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November 9, 2020 – The Court hearing the Congoleum Corporation case has extended the periods during which the Debtors have an exclusive right to file a Plan and solicit acceptances thereof, through and including March 10, 2021 and May 8, 2021, respectively [Docket No. 445]. Absent the relief, the Plan filing and solicitation periods are scheduled to expire on November 10, 2020 and January 9, 2021, respectively.
On October 14th, the Court hearing the Congoleum Corporation case approved the Debtor's sale of substantially all of its assets to Congoleum Acquisition LLC, an acquisition entity created by certain holders of the Debtor's 2017 Notes ($3.9mn outstanding at the Petition date) and 2020 Notes ($49.4mn outstanding) [Docket No. 380]. The Debtors have viewed approval of the $42.7mn sale (consideration comprised of (i) a credit bid of $28.0mn and (ii) $14.7mn of cash to settle other prepetition debt) and a related UCC settlement as necessary precursors to the formulation of a Plan noting that it would have "been premature to formulate a plan prior to the sale and the negotiation of the UCC Settlement."
With the sale approved and the UCC Settlement agreed, on October 29th the Debtors proceeded with the filing of their Plan of Liquidation and a related Disclosure Statement [Docket Nos. 410 and 411, respectively]. Next on the calendar for the Debtors is a November 10th hearing to consider the adequacy of the Disclosure Statement.
According to the Debtor's exclusivity motion, “During the first three (3) months of this Chapter 11 case, the Debtor has primarily focused its efforts on the sale of substantially all of its assets to maximize value for stakeholders…The Debtor’s marketing process with regard to a potential sale of its assets began prior to the Petition Date. After the Petition Date and consistent with the Sale Motion, the Debtor, led by B. Riley Securities, Inc., formerly known as B. Riley FBR, Inc. (‘BRFBR’), its court-approved investment banker, continued its efforts to market its business to over 120 prospective financial and strategic buyers. As part of that process, and among other things, the Debtor, the Debtor’s management, and its employees assisted BRFBR in the creation of diligence materials and the population of a data room for interested parties, modeled projections for prospective purchasers and prospective lenders to same and hosted site visits to each of the Debtor’s three manufacturing plants.
Following expedited discovery and a contested sale hearing, on October 14, 2020, the Court entered an order [Docket No. 380] (the ‘Sale Order’) granting the Sale Motion and approving the sale of substantially all of the Debtor’s assets to Congoleum Acquisition, LLC (the ‘Buyer’), an affiliate of the Debtor’s secured noteholders (the ‘Noteholders’). In connection with the approval of the sale, the Debtor, the Committee and the Buyer negotiated a settlement of certain claims and challenges to the Noteholders’ liens (the ‘UCC Settlement’). The UCC Settlement provides consideration to the Debtor’s estate and ensures a source of recovery for the Debtor’s general unsecured creditors."
Specifically, the extension motion said the UCC Settlement, which is incorporated in the Sale order [Docket No. 380], provides as follows: "[T]he Buyer agrees that it shall pay the estate, in addition to the $100,000 in Excluded Cash: (i) $250,000 on or about the effective date of a plan of reorganization or liquidation; (ii) $250,000.00 on or about 6 months after Closing; (iii) $500,000 on or about 12 months after Closing; and (iv) $300,000 if and when certain monies presently held in a cash collateral account by Applied Underwriters for a period when the Debtor was self-insured for workers’ compensation claims . . . are refunded."
With the UCC Settlement in hand, the Debtor expects the Sale to close by October 30, 2020.
The Debtor's extension motion continues: "The Chapter 11 Case is a mere three months old. As set forth above, the Debtor has spent the past three months actively engaged in efforts to sell substantially all its assets and, the Sale Order was only just entered approving the sale to the Buyer. The consideration received for the sale, including the UCC Settlement, will be critical components of the Debtor’s Chapter 11 plan. The Debtor has also been focused on preparing its Schedules and Statements, testifying at its 341 meeting of creditors, complying with various discovery demands and fulfilling its various other obligations as a chapter 11 debtor in possession. In sum, while it would have been premature to formulate a plan prior to the sale and the negotiation of the UCC Settlement, the Debtor is now poised to negotiate draft, and solicit votes on a plan. The Debtor is optimistic the sale of its assets and the consideration provided by virtue of the UCC Settlement will position it to propose a viable plan of liquidation in the near future. In particular, in light of the UCC Settlement, the Debtor has already resolved many of the issues that might have otherwise arisen during the plan negotiation and confirmation process. These resolutions will facilitate the formulation of a consensual and feasible chapter 11 plan of liquidation for the benefit of all stakeholders. Therefore, the Debtor’s prospects for filing a confirmable plan are reasonable…Finally, the Debtor notes that creditors will not be prejudiced by an extension of the Exclusive Periods. In fact, an extension of the Exclusive Periods will benefit creditors as the Debtor is seeking such extension in order to afford sufficient time to negotiate, draft and file a confirmable chapter 11 plan. Thus, the proposed extensions of the Exclusive Periods will afford the Debtor a meaningful opportunity to proceed with the plan process for the benefit of all stakeholders and creditors.”
About the Debtor
The O’Connor Declaration [Docket No. 18] provides: “As one of North America’s largest manufacturers of resilient flooring, the Debtor has been a leader in the flooring industry for more than 125 years. The Debtor manufactures and sells vinyl sheet and tile products for both residential and commercial markets. Its products are used in remodeling, manufactured housing, new construction, commercial applications and recreational vehicles. The Debtor’s history includes such industry highlights as the introduction of the first no-wax floor, the first chemically embossed vinyl-sheet floor and the first grout-able vinyl tile, which innovations redefined the resilient flooring market.
The Debtor is the only flooring manufacturer in the United States that produces solely resilient flooring. Resilient vinyl flooring is a durable, cost-effective and design-driven value alternative that appeals to a wide variety of end users. Resilient flooring represents 19.4% dollars and 24.7% of square feet of the total domestic flooring market. The Debtor’s sales comprise approximately 25% of the vinyl sheet market and those sales represent a significant share of the vinyl sub-markets, including manufactured housing (80%) and recreational vehicles (40%).”
According to the Debtor: “Since 1886 Congoleum has been committed to developing innovative flooring products that push the industry forward. Congoleum holds numerous patents for novel creations over the years and these patents have resulted in products that are like no others in the industry.
Congoleum manufactures residential and commercial resilient products that are engineered with state-of-the-art manufacturing equipment and that demonstrate Congoleum`s styling and design leadership. Congoleum has plans for a successful future that includes enhanced products and styles that will show off our true flooring expertise.”
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