The hearing of the Grede Foundries first day motions is now on its third continuance – July 1 to July 2, July 2 to July 6 and now July 6 to July 13. While it is unusual for a hearing on first day motions to be continued 3 times and extended for 13 days, we believe that this is understandable given the switch in direction of this bankruptcy when DDJ Capital Management, LLC (”DDJ”) jumped in front of the 363 sale strategy the Debtor had planned. In the meantime, certain other aspects of the case go forward.
Perhaps the best way to understand the impact of the DDJ DIP financing is by analogy to a medical patient. Grede Foundries was wheeled into the operating room (bankruptcy) on the morning of June 30, 2009 in a coma. Its vital organs were failing one at a time. Brain function was declining. The doctors had declared the patient would never awaken from the coma. The doctors had recommended to the family that the best thing to do was to transplant the healthy organs. (A Section 363 bankruptcy sale does just that. It takes the healthy parts of a business and puts those parts in a new company. The bad parts are left behind.)
After the patient had been wheeled into the operating room and just as the first incision was made, a miracle occurred. The patient opened its eyes.
Now the patient is still in bad shape. Immediate treatment is still required. Organs are still failing. However, instead of harvesting the patient organs for transplant, the patient now needs to be re-evaluated to see what can be done to return it to health. Not only does the patient need to be re-evaluated and a new treatment strategy developed, the doctors who had recommended the harvesting of the organs probably are going to be scrutinized as well.
So that is what we speculate is happening to Grede. This is not a problem with the Bankruptcy Court. The problem is that every aspect of the planning of this bankruptcy has to be re-examined. This includes certain of the first day motions and the professionals. Everything that normally is done prior to a planned bankruptcy filing is being done again. This takes time.
The bottom line is that it is possible that there may be major changes in the motions and professional lineup when the first day motion hearing reconvenes on Monday, July 13, 2009 at 10:00 am.
The DDJ DIP financing provides the necessary breathing room. However, the delay does have a downside. The customers will hate the increase in uncertainty in an already uncertain situation. Although accommodation agreements are in place with the vast majority of the customers, the pressure the customers are feeling to pursue resourcing alternatives (no matter what the cost) just mounts with time.
In the meantime there have been a few developments of interest. One of them is the creditors committee appointment. On July 8, 2009, a 6 member creditors committee was appointed by the US Trustee. As is often the case, all the committee members are on the top unsecured creditor list. The committee members are:[table "36" not found /]
One item to note is that the claim of Consolidated Mill Supply, Inc. of $7,000,000 was listed as disputed. While that would have been considered by the US Trustee in making the appointment, it did not preclude the appointment.
The first job of the creditors committee — appointment of its counsel, and yes, that lawyer gets paid for by Grede as well.
Finally, suppliers should not loose track of one critical deadline. Reclamation claims must be made withing 20 days after the petition filing. Although Grede is having to do a restart the deadline remains the same. Suppliers may want to take a look at our article on bankruptcy creditor rights.