May 7, 2021 – The Debtors’ filed a combined bidding procedures and sale motion [Docket No. 152]. The requested bidding procedures order would authorize (i) the Debtors’ proposed bidding procedures in respect of a potential section 363 asset sale of their Everett, Washington assets (the “Sale”), including bidder protections for stalking horse Wipro Givon USA, Inc. (the “Stalking Horse Bidder,” $31.1mn cash bid) and (ii) a proposed auction/sale timetable culminating in a June 14th auction and a June 22nd sale hearing. The requested sale order would authorize the Sale. The Debtors will seek separate approvals in respect of a sale of their Kansas assets.
The May 7, 2021 asset purchase agreement the Stalking Horse Bidder and the Debtors is attached to the motion at Exhibit B.
As discussed further below, the Stalking Horse Bidder was handpicked by Boeing further to a marketing process run directly by The Boeing Company ("Boeing") and the Stalking Horse Bidder and Boeing have entered into a separate agreement regarding the Stalking Horse Bidder’s proposal and related matters (the “Boeing-Wipro Agreement”) which has been filed under seal.
The stalking horse APA is signed by Ronen Givon and lists an Israeli address. Ronen Givon is CEO of Wipro Givon which purchased the stalking horse's manufacturing assets (based in Everett, Washington) in 2015. In 2016 Wipro Givon became part of Wipro Infrastructure Engineering ("WIN") which is in turn part of
India's Wipro Enterprises (P) Limited group of companies (Wipro Limited has ADRs traded on NYSE: WIT). Wipro Givon USA, Inc. is part of WIN's "Wipro Aerospace" group which has manufacturing facilities in India (68,700 mt²), Israel (11,600 mt²) and the USA (2,600 mt²). Each of the three has relationships with Boeing.
On May 3rd, the Debtors' official committee of unsecured creditors (the "Committee") filed an objection to the Debtors' proposed debtor-in-possession ("DIP") financing citing the multiple roles that Boeing that is playing in the bankruptcy in an effort to protect its supply chain. A related objection to this bidding procedures order is to be expected.
The Committee’s DIP objection reads in part: “By the DIP Motion, the Debtors seek various forms of relief that offer extraordinary protections and further the interests of The Boeing Company (‘Boeing’), in its various capacities as prepetition lender, postpetition lender, and trade creditor, at the expense of the Debtors’ other creditors, particularly unsecured creditors. In fact, Boeing singlehandedly occupies all of the most influential creditor roles in these cases. And its choice to become the Debtors’ prepetition and postpetition secured lender was a tactical one, as the Debtors’ largest customer, to protect the Debtors’ ongoing operations and, thus, Boeing’s supply chain.
A hearing to consider the bidding procedure motion is scheduled for May 25, 2021, with objections due by May 20, 2021.
The Debtors bidding procedure motion [Docket No. 152] stated, “The Debtors are pleased to report that they have a stalking horse bid for their Everett, Washington assets and, by the procedures described in this Motion, the Debtors will market those assets and solicit bids therefor in order to maximize value for the estates. Over the past two years, the Debtors’ business has been severely impacted by production halts related to The Boeing Company’s (‘Boeing’) 737 MAX aircraft and shifts in the airline industry’s procurement decisions due to the COVID-19 pandemic and related travel restrictions. As a result, the Debtors pursued strategic alternatives, eventually determining to file these chapter 11 cases to pursue sales of substantially all of their assets. This Motion seeks to establish a process for the sale of the Debtors’ assets related to their Everett, Washington manufacturing facility (collectively, the ‘Assets’) to maximize the value of the Assets for these estates. By separate motion, the Debtors will establish a process for the sale of their Kansas assets.
As a result of pre and post-petition efforts, the Debtors were able to reach agreement on a stalking horse asset purchase agreement (the ‘Stalking Horse Agreement’) for the Assets with Wipro Givon USA, Inc. (the ‘Stalking Horse Bidder’). Pursuant to the Stalking Horse Agreement, and subject to higher or better offers through the bidding and auction process, the Stalking Horse Bidder has agreed to purchase the Assets for $31,073,933 in cash plus the assumption of certain liabilities and cure costs.”
Key Terms of the Stalking Horse Agreement
- Purchaser: Wipro Givon USA, Inc.
- TECT Aerospace, LLC
- TECT Aerospace Holdings, LLC
- Purchase Price: $31.1mn (the “Cash Purchase Price”) plus the Assumed Liabilities (together with the Cash Purchase Price, the “Purchase Price”)
- Break-up Fee: Comparing the Break-up Fee and Expense Reimbursement only to the Cash Purchase Price, those aggregate to about 2.4%
Prepetition Marketing Efforts
The motion further provides: “…the Debtors began to explore strategic options in late 2020. Due to Boeing’s crucial role in the success and long-term viability of Everett, the Debtors proactively engaged with Boeing regarding their strategic options. In years past, Boeing accounted for a significant majority of Everett’s revenue. The challenges faced by the aircraft industry in the past year affected orders from, and long-term relationships with, the Debtors’ customers, which necessarily included Everett. As a result, Boeing’s proportion of Everett’s revenue has increased, making Boeing essential to the future viability of Everett’s business. Based on discussions with Boeing and its importance to the Everett business, the Debtors desired to find a potential third party purchaser that would be able to offer a long term supply relationship for Boeing, thereby maximizing the value of the Assets. Boeing therefore began to assist the Debtors in finding a potential purchaser for the Everett assets and it directly communicated with potentially interested parties. In October and November 2020, Boeing contacted 13 potentially interested parties. Of those, six entered into non-disclosure agreements permitting them to review confidential information related to the Debtors (an ‘NDA’). From November to January, those six parties conducted initial due diligence of the Everett assets. Two parties ultimately submitted indications of interest in late January. Following additional due diligence activities throughout February, one of the parties that had submitted an indication of interest, the Stalking Horse Bidder, ultimately submitted a formal offer to acquire the Assets. As the culmination of this process, the Stalking Horse Bidder prepared, negotiated, and, pursuant to this Motion, proposes to enter into an asset purchase agreement with the Debtors for the Assets.
In March 2021, the Debtors engaged Imperial Capital LLC (‘Imperial’) as their investment banker. While the Debtors negotiated with the Stalking Horse Bidder, Imperial continued to market the Assets. Since its initial engagement, Imperial has contacted 77 potentially interested parties regarding a transaction for some or all of the Debtors’ assets (i.e., not only the Assets). As of the filing of this Motion, 30 of those parties have executed an NDA and others are in the process of negotiating an NDA. Imperial has also set up a confidential data room for diligence and loaded it with relevant information on the Assets, among other things. Since the Petition Date, Imperial has continued, and will continue, to market the Assets as well as the Debtors’ other assets.”
Proposed Key Dates:
- Bid Deadline: June 10, 2021
- Sale Objection Deadline: June 10, 2021
- Auction: June 14, 2021 (if necessary)
- Sale Hearing: June 22, 2021
- Sale Closing Date: Three business days after entry of the Sale Order
Goals of the Chapter 11 Filings
The Martin Declaration (defined below) provides: "…through these chapter 11 cases, the Debtors will seek to consummate a sale or sales of substantially all of TECT’s assets pursuant to section 363 of the Bankruptcy Code."
For these Debtors, all paths lead to (and from) Boeing, their largest secured (they recently bought the Debtors' $41.9mn of senior prepetition debt) and unsecured creditor ($18.3mn) and the center of the Debtors' existence. Nominally responsible for the Chapter 11 in the first place (both as the 737 Max manufacturer and as a lender requiring that the Debtors file for Chapter 11 in order to maintain a financing lifeline), Boeing has now offered several helping hands (buying the Debtors' defaulted senior debt, extending further critical financing under that defaulted senior facility and now providing DIP financing) in an attempt to keep what is clearly an important parts supplier alive….and in the right hands. Boeing is also insisting that the Debtors pursue an in-court asset sale path, a process that they were largely managing prepetition and will continue to closely monitor (and control) now that the Debtors have filed for bankruptcy protection.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Martin Declaration”), Shaun Martin, the Debtors’ Chief Restructuring Officer, detailed the events leading to Teact Aerospace's Chapter 11 filing. The Martin Declaration provides: “Prior to the Petition Date, the Debtors’ business operations were severely impacted by the halt in production of The Boeing Company’s ('Boeing') 737 MAX airplane and restrictions on airline travel arising from the COVID-19 pandemic and the resulting decline in demand for the Debtors’ products and services. In December 2019, when Boeing announced it was suspending production of the 737 MAX, the Debtors were already near the maximum borrowing capacity allowed under the Prepetition Credit Agreement (as defined below) with PNC Bank, National Association ('PNC'). The combined effect of the lack of availability under their Prepetition Credit Agreement and the loss of revenue arising from the slowdown in 737 MAX production and the pandemic significantly strained TECT’s liquidity.
In addition, in late December 2020, a significant customer, Spirit AeroSystems ('Spirit'), notified TECT that it was terminating its supply agreement with TECT. While the Debtors explored a number of options to address TECT’s continued financial distress, it became apparent that an out of court solution was not achievable.”
Boeing Relationship and Sale Efforts
The Martin Declaration provides: "On February 26, 2021, with the parties unable to reach agreement regarding a consensual path forward, Boeing notified TECT that after March 22, 2021 it would no longer advance funds under the Prepetition Credit Agreement [Boeing acquired the PNC loan in February 2021] except through an agreed debtor in possession financing as part of a bankruptcy proceeding.
Accordingly, in consultation with their advisors and professionals, the Debtors began exploring restructuring options to pursue through the chapter 11 process. Notwithstanding any formal agreement to extend the March 22, 2021 deadline, Boeing has continued to fund under the Prepetition Credit Agreement through the date hereof.
Over the past several months, TECT has evaluated restructuring alternatives and continued its discussions with Boeing and other parties to explore such alternatives, including potential out of court options. TECT, having considered the alternatives, believes that a sale will maximize the value of TECT’s assets.
Although it appeared that out of court restructuring was no longer an option, Boeing, recognizing that in order for it to continue to receive the necessary parts for its airplanes and TECT’s need for additional funding, continued to support the TECT business by providing funding under the Prepetition Credit Agreement. From the time it acquired the loan under the Prepetition Credit Agreement from PNC through the Petition Date, Boeing provided TECT with over $13.2 million in net new funding.
Further, TECT, understanding Boeing’s critical role as the most significant customer of TECT’s Everett, Washington facility, agreed in late 2020 to allow Boeing to begin exploring discussions with potential purchasers for the Everett operations. TECT believes that any potential purchaser would only be interested in considering a transaction for the Everett assets if it was confident that Boeing would continue to support the Everett operations as a customer. Boeing, the world’s largest aerospace company, has the knowledge and experience with respect to other similarly suited aerospace part manufacturers and, as a result, Boeing began contacting potential third party acquirers to determine their interest in a sale of TECT’s Everett business.
Further, the Debtors initiated their own sale process to find a potential buyer or buyers of their assets. In March 2021, the Debtors retained Imperial Capital, LLC (‘Imperial’) to provide investment banking services in connection with a potential sale. Imperial is currently evaluating certain prepetition offers for the various business units and developing a fulsome marketing and sale process.
As of the Petition Date, the Debtors have not entered into any agreements with respect to the sale of their assets. As set forth above, the Debtors are in the process of marketing their assets and are hopeful that this process will result in an executed asset purchase agreement or agreements that will allow the Debtors to sell all or a portion of their assets in the near term pursuant to section 363 of the Bankruptcy Code."
About the Debtors
According to the Debtors: “TECT Aerospace manufactures high-precision, complex components and assemblies and specializes in global supply chain management, featuring TECT Hypervelocity®, a fully integrated manufacturing process producing high-speed aluminum monolithic parts capable of jig and jigless assembly.
At our five facilities in the U.S., and with more than 65 years of aerospace experience, TECT Aerospace manufactures complex aerostructure components, parts and assemblies from the full spectrum of traditional and aerospace alloys. We specialize in complex, structural and mechanical assemblies, machined components, and sheet metal fabrication for countless aerospace applications. We currently produce thousands of assemblies and parts that are used in flight controls, fuselage/interior structures, doors, wings, landing gear, struts & nacelles, and cockpits.
TECT Aerospace is a privately held, independently managed aerospace company. Everything we manufacture runs through our integrated supply chain, so your parts deliver on time every time with competitive pricing. Make TECT Aerospace a part of your supply chain, and discover how you can increase the velocity of your value stream."
The Martin Declaration adds: "The Debtors are privately held companies owned by Glass Holdings, LLC ('Glass') and related Glass owned or Glass controlled entities.
The Debtors manufacture high precision components and assemblies for the aerospace industry, specializing in complex structural and mechanical assemblies, and, machined components for a variety of aerospace applications. The Debtors produce assemblies and parts used in flight controls, fuselage/interior structures, doors, wings, landing gear and cockpits. As is commonplace throughout the aerospace industry, the Debtors’ business functions under a tiered supply chain structure whereby the Debtors manufacture and service specialized aerospace components that are in turn utilized and incorporated by customers into their platforms and planes. Established in 2004, the Debtors supply many of the largest aerospace manufacturers in the world, including Boeing, and their products are used by customers in the commercial, business, military, and general aviation markets.
The Debtors operate manufacturing facilities in Everett, Washington, and Park City and Wellington, Kansas and their corporate headquarters is located in Wichita, Kansas. The Debtors currently employ approximately 400 individuals nationwide.
Corporate Structure Chart
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