Introduction
On January 30, 2019, (the “Petition Date”), Consolidated Infrastructure Group Inc. (the “Debtor”) filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtor is represented by Richards, Layton & Finger, PA. The case has been assigned to the Honorable Judge Brendan L. Shannon. A hearing on the Debtor’s first day motions was held on January 31, 2019. A meeting to form the Official Committee of Unsecured Creditors has not yet been scheduled.
Background
Headquartered in Omaha, Nebraska, the Debtor provides underground utility and damage prevention services to help protect communities from damage that could otherwise occur when utilities, other companies, or individuals dig underground. The Debtor employs approximately fifty-two employees as of the Petition Date.
In 2011, USIC, LLC (“USIC”), the Debtor’s competitor, which holds the largest market share in the underground utility locating and damage prevention services space in North America, purchased Consolidated Utility Services, Inc. (“CUS”) from funds managed by Parallel49 Management’s (“Parallel49”) predecessor, an equity fund affiliated to one of the Debtor’s owners but which has no ownership interests in the Debtor. The stock purchase agreement (the “SPA”) that governed the sale contained a two-year non-compete agreement in favour of USIC against Parallel49’s predecessor. Many of the employees of CUS remained with the company after it was acquired by USIC. In 2016, however, some of the former employees of CUS came together to form the Debtor as a startup and secured an investment from Parallel49.
The Debtor submitted its first competitive bid on a project for AT&T, which USIC also bid. The Debtor built up its operations workforce, hiring more employees, some of whom were former CUS employees. Disputes soon arose between USIC and the Debtor that centred on allegations by USIC that certain of the Debtor’s employees had violated their non-compete agreements and misappropriated trade secrets.
In 2016, the Debtor and certain employees initiated suits in the United States District Court for the District of Nebraska (the “Nebraska Action”) and in the Indiana Superior Court, County of Marion (the “Indiana District Court”). In July 2018, the Nebraska Action was transferred to the Indiana District Court.
These lawsuits have been extremely costly, and as a result of the litigation and the unprofitability of former contracts, the Debtor lost millions of dollars, was forced to terminate several contracts and terminated a large portion of its workforce. The Debtor was forced to reduce its fleet of vehicles in the field from approximately 850 to approximately seventy-five. The Debtor also ceased submitting bids for new contracts and has been focused on performing under its three remaining Contracts.
The Debtor is seeking to consummate a sale to the highest or otherwise best bidder or bidders to maximize value while avoiding a public safety crisis. The Debtor also believes this filing is the most efficient way to maximize its opportunity to recover receivable from AT&T and give the Debtor breathing room from the litigation in Indiana. The Debtor intends to file a motion to approve bid and sale procedures as soon as practicable following the commencement of this case. Although the Debtor was not able to sign up a stalking horse bidder prior to the Petition Date, the Debtor has received an inquiry expressing potential interest in purchasing at least a portion of its assets.
Financial Condition
As of the Petition Date, the Debtor estimates that it has approximately $11.6 million in total assets related to contracts, equipment, its information technology system, and over $3 million in receivables due from AT&T, intellectual property relating to the business, and interests in the Debtor’s directors and officers liability insurance policy with Arch Insurance Company.
In addition, as of the Petition Date, the Debtor had an approximately $9 million in total unsecured liabilities, which does not include potential liabilities related to contingent or disputed claims.
The Debtor’s largest liability is a contingent, disputed litigation pending in the Indiana Superior Court, Marion County.
Automotive Rentals, Inc. and ARI Fleet, LT is owed approximately $1.23 million under a letter of credit.
The Debtor has approximately $75,000 as collateral under a corporate credit card program, which is held in a restricted cash account at Wells Fargo.
Motion for DIP Financing
The Debtor is seeking authority to enter into a Debtor-in-Possession facility with Parallel49. Parallel49 will provide post-petition financing, in the form of a senior secured non-amortizing term loan facility in an amount of $3 million consisting of new money commitments. The loans may be drawn in multiple instalments, with up to $1 million available on an interim basis.
Other Significant First Day Motions
Critical Vendor Motion
The Debtor’s business is dependent upon its continued access to essential goods and services provided by various critical vendors. The payment of the critical vendors is vital to the Debtor’s ability to continue to provide its technical services on a timely, dependable basis to its customers without interruption. The Debtor is requesting to pay, in the ordinary course of business, certain critical vendors in the amount of $150,000 on an interim basis and $220,000 on a final basis.
Wages and Benefits Motion
The Debtor seeks authority to pay certain employee obligations and maintain and continue employee benefits programs and schedule a final hearing on the motion.
As of the Petition Date, the Debtor employs approximately fifty-two employees. Approximately nine employees are salaried, with the remainder paid on an hourly basis. The Debtor owes approximately $200,000 of unpaid accrued wages, salaries, gratuities, overtime pay and other compensation. The Debtor asserts that no employee is being paid more than the $12,850 statutory cap on prepetition wages.
Insurance Motion
The Debtor seeks 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 in the amount of $500,000.
The Debtor pays approximately: $34,640 for the annual premium for the D&O Insurance Program, $41,715 for the liability insurance program, $67,000 for employer liability, $140,000 for the excess liability program, $159,088 for professional indemnity program, $8,091 for the cyber liability program, and $965,770 for automobile insurance.
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 $45,000 in prepetition taxes and fees.