A federal bankruptcy judge in Missouri on Tuesday approved initial debtor-in-possession for Wauwatosa-based Briggs & Stratton to continue its operations.
The maker of small engines and lawn and garden products filed for Chapter 11 bankruptcy Monday after facing mounting financial challenges through the first half of the year. In connection with the filing, the company secured $677.5 million in financing, a portion of which was approved by the bankruptcy court.
Briggs also secured a $550 million deal for New York-based private equity firm KPS Capital Partners to acquire nearly all of its assets. That sale will go through a court-supervised process with an auction potentially taking place in mid-September. A KPS affiliate, Bucephalus Buyer LLC, will serve as the stalking horse bidder for the auction. The name is an apparent reference to the horse of Alexander the Great, which Judge Barry Schermer pointed out at Tuesday’s hearing.
Attorneys for Briggs are hoping for court approval of a sale in late-September with closing in November or at least by the end of the year pending regulatory approvals.
Attorneys for the company repeatedly described the $550 million figure as a floor and said the company hopes to increase that number during the sale process. As it stands, the proceeds from the sale of the company would primarily cover existing debt and leave little recovery for unsecured creditors.
Those unsecured creditors include around $195 million in notes that were to mature in December and helped kick off the financial challenges facing Briggs.
However, Robert Stark, an attorney representing some of those noteholders, suggested that the sale process may not be the best way to maximize the value of the company.
Stark acknowledged that it was not surprising Briggs ended up in bankruptcy court, noting the company faced a wall of debt and liquidity challenges during a critical time of the year.
“The bankruptcy comes at a pretty awful time for the company,” Stark said.
He contended that now that those pressures are somewhat removed by the bankruptcy filing the company and its stakeholders have a chance to evaluate alternatives to the sale of the business.
Briggs traditionally builds inventory in the second half of the calendar year in advance of the heavy selling season in the spring and early summer. A cash flow forecast submitted by the company for the next 13 weeks shows Briggs bringing in around $200 million and spending $333 million on operations.
The debt wall was kicked off by the $195 million in notes due in December. This spring, Briggs said it planned to sell off its products business to cover that maturity, but the emergence of the COVID-19 pandemic scrambled M&A markets and made finding a buyer difficult.
Briggs’ credit facilities also had a springing maturity in September if the notes were still outstanding at that time. As the company sought to find new financing to pay off the notes, its lenders gave Briggs first a June 15 and then July 15 and July 19 deadlines to find new capital in exchange for relaxing some financial covenants.
The company’s advisors reached out to more than 100 potential investors to find new capital and received eight term sheets that would have met the initial June 15 deadline. In mid-May, the company asked for proposals that would address long-term liquidity needs and the $195 million in notes.
Briggs received eight proposals, all of which called for a Chapter 11 bankruptcy process. Five of the proposals called for debtor-in-possession financing and a change of control of the company, two call for just DIP financing and one called for just a change of control.
The company sought a DIP financing proposal from JPMorgan Chase on behalf of its existing credit facility lenders. The two sides agreed to $450 million in DIP asset-based lending and a $265 million term loan. As JPMorgan began the process of syndicating the loan, KPS offered to fund the full amount on terms similar to what JPMorgan had agreed to. The bank also reduced its committed amount to $412.5 million for the ABL, reducing the fees.
While the financing provides Briggs with the liquidity it needs to operate, it also provides a process to repay some of the debt the company had going into bankruptcy.
Stark, representing the noteholders, questioned if the process would force a sale too early and if more value could be found through a plan for Briggs to emerge from bankruptcy.
Having KPS as both a lender and a stalking horse bidder does not send a message of anything but a sale, he argued, although he stopped short of objecting to the approval of the initial financing.
Peter Knight, an attorney for JPMorgan, said this is not a case of the lenders forcing a company to be sold to cover its debts.
“It’s a tough case, the numbers are what they are, the runway is what it is,” he said.
The next major hearings for the case will take place in August with the bid procedures for the auction potentially set on Aug. 11 and a final hearing on financing and other matters on Aug. 18.
