Valuepart - Revitalizing a Company through a Strategic Plan of Reorganization

"We are excited to be recognized for the outstanding work done in connection with the Valuepart reorganization. While it was a very challenging transaction, ultimately we worked very cooperatively with the management and existing equity, the debtor's other professionals, and the Unsecured Creditors Committee to structure the Plan of Reorganization and raise the capital necessary for Valuepart's successful emergence from Chapter 11."

Michael Fixler, Managing Director, Lead of Special Situations Practice, FocalPoint

Transaction

Shortly after a difficult refinancing in the summer of 2016 and a revaluation of its inventory, the Company allegedly defaulted on its credit facility and the lender quickly began constricting liquidity. Without sufficient liquidity or trade credit, the Company's sales and profitability meaningfully declined.

On October 27, 2016, without resolution, Valuepart had no alternative but to file for Chapter 11 protection in the Northern District of Texas with the intention to reorganize in bankruptcy.

Successfully operating only with use of cash collateral, Valuepart's professionals worked to solicit exit financing proposals (debt and equity), while crafting a Plan of Reorganization ("POR") and negotiating with the Company's secured lenders and creditors. Ultimately, almost one year later, the Plan of Reorganization was confirmed on September 27, 2017, and the transaction closed on September 29, 2017.

Deal Challenges

Due to the Company's adversarial relationship with its senior lender, the Company had to function through a series of short-term, contested cash-collateral orders and battle for continued exclusivity. And, while the vendors grew increasingly cautious during the course of the case, the Company's management maintained the supply chain with minimal disruption.

In addition to the disruption of a bankruptcy case, the Company also filed an adversary proceeding against its senior lender and had pending litigation against several of its former managers for fraud and mismanagement. Ultimately, the Company mediated and settled the proceeding against its lender, which included a negotiated amount for the claim and an agreement to vote in favor of the POR.

Even emerging from Chapter 11, the Company's financial profile was challenging. The desire to provide for some meaningful recovery for unsecured creditors further limited the exit financing alternatives.

Solution

Ultimately, existing management and a foreign strategic partner invested equity, along with new beneficial commercial arrangements, and bank debt was creatively structured, overcoming a number of obstacles, including trailing financial performance, trade-credit ramp-up and a number of overseas affiliate relationships.

Through the Plan of Reorganization, existing management maintains a significant piece of the Company's equity, with a new ABL facility providing liquidity for growth, maintenance of key vendor relationships, extension of its significant customer agreement, and an equity partnership with a new strategic vendor.

As a result of the transaction, all the Company's employees were retained and with a strengthened balance sheet, the management team can recruit best-in-class sales and operations personnel. The revitalized Valuepart is well positioned to take advantage of forthcoming industry tailwinds.

Since the owners and management understood the need for supportive vendor partnerships upon emergence, a creditor note was agreed to as part of the Plan of Reorganization that will result in an approximate 30% distribution to the unsecured creditors over time. Further, as a result of these discussions, the Unsecured Creditors Committee separately mailed letters of support for the POR.