Inside the Arch Bankruptcy: Chapter 11 Filing
and Decision to Pursue Asset Sale Followed Months of Negotiations
with Lenders, According to Court Documents
December 2, 2009
by Penny Stacey
Arch Aluminum and Glass Co. filed for reorganization under Chapter
11 just last week-but the company's financial difficulties began
as early as 2008, according to documents filed in the case. In the
company's "Chapter 11 Case Management Summary," Arch notes
that in late 2008, it began "to experience liquidity issues
as a result of the unprecedented and depressed economic conditions
throughout the country, particularly in the retail and commercial
building materials industries." Arch's petition for reorganization
under Chapter 11 was filed on Sunday, November 29, in the U.S. Bankruptcy
Court for the Southern District of Florida. (CLICK
HERE for related story.)
In May 2009, Arch notified one of its secure creditors, Churchill
Financial, that it would fail to make a scheduled interest payment
due on May 29-in the amount of $190,305.56-and that it would fail
to make a second scheduled interest payment to the same lender for
$184,166.67, due June 30, according to a declaration filed by Arch's
chief restructuring officer, Vincent Colistra. As a result of the
defaulted payments, Arch entered into a "Forebearance Agreement"
with Churchill Financial, dated May 29, under which Churchill agreed
to defer the late payments.
Around the same time, in June 2009, Arch management found that
it was defaulting on various terms of a credit facility provided
by its Senior Secured Revolving Credit Facility, which is led by
PNC Bank and includes several lenders, including Comerica Bank,
RBS Business Capital, Wachovia Bank, Bank of America, Fifth Third
Bank and Sovereign Bank. The credit provided by the lenders included
a $75 million senior secured revolving credit line; a $50 million
senior secured term loan; a $10 million senior secured capital expenditure
loan and a $13.6 million senior secured term loan, for a total credit
availability of $148.6 million. The conditions of default arose
from "the borrowers' failure to comply" with various provisions
of the loans, according to Colistra's declaration.
Based on this, Arch management entered into a forbearance agreement
with PNC (and the other banks included in the original loan), which
required the company to meet several provisions, as follows:
- To provide a restructuring term sheet to the lenders on or before
- To cooperate with a consultant "engaged by the Secured
Lenders" to review the cash flow projections and financial
models to be provided to the lenders; and
- To enter into a second forbearance agreement with Churchill
This agreement was set to expire on August 15 and, on July 31,
as required by the agreement, Arch provided its restructuring term
sheet to the lenders, according to court documents.
Along with these steps, Colistra says Arch "undertook significant
cost-cutting initiatives in an effort to improve its cash-position
and maximize its ability to satisfy the requirements of the forbearance
agreements and cure the Events of Default."
The initiatives included termination and wage cuts for a number
of employees, renegotiation of certain property and vehicle leases
and reductions in corporate selling, general and administrative
Once August 15 came, and the first forbearance agreement with the
senior secured lenders expired, Arch entered into a second agreement
with them, according to Colistra. This agreement required that the
company retain the services of an independent restructuring officer
"to direct the company in improving [its] operations and financial
performance." At this point, Colistra began working with Arch
and "engaged in an extensive review of the company's business
At the same time, Arch retained an investment banking firm, Piper
Jaffray & Co. (PJC) to explore a potential "de-leveraging
In October, as the deadline for the expiration of the second forbearance
agreement with the senior secured lenders approached, Colistra says
he recommended that "a further forbearance agreement be entered
into that would allow the company to continue operating while PJC
endeavored to locate an investor that could provide a permanent
solution to the company's financial distress."
As PJC continued to solicit interest from potential investors and
purchasers, two more agreements were made with the senior lenders,
the second of which was set to expire on November 20. The final
agreement required that Arch provide to the lenders at least three
firm offers to purchase substantially all of its assets, according
to Colistra, and the company presented these on November 16. At
this time, Arch management "had discussions with the senior
lenders regarding the need for additional time to clarify and quantify
the submitted offers on an 'apples-to-apples' basis."
"No Longer Able to Operate"
To provide Arch time to review the purchase offers further, at this
time the senior lenders agree to provide a fifth forbearance agreement,
with an expiration date of December 4; however, Arch's "revised
projected cash flow indicated that [it] would no longer be able
to operate until December 4, 2009, under the Senior Lenders' asset-based
formula," Colistra writes.
"Based on such cash flows, on November 19, 2009, I, in conjunction
and after consultation with the company's management, recommended
to the Board of Directors, and the Board of Directors authorized,
that each of the debtors [Arch and its subsidiaries] file petitions
under Chapter 11 of the Bankruptcy Code in order to facilitate the
sale of substantially all [their] assets to the stalking horse bidder,
subject to higher and better offers
" continues Colistra.
Though Arch has since announced that the stalking horse bidder
is an affiliate of a private equity firm based in Boulder, Colo.,
Grey Mountain Partners LLC, the company initially received 16 indications
of interest, and had received five final bids as of November 17.
The affiliate created by Grey Mountain Partners for the purchase
has been named Arch Glass Acquisition Corp.
Arch filed a motion earlier today to complete the sale of its assets
to the firm, "or the highest and best bidder, if applicable,
at an auction." If the sale is completed to Arch Glass Acquisition,
the company projects the value "to be generated from such sale
to and in favor of [its] estates is approximately $62 million."
Maintaining the Day-to-Day Operations
A hearing was scheduled for 1:30 p.m. today in Florida to review
several of the company's initial November 29 motions in the case,
most of which were made in an effort to "enable [the company]
to operate in Chapter 11 with a minimum of disruption and loss of
Among the motions under review today was one to for authorization
to use cash collateral on an interim basis, which Colistra says
provides Arch with the ability to "preserve the going concern
value of the business with the use of Cash Collateral," along
with providing the lenders protection as well.
The company also is seeking authorization of the payment of pre-petition
wages, salaries, commissions and employee benefits, along with the
approval to "continue the maintenance of employee practices
and benefit plans and programs in the ordinary course and directing
all banks to honor pre-petition checks for payment of pre-petition
employee obligations." The company's aggregate bi-weekly gross
payroll is approximately $3 million, including taxes and benefits,
according to court documents.
Arch also is motioning for the assurance of orders allowing it
to pay for future utility services, noting that bankruptcy code
permits utility providers to terminate its services 30 days after
a bankruptcy filing.
"Uninterrupted utility services are essential to ongoing operations
and, therefore, to the success of these Chapter 11 cases,"
writes Colistra in support of the motion. "Should the Utility
Providers refuse or discontinue service, even for a brief period,
the debtors' business operations would be severely disrupted."
The company also seeks authorization to continue to maintain its
corporate bank accounts and cash management systems, to provide
status updates to vendors with pre-petition claims and authorization
"to pay such expenses in the ordinary course of business."
The court documents note that Arch generated revenue of $361 million
in 2008, with an EBITDA of more than $21 million. Year-to-date income
for 2008 is currently at $189 million, according to the company's
consolidated case management study.
At press time, no orders had been published addressing these motions.
Arch is represented by Genovese Joblove & Battista P.A. in
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