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April 5, 2021 – TECT Aerospace Group Holdings, Inc. and six affiliated Debtors (“TECT Aerospace” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-10670. The Wichita, Kansas based Debtors, who manufacture "complex aerostructure components," are represented by Paul N. Heath of Richards, Layton & Finger, P.A. Further board-authorized engagements include (i) Winter Harbor, LLC as restructuring advisors (and to supply CRO), (ii) Imperial Capital, LLC as investment banker and (iii) Kurtzman Carson Consultants LLC as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $1500.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) The Boeing Company ($18.3mn trade debt), (ii) Spirit Aerosystems Inc ($4.2mn trade debt) and (iii) All Metal Services, ILTD ($1.0mn trade debt).
Goals of the Chapter 11 Filings
The Martin Declaration (defined below) provides: "…through these chapter 11 cases, the Debtors will seek to consummate a sale or sales of substantially all of TECT’s assets pursuant to section 363 of the Bankruptcy Code."
For these Debtors, all paths lead to (and from) Boeing, their largest secured (they recently bought the Debtors' $41.9mn of senior prepetition debt) and unsecured creditor ($18.3mn) and the center of the Debtors' existence. Nominally responsible for the Chapter 11 in the first place (both as the 737 Max manufacturer and as a lender requiring that the Debtors file for Chapter 11 in order to maintain a financing lifeline), Boeing has now offered several helping hands (buying the Debtors' defaulted senior debt, extending further critical financing under that defaulted senior facility and now providing DIP financing) in an attempt to keep what is clearly an important parts supplier alive….and in the right hands. Boeing is also insisting that the Debtors pursue an in-court asset sale path, a process that they were largely managing prepetition and will continue to closely monitor (and control) now that the Debtors have filed for bankruptcy protection.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Martin Declaration”), Shaun Martin, the Debtors’ Chief Restructuring Officer, detailed the events leading to Teact Aerospace's Chapter 11 filing. The Martin Declaration provides: “Prior to the Petition Date, the Debtors’ business operations were severely impacted by the halt in production of The Boeing Company’s ('Boeing') 737 MAX airplane and restrictions on airline travel arising from the COVID-19 pandemic and the resulting decline in demand for the Debtors’ products and services. In December 2019, when Boeing announced it was suspending production of the 737 MAX, the Debtors were already near the maximum borrowing capacity allowed under the Prepetition Credit Agreement (as defined below) with PNC Bank, National Association ('PNC'). The combined effect of the lack of availability under their Prepetition Credit Agreement and the loss of revenue arising from the slowdown in 737 MAX production and the pandemic significantly strained TECT’s liquidity.
In addition, in late December 2020, a significant customer, Spirit AeroSystems ('Spirit'), notified TECT that it was terminating its supply agreement with TECT. While the Debtors explored a number of options to address TECT’s continued financial distress, it became apparent that an out of court solution was not achievable.”
The Debtors provide: "Following Boeing’s purchase of PNC’s position under the Prepetition Credit Agreement and its February 26 letter informing the Debtors that it would not continue funding under the Prepetition Credit Agreement outside of chapter 11, Boeing offered to provide the Debtors with debtor in possession financing….the Debtors and Boeing reached agreement on a $60,200,000 superpriority secured debtor-in-possession financing facility (the ‘DIP Facility’). Under the DIP Facility, $22,000,000 will be available to the Debtors upon entry of an interim order. The DIP Facility will provide the funding necessary for the Debtors to continue their operations through the sale processes and to pay expenses attendant to these chapter 11 cases."
As of the Petition date, the Debtors have approximately (i) $41.9mn of outstanding secured obligations under their prepetition credit agreement, (ii) approximately $1.25mn of outstanding obligations under equipment loan agreements, (iii) approximately $19.7mn of outstanding unsecured obligations to affilates for amounts related to rent and equipment lease payments and support services provided by Stony Point and OSS, and (iv) approximately $35.0mn of outstanding unsecured obligations to ordinary course trade creditors.
Boeing Relationship and Sale Efforts
The Martin Declaration provides: "On February 26, 2021, with the parties unable to reach agreement regarding a consensual path forward, Boeing notified TECT that after March 22, 2021 it would no longer advance funds under the Prepetition Credit Agreement [Boeing acquired the PNC loan in February 2021] except through an agreed debtor in possession financing as part of a bankruptcy proceeding.
Accordingly, in consultation with their advisors and professionals, the Debtors began exploring restructuring options to pursue through the chapter 11 process. Notwithstanding any formal agreement to extend the March 22, 2021 deadline, Boeing has continued to fund under the Prepetition Credit Agreement through the date hereof.
Over the past several months, TECT has evaluated restructuring alternatives and continued its discussions with Boeing and other parties to explore such alternatives, including potential out of court options. TECT, having considered the alternatives, believes that a sale will maximize the value of TECT’s assets.
Although it appeared that out of court restructuring was no longer an option, Boeing, recognizing that in order for it to continue to receive the necessary parts for its airplanes and TECT’s need for additional funding, continued to support the TECT business by providing funding under the Prepetition Credit Agreement. From the time it acquired the loan under the Prepetition Credit Agreement from PNC through the Petition Date, Boeing provided TECT with over $13.2 million in net new funding.
Further, TECT, understanding Boeing’s critical role as the most significant customer of TECT’s Everett, Washington facility, agreed in late 2020 to allow Boeing to begin exploring discussions with potential purchasers for the Everett operations. TECT believes that any potential purchaser would only be interested in considering a transaction for the Everett assets if it was confident that Boeing would continue to support the Everett operations as a customer. Boeing, the world’s largest aerospace company, has the knowledge and experience with respect to other similarly suited aerospace part manufacturers and, as a result, Boeing began contacting potential third party acquirers to determine their interest in a sale of TECT’s Everett business.
Further, the Debtors initiated their own sale process to find a potential buyer or buyers of their assets. In March 2021, the Debtors retained Imperial Capital, LLC (‘Imperial’) to provide investment banking services in connection with a potential sale. Imperial is currently evaluating certain prepetition offers for the various business units and developing a fulsome marketing and sale process.
As of the Petition Date, the Debtors have not entered into any agreements with respect to the sale of their assets. As set forth above, the Debtors are in the process of marketing their assets and are hopeful that this process will result in an executed asset purchase agreement or agreements that will allow the Debtors to sell all or a portion of their assets in the near term pursuant to section 363 of the Bankruptcy Code."
About the Debtors
According to the Debtors: “TECT Aerospace manufactures high-precision, complex components and assemblies and specializes in global supply chain management, featuring TECT Hypervelocity®, a fully integrated manufacturing process producing high-speed aluminum monolithic parts capable of jig and jigless assembly.
At our five facilities in the U.S., and with more than 65 years of aerospace experience, TECT Aerospace manufactures complex aerostructure components, parts and assemblies from the full spectrum of traditional and aerospace alloys. We specialize in complex, structural and mechanical assemblies, machined components, and sheet metal fabrication for countless aerospace applications. We currently produce thousands of assemblies and parts that are used in flight controls, fuselage/interior structures, doors, wings, landing gear, struts & nacelles, and cockpits.
TECT Aerospace is a privately held, independently managed aerospace company. Everything we manufacture runs through our integrated supply chain, so your parts deliver on time every time with competitive pricing. Make TECT Aerospace a part of your supply chain, and discover how you can increase the velocity of your value stream."
The Martin Declaration adds: "The Debtors are privately held companies owned by Glass Holdings, LLC ('Glass') and related Glass owned or Glass controlled entities.
The Debtors manufacture high precision components and assemblies for the aerospace industry, specializing in complex structural and mechanical assemblies, and, machined components for a variety of aerospace applications. The Debtors produce assemblies and parts used in flight controls, fuselage/interior structures, doors, wings, landing gear and cockpits. As is commonplace throughout the aerospace industry, the Debtors’ business functions under a tiered supply chain structure whereby the Debtors manufacture and service specialized aerospace components that are in turn utilized and incorporated by customers into their platforms and planes. Established in 2004, the Debtors supply many of the largest aerospace manufacturers in the world, including Boeing, and their products are used by customers in the commercial, business, military, and general aviation markets.
The Debtors operate manufacturing facilities in Everett, Washington, and Park City and Wellington, Kansas and their corporate headquarters is located in Wichita, Kansas. The Debtors currently employ approximately 400 individuals nationwide.
Corporate Structure Chart
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