September 3, 2019 – The Court hearing the Orchids Paper Products Company cases issued a final order authorizing the Debtors to (i) access $11.0mn in debtor-in-possession (“DIP”) financing to be provided by Orchids Investment (“OI” or the “DIP Lender”), an affiliate of stakeholder Black Diamond Capital Management, L.L.C. and (ii) use cash collateral [Docket No. 490]. On April 4, 2019, the Court had previously authorized the Debtors to access $4.0mn of the DIP financing on an interim basis [Docket No. 44].
This final order has been a long time in coming as disputes with the Debtors' Official Committee of Unsecured Creditors (the “Committee”), including the Committee's filing of objections in relation to (a) the Debtors' DIP financing and (b) proposed $207.0mn cash sale sale to Cascades Holdings US Inc. (“Cascades”), have led to the final hearing being delayed/continued on three occasions (from May 30, 2019 to June 13th to June 25th to August 27th). During that period, the Debtors also conducted a lively auction that saw a stalking horse bid of $175.0mn topped by the $207.0mn offer from Cascades. Although the result undoubtedly came as a pleasant surprise to the Committee, which suddenly found its claims comfortably in the money, it will also have further incentivized the Committee to push ahead with its objections as to liens on certain of the Debtors' assets claimed by pre-petition lenders and adequate funding of the Debtors post-sale.
The final order reflects numerous concessions extracted by the Committee including (i) a carve out from releases in respect of claims asserted in the Committee's adversary proceeding against the Debtors and Ankura Trust Company and in the Committee's objection to the Debtors' sale motion [Docket No. 273], (ii) $50k set aside for the Committee's investigation of pre-petition lien and claim matters and (iii) a $5.0mn holdback (subject to further disgorgement upon Court order) of proceeds from the Cascades sale pending resolution of the adversary proceeding and the Committee's sale objection.
Key Terms of the DIP Facility:
- Borrower: Debtor Orchids Paper Products Company
- Guarantors: Debtor Orchids Paper Products Company of South Carolina, Non-debtor Orchids Mexico (DE) Holdings, LLC and Non-debtor Orchids Mexico (D) Member, LLC
- DIP Lenders: Orchids Investment LLC, as DIP lender and Black Diamond Commercial Finance, L.L.C. as DIP agent
- Entities with Interests in Cash Collateral: Orchids Investment LLC, as prepetition lender Ankura Trust Company, as prepetition agent.
- DIP Facility: The DIP Facility consists of a senior secured superpriority loan up to an aggregate amount of $11.0mn. with $4.0mn available on an interim basis
- DIP Term: The DIP Facility will terminate upon September 30, 2019, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms of the DIP Credit Agreement
- Interest Rate: A per annum rate equal to twelve percent (12%). The DIP Facility is also subject to certain fees as set forth in Section 2.4 of the DIP Credit Agreement
- Default Rate: A per annum rate equal to two percent (2%) higher than the non-default rate
Further Background
Sale to Cascades
On June 28, 2019, the Debtors notified the Court that Cascades had been designated as the successful bidder for Debtors' assets, with a $207.0mn cash bid, and (ii) Orchids Investment LLC (“OI,” an acquisition vehicle formed by the Debtors' prepetition, and DIP, lender) has been designated as the Backup Bidder, with a $206.0mn credit bid [Docket No. 302].
The final result substantantially advanced on the stalking horse bid of credit bidding OI, which had set the floor with a $175.0mn bid and is likely to provide some comfort (and further inspiration) to the Committee who had objected vigorously to OI's bid (and a scant $500k to be left at the liquidating Debtors). As at the Petition date, the Debtors' had total liabilities of $271.0mn, so there will now be proceeds available for distribution for creditors sitting below OI and its $175.0mn of senior debt.
The lively auction was summed up in a declaration filed by financial advisor Houlihan Lokey [Docket No. 312]:
"After thirty two (32) rounds of competitive bids between Orchids Investment and Cascades over the course of approximately thirteen (13) hours, Cascades made a final bid with a cash purchase price of $207 million plus certain additional cash payments as set forth in the Agreement, assumption of the Assumed Liabilities, and numerous value-producing alterations to its proposed asset purchase agreement as announced on the record during the Auction."
Committee Objection
On June 26, 2019, the Committee objected to the proposed sale of the Debtors' assets to its credit-bidding, prepetition (and DIP) lender, OI [Docket No. 293]. The Committee cited numerous flaws with the proposed sale and particularly objects to (i) the stalking horse's failure to assume certain liabilities, leaving them with the under-funded, liquidating Debtors (having made off with all of the Debtors' assets), (ii) the stalking horse's ability to credit bid for assets over which it has no lien (eg cash) and (iii) the Debtors' general failure to actually determine the value of the assets being sold. The objection concluded with a request that sale proceeds be escrowed pending an asset valuation process, although this would seem relatively pointless in the event of a sale to the stalking horse who is only intending to pay $500k in cash; an amount that the Committee argued is already woefully inadequate and likely to leave the Debtors administratively insolvent.
About Orchids Paper
Orchids Paper Products Company is a leading national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to primarily to retail chains throughout the United States.
The Company is headquartered in Brentwood, Tennessee with manufacturing locations in Pryor, Oklahoma and Barnwell, South Carolina.
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