Here's what you need to know
- First Brands reached a deal to sell its Horizon North America business to a subsidiary of Flex-N-Gate for $64 million.
- Creditors and the U.S. trustee have significant issues with First Brands' path forward out of Chapter 11 and how it's proposing to pay what it owes.
- Stage is set for U.S. Bankruptcy Judge Christopher Lopez to decide Tuesday whether the case proceeds as Chapter 11 or moves to liquidation under Chapter 7.
First Brands Group, the beleaguered aftermarket business flailing through fraud allegations and a labyrinthine bankruptcy case, has notched another deal to sell one of its working lines of business.
Horizon North America is proposed be sold to a subsidiary of Flex-N-Gate, an automotive supplier owned by Shahid Khan. It has more than 70 manufacturing and research and development facilities around the world. It owns brands such as Ventra Plastics, Ventra Lighting, and FLEX-ION. The deal will net First Brands $64 million and could save up to 1,000 jobs. The U.S. Bankruptcy Court for the Southern District of Texas must approve the sale.
[RELATED: Court-appointed examiner reveals findings in First Brands bankruptcy]
Horizon North America makes towing, hitching, trailering, jacks and couplers, and cargo management solutions under the brand names Horizon, REESE, Tekonsha, DrawTite, Bargman, Fulton and Bulldog.
The proposed Horizon sale is more complicated than previous deals for Walbro, TMD and intellectual property owned by First Brands. To complete the sale of the North American business, it must also settle the severance of Horizon's European business to allow for the transfer of assets to Flex-N-Gate's subsidiary. The court must approve that settlement as well.
A hearing on the sale will be held on Tuesday.
Chapter 11 plan draws ire, Chapter 7 motion filed
Also on Tuesday, U.S. Bankruptcy Judge Christopher Lopez will decide how the Chapter 11 cases will go forward.
First Brands has filed several revisions to its Chapter 11 plan and settlements, which will determine, ultimately, how its creditors — who are owed billions — will be paid. Each revision has been met with a wall of objections, including from the U.S. trustee, who acts as an independent federal watchdog in the case.
[RELATED: Former First Brands executives push for delay in criminal trial]
The trustee has moved that the First Brands case be converted to a Chapter 7 case, which is a liquidation, instead of the reorganization and wind-down proposed in the plan and settlement.
"A fundamental requirement in Chapter 11 is that a plan cannot be confirmed unless all administrative expenses are paid in full on the effective date," the trustee's motion to convert or dismiss the Chapter 11 cases says. "(T)he debtors are administratively insolvent and have no ability to confirm a Chapter 11 plan that meets this requirement of the Bankruptcy Code. Therefore, the cases should be converted to Chapter 7 or dismissed."
[RELATED: Court filings detail alleged wrongdoing in First Brands’ collapse]
First Brands answered the trustee's allegations in revisions of the plan and related motions, saying the way the plan pays for administrative claims conforms to the bankruptcy code. Without this plan, the company says, very few claims would get paid as the biggest creditors are owed more than the company presently has on hand.
"Absent the global settlement, the DIP secured parties would assert an entitlement to credit bid their secured claims (or foreclose) to become the outright, indefeasible owner of substantially all of the FBG debtors' assets without any obligation to monetize assets for the benefit of other creditors," filings say. "(T)he FBG debtors believe that under the global settlement, all relevant claimants (including administrative, priority and unsecured creditors of the FBG debtors) will receive more than what they would have otherwise received absent the settlement."
First Brands under pressure
In a Wednesday hearing in Houston, counsel Clifford W. Carlson says time is not on First Brands' side. The company, which has faced numerous liquidity crises in the past, appears to be on the verge of yet another.
"At any given time, the debtors have approximately $10-15 million in unrestricted cash above the $25 million liquidity requirement," says interim CEO Charles Moore in a declaration supporting the compressed proposed confirmation schedule of the Chapter 11 plan and settlement. With each sale that closes, First Brands faces the end of a funding stream from its OEM partners that's effectively keeping the business afloat. "The debtors' remaining operations have substantially wound down and the debtors are no longer generating meaningful cash flow from their businesses sufficient to support the continued administration of these Chapter 11 cases."
He continues that if the debtors don't beat the liquidity clock, they will be forced into a Chapter 7 liquidation, which Moore says "would be value-destructive for all stakeholders."
Even with the approval of a compressed timeline, First Brands still may run out of money.
"Even such (a) proposed timeline is not without risk in light of the debtors' existing access to liquidity," Moore says. "I believe that any material delay to the timeline proposed would place the global settlement and creditor recoveries at significant risk."
Lopez acknowledged the liquidity difficulties in court on Wednesday, but also said the complexities of the case demand all parties have sufficient time to read and understand the Chapter 11 plan and settlement. The court was supposed to hold a hearing on the plan and a path forward Wednesday, but negotiations and revisions continued, forcing a continuance to Tuesday, when a hearing was already set on the proposed Horizon sale.
"I understand timing is important," Lopez says. "We have to go forward one way or another. Tuesday is the day I'll have to make a decision."
