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August 12, 2022 – The Court hearing the Aluminum Shapes case confirmed the Debtors' Chapter 11 Plan of Liquidation as filed by the Debtor’s Official Committee of Unsecured Creditors (the “Committee” or the “Plan Proponent”) [Docket No. 619].
On August 15, 2021, Aluminum Shapes, L.L.C. (“Aluminum Shapes” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, case number 21-16520 (Judge Poslusny, Jr.). At filing, The Debtor, “a predominant fabricator of aluminum east of the Mississippi,” noted estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn (Court filings add as to liabilities: “The Debtor’s Real Property is presently valued at $20,900,000.00. The Debtor’s FF&E is valued at approximately $7,572,000.00. In a subsequently filed Schedule A/B, the lead Debtor noted $135.9mn of assets and $32.7mn of liabilities [Docket No. 91].
On January 28, 2022, the Debtor filed its own Plan of Liquidation and related Disclosure Statement [Docket Nos. 374 and 375, respectively]; with the Committee subsequently winning a May 12th Court order terminating the Debtor's Plan filing/solicitation exclusivity as it applied to to the Committee and paving the way for the Committee's filing of the now confirmed competing Plan. The Committee's issue did not seem to be with the Plan per se, treatment of general unsecured creditors identical in the two Plans, but rather the Debtor's inability to move things forward, notwithstanding courtroom promises that it would be do so ("For reasons unbeknownst to the Committee, and inconsistent with this Court’s remarks at the April 21, 2022 hearing setting a deadline for the Debtor to file an amended plan and disclosure statement by May 5, 2022, the Debtor has repeatedly delayed filing an amended plan and disclosure statement.").
In its motion requesting, inter alia, that exclusivity be terminated [Docket No. 499], the Committee argued: "There are multiple reasons why the Debtor’s exclusive periods to file a plan and solicit acceptance thereof (the 'Exclusive Periods') should be terminated and the Committee should be authorized to file its own plan and disclosure st atement. In particular, this case has been beset by numerous delays. The delays in this case were caused by the Debtor and have come at a great expense to general unsecured creditors. Nearly nine (9) months have lapsed since the Debtor filed for chapter 11 protection, six (6) months have elapsed since the closing on the sale of substantially all of the Debtor’s assets, and over three (3) months have passed since the Debtor filed its proposed plan and disclosure statement with the Court. For reasons unbeknownst to the Committee, and inconsistent with this Court’s remarks at the April 21, 2022 hearing setting a deadline for the Debtor to file an amended plan and disclosure statement by May 5, 2022, the Debtor has repeatedly delayed filing an amended plan and disclosure statement."
Overview of the Committee/Plan Proponent Plan
The Plan Proponents' confirmation brief [Docket No. 612] provides: "Less than one year after seeking bankruptcy protection, the Debtor has sold substantially all of its assets, closed on the sale, and is ready to have its remaining Cash and Causes of Action liquidated and distributed to creditors holding Allowed Claims. The Committee, with the Court’s authorization, has proposed a Plan that has been overwhelmingly accepted by the two impaired classes entitled to vote that cast ballots and is expected to provide an approximately 60% distribution to Holders of General Unsecured Claims in Class 3 of the Plan.
The Debtor conducted an auction of its assets on November 10, 2021, which resulted in a high bid of just under $32 million from VV 9000 LLC.
On November 19, 2021, the Court entered an order authorizing the sale of the Debtor’s assets free and clear of all liens, encumbrances, and other claims or interests to VV 9000 LLC [D.I. 282].
The Debtor’s Disclosure Statement Hearing was adjourned numerous times while the Debtor and Committee attempted to negotiate a joint plan. Despite the Debtor and Committee substantially agreeing to terms for a joint plan, the Debtor did not submit an amended plan due to the refusal of the Debtor’s directors and officers to sign off.
On May 6, 2022, the Committee filed…the “Committee Plan Motion”) [D.I. 499].
On May 12, 2022, the Court entered an order granting the Committee Plan Motion, whereby the Debtor’s exclusive periods to file a plan and solicit acceptance thereof was terminated only as to the Committee, and the Committee was authorized to file its own plan and disclosure statement [D.I. 506].
The Plan Proponents' Disclosure Statement [Docket No. 512] notes, “The Committee proposes the Plan because the Committee believes that the Plan: (i) ensures a more orderly, more timely liquidation and distribution of the Debtor’s remaining Assets; (ii) establishes the Liquidating Trust to facilitate the Estate’s recovery of any value remaining in the Estate Funds and all Causes of Action for the benefit of the Debtor’s unsecured creditors; and (iii) avoids unnecessary costs to the Debtor’s Estate which would accrue should the Debtor’s bankruptcy case be converted to Chapter 7 of the Bankruptcy Code.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):
- Class 1 (“Allowed Non-Tax Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Allowed Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is up to approximately $2,775,875.42 and the estimated recovery is 100%. Treatment: Unless the Holder of such Allowed Other Secured Claim and the Liquidating Trustee agree to a different treatment, thirty (30) days after the later of (a) the Effective Date and (b) the date on which the Other Secured Claim is Allowed, in full satisfaction of its Allowed Other Secured Claim, each Holder of an Allowed Other Secured Claim shall receive, at the option of the Liquidating Trustee: (x) the net proceeds of the sale of the property securing such Allowed Other Secured Claim, up to the Allowed amount of such Allowed Other Secured Claim; or (y) the return of property securing such Allowed Other Secured Claim; or (z) Cash equal to the value of the property securing such Allowed Other Secured Claim, up to the value of the Allowed Other Secured Claim; provided, however, if a Final Order has been entered prior to the Effective Date providing for treatment and distributions on account of an Allowed Other Secured Claim, the Allowed Other Secured Claim shall be treated as set forth in such Final Order. Pursuant to the HYG/Wells Settlement, HYG Financial Services Inc. and Wells Fargo Bank N.A., the only Allowed Other Secured Claims as of the date of the filing of the Plan, have agreed to accept payment of $35,000.00 to Wells Fargo N.A., on behalf of both, in full satisfaction of Claims 40 and 41. The Claims of the Disputed Judgment Creditors will belong to this class to the extent the Disputed Secured Creditor Actions are unsuccessful. Class 2 is impaired by the Plan and is entitled to vote on the Plan.
- Class 3 (“Allowed General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $10,950,000.00FN and the estimated recovery is up to 60%. Holder shall receive from time to time, a Pro Rata share of the net proceeds of the Liquidating Trust Assets after the payment of all Allowed Administrative Claims, Allowed Fee Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed Other Secured Claims, and the payment of all costs and expenses of the Liquidating Trust. For any Distribution to General Unsecured Creditors, the Liquidating Trustee shall follow the procedures of section 5.4.2.b of the Plan.
FN: This estimate does not include the PPP loans which total $6,870,015.00 and are anticipated to be forgiven.
- Class 4 (“Allowed General Unsecured Workers’ Compensation Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is unliquidated and estimated recovery is up to 100%FN. Class 4 is comprised of Holders of General Unsecured Workers’ Compensation Claims. In exchange for a grant of relief from the automatic stay conditioned by section 362 of the Bankruptcy Code and/or the Injunction set forth in section 7.5.2 of the Plan, any holder of a Class 4 Claim shall be limited to recovery from the Debtor’s applicable insurance policies and shall not receive a disbursement from the Liquidating Trust. [FN: Payments solely from the Debtor’s applicable workers’ compensation insurance policies. No distributions from the Debtor’s estate or Liquidating Trust].
- Class 5 (“United States of America Damage Claim”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $70,258,760.08. Each Holder shall receive from time to time, a Pro Rata share of the net proceeds of the Liquidating Trust Assets after the payment of all Allowed Administrative Claims, Allowed Fee Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims, Allowed Other Secured Claims, Allowed Class 3 Claims and the payment of all costs and expenses of the Liquidating Trust.
- Class 6 (“United States of America Penalty Claim”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is least $140,759,519.90.
- Class 7 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
On June 28, 2022, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 579] which were as follows.
- Class 2 (“Other Secured Claims”): 1 claim holder, representing $131,169.50 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 3 (“General Unsecured Claims”): 37 claim holders, representing $8,039,159.97 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 4 (“General Unsecured Workers’ Compensation Claims”): No Ballots were submitted in this Class.
The Disclosure Statement [Docket No. 512] attached the following exhibits:
- Exhibit A: Proposed Plan
- Exhibit B: Liquidation Analysis
- Exhibit C: Liquidating Trust Agreement
On November 19, 2021, the Court issued an order approving the $32.0mn sale of substantially all of the Debtor’s assets to VV9000 LLC* (the “Buyer” an acquisition vehicle created by Velocity Ventures, "a Philadelphia-based real estate private equity firm that specializes in the acquisition and management of opportunistic industrial and flex assets in the Greater Northeast region of the United States") [Docket No. 282]. The order capped what was a somewhat chaotic sale/auction process that saw (i) Reich Bros, (ii) a newly formed Delaware entity called CGPN, LLC and (iii) Norwegian aluminum giant Norsk Hydro all take turns as stalking horse or presumptive buyer before acquisition vehicle VV9000 LLC (ownership details in respect of which have been studiously avoided by the Debtor and the Buyer) ending up as the NJ property’s presumptive new owner. The Debtor’s assets were principally comprised of a single location at 9000 River Road, Delair, NJ consisting of approximately 500,000 square feet of industrial space, including a cast house, foundry and processing area.
On November 11th, further to the Court’s September 30th bidding procedures order [Docket No. 122] and an auction held on November 10, 2021, the Debtor had notified the Court that VV9000 LLC had been selected as the successful bidder [Docket No. 263].
Although there were six qualified bidders participating at the November 10th auction and both a successful bidder and back-up bidder were apparently selected (see further below), the Debtor did not name a back-up bidder (and the sale order does not approve one). In an objection to the proposed sale, Aspen 9000, LLC (“Aspen”) took issue with the conduct of the auction and contended that ithad beens willing to offer more ($33.0mn) than the winning bid on otherwise identical terms, an offer that Aspen claims the Debtor was made fully aware of before, Aspen infers, cutting a side deal with the Buyer: “over Aspen’s strenuous objections, the Debtor inexplicably called for bidders to submit a sealed, final bid. This decision was announced after an hour-long break during which time, upon information and belief, the Debtor’s and VV9000’s representatives met privately…”
On October 1st, the Debtor filed a notice naming CGPN, LLC as a stalking horse bidder in a proposed sale of its assets [Docket No. 127]; with the Debtor then (and after) declining to provide further background as to the stalking horse, a Delaware LLC formed on September 30th (the CGPN APA was available only upon request and the VV9000 LLC does not appear to have been filed).
The sale order provides that “CGPN is entitled to receive its Break Up Fee totaling $400,000.00 at closing; and the Debtor may reimburse the reasonable and documented out-of-pocket fees and expenses of CGPN up to $75,000…”
For further background on Velocity Ventures and its purchase of the Debtor's assets see this press coverage.
The sale closed on November 24, 2021.
On September 29, 2021, the Court hearing the Aluminum Shapes case issued a final order authorizing the Debtor to access the $3.4mn balance of what was in total $15.5mn of debtor-in-possession (“DIP”) financing provided by prepetition lender Tiger Finance, LLC (“Tiger” or the “Lender”). The DIP financing package included approximately $6.2mn of new money and a $9.3mn roll-up of prepetition debt, with the entirety of the roll-up occurring with the Court's August 19th interim DIP order. That interim order also provided the Debor with a first $2.8mn tranche of the new money financing.
Petition Date Pesrpective
Goals of the Chapter 11 Filings
The Meyers Declaration (defined below) provides: "The Chapter 11 Case is intended to address the Debtor’s funded debt, litigation overhang and to provide for a sale of the Business as a whole or its respective Assets.
The Debtor is therefore seeking either a strategic purchaser for the Business or the Assets of the Debtor, with an expectation that a sale under a controlled environment under the bankruptcy process will maximize the value for all creditors."
Events Leading to the Chapter 11 Filings
In a declaration in support of the Chapter 11 filing (the “Meyers Declaration”), Jordan Meyers, the Debtor's interim CFO (and Winter Harbor Senior Director), detailed the events leading to [Company]’s Chapter 11 filing. The Meyers Declaration provides: “Following years of adverse market trends, including increased competition from overseas manufacturers, the general downturn in the United States economy caused by COVID- 19, has forced the Debtor into a sale process. The COVID-19 shut down occurred during a time when the Debtor was experiencing strong demand but lacked adequate capital to complete fabrication.
The Debtor is the latest victim of the skyrocketing price of metal, supply chain issues, the lack of available credit, and the lack of cash flow necessary to compete. Both the increased cost of raw materials and foreign competition have adversely impacted the Debtor’s cash flow in recent years. Inadequate cash flow has caused the Debtor to delay accepting new work orders.
For the year 2020, the Debtor reported net sales of $13.6 million, as compared to $43.4 million for the fiscal year 2019. The reduction reflected an inability to generate sufficient capital for metal supply purchases. The Debtor reported an operating loss of approximately $19.4 million in 2020.”
- Prepetition Credit Agreement. As of the Petition Date, the Debtor had outstanding debt obligations in the aggregate principal amount of no less than $9,270,526 to Tiger, pursuant to the prepetition Tiger Credit Agreement (the “Prepetition Credit Agreement”). Obligations under the Prepetition Credit Agreement are secured by a first priority lien on substantially all of the Debtor’s Assets, including, without limitation, a first priority lien on the Debtor’s accounts (including receivables), inventory, machinery and equipment, real estate, deposit accounts, cash, and cash equivalents.
From time to time over the past year, the Debtor has entered into forbearance agreements with Tiger. The Debtor is presently party to that certain Seventh Forbearance Agreement and Seventh Amendment to Credit Agreement dated July 27, 2021 (“Seventh Forbearance”). The Seventh Forbearance modifies the Prepetition Credit Agreement and provides as follows: (i) Tiger continues to forbear through the Seventh Amended Forbearance Termination Date, or August 16, 2021; (ii) Tiger agrees to increase the Maximum Term Loan Amount and make Discretionary Advances up to $2.25mn to the Debtor; and (iii) the Debtor is directed to provide an executed Stalking Horse offer by a date certain. In exchange, the Debtor agrees to undertake certain obligations and to begin in earnest to find a purchaser for the Business or Assets.
- General Unsecured Creditors. The Debtor estimates that unsecured claims against the Debtor as of the Petition Date exceed $13.0mn. Unsecured claims against the Debtor include: (i) accrued, and unpaid amounts owed to the Debtor’s trade vendors and other unsecured debt incurred in the ordinary course of the Debtor’s Business, (ii) accrued employee related expenses, (iii) loans received under the Small Business Associations’ Paycheck Protection Program (“PPP”), and (iv) claims for unpaid union pension and health and benefit obligations.
- Judgments and Pending Litigation. The Debtor also has a number of judgments entered against it from utility suppliers and vendors which in total exceed $7.0mn.
About the Prepetition Debtor
According to the Debtor: “At Aluminum Shapes, we start the production process by melting scrap and primary ingot to cast billets from seven to sixteen inches in diameter. The billets are then extruded in small, medium, and large presses. At this point, many extruders see their job as done while our value is just beginning.
Shapes punches holes, precision cuts, forms and even welds using over 200 pieces of fabrication equipment. For high volume jobs we use custom machines for optimal efficiency.
All of these services under one roof. One supply chain and one company responsible for all phases of quality and service. For large OEM customers, Shapes employs highly experienced VA VE engineers adept at working with your managers and engineers on cost down projects – die redesign, scrap reduction, handling solutions, and outsource fabrication.
With six (6) high tonnage presses – more than any other North American manufacturer – Shapes can produce and ship over 600 metric tons of extruded aluminum annually in a wide range of press diameters and alloys. Additionally, Shapes has the capacity to cast more than 182 metric tons of aluminum log annually in a wide range of sizes and alloys.
The Meyers Declaration adds: "The Debtor is an aluminum processor (the 'Business'). The Debtor was founded by Ben Corson in 1948 and began operations as a supplier of extruded aluminum for his aluminum windows and doors. The Debtor has since grown to become a predominant fabricator of aluminum east of the Mississippi, and one of only a few processors in the country capable of, and in possession of, a completely vertically integrated plant and operations for the processing, annealing, cutting, fabricating, welding, and extruding of aluminum. The Debtor became incorporated in 1956 and subsequently acquired fifty-five (55) acres of land at its current location in Delair, New Jersey upon which it developed and built its aluminum processing facilities. As the United States economy blossomed in the 1960s, the Debtor began extruding aluminum for the trucking and trailer industry. At that time, the Debtor underwent a significant capital investment program by commissioning four new state-of-the-art extrusion presses. These acquisitions greatly increased capacity. Later, the Debtor would construct a “cast house” foundry for processing aluminum into billets, substantially reducing its raw material costs. In 1995, the Debtor underwent a further capital program, acquiring the Danieli Press, which was, at the time, the most sophisticated press in the industry. The addition of the Danieli Press increased aluminum processing capacity to nearly 30 million pounds annually. The Debtor’s substantial machinery, fixtures, and equipment, including a valuable cast house and foundry furnace, several presses, and processing equipment (the 'FFE'), are state of the art.
The Debtor is internationally known for some of its projects, including its fabrication and provision of the scaffolding for the reconstruction of the Statue of Liberty, for which it received recognition by the Guinness Book of World Records for what was then the largest free-standing aluminum structure. In 1998, it provided scaffolding for the Washington monument rehabilitation. Some seventy years after its founding, the Debtor has become and continues to be an industry leader in the fabrication, processing, and extruding of aluminum metals.
The Debtor owns and operates a single location at 9000 River Road, Delair, NJ, consisting of approximately 500,000 square feet of industrial space, including a cast house, foundry, and processing area (the “Real Property”). Located on the Real Property are buildings and the Debtor’s FFE. (FFE together with the Real Property, the “Assets”). At present, the Debtor is not operating the cast house.
The Debtor is a privately held New Jersey limited liability company. Jacky Cheung, an Austrailian national and resident of Vietnam, owns 100% of the membership interests and is the sole member of the Debtor. The Debtor’s current managers ('Managers') are Jacky Cheung, Charles Pok, and Solomon Rosenthal (CEO), who runs the day-to-day operations for the Debtor."
Liquidation Analysis (see Exhibit B of Docket No. 512)
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