Jason Industries, Inc. – Court Confirms Prepackaged Plan; Debtors to Emerge Shortly Privately-Held and Minus $250mn of Prepetition Debt

August 26, 2020 – The Court hearing the Jason Industries cases issued has confirmed the Debtors’ Prepackaged Plan of Reorganization [Docket No. 222] paving the way for the Debtors to emerge from bankruptcy, privately-held and minus $250.0mn of prepetition debt "in the coming days".

On June 24, 2020, Jason Industries, Inc. and seven affiliated Debtors (“Jason” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-22766. At filing, the Debtors, a global industrial manufacturing company, noted estimated assets of $204,886,939 and estimated liabilities of $428,374,343.

In a press release announcing confirmation of the prepackaged Plan, the Debtors stated, “Upon emergence, Jason will be a private company backed by the strong ownership of its existing senior secured lenders, including Monomoy Capital Partners (“Monomoy”) and Credit Suisse Asset Management, LLC, each of whom will appoint representatives to serve on the new board of directors. 

The Company will reduce its debt by approximately $250 million, ensuring that Jason, and its businesses Osborn and Milsco, will have greater financial flexibility to support ongoing operations and pursue its strategic plan for the benefit of its employees, customers and business partners. As part of the new capital structure and ensuring that the company has sufficient liquidly upon exit from Chapter 11, Jason will enter into a $30 million ABL credit facility with Wells Fargo Bank, National Association. Pursuant to the Plan, the Company’s common and preferred stock will be cancelled, and holders thereof will not receive any recovery.”

Plan Overview

The revised Disclosure Statement [Docket No. 140] elaborates, “The Plan implements a prepackaged restructuring agreed to by and among the Debtors and the Debtors’ major stakeholders, including Holders of approximately 87% in amount of First Lien Secured Credit Agreement Claims and First Lien Credit Agreement Deficiency Claims, which will result in a significant deleveraging of the Debtors’ capital structure [as reflected in “Capital Structure” below].

The anticipated benefits of the Plan include, without limitation, the following:

1. a comprehensive restructuring of the Debtors’ capital structure through a sale under the Plan of 100% of the assets of Jason Industries, Inc. (including the equity interests of Debtors held by Jason Industries, Inc. and their subsidiaries) to one of the newly formed holding companies designated by the First Lien Ad Hoc Group (each such newly formed holding company, including any subsidiaries or parent entities formed for the purpose of consummating the Sale Transaction, pursuant to the Restructuring Steps Memorandum, as applicable, ‘Jason NewCo’). The transfer under the Plan shall be structured as a merger and shall likely be treated as a taxable sale of 100% of the assets of the Debtors for U.S. federal income tax purposes, with the purchase funded by a credit bid by Holders of First Lien Secured Credit Agreement Claims;
2. conversion of approximately $281.0mn of First Lien Credit Agreement Claims, plus accrued and unpaid interest as of the Petition Date, to a combination of (i) a new senior secured term loan facility in an aggregate principal amount of $75 million (the ‘New First Lien Term Loan Facility’), (ii) a takeback junior convertible secured term loan facility in an aggregate principal amount of $50 million (the ‘New Junior Lien Convertible Term Loan Facility’), 100% of the New Jason Equity, subject to dilution by the Warrants, the Management Incentive Plan, and the New Junior Convertible Term Loans; minus the Unencumbered Plan Recovery; and (iii) if applicable, the First Lien Put Option; In addition, each Holder of an Allowed First Lien Credit Agreement Deficiency Claim shall receive its Pro Rata share of and interest in the Unencumbered Plan Recovery;
3. conversion of approximately $94.6 million of Second Lien Credit Agreement Claims into, a Pro Rata share of and interest in the Unencumbered Plan Recovery; 
4. Reinstatement, payment in full in Cash, or such other treatment rendering each Allowed General Unsecured Claim Unimpaired;
5. prompt emergence from chapter 11;
6. a new, third-party, asset-based exit financing facility (the “New Revolving Exit Facility”) that (i) provides availability as of the Effective Date of at least $20 million for revolving borrowings after permitting for any amounts on account of outstanding letters of credit; and (ii) has aggregate total commitments in an amount not less than $30 million to be agreed on terms acceptable to the Consenting First Lien Credit Agreement Lenders.
7. maintenance of critical business relationships with employees, customers, and vendors; and
8. consensual use of the Consenting First Lien Credit Agreement Lenders’ cash collateral to fund these Chapter 11 Cases, subject to the terms and conditions of the Restructuring Support Agreement and the Cash Collateral Orders.

The Plan provides for a comprehensive restructuring of the Debtors’ prepetition obligations, preserves the going-concern value of the Debtors’ businesses, maximizes creditor recoveries, and preserves the jobs of the Debtors’ approximately 700 employees. To evidence their support of the Debtors’ restructuring, the Debtors and their key stakeholders executed the Restructuring Support Agreement, a copy of which is attached hereto as Exhibit B. 

As described in further detail below, under the terms of the Plan, among other things:

(a) each Holder of a First Lien Secured Credit Agreement Claim shall receive its its Pro Rata share of and interest in: (i) the New First Lien Term Loan Facility; (ii) New Junior Lien Convertible Term Loan Facility; (iii) 100% of the New Jason Equity, subject to dilution by the Management Incentive Plan, and the New Junior Convertible Term Loans, minus the Unencumbered Plan Recovery; and (iv) if applicable, the First Lien Put Option; 

(b) each Holder of a First Lien Credit Agreement Deficiency Claim shall receive its Pro Rata share of and interest in the Unencumbered Plan Recovery; 

(c) each Holder of a First Lien Credit Agreement Claim shall have the option to offer the entirety of its Pro Rata distribution of both the (i) New Jason Equity and (ii) New Junior Lien Convertible Term Loan Facility to one or more of the members of the First Lien Ad Hoc Group that has committed to accept such distribution (a ‘First Lien Put Backstop Party’) in exchange for an amount of Cash equal to 101% of an exercising Holder’s Pro Rata distribution of the New Junior Lien Convertible Term Loan Facility (the ‘First Lien Put Price’), subject to the First Lien Put Backstop Commitment (the “First Lien Put Option’);

(d) each Holder of an Allowed Second Lien Credit Agreement Claim shall receive its Pro Rata share of and interest in New Jason Equity equal to any Unencumbered Asset Value minus(i) Other Secured Claims secured by the Unencumbered Property, minus (ii) Administrative Claims (other than on account of Diminution in Value) against the applicable Debtor, minus(iii) Other Priority Claims against the applicable Debtor, and minus (iv) Diminution in Value, each as applicable; and

(e) each Holder of an Allowed General Unsecured Claim shall receive, as a carve-out from the collateral securing the First Lien Secured Credit Agreement Claims and at the election of the Debtors or the Reorganized Debtors, as applicable, either: (a) Reinstatement of such Allowed General Unsecured Claim pursuant to section 1124 of the Bankruptcy Code; (b) payment in full in Cash on the later of (i) the Effective Date or as soon as reasonably practicable thereafter, or (ii) the date such payment is due in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such Allowed General Unsecured Claim; or (c) such other treatment rendering such Allowed General Unsecured Claim Unimpaired."

The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement):

• Class 1 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Projected plan recovery is 100% and liquidation recovery is 0%-100%
• Class 2 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. Projected plan recovery is 100% and liquidation recovery is 0%-100%
• Class 3 (“First Lien Secured Credit Agreement Claims”) is impaired and entitled to vote on the Plan. Projected plan recovery is 89% and liquidation recovery is 15.6%-22.2%. Holders shall receive its Pro Rata share of and interest in: (i) the New First Lien Term Loan Facility; (ii) New Junior Lien Convertible Term Loan Facility; (iii) 100% of the New Jason Equity, subject to dilution by the Management Incentive Plan, and the New Junior Convertible Term Loans, minus the Unencumbered Plan Recovery; and (iv) if applicable, the First Lien Put Option. Recovery percentage calculated based on midpoint total enterprise value of $200.0mn. Assumes Class 5 votes in favor of the Plan.
• Class 4 (“First Lien Credit Agreement Deficiency Claims”) is impaired and entitled to vote on the Plan. Projected plan recovery is 0%-6.7% and liquidation recovery is 0%. Holders shall receive its Pro Rata share of and interest in the Unencumbered Plan Recovery.
• Class 5 (“Second Lien Credit Agreement Claims”) is impaired and entitled to vote on the Plan. Projected plan recovery is 0%/6.7% and liquidation recovery is 0%. Holder shall receive its Pro Rata share of and interest in the Unencumbered Plan Recovery. The high end of this range reflects the recovery to Class 4 and Class 5 Claims for a midpoint of $11.7mn of Unencumbered Asset Value, without reduction on account of (i) Other Secured Claims secured by the Unencumbered Property, (ii) Administrative Claims (other than on account of Diminution in Value) against the applicable Debtor, (iii) Other Priority Claims against the applicable Debtor, and (iv) Diminution in Value, each as applicable. Diminution in Value is highly dependent on the Debtors’ professional fees during the Chapter 11 Cases, which are currently approximately $2.35mn as of the date hereof, but will continue to increase as the Debtors proceed toward a contested confirmation hearing. Consistent with the Scheduling Order [Docket No. 122] entered on July 24, 2020, the Debtors will submit a fact witness declaration of Rebecca Roof, AlixPartners, LLP, on August 10, 2020, containing relevant information that the Debtors will intend to present at the Confirmation Hearing.
• Class 6 (“General Unsecured Claims”) is unimpaired, presumed to accept, and not entitled to vote on the Plan. Projected plan recovery is 100% and liquidation recovery is 0%
• Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Projected plan recovery is 0%/100% and liquidation recovery is 0%
• Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Projected plan recovery is 0%/100% and liquidation recovery is 0%
• Class 9 (“Jason Common Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Projected plan recovery is 0% and liquidation recovery is 0%
• Class 10 (“Jason Preferred Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Projected plan recovery is 0% and liquidation recovery is 0%

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: "Despite efforts to right-size the Company’s cost structure, operations continue to be plagued by high operating leverage and a sizable amount of fixed costs, including interest payments under the Company’s funded debt facilities. Specifically, lower demand from OEM customers for products produced by the engineered components segment impacted cash flow in recent years. The Company also faced weakness in the welding, metal fabrication, and automotive end markets in 2019, resulting in distributors and end users slowing order rates in response to lower consumption levels. Weakness in global industrial markets and the Company’s core verticals have also strained cash flow.

These problems were exacerbated by reduced demand as a result of the global impact of the COVID-19 pandemic.

Significant Prepetition Shareholders

• Wynnefield Partners/Wynnefield Capital: 18.2%
• Jeffry N. Quinn: 10.4%
• Corre Partners Advisors: 9.6%
• Ephraim Fields c/o Echo Lake Capital: 5.6%
• FrontFour Capital LLC: 5.4%

Capital Structure

The Debtors’ prepetition capital structure consisted of approximately $370.0mn of funded debt in the form of a first lien term loan, a second lien term loan, and a revolving credit facility, each guaranteed by substantially all of the assets of certain of the above-captioned Debtors, as follows: (a) approximately $280.0mn of outstanding borrowings under the First Lien Term Loan maturing on June 30, 2021; (b) approximately $90 million of outstanding borrowings under the Second Lien Credit Agreement, maturing on June 30, 2022; and (c) $0 of outstanding borrowings under the revolver loans issued under and on the terms set forth in the First Lien Credit Agreement.

Key Documents

The Disclosure Statement [Docket No. 23] attached the following Exhibits:

• Exhibit A: Plan 
• Exhibit B: Restructuring Support Agreement (and exhibits thereto)
• Exhibit C: Liquidation Analysis 
• Exhibit D: Valuation Analysis 
• Exhibit E: Financial Projections
• Exhibit F: Corporate Organizational Chart

The Debtors filed Plan Supplements at Docket Nos. 144 and 199 which attached the following documents:

• Exhibit A: New First Lien Credit Agreement [Docket No. 144]
• Exhibit B: Stockholders’ Agreement [Docket No. 199]
• Exhibit C: Registration Rights Agreement [Docket No. 199]
• Exhibit D: New Revolving Exit Facility Credit Agreement [Docket No. 199]
• Exhibit E: New Junior Lien Convertible Credit Agreement [Docket No. 144]
• Exhibit F: Restructuring Steps Memorandum [Docket No. 144]
• Exhibit G: New Organizational Documents [Docket No. 199]
• Exhibit H: Identity of members of the New Board and the officers of Jason NewCo [Docket No. 199]
• Exhibit I: Schedule of Rejected Executory Contracts and Unexpired Leases [Docket No. 144] 
• Exhibit J: Schedule of Retained Causes of Action [Docket No. 144]

Liquidation Analysis (see Exhibit C to Docket No. 23 for notes)

Corporate Structure Chart

 About the Debtors

Jason Industries, Inc. is a global industrial manufacturing company providing critical components and manufacturing solutions to customers through its Osborn (Richmond, Ind. and Burgwald, Germany) and Milsco (Milwaukee, Wis.) businesses. Headquartered in Milwaukee, Wis., Jason employs more than 1,900 people in 13 countries.

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