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November 16, 2020 – Further to an October 16th bidding procedures order [Docket No. 252] and absent any qualified bids other than that of stalking horse Arandell Acquisition Company, LLC (“AAC,” a special purpose vehicle formed and managed by Saothair Capital Partners LLC), the Debtors notified the Court that they had cancelled an auction scheduled for November 18th and designated AAC as the successful bidder for substantially all of their assets [Docket No. 338].
The APA detailing the terms of the successful bid (valued at approximately $33.0mn – $34.0mn) is attached to the Debtors' bidding procedures motion as Exhibit B [Docket No. 176] and a sale hearing is scheduled for November 24th.
The Debtors' September 30th bidding procedures motion estimated the agreed purchase price to be $31.325mn in cash plus a $2.4mn credit bid and assumed liabilities. In an October 19th filing [Docket No. 261], the estimated purchase price had shifted slightly ($30,832,878.00 in cash, the $2.4mn credit bid and assumed liabilities), the movement relating to shifts in the anticipated "DIP Loan Payment Amount," ie the outstanding amount under the Debtors' DIP facility.
AAC was formed by Saothair Capital Partners (“Saothair”) and prepetition junior secured creditor Farragut Mezzanine Partners III, L. P. (“Farragut”) for the purpose of making the proposed acquisition. Saothair’s website touts it as “a private equity investment firm focused exclusively on lower-middle market industrial and manufacturing businesses facing unique operational and financial challenges.”
Key Terms of the APA:
- Sellers: Arandell Corporation (and Arandell Holdings, Inc. with respect to certain insurance policies and other assets).
- Stalking Horse Bidder: Arandell Acquisition Company, LLC (“AAC”), whose members are Saothair and Farragut.
- Purchase Price: The closing consideration shall be approximately $31,325,000 (subject to potential adjustments up or done), consisting of (i) an aggregate cash amount equal to the sum of (A) the DIP Loan Payment Amount (including the Administrative Claims Cash Amount) estimated (as at September 30th) to be $20,500,000, plus (ii) a credit bid (A) by Farragut in the amount of $2,400,000 (“Credit Bid”) (the sum of subclauses (i) and (ii), the “Purchase Price”) and (iii) AAC’s assumption of the Assumed Liabilities. As noted above, the estimated purchase price had shifted (the DIP Loan Payment Amount being a moving number) and the purchase price was estimated to be $30,832,878 in cash (subject to adjustments), the $2.4mn credit bid and the assumption of assumed liabilities.
- Bid Protections: Break-Up Fee: $225k; Expense Reimbursement: $550k; Minimum Overbid: $100k
Marketing and Sale Process
The bidding procedures motion provides, “[t]he Debtors and their advisors worked for months in the face of the Debtors’ liquidity constraints and operational challenges to solicit and develop various strategic alternatives throughout the first seven months of 2020 to maximize stakeholder value. These efforts included retaining Promontory Point Capital (‘PPC’) and HMP Advisory Holdings, LLC (d/b/a Harney Partners) (‘HMP’), commencing at first a refinancing process involving contacts with thirty (30) funding sources and later (and concurrently), a sale marketing process involving an additional thirty-one (31) targets with strategic and financial interests…Fourteen (14) parties offered term sheets or indications of interest, and one financial buyer (Arandell Acquisition Company (‘AAC’), the proposed Stalking Horse herein) emerged with an indication of sufficient proceeds to extinguish senior debt and a portion of the subordinated debt.
On September 30, 2020, the Debtors entered into a stalking horse asset purchase agreement (the ‘Stalking Horse APA’) with AAC for the sale of substantially all of the assets of Arandell Corporation and certain insurance rights and other assets of Holdings (the ‘Purchased Assets Bid’). AAC was formed by Saothair Capital Partners (‘Saothair’) and Farragut Mezzanine Partners III, L. P. (‘Farragut,’ one of the Debtors’ junior secured creditors) for the purpose of making the proposed acquisition.
The Stalking Horse APA preserves the Company’s business as a going concern, including (i) preserving much of the Debtors’ current printing facilities and operations, (ii) contemplating the continued employment of substantially all of the Company’s employees under modified collective bargaining agreements, (iii) continuing ongoing relationships with many of the Company’s contract counterparties and assuming certain liabilities related thereto and (v) providing consideration (including the assumption of obligations) sufficient to repay or satisfy all amounts due to the Debtors’ Agents, Lenders and Factor and provide certain wind-down costs in accordance with an approved budget to facilitate the orderly winddown of the estates.
The Stalking Horse APA does not include exclusivity rights, and the Debtors, with the assistance of their advisors, are actively continuing to engage with other potential bidders to facilitate a competitive sale process, which will continue in accordance with the Bidding Procedures. Specifically, the Debtors, PPC and HMP will continue marketing and soliciting in accordance with the proposed Bidding Procedures and welcome any and all bids for the Debtors’ assets."
On the Petition Date, the Debtors noted that "recent trends for the balance of 2020 and outlook for 2021 are much brighter for the Companies," and the Debtors looked to be prepping for a going concern asset sale process, with a filing in support of debtor-in-possession ("DIP") financing noting that: "The Debtors and HP believe that without the DIP Facility, the Debtors’ day-to-day operations would by necessity come to a halt, a result that would be devastating to the Debtors’ attempt to market and sell its assets to maximize the value of its assets for the benefit of its creditors."
About the Debtors
The Hoffman Declaration provides: “Arandell Corporation is, along with its previous iteration, a nearly 100-year-old commercial printing company that is located at N82 W13118 Leon Road, Menomonee Falls, WI.
The facility in Walton, KY, was built by Continental Web Press (‘CWP’) approximately 20 years ago.
In 2016, CWP sold the assets of this facility to Trend Offset, a California printer, that subsequently ceased operations in September 2017 and vacated the premises.
Arandell Kentucky acquired the assets of the Walton, KY, facility in March 2018.
Arandell Corporation currently ranks as the third largest printer of catalogs in the United States. It has a strong reputation for production quality and service excellence, driven by a staff of over 600 highly skilled and trained professionals at the end of 2019. The Companies’ workforce has been trimmed to about 500 employees as of the date of the filing herein.
The Companies’ largest customers are blue chip major retailers and recognized brands using direct mail catalogs to promote both in-store and e-commerce sales.”
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