Menomonee Falls-based Arandell Corp. has secured a $31.3 million stalking horse bid in its ongoing Chapter 11 bankruptcy case.
The bid comes from Arandell Acquisition Co., an entity created by Pennsylvania-based private equity firm Saothair Capital Partners and an affiliate of Washington D.C.-based private investment firm Farragut Capital Partners. Farragut Mezzanine Partners III L.P. is among Arandell’s junior secured creditors.
Arandell, one of the largest catalog printers in the country, filed for bankruptcy on Aug. 13. The company says it is experiencing “significant cash burn” and entered bankruptcy with limited cash on hand because of competition, technological change in the industry and a sudden downward shift in retail demand from the COVID-19 pandemic. The company had worked over the first half of the year first on refinancing its debt and then on a sale marketing process.
Arandell and its advisors contacted 73 targets, including 27 potential financing sources and 46 financial or strategic buyers. From those targets, 14 parties provided term sheets or indicated interest and only the stalking horse bidder offered enough proceeds to cover the company’s existing senior debt and part of the subordinated debt.
The list of interested parties grew to 117 after the company’s bankruptcy filing, including 31 suggestions from the official creditors committee.
A potential strategic buyer did emerge with a potentially competitive offer to the AAC bid. Arandell negotiated with both until Sept. 25 when it decided to go with the AAC offer.
The offer includes a cash amount equal to the debtor-in-possession loan payment, estimated at $20.5 million, a $2.4 million credit bid from Farragut and AAC’s assumption of liabilities, including certain employee liabilities. Arandell had around 500 employees when the company filed for bankruptcy and paid around $1.9 million in gross wages each month.
The company is proposing an Oct. 13 deadline for objections to its bidding procedures and asking the court to approve them on Oct. 16.
Potential bids would be due by Nov. 13 with an auction taking place Nov. 18. The company hopes to hold a sale hearing Nov. 24 and close on a transaction by Dec. 4.
In court filings, Arandell says the deal needs to close by Dec. 4 to avoid the company losing access to the financing that has allowed it to continue operating during the bankruptcy case. Without the financing, the company could be forced to cease operations and liquidate its assets.
Another issue facing Arandell is the status of its lease for its headquarters and printing facility in Menomonee Falls. The company executed a sale-leaseback of the facility in 2016. Since the bankruptcy case was filed, the company’s landlord, an affiliate of New York-based real estate investment trust W.P. Carey Inc., has sought to force Arandell to pay around $1.06 million in unpaid rent.
The landlord says that after the pandemic the two sides discussed an agreement that would have deferred rent payments, but no final deal was ever reached. In its debtor-in-possession financing documents, however, Arandell says that the rent was either abated or deferred based on an agreement in principle with W.P. Carey.
CIBC Bank USA, which is providing the company’s financing, responded to the landlord’s claim but did not take a position on the allegations.
“If the landlord's allegations in the landlord objection are accurate, then that would render such representations of the debtors false or, at a minimum, misleading in a material respect,” CIBC said in a response, noting it reserved all rights regarding an event of default in the financing agreement.