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Waco gains interim OK to tap DIP, cash

by Jamie Mason | Published September 13, 2011 at 2:27 PM

An Ohio judge on Tuesday, Sept. 13 granted bankrupt Waco Holdings Inc. interim access to a $1.4 million debtor-in-possession loan as the scaffolding manufacturer continues negotiations with its lender for the sale of its assets.

Judge Arthur Harris of the U.S. Bankruptcy Court for the Northern District of Ohio in Cleveland approved the interim use of the DIP as well as cash collateral, said debtor counsel Stuart A. Laven Jr. of Benesch, Friedlander, Coplan & Aronoff LLP.

The company's $1.4 million DIP from prepetition lender North American Scaffolding Inc. is priced at 10% per annum.

The loan matures on the earliest of 75 days after the agreement, when the company sells its assets or when its reorganization plan is confirmed, court papers said.

The DIP is all new money, Laven said.

The final DIP and cash collateral hearing is scheduled for Oct. 4, he said.

Linden, N.J.-based North American Scaffolding is owed $13.66 million in prepetition debt and has agreed to buy the debtor's assets during its bankruptcy case.

The lender will act as the stalking-horse bidder for the sale. The sale price wasn't disclosed in court documents, and the sale motion has not yet been filed with the bankruptcy court.

According to Laven, the debtor and the lender are still negotiating the sale price, which will largely be a credit bid with a possible cash component.

Waco expects to file the sale motion by Friday, Laven said.

The Cleveland-based debtor filed for Chapter 11 on Sept. 9 with six affiliates. Harris also approved the joint administration of the cases during Tuesday's hearing, Laven said.

Waco Holdings is the parent to the six affiliates, which collectively operate as Waco Scaffolding and Equipment.

The company blamed its bankruptcy filing on a decline in its sales and revenues that began in the second quarter of 2008 because of slowing economic conditions, a lack of available credit and general market conditions that resulted in fewer construction projects.

"As Waco's customers navigated turbulent economic conditions, Waco began experiencing difficulty collecting open accounts receivable," court documents said.

Waco suffered from a setback in June 2009 when construction was halted on the Fontainebleau Resort in Las Vegas and the project's operator abandoned construction on the project.

Fontainebleau's lender refused to provide it with additional financing to complete the project, forcing the Las Vegas-based casino developer into Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Florida in Miami on June 9, 2009.

Waco was forced to write off roughly $2 million in receivables associated with the Fontainebleau project, court papers said.

Waco's inability to collect what it was owed from Fontainebleau led it to default on its prepetition debt with Fifth Third Bank. In August, its outstanding prepetition debt was acquired by North American Scaffolding.

Waco decided to sell its assets after it was unable to refinance its debt.

The debtor designs, manufactures, erects and dismantles scaffolding, as well as related access products, shoring and other construction equipment.

Waco sells and leases scaffolding, shoring and other equipment for large-scale commercial construction projects, but its customers also include government entities, such as the U.S. Navy.

It has 320 employees and in 2010 had $36.67 million in gross sales. The debtor operates at eight locations in Cleveland; Columbus, Ohio; Honolulu; Las Vegas; Los Angeles; Minneapolis; Phoenix and San Diego. Waco recently closed its operations in Cincinnati and Norfolk, Va.

Waco Holdings listed its assets at less than $50,000 and its liabilities at $10 million to $50 million in its petition.

Its largest unsecured creditors are Universal Form Clamp of Jasper, Tenn. ($532,415), Waco Spring Road LLC of Cleveland ($366,781), Magup Scaffolding Inc. of Toronto, Canada ($166,891), G 3 Tapes Inc. of El Cajon, Calif. ($161,770) and Moss Street Properties of San Diego ($109,223).

Debtor counsel is also William E. Schonberg and Kari B. Coniglio of Benesch, Friedlander, Coplan & Aronoff.

Conway MacKenzie Inc. is the company's turnaround firm. EdgePoint Capital Advisors is its investment banker.

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Tags: bankruptcy | debtor-in-possession | U.S. Bankruptcy Court | Waco Holdings Inc.

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