October 14, 2021 – The Court hearing the TECT Aerospace Group Holdings cases has extended the periods during which the Debtors have an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including January 3, 2022 and March 2, 2022, respectively [Docket No. 553]. Absent the requested relief, the Plan filing and solicitation periods were scheduled to expire on October 4, 2021 and December 2, 2021, respectively.
With the exclusivity order granted, that item can come off of the agenda for the Debtors' October 19th hearing. Also likely to come off (the agenda not yet filed) is consideration of the conversion motion filed by the Debtors' official committee of unsecured creditors (the "Committee") on September 9th, with that motion suddenly withdrawn on October 13th [Docket No. 544] without comment. That turn of events was hinted at in the Debtors' motion requesting the exclusivity extensions which noted that the Debtors "believe they have made progress with the Secured Lender and the Committee regarding exiting these chapter 11 cases through a consensual chapter 11 plan of liquidation…" To date, nothing has been filed that provides further insight into any proposed settlement amongst the Committee and the Debtors, although a further October 14th Court filing (requesting an extension to the period during which they can assume/reject leases) notes that "the Debtors, the Committee, and the Secured Lender [ie Boeing] are in the process of negotiations regarding a chapter 11 plan."
The extension motion [Docket No. 526] explains, “Since the Petition Date, the Debtors have made significant and material progress toward advancing these chapter 11 cases. As discussed above, the Debtors obtained Court orders approving the Everett Sale and the Kansas Sale (together, the ‘Sale Orders’). Following entry of the Sale Orders, the Debtors, among other things, consummated both sales, transitioned their businesses to the purchasers and are now working to maximize the value of any retained and/or residual assets. Given the Debtors’ focus on obtaining approval of and consummating the sales during the first several months of these chapter 11 cases, the Debtors are now focusing their attention to the winddown and resolution of these chapter 11 cases and the Debtors believe that it is reasonable to request extensions of the Exclusive Periods….
These chapter 11 cases involve seven Debtors that managed operations across the country, employed hundreds of highly skilled workers, held significant assets and had significant liabilities. Additionally, the Debtors ran dual sale processes for their Everett, Washington and Kansas assets, which were the primary focus of the Debtors’ management and professionals for the first several months of these chapter 11 cases. Accordingly, the size and complexity of these chapter 11 cases weigh in favor of granting the requested extension of the Exclusive Periods….
Indeed, since the Initial Exclusivity Periods Extension, the Debtors believe they have made progress with the Secured Lender and the Committee regarding exiting these chapter 11 cases through a consensual chapter 11 plan of liquidation. As such, the proposed extensions requested herein will, at a minimum, provide the parties additional time to continue those discussions without the distraction of a competing plan process.”
On July 13th, the Court issued an order approving the sale of the Debtors’ Kansas assets (the “Kansas Assets”) to Central Kansas Aerospace Manufacturing, an acquisition vehicle created by the Boeing Company (“Boeing” or “Parent”) [Docket No. 372] with the Debtors valuing the Boeing bid at $38.8mn.
On June 24th, the Court issued an order approving the $31.1mn sale of the Debtors Everett, Washington assets (the “Everett Assets”) to Wipro Givon USA, Inc. (“Wipro Givon”) [Docket No. 313]. The Everett Assets stalking horse was handpicked by Boeing further to a marketing process which Boeing directly supervised; with Wipro Givon and Boeing also entering into a separate agreement regarding Wipro Givon’s proposal and related matters (the “Boeing-Wipro Agreement”) which has been filed under seal.
In respect of the Debtors’ Kansas Assets, however, Boeing took a very different, if equally involved, approach. Boeing did not affirmatively select a stalking horse (in hindsight, it appears likely that Boeing always envisaged itself as the purchaser), but did effectively veto the Debtors’ own preferred choice, a non-Debtor affiliate controlled by current parent Glass. The Kansas Assets bidding procedures motion [Docket No. 192] provided: “the Debtors were prepared to enter into the asset purchase agreement [with Glass] to serve as a stalking horse bid in the process contemplated by this Motion…Boeing, as DIP lender, was not supportive of the Debtors’ entering into the asset purchase agreement.”
The Debtors’ bidding procedure motion continues: “The Debtors filed these chapter 11 cases to maximize value for their stakeholders by pursuing sales of their assets under section 363 of the Bankruptcy Code. By the procedures described in this Motion, the Debtors will continue to market their Kansas 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 shifts in the airline industry’s procurement decisions due to the COVID-19 pandemic and related travel restrictions, as well as production halts related to The Boeing Company’s (‘Boeing’) 737 MAX aircraft. 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 two Kansas manufacturing facilities and headquarters (collectively, the ‘Assets’) to maximize the value of the Assets for these estates. By separate motion, the Debtors have sought to establish a process for the sale of their Everett, Washington assets.”
Committee Conversion Motion (Now Withdrawn)
[As previsously reported] On September 10th, the Committee filed a motion seeking conversion of the Debtors’ Chapter 11 Cases to cases under Chapter 7; arguing that the cases are "being administered for the sole benefit of Boeing," with Boeing, and not the Debtors, doing the administering [Docket No. 476].
So with asset sales completed, why have the Debtors "not made any meaningful progress towards proposing a chapter 11 plan"? The answer according to the Committee is that Boeing is taking its time feeding on the carcass, taking the parts that it needs in respect of its own supply chain and having the Debtors "reject various equipment leases related to the Kansas operations that were used to produce airplane parts for customers other than Boeing…"
Getting what it needs from the Debtors while they are still in bankruptcy suits the commercial needs of Boeing just fine, the Committee argues, given that the Debtors are effectively underwriting costs that would fall to Boeing (as purchaser of the Debtors' Kansas assets) if the sale in respect of those assets was already completed. As it is, the Debtors, who under the direction of Boeing have refused to meet DIP milestones or engage in discussion with the Committee as to a possible Plan, will "pay Boeing's freight."
Noting that (i) Boeing as DIP lender refuses to commit to a budget that would see the Debtors through confirmation of a Plan and (ii) that "non-operational assets, including potential avoidance actions and commercial tort claims against insiders, continue to be further encumbered by continued draws on Boeing’s self-serving DIP Facility, the Committee argues that conversion is now the only appropriate remedy: "With no prospect of getting a consensual plan of liquidation on file, let alone any confirmable plan if the estates are administratively insolvent, and with limited assets to administer (which may be administered by a chapter 7 trustee), it is time to convert these cases to chapter 7."
The Committee's motion states, “In the five months that these chapter 11 cases have been pending, the Debtors have sold substantially all of their assets (the Debtors’ second and final asset sale closed over a month ago), yet these cases are no closer to the filing, solicitation, and confirmation of a plan than they were on the Petition Date. With no operations, few employees, and very limited assets, the Committee would anticipate that the Debtors’ chapter 11 plan of liquidation would be relatively straightforward. To date, however, the Debtors have not made any meaningful progress towards proposing a chapter 11 plan. In fact, despite the Debtors’ supposed obligation to file a plan pursuant to the DIP milestones, the Committee has not seen even a draft of a chapter 11 plan, let alone a plan term sheet.
The developments in the Chapter 11 Cases thus far have only solidified that these cases have been, and are continuing to be, administered for the sole benefit of Boeing, the Debtors’ prepetition lender, DIP lender, former largest customer, and purchaser of the Kansas Assets. For example, the Kansas Assets were sold to Boeing (through a credit bid) to ensure continued production of the airplane parts that Boeing needed for its supply chain. Indeed, immediately prior to Boeing’s acquisition of the Kansas Assets, Boeing caused the Debtors to reject various equipment leases related to the Kansas operations that were used to produce airplane parts for customers other than Boeing, but were not needed for the production of Boeing’s parts.
It is now in Boeing’s interest to stall the Chapter 11 Cases while it completes production of its airplane parts at the Kansas facilities. Pursuant to the terms of the Kansas sale order, through 120 days after the closing of the Kansas Sale, i.e., early December 2021, Boeing may benefit from continued performance of the Debtors’ executory contracts and unexpired leases that have not yet been assumed or rejected, without having to fund the costs of the Debtors assuming those agreements. Rather, Boeing must pay only the cost of maintaining the contracts and leases for the limited time between the closing of the Kansas Sale through the date of rejection. Simply put, absent a conversion to chapter 7, Boeing will be the main beneficiary of the Debtors remaining in chapter 11, and Boeing will reap those benefits without having to ‘pay the freight’ that is necessary to confirm a chapter 11 plan.
The Committee has tried in various ways to engage the Debtors and Boeing in discussions on advancing these cases, but to no avail. For example, the Committee prepared a settlement term sheet that would form the bases for a potential consensual plan of liquidation and sent it to the Debtors and Boeing over two and a half months ago. Despite the Committee’s repeated requests, however, neither the Debtors nor Boeing have meaningfully engaged the Committee in any settlement discussions. In an effort to finally push these cases towards a conclusion, the Committee proposed a settlement to resolve its objection to the Debtors’ motion seeking an extension of the exclusive periods to file and solicit a plan (the ‘Exclusivity Agreement’). The Debtors, Boeing, and the Committee agreed to the proposed Exclusivity Agreement, under which (i) the Committee would not prosecute its objection to the Debtors’ exclusivity motion, (ii) the Debtors would reduce the requested extension of the exclusive periods from 90 days to 60 days, and (iii) Boeing would substantively respond to the Committee’s settlement term sheet by September 8, 2021. The Committee and the Debtors have performed their obligations under the settlement, but Boeing has not. Even when obligated to substantively respond to the Committee’s settlement term sheet, Boeing has failed to do so.
Nothing demonstrates Boeing’s self-interested control of these cases more than its refusal to agree to a long term DIP budget that ensures the administrative solvency of the estates through confirmation of a plan despite having asked the Debtors to prepare such budget several weeks ago. Just prior to the original August 6, 2021 maturity date set forth in the Final DIP Order, the Debtors’ advisors delivered a draft budget to Boeing that (i) extended the DIP Facility through the end of the year in order to allow the estates to prepare and confirm a plan, (ii) kept the total DIP financing commitment within the $60.2 million maximum commitment approved in the Final DIP Order (and even projected that the total DIP draw would be several million dollars less than the maximum commitment amount), and (iii) was generally acceptable to the Committee. However, Boeing refused to approve the budget. Rather, Boeing has since approved two interim DIP budgets lasting only three to four weeks each, which do not adequately address the administrative costs required to confirm a chapter 11 plan. These short term measures leave the estates on the brink of administrative insolvency and provide Boeing, the ‘lender in possession’, with even greater leverage to dictate the Debtors’ every action or, in this case, inaction.
Meanwhile, the Debtors’ estates are losing value every day as they accrue the administrative costs of running the chapter 11 cases (for Boeing’s benefit). The Debtors’ remaining, non-operational assets, including potential avoidance actions and commercial tort claims against insiders, continue to be further encumbered by continued draws on Boeing’s self-serving DIP Facility, stripping what value could be available for unsecured creditors. The Committee refuses to sit idle while the Debtors and Boeing deplete the estates’ remaining limited assets without any progress towards confirmation of a chapter 11 plan.
With no prospect of getting a consensual plan of liquidation on file, let alone any confirmable plan if the estates are administratively insolvent, and with limited assets to administer (which may be administered by a chapter 7 trustee), it is time to convert these cases to chapter 7. Such relief will preserve what little value may remain in these estates by promptly appointing a chapter 7 trustee to liquidate the remaining assets and pursue potentially valuable estate claims and causes of action for the benefit of all stakeholders (not just Boeing).”
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.”
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The post TECT Aerospace Group Holdings, Inc. – Court Grants 90-Days Extension of Exclusive Plan Filing Period until January 3, 2022; Creditors’ Committee Withdraws Conversion Motion as Negotiations Towards Consensual Plan Continue appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.