Cash Collateral to Meet Payroll and Working Capital Needs

April 2, 2019 – The Debtors requested Court authority to access cash collateral in order to satisfy up to $1.5mn in prepetition payroll obligations and immediate working capital needs [Docket No. 14].

The motion states, “On the Petition Date, the Debtors’ cash on hand totaled approximately $3,930,000, all of which constituted Cash Collateral of the Secured Parties. The Debtors engaged with the Secured Lenders regarding the terms on which they would consent to permit the Debtors to continue to use Cash Collateral. These discussions resulted in the proposed Interim Order, entry of which will allow the Debtors to transition smoothly into chapter 11 while continuing to operate their businesses without disruption

The proposed immediate use of the Cash Collateral is intended to allow the Debtors to (a) satisfy their prepetition Payroll Obligations (and not in excess of the $12,850 priority wage cap imposed by sections 507(a)(4) and 507(c)(5) of the Bankruptcy Code) and up to an aggregate cap of $1,500,000 and (b) provide for the immediate working capital needs of the Debtors while the Debtors operate in chapter 11 pending the Final Hearing. Without prompt access to Cash Collateral, the Debtors are unable to satisfy their Payroll Obligations and will likely be unable to satisfy trade payables incurred in the ordinary course of business, preserve and maximize the value of their estates, and administer these chapter 11 cases, which would cause immediate and irreparable harm to the value of the Debtors’ estates to the detriment of all stakeholders.”

Document Description File
Cash Collateral Motion [Docket No. 14] Open File

Southcross Energy Partners, LP – Court Authorizes $85.0mn in DIP Financing on Interim Basis and Approves Use of Cash Collateral

April 2, 2019 – The Court hearing the Southcross Energy Partners cases issued an order authorizing the Debtors to (i) access $85.0mn of interim debtor-in-possession (“DIP”) financing to be comprised of $30.0mn in new money term loans (the “DIP Term Loans”) and $55.0mn in letter of credit term loans (the “DIP LC Loans”), and (ii) use cash collateral [Docket No. 59 which attaches the DIP credit agreementy].

In total, and subject to the Court's final order, the DIP financing is to be comprised of (i) $72.5mn in DIP Term Loans, (ii) $55.0mn in DIP LC Loans and (iii) $127.5mn in roll-up term loans (the “DIP Roll-Up Loans” and, together with the DIP Term Loans and the DIP LC Loans, the “DIP Loans”) to be used to refinance dollar-for-dollar prepetition term loans held by DIP lenders. 

As previously cited from the DIP motion [Docket No. 14], “The Debtors do not have unencumbered assets of sufficient value to support enough collateralized financing to meet the Debtors’ cash needs during the Chapter 11 Cases. Consequently, the only practical alternative to post-petition financing provided by the Prepetition Secured Parties would have been financing that was either (a) partially unsecured or secured by liens junior to those securing the Prepetition Secured Debt or (b) secured by priming liens senior to those securing the Prepetition Secured Debt, which priming was certain to be contested. The Debtors reached out to a number of potential third-party lending institutions with experience in providing debtor-in-possession financing, however none of these parties expressed an interest in providing the Debtors with the financing required on an unsecured or junior secured basis. Moreover, the Debtors determined that seeking financing on a nonconsensual priming basis would almost certainly involve expensive and unpredictable litigation at the early stages of the Chapter 11 Cases that would be materially destabilizing to the Debtors’ business operations.”

Key Terms of the DIP Facility:

  • Borrower: Southcross Energy Partners, L.P.
  • Guarantors: Each of Borrower’s direct and indirect Debtor subsidiaries
  • DIP Lenders: Certain Prepetition Term Lenders that are members of the Ad Hoc Group and any other Persons that have become party to the DIP Credit Agreement pursuant to an Assignment and Assumption
  • DIP Agent: Wilmington Trust, National Association.
  • Amount and Facilities: A senior secured superpriority debtor-in-possession financing, consisting of:
    • the DIP Term Loans and DIP LC Loans with commitments in an aggregate principal amount of up to $127.5 million, including the DIP L/C Sub Facility in the aggregate principal amount of up to $52,597,087.38, and 
    • the DIP Roll-Up Loans, which shall be secured on a junior basis to the DIP Term Loans and DIP LC Loans, to refinance dollar-for-dollar Prepetition Term Loans in the aggregate amount of $127.5 million.
  • Interest Rates: DIP Loans will bear interest at the following rates: (i) with respect to Eurodollar Loans, LIBO Rate (1.0% floor) plus 10.0% per annum and (ii) with respect to ABR Loans, the Alternative Base Rate plus 9.0% per annum; provided that DIP LC Loans may be borrowed only as ABR Loans. Roll-Up Loans will bear interest at the Alternative Base Rate plus 5.25%.
  • Default Interest: 2.0% per annum
  • Maturity: The date that is the earliest to occur of: (a) the date that is 6 months from the date of the Petition Date; provided that the Borrower will have the right to request one extension of up to ninety (90) says subject to the satisfication of certain conditions, including the consent of the Required Lenders and the payment of an extrension premium of 1.00% of the consenting Lender’s DIP Loans then outstanding; (b) the effective date of any confirmed Acceptable Plan or any other Chapter 11 Plan of the Loan Parties; (c) the date on which all or substantially all of the assets of the Loan Parties are sold in a sale under a chapter 11 plan or pursuant to Section 363 of the Bankruptcy Code and (d) the acceleration of the maturity of the Loans upon the occurrence of any Event of Default.

The Court scheduled a final DIP hearing for May 7, 2019.

Document Description File
DIP Motion [Docket No. 14] Open File
Interim DIP Order [Docket No. 59] Open File

Weatherly Oil & Gas – Court Authorizes $1mn in Final DIP Financing and Limited Use of Cash Collateral

April 2, 2019 – The Court hearing the Weatherly Oil & Gas case issued a final order authorizing the Debtor to (i) access debtor-in-possession (“DIP”) financing of $1.0mn on a final basis and (ii) access cash collateral on a limited basis [Docket No. 180].

As previously cited from the DIP motion [Docket No. 26], “The DIP Financing is designed to inject the Debtor with immediate short-term liquidity that will (a) serve as a bridge until the Debtor can access the proceeds of the sales of its “Non-Core” and ‘Sligo Non-Op’ assets, i.e., the Group 1 Assets, to continue to fund the chapter 11 case, and (b) allow it to continue to market the ‘Overton,’ ‘Sligo-Op,’ and ‘Shelby,’ i.e., Group 2 Assets, while a going concern. As such, the DIP Financing is limited in amount and term.

As previously cited from the DIP motion [Docket No. 26], “The Debtor is in desperate need of liquidity to consummate the proposed sales and fund the chapter 11 case. As described in the First Day Declaration, the Debtor is currently operating at a significant loss and only has approximately $1.4 million of unrestricted cash on hand. That is insufficient to sustain operations or otherwise satisfy the costs of administering the chapter 11 case.

More specifically, the Debtor’s estate will be immediately and irreparably harmed absent approval of the Interim Order and the granting of access to the DIP Financing and Cash Collateral. Since all cash on hand is Cash Collateral, the Debtor simply has no ability to operate or restructure absent approval of the relief requested herein. Value will not only deteriorate, but disappear to the detriment of all stakeholders. 

The DIP Financing is designed to inject the Debtor with immediate short-term liquidity that will (a) serve as a bridge until the Debtor can access the proceeds of the sales of its “Non-Core” and ‘Sligo Non-Op’ assets, i.e., the Group 1 Assets, to continue to fund the chapter 11 case, and (b) allow it to continue to market the ‘Overton,’ ‘Sligo-Op,’ and ‘Shelby,’ i.e., Group 2 Assets, while a going concern. As such, the DIP Financing is limited in amount and term.”

Key Terms of the DIP Financing:

  • DIP Borrower: Weatherly Oil & Gas, LLC
  • Guarantors: Each subsidiary of Debtor Weatherly
  • DIP Agent: Angelo, Gordon Energy Servicer, LLC 
  • DIP Lenders: AG Energy Funding, LLC and AB Energy Opportunity Fund, LP
  • Term: The maturity date with respect to the DIP Financing shall be the earlier of: Three months after the closing of the DIP Financing; to the extent that the Bankruptcy Court shall not have approved the Final DIP Order on or prior to March 30, 2019, March 30, 2019; the Effective Date; the sale of all or a substantial part of the assets of the Borrower and the Guarantors; or the date that all Loans shall become due and payable in full under the DIP Financing Agreement or DIP Orders, whether by acceleration or otherwise.
  • Loan Commitment: Total aggregate commitment of $1.0mn pursuant to a superpriority and priming secured term loan. The amount of each DIP Lender’s commitment is set forth on Appendix A to the DIP Financing Agreement.
  • Interest Rates: 
    • Interest Rate: The DIP Financing shall bear interest at a rate equal to the sum of (i) LIBOR plus 10.00% per annum. 
    • Default Rate: Default interest rate of an additional 2.0% per annum upon the occurrence and during the continuance of an Event of Default.

Document Description File
Final DIP Order [Docket No. 180] Open File

Westwind Manor Resort Association – Court Approves $4.05mn in Final DIP Financing

April 2, 2019 – The Court hearing the Westwind Manor Resort Association cases issued a final order authorizing the Debtors to access $4.05mn in debtor-in-possession (“DIP”) financing on a final basis [Docket No. 125].

On March 5, 2019, the Debtors were authorized to access $800k of the then proposed $2.55mn on an interim basis [Docket No. 38]. On March 29, 2019, the terms of the DIP financing were modified to increase the final DIP loan amount to $4.05mn (see below) $1.0mn of any further financing continues to be dependent on the Court having granted further security in respect of the Debtors' Cimarron and Broadmoor golf properties

Modified terms of DIP Financing are as follows: 

INITIAL TERMS

MODIFIED TERMS

Initial Amount:

Initial Advance of $800,000 upon entry of the Interim Order and an additional Advance of $750,000 upon entry of the Final Order.

Excluding the Cimarron and Broadmoor Advances totaling $1,000,000.

Revised Amount:

DIP Loan Amount increased from $2,550,000 to $4,050,000. $1,000,000 of the total DIP Loan Amount is available following a subsequent order from the Court permitting priming liens on Cimarron and Broadmoor.

Additional draws under the final order (“Final DIP Order”) approving the DIP Financing Motion can only be made once the DIP Lender has been satisfied, after a review of title reports, that the DIP Lender will have a first lien on all unencumbered assets by virtue of the Final DIP Order. 

In addition, draw increments will be increased to at least $500,000 going forward.

Key Terms of the modified DIP Financing:

  • Borrowers: All Debtors.
  • Lender: Warrior Golf Loan Investors, LLC, an affiliate of Serene Asset Management, LLC.
  • Amount of DIP Loan: Up to $4.05mn.
  • Maturity Date: March 4, 2020.
  • Interest Rate on DIP: 11% per annum.
  • Default Interest Rate on DIP: 18% per annum.

Document Description File
Final DIP Order [Docket No. 125] Open File