Introduction
On October 22, 2018, (the “Petition Date”), Welded Construction, L.P. and Welded Construction Michigan, LLC (the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtors are represented by Young Conaway Stargatt & Taylor, LLP. The case has been assigned to Judge Kevin Gross. A hearing on the Debtors’ first day motions was held on October 23, 2018. A meeting to form the Official Committee of Unsecured Creditors has been scheduled for October 30, 2018.
Background
Headquartered in Perrysburg, Ohio, the Debtors are a mainline pipeline construction contractor, offering various services, including, but not limited to, fabrication welding, foundation construction, instrumentation installation, painting, fencing for pipeline meter/regulator stations, heavy wall pipe and fabrication welding for installation of compressor stations, hydrostatic testing of existing pipelines, pre-cleaning of pipelines to meet environmental discharge requirements, investigation and repair of pipeline anomalies, and the replacement or repair of pipeline segments. Although the Debtors’ business originated in the Midwest, it has become one of the largest and most relied upon mainline pipeline construction in the United States. The Debtors’ customers include some of the most prominent oil and gas pipeline operators in the country, including Sunoco, Energy Transfer Partners, Columbia Gas, and Williams Companies.
In addition to their headquarters, the Debtors have an office located in Mount Joy, Pennsylvania. The Debtors employ approximately 1,582 employees as of the Petition Date.
The Debtors have faced liquidity issues due to unusual cost overruns on projects for which the Debtors were compensated on a “lump sum” or fixed basis; weather, regulatory delays, shutdowns and other delays that in many instances were not specific to the Debtors; and significant payment delays or disputes, including a payment delay in the amount of $23,563,038.00 from Transactional Gas Pipe Line Company, LLC, an affiliate of the Williams Companies, Inc. (“Williams”), who has filed a lawsuit against the Debtors in the state of Oklahoma (the “Williams Complaint”), asserting breach of contract. According to the Williams Complaint, the breach of contract claim is premised on allegations that Debtors over-billed the amounts comprising the withheld payment and failed to provide proper reconciliation with certain charges. The Williams Complaint has created liquidity issues for the Debtors and concerns in the market about their viability as a going concern and how the payment of receivables would be utilized in by the Debtors.
Financial Condition
As of the Petition Date, the Debtors have generated more than $1 billion in gross revenue, have over $265 million in assets, and have equipment with a recent appraised liquidation value of over $30 million. The Debtors have estimated accrued liabilities owed to third parties of approximately $240 million. As of the Petition Date, approximately $26 million of the total liabilities are equipment financing. The Debtors have cash on hand of approximately $900,000 as of the Petition Date.
As of the Petition Date, the Debtors have no outstanding secured debt obligations under any term loan or revolving credit facility, but have certain existing or potential secured obligations in connection with surety bonds, discrete equipment financing, and potential miscellaneous statutory lien claims. However, the Debtors believe certain of these purported security interests are unperfected, and thus subject to avoidance under section 544 of the Bankruptcy Code.
As of the Petition Date, the Debtors estimate that they owe approximately $212 million in unsecured trade liabilities.
Motion for DIP Financing
The Debtors are seeking authority to enter into a Debtor-in-Possession facility with North American Pipeline Equipment Company, LLC, an entity which is owned in part by certain partners of Debtor Welded Construction, L.P., which will provide post-petition financing in the form of $20 million of entirely new money to provide the Debtor with the resources necessary to continue discussions and finalize ongoing projects with its customers, which will provide the estate with much needed cash flow. The Debtors believe that, without such arrangements, they will not have the liquidity to complete projects and anticipate that its customers will make no further payments. An interim order approving the motion was entered on October 23, 2018. A Final hearing on the motion is scheduled for November 19, 2018.
Other Significant First Day Motions
Wages and Benefits Motion
The Debtors seek interim authority to pay certain employee obligations and maintain and continue employee benefits programs and schedule a final hearing on the motion. Nothing in the motion obligates the Debtors to make the payments.
As of the Petition Date, the Debtors employ approximately 1,582 employees. Approximately 92 employees are salaried, while the remainder of the employees are union members. The Debtors owe approximately $11,648,000.00 of unpaid accrued wages, salaries, gratuities, overtime pay and other compensation, of which they list $10,075,000.00 in union obligations. The Debtors assert that no employee is being paid more than the $12,850 statutory cap on prepetition wages. An interim order approving the motion was entered on October 23, 2018. A Final hearing on the motion is scheduled for November 19, 2018.
Critical Vendor Motion
The Debtors rely on a network of various third parties vendors, as well as lien claimants, which may be able to assert liens against the assets of the Debtors and their estates. The Debtors have determined that their continued receipt of certain goods and services from these critical vendors is necessary to ensure that there are not any unexpected interruptions in the Debtors’ business operations, and to preserve and maximize the value of the Debtors’ estates. As of the Petition Date, the Debtors owe approximately $6 million to these various critical vendors and lien claimants. The Debtors are seeking to pay lien claims in the amount of $10,000 on an interim basis, and $10,000 on a final basis. In addition, the Debtors are seeking to pay critical vendor claims in the amount of $280,000 on an interim basis, and $480,000 on a final basis. An interim order approving the motion was entered on October 23, 2018. A Final hearing on the motion is scheduled for November 19, 2018.
Insurance Motion
The Debtors seek authority to maintain existing insurance policies and pay all obligations and to renew, revise, extend, supplement, change, or enter into new insurance policies as needed.
The Debtors pay approximately: $65,000 for the annual premium for the D&O Insurance Program, $707,000 for the liability insurance program, $214,000 for pollution insurance, $1.177 million for umbrella insurance, $423,000 for automobile insurance, $493,000 for inland marine insurance, and $4,200 for crime insurance. An interim order approving the motion was entered on October 23, 2018. A Final hearing on the motion is scheduled for November 19, 2018.
Customer Project Motion
The Debtors are seeking authority to (i) pay certain prepetition claims, conditioned upon prior customer payment, (ii) honor customer obligations in the ordinary course of business, (iii) implement control procedures for customer project funding and completion; and (iv) enter into a customer project completion agreement with some or all of the Debtors’ customers without further order of the Court that require payments up to the following prepetition obligations project caps, provided that each customer project completion agreement contemplate post-petition payments to the Debtors equal to at least 100% of the amounts to be paid by the Debtors under any given customer completion agreement.
The Debtors also seek an order authorizing banks and other financial institutions to honor and process checks and electronic transfer requests.
The customer projects are crucial to the cash flow of the Debtors. The Debtors are owed approximately $66.9 million under a project on the Atlantic Sunrise pipeline, one of the largest outstanding projects. The Debtors are owed approximately $13.9 million under a project on the Saginaw Trail pipeline. An order approving the motion was entered on October 23, 2018.
Taxes Motion
The Debtors are seeking authority to pay certain prepetition taxes and fees that, in the ordinary course of business, accrued or arose before the Petition Date. As of the Petition Date, the Debtors owe approximately $1.2 million in prepetition taxes and fees. An interim order approving the motion was entered on October 23, 2018. A Final hearing on the motion is scheduled for November 19, 2018.