Northwest Hardwoods Inc., the largest hardwood lumber producer in US, retreated into Chapter 11 in Delaware last week, saying fallout from trade disputes with China and the blighting of markets by the COVID-19 pandemic had stunted its ability to service more than $420 million in secured debt.
The ongoing COVID-19 pandemic has pushed several lumber companies into bankruptcy. Northwest Hardwoods became the latest to seek Chapter 11 protection with more than $420 million in debt.
The company reported plans for a restructuring and refinancing after telegraphing its moves on Nov. 6 by announcing completion of a restructuring support agreement, backed by noteholders, that would deleverage its balance sheet by some $270 million.
Much of the company’s debt is tied to its acquisition in 2014 by private equity Littlejohn & Co. LLC. A big part of the restructuring calls for a debt-for-equity swap with noteholders, handing control to lenders.
The business operates from 20 mill locations in America’s West, the Appalachian region and the American North from Wisconsin to Maine, with three combination distribution and warehouse centers and 13 other leased warehouses. In its declaration, the company reported that it serves 2,000 customers worldwide, providing a variety of domestic hardwood lumber, exotic hardwood lumber, hardwood plywood panel products, and other wood products.
“Since 2018, the company’s ability to continue servicing its funded debt has been hampered by significant and unanticipated hurdles resulting from increasingly aggressive trade restrictions between the U.S. and China,” Nathan Jeppson, Northwest’s president and chairman, said in a court-filed declaration.
Jeppson said a “material portion” of the company’s sales have recently come from the Chinese a market “and sales projections over the past several years have been tied to an uptick in Chinese demand.”
The company’s secured debt includes $42.3 million in asset-based loans administered by Bank of America and maturing in July 2022. Bank of America also administers $275.4 million in notes issued in 2014 and maturing in August 2021 and 103.3 million in notes issued in 2015 and also maturing in August 2021.
In addition, the business reported $31.2 million in general unsecured obligations. Its largest unsecured debt is a $2.4 million promissory note issued to Virginia-based Keystone Transportation Solutions.
Jeppson said agreements in the Northwest’s restructuring support plan and its going concern value depend on a prompt exit from Chapter 11, with the debtor’s target for emergence from bankruptcy initially set at Jan. 22, 2021. The schedule assumes a Dec. 16 voting deadline for the plan and combined disclosure statement and confirmation hearing on Jan. 6, 2021.
Most of Northwest’s woods are used in “visible” products, such as cabinets, hardwood flooring, molding, furniture and other high-value applications, Jeppson said.
The restructuring proposal anticipates a new, $100 million asset-based revolving credit loan agreement secured by first lien on key collateral and a second lien covering the rest of the company’s assets.
Secured noteholders will receive proportional shares of 99% of the reorganized company’s equity, with the remaining 1% distributed to prepetition equity holders along with shares of a $110 million term loan.
A disclosure statement filed at the opening of the case estimated recoveries for secured noteholders at 52% of their claims, with recoveries by existing equity holders valued at $995,000.
A liquidation analysis included with the disclosure statement reported the estimated book value of the business as of Oct. 31, 2020, at $357.3 million. Recoveries under a Chapter 7 liquidation, rather than the Chapter 11 reorganization now planned, would range from a low estimate of $113.3 million to a high of $162.5 million. Secured noteholders would recover an estimated 14% to 23%, far below the anticipated amount under the restructuring.
NWH is the largest United States manufacturer of North American hardwood lumber based on sawmill capacity, with a current estimated annual hardwood lumber capacity of approximately 320 million board feet. Its North America operations include 20 facilities that produce over 20 species of domestic hardwoods. The company serves more than 2,000 active customers across over 60 countries.
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