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Oreck seeks sale in Chapter 11

by Aviva Gat | Published May 8, 2013 at 9:12 AM

Oreck Corp., which makes and sells vacuum cleaners and air purification products, has filed for bankruptcy protection to pursue the sale of its assets.

The Nashville company and eight affiliates submitted Chapter 11 petitions on Monday in the U.S. Bankruptcy Court for the Middle District of Tennessee in Nashville.

Judge Keith M. Lundin is scheduled on Wednesday to consider first-day motions, including requests for joint administration of the cases and interim use of an $11 million debtor-in-possession loan.

Black Diamond Commercial Finance LLC is the administrative agent for the DIP, which consists of a $6 million revolver from Credit Suisse Loan Funding LLC and a $5 million term loan from GSC Recovery III LP. Oreck will use the loan to repay its prepetition first-lien debt owed to Wells Fargo Bank NA and to fund operations through a sale.

Oreck said it needed the DIP because Wells Fargo sweeps its bank accounts daily, so it has little to no cash to fund its operations and Chapter 11 costs. The company added that it is not generating enough cash to cover expenses.

The DIP would mature on the earliest of the closing of a sale, confirmation of a Chapter 11 plan or nine months from the petition date. It would accrue interest at 12%, which would increase by 3% on default, and would carry a $1 million agent fee, a 1% unused line fee and a $1,000 daily field examination fee.

Under the DIP, Oreck would have to win bidding procedures approval by May 21, conduct an auction by June 5, win sale approval five days thereafter and close the deal 15 days following sale approval.

Oreck had not filed a bidding procedures motion as of Tuesday afternoon, but the company said in the DIP motion that it believed it would agree on a stalking-horse offer for substantially all its assets "in the next several days."

Documents did not disclose any other details about the sale, but attorneys for Oreck Acquisition Holdings LLC have filed notices of appearance with the court. The attorneys, David W. Houston IV and Faisal Delawalla of Burr & Forman LLP, could not be reached for comment Tuesday.

An Oreck spokesman declined to comment on the sale or reasons for the bankruptcy filing. Court papers, however, noted Oreck has "suffered from a serious exodus of management."

Entrepreneur David Oreck founded the debtor in 1963 after leaving RCA Corp. to manufacture upright vacuum cleaners for the U.S. hotel industry, according to Oreck's website.

Today, the company sells vacuums, steam mops, floor machines, air purifiers and other cleaning products for hotel and home use throughout the U.S., Canada and parts of Europe.

"For decades, the Oreck family of consumers has expressed their affinity for the benefits of owning an Oreck ... lightweight, powerful, easy to use, durable; they tell me all the time, 'I have an Oreck, I love my Oreck,' " CEO Doug Cahill said on the company's website. "All of us at Oreck are committed to simplifying cleaning to make life just a little bit easier."

Oreck's principal manufacturing facilities are in Cookeville, Tenn.

In its petition, Oreck pegged its assets and liabilities between $10 million and $50 million.

Wells Fargo is the company's primary creditor, from a $20 million first-lien loan extended on Aug. 29. The outstanding balance on the loan was unclear from court papers.

Oreck also owes $5.5 million on a second-lien loan led by administrative agent Broadpoint Products Corp.

Its largest unsecured creditors include GSC Recovery III Asset Trust (owed $643,539), American Securities Partners III LLP ($546,255) and GSC Recovery III Parallel Fund Asset Trust ($530,404).

American Securities LLC purchased Oreck on April 11, 2003, for an undisclosed price, according to The Deal Pipeline. The private equity firm's website calls Oreck a previous investment but does not detail the terms of its exit.

"American Securities has not been a control investor in Oreck for three years; as such, we have no comment but are saddened by the outcome," the New York firm said in a statement.

It was unclear from court papers if American Securities retained a minority stake.

A lender vehicle controlled by a Black Diamond affiliate acquired the GSC funds when it purchased substantially all assets of alternative asset management firm GSC Group Inc. out of Chapter 11 in 2011.

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