Orchids Paper Products Company – Auction Goes 32 Rounds; Nets $32mn Over Stalking Horse’s Opening $175mn Credit Bid

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June 28, 2019 – The Debtors notified the Court hearing the Orchids Paper Products Company cases that (i) Cascades US Holding Inc. ("Cascades" or the “Purchaser”) had been designated as the successful bidder for Debtors' assets, with a $207.0mn cash bid, and (ii) Orchids Investment LLC (“OI,” an acquisition vehicle formed by the Debtors' prepetition, and DIP, lender) has been designated as the Backup Bidder, with a $206.0mn credit bid [Docket No. 302]. 

The final result substantantially advanced on the stalking horse bid of credit bidding OI, which had set the floor with a $175.0mn bid and is likely to please the Debtors' Official Committe of Unsecured Creditors (the "Committee") who had objected vigorously to OI's bid (and a scant $500k to be left at the liquidating Debtors). As at the Petition date, the Debtors' had total liabilities of $271.0mn, so there will now be proceeds available for distribution for creditors sitting below OI and its $175.0mn of senior debt. The Committee, which had requested that any sales proceeds be placed in escrow, has not yet officially reacted to the auction results; although any remaining objections will be raised at the currently scheduled July 1st sale hearing.

The lively auction was summed up in a declaration filed by financial advisor Houlihan Lokey [Docket No. 312]: 

"After thirty two (32) rounds of competitive bids between Orchids Investment and Cascades over the course of approximately thirteen (13) hours, Cascades made a final bid with a cash purchase price of $207 million plus certain additional cash payments as set forth in the Agreement, assumption of the Assumed Liabilities, and numerous value-producing alterations to its proposed asset purchase agreement as announced on the record during the Auction."

Committee Objection

On June 26, 2019, the Committee objected to the proposed sale of the Debtors' assets to its credit-bidding, prepetition (and DIP) lender, OI [Docket No. 293]. The Committee cited numerous flaws with the proposed sale and particularly objects to (i) the stalking horse's failure to assume certain liabilities, leaving them with the under-funded, liquidating Debtors (having made off with all of the Debtors' assets), (ii) the stalking horse's ability to credit bid for assets over which it has no lien (eg cash) and (iii) the Debtors' general failure to actually determine the value of the assets being sold. The objection concluded with a request that sale proceeds be escrowed pending an asset valuation process, although this would seem relatively pointless in the event of a sale to the stalking horse who is only intending to pay $500k in cash; an amount that the Committee argued is already woefully inadequate and likely to leave the Debtors administratively insolvent.

About Orchids Paper

Orchids Paper Products Company is a leading national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to primarily to retail chains throughout the United States.

The Company is headquartered in Brentwood, Tennessee with manufacturing locations in Pryor, Oklahoma and Barnwell, South Carolina.

The July 1st sale hearing is still scheduled as previously planned.

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