As a result of cash shortages and a lack of financing, North American Specialty Glass (NASG) shuttered its doors in September 2012, thereby terminating its entire workforce. By mid-October, the industry leader in the manufacturing of safety glass was back on its feet having been sold through a 363 sale to Boulder, CO-based Grey Mountain Partners Fund II, LP. The Chapter 7 Trustee, Robert H. Holber, supported by Flaster/Greenberg attorneys William J. Burnett and Steven D. Usdin and Edward Gavin and Stanley Mastil were among the professionals who worked tirelessly to bring about a rapid and shatterproof solution.
Editor’s note: This is the third and final part of a three-part series that delves into the unique situations recognized by this year’s Turnaround Management Association (TMA) Turnaround and Transaction of the Year Awards. Gavin/Solomonese’s work at North American Specialty Glass won in the Transaction of the Year for the Small Sized Company category. The series will first appear in conjunction with the TMA’s Annual Conference in Washington, D.C. on Oct. 3-5.
ABL Advisor: Please describe the significant events that occurred for North American Specialty Glass that resulted in the company’s troubles, which included the shortage of cash and its inability to obtain financing and its ultimate Chapter 7 filing?
Ted Gavin: North American Specialty Glass had been experiencing cash shortfalls and operating problems for quite some time. By the time a cash crunch hit in the summer of 2012, the company had been through multiple forbearance agreements with its secured lender and had no hope of securing additional or replacement financing. The Debtor had run out of room. The bankruptcy case was filed in the eve of the deadline for a UCC Article 9 sale by the secured lender to Dynamic, the party that would ultimately became the stalking horse bidder in the bankruptcy sale. A chapter 7 filing was chosen over what might have been a more traditional chapter 11 filing because of the impossibility of the Debtor to fund the costs of a chapter 11 proceeding.
ABL Advisor: Could you describe the unique nature of this Section 363 sale to Grey Mountain, which the TMA write up notes wasn’t the highest purchase price, but turned out to be the overall best bid?
Gavin: Perhaps the most unique aspect of this transaction was that it was the sale of a non-operating chapter 7 debtor in a manner generally similar to how a chapter 11 sale of a going concern would have been conducted, and with the same priorities and indicators of value. The ultimately successful bidder, Grey Mountain, was not the highest bid in terms of pure dollars on the table, but there were several factors which weighed on the Trustee's business judgment in making them the best bid: first, Grey Mountain was determined to have the most reliable financing; perhaps most importantly, Grey Mountain committed to reopening in place and preserving the jobs lost when the company closed across all levels of the company, and; because of these qualities, this transaction also had the support of the junior secured creditors as well, who agreed to benefit the chapter 7 estate by waiving their liens.
ABL Advisor: The TMA write-up mentions a number of diverse parties involved in this transaction. Is there anything you’d like to share with our readers as to how these parties were brought together to achieve this result?
Gavin: This was clearly the result of solid professionals and a willing buyer coming together to creatively find the best solution available for the whole of the company's stakeholders. Grey Mountain got a ready workforce, the employees got a new employer free from the burdens of a sick capital structure, the customers got a capable supplier; the lenders got value, the bankruptcy estate got value and eliminated millions of dollars in potential claims against it. Each party at the table had something to contribute to the solution and it was one of those rare occasions, not often seen in chapter 11 sales, where the interests of one party didn't necessarily impair the interests of another. At the center of it were the Chapter 7 trustee and his counsel, who did a masterful job putting those pieces together.
ABL Advisor: What made this transaction particularly gratifying for you as a turnaround professional?
Gavin: It's the jobs – it's always the jobs. Being a part of restoring jobs to a workforce still reeling from the closure of their employer is a source of pride. Sales of operating companies come and go; sales of defunct company assets are routine. But taking a failed company and bringing it back to life with the same workforce is special. Sometime after my partner Tom Hays had purchased a company out of bankruptcy that had been devastated by ownership problems and a fire that destroyed its plant, he brought his kids to see the rebuilt plant. One of the workers told his young daughter the story of how Tom's buying the company saved their jobs. A while later, her classmates had to describe what their parents did for a living to which Tom's daughter announced, "My daddy saves jobs." That's the shadow I grew up in as a turnaround professional, so it's a huge privilege that our firm was able to be a small part of bringing this to fruition.