The family-owned company’s management team had mismanaged the operations, which created significant liquidity issues and drove high legal expenses. The company filed for Chapter 11 bankruptcy due to a revaluation of its inventory that resulted in an over-advance on the line of credit, along with pending litigation against its former manager for fraud and mismanagement. During its bankruptcy, the company faced many significant challenges, including functioning through a series of contested short-term cash-collateral orders, battling for continued exclusivity and emerging from Chapter 11 despite the company’s financial profile. Additionally, company management strongly desired to provide a meaningful recovery for unsecured creditors due to the company’s continued use of those creditors’ goods and services to meet ongoing supply-chain requirements, which if unmet would have severely limited its exit-financing alternatives.
CR3 implemented a cost reduction strategy by closing two distribution centers and exiting a nonstrategic line of business. Successfully operating in Chapter 11 with only the use of cash collateral, CR3 professionals worked to solicit exit financing proposals (debt and equity), while crafting a Plan of Reorganization (“POR”) and negotiating with the company’s secured lenders and creditors. Ultimately, almost one year later, the Plan of Reorganization was confirmed on September 27, 2017, and the transaction closed on September 29, 2017.
Existing management and a foreign strategic partner invested equity, along with new beneficial commercial arrangements, and new bank debt were creatively structured to exit Chapter 11. The CR3 team managed to overcome a number of obstacles, including trailing financial performance, lack of trade-credit during Chapter 11 and reduced available inventory levels.