APC Automotive Technologies Intermediate Holdings, LLC – Debtors Access $30mn of DIP Term Loans, Fees Include 35% of Reorganized Debtors’ Equity

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June 4, 2020 – The Court hearing the APC Automotive Technologies Intermediate Holdings cases issued an order authorizing the Debtors to (i) access $30.0mn of interim debtor-in-possession (“DIP”) financing under a new money DIP term loan facility (the “DIP Term Loan Facility”), (ii) access $90.0mn under a DIP ABL facility (the “DIP ABL Facility” largely used to roll-up ABL prepetition debt, $82.8mn outstanding as at Petition date) and (iii) use cash collateral [Docket No. 62]. 

The $20.0mn balance of what is in total a $50.0mn DIP Term Loan Facility is to be made available upon issuance of a final DIP order, with this second tranche subdivided into two pieces: (i) $13.5mn of Initial Commitments and, subject to a few extra hurdles, (ii) $6.5mn of "Incremental Term DIP Commitments."

What will draw the most attention in respect of the DIP Term Loan Facility are fees and interest; beginning with a commitment fee that the Debtors admit is "unusual and appears expensive." Indeed. That fee includes "35% of the Debtors’ reorganized equity;" an arrangement which the Debtors go to some efforts to justify based on the total absence of alternative DIP financing offers and the fact that the equity is going to DIP lenders who are set to get the equity anyway as part of the Plan which leaves 100% of the emerged equity to Term A Lenders. It is also not clear who is around to actually object to the arrangement beyond Term B Lenders (together with the Term A Lenders, the only voting class), with general trade creditors apparently unimpaired and the Debtors' private equity sponsors having cut a nominally separate deal with the Term A Lenders that will leave them with 1% of the emerged Debtors' equity. 

The impact, the Debtors argue, is an intra-lender issue; with any redistribution of the equity pie based on a prepetition lender's willingness to participate (take on additional risk) in the new money IP Term Loan Facility. A declaration in support of the DIP financing [Docket No. 18] adds: "While this fee is unusual and appears expensive, it only impacts the Term A Lenders. Notably, the Debtors are not paying an actual fee to the lenders funding the Term DIP Loan. Rather, the Term A Lenders that were not willing to fund the Term DIP Loan are allocating 35% of their reorganized equity to the Term A Lenders actually funding. In addition, the 35% equity fee dilutes the reorganized equity of the Term A Lenders funding the Term DIP Loan. Moreover, the Term DIP Loan is necessary to avoid the liquidation of the company, which would result in the loss of 1,200 jobs. Thus, under the circumstances and in the context of the overall restructuring, the Debtors agreed to the fee and believe entering into that fee is in the best interests of the company and the estates against the alternative."

The fees also include a 5% closing fee in respect of a prepackaged Plan which is supposed to go effective within 45 days of the Petition date (ie an approximately 40% annualized return) and a 10% interest rate.

The Debtors' DIP financing motion [Docket No. 17, filed on June 3rd] stated, “The Debtors’ already tight liquidity has been further exacerbated by the broader economic impact of the COVID-19 pandemic and increased raw materials costs. As a result, the Debtors are in urgent need of liquidity to continue operating during their Chapter 11 Cases in the ordinary course. To fund the Debtors’ operations during these Chapter 11 Cases and execute the restructuring contemplated by the Debtors’ restructuring support agreement (‘RSA’), the Debtors urgently require debtor-in-possession (‘DIP’) financing in the form of continued access to cash collateral and additional new money financing in the form of both an ABL and term DIP facilities. Moreover, access to the proposed DIP Facilities will send a clear signal to the Debtors’ customers, vendors, and employees that their operations can and will continue on a business-as-usual basis. Further, the coupling of the DIP Facilities with the Debtors’ RSA provides assurance that the Debtors will have the liquidity necessary to emerge as a stronger, appropriately-capitalized company.”

Key Terms of the DIP Term Loan Facility

  • Borrower: APC Automotive Technologies, LLC (f/k/a AP Exhaust Acquisition, LLC), a Delaware limited liability company, CWD Acquisition, LLC, a Delaware limited liability company, and CWD Holding Corp., a Delaware corporation.
  • Guarantors: Each of the Loan Parties identified as guarantors under the DIP Credit Agreement.
  • Term DIP Lenders: All Holders of Allowed Term A Claims (either directly or through one or more affiliated funds of financing vehicles) shall have an opportunity to fund their pro rata share of the Term DIP Commitments on a pro rata basis based on the outstanding principal amount of Term A Debt, excluding any accrued interest and fees, under the Prepetition First Lien Credit Agreement held by such Holders of Allowed Term A Claims as of the RSA Effective Date; provided that such Holders of Allowed Term A Claims (or their Affiliates, as applicable) shall have become a party to (i) the RSA on or before the RSA Effective Date and (ii) the DIP Commitment Letter (as defined in the RSA) within one (1) day of the RSA Effective Date.
  • Commitment: A secured super-priority priming DIP non-amortizing facility comprised of a (a) new money credit facility in an aggregate principal amount not to exceed $43.5m the (“Term DIP Commitments”) and (b) an incremental $6.5mn of financing under the Term DIP Facility (such incremental commitments under the Term DIP Facility, the “Incremental Term DIP Commitments”). The Term DIP Commitments may be incurred as follows: (x) up to $30.0mn to be drawn in one drawing following entry of the Interim Order (provided that the initial draw shall occur not later than two business days following entry of the Interim Order) and (y) a draw equal to (i) the remaining undrawn Term DIP Commitments upon entry of the Final Order plus (ii) the Incremental Term DIP Commitments, in each case, subject to the terms and conditions described herein and the Loan Documents and in accordance with the Budget and the Orders.
  • Interest Rate: The Term DIP Loans will bear interest at a rate per annum equal to 10.00 %, which amount shall be paid in cash in arrears on a monthly basis.
  • Default Interest Rate: 2.00% per annum above then-applicable interest rate on overdue amounts
  • Fees:The Borrower agrees to pay to the following fees:
    • Closing Fee: A combined Term DIP Facility and Exit Term Loan Facility closing fee equal to 5.00% of the aggregate principal amount of all Term DIP Commitments (including, for the avoidance of doubt, any Incremental Term DIP Commitments) for the ratable benefit of the Term DIP Lenders. Subject to the entry of the Interim DIP Order, the closing fee shall be earned, paid-in-kind and capitalized and applied to the aggregate principal amount of the Term DIP Facility with respect to the amount of any DIP Term Commitments that are funded on the date of any such funding;
    • Commitment Fee: A combined Term DIP Facility and Exit Term Loan Facility commitment fee equal to (i) thirty-five percent (35%) of the equity interests in the reorganized Debtors or (ii) in the event the Term DIP Facility is terminated for any reason other than the occurrence of the Plan Effective Date, $5.0mn paid in cash. Subject to the entry of the Interim DIP Order, the commitment fee shall be earned upon the entry of the Interim DIP Order and paid on the Term DIP Termination Date.
  • Milestones:
    • Deadline to commence Plan solicitation: May 31, 2020 
    • Deadline to file the Chapter 11 cases: June 3, 2020 
    • Deadline to file Plan: Within 24 hours of the Petition Date
    • Deadline to file Disclosure Statement: Within 24 hours of the Petition Date
    • Deadline for interim DIP financing order: 3 business days following the Petition date
    • Deadline to hold Plan confirmation hearing: 37 calendar days following the Petition date
    • Deadline for final DIP financing order: 37 calendar days following the Petition date
    • Deadline for order approving Disclosure Statement: 40 calendar days following the Petition date
    • Deadline for Plan confirmation order: 40 calendar days following the Petition date
    • Deadline for Plan effectiveness: 45 calendar days following the Petition date

Key Terms of the DIP ABL Facility

  • Borrowers: APC Automotive Technologies, LLC, a Delaware limited liability company, CWD Acquisition, LLC, a Delaware limited liability company, and CWD Holding Corp., a Delaware corporation
  • Guarantors: APC Automotive Technologies Intermediate Holdings, LLC; APC Automotive Technologies, LLC; AP Emissions Technologies, LLC; Aristo, LLC; AirTek, LLC; AP Exhaust Products DISC, Inc.; Eastern Manufacturing, LLC; CWD Acquisition, LLC, CWD Holding Corp., CWD Intermediate Holding Corp.; CWD, LLC; Qualis Enterprises, Inc.; Qualis Automotive, LLC
  • DIP ABL Agent: Wells Fargo Bank, N.A.
  • DIP ABL Lender: Wells Fargo Bank, N.A
  • Commitment: Upon entry of the Interim Order: $90,000,000.
  • Interest Rate: Loans shall bear interest at the sum of the Alternate Base Rate plus 3.00% per annum.
  • Roll-Up: Upon entry of the Interim Order, the DIP Parties are authorized to (x) perform the transactions and undertakings contemplated thereby, which are thereby approved in all respects and (y) to remit the Debtors’ prepetition and post-petition accounts receivable and all other proceeds of the DIP ABL Priority Collateral for application to the outstanding principal balance of the Prepetition ABL Obligations , and use the proceeds of the DIP ABL Financing to roll-up and refinance the Prepetition ABL Obligations, including interest and fees through the date of repayment (the “ABL Roll-Up”, and the amounts so rolled-up and refinanced, the “ABL Roll-Up Loans”), which roll-up and refinancing shall be indefeasible upon the occurrence of discharge and shall be entitled to all the priorities, privileges, rights, and other benefits afforded to the other DIP Obligations under the Interim Order, the Final Order and the DIP Documents
  • Fees: 
    • Closing Fee: Borrowers hereby agree to pay to ABL DIP Agent a closing fee in the amount of $225,000, which fee shall be for its sole and separate account and not the account of any ABL DIP Lender, and shall be fully earned and due and payable in full on the Closing Date; and
    • Termination Fee: On the DIP Termination Date, Borrowers shall pay to ABL DIP Agent a termination fee in the amount of $1,350,000 (the “Termination Fee”), which fee shall be for its sole and separate account and not the account of any DIP ABL Lender, and shall be fully earned and due and payable in full on the DIP Termination Date; provided, however, that if the ABL DIP Loan Parties enter into an exit credit facility contemporaneously with the DIP Termination Date with respect to which the ABL DIP Agent is the administrative agent and collateral agent and on terms and conditions acceptable to the ABL DIP Agent pursuant to which the ABL DIP Loan Parties pay the administrative agent an arrangement fee or similar fee in an amount equal to or greater than the Termination Fee, then the Termination Fee shall be waived.
  • Milestones: As above

The Debtors’ Prepetition Capital Structure

Funded Debt

Maturity

Interest Rates

Principal Amount Outstanding

ABL Facility

February 28, 2024

LIBOR + 1.5 – 2.0% based on Excess Availability

$82,764,123.28

First Lien Credit Facility

  • Term A: May 10, 2025
  • Term B: May 10, 2024
  • Term A-1: L + 5.0%
  • Term A-2: L + 5.0%
  • Term A-3: During PIK period (June 2021), L+ 6.0%; after PIK period, L + 5.0%
  • Term B: L + 5.0%
  • Term A-1: $25,471,316.33
  • Term: A-2: $157,922,161.24
  • Term A-3: $25,975,256.51
  • Term B: $145,091,327.62
  • Total: $354,460,061

Total:

$437,224,185.28

 

Capital Structure Comparison

Capital Structure as of May 31, 2020

Post-Emergence Capital Structure

 

Principal Outstanding

 

Principal Outstanding

ABL Loans

$78.4mn

ABL Exit Facility

$82.0mn

Undrawn LOC’s (decreases ABL Loan availability)

$4.4mn

Undrawn LOC’s (decreases ABL Loan availability)

$4.4mn

Term Credit Facility

$348.4mn

Term Exit Facility

$52.5mn

Total

$431.2mn

Total

$138.9mn

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