Briggs & Stratton Corporation – Debtors File Pre-Confirmation Hearing Documents, Go into Hearing with SEC and U.S. Trustee Objections Still to be Resolved

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December 16, 2020 – In anticipation of a December 18th Plan confirmation hearing, the Debtors filed a Second Amended Plan and a related blackline showing changes to the version filed on November 6, 2020. [Docket No. 1434]. The Debtors have also filed (i) a memorandum of law in support of the Plan confirmation (the "Memorandum") [Docket No. 1445], (ii) a Plan Supplement [Docket No. 1428], (iii) Plan voting results [Docket No. 1410] and (iv) a proposed Plan confirmation order [undocketed, but see attached].

Plan Overview

The Memorandum provides the following pre-Plan confirmation hearing summation: "The success of this Plan lies in its functionality—providing an efficient allocation methodology that recognizes the relative assets and liabilities of each Debtor, while minimizing administrative costs and providing a roadmap for distributions to creditors. At a more detailed level, the Plan provides for, among other things:

  1. appointment of a Plan Administrator to oversee the Plan and Wind-Down process, including, but not limited to, liquidating/monetizing remaining assets, resolving disputed claims, and making distributions to creditors under the Plan; 
  2. implementation of the provisions of the Global Settlement, including the PBGC Subordination and settled Allowed Claim amounts for the PBGC Allowed General Unsecured Claims;
  3. allocation of the Net Cash Proceeds among the five Debtor entities and separate treatment of Claims against each Debtor;
  4. classification of certain Impaired Claims in Classes 4(a) through 7(a), which classification underpins the structure of the overall Plan; and
  5. procedures to determine Allowed Claims in each Class and make distributions in respect thereof."

As to possible objections, the Memorandum notes: "Only two of the Objections remain outstanding: (i) the Objection filed by the U.S. Trustee and(ii) the Objection filed by the SEC." We cover these two objections, which relate to the third-party release mechanics, separately. Suffice to say, they will be resolved at the confirmation hearing one way or another, and are unlikely to present a threat to the Plan's confirmation.

The Disclosure Statement [Docket No. 1212] notes: “On September 15, 2020, the Bankruptcy Court entered an order authorizing the sale of the Debtors’ assets and equity interests to the Stalking Horse Bidder (the ‘Sale Transaction’). The Sale Transaction closed on September 21, 2020, at which time the Purchaser paid the purchase price of $550 million to the Debtors through a combination of cash, credit bid and certain other deductions and adjustments, and the Purchaser assumed substantially all of the Debtors’ assets and assumed certain of the Debtors’ liabilities.

In the weeks leading to the hearing to approve the Sale Transaction (as defined herein), the Debtors entered into extensive negotiations with the Creditors’ Committee, the Pension Benefit Guaranty Corporation (the ‘PBGC’) (the Debtors’ largest creditor), the DIP Agent and DIP Lenders and the Purchaser to resolve the Creditors’ Committee’s and the PBGC’s potential objections to the Sale Transaction and to ensure the Debtors could move swiftly to consummate the Sale Transaction and the subsequent Plan with the support of the Creditors’ Committee and the PBGC. The parties were able to reach a global settlement (the ‘Global Settlement’), by which the Creditors’ Committee and the PBGC consented to the Sale Transaction to the extent it was consummated before September 27, 2020. Under the Global Settlement, the Debtors and the Creditors’ Committee agreed to work in good faith on a chapter 11 plan to facilitate and give effect to the Global Settlement.”

The Disclosure Statement continues, “The Plan provides for the orderly distribution of each Debtor’s available cash, including (i) net cash proceeds received by the Debtors from the Sale Transaction (including any proceeds to be received post-closing thereof) (the ‘Sale Transaction Proceeds’), and (ii) cash realized from the Debtors’ business and their wind-down operations, including the sale of any remaining assets that were not included in the Sale Transaction (the ‘Wind-Down Proceeds’).

The Plan provides that the Sale Transaction Proceeds and Wind-Down Proceeds shall be used to fund (i) the ongoing wind-down costs of the Chapter 11 Cases, and (ii) the Distributions to holders of Allowed Claims under the Plan. Specifically, the Plan provides that the Sale Transaction Proceeds and Wind-Down Proceeds shall be used, first, to (a) pay holders of Allowed (or reserve for holders of Disputed) Administrative Expense Claims, Fee Claims and DIP Claims; (b) to fund the wind-down process (pursuant to a wind-down budget); and (c) to satisfy any Statutory Fees required to be paid in accordance with the Bankruptcy Code, the Bankruptcy Rules or any order of the Bankruptcy Court.

Following such payments, the Plan provides that the remaining Sale Transaction Proceeds and Wind-Down Proceeds (the ‘Net Cash Proceeds’) shall be allocated among the Debtors as follows (these amounts have been changed under the Amended Plan): 

  • 79.0% of the Net Cash Proceeds shall be allocated to BSC (the ‘Net Cash Proceeds (BSC)’), increased from 77.7% under the Initial Plan;
  • 8.1% of the Net Cash Proceeds shall be allocated to BGI (the ‘Net Cash Proceeds (BGI)’), reduced from 8.7%;
  • 6.7% of the Net Cash Proceeds shall be allocated to ABI (the ‘Net Cash Proceeds (ABI)’), reduced from 7.0%;
  • 4.8% of the Net Cash Proceeds shall be allocated to BSI (the ‘Net Cash Proceeds (BSI)’), reduced from 5.0%; and
  • 1.4% of the Net Cash Proceeds shall be allocated to BST (the ‘Net Cash Proceeds (BST)’), reduced from 1.7%.

The allocation above is based on an analysis by the Debtors’ financial advisor, Houlihan Lokey, in consultation with the Creditors’ Committee’s financial advisor. It allocates the Net Cash Proceeds based on an equal weighting of revenue, assets and adjusted EBITDA, subject to adjustments made based on bids received for the different entities, certain remaining assets and other qualitative factors such as intercompany relationships between the entities.

The Plan further provides that the Net Cash Proceeds allocable to each Debtor shall be distributed first to each Debtor’s priority and other secured claims and then pro rata (proportionately) to holders of General Unsecured Claims against such Debtor, in each case after giving effect to the ‘PBGC Subordination,’ which refers to the agreement of the PBGC, pursuant to the Global Settlement, to subordinate to other general unsecured creditors the first $5 million of the recovery it would otherwise receive from the Plan.

The Debtors do not expect there to be a recovery for shareholders.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement; see changes in bold and also the Recovery Analysis and the Liquidation Analysis below):

  • Class 1(a) (“Priority Tax Claims against BSC”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 1(b) (“Priority Tax Claims against BGI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 1(c) (“Priority Tax Claims against ABI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 1(d) (“Priority Tax Claims against BSI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 1(e) (“Priority Tax Claims against BST”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 2(a) (“Priority Non-Tax Claims against BSC”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 2(b) (“Priority Non-Tax Claims against BGI”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2(c) (“Priority Non-Tax Claims against ABI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 2(d) (“Priority Non-Tax Claims against BSI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 2(e) (“Priority Non-Tax Claims against BST”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 3(a) (“Other Secured Claims against BSC”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 3(b) (“Other Secured Claims against BGI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 3(c) (“Other Secured Claims against ABI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 3(d) (“Other Secured Claims against BSI”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 3(e) (“Other Secured Claims against BST”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 4(a) (“General Unsecured Claims against BSC”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and the estimated recovery is 6% – 8%.  Each holder shall receive its Pro Rata share of the Net Cash Proceeds (BSC) after the Priority Tax Claims against BSC, Priority Non-Tax Claims against BSC and the Other Secured Claims against BSC are satisfied (or reserved for) in full in accordance with the Plan, until all General Unsecured Claims against BSC are satisfied in full in Cash; provided, however, for purposes of determining the Pro Rata share under the Plan, the PBGC Subordination shall be enforced. Net Cash Proceeds (BSC) means [77.7]% of the Net Cash Proceeds.
  • Class 4(b) (“General Unsecured Claims against BGI”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and the estimated recovery is 1% – 2%. Each holder shall receive its Pro Rata share of the Net Cash Proceeds (BGI) after the Priority Tax Claims against BGI, Priority Non-Tax Claims against BGI and the Other Secured Claims against BGI are satisfied (or reserved for) in full in accordance with the Plan, until all General Unsecured Claims against BGI are satisfied in full in Cash; provided, however, for purposes of determining the Pro Rata share under the Plan, the PBGC Subordination shall be enforced. Net Cash Proceeds (BGI) means [8.7]% of the Net Cash Proceeds. 
  • Class 4(c) (“General Unsecured Claims against ABI”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and the estimated recovery is 1% – 2%. Each holder shall receive its Pro Rata share of the Net Cash Proceeds (ABI) after the Priority Tax Claims against ABI, Priority Non-Tax Claims against ABI and the Other Secured Claims against ABI are satisfied (or reserved for) in full in accordance with the Plan, until all General Unsecured Claims against ABI are satisfied in full in Cash; provided, however, for purposes of determining the Pro Rata share under the Plan, the PBGC Subordination shall be enforced. Net Cash Proceeds (ABI) means [7.0]% of the Net Cash Proceeds.
  • Class 4(d) (“General Unsecured Claims against BSI”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and the estimated recovery is N/A (The Debtors believe that the PBGC is the only creditor in this class). Each holder shall receive its Pro Rata share of the Net Cash Proceeds (BSI) after the Priority Tax Claims against BSI, Priority Non-Tax Claims against BSI and the Other Secured Claims against BSI are satisfied (or reserved for) in full in accordance with the Plan, until all General Unsecured Claims against BSI are satisfied in full in Cash; provided, however, for purposes of determining the Pro Rata share under the Plan, the PBGC Subordination shall be enforced. Net Cash Proceeds (BSI) means [5.0]% of the Net Cash Proceeds. 
  • Class 4(e) (“General Unsecured Claims against BST”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $– and the estimated recovery is 0.1% (The Debtors believe that the PBGC is the only creditor in this class). Each holder thereof shall receive its Pro Rata share of the Net Cash Proceeds (BST) after the Priority Tax Claims against BST, Priority Non-Tax Claims against BST and the Other Secured Claims against BST are satisfied (or reserved for) in full in accordance with the Plan, until all General Unsecured Claims against BST are satisfied in full in Cash; provided, however, for purposes of determining the Pro Rata share under the Plan, the PBGC Subordination shall be enforced. Net Cash Proceeds (BST) means [1.7]% of the Net Cash Proceeds. 
  • Class 5(a) (“Subordinated Securities Claims against BSC”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 5(b) (“Subordinated Securities Claims against BGI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 5(c) (“Subordinated Securities Claims against ABI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 5(d) (“Subordinated Securities Claims against BSI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 5(e) (“Subordinated Securities Claims against BST”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 6(a) (“Intercompany Interests in BGI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 6(b) (“Intercompany Interests in ABI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 6(c) (“Intercompany Interests in BSI”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 6(d) (“Intercompany Interests in BST”) is impaired, deemed to reject and not entitled to vote on the Plan. 
  • Class 7(a) (“Equity Interests in BSC”) is impaired, deemed to reject and not entitled to vote on the Plan. 

The Amended Plan also specifies that the estimated recovery for general unsecured claims depends on the amount of priority claims and general unsecured claims, which, based on the results of the claims reconciliation process, may ultimately be materially different from the estimates in the Recovery Analysis. See footnote three of the Recovery Analysis, annexed hereto as Exhibit C. The Debtors believe that certain priority claims and general unsecured claims should be reclassified and/or disallowed as part of the claims reconciliation process. However, the Debtors cannot assure that such claims will ultimately be reclassified and/or disallowed. As such, the recovery for Class 4(a) could be as low as 6% if certain filed and unreconciled priority claims and general unsecured claims asserted against the Debtors are ultimately allowed as part of the claims reconciliation process.

Additionally, this range is not inclusive of unliquidated tort claims. Forty-four (44) claims related to unliquidated tort claims were filed against the Debtors, of which thirty-nine (39) claims are related to asbestos-related litigations and may be reduced by applicable insurance coverage. The Debtors do not currently have an estimate for such tort claims, and the recovery amount for general unsecured creditors may be lower depending on the ultimate value of the unliquidated tort claims. If the unliquidated tort claims are ultimately allowed and not paid by available insurance, recovery for general unsecured creditors could be even lower.

Voting Results

On December 15, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 1410] which were as follows.

  • Class 4(a) (“General Unsecured Claims against BSC”): 600 claim holders, representing $392,040,654.66 (96.35%) in amount and 84.75% in number, voted in favor of the Plan. 108 claims holders, representing $14,841,485.60 (3.65%) in amount and 15.25% in number, rejected the Plan.
  • Class 4(b) (“General Unsecured Claims against BGI”): 231 claim holders, representing $315,628,592.21 (99.24%) in amount and 79.93% in number, voted in favor of the Plan. 58 claims holders, representing $2,419,313.85 (0.76%) in amount and 20.07% in number, rejected the Plan.
  • Class 4(c) (“General Unsecured Claims against ABI”): 202 claim holders, representing $314,785,395.38 (99.39%) in amount and 77.39% in number, voted in favor of the Plan. 59 claims holders, representing $1,932,686.87 (0.61%) in amount and 22.61% in number, rejected the Plan.
  • Class 4(d) (“General Unsecured Claims against BSI”): 1 claim holder, representing $220,917,500.00 (100%) in amount and 100% in number, voted in favor of the Plan.
  • Class 4(e) (“General Unsecured Claims against BST”): 1 claim holder, representing $220,917,500.00 (100%) in amount and 100% in number, voted in favor of the Plan.

Plan Supplement

On December 16, 2020, the Debtors filed a Plan Supplement to their Amended Joint Chapter 11 Plan [Docket No. 1428] and attached the following exhibit:

  • Exhibit C: Assumption Schedule

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