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June 24, 2019 − Privately-held HDR Holding, Inc. and one affiliated Debtor (trading as Schramm Inc., "HDR Holding" or the "Debtors") filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-11396. The Debtors, a Pennsylvania manufacturer and global supplier to the hydraulic drill industry, are represented by Sean T. Greecher of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) FocalPoint Partners, LLC as investment banker and (ii) Epiq Bankruptcy Solutions as claims agent.
The Company’s petition notes between 200 and 1,000 creditors; estimated assets between $50mn and $100mn; and estimated liabilities between $50mn and $100mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) DNOW L.P. ($5.6mn litigation claim), (ii) Hydro Air Hughes, LLC ($312k trade debt) and (iii) Doosan Infrasore Portable Power ($300k trade debt).
Chapter 11 Objectives
In a declaration in support of the Chapter 11 filing (the “Mayman Declaration”) [Docket No. 2], Craig Mayman, the Debtors' President, detailed Debtors' Chapter 1 objectives as follows: "The Debtors have been unable to satisfy their obligations under their secured credit facilities and are facing near-term liquidity issues. To address these challenges, the Debtors and their professional advisors, after considering all available strategic options, have determined that the best course to maximize the value of the Debtors’ estates is to initiate the Chapter 11 Cases for purposes of effectuating the sale of the Company as a going concern, while preserving the value of their assets, maintaining their business operations for the benefit of vendors and service providers, and ensuring that employees will be able to keep their jobs on substantially the same terms and conditions under which they are currently employed, which will maximize the value of the Debtors’ assets for creditors."
Events Leading to the Chapter 11 Filing
The Mayman Declaration Craig provides the following concise overview of the events leading to the Debtors' Chapter 11 filing: "Given its strong connections to the oil and gas industry, the Company has faced significant challenges pervasive in the industry over the past three to five years. Numerous oil and gas producers have significantly curtailed, if not entirely ceased, drilling new wells in response to declines in commodity prices that make such projects uneconomical. The result of this trend for the Company has been a reduced demand for both new rigs and for the related consumable drill parts as existing rig assemblies are idled, which has led to the Debtors failing to meet revenue projections and maintain compliance with the covenants under their prepetition credit facilities. The primary hurdles to the Debtors’ success are macroeconomic issues outside of their control and the Debtors’ unsustainable capital structure.
Section 363 Sale
The Debtors have announced that an acquisition subsidiary created by their existing private equity sponsor, GenNx360 Capital Partners, L.P. (“GenNx360”) which holds over 99.5% of the Debtors’ equity, has agreed to serve as a stalking horse bidder (the “Stalking Horse Bidder”) in a section 363 asset sale. The Stalking Horse Bidder has also agree to provide $6.0mn in debtor-in-possession ("DIP") financing. Pursuant to the terms of the asset purchase agreement between the Debtors and the Stalking Horse Bidder, the Stalking Horse Bidder has agreed to bid $10.3mn plus the balance owing under the Debtors’ DIP financing facility (ie an expected $6.0mn credit bid).
The Mayman Declaration gives the following background as to the Debtors prepetition marketing efforts in respect of a sale or refinancing: “The Debtors’ proposed investment banker, FocalPoint Partners LLC, contacted 146 strategic and financial investors regarding potential transactions. Of those parties, two (2) parties submitted indicative non-binding term sheets. One indicative term sheet sought to structure a transaction solely involving the acquisition of the Debtors’ secured debt along with some contingent consideration. While the other party originally contemplated a cash investment into the Debtors, along with a restructuring of the Debtors’ secured debt, after further diligence and discussions, this interested party indicated it would be only willing to provide such investment in connection with an acquisition of the secured term loan debt which it would use to bid on the Debtors’ assets in a court-supervised sale process. Ultimately, even this party chose to pass on the investment opportunity.
As their funds dwindled and no third-party acquirer emerged with a concrete proposal to satisfy the Debtors’ secured obligations, the Debtors were faced with the specter of immediately ceasing operations, laying off their remaining employees, and beginning a liquidation process.
Presented with this stark reality, the Debtors determined that a going-concern sale of their business in conjunction with a chapter 11 filing presented the best—indeed, the only—opportunity to preserve their going concern value, save jobs, and maximize recoveries for stakeholders.
After the Debtors carefully considered the indicative term sheets in consultation with their advisors, they determined instead to move forward with a proposal from GenNx360, which proposed to provide debtor-in-possession financing…for the Company to run a sale process and agreed to serve as the stalking horse bidder (the 'Stalking Horse Bidder') for substantially all of the Debtors’ assets."
About the Debtors
The Debtors are a West Chester, Pennsylvania based producer of industrial equipment founded in 1900 and their products are sold on every continent; with major market positions in China, Australia, Russia, Latin America, and Africa. Its customers include some of the largest rig operators in the world.
The Debtors specialize in the manufacture and sale of a variety of mobile, top-head hydraulic rotary drilling rigs that are mounted on trucks, tracks and trailers. These rigs are used primarily within the mining, oil and gas, and water end-markets where performance is critical. The various rig models provide drillers with a variety of options depending on the type of drilling being conducted, the required drilling depths, and the terrain surrounding the drilling site. In addition, the Debtors sell consumable drill parts required for the operation of Schramm rigs that naturally deteriorate as part of the drilling process (often referred to as “hammers and bits”), as well as other ancillary equipment. Further, the Debtors provide rig repair services to several of its customers on an as-needed basis.
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