January 25, 2022 – The Court hearing the TECT Aerospace Group Holdings cases issued an order approving (i) the Debtors’ Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a March 8, 2022 Plan confirmation hearing [Docket No. 735]. With the order granted and no further matters going forward, the Debtors' January 25th hearing was cancelled.

Also filed on January 25th were solicitation versions of the Debtors' Plan of Liquidation and Disclosure Statement [Docket Nos. 737 and 738, respectively] and separately filed blacklines showing changes [these all clean-up amendments relating to dates and docket numbers] to the versions of the two documents as filed on January 21, 2022 [Docket No. 739]. 

Plan Overview

The Debtors head towards Plan confirmation hearing having closed on their assets sales and having reached a settlement with their creditors' committee (each described below) which had taken issue throughout the Debtors' stay in Chapter 11 with the ubiquitous presence (and puppet-string control) of Boeing. The Debtors have not, however, resolved their differences with the "Glass Parties" (entities affiliated with the Debtors' prepetition owners now comprising a separate class of general unsecured creditors, ie the "Non-Released Parties" in Class 5) with those differences threatening to delay Plan confirmation and/or dilute other general unsecured creditors. The Glass Parties contend that Boeing is "inextricably linked to the chain of events that led to the ultimate demise of the Debtors" and appear committed to opposing the Plan as long as it contains release provisions that would terminate Boeing liability for prepetition conduct.

The Disclosure Statement [Docket No. 726] provides, “The Debtors filed for chapter 11 bankruptcy protection on April 5, 2021. Through Bankruptcy Court orders approving the Asset Sales, the Debtors sold substantially all of their assets in the Chapter 11 Cases. The final phase of these Chapter 11 Cases is the confirmation and consummation of the Plan, pursuant to which the Debtors will establish two Trusts to distribute the remaining proceeds of the Asset Sales and monetize any remaining Estate assets….

The Plan and the other documents entered into in connection with the Plan constitute a good faith compromise and settlement of controversies among the Settling Parties (the ‘Plan Settlement’). The Plan and the Distributions contemplated herein, including the allocation of proceeds of the Retained Causes of Action, are based on the Settling Parties’ compromise of the controversies among them, which the Settling Parties believe are fair and appropriate but only when viewed together with all other provisions contained in the Plan.”

Terms of the Plan Settlement

The Disclosure Statement continues, “The Plan Settlement resolves controversies among the Settling Parties regarding, among other things, the Creditors’ Committee’s motion to convert the Chapter 11 Cases to chapter 7 of the Bankruptcy Code, the Creditors’ Committee potential challenge to the DIP Lenders’ and Prepetition Lenders’ liens on certain collateral, the DIP Lenders’ objections to some Professional Fee Claims, the post-Effective Date administration of the Estates, the treatment of the DIP Claims and Prepetition Credit Agreement Claims and the distribution of any recoveries on the Retained Causes of Action related to the Non-Released Parties.

The terms of the Plan Settlement are set forth in the Plan Settlement Term Sheet. Certain relevant terms, as they relate to the Plan, are as follows:

• Pursuant to the Plan Settlement, the Creditors’ Committee agreed to withdraw its motion to convert the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code. See D.I. 544 (notice of withdrawal). The Creditors’ Committee’s challenge period under the DIP Order with respect to certain Estate assets is extended through and including the Effective Date; provided, however, that the Creditors’ Committee shall not commence a challenge unless the Plan, consistent with the terms of the Plan Settlement, is withdrawn or abandoned by the Settling Parties or such a Plan is not consummated.
• The Settling Parties resolved the DIP Lenders’ informal objections to certain Professional Fee Claims as set forth in the Plan Settlement Term Sheet.
• The Settling Parties agreed on the structure and provisions regarding the Trusts that are set forth in Article IV of the Plan.
• The Settling Parties agreed on the limited consolidation of the Debtors for Plan purposes as set forth in Article IV.C of the Plan.
• The Initial GUC Cash Distribution will be transferred to the GUC Distribution Trust on the Effective Date, which will be distributed to Allowed General Unsecured Claims other than General Unsecured Claims held by Boeing. In addition, on the Effective Date, the GUC Distribution Trust will be funded with the GUC Claims Determination Fund.
• All remaining initial Liquidation Trust Assets, after satisfaction of all Allowed Administrative Claims, Professional Fee Claims, Priority Tax Claims, Priority Claims and Other Secured Claims and establishment of the Disputed Claims Reserve and the Litigation Cost Reserve, will be distributed to the Liquidation Trust Beneficiaries.
• Any net Cash proceeds of the Liquidation Trust’s prosecution or settlement of the Retained Causes of Action with respect to the Non-Released Parties will be allocated and distributed as follows (the ‘Litigation Recovery Split’):
  • A. the first $300,000 to the Liquidation Trust Beneficiaries in respect of the initial funding of the Litigation Cost Reserve;
  • B. of the next $4 million, 88% to the Liquidation Trust and 12% to the GUC Distribution Trust (the ‘GUC Litigation Recovery Participation’);
  • C. next, to the Liquidation Trust until all Class 3 Claims are satisfied; and
  • D. any additional proceeds to the GUC Distribution Trust (together with the GUC Litigation Recovery Participation, the ‘GUC Litigation Recovery’).”

The Plan [Docket No. 666] also states in respect of the Plan Settlement, “Boeing, as the Holder of the DIP Claims, the Prepetition Credit Agreement Claims, and certain General Unsecured Claims, agrees as part of the Plan Settlement to (A) the Impaired treatment of its DIP Claims and Prepetition Credit Agreement Claims, (B) the partial subordination of its DIP Claims and Prepetition Credit Agreement Claims to General Unsecured Claims as part of the Litigation Recovery Split, and (C) the subordination of its General Unsecured Claim(s) to other General Unsecured Claims for the Initial GUC Cash Distribution.”

The following is an amended and updated 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 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $54,600 and projected recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $1,259,038.50 and projected recovery is 100%.
• Class 3 (“Prepetition Credit Agreement Claims and DIP Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $12,359,018.88 and projected recovery is 4%. Boeing will receive, any LT Distributable Assets. For the avoidance of doubt, (i) pursuant to the Plan and the DIP Order Boeing’s Class 3 Claims will not be subject to, among other things, challenge, objection, recharacterization or subordination, and (ii) any Class 4 Claims held by Boeing will be entitled to the treatment provided to Class 4 Claims.
• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $35,272,666.15⁴ and projected recovery is 0.2 – 3.3%⁵. Each Holder will receive its Pro Rata share of the GUC Distributable Assets; provided that, pursuant to the Plan Settlement, any Class 4 Claims held by Boeing will not share in any Distributions in respect of the Initial GUC Cash Distribution [ie $350k]. Solely in the event that there are sufficient GUC Distributable Assets to pay the full amount of all Class 4 and Class 5 Claims as of the Petition Date, the Holders of such Claims will also be paid their Pro Rata share of the remaining GUC Distributable Assets in respect of interest accruing at the Federal Judgment Rate from the Petition Date to the date payment is made.
• Class 5 (“Non-Released Party General Unsecured Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is TBD and projected recovery is 0.2 – 3.3%. Each Holder will receive its Pro Rata share of the GUC Distributable Assets. Solely in the event that there are sufficient GUC Distributable Assets to pay the full amount of all Class 4 and Class 5 Claims as of the Petition Date, the Holders of such Claims will also be paid their Pro Rata share of the remaining GUC Distributable Assets in respect of interest accruing at the Federal Judgment Rate from the Petition Date to the date payment is made.
• Class 6 (“Intercompany Claims”) is impaired and deemed to accept and not entitled to vote on the Plan. The projected amount of claims is N/A and projected recovery is 0%. On the Effective Date, each Intercompany Claim will be eliminated and extinguished. Holders of Class 6 Claims will receive no distribution on account of those Claims.
• Class 7 (“Debtor Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The projected amount of claims is N/A and projected recovery is 0%.

Footnotes:

Footnote 4 – This amount includes General Unsecured Claims held by Boeing in the amount of $19,730,705.38, and General Unsecured Claims held by creditors other than Boeing in the amount of $15,541,960.77.

Footnote 5 – This is the recovery range for General Unsecured Claims held by creditors other than Boeing and assumes that the sole source of recovery for General Unsecured Claims is the Initial GUC Cash Distribution and, pursuant to the Plan Settlement, Boeing has agreed to waive its right to recover from such amount. Holders of all General Unsecured Claims (including General Unsecured Claims held by Boeing) may also recover additional amounts if there are significant recoveries from the Retained Causes of Action.

Definitions:

"GUC Claims Determination Fund” means the unused portion of a $200,000 budget for reconciliation of Claims transferred to the GUC Distribution Trust on the Effective Date; provided that, pursuant to the Plan Settlement, the amount funded to the GUC Distribution Trust on the Effective Date must be no less than $100,000.

“GUC Distributable Assets” means the GUC Distribution Trust Assets, less any GUC Distribution Trust Expenses.

“GUC Distribution Trust Assets” means the Initial GUC Cash Distribution, the GUC Claims Determination Fund, and the GUC Litigation Recovery.

“Initial GUC Cash Distribution” means $350,000 to be transferred to the GUC Distribution Trust on the Effective Date.

Key Documents

The Disclosure Statement [Docket No. 726] attached the following documents:

• Exhibit A: Joint Chapter 11 Plan of Liquidation for TECT Aerospace Group Holdings, Inc. and its Affiliated Debtors
• Exhibit B: Liquidation Analysis
• Exhibit C: Letter from the Creditors’ Committee in Support of the Plan
• Exhibit D: Plan Settlement Term SheetGlass Parties Objection

Glass Parties Objection

On January 18, 2022, the "Glass Parties" filed an objection to the Debtors' Disclosure Statement stating that they “cannot and will not vote in favor of the Plan in its current form due, in large part, to the release provision that triggers a release by a Holder of a Claim with respect to Boeing” [Docket No. 716].

The Glass Parties, comprised of entities affiliated with the Debtors’ former owners, argue that “Boeing and its affiliated parties were inextricably linked to the chain of events that led to the ultimate demise of the Debtors” and that they cannot vote in favor of a Plan that includes a “release provision that triggers a release by a Holder of a Claim with respect to Boeing…

The objection provides, “The Glass Parties, and any Non-Released Party affiliated with any of the Glass Parties, cannot and will not vote in favor of the Plan in its current form due, in large part, to the release provision that triggers a release by a Holder of a Claim with respect to Boeing, its affiliates and representatives for any and all claims, causes of action, contribution, cross-claims or other bases for the financial demise of the Debtors – a previously valuable and solvent asset of the Glass Parties.

The Debtors' Disclosure Statement adds: “In particular, the Debtors understand that certain parties [ie the Glass Parties"], including certain Non-Released Parties, believe that they have valid objections to the release and exculpation provisions in the Plan. The Settling Parties believe that any such objection is without merit; however, in the event that such objection is sustained by the Bankruptcy Court and such release and/or exculpation provisions are modified or stricken from the Plan, the Settling Parties may withdraw their support for the Plan, which may result in the Debtors being unable to confirm the Plan or any other chapter 11 plan."

For their part, the Debtors insist that they have potential causes of action against the Non-Released Parties with those causes of action included with assets that will be handed to the Liquidation Trust.

The Debtors note as to those causes of action: "The Debtors are informed and believe that the Non-Released Parties disclaim any and all liability for the applicable Retained Causes of Action, and that the Non-Released Parties intend to defend vigorously any Retained Cause of Action and to prosecute their Claims against the Estates. Accordingly, litigation of the Retained Causes of Action is likely to be difficult, time-consuming, and expensive, and if the Non-Released Parties are successful in prosecuting their Claims, the recoveries of Holders of Allowed Claims in Class 4 could be significantly diluted.”

Asset Sales

On July 13th, the Court issued an order approving the sale of the Debtors’ Kansas assets (the “Kansas Assets”) to Central Kansas Aerospace Manufacturing, an acquisition vehicle created by the Boeing Company (“Boeing” or “Parent”) [Docket No. 372] with the Debtors valuing the Boeing bid at $38.8mn.

On June 24th, the Court issued an order approving the $31.1mn sale of the Debtors Everett, Washington assets (the “Everett Assets”) to Wipro Givon USA, Inc. (“Wipro Givon”) [Docket No. 313]. The Everett Assets stalking horse was handpicked by Boeing further to a marketing process which Boeing directly supervised; with Wipro Givon and Boeing also entering into a separate agreement regarding Wipro Givon’s proposal and related matters (the “Boeing-Wipro Agreement”) which has been filed under seal.

In respect of the Debtors’ Kansas Assets, however, Boeing took a very different, if equally involved, approach. Boeing did not affirmatively select a stalking horse (in hindsight, it appears likely that Boeing always envisaged itself as the purchaser), but did effectively veto the Debtors’ own preferred choice, a non-Debtor affiliate controlled by current parent Glass. The Kansas Assets bidding procedures motion [Docket No. 192] provided: “the Debtors were prepared to enter into the asset purchase agreement [with Glass] to serve as a stalking horse bid in the process contemplated by this Motion…Boeing, as DIP lender, was not supportive of the Debtors’ entering into the asset purchase agreement.”

The Debtors’ bidding procedure motion continues: “The Debtors filed these chapter 11 cases to maximize value for their stakeholders by pursuing sales of their assets under section 363 of the Bankruptcy Code. By the procedures described in this Motion, the Debtors will continue to market their Kansas assets and solicit bids therefor in order to maximize value for the estates. Over the past two years, the Debtors’ business has been severely impacted by shifts in the airline industry’s procurement decisions due to the COVID-19 pandemic and related travel restrictions, as well as production halts related to The Boeing Company’s (‘Boeing’) 737 MAX aircraft. As a result, the Debtors pursued strategic alternatives, eventually determining to file these chapter 11 cases to pursue sales of substantially all of their assets. This Motion seeks to establish a process for the sale of the Debtors’ assets related to their two Kansas manufacturing facilities and headquarters (collectively, the ‘Assets’) to maximize the value of the Assets for these estates. By separate motion, the Debtors have sought to establish a process for the sale of their Everett, Washington assets.”

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."

Liquidation Analysis (see Exhibit B of Disclosure Statement)

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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