July 31, 2023 – AeroCision Parent, LLC and two affiliates debtors (together “Aerocision” or the “Debtors”) filed for Chapter 11 protection (on a prepackaged basis) with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-11032 (Judge Karen B. Owens). The Chester, Connecticut-based Debtors*, "a leading supplier of complex engine components and assemblies for the global aerospace industry," are represented by Andrew L. Magaziner of Young Conaway Stargatt & Taylor, LLP. Further Board authorized appointments include: (i) Riveron Consulting, LLC to provide a CRO, (ii) Jefferies LLC as investment bankers and (iv) Epiq Restructuring as claims agent.
*In April 2018, Charleston, South Carolina -based Liberty Hall Capital Partners (“Liberty Hall”), a private equity firm "focused exclusively on investments in businesses serving the global aerospace and defense industry," acquired the Debtors who were then integrated into Bromford, "a leading supplier of complex, close tolerance engine components, fabrications and assemblies for the global aerospace and power generation industries."
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as: (i) Blackhawk Industrial ($662k trade claim), (ii) Miller Castings Inc ($586k trade claim) and (iii) PCC Structurals Inc ($435k trade claim).
On July 30, 2023, the Debtors commenced a solicitation of acceptances of the Plan from holders of claims that are eligible to vote, ie Class 3 Superpriority Lien Claims, Class 4 First Lien Claims, Class 5 Second Lien Claims, and Class 7 Bridge Loan Claims.
Petition Date Highlights
- Supplier to Global Aerospace Industry Debtor, and part of Liberty Hall Capital Partner's Bromford Group File Prepackaged Chapter 11 with Over $100.0mn of Debt
- Cites Lingering Impact of COVID, Supply Chain Issues, Inflation and Administration of UK Affiliates as Leading to Filing
- Lines up $12.5mn of DIP Financing
- General Unsecured Creditors Unimpaired
The Disclosure Statement provides: "…the Plan provides for a comprehensive restructuring of the Debtors (the 'Restructuring'), including:
Restructuring of Current Debt
- The Debtors will restructure their current debt facilities with three new exit facilities that, in the aggregate, will also provide new funding, in addition to converting the DIP funding described below: (a) the New Super Senior Lien Facility; (b) the New First Lien Facility; and (c) the New Holdco Term Loan Facility to reduce the aggregate debt at the Debtors after confirmation. The New Super Senior Lien Facility, the New First Lien Facility, and the New Holdco Term Loan Facility are more fully described in the Exit Facilities Term Sheet attached to the Plan.
- The Prepetition First Lien Lenders, in their capacity as DIP Lenders (defined below), will provide the Debtors with $12,500,000 in DIP funding. The balance owing under the DIP and the availability of any undrawn portion of it will be converted to a New Super Senior Loan under the New Super Senior Lien Facility on the effective date of the Plan. Immediately upon conversion, the New Super Senior Loans, and related guaranties, shall be secured by an all-asset, first priority lien and pledge on all assets of the Reorganized Debtors, substantially similar to the liens and pledges that were granted to the Prepetition Superpriority Lien Lenders and the Prepetition First Lien Lenders.
- As more fully described in the Exit Facilities Term Sheet, on the Effective Date (a) the Bridge Loan Claim (related to the bridge loan financing provided by LHCP Fund I to the Debtors shortly before the Petition Date) will be converted to a New Super Senior Revolving Loan in the amount of $2,500,000 under the New Super Senior Lien Facility; (b) LHCP Fund I and the other New Equity Sponsors will provide $3,750,000 in additional new loans under the New Super Senior Lien Facility (in addition to the new equity capital described below), $8,750,000 in New Equity Financing Payment, and $1,250,000 in the LH Incremental Equity; (c) the DIP Lenders will provide $2,000,000 in new loans under the New Super Senior Lien Facility (in addition to the rollover of the DIP Loans); and (d) the Prepetition Second Lien Lenders will provide $2,000,000 in new loans under the New Super Senior Lien Facility.
- As more fully described in the Exit Facilities Term Sheet, on the Effective Date, the Superpriority Lien Claims will be converted to New First Lien Term Loans. Approximately $35,583,705.40 in principal, plus pro rata interest, fees, and costs related thereto, of the First Lien Claims will be converted to New First Lien Term Loans and $2,625,000 in Second Lien Claims will be converted, and shall be deemed converted, to a New First Lien Term Loan under the New First Lien Term Facility to bring the aggregate principal balance of the New First Lien Term Loan to not more than $42,625,000.
- As more fully described in the Exit Facilities Term Sheet, on the Effective Date, the remaining principal balance, plus pro rata interest, fees, and costs related thereto, owing on the First Lien Claims will be converted into the New Holdco Term Loan Facility. The New Holdco Term Loan Facility shall be guaranteed by the Reorganized Debtors as more fully described in the Exit Facilities Term Sheet.
- As more fully described in the Exit Facilities Term Sheet, on the Effective Date, 100% of the Second Lien Claims will be extinguished and the Second Lien Lenders will receive the following treatment: (i) $2,625,000 will be converted, and be deemed converted, to the New First Lien Facility; (ii) $6,875,000 will be converted, and be deemed converted, into the New Holdco Term Loan Facility; (iii) four percent (4%) of the New Common Holdco Equity; and (iv) the right to contribute $2,000,000 in principal amount of the New Super Senior Lien Facility. This elimination of the Second Lien Obligations and the conversion of a portion of the Prepetition First Lien Obligations will reduce the debt at the Reorganized Debtors by approximately $27,500,000.
- The New Super Senior Loans and guarantees provided thereunder, the New First Lien Loans and the guarantees provided thereunder, and the guaranties provided pursuant to the New Holdco Term Loans shall, on or immediately prior to the Effective Date, be secured by all-asset, first priority Lien, pledges, and encumbrances on all assets of the Reorganized Debtors, whether then owned or thereafter acquired, substantially similar to those Liens, pledges, and encumbrances that were granted to the Prepetition Superpriority Lien Lenders and the Prepetition First Lien Lenders.
Treatment of Other Claims and Interests
- Allowed General Administrative Expenses will be paid in the ordinary course of business, unless otherwise agreed to by the Holder of such Claim and the Debtors or the Reorganized Debtors, as applicable;
- Priority Non-Tax Claims, Other Secured Claims, and General Unsecured Claims will be unimpaired;
- Intercompany Claims, if any, will be Reinstated with the consent of the New Super Senior Lien Agent, the New First Lien Agent, and the New Holdco Term Loan Agent; and
- All of the current Interests in the Debtors will be cancelled."
The Debtors have commitments for $12.5mn of debtor-in-possession (“DIP”) financing to be provided by Citizens Bank, N.A., Ally Bank, Siemens Financial Services, Inc., Monroe Capital Management LLC, and Channel Funding, LLC. The DIP financing will ultimately be converted to the New Super Senior Term Loans under the New Super Senior Lien Facility.
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides: "Since early 2020, the COVID-19 pandemic has devastated the aerospace industry, including the Debtors and their non-Debtor affiliates in the United Kingdom. Travel restrictions were implemented early in the pandemic and grounded most of the global commercial airline fleet, causing customer demand for parts and services to decrease rapidly. In 2020, over two-thirds of the world’s passenger fleet was grounded during the year due to closed borders and concerns that flying was unsafe.
While facing a dramatic decrease in demand, the Company was also forced to incur dramatically higher costs to manufacture its products due to significant disruptions in the global supply chain and critical labor shortages. Global supply chain disruptions caused by the COVID-19 pandemic resulted in increased lead times to procure raw material, driving longer manufacturing production cycles and inhibiting the Company’s ability to make and sell its products. To overcome these
challenges, the Company incurred additional costs for expedited freight and increased labor costs to turn products quickly, maintain delivery schedules and manage customer requirements.
Global price inflation for the raw materials required to manufacture aerospace parts also caused the Company’s inventory costs to increase substantially and reduced liquidity. Many of the Company’s customer contracts were negotiated at a time with low inflation and, accordingly, included long-term, fixed price terms without inflation protection provisions. Thus, despite the Company’s increased manufacturing costs, it was not able to pass those costs along to customers.
During 2022, the Debtors’ operating United Kingdom affiliates, Bromford Industries Limited (i.e., the U.K. Borrower) and Accrofab Limited (together, the 'U.K. Debtors'), struggled to continue operations due to, inter alia, many of the above issues. In December 2022, the U.K. Debtors approached their two key customers and sought financial support to allow them to continue operations. On or about February 24, 2023, those negotiations formally failed and, on February 27, 2023, the U.K. Debtors filed a notice of intention to appoint administrators.
On March 9, 2023, Ryan Grant and Chris Pole of Interpath Advisory were appointed as joint administrators (the “Administrators”) of the U.K. Debtors. The Administrators obtained the requisite financial support to continue the U.K. Debtors’ operations. As of the date hereof, the Administrators continue to market the U.K. Debtors’ business as a going concern. The Debtors do not anticipate that the U.K. proceedings will affect the Debtors’ operations or the Debtors’ Chapter 11 Cases. Nothing in this Disclosure Statement, the Plan, the Plan Supplement, or the Confirmation Order is intended to affect or impair the existing obligations of the Debtors’ U.K. affiliates (the “U.K. Entities”) to the Prepetition Superpriority Lenders and the Prepetition First Lien Lenders, which obligations and claims are intended to remain
obligations of, and claims against the U.K. Entities.
Additional Circumstances Leading to the Commencement of the Chapter 11 Cases
In 2022 and 2023, the Debtors suffered from the effects of the COVID-19 pandemic, which were compounded by (i) the Debtors’ efforts to address the U.K. Debtors’ liquidity issues prior to the administration proceeding, including both by assisting with the U.K. Debtors’ customer negotiations and by providing over $20,000,000 in funds to the U.K. Debtors since 2020, including cash transfers and the payment of shared corporate expenses, and (ii) changes in inspection protocols imposed by a major customer that prevented Numet from shipping a significant number of its products for approximately a 9 to 12 month period. This reduction in sales resulted in losses of approximately $5,000,000 to $7,000,000. As of the Petition Date, the Debtors have resumed manufacturing and shipping products to this customer, which remains a valuable go-forward customer of the Company."
The chart below sets forth the Debtors’ funded debt obligations as of the Petition Date:
The Disclosure Statement attached the following:
- Exhibit A: Plan
- Exhibit B: Financial Projections
- Exhibit C: Liquidation Analysis
- Exhibit D: Consolidated Financial Statements
- Exhibit E: Restructuring Support Agreement
- Exhibit F: Exit Facilities Term Sheet
About the Debtors
According to the Nolletti Declaration [Docket No. 2]: "Together, Debtors AeroCision and Numet comprise the U.S. Machining division of Bromford’s business and support the sectors described above. AeroCision’s and Numet’s sales are expected to total approximately $63,000,000 for the twelve months ending September 2023, which amounts are primarily derived from their top six customers. Numet and AeroCision’s business operations include engineering, manufacturing, and assembling precision turned and machined components, assemblies, and fabricated structures involving complex geometries and exotic metals. AeroCision Parent is a holding company with no operations."
Nolletti adds as to Bromford Group relationship: "The Debtors are part of an organization known as Bromford Group ('Bromford' or the “Company”), a global manufacturing business in the aerospace, defense, and power generation industry that was founded in the United Kingdom in 1973. Bromford supplies turbine engine and related components to all major OEM’s (i.e., original equipment manufacturers), including many of the industry’s most prominent manufacturers, like General Electric Aviation, Pratt & Whitney, and Rolls Royce, among others. The manufacturers use Bromford’s components to manufacture engines for aircraft and other vehicles….In 2016, Bromford was acquired by a newly-formed company formed on behalf of Liberty Hall Capital Partners Fund I, L.P. (“LHCP Fund I”), a private equity fund located in Charleston, South Carolina."
Corporate History and Organizational Structure
Debtor AeroCision Parent wholly owns AeroCision and Numet and is wholly-owned by non-Debtor Bromford Intermediate Holdings, Ltd. (“Bromford Intermediate”), a Cayman Islands entity. Bromford Intermediate’s ultimate parent is Bromford Holdings, L.P., a Cayman Islands entity, that is controlled by Liberty Hall Capital Partners Fund I GP, LLC (the “LHCP GP”) and is approximately 51% owned by LHCP Fund I, with other investors and certain current and former members of management owning the remaining equity interests.
Each Debtor has historically been managed by its respective managing member, and the overall Bromford enterprise is managed by LHCP GP. However, on July 5, 2023, the limited liability company agreement of AeroCision Parent was amended to provide that AeroCision Parent would be managed by a board of managers consisting of five managers (the “Board”). On July 6, 2023, two independent managers, Jill Frizzley and Eric Salzman, were appointed to the Board and tasked with overseeing the restructuring process.
Structure Chart (see Docket No. 2, poor image quality in original)
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