Jason Industries
CASE SUMMARY: Jason Industries Prepackaged Plan to Delever Balance Sheet by $250M; No Consensus With Second Lien Ad Hoc Group
Thu 06/25/2020 13:00 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
Plan of Reorganization
Disclosure Statement
First Day Hearing Agenda
Press Release
Jason Industries, Inc., a Milwaukee-based global industrial manufacturing company operating in the industrial and engineered components segments, filed for chapter 11 protection in the Bankruptcy Court for the Southern District of New York on Wednesday, after entry into a restructuring support agreement dated June 5 with respect to a prepackaged plan of reorganization. As previously reported, the RSA would provide for, among other things, a consensual use of cash collateral, first lien lenders receiving take-back paper and 100% of reorganized equity, subject to dilution, and a 10% carve-out distributable to second lien claims should they vote to accept the plan. In a press release issued Wednesday, the company says that the RSA is with holders of approximately 87% of its first lien debt.
The debtors and the consenting first lien lenders have not been able to reach consensus with the second lien ad hoc group, but the company says that it “intends to continue to engage with its stakeholders, including the Second Lien Ad Hoc Group, in advance of the Confirmation Hearing to attempt to reach consensus” (emphasis added).
The first day hearing is set for today, Thursday, June 25, at 3 p.m. ET. The docket is available on Reorg HERE.
The debtors began solicitation on the plan on June 24 and request a combined plan and disclosure statement hearing on Aug. 3. The debtors say that the consenting first lien credit agreement lenders, together with the crossover holdings of the second lien ad hoc group, “account for nearly 100% of the First Lien Credit Agreement Claims (99.2 percent).” Signatories to the RSA include: Credit Suisse Asset Management, American Money Management Corp., First Eagle Alternative Credit SLS, AIC Financing Partnership, AIC COP Investments, Deutsche Bank AG New York Branch, Pelican Loan Advisors III and Aegon USA Investment Management.
The debtors propose a plan sale of 100% of the assets of Jason Industries, Inc. to a newly formed holding company designated by the first lien ad hoc group with a purchase funded by a credit bid by holders of first lien secured credit agreement claims. First lien credit agreement claims would receive (a) the new first lien term loan facility, (b) new junior lien convertible term loan facility, (c) 100% of the new equity, subject to dilution, (d) if applicable, the first lien put option and (e) warrants (which would be distributed to class 5 second lien credit agreement claims if class 5 accepts the plan).
The company would also effectuate certain prenegotiated open-market purchases of the term loans of each consenting first lien credit agreement lender of the first lien credit agreement. In consideration for the forbearances under the RSA, the consenting first lien lenders are entitled to a forbearance fee of 4%, of which 2% has been paid, and the remaining 2% would be paid on the earlier of the termination date and the plan effective date. On June 23, the company consummated the open market purchases by purchasing $10 million of the first lien credit agreement claims from the consenting first lien credit agreement lenders on a pro rata basis.
First lien deficiency claims would receive no distribution. If holders of second lien credit agreement claims vote to accept the plan, then they would receive as a carve-out from the collateral securing the first lien claims, 10% of the new equity, subject to dilution, and warrants, otherwise they would receive no distribution. General unsecured claims would be unimpaired and ride through.
The first lien ad hoc group also consents to the use of cash collateral to fund the chapter 11 cases. Additionally, the plan contemplates that on the plan’s effective date the new holdco entity would enter into a third-party asset-based exit financing that would provide at least $20 million for revolving borrowing, after permitting for any amounts on account of outstanding letters of credit on the closing date, and would have aggregate total commitments in an amount not less than $30 million.
The DS provides the following with respect to the prepetition and postpetition capital structure:
CEO Brian Kobylinski is quoted in the press release as saying that the company has “aggressively taken steps to simplify Jason and improve the performance and financial strength of our company over the past three years,” adding that, while these actions have generated “positive momentum, we were not able to realize the full benefits of our plans due to market cyclicality and disruptions brought on by the COVID-19 global pandemic.”
The company reports $204.9 million in assets and $428.4 million in liabilities, including $368.5 million of funded debt, as follows:
The company’s prepetition capital structure includes:
In addition, certain non-debtor subsidiaries are obligors with respect to approximately $16 million of funded foreign debt as of March 27, which obligations will be unimpaired by these chapter 11 cases.
Jason’s common stock is traded on the OTCQX Best Market. The equity was formerly listed on Nasdaq under the ticker “JASN” but trading was suspended as of Jan. 14, 2020. Holders of 5% or more of Jason Industries’ equity follow:
The company has approximately $15.2 million in cash on hand as of the petition date. According to the first day declaration, the “Company believes there may be approximately $11.7 million of unencumbered value, but that unencumbered value will be fully consumed by the administrative costs of these chapter 11 cases” (emphasis added).
As for the basis of the chapter 11 filing, the debtors say that their cost structure has been “plagued” by high operating leverage and burdensome fixed costs, including funded debt interest payments. Lower demand in the engineered components segment from OEM customers has also hindered cash flow in recent years, along with weakening welding, metal fabrication and automotive end markets, marked by slowing orders and lower consumption levels. The debtors also cite “weakness in global industrial markets,” noting that the Company’s core verticals have also constrained cash flow. These factors have only been exacerbated by the Covid-19 pandemic’s impact on demand.
In response to the foregoing, the company paused all hiring, reduced spending and extended payment terms with suppliers. The debtors then enacted furlough programs that impacted “nearly all of the Company’s U.S. employees,” and eliminated certain benefits programs. On April 1, the debtors implemented a three-month pay reduction, with 25% reductions for executives and 10% reductions for all other salaried employees. In addition, the debtors deferred rent payments or negotiated reduced rent agreements at the majority of its leased properties. “Despite these cost-reduction initiatives, cash flow forecasts present no reasonable path to repay or refinance existing funded debt obligations and other fixed costs while sufficiently funding operations,” the debtors say.
Prepetition restructuring efforts included engagement with a first lien ad hoc group and a second lien ad hoc group after an unfruitful marketing process. The company ultimately did not make a March 31 interest payment on the second lien term loans due March 31, 2020, and entered into a forbearance agreement with the first lien ad hoc group. After months of discussions prepetition, in April 2020, Corre, Newport and Angelo Gordon executed nondisclosure agreements and the second lien group retained Paul Weiss and DC Advisory. Subsequently, on June 3, the second lien ad hoc group declined to extend their non-disclosure agreements and on June 5, required that the company cleanse the non-public information provided during negotiations, and then replaced its legal advisor on June 14, retaining Brown Rudnick.
The debtors are represented by Kirkland & Ellis in New York as counsel and are also working with AlixPartners as restructuring advisor and Moelis as financial advisor and investment banker. Epiq is the claims agent. Houlihan Lokey is financial and restructuring advisor and Weil, Gotshal & Manges is legal counsel to an ad hoc group of first lien creditors, according to the debtors’ press release. The case has been assigned to Judge Robert D. Drain (case number 20-22766).
Background
Jason Industries’ origins date back to the industrial revolution, with the modern segment of the company beginning in 1985. At that time, two executives, Vince Martin and Mark Train, purchased three companies from their employer, Canadian manufacturing company AMCA International: (a) Osborn Manufacturing, the largest manufacturer of industrial brushes in the United States, (b) Janesville Products, the largest manufacturer of automotive acoustical fiber insulation in the United States, and (c) Jackson Buff, the largest manufacturer of industrial buffs in the United States. In 1987, Jason Industries completed an initial public offering and listed its common equity on Nasdaq.
The company continued expanding through the 2010 through a series of strategic and selective mergers and acquisitions, including, among others, Koller Group, Milsco Manufacturing and Saw Mill Capital. As a result of the global recession in 2008 and 2009, the company re-capitalized when affiliates of Falcon Investment Advisors and Hamilton Lane Advisors supplied additional capital to support the company’s further growth.
In 2014, Quinpario Acquisition Co. acquired the company for approximately $538.6 million. Quinpario raised approximately $172.5 million in a 2013 initial public offering to partially fund the purchase. The remainder of the purchase price was primarily funded with debt and the company incurred $420 million of secured debt under a first and second lien credit agreements.
The company has more than 1,900 employees worldwide, including approximately 700 employees in the U.S. In 2019, the company’s global businesses generated approximately $24.8 million in adjusted EBITDA on approximately $338 million of net sales.
The debtors’ largest unsecured creditors are listed below:
The case representatives are as follows:
Cash Collateral Motion
The debtors’ proposed consensual use of cash collateral, pursuant to the terms of the RSA, proposes adequate protection for the first lien secured parties in the form of monthly payment of interest at the default rate, replacement liens including proceeds of avoidance actions subject to the final order, allowed superpriority administrative expense claims that would have recourse to the proceeds of avoidance actions subject to the final order, payment of professional fees (including those to Emmet, Marvin & Martin as counsel to first lien agent and Weil Gotshal and Houlihan Lokey as advisors to the first lien ad hoc group), budget variance reports and financial reporting.
In addition, 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 carveout for professional fees is $1.25 million.
The use of cash collateral is subject to the following milestones:
DS Approval Motion / Confirmation Timeline
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Plan of Reorganization / Disclosure Statement
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
Milestones
The RSA includes the following milestones:
The plan also provides for a management incentive plan to be adopted after the effective date and granted by the compensation committee of the new board, which would reserve up to 10% of new Jason equity on a fully diluted basis.
New Board
The new board would be composed of the CEO of reorganized Jason and other members to be selected by the first lien ad hoc group.
Other Plan Provisions
The reorganized company would not be subject to public reporting requirements, and all debt would remain in place at nondebtor foreign entities “subject to diligence by the First Lien Ad Hoc Group.”
New First Lien Credit Agreement Term Sheet
The new first lien term loan is composed of term loans in the principal amount of $75 million that would mature five years after closing. A portion of the first lien credit agreement loans in the principal amount of $75 million would be converted dollar for dollar into the new first lien term loans.
The new term loan would bear interest at L+6% (subject to a 1% LIBOR floor) paid in cash or LIBOR (subject to a 1% LIBOR floor) plus 2% paid in cash and PIK interest at 4%. “The Borrower shall also have the right to elect that the New First Lien Term Loans bear interest at a rate determined by reference 5 to an ‘alternate base rate,’ and the interest rate margin with respect to New First Lien Term Loans bearing interest at the alternate base rate shall be 5.00% per annum.” For the default rate, 2% would be added.
The new first lien term loan would be secured by “(i) a perfected first priority lien on all non-working capital assets of the Loan Parties which lien will be senior to the liens securing the Exit ABL Credit Facility and the liens securing the New Junior Lien Convertible Term Loan Facility and (ii) a perfected second priority lien on all working capital assets of the Loan Parties, which lien will be junior to the liens securing the Exit ABL Credit Facility and senior to the liens securing the New Junior Lien Convertible Term Loan Facility, in each case subject to other permitted liens in accordance with the New First Lien Term Loan Facility Documentation, which liens shall be subject to intercreditor arrangements in form and substance reasonably satisfactory to the Requisite New First Lien Lenders, subject to any agreed post-closing perfection requirements and subject to thresholds, exceptions and exclusions substantially similar to the Pre-Petition Facility Documentation.”
New Junior Lien Convertible Term Loan Term Sheet
The new junior lien convertible term loan is composed of loans in a principal amount of $50 million that would mature five years and six months after closing. A portion of the first lien credit agreement loans in the principal amount of $50 million will be converted dollar for dollar into the new junior lien convertible term loans.
The whole outstanding principal amount of the term loans would be convertible, at a conversion price based on a discount of 10% of plan equity value, into common equity of the reorganized company at any time after the first anniversary of the closing date:
The new junior lien convertible term loan facility would be secured by “(i) a perfected third priority lien on all non-working capital assets of the Loan Parties which lien will be (A) junior to the liens securing the Exit ABL Credit Facility and (B) junior to the liens securing the New First Lien Term Loan Facility and (ii) a perfected third priority lien on all working capital assets of the Loan Parties, which lien will be (A) junior to the liens securing the Exit ABL Credit Facility and (B) junior to the liens securing the New First Lien Term Loan Facility, in each case subject to other permitted liens in accordance with the New Junior Lien Term Loan Facility Documentation, which liens shall be subject to intercreditor arrangements in form and substance reasonably satisfactory to the Requisite New Junior Lien Lenders, subject to any agreed post-closing perfection requirements and subject to thresholds, exceptions and exclusions substantially similar to the New First Lien Term Loan Facility Documentation.”
Warrant Term Sheet
The warrants, representing the right to acquire 10% of the common stock, subject to dilution by the management incentive plan and conversion of the new junior convertible term loan and expire five years from the plan effective date. The aggregate equity value strike price shall be set at a value that allows holders of first lien credit agreement claims to receive par value plus accrued interest as of the effective date plus accrual of 5% annually.
Liquidation Analysis
The DS includes the following liquidation analysis prepared by AlixPartners and also includes a description of the accompanying footnotes, which are available HERE:
Valuation Analysis
The debtors’ valuation analysis, performed by Moelis, provides for an estimated going concern enterprise value of the reorganized debtors, as of an assumed effective date of June 30, of a range between $175 million and $225 million, with a $200 million midpoint.
Financial Projections
Cleansing Materials
The company posted cleansing materials on its website including presentations from March and April 30.
The April 30 presentation includes P&L projections through 2024 for the Osborn and Milsco businesses. For 2020, the company is forecasting that revenue will decline 16.2% year over year to $168.9 million for Osborn, 22.7% year over year to $105.4 million for Milsco and 18.8% year over year to $274.3 million on a consolidated basis. Adjusted EBITDA is projected to decline 55.5% year over year to $9.3 million for Osborn, 64.2% year over year to $5.4 million for Milsco and 83.5% year over year to $4.1 million on a consolidated basis, including corporate expenses, which would improve slightly year over year.
Jason Industries is projecting $229.3 million in revenue for Osborn in 2024, up 35.8% from 2020, and $157.1 million in revenue for Milsco in 2024, up 49.1% from 2020, and $386.4 million on a consolidated basis in 2024, up 40.9% from 2020. The company is projecting $36 million in adjusted EBITDA for Osborn in 2024, up 287% from 2020, $22 million in adjusted EBITDA for Milsco in 2024, up 307% from 2020, and $48.4 million in adjusted EBITDA on a consolidated basis in 2024, including corporate expenses, up 1,080%.
For full year 2020, the company is projecting it will generate negative $26.1 million in free cash flow and projects that total liquidity will decline to $56.2 million in December, from $86.6 million as of March 17.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
Plan of Reorganization
Disclosure Statement
First Day Hearing Agenda
Press Release
| Summary |
| Jason Industries is a global industrial manufacturing company |
| Entered into RSA with 87% of holders of principal amount of first lien debt; company has failed to reach consensus with second lien lenders |
| Case to be funded with use of cash collateral, with consent of first lien lenders |
The debtors and the consenting first lien lenders have not been able to reach consensus with the second lien ad hoc group, but the company says that it “intends to continue to engage with its stakeholders, including the Second Lien Ad Hoc Group, in advance of the Confirmation Hearing to attempt to reach consensus” (emphasis added).
The first day hearing is set for today, Thursday, June 25, at 3 p.m. ET. The docket is available on Reorg HERE.
The debtors began solicitation on the plan on June 24 and request a combined plan and disclosure statement hearing on Aug. 3. The debtors say that the consenting first lien credit agreement lenders, together with the crossover holdings of the second lien ad hoc group, “account for nearly 100% of the First Lien Credit Agreement Claims (99.2 percent).” Signatories to the RSA include: Credit Suisse Asset Management, American Money Management Corp., First Eagle Alternative Credit SLS, AIC Financing Partnership, AIC COP Investments, Deutsche Bank AG New York Branch, Pelican Loan Advisors III and Aegon USA Investment Management.
The debtors propose a plan sale of 100% of the assets of Jason Industries, Inc. to a newly formed holding company designated by the first lien ad hoc group with a purchase funded by a credit bid by holders of first lien secured credit agreement claims. First lien credit agreement claims would receive (a) the new first lien term loan facility, (b) new junior lien convertible term loan facility, (c) 100% of the new equity, subject to dilution, (d) if applicable, the first lien put option and (e) warrants (which would be distributed to class 5 second lien credit agreement claims if class 5 accepts the plan).
The company would also effectuate certain prenegotiated open-market purchases of the term loans of each consenting first lien credit agreement lender of the first lien credit agreement. In consideration for the forbearances under the RSA, the consenting first lien lenders are entitled to a forbearance fee of 4%, of which 2% has been paid, and the remaining 2% would be paid on the earlier of the termination date and the plan effective date. On June 23, the company consummated the open market purchases by purchasing $10 million of the first lien credit agreement claims from the consenting first lien credit agreement lenders on a pro rata basis.
First lien deficiency claims would receive no distribution. If holders of second lien credit agreement claims vote to accept the plan, then they would receive as a carve-out from the collateral securing the first lien claims, 10% of the new equity, subject to dilution, and warrants, otherwise they would receive no distribution. General unsecured claims would be unimpaired and ride through.
The first lien ad hoc group also consents to the use of cash collateral to fund the chapter 11 cases. Additionally, the plan contemplates that on the plan’s effective date the new holdco entity would enter into a third-party asset-based exit financing that would provide at least $20 million for revolving borrowing, after permitting for any amounts on account of outstanding letters of credit on the closing date, and would have aggregate total commitments in an amount not less than $30 million.
The DS provides the following with respect to the prepetition and postpetition capital structure:
CEO Brian Kobylinski is quoted in the press release as saying that the company has “aggressively taken steps to simplify Jason and improve the performance and financial strength of our company over the past three years,” adding that, while these actions have generated “positive momentum, we were not able to realize the full benefits of our plans due to market cyclicality and disruptions brought on by the COVID-19 global pandemic.”
The company reports $204.9 million in assets and $428.4 million in liabilities, including $368.5 million of funded debt, as follows:
The company’s prepetition capital structure includes:
In addition, certain non-debtor subsidiaries are obligors with respect to approximately $16 million of funded foreign debt as of March 27, which obligations will be unimpaired by these chapter 11 cases.
Jason’s common stock is traded on the OTCQX Best Market. The equity was formerly listed on Nasdaq under the ticker “JASN” but trading was suspended as of Jan. 14, 2020. Holders of 5% or more of Jason Industries’ equity follow:
The company has approximately $15.2 million in cash on hand as of the petition date. According to the first day declaration, the “Company believes there may be approximately $11.7 million of unencumbered value, but that unencumbered value will be fully consumed by the administrative costs of these chapter 11 cases” (emphasis added).
As for the basis of the chapter 11 filing, the debtors say that their cost structure has been “plagued” by high operating leverage and burdensome fixed costs, including funded debt interest payments. Lower demand in the engineered components segment from OEM customers has also hindered cash flow in recent years, along with weakening welding, metal fabrication and automotive end markets, marked by slowing orders and lower consumption levels. The debtors also cite “weakness in global industrial markets,” noting that the Company’s core verticals have also constrained cash flow. These factors have only been exacerbated by the Covid-19 pandemic’s impact on demand.
In response to the foregoing, the company paused all hiring, reduced spending and extended payment terms with suppliers. The debtors then enacted furlough programs that impacted “nearly all of the Company’s U.S. employees,” and eliminated certain benefits programs. On April 1, the debtors implemented a three-month pay reduction, with 25% reductions for executives and 10% reductions for all other salaried employees. In addition, the debtors deferred rent payments or negotiated reduced rent agreements at the majority of its leased properties. “Despite these cost-reduction initiatives, cash flow forecasts present no reasonable path to repay or refinance existing funded debt obligations and other fixed costs while sufficiently funding operations,” the debtors say.
Prepetition restructuring efforts included engagement with a first lien ad hoc group and a second lien ad hoc group after an unfruitful marketing process. The company ultimately did not make a March 31 interest payment on the second lien term loans due March 31, 2020, and entered into a forbearance agreement with the first lien ad hoc group. After months of discussions prepetition, in April 2020, Corre, Newport and Angelo Gordon executed nondisclosure agreements and the second lien group retained Paul Weiss and DC Advisory. Subsequently, on June 3, the second lien ad hoc group declined to extend their non-disclosure agreements and on June 5, required that the company cleanse the non-public information provided during negotiations, and then replaced its legal advisor on June 14, retaining Brown Rudnick.
The debtors are represented by Kirkland & Ellis in New York as counsel and are also working with AlixPartners as restructuring advisor and Moelis as financial advisor and investment banker. Epiq is the claims agent. Houlihan Lokey is financial and restructuring advisor and Weil, Gotshal & Manges is legal counsel to an ad hoc group of first lien creditors, according to the debtors’ press release. The case has been assigned to Judge Robert D. Drain (case number 20-22766).
Background
Jason Industries’ origins date back to the industrial revolution, with the modern segment of the company beginning in 1985. At that time, two executives, Vince Martin and Mark Train, purchased three companies from their employer, Canadian manufacturing company AMCA International: (a) Osborn Manufacturing, the largest manufacturer of industrial brushes in the United States, (b) Janesville Products, the largest manufacturer of automotive acoustical fiber insulation in the United States, and (c) Jackson Buff, the largest manufacturer of industrial buffs in the United States. In 1987, Jason Industries completed an initial public offering and listed its common equity on Nasdaq.
The company continued expanding through the 2010 through a series of strategic and selective mergers and acquisitions, including, among others, Koller Group, Milsco Manufacturing and Saw Mill Capital. As a result of the global recession in 2008 and 2009, the company re-capitalized when affiliates of Falcon Investment Advisors and Hamilton Lane Advisors supplied additional capital to support the company’s further growth.
In 2014, Quinpario Acquisition Co. acquired the company for approximately $538.6 million. Quinpario raised approximately $172.5 million in a 2013 initial public offering to partially fund the purchase. The remainder of the purchase price was primarily funded with debt and the company incurred $420 million of secured debt under a first and second lien credit agreements.
The company has more than 1,900 employees worldwide, including approximately 700 employees in the U.S. In 2019, the company’s global businesses generated approximately $24.8 million in adjusted EBITDA on approximately $338 million of net sales.
The debtors’ largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Claim Amount |
|---|---|---|---|
| Wilmington Savings Fund Society | Wilmington, Del. | 2L Loans | $ 94,618,257 |
| Uniroyal Engineered Products | Orlando, Fla. | Trade | 557,459 |
| Regency Plastics, Inc. | Ubly, Mich. | Trade | 454,173 |
| O'Sullivan Films, Inc. | St. Louis | Trade | 439,374 |
| BASF Corporation | Pittsburgh | Trade | 296,208 |
| Global Tranz | Scottsdale, Ariz. | Trade | 190,838 |
| Hatfield & Associates LLC | Memphis, Tenn. | Trade | 158,292 |
| Reliance Weaving Mills LTD | Multan, Pakistan | Trade | 127,907 |
| Kapco, Inc. | Grafton, Wis. | Trade | 124,976 |
| Shield Restraint Systems | Chicago | Trade | 124,245 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Jonathan S. Henes | Kirkland & Ellis |
New York |
| Emily E. Geier | |||
| Laura E. Krucks | Chicago | ||
| Debtors' Restructuring Advisor |
N/A | AlixPartners | N/A |
| Debtors' Investment Banker |
N/A | Moelis & Company |
N/A |
| Counsel to the 1L Agent | N/A | Emmet, Marvin & Martin |
N/A |
| Counsel to the Ad Hoc 1L Group |
Matthew S. Barr | Weil, Gotshal & Manges |
New York |
| Ryan Preston Dahl | |||
| Alexander Welch | |||
| Financial Advisor to the Ad Hoc 1L Group |
N/A | Houlihan Lokey |
N/A |
| Counsel to the 2L Agent | Gregg S. Bateman | Seward & Kissel |
New York |
| Counsel to the Ad Hoc 2L Group |
Steven D. Pohl | Brown Rudnick |
Boston |
| Shari Dwoskin | |||
| Debtors' Claims Agent | Sophie Frodsham | Epiq | New York |
Cash Collateral Motion
The debtors’ proposed consensual use of cash collateral, pursuant to the terms of the RSA, proposes adequate protection for the first lien secured parties in the form of monthly payment of interest at the default rate, replacement liens including proceeds of avoidance actions subject to the final order, allowed superpriority administrative expense claims that would have recourse to the proceeds of avoidance actions subject to the final order, payment of professional fees (including those to Emmet, Marvin & Martin as counsel to first lien agent and Weil Gotshal and Houlihan Lokey as advisors to the first lien ad hoc group), budget variance reports and financial reporting.
In addition, 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 carveout for professional fees is $1.25 million.
The use of cash collateral is subject to the following milestones:
- Plan solicitation commenced: July 8.
- Final cash collateral order: August 3.
- Combined DS / plan hearing: August 23.
- Confirmation order: Five business days after the combined hearing (on terms acceptable to first lien ad hoc group).
- Plan effective date: 14 days after entry of confirmation order (automatically extended by 60 days solely to the extent necessary to obtain regulatory approvals).
DS Approval Motion / Confirmation Timeline
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Plan of Reorganization / Disclosure Statement
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
Milestones
The RSA includes the following milestones:
- Plan solicitation commenced: 10 business days after agreement effective date.
- Complete open-market purchases: Completed 11 business days after the agreement effective date.
- Petition date: 12 business days after the agreement effective date.
- Interim cash collateral order / combined plan and DS hearing scheduling order: Three days after petition date (order to be acceptable to first lien ad hoc group).
- Plan solicitation completed: 10 days after the petition date (so long as solicitation has been open for at least 14 days).
- Final cash collateral order: Entered 40 days after petition date.
- Combined DS / plan hearing: 60 days after petition date.
- Confirmation order: Five business days after the combined hearing (on terms acceptable to first lien ad hoc group).
- Plan effective date: 14 days after entry of confirmation order (automatically extended by 60 days solely to the extent necessary to obtain regulatory approvals).
The plan also provides for a management incentive plan to be adopted after the effective date and granted by the compensation committee of the new board, which would reserve up to 10% of new Jason equity on a fully diluted basis.
New Board
The new board would be composed of the CEO of reorganized Jason and other members to be selected by the first lien ad hoc group.
Other Plan Provisions
The reorganized company would not be subject to public reporting requirements, and all debt would remain in place at nondebtor foreign entities “subject to diligence by the First Lien Ad Hoc Group.”
New First Lien Credit Agreement Term Sheet
The new first lien term loan is composed of term loans in the principal amount of $75 million that would mature five years after closing. A portion of the first lien credit agreement loans in the principal amount of $75 million would be converted dollar for dollar into the new first lien term loans.
The new term loan would bear interest at L+6% (subject to a 1% LIBOR floor) paid in cash or LIBOR (subject to a 1% LIBOR floor) plus 2% paid in cash and PIK interest at 4%. “The Borrower shall also have the right to elect that the New First Lien Term Loans bear interest at a rate determined by reference 5 to an ‘alternate base rate,’ and the interest rate margin with respect to New First Lien Term Loans bearing interest at the alternate base rate shall be 5.00% per annum.” For the default rate, 2% would be added.
The new first lien term loan would be secured by “(i) a perfected first priority lien on all non-working capital assets of the Loan Parties which lien will be senior to the liens securing the Exit ABL Credit Facility and the liens securing the New Junior Lien Convertible Term Loan Facility and (ii) a perfected second priority lien on all working capital assets of the Loan Parties, which lien will be junior to the liens securing the Exit ABL Credit Facility and senior to the liens securing the New Junior Lien Convertible Term Loan Facility, in each case subject to other permitted liens in accordance with the New First Lien Term Loan Facility Documentation, which liens shall be subject to intercreditor arrangements in form and substance reasonably satisfactory to the Requisite New First Lien Lenders, subject to any agreed post-closing perfection requirements and subject to thresholds, exceptions and exclusions substantially similar to the Pre-Petition Facility Documentation.”
New Junior Lien Convertible Term Loan Term Sheet
The new junior lien convertible term loan is composed of loans in a principal amount of $50 million that would mature five years and six months after closing. A portion of the first lien credit agreement loans in the principal amount of $50 million will be converted dollar for dollar into the new junior lien convertible term loans.
The whole outstanding principal amount of the term loans would be convertible, at a conversion price based on a discount of 10% of plan equity value, into common equity of the reorganized company at any time after the first anniversary of the closing date:
- upon election by holders of 66.7% or more of the term loans following the first anniversary but prior to the fourth anniversary of the closing date; and
- upon election by requisite lenders on or following the fourth anniversary of the closing date.
The new junior lien convertible term loan facility would be secured by “(i) a perfected third priority lien on all non-working capital assets of the Loan Parties which lien will be (A) junior to the liens securing the Exit ABL Credit Facility and (B) junior to the liens securing the New First Lien Term Loan Facility and (ii) a perfected third priority lien on all working capital assets of the Loan Parties, which lien will be (A) junior to the liens securing the Exit ABL Credit Facility and (B) junior to the liens securing the New First Lien Term Loan Facility, in each case subject to other permitted liens in accordance with the New Junior Lien Term Loan Facility Documentation, which liens shall be subject to intercreditor arrangements in form and substance reasonably satisfactory to the Requisite New Junior Lien Lenders, subject to any agreed post-closing perfection requirements and subject to thresholds, exceptions and exclusions substantially similar to the New First Lien Term Loan Facility Documentation.”
Warrant Term Sheet
The warrants, representing the right to acquire 10% of the common stock, subject to dilution by the management incentive plan and conversion of the new junior convertible term loan and expire five years from the plan effective date. The aggregate equity value strike price shall be set at a value that allows holders of first lien credit agreement claims to receive par value plus accrued interest as of the effective date plus accrual of 5% annually.
Liquidation Analysis
The DS includes the following liquidation analysis prepared by AlixPartners and also includes a description of the accompanying footnotes, which are available HERE:
Valuation Analysis
The debtors’ valuation analysis, performed by Moelis, provides for an estimated going concern enterprise value of the reorganized debtors, as of an assumed effective date of June 30, of a range between $175 million and $225 million, with a $200 million midpoint.
Financial Projections
(Click HERE to enlarge)
Cleansing Materials
The company posted cleansing materials on its website including presentations from March and April 30.
The April 30 presentation includes P&L projections through 2024 for the Osborn and Milsco businesses. For 2020, the company is forecasting that revenue will decline 16.2% year over year to $168.9 million for Osborn, 22.7% year over year to $105.4 million for Milsco and 18.8% year over year to $274.3 million on a consolidated basis. Adjusted EBITDA is projected to decline 55.5% year over year to $9.3 million for Osborn, 64.2% year over year to $5.4 million for Milsco and 83.5% year over year to $4.1 million on a consolidated basis, including corporate expenses, which would improve slightly year over year.
Jason Industries is projecting $229.3 million in revenue for Osborn in 2024, up 35.8% from 2020, and $157.1 million in revenue for Milsco in 2024, up 49.1% from 2020, and $386.4 million on a consolidated basis in 2024, up 40.9% from 2020. The company is projecting $36 million in adjusted EBITDA for Osborn in 2024, up 287% from 2020, $22 million in adjusted EBITDA for Milsco in 2024, up 307% from 2020, and $48.4 million in adjusted EBITDA on a consolidated basis in 2024, including corporate expenses, up 1,080%.
For full year 2020, the company is projecting it will generate negative $26.1 million in free cash flow and projects that total liquidity will decline to $56.2 million in December, from $86.6 million as of March 17.
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. 20-22766.
- Motion to establish trading procedures
- Jason Industries seeks to establish trading procedures for its common stock, to be able to object to and prevent transfers if necessary to preserve net operating losses. As of fiscal year ended Dec. 31, 2019, the debtors estimate that they have approximately $17.1 million of U.S. federal NOLs, $2.4 million of U.S. federal research and development credit carryforwards, $49.5 million of disallowed interest carryforwards that have been deferred and $77.1 million of existing stock basis in certain foreign subsidiaries.
- Motion to pay employee wages and benefits
- The debtors seek authority to maintain ADP as their payroll processor and to make the following payments for employee compensation, withholding obligations, employee benefits programs and benefits and programs for union employees:
- The debtors seek authority to maintain ADP as their payroll processor and to make the following payments for employee compensation, withholding obligations, employee benefits programs and benefits and programs for union employees:
- Motion to use cash management system
- The company has 17 bank accounts with JPMorgan Chase Bank and PNC Bank.
- The company also engages in intercompany transactions, including intercompany sales of products, purchase of products, shared services operations and intercompany loans.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors estimate that they have approximately $473,000 in obligations related to taxes and fees, of which approximately $171,000 is anticipated to become due within the first 21 days of the petition date.
- Motion to provide utilities with adequate assurance
- Motion to pay accounts payable claims
- The debtors seek authorization (1) to continue paying allowed prepetition claims of certain general unsecured creditors and creditors whose accounts payable claims may give rise to certain state and federal liens, (2) to grant administrative expense priority to all undisputed obligations on accounts of goods ordered by debtors prior to the petition date that will not be delivered until postpetition, (3) to satisfy such obligations in the ordinary course of business and (4) to authorize payment of creditors on customary trade terms.
- Motion to honor customer programs
- Motion to filed consolidated creditors lists
- Motion to establish case management procedures
- Application to appoint Epiq as claims agent
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