Here’s what you need to know:
- The federal government is taking over some of First Brands' pension plans as the company seeks to build a retirees committee to fulfill its Chapter 11 bankruptcy plan.
- Neither debtors nor creditors want to give more money to the examiner and there's a new Chapter 11 plan and Disclosure Statement on file as First Brands pushes toward a vote and Judge Christopher Lopez rules on collateral question between Bank of America and factoring financer Aequum.
- PGI acquires even more First Brands assets and outlines plans to reinstate jobs and bring back brands.
The U.S. government is stepping in to pay the pensions of First Brands employees.
"This action assures workers and retirees that the benefits they earned will be there when they need them," said Pension Benefit Guaranty Corporation Director Janet Dhillon in a statement released this week. "By stepping in to safeguard these plans, PBGC is ensuring that pension promises are kept and that participants can remain confident their full benefits are secure."
[RELATED: Court filings detail alleged wrongdoing in First Brands’ collapse]
The PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 to protect the retirement incomes of workers who participate in private sector defined benefit pension plans. It acts like an insurance company, stepping in to pay terminated pension plans up to the limits set by law.
Three plans covering 1,630 current and future retirees are now under PBGC trusteeship. They are:
- The retirement plan for bargaining unit employees of Fostoria and Greenville (FRAM).
- The pension plan for the Cardone Industries Inc. Union Employees.
- The pension plan for the Dalton Corporation, Warsaw Manufacturing Facility Pension Plan.
Retirees will continue receiving their full benefits without interruption, PBGC said. Participants who are not yet retired may apply for benefits once they become eligible.
First Brands is also seeking the nomination of a retirees' committee pursuant to the final approval of its plan. If allowed, the U.S. Trustee will nominate retirees from certain groups to represent the companies' retirees as the plan winds its way to completion.
Nick Haughley, a member of the team managing the wind down of First Brands Group, said the expeditious appointment of the committee is vital.
"The debtors do not have, and have not received funding commitments for, the liquidity that would be necessary to confirm the plan after the end of July," Haughly told the court in a declaration. "As a result, any delay in appointment of the retiree committee could jeopardize the debtors' ability to confirm the plan on the timeline required by the confirmation budget and would likely force the debtors to convert their Chapter 11 cases to cases under Chapter 7."
First Brands, creditors object to more money for examiner
Both First Brands and an ad hoc group of creditors have objected to the examiner's request for more money in the bankruptcy case.
The examiner, Martin De Luca, was appointed in December to investigate First Brands factoring processes and transactions and off-balance-sheet financing. His budget was set at $7 million with a right to seek an increase. De Luca asked for that increase in May, shortly after the filing of his report that alleged First Brands was "operated, in practice, as a single liquidity generating and value extracting enterprise directed by Patrick James and others. ... Significant value generated within the enterprise did not remain there."
In his motion asking for an increase, De Luca said the U.S. Trustee initially asked for a budget of $10 million, but that was negotiated down to $7 million, which De Luca exceeded in his work already reported to the court. His office was making headway in the investigation, De Luca said, but was forced to scale back its work due to budget limitations, which was dwindling after just a month of work.
At the same time, the examiner said, First Brands itself was running out of funding; the ad hoc lenders group refused to include the examiner's office in any collateral carveout to protect its funding, and the likelihood of administrative insolvency loomed.
"The volume and complexity of the information gathered to date and the discovery of additional areas of inquiry that were not fully anticipated at the outset of the examination led the examiner to conclude that a comprehensive investigation would require substantially more time and resources that allocated under the examination budget," the motion for more funding said. "The exigencies of the investigation created a difficult choice for the examiner: Either stop work and not complete the report contemplated by the court-approved work plan or continue his investigation and complete and initial report knowing that the examiner's and his professionals' fees and expenses would likely exceed the examination budget before there was any assurance that fees and expenses exceeding the examination budget would have a source of funding."
The examiner chose to stop work and issue an incomplete report in late April that still detailed at least some evidence of alleged impropriety.
First Brands and the ad hoc group of lenders both oppose any increase in budget, saying the existing budget was carefully negotiated and the examiner knew it ahead of when he started his work.
"Despite the established examination budget, the examiner now seeks entry of an order increasing it by $3 million — to a total of $10 million," First Brands' objection said. "Of this amount, at least $2 million reflects expenses the examiner has already incurred in excess of the approved budget, notwithstanding the examiner's prior knowledge that the ad hoc group did not consent to any increase or the use of its cash collateral to find the increased fees and expenses."
The ad hoc group's objection makes a similar case: "the examiner cannot now unilaterally shift the consequences of that decision [to exceed the budget] onto the debtors' estates, the ad hoc group, or other stakeholders in these Chapter 11 cases."
Furthermore, both groups argue, there's no money to be had for any increase in budget, nor is there room in any existing budget to carve out an escrow for the examiner. Plus, "an increase in the examination budget would elevate the examiner fee overages ahead of every other purported administrative and/or unsecured claimant who has waited, negotiated and/or compromised within the plan process, allowing the examiner to recover in full and on demand while others stand in line."
New plan and disclosure statement filed
First Brands filed an updated Chapter 11 plan and disclosure statement on Wednesday. They are the versions to be sent out to solicit votes for or against the plan and include some revisions. Redlined versions of both can be found here.
Bank of America v. Aequum
In an adversary suit that pits two of First Brands' lenders against each other, U.S. Bankruptcy Judge Christopher Lopez ruled on Wednesday ruled in Aequum could still sell inventory in its possession, but cannot use the $18 million in proceeds to pay its own bills.
Instead, it must maintain the status quo until the court can decide proper ownership of the collateral housed in a Cardone warehouse in Arlington, Texas. Aequum argued this would put it in default of its own loans and Bank of America argued the $18 million could become unrecoverable should Aequum continue to do business with it.
Lopez stressed provisions of contracts must be meaningful and have "work to do," and that he would read each provision as fact. "There's a bigger issue," he said, "and that's about whether the borrower in this agreement actually owned the assets."
It's equally clear, he said, the funds Aequum extended were used in ways the loan documents did not contemplate. Broad Street, the company that allegedly owned the collateral on which Aequum based its loans, was represented to have rights to the collateral. Also, Aequum thought the money was going to pay First Brands for the collateral when instead it went to Bowery Finance, a company owned by former CEO Patrick James and not part of First Brands.
Lopez found there was no evidence Broad Street purchased the collateral in either Cardone's or First Brands' books, and, because of that, previous liens seem to still hold.
"It's possible that assets could move theoretically from an indirect parent through a corporate transaction, but there's just no evidence that ever occurred," he said. "... The record contains to representation, no conduct, by what appears to be the record title owner here."
However, Lopez was clear this ruling should not be construed as to resolve who owns the inventory or whether a transfer actually occurred.
"Those questions are for trial," he said.
Both Bank of America and Aequum appeared to have extended credit in good faith and both may have been deceived, Lopez said, but the most equitable way forward is to preserve the proceeds of the collateral's sale as best as the court can until the issues are litigated, less the cost of selling the collateral. That, Aequum gets to keep, he said.
PGI acquires more assets
Premium Guard Inc. (PGI), who earlier in the year bought intellectual property (IP) from First Brands, has completed the purchase of more of the beleagured company's assets.
This transaction includes advanced production lines for oil, air and cabin filters in Albion, Ill., and manufacturing equipment from the legacy FRAM facility in Ohio. PGI said the Ohio assets will move to Albion, creating "one of the industry's most advanced filtration manufacturing operations in North America." PGI also acquired a research and development center and laboratory dedicated to filtration and water separation systems as well as inventory assets in the U.S. and Mexico.
"This transaction is much more than an acquisition of assets; it is a strategic investment in the future of Premium Guard and our customers," said Anan Bishara, founder and CEO of PGI. "The addition of advanced manufacturing capabilities, world-class engineering resources, expanded distribution infrastructure and experienced industry talent significantly accelerates our strategy of building a robust domestic manufacturing base and an even more resilient, diversified supply chain."
PGI said it will reinstate more than 300 jobs as part of the restart of operations with additional employment opportunities expected.
It also leased a 730,000 sq.-ft., distribution center in Kentucky and acquired its equipment from First Brands. This will be PGI's fifth distribution center in North America and will play a "pivotal role" in the relaunch and expansion of PGI's Luberfiner heavy-duty and industrial filtration programs.
"We are incredibly excited to bring this transaction to a successful conclusion," Bishara said. "The acquired assets, combined with the dedication and expertise of our team, position PGI to further strengthen iconic brands such as Autolite, TRICO and Luberfiner while continuing to invest aggressively in product innovation, customer service and supply chain excellence."
