September 14, 2021 – The Debtor filed a motion requesting each of a bidding procedures order and a sales order [Docket No. 94]. The bidding procedures order would (i) approve proposed bidding procedures for a sale of substantially all of the Debtor's assets (the "Sale"), including bidder protections for a (not yet selected) stalking horse (2% break-up fee and $75k expense reimbursement), (ii) authorize the selection of a stalking horse and (iii) approve an auction/sale timetable culminating in an October 15, 2021 auction and an October 19, 2021 sale hearing. The sale order would approve the Sale.
The Debtor's motion attaches a "form" of asset purchase agreement to be completed by aspiring qualified bidders with that form curiously noting a suggested purchase price of $28.0mn plus assumed liabilities. The form of APA would also require a 3% deposit of the $28.0mn although the bidding procedures separately notes a 7.5% good faith deposit from all qualified bidders. That price roughly equates to what is owed to DIP lender Tiger Finance, LLC ($15.5mn including $9.3mn roll-up) and unsecured creditors ($13.0mn, including a PPP Loan and union pension/health/benefit obligations), but its presence in the form APA without any further context adds to a general sense of oddness about this filing and the sale process.
At filing, the Debtor noted that it had "received a proposed Stalking Horse offer from Reich Brothers, LLC ('Reich Bros.'), which will be further disclosed in connection with the Debtor’s contemplated Sale Motion." The Debtors also specifically referred to Reich Bros as "the proposed Stalking Horse under the Sale Motion." There is in fact no further discussion of Reich Bros' potential stalking horse role in the present (sales) motion; although the motion does reference "contingent bids" with the Debtors asking for Court authority to reimburse one contingent bidder (but not a stalking horse) for up to $75k in expenses. Presumably Reich Bros. with that $28.0mn possibly their intended opener. Regardless, the Debtors are looking to move quickly, with bids due by October 11th and a sale hearing requested for October 19th.
Perhaps the accelerated timetable is justified given that the "Debtor has received indications of interest from multiple potential buyers, and numerous other potential buyers are actively reviewing the Business and Assets as of the date of this Motion."
Proposed Key Dates
- Bid Deadline: October 11, 2021
- Auction October 15, 2021
- Sale Objection Deadline: October 9, 2021
- Sale hearing: October 19, 2021
Background
The Debtor's motion provides: "… the Debtor filed this chapter 11 case on…with the intent to conduct a sale process ('Sale') of its business (the 'Business')…and/or assets (the 'Assets')…
The Debtor is seeking authorization and approval of Bid Procedures in connection with the going concern sale of its Business, Assets or any components parts. The Debtor’s desire is to find a strategic purchaser for its Assets to preserve value and employment for its 111 employees.
The Debtor owns and operates a single location at 9000 River Road, Delair, NJ consisting of approximately 500,000 square feet of industrial space, including a cast house, foundry and processing area (the ‘Real Property’). The Real Property consists of buildings, substantial machinery, fixtures and equipment, including a valuable cast house and foundry furnace, several presses and processing equipment (‘FFE’ with the Real Property the ‘Assets’). At present, the Debtor is not operating the cast house."
Marketing Efforts
The motion continues: "On or about June 18, 2021, the Debtor engaged Cowen and Company, LLC (‘Cowen’) to provide investment banking services with respect to the Debtor’s Business and Assets, including exploring all restructuring, financing and M&A alternatives with respect thereto.
The Debtor instructed Cowen to find a purchaser who could continue the Debtor’s Business as a going concern. Upon its retention, Cowen immediately began conducting due diligence on the Business and Assets. In the period prior to the Petition Date, Cowen began significant outreach efforts and cast a wide net, on the Debtor’s behalf, in soliciting interest from potential purchasers of the Business or Assets.
Cowen contacted in excess of 160 potential buyers with more than 60 executing non-disclosure agreements (‘NDAs’), and performed significant diligence on Business and Assets. The Debtor conducted numerous meetings with potential buyers. The Debtor has received indications of interest from multiple potential buyers and numerous other potential buyers are actively reviewing the Business and Assets as of the date of this Motion. Cowen continues to actively market the Business and Assets, to a wide spectrum of interested parties, including potential financial and strategic buyers.
The Debtor and Cowen are and will continue their marketing process post-petition, which will afford the Debtor the best opportunity to maximize value for the sale of the Business or Assets at auction (the 'Auction').
Subject to the Bidding Procedures, and in consultation with its post-petition lender, Tiger Finance, LLC (the 'DIP Lender'), its Advisors, and the official committee of unsecured creditors (the 'Committee'; and together with the DIP Lender the 'Consultation Parties'), the Debtor and its Advisors retain the right to pursue any transaction or restructuring strategy that, in the Debtor’s business judgment, will maximize the value of its estate. If the Debtor receives multiple offers for the Business or the Assets, the Debtor intends to conduct the Auction to determine the highest or best offer for the Business or Assets."
Reich Bros. as Stalking Horse?
At filing, the Meyers Declaration provided: "The Debtor worked with Cowen, as investment banker, to conduct a marketing process. Cowen and the Debtor prepared a list of more than 140 potential investors (including various financial sponsors and strategic purchasers) that were considered likely participants in a sale process.
Following the initial outreach to the identified parties, information was provided to these parties to gauge their interest prior to executing a non-disclosure agreement ('NDA'). Approximately 40 parties executed NDAs, who were then granted access to a data room.
The Debtor’s advisors at Cowen have received a proposed Stalking Horse offer from Reich Brothers, LLC ('Reich Bros.'), which will be further disclosed in connection with the Debtor’s contemplated Sale Motion. The Stalking Horse offer from Reich Bros. was facilitated by the Debtor’s Prepetition Lender, TigerFN.
FN "A participant in the Prepetition Financing Documents…and the DIP Facility is Align Business Finance LLC (f/k/a Reich Bros Business Solutions LLC) is 100% owned by ABF Intermediate Holdings LLC which is then 100% owned by ABF Ultimate Holdings LLC. ABF Ultimate Holdings LLC is 50% owned by Jonathan and Adam Reich, who own [ %] of Reich Brothers, the proposed Stalking Horse under the Sale Motion.
Reich Bros. describes itself as: "Reich Brothers is a national industrial real estate firm with a specialization in the acquisition, repurposing, and management of manufacturing and distribution facilities across the United States. With several synergistic divisions across multiple disciplines, Reich Brothers provides a one stop shop solution for large corporates, financial institutions, and owner-operators globally."
Events Leading to the Chapter 11 Filings
In a declaration in support of the Chapter 11 filing (the “Meyers Declaration”), Jordan Meyers, the Debtor's interim CFO (and Winter Harbor Senior Director), detailed the events leading to the Debtors' Chapter 11 filing. The Meyers Declaration provides: “Following years of adverse market trends, including increased competition from overseas manufacturers, the general downturn in the United States economy caused by COVID- 19, has forced the Debtor into a sale process. The COVID-19 shut down occurred during a time when the Debtor was experiencing strong demand but lacked adequate capital to complete fabrication.
The Debtor is the latest victim of the skyrocketing price of metal, supply chain issues, the lack of available credit, and the lack of cash flow necessary to compete. Both the increased cost of raw materials and foreign competition have adversely impacted the Debtor’s cash flow in recent years. Inadequate cash flow has caused the Debtor to delay accepting new work orders.
For the year 2020, the Debtor reported net sales of $13.6 million, as compared to $43.4 million for the fiscal year 2019. The reduction reflected an inability to generate sufficient capital for metal supply purchases. The Debtor reported an operating loss of approximately $19.4 million in 2020.”
DIP Financing
The Debtor has commitments for $15.5mn of debtor-in-possession ("DIP") financing to be provided by prepetition lender Tiger Finance, LLC.
Prepetition Indebtedness
- Prepetition Credit Agreement. As of the Petition Date, the Debtor had outstanding debt obligations in the aggregate principal amount of no less than $9,270,526 to Tiger, pursuant to the prepetition Tiger Credit Agreement (the “Prepetition Credit Agreement”). Obligations under the Prepetition Credit Agreement are secured by a first priority lien on substantially all of the Debtor’s Assets, including, without limitation, a first priority lien on the Debtor’s accounts (including receivables), inventory, machinery and equipment, real estate, deposit accounts, cash, and cash equivalents.
From time to time over the past year, the Debtor has entered into forbearance agreements with Tiger. The Debtor is presently party to that certain Seventh Forbearance Agreement and Seventh Amendment to Credit Agreement dated July 27, 2021 (“Seventh Forbearance”). The Seventh Forbearance modifies the Prepetition Credit Agreement and provides as follows: (i) Tiger continues to forbear through the Seventh Amended Forbearance Termination Date, or August 16, 2021; (ii) Tiger agrees to increase the Maximum Term Loan Amount and make Discretionary Advances up to $2.25mn to the Debtor; and (iii) the Debtor is directed to provide an executed Stalking Horse offer by a date certain. In exchange, the Debtor agrees to undertake certain obligations and to begin in earnest to find a purchaser for the Business or Assets.
- General Unsecured Creditors. The Debtor estimates that unsecured claims against the Debtor as of the Petition Date exceed $13.0mn. Unsecured claims against the Debtor include: (i) accrued, and unpaid amounts owed to the Debtor’s trade vendors and other unsecured debt incurred in the ordinary course of the Debtor’s Business, (ii) accrued employee related expenses, (iii) loans received under the Small Business Associations’ Paycheck Protection Program (“PPP”), and (iv) claims for unpaid union pension and health and benefit obligations.
- Judgments and Pending Litigation. The Debtor also has a number of judgments entered against it from utility suppliers and vendors which in total exceed $7.0mn.
About the Debtors
According to the Debtors: “At Aluminum Shapes, we start the production process by melting scrap and primary ingot to cast billets from seven to sixteen inches in diameter. The billets are then extruded in small, medium, and large presses. At this point, many extruders see their job as done while our value is just beginning.
Shapes punches holes, precision cuts, forms and even welds using over 200 pieces of fabrication equipment. For high volume jobs we use custom machines for optimal efficiency.
All of these services under one roof. One supply chain and one company responsible for all phases of quality and service. For large OEM customers, Shapes employs highly experienced VA VE engineers adept at working with your managers and engineers on cost down projects – die redesign, scrap reduction, handling solutions, and outsource fabrication.
With six (6) high tonnage presses – more than any other North American manufacturer – Shapes can produce and ship over 600 metric tons of extruded aluminum annually in a wide range of press diameters and alloys. Additionally, Shapes has the capacity to cast more than 182 metric tons of aluminum log annually in a wide range of sizes and alloys.
The Meyers Declaration adds: "The Debtor is an aluminum processor (the 'Business'). The Debtor was founded by Ben Corson in 1948 and began operations as a supplier of extruded aluminum for his aluminum windows and doors. The Debtor has since grown to become a predominant fabricator of aluminum east of the Mississippi, and one of only a few processors in the country capable of, and in possession of, a completely vertically integrated plant and operations for the processing, annealing, cutting, fabricating, welding, and extruding of aluminum. The Debtor became incorporated in 1956 and subsequently acquired fifty-five (55) acres of land at its current location in Delair, New Jersey upon which it developed and built its aluminum processing facilities. As the United States economy blossomed in the 1960s, the Debtor began extruding aluminum for the trucking and trailer industry. At that time, the Debtor underwent a significant capital investment program by commissioning four new state-of-the-art extrusion presses. These acquisitions greatly increased capacity. Later, the Debtor would construct a “cast house” foundry for processing aluminum into billets, substantially reducing its raw material costs. In 1995, the Debtor underwent a further capital program, acquiring the Danieli Press, which was, at the time, the most sophisticated press in the industry. The addition of the Danieli Press increased aluminum processing capacity to nearly 30 million pounds annually. The Debtor’s substantial machinery, fixtures, and equipment, including a valuable cast house and foundry furnace, several presses, and processing equipment (the 'FFE'), are state of the art.
The Debtor is internationally known for some of its projects, including its fabrication and provision of the scaffolding for the reconstruction of the Statue of Liberty, for which it received recognition by the Guinness Book of World Records for what was then the largest free-standing aluminum structure. In 1998, it provided scaffolding for the Washington monument rehabilitation. Some seventy years after its founding, the Debtor has become and continues to be an industry leader in the fabrication, processing, and extruding of aluminum metals.
The Debtor owns and operates a single location at 9000 River Road, Delair, NJ, consisting of approximately 500,000 square feet of industrial space, including a cast house, foundry, and processing area (the “Real Property”). Located on the Real Property are buildings and the Debtor’s FFE. (FFE together with the Real Property, the “Assets”). At present, the Debtor is not operating the cast house.
The Debtor is a privately held New Jersey limited liability company. Jacky Cheung, an Austrailian national and resident of Vietnam, owns 100% of the membership interests and is the sole member of the Debtor. The Debtor’s current managers ('Managers') are Jacky Cheung, Charles Pok, and Solomon Rosenthal (CEO), who runs the day-to-day operations for the Debtor."
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