Auto Parts Maker Shiloh Cleared For Del. Ch. 11 Sale Plan

By Jeff Montgomery
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Law360 (September 25, 2020, 9:08 PM EDT) -- Auto parts supplier Shiloh Industries received a green light Thursday for its Delaware Chapter 11 stalking horse sale plan, with an affiliate of private equity firm MiddleGround Capital LLC tapped as the bidder-to-beat with a $218 million offer for the business.

The decision positioned the company, which produces motor vehicle frames and other components for cars and trucks, to begin a more than month-long sale effort for the Ohio-based manufacturer.

MiddleGround affiliate Grouper Holdings LLC will serve as stalking horse for the bidding, which has a qualifying bid deadline of Oct. 26, to be followed by an auction on Oct. 29 if warranted and disclosure of the winning bidder on Oct. 30.

D. Reid Snellenbarger, a managing director and shareholder at Houlihan Lokey Capital, Inc. and restructuring adviser to Shiloh, said that Grouper's offer to serve as bidder-to-beat in the case requires payment of a $7.1 million "break-up" fee were the company to choose another buyer, as well as payment of up to $1.4 million in expenses.

"Importantly, the Stalking Horse bidder intends to continue operation of the debtors' business as a going-concern and, as a key part of the Stalking Horse agreement, has agreed to offer employment to all or substantially all of the sellers' existing employees," Snellenbarger said.

The break-up fee and expense agreement amount to 3.9% of the $218 million offer, Snellenbarger said, with both seen as customary in Chapter 11 sales.

Shiloh sought bankruptcy protection on Aug. 31 with $563.4 million in debt, reporting that the business had been shaken by a combination of factors, including international trade friction and production downturns associated with global economic troubles.

Disappointing results from newly launched initiatives and plant acquisitions, as well as COVID-19-related plant shutdowns, also put the company on a downward spiral.

In a case-opening declaration in August, Jeffrey Ficks, Shiloh's financial adviser and a turnaround specialist with Ernst & Young LLP, said that Shiloh and its affiliates were directly impacted by the COVID-19 pandemic, with more than half of the debtors' plants being entirely closed starting in early April 2020 and continuing into May.

Shiloh explored a range of sale or refinancing opportunities before filing for Chapter 11, Snellenbarger said, and received 17 indications of interest, including five financing offers, with the rest involving various acquisition proposals.

None of the refinancing offers, however, would have made the new debt fully junior to that held by Shiloh's current prepetition lenders.

"In Houlihan's judgment, in consultation with the debtors and their other advisors, the financing/recapitalization proposals submitted were not executable and/or would require the prepetition lenders' consent," Snellenbarger said.

Current lenders, he added, were unlikely to accept the "meaningful" impairment of their claims that would be needed.

The offer from Grouper Holdings includes an agreement to hire Shiloh's employees immediately after the deal's closing, with jobs to be retained at pay and benefits comparable to Shiloh's rates for at least six months.

Current schedules call for a sale hearing on Nov. 10, with the deal to close by Dec. 15.

The company has 3,400 employees and operates a network of manufacturing and technical centers in Asia, Europe and North America. It specializes in the development and production of lighter-weight metal alloy structural components for cars and commercial vehicles.

Shiloh Industries Inc. and its affiliates are represented by Daniel J. DeFranceschi, Paul N. Heath, Zachary I. Shapiro and David T. Queroli of Richards Layton & Finger PA and Thomas M. Wearsch, T. Daniel Reynolds Ben Stulberg, Tim Hoffmann, Brett Barragate, Peter Zwick and George Hunter of Jones Day.

The case is In re: Shiloh Industries Inc., et al., case number 1:20-bk-12024, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Steven Edelstone.

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