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Law360 (September 23, 2020, 11:38 AM EDT) -- Canada-based auto parts maker Hematite Holdings Inc. can tap into $6 million of debtor-in-possession financing in its Canadian bankruptcy, an American judge ruled Wednesday, just a day after the company opened a Chapter 15 case in Delaware for recognition of the main foreign bankruptcy proceeding.
During an emergency hearing Wednesday, U.S. Bankruptcy Judge Mary F. Walrath gave provisional approval to an initial order already approved in Canada that will enable the auto parts maker to access $2.3 million of the $6 million DIP immediately.
Hematite counsel Todd A. Atkinson of Womble Bond Dickinson LLP told the judge the debtors were in danger of running out of money to fund operations by Friday if relief was not granted. Atkinson said the debtors may be back next week to ask the Delaware court to sign off on additional DIP funding, pending a court hearing in Canada planned for Monday to consider the same request.
Three Hematite affiliates in the U.S. and multiple Canadian affiliates opened the Chapter 15 in Delaware bankruptcy court late Tuesday for recognition of the foreign main proceeding, saying company operations have been hard-hit by the COVID-19 pandemic and resulting production shutdowns.
The company is seeking recognition in Delaware of a so-called foreign main proceeding and protection of its U.S. assets from creditors and claims. Unlike a Chapter 11 case, which implements an automatic stay shielding a debtor from litigation and collection efforts unless approved by the bankruptcy court, Chapter 15 debtors must petition the court for those protections and recognition of their out-of-country restructuring.
Judge Walrath set an Oct. 19 hearing to consider formal recognition of the foreign bankruptcy proceeding.
In her order, Judge Walrath said the debtors have shown provisions in the DIP are "fair and reasonable" and that the financing "is necessary to prevent irreparable harm to the debtors because, without such financing, the debtors will be unable to continue operations and fund their restructuring proceedings."
In an initial declaration filed late Tuesday, Hematite's chief treasury officer, Jacques Nadeau, said the company has reached an agreement with its key lenders and customers for Ontario-based Woodbridge Foam Corp. to serve as its restructuring sponsor.
Woodbridge is also set to provide the $6 million DIP to fund operations as the bankruptcy proceeds and to acquire the equity in the restructured company. Hematite, which filed for its Canadian bankruptcy on Sept. 18, plans to emerge from bankruptcy by the end of the year, according to court filings.
Hematite manufactures auto parts such as insulators, plugs, airflow management equipment and under-engine covers, and it counts Toyota, Fiat Chrysler Automobiles and Ford among its customers. The company has operated since 1978 in Canada and currently has manufacturing and industrial facilities there, according to court filings.
Hematite has expanded its operations into the U.S. with a production facility in Ohio and another in Tennessee that has not yet started operation, fillings said.
Hematite's debt includes about $14.5 million in secured debt owed to TD Bank, roughly $3 million in secured debt owed to BDC Capital Inc., about $10 million owed for leases at its Ohio location and about $16 million in trade debt.
In court filings, Hematite said its finances were hit hard by the COVID-19 pandemic as it had to halt production because North American auto manufacturers suspended their operations and temporarily ceased purchasing Hematite products.
The company reported that its gross sales between March and May were roughly 70% below what it had expected. Hematite said its estimated gross sales of roughly $6.6 million between March and May were well below the $21.4 million brought in over the same period in 2019.
The Canadian bankruptcy was filed in the Ontario Superior Court of Justice.
Hematite is represented in the Chapter 15 by Matthew P. Ward, Morgan L. Patterson and Todd A. Atkinson of Womble Bond Dickinson LLP.
The case is In re: Hematite Holdings Inc., case number 1:20-bk-12387, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Katherine Rautenberg and Jill Coffey.
Update: This story has been updated with Judge Walrath's ruling.
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