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Law360 (June 4, 2020, 5:38 PM EDT ) Car and truck part maker APC Automotive Technologies received court approval Thursday to access $30 million in bankruptcy financing being provided by its existing lenders as it pursues a prepackaged Chapter 11 plan to slash nearly $300 million of debt.
During a first-day hearing conducted by phone and video conference, debtor attorney Jonathan S. Henes of Kirkland & Ellis LLP said the company was facing severe liquidity constraints in the beginning of 2020 and was pushed off the insolvency cliff by the global outbreak of COVID-19.
The debtor-in-possession funding, which comes in the form of a $90 million asset-based loan that will roll up to satisfy prepetition ABL debt and a $50 million new money term loan, will be used to finance APC's operational needs during the bankruptcy case, and will also convert into post-bankruptcy loans to provide the capital needed once the debtor emerges from Chapter 11, Henes said.
"With this prepackaged plan, we do have what the company needs to really grow," Henes told the court. "We will be reducing our debt significantly and have new liquidity coming in. This is what the company needs right now."
U.S. Bankruptcy Judge Christopher S. Sontchi granted interim approval of the DIP package, which allows for the roll-up of the $90 million in ABL debt and access to $30 million of the new money term loan, overruling an objection from the Office of the United States trustee to the roll-up on the first day of the case.
Trustee representative Rosa Sierra said the first-day roll-up of such a significant amount of prepetition debt was not needed to avoid any immediate harm to the debtor.
Judge Sontchi said the lender agreed to certain protections for the debtor in the DIP documents, including preserving the ability to clawback the roll-up portion of the financing if needed. He also said there is no concern from the court that the lenders are trying to materially improve their collateral position within the debtor's debt structure.
APC, which makes brake, chassis, emission and exhaust parts for cars and trucks, filed for bankruptcy protection Wednesday after several months of liquidity problems were worsened by the coronavirus outbreak.
In late 2019, the debtor completed an out-of-court restructuring that converted $125 million of second-lien debt into preferred equity in the company and obtained $50 million in new cash contributions from some of the term loan lenders holding $315 million of debt and from its equity sponsors, according to court filings.
Under the terms of its prepackaged plan, about $290 million of term loan debt will be converted into the equity in a reorganized APC. The plan has the support of 80% of its term loan lenders and all of its ABL lenders.
APC is represented by Domenic E. Pacitti, Michael W. Yurkewicz and Morton R. Branzburg of Klehr Harrison Harvey Branzburg LLP and Jonathan S. Henes of Kirkland & Ellis LLP.
The Office of the U.S. trustee is represented by Rosa Sierra and Hannah McCollum.
The case is In re: APC Automotive Technologies Intermediate Holdings LLC et al., case number 20-11466, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Haylee Pearl.
For a reprint of this article, please contact reprints@law360.com.
