Willing to Finance Competitive Bidders in Diamond Sale
Guggenheim Corporate LLC, the company with whom Diamond Glass has
entered into a debtor-in-possession agreement in its petition for
reorganization under Chapter 11, is willing to provide financing
for competitive bidders in the sale of the company, according to
Michael Richman of Foley & Lardner, acting as pro hac
counsel for the Kingston, Pa.-based company. (CLICK
HERE for related story.)
The most remarkable feature of this is that Guggenheim
has agreed, and it will be included in the bid procedures, to provide
financing for competitive bidders on commercially reasonable terms,
provided, of course, that the competitive bidders can meet normal
market credit-worthy requirements," Richman told the U.S. Bankruptcy
Court of Delaware at an April 2 hearing.
"I want to explain a little bit more about [the Guggenheim
agreement] because while you might be sitting there thinking, 'oh,
this is just another one of these secured lender buying the company
on credit bid kinds of cases, it's remarkably quite different, and
it is designed and will be designed, when the big procedures are
presented at the next hearing, to ensure as open and competitive
an auction as possible with all of the benefits to flow to the benefit
of unsecured creditors, as well as preserving the ongoing-concern
business and enterprise value and preserving the jobs and preserving
the substance of this business."
He added that the company plans to ask for an auction in early June,
but that the agreement isn't the "normal loan-to-own quickie
sale, tie everything up and walk away with the company leave people
with nothing kind of case."
Richman also mentioned that on April 1-the day of the filing-three
of Diamond's suppliers "threatened to stop shipment of critical
glass supplies, which would have interrupted business."
We needed Guggenheim's consent to allow us to use
cash collateral before we had an opportunity to come to Your Honor,"
Richman recounted for the court. "We will be asking Your Honor
to approve that as part of the relief today, but Guggenheim did
consent. It was not a happy series of conversations with them, for
obvious reasons, but I point this out again, because they have acted
above and beyond the call of duty in a way that secured creditors
usually do not in a Chapter 11 environment, and they deserve praise
Richman also asked that the motion to continue to pay employee wages
and benefits during the restructuring be reviewed early on.
"We had a threat this morning from the bank that deals with
all of the employee paychecks that if they didn't get an order from
the Court by one o'clock, they were going to freeze all the accounts,"
he said. "So we'd like to advance that first in the hopes that
Your Honor will approve that first day, which can then be uploaded
and can be sent to the bank
" (The motion was granted
on an interim basis. CLICK
HERE for related story.)
Richman also spoke to the importance of the company's motion to
pay pre-petition claims to critical vendors. (This motion also ultimately
was granted. CLICK
HERE for related story.)
"So, the question, you know, the ultimate question is, we can
whether critical vendors are getting paid pre-petition
amounts or not, but if the end result of our litigating and contesting
is we can't pay them and they shut the company off, we have nothing
left to sell," he said. "We don't think that's a responsible
way to proceed."
He also mentioned the strong role that relationships play in the
auto glass industry as a whole.
"This business really is one that is a day-by-day existence
dependent on these networks of relationships and they all talk to
one another," Richman said. "There are blogs. There is
the telephone. They're all aware of what's going on."
Bill Cogswell, president of the company, also participated in the
hearing, and answered a number of questions about how the industry
works. He noted that Diamond's business currently has a breakdown
of approximately 30-percent insurance work, "43-ish" percent
commercial work (fleets, for example), and "the balance in
Cogswell also commented on how the company chose the 15 critical
vendors named in the case. (At press time, the list of critical
vendors had not been released. CLICK
HERE to see a list of Diamond's largest glass industry creditors.)
"The intent is to try to utilize the pool to allow us the opportunity
and leverage to keep the same terms and conditions, keep the product
supply coming, keep the costing where it has been, and keep our
customers happy, and keep our business going and growing and being
healthy during this process, which is what it's all about,"
The Department of Justice trustee assigned to the case, David Buchbinder,
asked Cogswell how he might respond to a vendorwhom was owed money
and wanted payment in full before doing business with Diamond. Richman
"The danger with this line of questioning and asking Mr. Cogswell
hypotheticals about what they'll do is anybody that we have to negotiate
[with] who reads this record is going to take away our leverage,"
Richman told the judge. "I mean, the whole point of the program
is to be able to negotiate the best deal we can and hopefully not
pay out what the Court's authorizing."
The judge overseeing the case, the Hon. Christopher S. Sontchi,
sustained the objection.
Richard Bunchalk, chief financial officer for Diamond, also took
the stand. Erika Morabito of Foley & Lardner, also serving as
pro hac counsel for Diamond, questioned Bunchalk on how the amounts
of payments the company sought for interim approval were determined,
along with the total amount requested to be borrowed from Guggenheim$7
million in full, $3.1 million on an interim basis.
When asked about the importance of the debtor-in-possession (DIP)
agreement with Guggenheim, from which Diamond would gain the loan,
Bunchalk responded, "It would be detrimental to the business
if we did not get this money to continue to supply product and to
make payroll, etc., and consequently would harm the value, the overall
value of the business on a go-forward business."
As for how Guggenheim was chosen as the DIP, Bunchalk advised the
company's investment banker, National City, recommended this option
and that Guggenheim had favorable rates.
"And, quite frankly, there was no other vendor, no other banker,
willing to come through," Bunchalk added.
He also noted that keeping the business running smoothly is an important
factor in maintaining employee satisfactionhence the need
for the $3.1 million interim advance.
"If the shipments of the product and the sourcing of product
is not available to our stores, we could either [sic] incur increased
pricing," he said. "We could have jobs lost, and we can
also have potentially a defection of our own employees, who see
this on a day-to-day basis, and feel as though there's a problem
with the company and think, 'It's a very easy access and easy entry
into the industry'
[Technicians] go out on their own all
the time, and it doesn't take a lot to set up shop, so if they start
to feel threatened in any way that either payroll won't be met or
there's a product supply problem, they can easily defect, all the
way up through the regional manager level."
J. Scott Victor, a representative of National City, also was questioned,
and noted that the company had been retained by Diamond on March
10 to explore its options.
Victor said the company met with seven other lenders, prior to the
Chapter 11 filing, and "found that from those seven that none
of them would be interested in providing junior capital, subordinate
to the Guggenheim first lien."
When asked during what timeframe he met with the other lenders,
Victor responded, "It was all last week, and if I had another
six months, it wouldn't have made a difference."
He added the opposition to the deal was due to Diamond's current
state-and the alternative that Guggenheim had proposed.
"[It was] because of the debtors' current financial performance
and their balance sheet," he said. "There was and is,
nor will there be, an alternative DIP that the debtor could get
similar to the terms that Guggenheim has proposed."
Court documents in the case also note that as of April 2, Diamond
was still working to reach an agreement with one un-named major
"... We put some emergency stop-gap measures in place with
most of [our suppliers]," he said. "We still don't have
it with one of them, which is our major supplier, and it's, unfortunately,
causing a great amount of disrupt in our business right now."
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