November 10, 2020 – The Debtors and their Official Committee of Unsecured Creditors (together, the "Plan Proponents") filed a First Amended Chapter 11 Plan of Liquidation and a related Disclosure Statement, with each attaching a blackline showing changes to the version filed on October 29, 2020 [Docket No. 451 and 452, respectively].  The amendments do not include any material changes to the summary of classes, claims, voting rights and expected recoveries, otherwise summarized below.

[Update] November 11, 2020 – The Court hearing the Congoleum Corporation cases issued an order (i) approving the Disclosure Statement on an interim basis, (ii) approving Plan solicitation and voting procedures and (iii) adopting a timetable culminating in a December 17, 2020 Plan confirmation hearing [Docket No. 455].

Overview of the Plan

The Disclosure Statement [Docket No. 451] reads: “The Plan Proponents propose a plan of liquidation under chapter 11 of the BankruptcyCode. After having sold substantially all of its assets… the consummation of a chapter 11 plan of liquidation is the principal final objective of this Chapter 11 Case. 

Generally speaking, the Plan:

• vests all Liquidation Trust Assets in the Liquidation Trust, for the purpose of distribution to holders of Allowed Claims;
• confirms the full and final resolution of funded debt obligations;
• designates a Liquidation Trustee to wind down the Debtor’s affairs, prosecute, continue, or settle Retained Causes of Action, pay and reconcile Claims, and administer the Plan and Liquidation Trust; and
• provides for 100 percent recoveries for holders of Administrative Claims, Professional Fee Claims, DIP Claims, Secured Tax Claims, Priority Tax Claims, Other Secured Claims, and Other Priority Claims.

The Plan classifies holders of Claims and Interests according to the type of the holder’s Claim or Interest, as more fully described below. Holders of Claims in Class 6 (General Unsecured Claims) are entitled to vote to accept or reject the Plan.

The Plan Structure

Pursuant to the Plan, payment of Claims will be as follows:

• The Debtor or the Liquidation Trustee will pay Allowed Administrative Claims, Allowed Professional Fee Claims, Allowed DIP Claims, Allowed Priority Tax Claims, Allowed Secured Tax Claims, Allowed Other Secured Claims, and Allowed Other Priority Claims in full in Cash;
• the Liquidation Trustee shall fund the Professional Fee Escrow Account, which Professional Fee Escrow Account shall be used to pay Allowed Professional Fee Claims;
• Holders of the Allowed Class 4 Pre-Petition Senior Note Claim and the Allowed Class 5 Pre-Petition Exchanged Note Claim against the Debtor received payment in the form of $28.5 million credit bid under the Asset Purchase Agreement. The remaining Pre-Petition Senior Note Claim and Pre-Petition Exchanged Note Claim are waived;
• holders of Allowed General Unsecured Claims will receive their pro rata share of the Beneficial Trust Interests, which Beneficial Trust Interests shall entitle the holders thereof to receive their pro rata share of the Liquidation Trust Assets;
• Existing Interests in the Debtor will be cancelled without any distribution to the holders of such Interests."

Asset Sale

On October 14, 2020, the Court hearing the Congoleum Corporation case approved the Debtor's sale of substantially all of its assets to Congoleum Acquisition LLC (the “Stalking Horse Bidder) 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 Stalking Horse APA [see, Docket No. 48, Exhibit A] details an agreed purchase price which includes (i) a credit bid of $28.0mn of the 2017 and 2020 Notes, (ii) the repayment of the $14.7mn owed to holders of the Debtor’s prepetition ABL Loan and (iii) the assumption of “significant” liabilities.

On September 26, 2020, the Debtor filed a notice stating that, absent any further qualified bids beyond that of the Stalking Horse Bidder, the auction scheduled for September 28th had been canceled and the Stalking Horse Bidder designated as the Successful Bidder [Docket No. 331].

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 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $5.0mn and the estimated recovery is 100%.
• Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0.00 and the estimated recovery is 100%.
• Class 4 (“Pre-Petition Senior Note Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $3,911,487.00 and the estimated recovery is 50%.
• Class 5 (“Pre-Petition Exchanged Note Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $49,559,201.00 and the estimated recovery is 50%.
• Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $47.0mn and the estimated recovery is 0.1- 2.00%. Each holder of such Allowed General Unsecured Claim shall receive its pro rata share of the Beneficial Trust Interests, which Beneficial Trust Interests shall entitle the holders thereof to receive their pro rata share of the Liquidation Trust Assets.
• Class 7 (“Interests”) is impaired and deemed to reject. The aggregate amount of claims is N/A and the estimated recovery is 0%. 

Previous Chapter 11

In December 2003, the Debtor, which had historically manufactured products that contained asbestos, filed for Chapter 11 protection (same Court, Case No. 03-51524) to resolve asbestos-related lawsuits and liabilities. 

In that lengthy turn through the Chapter 11 turnstiles, the “Prior Debtors” emerged on July 1, 2010 having created a trust to address legacy asbestos liability claims and which held 50.1% of Congoleum’s new common stock.

Significant Prepetition Shareholders

• Simplon International Ltd.: 50.27%
• Paul Frontier Holdings LP: 28.64% 
• Congoleum Plan Trust (16.38%)

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “O'Connor Declaration”), Christopher O'Connor, the Debtor's President and Chief Executive Officer, detailed the events leading to Congoleum’s Chapter 11 filing. The O'Connor  Declaration provides: “Although no one factor caused the Debtor to seek relief under chapter 11 of the Bankruptcy Code, numerous factors contributed to the Debtor’s decision to file its bankruptcy petition."

Those factors included:

• a long and acrimonious separation from their exclusive US and Canadian distributor Mohawk Industries, Inc. (“Largely as a result of the Debtor’s strained relationship with Mohawk, its sales declined from $219 million in 2007 to $117 million in 2019.”), 
• COVID-19 (“triggered a decrease in sales by 50% in March and April of 2020, causing the Debtor to miss projected sales targets. The Debtor expects such sales to recover slowly given that replacing floor generally is not an essential expense”)
• Chinese import product tariffs (“The Debtor imports approximately 14.9% of its flooring products from China…a cumulative increase of 25%…resulted in additional tariff payments of $1.6 million annually”)
• unsustainable legacy and environmental liabilities (“the Debtor has been, and is, involved in remediation activities at certain of its manufacturing locations and has been identified as a potentially responsible party at numerous sites under [CERCLA]… it has been forced to expend in excess of $1 million annually to in legal costs (despite insurance coverage) and those costs continue to increase” and 
• significant ongoing pension obligations relating to "its three defined benefit pension plans, all of which are underfunded. As of the Petition Date, the Debtor was unable to fund the minimum funding requirements for the year ending December 31, 2019 totaling $3,270,098…As of the Petition Date, the pension plans were underfunded by approximately $24 million."

Prepetition Indebtedness

As of the Petition date, the Debtor’s funded indebtedness included:

• The ABL Loan. The Debtor is party to a July 2010 credit agreement (the “ABL Loan Agreement”), with Wells Fargo Bank, National Association (the “ABL Lender”), pursuant to which ABL Lender made revolving loans to the Debtor in an aggregate principal amount not to exceed $35,000,000 (the “ABL Loan”). The ABL Loan has a maturity date of July 31, 2020. As of the Petition date, the aggregate outstanding amount of principal and interest under the ABL Loan is approximately $14.7mn. 
• 9% Senior Secured Notes Due 2017. In December 2010, the Debtor issued 9% Senior Secured Notes due December 31, 2017 (the “2017 Notes,” Delaware Trust Company as indenture trustee) in the aggregate principal amount of $33,000,000 to the holders (the “Holders”) of those certain 8.625% Senior Notes Due 2008 (the “2008 Notes”), which 2008 Notes were cancelled. In accordance with the Note Indenture, the Debtor issued additional senior notes in the aggregate original principal amount of $7,821,213 to the Holders to pay interest in kind in lieu of paying cash interest. In 2014, the Debtor defaulted on the 2017 Notes for, among other things, failure to pay interest due on the notes. The Debtor and Note Trustee entered into that certain Forbearance Agreement dated July 29, 2014 to address those defaults. In 2017 certain of the 2017 Notes were exchanged for new senior secured notes. However, 8% of the 2017 Notes were not exchanged and matured on December 31, 2017. The Debtor did not pay the $3 million due on December 31, 2017 causing an event of default on the 2017 Notes. While the Debtor subsequently paid $500,000 of the principal balance due on the 2017 Notes on February 5, 2018, it failed to pay the coupon interest payments due on July 1, 2018 and January 1, 2019. In response to those defaults, the Debtor received a Noteholder Consent and Waiver from the Holders on the remaining $2.8 million and the outstanding coupon interest payments, but was required to satisfy those payments on or before December 31, 2019. Those payments were not made. As of the Petition Date, the aggregate outstanding amount of principal and interest under the 2017 Notes is approximately $3.9mn. 
• 9% Senior Secured Notes Due 2020. In June 2017, the Debtor exchanged approximately 92% of the amounts outstanding under the 2017 Notes for up to $37,520,609 of new 9% Senior Secured Notes due December 31, 2020 (the “2020 Notes,” with Delaware Trust Company as indenture trustee). The current Holders of the 2020 Notes are Simplon International Ltd., Frontier Cap Partners, LLC, Paul Frontier Holdings, and Frontier C IV, LLC (the “Noteholders”). As of the Petition date, the aggregate outstanding amount of principal and interest under the Exchanged Notes is approximately $49.4mn.

Additional indebtedness includes (i) $5.6mn owed under an $8.0mn capital lease from Varilease Finance, Inc. (“VFI”) to finance a new production line at the Debtor’s Trenton plant (the “VFI Lease”) and (ii) $47.0mn of general unsecured claims, the latter including underfunded pension liabilities of approximately $24.0mn.

Proposed Key Dates

• Deadline to file Plan Supplement: December 3, 2020
• Objection Deadline: December 14, 2020
• Voting Deadline: December 14, 2020
• Combined Hearing: December 17, 2020

Liquidation Analysis (See Exhibit B of the Disclosure Statement [Docket No. 452] for notes)

About the Debtor

The O'Connor Declaration 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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