As Yogi Berra once said, "It ain't over till it's over." And it seems that these days you can apply that to companies reorganizing in Chapter 11.
With the credit market as frozen as a Canadian pond, debtors face
pitfalls with every step they try to take in
bankruptcy -- debtor-in-possession financing, asset sales, reorganization
plans and exit financing -- and a misstep involving any one of them can
derail an entire case. Witness Propex Inc.
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When last we saw Propex, it had already obtained a $65 million exit financing commitment from Wayzata Investment Partners LLC and appeared headed toward confirmation of a reorganization plan centered on a debt-for-equity swap with senior lenders including Wayzata.
The company was cleared to enter into a fee letter regarding the exit financing in late December, and though it hadn't gotten a hearing date on its plan, all of the pieces appeared to be in place.
Then the roof caved in. Court papers show that Propex's debtor-in-possession loan was to expire on Jan. 23, and its lenders refused to extend the maturity date. In addition, Propex's performance declined, and the company forecast that it would burn through $30.2 million in cash over the next 90 days. Creditors then soured on the plan being confirmed, and before long, Propex's case had done a 180-degree turn in the wrong direction.
With the DIP's maturity date looming, Propex then went back to Wayzata and crafted a $65 million replacement DIP complete with a whopping LIBOR plus 1,000 interest rate, more than $3 million in fees and instructions to sell the company within three months.
Regardless of what happens with the new DIP -- and a hearing on the financing was just pushed to Jan. 28 from Jan. 22 -- it appears Propex is now headed for liquidation, or at the very least, a going-concern sale.
Somewhere, Yogi is nodding his head. - Ben Fidler
