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January 29, 2023 – Privately held Nova Wildcat Shur-Line Holdings, Inc. and five affiliate debtors (dbe H2 Brands Group Home & Hardware; “H2 Brands Group*" or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 23-10114 (Judge TBA). The Cranbury, NJ based Debtors, wholesalers and on-line retailers of home improvement product brands including Shur-Line, Bulldog and World and Main, are represented by Jason D. Angelo of Reed Smith LLP. Further board-authorized engagements include: (i) Carl Marks Advisory Group, LLC as financial advisors (and providing Howard P. Meitiner as CRO), (ii) SSG Advisors, LLC as investment bankers and (iii) Epiq Bankruptcy Solutions, LLC as claims agent.
* In October 2018, Nova Capital Management (offices in Chicago and London, portfolio list here) announced that it had merged its consumer brands, Shur-Line™ and Bulldog Hardware™, with World and Main, LLC's retail brands, formerly owned by Littlejohn & Co.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Jiangsu Shihua ($5.8mn trade debt claim), (ii) Wuxi Bote Electrical Appliances Apparatus Co. ($4.2mn trade debt claim) and (iii) Cixi Xinxiuli Electrical Appliance Co ($3.1mn trade debt claim). All 30 of the Debtors' top 30 unsecured creditors have trade-related claims with over 20 of those claimants listing Chinese addresses.
Following a default under their 2018 senior credit agreement, the Debtors were notified by administrative agent PNC Bank, National Association ("PNC Bank") of its intention "to sell its collateral under the Credit Agreement, in whole or in parts, by private sale or sales." Having pushed the Debtors into Chapter 11, PNC Bank has now agreed to provide $3.7mn of debtor-in-possession ("DIP") financing to see the Debtors through an in-court sale process.
Goals of the Chapter 11 Filings
According to the Rostagno Declaration (defined below), "The Debtors, in consultation with their advisors and PNC, ultimately determined that the best path forward was the commencement of these Chapter 11 Cases to implement a sale of substantially all of the Debtors’ assets in one or more sales under section 363 of the Bankruptcy Code, which process will be conducted by SSG pursuant to market-standard and Court-approved sales procedures. The Debtors believe a section 363 sale process will provide maximum value to all stakeholders, including the Debtors’ unsecured creditors.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Rostagno Declaration”), Mark Rostagno, the Debtors’ president and chief executive officer, detailed the events leading to H2 Brands Group’s Chapter 11 filing. The Rostagno Declaration provides: “… [p]rior to the commencement of Chapter 11 Cases, the Debtors experienced liquidity and operational issues as a result of the COVID-19 pandemic and the accompanying supply chain disruptions.
These challenges led to covenant defaults under the terms of the Pre-Petition Credit Agreement with PNC Bank, National Association ('PNC'), as administrative agent, beginning in the fourth quarter of 2020, which the Company cured in the second quarter of 2021. Separate defaults then occurred in the third quarter of 2021 and have remained uncured. Unable to remedy the covenant defaults pursuant to the terms of the Pre-Petition Credit Agreement, the covenant defaults ripened into Events of Default (as defined in the Pre-Petition Credit Agreement).
Following the occurrence of Events of Default, the Debtors and PNC entered into a series of forbearance and amendment agreements. During the forbearance period and consistent with customary asset based credit facilities, PNC implemented the agreed upon cash management procedures set forth in the Pre-Petition Credit Agreement, which required the sweeping of all cash receipts on a daily basis to payment of the pre-petition debt and requiring new borrowings under the Pre-Petition Credit Agreement for each disbursement.
Although the forbearances allowed the Debtors to explore various operational and financial restructuring options, as a result of the Debtors’ continuing defaults and deteriorating financial condition, the Debtors’ liquidity was significantly constrained at a critical time.
During the forbearance period, the Debtors hired Novo Advisors ('Novo') as its financial advisor and risk officer and Paramax Group as its investment banker for the purpose of developing and implementing a marketing and sale process for a division of the Company operating under the 'Shur-Line' brand. Additionally, the Company sold two affiliated subsidiaries, NewTech Electronics Industries, Inc. and Craig Electronics, Inc. The proceeds of the sale were used to reduce the Debtor’s outstanding indebtedness under the Pre-Petition Credit Agreement.
Notwithstanding those sales, the Debtors continued to operate in an environment of constrained liquidity, which caused the Debtors to miss payments to vendors. Without payment, certain vendors began terminating their relationship with the Debtors, which adversely affected the Debtors’ ability to purchase new inventory. Some of the unpaid vendors began threatening and filing lawsuits, which served as a further drain on the Debtors’ already limited financial resources.
In December 2022, following expiration of the forbearance period on October 31, 2022, PNC delivered notice that it intended to exercise its rights under the Uniform Commercial Code to sell the Collateral (as that term is defined in the Pre-Petition Credit Agreement) in whole or in parts, by private sale or sales, sometime on or after December 26, 2022. After receipt of that notice, the Debtors and PNC engaged in further discussions to determine the best operational and financial alternatives for maximizing value and to canvass the market for potential purchasers. Around the same time, the Debtors engaged SSG Capital Advisors, LLC ('SSG'), as its investment banker, and Carl Marks Advisory Group, LLC ('CMAG'), as its financial advisor, replacing Novo, to assist the Debtors in their consideration of strategic alternatives."
Prepetition Credit Agreement. Shur-Line, LLC, WAM Cranbury, and WAM Air, as borrowers, the several lenders party thereto, PNC as administrative agent and collateral agent for each member of the Lender Group and the Bank Product Providers and PNC Capital Markets LLC, as Lead Arranger, are each party to that certain Credit Agreement dated as of August 24, 2018. As of the Petition Date, the aggregate principal amount of outstanding Pre-Petition Obligations under the Pre-Petition Secured Facility was approximately $42.4 million, plus any and all applicable interest, fees, costs, expenses, charges, and other claims, debts, or obligations of the Pre-Petition Borrowers and Pre-Petition Guarantors to the Pre-Petition Secured Parties.
Unsecured Obligations. In the ordinary course of operating their businesses, the Debtors purchase goods and services from hundreds of trade creditors. As of December 31, 2022, the Debtors’ Accounts Payable recorded in the company’s financials was approximately $55 million to third-party trade creditors.
The Debtors also face a series of contingent, unliquidated, and disputed unsecured claims from certain litigation claimants affiliated with the January 9, 2022, fire in a high rise building at the Twin Parks North West, Site 4 apartment building in the Bronx, New York City, which resulted in the multiples deaths and injuries to individuals. Investigators for the New York City Fire Department opined that the Bronx Fire was allegedly caused when an electric space heater distributed by the Debtors ignited a mattress. However, to date, it has not been confirmed whether the fire was a result of a defective product, user error, or some other cause. The investigation regarding the cause of the fire remains ongoing
About the Debtors
According to the Debtors: “ H2 Brands Group is a leading consumer products company with a growing portfolio of nationally recognized brands, now all under one roof.
Today, we are comprised of 22 brands with over 10,500 products representing 30+ categories – from fans to faucets to flashlights and so much more. We have distribution footprint of over 790,000 square feet across North America and 16 countries in our global sourcing network, enabling us to provide our customers with innovative home and hardware products as well as top-notch customer service.
We have the expertise and assortment to customize the best programs for any retailer, whether it’s big box, mass chain store, wholesaler, eRetailer or local independent hardware store.
Core categories include consumer electronics, paint sundries, hardware, home environment and plumbing products. Owned brands include: Comfort Zone® (home environment); Shur-Line® (paint sundries); Craig (consumer electronics); Bulldog®, Guard® Security, Ultra Hardware™ (hardware, locksets & security); WordLock® (padlocks); Bright-Way® (electrical supplies); Helping Hand (housewares); AquaPlumb® (plumbing) and Road & Home™.
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