Arandell Holdings, Inc.
CASE SUMMARY: Facing Operational Challenges, Commercial Printing Company Arandell Shutters Kentucky Operations Prepetition
Fri 08/14/2020 12:34 PM
Relevant Documents:
Voluntary Petition
Hoffman First Day Declaration
Keane First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
The company pins the bankruptcy filing on a series of challenges in operating its Kentucky facility, which it acquired approximately 20 years ago after it was abandoned and “neglected” by prior owners and idled for about six months, including start-up issues related to equipment failures, condensed timetables for production,“competition for unskilled labor in the area,” and adverse effects of an “unprecedented ice storm in November 2018.” After receiving notice from its senior lenders that certain collateral located in Arandell’s Kentucky facility “would no longer be considered as part of the Companies’ borrowing base,” the debtors’ management determined to shutter the Kentucky operations in July. Restrictions on working capital support from the senior lenders forced the debtors to rely on extensions of payment terms from existing suppliers and locate additional suppliers willing to provide extended credit limits to backstop the working capital.
While the debtors say that recent trends “for the balance of 2020 and outlook for 2021 are much brighter for the Companies,” they lack the unencumbered funds to meet "certain imminent expenses necessary both to preserve value and to facilitate a smooth transition in and out of these Chapter 11 Cases.” Consequently, the debtors are requesting approval of DIP financing (a) of a $7.5 million revolving facility on an interim basis, plus a term loan of $4.6 million on a final basis from prepetition revolving and term lenders and (b) a factoring facility up to $24 million from LSQ Funding Group L.C. The debtors also propose a full roll-up of the obligations under the debtors’ prepetition secured facility.
The first day hearing has been scheduled for today, Aug. 14 at 1 p.m. ET.
The company’s prepetition capital structure includes:
The debtors also note that Farragut Mezzanine Partners III, LP, Spell Capital Mezzanine Partners SBIC, LP and Accord CapX, LLC each “appears” to hold junior liens to the prepetition agent, subject to intercreditor agreement. CapX also provided junior secured equipment lease financing, and pursuant to an intercreditor agreement, has certain rights to priority over senior secured creditors on an intercreditor basis on certain specified equipment liens.
“Complicating the financial challenges faced by the Companies pre-petition, additional business challenges enhanced the Companies’ need to seek bankruptcy relief,” including (i) falling prices for scrap paper, which resulted in an unanticipated loss of $1.4 million in 2019; (ii) bankruptcies of customers delinquent accounts, causing $1.25 million of uncollected receivables; (iii) thinning margins for paper after the debtors were forced to redirect paper transactions to third-party suppliers due Arandell’s reduced working capital; (iv) increased prices for paper and postal rates; and (v) failure to materialize on “many promising” sales opportunities at the end of 2019 due to “numerous and varying reasons.”
The debtors are represented by Steinhilber Swanson and Young Conaway Stargatt & Taylor as counsel, Promontory Point Capital as investment banker and von Briesen & Roper as corporate counsel. BMC is the claims agent. The case has been assigned to Judge John T. Dorsey (case no. 20-11941).
Background
According to the company, Arandell ranks as the third largest printer of catalogs in the United States and has “a strong reputation for production quality and service excellence, driven by a staff of over 600 highly skilled and trained professionals at the end of 2019.” As of the petition date, the debtors’ workforce has been slimmed to 500 employees. The company’s largest customers are “major” blue chip retailers and “recognized brands” using direct mail catalogs to promote both in-store and e-commerce sales. Arandell’s services include the production and delivery of higher-end catalogs and other promotional products, along with related data analytics services for marketing purposes.
The company’s primary production facility in Wisconsin includes a state-of-the-art pre-press department, one of the industry’s most efficient heat-set web pressrooms and a bindery that includes saddle stitching, perfect binding and co-mailing capabilities.
Arandell Corp. has 380 production employees covered under one of two collective bargaining agreements and the Arandell Kentucky employees are not unionized. Approximately 110 workers elected to “opt out” of the relevant CBA’s under Wisconsin’s Right to Work statute. The CBAs were last renegotiated in 2019 and will expire by their own terms in March 2022.
Arandell Holdings formed in 2018 and is the successor to R&L Lithography, Inc., which was founded in Wisconsin in 1922. Arandell Corp. was formed in October 1988, and Arandell Kentucky was formed in 2017. Arandell Corp. is, along with its previous iteration, “a nearly 100-year-old” commercial printing company based out of Menomonee Falls, Wis. The debtors’ Walton, Ky., facility was built by Continental Web Press approximately 20 years ago and was sold by Continental to Trend Offset, a California printing company, that ceased operations in 2017. Arandell Kentucky acquired the assets of the Kentucky facility in March 2018.
Arandell Corp. owns 100% of the shares in a non-operating subsidiary company, Falls Express Transit, LLC, which in turn owns 100% of the stock in another non-operating company, Logistics for Print, LLC.
The debtors’ largest unsecured creditors are listed below:
DIP Financing Motion
The debtors request approval of DIP financing consisting of: (a) an ABL DIP facility from prepetition revolving and term lenders with CIBC Bank USA, formerly known as The PrivateBank and Trust Company as agent, in the amount of $7.5 million in the form of revolver funding on an interim basis, plus on a final basis, a term loan in the amount of $4.6 million, and (b) a factoring facility of up to $24 million from LSQ Funding Group L.C. The debtors propose a roll-up of the obligations under the debtors’ secured prepetition facility through the application of postpetition collections and proceeds of the factoring facility and, upon entry of the final order, postpetition debt to repay all of the prepetition obligations under the prepetition facility until paid in full and, thereafter, to repay all of the postpetition ABL obligations.
The DIP financing bears interest at the “Base Rate” plus 3.75% for the revolving loans and the “Base Rate” plus 4.25% for the term loan, with 2% added for the default rate, and matures on Nov. 16 or other upon the occurrence of customary events. The DIP financing is also subject to a 0.5% unused revolver fee, reimbursement of fees relating to appraisals and field examinations, a servicing fee under the prepetition facility plus an additional fee to be set forth in a fee letter.
The DIP facility is secured by a first lien on the debtors’ property, with consensual liens priming the liens securing the prepetition facility, and would also have superpriority administrative expense status. The factor would have a superpriority administrative expense claim and first priority, priming liens on the “Factor Priority Collateral” and liens in all other “Postpetition Factor Collateral (other than the Factor Priority Collateral)” that are junior to the liens of the ABL lenders and CapX in the Postpetition Factor Collateral.
The motion explains that the ABL facility with “work in tandem” with the factoring facility, so that during the interim period, the debtors’ “net new borrowing under the ABL Facility is expected to be no greater than $800,000 (and is essential to maintaining the Debtors’ business),” because approximately $6.7 million of the $7.5 million availability is currently drawn and being made available postpetition, and as a revolver, it will provide increased financing availability and liquidity as the proceeds of collections by the factor reduce the outstanding prepetition amounts (and postpetition amounts) under the ABL facility. “Without the liquidity represented by the difference between the amounts already borrowed under the revolver and the additional availability proposed under the ABL Facility (up to $7.5 million), the Debtors will be unable to meet their obligations and maintain their businesses in these chapter 11 cases,” the motion adds.
Prepetition agent CIBC has agreed to the consensual use of cash collateral. Adequate protection for the prepetition lenders would be in the form of payment of default interest, replacement liens, superpriority administrative expense claims and principal payments to the prepetition term lenders. The debtors assert that the mezzanine lenders are not entitled to adequate protection. In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The debtors’ August through December cash flow forecast is HERE.
The lien investigation deadline is the earlier of 75 days from the petition date, 60 days after formation of an official committee of unsecured creditors or, unless the prepetition agent or DIP agent has credit bid for all or substantially all of the debtors’ assets, then entry of a sale order.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
Hoffman First Day Declaration
Keane First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
| Summary |
| Arandell is a commercial printing company for catalog customers |
| Shuttered Kentucky facility prepetition |
| Requests DIP financing in the form of a $7.5 million revolving facility plus a $4.6 million term loan from existing lenders and factoring facility from LSQ Funding Group |
Menomonee Falls, Wis.-based Arandell Holdings, Inc. a “nearly 100-year-old” commercial printing company serving the production needs of catalog customers nationwide, filed for chapter 11 protection on Thursday in the Bankruptcy Court for the District of Delaware.
Menomonee Falls, Wis.-based Arandell Holdings, Inc. a “nearly 100-year-old” commercial printing company serving the production needs of catalog customers nationwide, filed for chapter 11 protection on Thursday in the Bankruptcy Court for the District of Delaware.
The company pins the bankruptcy filing on a series of challenges in operating its Kentucky facility, which it acquired approximately 20 years ago after it was abandoned and “neglected” by prior owners and idled for about six months, including start-up issues related to equipment failures, condensed timetables for production,“competition for unskilled labor in the area,” and adverse effects of an “unprecedented ice storm in November 2018.” After receiving notice from its senior lenders that certain collateral located in Arandell’s Kentucky facility “would no longer be considered as part of the Companies’ borrowing base,” the debtors’ management determined to shutter the Kentucky operations in July. Restrictions on working capital support from the senior lenders forced the debtors to rely on extensions of payment terms from existing suppliers and locate additional suppliers willing to provide extended credit limits to backstop the working capital.
While the debtors say that recent trends “for the balance of 2020 and outlook for 2021 are much brighter for the Companies,” they lack the unencumbered funds to meet "certain imminent expenses necessary both to preserve value and to facilitate a smooth transition in and out of these Chapter 11 Cases.” Consequently, the debtors are requesting approval of DIP financing (a) of a $7.5 million revolving facility on an interim basis, plus a term loan of $4.6 million on a final basis from prepetition revolving and term lenders and (b) a factoring facility up to $24 million from LSQ Funding Group L.C. The debtors also propose a full roll-up of the obligations under the debtors’ prepetition secured facility.
The first day hearing has been scheduled for today, Aug. 14 at 1 p.m. ET.
The company’s prepetition capital structure includes:
- Secured debt:
- Prepetition credit facility (revolving and term loans) (CIBC Bank USA as agent): $11.3 million
- Equity: Bradley Hoffman, president, CEO and sole director of Arandell Holdings, owns 100% of class A voting shares and 69% of class B non-voting shares, representing 73% of the total equity in Arandell Holdings. The remaining stock in Arandell Holdings consists of class B shares owned by key employees. Arandell Holdings owns 100% of the equity in debtors Arandell Corporation and Arandell Kentucky. “As the Companies appeared to be headed toward an insolvency proceeding, all of the then-serving ‘outside’ Board members resigned,” with Hoffman as the only remaining director.
The debtors also note that Farragut Mezzanine Partners III, LP, Spell Capital Mezzanine Partners SBIC, LP and Accord CapX, LLC each “appears” to hold junior liens to the prepetition agent, subject to intercreditor agreement. CapX also provided junior secured equipment lease financing, and pursuant to an intercreditor agreement, has certain rights to priority over senior secured creditors on an intercreditor basis on certain specified equipment liens.
“Complicating the financial challenges faced by the Companies pre-petition, additional business challenges enhanced the Companies’ need to seek bankruptcy relief,” including (i) falling prices for scrap paper, which resulted in an unanticipated loss of $1.4 million in 2019; (ii) bankruptcies of customers delinquent accounts, causing $1.25 million of uncollected receivables; (iii) thinning margins for paper after the debtors were forced to redirect paper transactions to third-party suppliers due Arandell’s reduced working capital; (iv) increased prices for paper and postal rates; and (v) failure to materialize on “many promising” sales opportunities at the end of 2019 due to “numerous and varying reasons.”
The debtors are represented by Steinhilber Swanson and Young Conaway Stargatt & Taylor as counsel, Promontory Point Capital as investment banker and von Briesen & Roper as corporate counsel. BMC is the claims agent. The case has been assigned to Judge John T. Dorsey (case no. 20-11941).
Background
According to the company, Arandell ranks as the third largest printer of catalogs in the United States and has “a strong reputation for production quality and service excellence, driven by a staff of over 600 highly skilled and trained professionals at the end of 2019.” As of the petition date, the debtors’ workforce has been slimmed to 500 employees. The company’s largest customers are “major” blue chip retailers and “recognized brands” using direct mail catalogs to promote both in-store and e-commerce sales. Arandell’s services include the production and delivery of higher-end catalogs and other promotional products, along with related data analytics services for marketing purposes.
The company’s primary production facility in Wisconsin includes a state-of-the-art pre-press department, one of the industry’s most efficient heat-set web pressrooms and a bindery that includes saddle stitching, perfect binding and co-mailing capabilities.
Arandell Corp. has 380 production employees covered under one of two collective bargaining agreements and the Arandell Kentucky employees are not unionized. Approximately 110 workers elected to “opt out” of the relevant CBA’s under Wisconsin’s Right to Work statute. The CBAs were last renegotiated in 2019 and will expire by their own terms in March 2022.
Arandell Holdings formed in 2018 and is the successor to R&L Lithography, Inc., which was founded in Wisconsin in 1922. Arandell Corp. was formed in October 1988, and Arandell Kentucky was formed in 2017. Arandell Corp. is, along with its previous iteration, “a nearly 100-year-old” commercial printing company based out of Menomonee Falls, Wis. The debtors’ Walton, Ky., facility was built by Continental Web Press approximately 20 years ago and was sold by Continental to Trend Offset, a California printing company, that ceased operations in 2017. Arandell Kentucky acquired the assets of the Kentucky facility in March 2018.
Arandell Corp. owns 100% of the shares in a non-operating subsidiary company, Falls Express Transit, LLC, which in turn owns 100% of the stock in another non-operating company, Logistics for Print, LLC.
The debtors’ largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Claim Amount |
|---|---|---|---|
| Graphic Arts Industry JT Pension Plan | Washington | Union
Pension Withdrawal Liability |
$ 98,600,246 |
| Graphic Communication Conference | Carol Stream Ill. | Union
Pension Withdrawal Liability |
76,221,844 |
| U.S. Small Business Administration | Milwaukee | PPP Loan | 7,765,500 |
| Horizon Paper Co. Inc. | Carol Stream, Ill. | Accounts
Payable |
5,198,515 |
| Trend Offset Printing Services | Los Alamitos, Calif. | Guaranty | 1,950,730 |
| Hubergroup Inc. | Palatine, Ill. | Accounts
Payable |
607,571 |
| Progressive Converting | Palatine, Ill. | Accounts
Payable |
605,324 |
| Burton & Mayer, Inc. | Appleton, Wis. | Accounts
Payable |
570,934 |
| LSC Communications | Cleveland | Accounts
Payable |
403,332 |
| Midland Paper Company | Chicago | Accounts
Payable |
325,635 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | James D. Sweet | Steinhilber
Swanson |
Madison, Wis. |
| Michael P. Richman | |||
| Virginia E. George | |||
| Elizabeth L. Eddy | |||
| Debtors' Co-Counsel | Michael R. Nestor | Young Conaway
Stargatt & Taylor |
Wilmington, Del. |
| Andrew L. Magaziner | |||
| Matthew P. Milana | |||
| Debtors' Corporate
Counsel |
N/A | von Briesen
& Roper |
N/A |
| Debtors' Investment
Banker |
N/A | Promontory
Point Capital |
N/A |
| Co-Counsel to
CIBC Bank |
Dimitri G. Karcazes | Goldberg Kohn | Chicago |
| Zachary J. Garrett | |||
| Eva D. Gadzheva | |||
| Co-Counsel to
CIBC Bank |
Jeremy W. Ryan | Potter
Anderson & Corroon |
Wilmington, Del. |
| Aaron H. Stulman | |||
| D. Ryan Slaugh | |||
| Co-Counsel to LSQ
Funding Group |
Steven N. Kurtz | Levinson
Arshonsky & Kurtz |
Sherman Oaks, Calif. |
| Lori E. Eropkin | |||
| Co-Counsel to LSQ
Funding Group |
Deirdre M. Richards | Fineman
Krekstein & Harris |
Wilmington, Del. |
| Debtors' Claims
Agent |
Tinamarie Feil | BMC Group | Seattle |
DIP Financing Motion
The debtors request approval of DIP financing consisting of: (a) an ABL DIP facility from prepetition revolving and term lenders with CIBC Bank USA, formerly known as The PrivateBank and Trust Company as agent, in the amount of $7.5 million in the form of revolver funding on an interim basis, plus on a final basis, a term loan in the amount of $4.6 million, and (b) a factoring facility of up to $24 million from LSQ Funding Group L.C. The debtors propose a roll-up of the obligations under the debtors’ secured prepetition facility through the application of postpetition collections and proceeds of the factoring facility and, upon entry of the final order, postpetition debt to repay all of the prepetition obligations under the prepetition facility until paid in full and, thereafter, to repay all of the postpetition ABL obligations.
The DIP financing bears interest at the “Base Rate” plus 3.75% for the revolving loans and the “Base Rate” plus 4.25% for the term loan, with 2% added for the default rate, and matures on Nov. 16 or other upon the occurrence of customary events. The DIP financing is also subject to a 0.5% unused revolver fee, reimbursement of fees relating to appraisals and field examinations, a servicing fee under the prepetition facility plus an additional fee to be set forth in a fee letter.
The DIP facility is secured by a first lien on the debtors’ property, with consensual liens priming the liens securing the prepetition facility, and would also have superpriority administrative expense status. The factor would have a superpriority administrative expense claim and first priority, priming liens on the “Factor Priority Collateral” and liens in all other “Postpetition Factor Collateral (other than the Factor Priority Collateral)” that are junior to the liens of the ABL lenders and CapX in the Postpetition Factor Collateral.
The motion explains that the ABL facility with “work in tandem” with the factoring facility, so that during the interim period, the debtors’ “net new borrowing under the ABL Facility is expected to be no greater than $800,000 (and is essential to maintaining the Debtors’ business),” because approximately $6.7 million of the $7.5 million availability is currently drawn and being made available postpetition, and as a revolver, it will provide increased financing availability and liquidity as the proceeds of collections by the factor reduce the outstanding prepetition amounts (and postpetition amounts) under the ABL facility. “Without the liquidity represented by the difference between the amounts already borrowed under the revolver and the additional availability proposed under the ABL Facility (up to $7.5 million), the Debtors will be unable to meet their obligations and maintain their businesses in these chapter 11 cases,” the motion adds.
Prepetition agent CIBC has agreed to the consensual use of cash collateral. Adequate protection for the prepetition lenders would be in the form of payment of default interest, replacement liens, superpriority administrative expense claims and principal payments to the prepetition term lenders. The debtors assert that the mezzanine lenders are not entitled to adequate protection. In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The debtors’ August through December cash flow forecast is HERE.
The lien investigation deadline is the earlier of 75 days from the petition date, 60 days after formation of an official committee of unsecured creditors or, unless the prepetition agent or DIP agent has credit bid for all or substantially all of the debtors’ assets, then entry of a sale order.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case no. 20-11941.
- Motion to pay claims for goods ordered prepetition and delivered postpetition and claims of shippers
- The debtors have approximately $5.1 million in outstanding orders that will come due within the first 30 days of these cases. The debtors also estimate outstanding prepetition shipper invoices of approximately $225,000
- Motion to pay employee wages and benefits
- The debtors seek to pay the following amounts:
- Motion to use cash management system
- The company has bank accounts with CIBC Bank USA and PNC Bank.
- Motion to maintain insurance programs
- Motion to provide utilities with adequate assurance
- Application to appoint BMC as claims agent
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