Gorham Paper and Tissue, LLC – Gets Court Authority for $500k of DIP Financing to Be Provided by Stalking Horse Behrens Investment Group

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November 6, 2020 – The Court hearing the Gorham Paper and Tissue cases authorized the Debtors to (i) access $500k of debtor-in-possession (“DIP”) financing on an interim basis and (ii) use cash collateral [Docket No. 48]. 

The present DIP financing is part of a $1.5mn financing package being provided by Gorham DIP Financing, LLC (the “DIP Lender”), an entity created by stalking horse Behrens Investment Group. The balance of the facility is to be made available upon issuance of a final DIP order which is to be considered at a December 2nd hearing.

The Debtors' DIP motion [Docket No. 12] notes, “The Debtors have worked closely with their senior management and outside advisors to evaluate the Debtors’ cash requirements for their businesses in chapter 11 until a sale process can be completed… the Debtors have an urgent need for additional liquidity to ensure business continuity and operational stability while they conduct the auction and sale process from the Petition Date through approximately mid- to late-December when closing is anticipated. The Debtors have thoroughly reviewed and vetted the Budget with their advisors, and the Debtors believe that the Budget provides an accurate reflection of the Debtors’ business revenues and expenses, including administrative costs in chapter 11, over the covered period.

As reflected in the Budget, immediate authority to access the DIP Facility is necessary to avoid immediate and irreparable harm that would otherwise result if the Debtors were denied incremental liquidity and unable to maintain operations necessary to execute their going concern sale strategy. Without the DIP Facility, as made clear in the Budget, the Debtors will not hold or generate sufficient cash to meet their essential payment obligations, and the Debtors most likely will cease operating almost immediately.”

Key Terms of the DIP Facility

  • Borrower: Gorham Paper and Tissue, LLC, and White Mountain Tissue, LLC
  • DIP Lender: Gorham DIP Financing, LLC
  • Guarantors and Administrative agent: None
  • Term: The DIP Facility shall mature on the “Maturity Date,” which shall mean the earliest of: (a) three (3) months from the date of final court approval of the DIP Facility; (b) the consummation and closing of a sale free and clear of liens and encumbrances under § 363 of the Bankruptcy Code; (c) the effective date of a confirmed plan of reorganization; (d) conversion of the Bankruptcy Case to one under Chapter 7 or dismissal of the Bankruptcy Case; or (e) at the Lender’s discretion, upon the occurrence of an Event of Default.
  • Commitment: The Lender shall provide a secured, multiple draw term loan credit facility of up to $1.5mn ($500k on an interim basis) to fund Post-Petition Funding Obligations, on the terms and subject to the conditions set forth in the DIP Facility Documents and Interim Order.
  • Interest Rate: 
  1. The Post-Petition Note shall bear interest on the unpaid principal amount thereof plus all obligations owing to, and rights of the Lender pursuant to the Post-Petition Note, including without limitation, all interest accruing thereon, together with fees, and costs as provided under the PostPetition Note (collectively, the “Post-Petition Obligations”) from the Closing Date to and including the Maturity Date at a fixed rate per annum equal to six month LIBOR plus six percent (6%), calculated on the basis of a 360-day year for the actual number of days elapsed.
  2. After the Maturity Date and/or after the occurrence of an Event of Default, the Post-Petition Obligations shall bear interest at a rate equal to the interest rate set forth in subsection 2.03(a) above plus two percent (2%) per annum, calculated on the basis of a 360-day year for the actual number of days elapsed (the “Default Interest Rate”).
  3. Interest shall be payable, in cash, upon prepayment of any portion of the Post-Petition Obligations, on the Maturity Date, or upon payment in full of the Loan.
  4. Notwithstanding anything to the contrary set forth in Section 2.03 of the DIP Facility Agreement, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate.
  5. Except as otherwise set forth in the DIP Facility Agreement or in the Interim Order, the Post-Petition Obligations shall be due and payable on the Maturity Date.
  • Expenses and Fees: The Borrowers shall pay to the Lender (i) a commitment fee equal to 1.0% of the amount of the Initial Advance; and (ii) upon entry of the Final DIP Order, a commitment fee equal to 1.0% of the amount of Stated Principal Amount minus the Initial Advance. All such commitment fees shall be included in the Obligations to Lender and payable to Lender on the Maturity Date. The Borrowers shall also pay to the Lender those additional fees and expenses described in the definition of “Obligations” in the DIP Facility Agreement.
  • Milestones: The Borrowers shall comply with the following Sale Milestones stated in Section 6.14 of the DIP Facility Agreement:
  1. No later than two (2) Business Days after the Petition Date, the Borrowers shall file a motion in form and substance acceptable to the Lender establishing the Bid Procedures (the “Bid Procedures Motion”) and seeking to approve that certain Asset Purchase Agreement dated November [__], 2020 between the Borrowers and the Lender (the “Asset Purchase Agreement”) and the bid protections contemplated therein (it being understood that such motion may be combined with the Bid Procedures Motion).
  2. The Borrowers shall engage in best efforts to obtain entry of an order no later than sixteen (16) days after the Petition Date, in form and substance satisfactory to the Lender, approving the Bid Procedures Motion.
  3. By no later than two (2) Business Days prior to the Sale Order Date (as defined below) (the “Auction Date”), the Borrowers shall conduct an auction of the Borrowers’ assets to the extent more than one (1) Qualifying Bid shall have been received.
  4. By no later than December 18, 2020 (the “Sale Order Date”), the Borrowers shall cause the Bankruptcy Court to have entered an order, in form and substance satisfactory to the Lender, approving the sale pursuant to the terms of the Asset Purchase Agreement.
  5. By no later than December 31, 2020, the Borrowers shall close the Court approved sale under the Asset Purchase Agreement.

Prepetition Indebtedness

As of the Petition date, the Debtors owed borrowings under: (x) the GPT Credit Agreement in a principal amount not less than $48,871,090.31, and (y) the WMT Credit Agreement in a principal amount of not less than $51,568.627.00, plus accrued but unpaid interest, fees, costs and expenses 

The following is a summary of the prepetition debt of the lead Debtor under its 2011 "GPT Credit Agreement": 

Principal Balance

Type

Tranche

Lender

$30,000,000.00

Revolving Credit Loan

RCA

Zohar III

$18,871,090.00

Term Loan

DDTLB

Zohar III

$1,500,000.00

Revolving Credit Loan

RCB

ARK II

The following is a summary of the prepetition debt obligations of WMT (ie Debtor White Mountain Tissue):

Principal Balance

Type

Tranche

Lender

$11,000,000.00

Term Loan

TLA

Zohar III

$10,568,627.00

Term Loan

TLB

Zohar III

$3,365,220.00

Term Loan

N/A

BONH

Budget

About the Debtors

According to the Debtors: “Gorham Paper and Tissue started in May of 2011 when funds managed by Patriarch Partners purchased the former Fraser Papers facility. The legacy of Gorham is extensive, dating back to 1852 when the operation opened as a saw mill. Over the years, numerous companies owned the operation, building a foundation of process, innovation and papermaking expertise. 

The Arnold Declaration adds: "The Debtors manufacture towel and tissue parent rolls for “at-home” and “away-from-home” (i.e., commercial or industrial) markets.

For the at-home market, the Debtors manufacture parent rolls for the production of bath, facial tissue, towels, napkins, and other paper products. For the away-from-home market, the Debtors manufacture parent rolls for the production of industrial towels and wipes, hard wound towels, and multi-fold towels. For at- home, bath and tissue products, production is run through the “TM06” dry crepe tissue machine, which was purchased in 2012 by WMT and has an annual capacity of 36,000 tons/year. Production for away-from-home products is run through the “PM09” towel machine owned by GPT.

The Debtors’ site, which encompasses over 60 acres along the Androscoggin River in Gorham, Coos County, New Hampshire, also includes pipelines, warehousing space, multiple boilers, and a waste treatment center. Overall, the mill facility can support more than 150,000 tons of product per year. The Debtors experienced total net sales in FY2019 of $31,900,000.00 in the at-home market and $23,401,800.00 in the away-from-home market.

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