For an estimated 2,200 vendors, holding approximately $30 million in outstanding pre-petition claims, the bankruptcy filing on August 25, 2010 (Delaware Bankruptcy Case No: 10-12636) of Oriental Trading Company, Inc. and 4 affiliated companies (the “Debtors”), is cause to take a long, deep breath. A critical vendor motion, if granted by Bankruptcy Judge Kevin J. Carey, will offer the possibility of critical vendor payments capped out at $15 million, and the top 27 unsecured trade creditors (see chart below) are owed more than $18 million. Additionally, this bankruptcy fits a classic retailer bankruptcy profile for heightened risk of the case ending in the formation of a litigation trust for pursuit of preference claims.
The Debtors and their Business
In addition to Oriental Trading Company, Inc., the 4 other affiliated debtors are OTC Holdings Corporation (lead debtor); OTC Investors Corporation; Fun Express, Inc.; and Oriental Trading Marketing, Inc. The location of the Debtors’ corporate headquarters is Omaha, Nebraska. Based on the statistical information in the petitions, only Oriental Trading Company, Inc. and Fun Express, Inc. have substantial day to day operations.
In their first day motions and supporting affidavit, the Debtors provided the following description of their businesses:
The Debtors are the largest direct marketers and internet retailers of party supplies, novelties, toys and children’s arts and crafts in the United States. The Debtors are also the leading direct marketers of school supplies and value-priced home decor and giftware in the United States. The Debtors market their merchandise to various customer segments, including individual consumers, teachers, schools, churches, non-profit organizations and businesses.
The Debtors market approximately 25,000 products. Additionally, the Debtors explain that more than 83% (by dollar volume) of their purchases are from overseas vendors and to make these purchases the Debtors use foreign purchasing agents, which provide “essential services in procuring the manufacture and purchase of goods abroad and the delivery of such goods to the Debtors.”
The Reason For the Bankruptcy Filing – Massive Secured Debt
The Debtors are drowning in secured debt of approximately $403.6 million in respect of first priority secured loans and $186 million in second priority secured loans. An extensive pre-petition effort to find a buyer for the Debtors yielded offers that would not cover even the first priority secured loans.
With this secured debt picture, the trade and other unsecured creditors are way, way, way underwater. The unsecured trade creditors have only 5 potential sources of recovery of pre-petition claims: reclamation claims; 503(b)(9) claims; a critical vendor payment; the sale of the Debtors and assignment and assumption of supply contracts; and formation of a “litigation trust”, or similar vehicle, to pursue recovery of preference claims. (We will address the critical vendor motion and the messages it gives to the trade creditors in a future note.)
Listing of 30 Top Unsecured Claimants
The Debtors have listed the following creditors as being their 30 top largest unsecured creditors on a consolidated basis.
Several of the claims were “checked” as contingent, unliquidated, disputed or subject to setoff, but without indication of which of these categories applied.
The following list also does not include any creditor contact information that may have been included by the Debtors.
|Name of creditor||Nature of claim||Claim is contingent, unliquidated, disputed, or subject to setoff||Amount of claim|
|SECOND LIEN HOLDERS||BANK LOAN||$185,837,870.00|
|MEZZANJNE DEBT HOLDERS [fn1]||BANK LOAN||$85,706,030.00|
|BSM ENTERPRISE LTD||TRADE DEBT||x||$4,256,606.00|
|WORLD COLOR LOGISTICS||TRADE DEBT||$2,767,260.00|
|YEKO TRADERS/CHINA||TRADE DEBT||x||$2,001,367.00|
|INTERTEKTESTING SERVICES||TRADE DEBT||x||$1,230,679.00|
|EPSILON DATA MANAGEMENT LLC||TRADE DEBT||x||$570,000.00|
|FORSYTHE SOLUTIONS GROUP, INC.||TRADE DEBT||$504,089.00|
|FEDERAL EXPRESS CORP.||TRADE DEBT||x||$445,035.00|
|LUCKY WORLDWIDE||TRADE DEBT||x||$362,250.00|
|OMNIGLOW CORPORATION||TRADE DEBT||x||$355,878.00|
|AMERICAN PRESIDENT LINES, LTD||TRADE DEBT||x||$354,957.00|
|NEW SUCCESS||TRADE DEBT||x||$350,968.00|
|GLEACHER & COMPANY SECURITIES INC||PROFESSIONAL FEE||$345,000.00|
|DIVERSIFIED SOLUTIONS||TRADE DEBT||x||$295,524.00|
|HERSHEY’S CHOCOLATE USA||TRADE DEBT||$256,029.00|
|EXPERIAN MARKETING SOLUTIONS||TRADE DEBT||x||$233,093.00|
|YAHOO! SEARCH MARKETING||TRADE DEBT||x||$193,682.00|
|ALISIOS INTERNATIONAL CARP||TRADE DEBT||x||$192,975.00|
|MICROSOFT CORP||TRADE DEBT||x||$187,841.00|
|HAY NIEN COMPANY, LIMITED||TRADE DEBT||x||$176,336.00|
|CREATIVE CONVERTING||TRADE DEBT||x||$165,400.00|
|JIESEN TRADE CO., LTD||TRADE DEBT||x||$162,929.00|
|NESTLE USA, INC.||TRADE DEBT||$139,338.00|
|CONCORD DIVISION OF TRI SALES||TRADE DEBT||x||$124,054.00|
|HOSPITALITY MINTS||TRADE DEBT||x||$114,368.00|
|TOOTSIE ROLL INDUSTRIES||TRADE DEBT||x||$108,086.00|
The Top List does not include: (1) persons who come within the definition of “insider” (a footnote to the table explains that the amount listed for the Mezzanine Debt Holders “excludes the portion of debt known to be held by insiders”); or (2) secured creditors, unless the value of the collateral is such that the unsecured deficiency places the creditor among the holders of the largest unsecured claims.
Bankruptcy Rule 1007(d) provides that a debtor shall file “a list containing the name, address and claim of the creditors that hold the 20 largest unsecured claims, excluding insiders.” Fed. R. Bankr. P. 1007(d). In the case of a multi-debtor filing, it is likely that many creditors are shared among certain of the debtors. This is especially the case where the debtors operate as a single business enterprise. Under these circumstances and provided that there is a request for joint administration, it is common for multiple, related debtors to request authority to file a single, consolidated list of their collective largest general unsecured creditors. These requests usually are granted by the bankruptcy court.
The Top Unsecured Creditor List is never to be considered a waiver of any defense to or “allowability” of a listed claim or an admission of the amount of any listed claim. It is common for the amount of the claims to shift and sometimes a claim that is initially is undisputed is later disputed. Creditors should always consult the official claims register.