Orchids Paper Products, a manufacturer and national supplier of high quality consumer tissue products, including paper towels, bathroom tissue and paper napkins, has entered into an option agreement (the “option”) with Orchids Investment (“OI”). The option gives the company the right to execute an asset purchase agreement with OI (the “purchase agreement”), through which, should the company exercise the option, OI would acquire substantially all of the company’s assets in exchange for a credit bid of approximately $175 million against the company’s obligations under its pre-petition secured credit facility plus other consideration.
OI is indirectly owned by a fund affiliated with Black Diamond Capital Management and Brant Paper Investment Company. To facilitate the potential sale and address its debt obligations, the company has initiated proceedings under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (“court”). The company has filed a bid procedures and sale motion with the court, and the purchase agreement will be subject to an auction at which higher and better offers may be made and will require court approval. The bid by OI comprises the initial stalking horse bid in the auction process. Subject to the results at auction, the closing of the transaction is subject to the satisfaction of usual and customary conditions, but the company anticipates the transaction will move swiftly and aims to complete the process no later than August 2019.
“The company began experiencing financial difficulty in late 2016 due to a number of factors, including unprecedented increases in input costs, most notably fiber and freight, which the industry has not yet been able to fully recover with price increases to customers; new competitive industry capacity driving down selling prices to defend and grow business; and construction cost overruns and start-up inefficiencies at its new production facility in Barnwell, South Carolina,” said Jeffrey Schoen, the president and chief executive officer of the company. “Ultimately it was determined that using the chapter 11 process to facilitate a potential sale was the swiftest and most efficient way to preserve stakeholder value and sustain business operations.”
OI also serves as the company’s pre-petition secured lender, and has agreed to provide debtor-in-possession (“DIP”) financing to support the company’s day-to-day operations during the pendency of the bankruptcy case. Current management will continue to lead the company during the pendency of the sale process, with operations supported by the DIP financing. The company intends to operate its business as usual while it works to complete the potential sale through the chapter 11 process. The company also has filed customary motions with the court seeking authorization to continue employee wages and benefit programs, permit payments on prepetition claims of our critical suppliers and other vendors, and maintain customer programs in the normal course in addition to certain other relief.
The company is advised by the law firm of Polsinelli; Deloitte Transactions and Business Analytics is the company’s interim chief strategy officer; and Houlihan Lokey Capital is the company’s financial advisor and investment banker.
