March 10, 2022 – The Court hearing the Klausner Lumber Two case issued an order confirming the First Amended Plan of Liquidation filed by the Debtor and its Official Committee of Unsecured Creditors (the “Committee,” and together with the Debtor, the “Plan Proponents”) [Docket No. 1285].
The confirmation order comes after a two day hearing at which the Plan's last obstacle, an objection filed by Carolina Sawmills, L.P., ("Carolina Sawmills") was withdrawn further to a "CSLP Confirmation Settlement" that will see an existing adversary proceeding amongst the parties carried through to its conclusion; with a final court ruling in that proceeding then incorporated into the Plan. That proceeding will determine whether Carolina Sawmills has a lien on substantially all of the Debtor's sale proceeds, as it claims, or not; with the trustee handling the Debtor's liquidation trust then distributing the proceeds as appropriate.
Until then, Carolina Sawmills has agreed to vote its $75.0mn claim in favor of the Plan with the partied agreeing that Plan effectiveness will not come for at least 60 days after issuance of this confirmation order. The CSLP Confirmation Settlement is incorporated into the confirmation order (to which it is attached).
On June 10, 2020, Klausner Lumber Two LLC (“KL2” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11518 (Judge Owens). At filing, the Debtor, a North Carolina lumber mill owned by Klausner Trading USA (ultimate parent, the German-Austrian Klausner Group), noted estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $100.0mn and $500.0mn.
On December 17, 2020, the Court hearing the Klausner Lumber Two cases issued an order approving a $83.4mn cash sale of the Debtor’s assets to an affiliate of Austria’s Binderholz Group (“Binderholz”). Binderholz was also the successful bidder in respect of the Klausner Group's other U.S. sawmill, Klausner Lumber One LLC ("KL1," in Florida) which, not facing a delay like the one occassioned by the Carolina Sawmills adversary proceeding, had its own Chapter 11 Plan of Liquidation confirmed back in July of 2021.
The Debtor's memorandum of law in support of Plan confirmation (the "Memorandum," which precedes the courthouse steps CSLP Confirmation Settlement) [Docket No. 1261] provides, “The Debtor commenced this Chapter 11 Case to implement a sale process that would maximize recoveries for its creditors, preserve the opportunity for the productive use of its assets and provide a pathway for the employment of dozens of people.
During the course of the Chapter 11 Case, the Debtor engaged in extensive good-faith and arm’s-length negotiations with its key stakeholders, including the Creditors’ Committee, to exit bankruptcy as quickly and efficiently as possible after concluding an incredibly successful sale of substantially all of the Debtor’s assets. These efforts were productive and resulted in a chapter 11 plan that will provide for, among other things, (a) the deposit of the remaining Sale Proceeds into the Segregated Account, with such funds to be held by the Liquidating Trustee and distributed to Holders of Allowed Claims and Allowed Interests as provided under the Plan and the Liquidating Trust Agreement, (b) the reconciliation of claims, (c) the monetizing of any remaining assets and (d) the pursuit of certain Causes of Action, including the CS Adversary Proceeding. Utilizing the Liquidating Trust structure is the most efficient and cost-effective way to wind down the Debtor’s Estate and bring certainty and finality to the Debtor, its creditors, and the Chapter 11 Case.
As described in detail in the Court-approved Disclosure Statement, in addition to the Segregated Account, the Plan also provides for (a) the transfer of the Debtor’s remaining assets to the Liquidating Trust, including any funds in the Segregated Account available for distribution under the Liquidating Trust Agreement, (b) satisfaction of all Administrative Expense Claims, Priority Tax Claims, Professional Fee Claims, Priority Claims and the WARN Act Class Settlement Claim, (c) distributions to Holders of Allowed Claims and Allowed Interests, (d) certain release, exculpation and injunction provisions and (e) an orderly wind-down of the Estate.
The Disclosure Statement [Docket No. 1164] reads:
“The following provisions shall govern the effectuation of the Plan:
- Establishment of the Segregated Account. Except as otherwise provided in the Plan, on or before the Effective Date, the Debtor shall establish and fund the Segregated Account with the remaining Sale Proceeds, which funds, subject to the terms of the Plan, shall be held in the Segregated Account by the Liquidating Trustee pending a determination of the rights of the Debtor/Post-Confirmation Debtor, Liquidating Trust and Carolina Sawmills with respect to (i) the Net Sale Proceeds and (ii) any other Debtor assets remaining after the sale of the Sale Assets that would have been subject to the CS Liens and Claims as of the Petition Date. The Liquidating Trustee is authorized and directed to pay the CS Carved Out Amounts from the funds in the Segregated Account.
- Sources of Consideration for Plan Distributions. The Liquidating Trustee will pay all Allowed CS Carved Out Amounts and any other distributions pursuant to the Plan initially from funds in the Segregated Account and thereafter from any other Liquidating Trust Assets and the earnings thereon and proceeds thereof. The Liquidating Trustee, on behalf of the Liquidating Trust, shall distribute such Cash in accordance with the provisions of the Plan and the Liquidating Trust Agreement, including: (a) to the Holders of Allowed Administrative Expense Claims and Allowed Priority Tax Claims; (b) to Holders of Allowed Priority Claims; and (c) to Holders of Allowed Class 3 WARN Act Settlement Claims.
- Liquidating Trust & Vesting of Assets. On the Effective Date, the Debtor and the Liquidating Trustee shall enter into the Liquidating Trust Agreement. Additionally, on the Effective Date, the Debtor shall irrevocably transfer and assign, and shall be deemed to have transferred and assigned, to the Liquidating Trust all right, title, and interest in and to the Liquidating Trust Assets in accordance with the Plan including without limitation, all Cash in the Debtor’s possession, custody or control, free and clear of all Liens, Claims, charges, or other encumbrances except for rights to such distributions provided to Holders of Allowed Claims and Allowed Interests as provided in the Plan. In his, her, or its capacity as Liquidating Trustee, the Liquidating Trustee shall accept all Liquidating Trust Assets on behalf of the beneficiaries thereof and be authorized to obtain, seek the turnover, prosecute, liquidate, and collect all of the Liquidating Trust Assets not in his, her, or its possession. The Liquidating Trust will be deemed created and effective without any further action by the Bankruptcy Court or any Person as of the Effective Date. For the avoidance of doubt, if the CS Adversary Proceeding is still pending as of the Effective Date, the Liquidating Trust Assets shall not include the funds deposited into the Segregated Account pending further order of the Bankruptcy Court at the conclusion of CS Adversary Proceeding.
- Dissolution and Board of Directors. On the Effective Date, the Liquidating Trustee shall be appointed for the purpose of conducting the Wind-Down and shall succeed to such powers as would have been applicable to the Debtor’s officers, directors, and shareholders, and the Debtor shall be authorized to be (and, upon the conclusion of the WindDown (subject to Article VII.O), shall be) dissolved by the Liquidating Trustee. The Liquidating Trustee shall act for the Debtor in the same fiduciary capacity as applicable to a board of managers and officers, subject to the provisions of the Plan (and all certificates of formation, membership agreements, articles of incorporation or amendment by-laws, and related documents, as applicable, are deemed amended pursuant to the Plan to permit and authorize the same). From and after the Effective Date, the Liquidating Trustee shall be the sole representative of and shall act for the post-Effective Date Debtor and the Estate.
Upon a certification to be Filed with the Bankruptcy Court by the Liquidating Trustee of all distributions having been made and completion of all its duties under the Plan and entry of a final decree closing the last of the Chapter 11 Case, the Liquidating Trust shall be deemed to be dissolved without any further action by the Liquidating Trustee, including the filing of any documents with the secretary of state for the state in which the Debtor is formed or any other jurisdiction. Notwithstanding the foregoing, the Liquidating Trustee shall retain the authority to take all necessary actions to dissolve the Debtor in, and withdraw the Debtor from, applicable states and provinces to the extent required by applicable law.
- Corporate Action. Upon the Effective Date, all actions contemplated under the Plan, regardless of whether taken before, on, or after the Effective Date, shall be deemed authorized and approved in all respects. All matters provided for in the Plan or deemed necessary or desirable by the Debtor before, on, or after the Effective Date involving the corporate structure of the Debtor, the Post-Confirmation Debtor or the Liquidating Trust, and any corporate action required by the Debtor, the Post-Confirmation Debtor or the Liquidating Trust in connection with the Plan or corporate structure of the Debtor or Liquidating Trust, shall be deemed to have occurred and shall be in effect on the Effective Date, without any requirement of further action by the security holders, directors, managers, or officers of the Debtor or the Liquidating Trust. Before, on, or after the Effective Date, the appropriate officers of the Debtor (including the Chief Restructuring Officer) or the Liquidating Trust, as applicable, shall be authorized to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated under the Plan (or necessary or desirable to effect the transactions contemplated under the Plan) in the name of and on behalf of the Liquidating Trust. The authorizations and approvals contemplated by this Article VI.H.II.4.e shall be effective notwithstanding any requirements under any non-bankruptcy law.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see liquidation analysis below):
- Class 1 (“CS Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0.00 – $48,662,9273 and expected recovery is 100%.
- Class 2 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“WARN Act Class Settlement Claim”4,5) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $540,000 and expected recovery is 62.96%. Each Holder will receive its WARN Pro Rata Share of the Net WARN Act Class Settlement Amount less any and all state, federal and/or other payroll tax withholdings, with such distribution to be paid as follows: (i) fifty percent (50%) of each Holder’s WARN Pro Rata Share of the Net WARN Act Class Settlement Amount less any and all state, federal, and/or other payroll tax withholdings to be paid within 15 days after the Effective Date; and (ii) the remaining fifty percent (50%) of each Holder’s WARN Pro Rata Share of the Net WARN Act Class Settlement Amount less any and all state, federal, and/or other payroll tax withholdings will be paid within sixty (60) days following the initial distribution.
- Class 4 (“CS Deficiency/ Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0.00 – $107,841,050 and expected recovery is 0.00% – 100%6,7. Each Holder will receive its Pro Rata Share of an amount equal to the Net Distribution Proceeds. For the avoidance of doubt, each Holder will receive its Pro Rata Share of the Net Distribution Proceeds along with other Holders of Unsecured Claims.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $26,966,352 – $41,544,831 and expected recovery is 0.00% – 100%6,7. Each Holder will receive its Pro Rata Share of an amount equal to the Net Distribution Proceeds. For the avoidance of doubt, each Holder will receive its Pro Rata Share of the Net Distribution Proceeds along with other Holders of Unsecured Claims.
- Class 6 (“Klausner Group Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0.00 – $43,818,394 and expected recovery is 0.00% – 100%6,7. Each Holder will receive its Pro Rata Share of an amount equal to the Net Distribution Proceeds. For the avoidance of doubt, each Holder will receive its Pro Rata Share of the Net Distribution Proceeds along with other Holders of Unsecured Claims.
- Class 7 (“Subordinated Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0.00 – $151,659,444 and expected recovery is 0.00% – 14.66%. Each Holder will receive its Pro Rata Share of an amount equal to the Net Distribution Proceeds remaining after satisfaction in full of all Allowed Claims in all senior classes (i.e., Classes 1, 2, 3, 4, 5 and 6).
- Class 8 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
3 The maximum amount shown assumes Carolina Sawmills is fully successful in their arguments and reflects the total estimated proceeds available for distribution after payment of the CS Carved Out Amounts; however, such amount may be lower depending on the outcome of the CS Adversary Proceeding or the ultimate value of the collateral securing any Allowed CS Secured Claims.
4 Class 2 (Priority Claims) and Class 3 (WARN Claims) are assumed to be paid out prior to any Secured or other Claims of Carolina Sawmills pursuant to the CS County Stipulation and Order.
5 The amounts shown here are based on the WARN Act Settlement, which has been approved by the Court pursuant to the Order (I) Certifying a Class for Settlement Purposes, (II) Appointing Plaintiff Cornelius Turner as Class Representative and Plaintiffs’ Counsel as Class Counsel, (III) Preliminarily Approving Settlement, (IV) Approving Class Notice, and (V) Scheduling Fairness Hearing [Docket No. 944] and Order Granting (I) Final Approval of Settlement Agreement, (II) Approving Class Counsel’s Fees and Expenses and (III) Granting Related Relief [Docket No. 986], and reflect the distribution of the Net WARN Act Class Settlement Amount.
6 This range reflects the potential outcomes that could result from the CS Adversary Proceeding and the reconciliation of the certain additional asserted Claims, including those asserted by the Klausner Group.
7 For purposes of additional disclosure, the Proponents estimate that: (a) in the hypothetical scenario in which all Claims asserted by Carolina Sawmills are placed into Class 7 (Subordinated Claims) as requested by the Creditors’ Committee pursuant to the CS Adversary Proceeding, the estimated potential recovery range would be 57.64% – 69.51%; and (b) in the hypothetical scenario in which all Claims asserted by the Klausner Group are placed into Class 7 (Subordinated Claims), the estimated potential recovery range would be 32.93% – 36.50%; and (c) in the hypothetical scenario in which all Claims asserted by Carolina Sawmills and the Klausner Group are placed into Class 7 (Subordinated Claims), the estimated potential recovery would be 100%. For the avoidance of doubt, the Debtor takes no position with regard to the classification of any Claims asserted by Carolina Sawmills.
On February 24, 2022, the Debtor's claims agent notified the Court of the Plan voting results [Docket No. 1246], which were as follows:
- Class 2 (“WARN Act Class Settlement Claim”): 1 claim holder, representing $540,000.00 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 4 (“CS Deficiency/ Unsecured Claims”): No ballots were received from this class.
- Class 5 (“General Unsecured Claims”): 20 claim holders, representing $33,929,576.96 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 6 (“Klausner Group Unsecured Claims”): No ballots were received from this class.
- Class 7 (“Subordinated Claims”): There were no claims in this class.
The Debtor filed Plan Supplements at Docket Nos. 1221 and 1237, which attached the following:
Docket No. 1221
- Exhibit A: Identity of Liquidating Trustee
- Exhibit B: Form of Liquidating Trust Agreement
Docket No. 1237
- Exhibit A: Liquidating Trust Agreement
- Exhibit B: Redline Comparison of Liquidating Trust Agreement to version filed on February 11, 2022
On December 17, 2020, the Court hearing the Klausner Lumber Two cases issued an order approving (i) an asset purchase agreement (the “APA”) entered into with Binderholz Enfield LLC (the “Purchaser” or the “Successful Bidder”) in respect of an $83.4mn cash sale of the Debtor’s assets (the “Sale”) and (ii) the Sale itself [Docket No. 507]. The APA is attached to the order as Exhibit 1.
The Successful Bidder is an affiliate of Austria’s Binderholz Group (“Binderholz”).
On December 10th, further to a November 19th bidding procedures order [Docket No. 421] and the conclusion of a December 10th auction, the Debtor designated the Purchaser as the Successful Bidder, with stalking horse Mayr-Melnhof Holz Holding AG (“MM-H”) designated as the back-up bidder [Docket No. 481].
Stalking horse MM-H, which will now receive a $600k break-up fee and up to $300k of its expenses reimbursed, had paced bidding with a $30.0mn cash offer memorialized in an early November asset purchase agreement, with that bid ultimately replaced by a $32.0mn baseline bid from Binderholz which was notified to the Court on December 7th.
This was the second time in recent months that the two Austrian timber companies had faced off over a Klausner Trading USA asset. On September 1st, further to an August 21st auction and an August 31st sale hearing, the Court hearing the Klausner Lumber One cases issued an order approving the $61.0mn sale of those assets to Binderholz with MM-H (which describes itself as “the leading supplier of glued laminated timber in Europe”) again designated as the back-up bidder.
In a press release announcing its acquisition, Binderholz noted (and gloated): “With this acquisition, Binderholz becomes the largest European sawn timber producer. With its 9 sawmills in Austria, Germany, Finland and the USA, Binderholz has a capacity of approximately 8.5 million solid cubic meters of roundwood, from which 5 million m³ of sawn timber and from which 3.6 million m³ of solid wood products are produced.
The North Carolina site is located in one of the best growing areas for the ‘Southern Yellow Pine’ species, which is in high demand in the USA. Log availability from the local area is sufficient and sustainable. In addition, the southeast of America is one of the most populous states, so that sales in this region are correspondingly high.”
Events Leading to the Chapter 11 Filing
According to the Prusak Declaration, "Over the last several weeks, KL2 and its new professionals have negotiated a settlement with the County (which KL2 intends to finalize and seek Court approval of very soon). Under this settlement, the County will be repaid the amounts it is owed under the EDA upon the closing of a sale of KL2, and in return will convey, in fee, all rights to the land to a buyer. In addition, as will be set forth in the settlement agreement, the County will subordinate its interests in the former KL2 land to a post-petition lender, allowing KL2 to obtain post-petition financing.
Although, at first, we thought that these issues might be part of an adversary proceeding before this Court, which would take substantial time and funds (none of which KL2 has, or can obtain in any material amount other than through post-petition financing through consensual subordination of the County’s interests). Instead, this comprehensive settlement (which the Debtor intends to finalize and seek Court approval of very soon) allows a path forward to a sale or reorganization in this case. In addition, pending approval and funding of the Debtor’s post-petition financing, the County will continue to cover certain utilities, insurance and security expenses for the subject property and plant, post-petition (which will be reimbursed under the settlement).
The arrangements with the County are beneficial, since in between the time from when the Debtor shuttered the property and the County began to provide security, the plant was broken into twice and a number of hand tools appear to have been stolen. The agreement with the County to continue to provide security, as well as power and insurance until the anticipated settlement motion is approved by this Court and funding from a DIP lender is obtained, approved and funded, further benefits the Debtor’s estate while the parties work towards an amicable resolution of their disputes….
[I]n order to generate funds prepetition to file this case, Asgaard contacted over thirty potential purchasers of certain unencumbered equipment owned by KL2, and obtained competitive bids. As a result, KL2 sold some individual pieces of equipment prior to the Petition Date. I note that one piece of equipment was sold, pre-petition, to Capital Recovery Group, LLC… The equipment sale proceeds were used to pay some pre-petition fees and expenses, including the amounts set forth above for Asgaard (the balance being written off), a $10,000 retainer for Donlin Recano (KL2’s proposed claims agent), a $10,000 retainer to new Delaware counsel to Carolina Sawmills, as pre-petition lender, $29,500 paid to Hilco for an appraisal of the property, plant and equipment to support the KL2 post-petition financing process and $1,717 to the Morris Nichols law firm for the Chapter 11 filing fee of KL2. The balance will be used as the initial funding of the estate until DIP financing can be obtained."
Liquidation Analysis (See Exhibit B to Disclosure Statement [Docket No. 1164])
About the Debtor
The Debtor is a subsidiary of Klausner Trading USA, Inc. (KTU) which was established in 2006 and operates as distribution company with headquarters located in Myrtle Beach, SC. The company is the sole distributor of products from Klausner US worldwide and Europe sold in North America.
Klausner Lumber One (KL1) and Klausner Lumber Two (KL2) are the two state-of-the-art Southern Yellow Pine (SYP) sawmills currently under construction in the USA. Klausner Lumber One (KL1) is located in Suwanee County, Florida near the town of Live Oak and Klausner Lumber Two (KL2) in North Carolina in an area located in Halifax County near the town of Enfield.
The Klausner Group was founded in 1991, when Austrian Fritz Klausner built his mill in former East Germany as a green field investment. The company and sales management office, Klausner Trading International, is headquartered in Oberndorf, Austria, in close vicinity to the Klausner family’s first sawmill founded in 1918 (closed in 1996).
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