Elliott Greenleaf New Chapter 11 In re: Katy Industries

 

On May 14, 2017, (the “Petition Date”), Katy Industries, Inc., Continental Commercial Products, LLC, FTW Holdings, Inc., Fort Wayne Plastics, Inc., Wabash Holding Corp., Katy Teweh, Inc., WII, Inc., TTI Holdings, Inc., GCW, Inc., Hermann Lowenstein, Inc., American Gage & Machine Company, WP Liquidating Corp., Ashford Holding Corp., and HPMI, Inc. (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 DLA Piper LLP (US). The cases have been assigned to the Honorable Judge Kevin J. Carey. A hearing on the Debtors’ first day motions was held on May 16, 2017. A meeting to form the Official Committee of Unsecured Creditors has been scheduled for May 26, 2017.

 

 

Headquartered in St. Louis, Missouri, the Debtors are a manufacturer, importer, and distributor of commercial cleaning and consumer storage products, as well as a contract manufacturer of structural foam products.  The Debtors have three plant facilities located in the United States, and distribution across the United States and Canada. The Company currently employs approximately 300 individuals as of the Petition Date.

 

Through various court filings, the Debtors indicate that they have encountered financial difficulty due to the relocation of its Bridgeton, Missouri, manufacturing facility to Jefferson City, Missouri, as part of its efforts to save costs. The relocation involved moving all manufacturing operations. The complexity of the relocation was underestimated. Significant production delays, outsourcing costs, increased maintenance, and less than full utilization of presses created operational inefficiencies, which ultimately negatively impacted revenue.  

 

These pressures were exacerbated by prior acquisitions which already were putting a strain on company finances.  The Debtors also have various legacy liabilities in the form of employee obligations (including defined benefit plan contributions to its former employees) as well as various unliquidated litigations that involve workers compensation, products liability, and asbestos claims (the Debtors also have an arbitration award for breach of contract which has been reduced to a judgment by Majestic-Norwalk, LLC and certain of its affiliates).

 

 

As of the Petition Date, the Debtors owe secured debt of approximately $70 million.  BMO Harris Bank N.A. is owed approximately $233,333 under a credit and security agreement; and Victory Park Management, LLC, and VPC SBIC 1, L.P. are owed approximately $31.5 million under a second lien term facility. The Debtors’ books and records list approximately $100 million in unsecured trade liabilities.

 

 

The Debtors are seeking authority to enter into a Debtor-in-Possession facility with Jansan Acquisition, LLC, that will provide post-petition financing in the form of a secured, superpriority, debtor in possession, new money, non-amortizing, multiple draw term loan facility in the aggregate principal amount of $4.5 million on an interim basis, and $7.5 million on a final basis. An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.

   

 

The Debtors have determined, in their business judgment, that a sale of substantially all of the Debtors’ assets represents the best available alternative for the Debtors to meet their immediate and ongoing liquidity needs, while continuing to operate in the ordinary course of business during this process for the benefit of the Debtors’ customers, employees, vendors, and other stakeholders. The Debtors entered into an asset purchase agreement, dated May 14, 2017 with Jansan Acquisition, LLC (an entity created by High View Capital, LLC and Victory Park Management, LLC, which is also administrative agent for the second lien lenders).  The stalking horse bid is a combination of a credit and cash bid. 

 

Proposed Sale Dates and Deadlines:

 

a) Bidding Procedures Hearing: June 6, 2017

b) Bid Deadline: June 30, 2017

c) Assumption/Assignment and Cure Objection Deadline: June 29, 2017

d) Sale Objection Deadline: June 29, 2017

e) Auction Date: July 6, 2017

f) Adequate Assurance Objection Deadline: July 6, 2017

f) Sale Hearing: July 10, 2017

 

A hearing on the bidding procedures is scheduled for June 1, 2017 at 2:00 p.m.

 

 

 

The Debtors seek 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 Debtors employ approximately 300 employees. Approximately 75 employees are salaried, with the remainder paid on an hourly basis.  The Debtors assert that no employee is being paid more than the $12,850 statutory cap on prepetition wages. The motion and order did not include specifics on the amount necessary to address the emergency relief requested.  An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.

 

 

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 are current on all insurance policies. The Debtors pay approximately $1.2 million annually for their insurance policies.  An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.

 

 

The Debtors are seeking authority to continue, maintain, and to pay prepetition obligations related to, their prepetition customer programs which include commercial volume incentives, rebates, rebate incentives, charge-back program, and warranties. The Debtors argue in the motion that the success of the Debtors’ business depends upon the loyalty of their customers and request authority to pay $3 million in the aggregate to preserve their customer programs.  An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.

 

 

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 believe they are current on their prepetition taxes and fees, and sales and use taxes. An order was entered on May 16, 2017. 

 

 

The Debtors seek entry of an order authorizing the Debtors to pay in the ordinary course of business all reputable common carriers, movers, shippers, and freight forwarders, as well as warehousemen, bailees, storage facilities, loading and unloading services, and other providers of storage services that transport and store finished goods, as well as raw materials, supplies, and other goods critical to the Debtors’ manufacturing and distribution processes. The Debtors believe that it is necessary and essential to preserving the value of their estates that they be permitted to make payments on account of certain shipping and warehousing charges in an amount up to $1.64 million, on an interim basis, and up to $2.05 million on a final basis. An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.

 

 

The Debtors are seeking the authority to pay prepetition claims of certain critical vendors up to $250,000 on an interim basis; and up to $500,000 on a final basis. The Debtors assert in their motion that if the critical vendors are not paid, it will result in a disruption of services and a loss of goods. The Debtors seek authorization to pay critical vendors in the aggregate up to the amount of $1.3 million on an interim basis, and $2.8 million on a final basis. An interim order was entered on May 16, 2017.  A final hearing on the motion is scheduled for June 16, 2017.