Radnor, a manufacturer of foam cups and containers, filed for Chapter 11 in 2006. The company had been struggling under a large debt load, according to Stanford Springel, managing director at Alvarez & Marsal.
"National City put us in a place where it was very hard to go on. When you looked at the Ebitda there was just no other way. So we hired Lehman Brothers Holdings prior to their own filing to run a normal investment banking process, but the company didn't show particularly well. At that point the company had lost confidence of constituents," Springel said.
Amit Patel of Goldman, Sachs & Co., who was at the time with Houlihan Lokey who was advising Tennenbaum Capital Partners, said that the sales process was very difficult due to a question of valuation. "We started going through the process to minimize the burn and uncertainty to the situation. We thought that the best approach would be to establish some type of floor, but then we ran into issues. So we started negotiating about doing the DIP," Patel said.
In the end the lenders invested around $120 million in Radnor for a DIP financing. Then the lenders made a second financing to help fund a reorganization of the company. Clearlake Capital Group's Jose Feliciano, who was with Tennenbaum Capital Partners, a PE firm that had invested in Radnor, said after Lehman tried to sell the assets in a 363 they came back to the firm to ask them to be a stalking horse.
However, the board apparently was convinced that the sale process would result in no recovery for unsecured creditors. It tried to defeat the sale of the assets to Tennenbaum through a lawsuit arguing that it was attempting a takeover of the company through its loans and the lender wanted to obtain ownership of Radnor's assets at depressed values, leaving no recovery.
"We received threats throughout the case," Feliciano said. "Tennenbaum went through several thousand e-mails as part of the discovery process. We were squeaky clean, but it was a very painful process."
In the end the court ruled in favor of the lenders, "Loan-to-own is not really a strategy. Extending loans at par does not seam to be all the rage these days," Feliciano said. - Maria Woehr
The Radnor Holdings Corp. bankruptcy filing was a hot topic of discussion at the TMA/The Deal's Distressed Investing Conference in Las Vegas. 
