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May 7, 2020 – The Debtors filed a motion requesting each of a bidding procedures order and a sales order [Docket No. 16]. The bidding procedures order would approve (i) bidding procedures in relation to the sale of the Debtors’ assets (the “Sale”), including bidder protections for stalking horse bidder Techniplas Acquisition Co, LLC (the "Buyer," an acquisition entity formed by certain of the Debtors' prepetition senior lenders and noteholders) and (ii) an accelerated auction/sale timetable culminating in an auction on May 29th and a sale hearing on June 3rd. The sale order would authorize the Sale.
The Buyer intends to credit bid $105.0mn which is comprised of (i) all outstanding debtor-in-possession ("DIP") indebtedness and (ii) certain prepetition indebtedness in respect of the Debtors' 10.000% senior secured notes due 2020.
The motion states, “The Debtors filed these Chapter 11 Cases with the goal of consummating a sale or sales of all or substantially all of the Debtors’ assets that will maximize value for the benefit of the Debtors’ estates, while maintaining a global business that employs hundreds of individuals and contracts with many vendors and customers worldwide. If the DIP Term Lenders and certain of the Prepetition Notes had not agreed to provide the Debtors with post-petition financing to support these Chapter 11 Cases and working capital needs through the sale process, the Debtors would have no choice but to permanently close their operations and lay off their remaining employees. Based on the foregoing, and for the reasons stated below, the Court should grant the relief requested in this Motion and allow the Debtors to implement the Bidding Procedures to obtain the highest or best possible offer or offers for the Debtors’ Assets.
As detailed in the First Day Declaration, the Debtors have been pursuing various strategic alternatives for over eighteen (18) months leading up to the Petition Date. Since late 2018, the Debtors have, with assistance of advisors, explored various strategic alternatives to address their recent debt maturities and otherwise optimize the value of their business. Such efforts have focused on a refinancing of the Senior Secured Notes, a public equity listing, and a potential sale to The Jordan Company L.P., a private equity firm that had, as early as 2017, expressed interest in buying the Debtors’ equity. For various reasons described in the First Day Declaration, these attempts to consummate a strategic transaction were ultimately unsuccessful.
In late February 2020, the impact of the COVID-19 outbreak began to affect the global economy, causing panic and disruption in the global markets. The unprecedented COVID-19 pandemic had a sudden and severe impact on the Debtors’ business. Many customers suspended or drastically reduced production, resulting in a significant drop in demand for the Debtors’ products. Many of the locations where the Debtors had offices and manufacturing plants worldwide issued lockdown orders and permitted only essential business to remain open in an effort to control the outbreak and protect the health and safety of the people. Out of concern for the wellbeing of its employees and the lack of demand, the Debtors shut down or dramatically reduced production in its plants in the U.S. and worldwide.
The unforeseen and devastating effects of COVID-19 derailed the agreed upon sale transaction with The Jordan Company. As detailed in the First Day Declaration, the Debtors, with the assistance of their advisors, considered all strategic options and concluded that a sale process in accordance with the Bidding Procedures set forth herein is the best way to maximize the value of the Debtors’ Assets and achieve the best possible outcome for their estates. Through this Motion and the relief requested in the DIP Motion, the Debtors, with the assistance of Miller Buckfire, seek to conclude the marketing process that they began prepetition.”
Key Terms of the Stalking Horse APA
- Purchase Price: The aggregate consideration consists of: (1) the Credit Bid Amount, which is an amount equal to the amount of all outstanding DIP Credit Agreement Indebtedness, plus certain outstanding indebtedness under the Prepetition Notes plus cash for the budgeted amounts (less actual amounts paid) for estate professionals from the Petition Date through the Closing Date; (2) the assumption of the Assumed Liabilities; (3) the amount of the Wind-Down Amount Payment, which is an aggregate amount equal to $500,000 to be used to pay wind-down expenses (including professional fees); and (4) the amount of all outstanding indebtedness under the DIP ABL Credit Agreement.
- Bidder Protections: In the event that the Stalking Horse Bid is not selected or the Debtors consummate one or more Sale Transactions for the Assets in the Stalking Horse Package with one or more other bidders, the Stalking Horse Agreement provides for the reimbursement of out-of-pocket fees and expenses of such Stalking Horse Bidder up to $750k (the “Expense Reimbursement Amount”). The Stalking Horse Agreement also provides that, in the event a Competing Bid is consummated, the Debtors must pay the Stalking Horse Bidder a breakup fee (the “Break-Up Fee”) equal to 2% of the Credit Bid Amount. Lastly, the Bidding Procedures provide for a minimum overbid requirement whereby bids for the Stalking Horse Package, whether in one or a combination of Qualified Bids, will start at the Purchase Price and other terms provided in the Stalking Horse Bid, and will proceed thereafter in increments of $250k (the “Minimum Overbid Amount”, and together with the Expense Reimbursement Amount, Break-Up Fee, and other customary bid protections, the “Stalking Horse Bid Protections”). The 2% Break-up fee is interesting; less than the market standard of 3% but clearly more than the 0% (ie no break-up fee) that many would argue is appropriate for a credit-bidding stalking horse and Debtors looking to keep barriers to entry low in respect of competing bids.
- Milestones: The Debtors have agreed a number of sale-related milestones in their DIP financing arrangements, including:
- Bidding procedures order by May 20, 2020
- Bid deadline shall have occurred by May 28, 2020
- Auction conducted by May 29, 2020
- Sale order by June 2, 2020
- Closing of sale by June 19, 2020
Proposed Key Dates
Stalking Horse Package Sale Timeline
- Bidding Procedures Hearing: May 20, 2020
- Global Bid Deadline: May 28, 2020
- Auction for Stalking Horse Package: May 29, 2020
- Objection deadline for sale of Stalking Horse Package if Auction held: June 1, 2020
- Sale Hearing (if Auction held): June 2, 2020.
Non-Designated Asset Sale Timeline
- Bidding Procedures Hearing: May 20, 2020
- Global Bid Deadline: May 28, 2020
- Auction for Non-Designated Assets: May 29, 2020
- Objection deadline for sale of Auction Package to Successful Bidder: June 1, 2020
- Sale Hearing for Non-Designated Assets: June 2, 2020
In a press release announcing the filing, the Debtors advised that they had “entered into an agreement with a group of noteholders holding approximately 95% of its senior notes that would position the Company to transform its balance sheet while maintaining its high standards for quality and customer service.
The proposed transaction would allow Techniplas to emerge with a significant reduction in overall debt and interest expense. The Company has also entered into an agreement through which certain of its noteholders and Bank of America, N.A., as agent and lender under the Company's ABL credit facility, will provide additional debtor-in-possession financing to fund the process, including expenses, and Techniplas operations, including current growth initiatives."
Goals of the Chapter 11 Filings
Following a COVID 19-related collapse of an expected sale to The Jordan Group, the Debtors intend to continue prepetition marketing efforts and pursue a section 363 auction/sale process as to which certain holders of the Debtors' prepetition notes (the "Ad Hoc Group") have agreed to serve as a credit-bidding stalking horse with a $105.0mn bid (their debt totals $183.75mn). The Smidt Declaration (defined below) provides:
"The Ad Hoc Group has also agreed to provide debtor-in-possession financing (the “DIP Term Facility”) to fund these Chapter 11 Cases, and enable the Debtors to conduct a competitive sale and auction process to market the Debtors’ assets and ensure the value of such assets are maximized. Without the DIP Financing, the Debtors would be unable to continue as a going concern, with the inevitable result of jobs lost, plants closed, and losses in value for all the Debtors’ stakeholder. At the same time, the Ad Hoc Group has supplied the stalking horse bid of at least $105 million in connection with the sale process to purchase the Company’s international operations and the Debtors’ three remaining manufacturing facilities still in operation in the United States. In late April, Miller Buckfire commenced a marketing process with respect to the assets subject to the proposed sale. The presence of a stalking horse that ensures that a sale transaction will be consummated for the Debtors’ assets provides a path forward for continuing the Debtors’ business as a going concern, preserving jobs, and maximizing the value of the Debtors’ estates while enabling the competitive sale process to proceed."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Smidt Declaration”), Peter Smidt, the Debtors’ co-Chief Restructuring Officer, detailed the events leading to the Debtors’ Chapter 11 filing. The Smidt Declaration provides considerable background on the Debtors' exploration of strategic options which date from 2017 and, after many false dawns, ultimately bore fruit in the form of a deal that would have seen the Debtors' business sold to private equity group The Jordan Company and the agreement of holders of $183.75mn of notes expiring May 1, 2020 to restructure that debt. According to Smidt, the Debtors had an agreement in principle as to the transactions in Mid-February only to have them "abruptly terminated as a result of the unexpected COVID-19 pandemic."
The Smidt Declaration provides: "In March 2020, the Debtors’ proposed transaction with The Jordan Company L.P. (‘Jordan’) to acquire the equity of the Debtors and with the Ad Hoc Group [holding over 90% of the Debtors $183.75mn in “Prepetition Notes”] regarding an amendment of the Prepetition Notes abruptly terminated as a result of the unexpected COVID-19 pandemic. Faced with near-term maturities [the Prepetition Notes matured on May 1, 2020] under their Prepetition ABL Credit Agreement and Prepetition Indenture, the Debtors pivoted and engaged with their Prepetition ABL Lenders and Prepetition Noteholders to negotiate a comprehensive restructuring of the Debtors’ capital structure.
In the years leading up to these Chapter 11 Cases…the Company continued to be highly leveraged. Notwithstanding the Company’s growth and profitability, the Company proactively began exploring potential strategic alternatives to enhance their business and maximize value long before the filing of these Chapter 11 Cases.
On or about mid-2019, the Company began discussions with the holders of the Prepetition Notes and a private equity firm that had, as early as 2017, expressed interest as a potential buyer of the Company: Jordan. These negotiations were constructive and resulted in the signing of a note purchase agreement (the “Note Purchase Agreement”) on October 25, 2019 with Techniplas Global Holdings, LLC (the 'Note Purchaser'), an affiliate of Jordan. The Note Purchase Agreement provided for the sale by Techniplas Holdings 2 S.àr.l. ('Techniplas Luxco II') of a 10% Note due October 28, 2020 (the 'Lux II Note') to the Note Purchaser. The proceeds of the issuance of the Lux II Note were primarily used to fund the Company’s November 1 interest payment on the Prepetition Notes. As part of such Note Purchase Agreement, the Note Purchaser also received the right during the 'Exclusivity Period' (which commenced on the Lux II Note Closing Date and ended on December 31, 2019, which was subsequently extended to January 31, 2020) to require the members of the Company to sell, or cause to be sold, to the Note Purchaser (or an affiliate thereof) 100% of the membership interests of the Company, on the terms, and subject to the conditions, set forth in a form of sale and purchase agreement attached to such Note Purchase Agreement (the 'Call Right'). Ultimately, Jordan did not exercise its Call Right due to an expressed inability to find appropriate financing sources that would re-finance the Prepetition Notes and other relevant indebtedness of the Company or reach an agreement with the holders of the Prepetition Notes as to an exchange offer or other extension of their indebtedness.
In late 2019, certain holders of the Prepetition Notes formed an ad hoc group (the 'Ad Hoc Group') which the Debtors were advised consisted of holders of over 90% of the total holdings under the Indenture to continue restructuring discussions with the Debtors. Intent on exploring all potential options, the Company expanded the roles of its professionals. Near the end of 2019 and through the beginning of 2020,the Debtors’ management and advisors, engaged in negotiations with the Ad Hoc Group and Jordan to pursue a deal among the Company, the Ad Hoc Group, and Jordan. Several avenues were discussed, including a capital investment by Jordan, an exchange, of the Prepetition Notes on various terms, and a structure transaction of the Ad Hoc Group. Given the preferences of the parties, in February 2020, the Debtors focused on a transaction involving Jordan and the Ad Hoc Group. By mid-February 2020, the Debtors reached an agreement in principle with Jordan and the Ad Hoc Group that would have resulted in an equity sale of the Company to Jordan and a restructuring of the debt with closing targeted for March 2020. Indeed, the Debtors sought and obtained necessary competition approval in Europe. The Debtors believe that, had the transaction been consummated, it would have reduced the Company’s debt, injected liquidity into the Company and provided a strong platform for growth. However, as more fully discussed below, the parties were unable to consummate a transaction given the effects of the COVID-19 pandemic."
About the Debtors
Techniplas (www.techniplas.com) is a global provider of highly engineered plastic components, primarily for the automotive sector as well as industrial, consumer, medical and other markets. The Company's products align with industry trends, including vehicle lightweighting and electrification and an increasing focus on comfort and safety. Techniplas serves global customers and platforms with a focus on technology expertise and design and engineering collaboration with customers. Techniplas maintains long-term relationships with many of the world's leading automotive OEMs.
The Smidt Declaration adds: "The Debtors…are a global producer and manufacturer of plastic components primarily for the automotive and transportation industries, serving customers in the U.S. and internationally. Certain of the Debtors have roots in plastics manufacturing in the United States going back as far as 1941.The Company produces, among other things, automotive products, such as fluid and air management components, decorative and personalization products, and structural components, as well as non-automotive products, such as power utility and electrical components and water filtration products. As of the Petition Date, the Debtors had approximately 721employees. For the year ended December 31,2019, the Company had total assets of approximately $258.6 million against approximately $331 million in liabilities on a consolidated, book value basis. Likewise, the Company had net sales of $475 million and a net loss of $21 million for the 2019 fiscal year.
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