Huron Consulting Group is serving as financial advisor for Northwest Hardwoods, which took the next step in implementing its restructuring support agreement by filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. All of the company’s first day motions were approved by the court on an interim basis, which enables the company to run operations, supply customers and pay vendors per the normal course of business. The court authorized Northwest Hardwoods to use more than $22 million of available cash to pay all critical vendors and other service providers any pre-bankruptcy amounts owing as invoices for those amounts become due and owing.
Earlier this month, Northwest Hardwoods entered into the RSA with holders of more than 95% in principal amount of the company’s secured notes and certain of its existing equity holders to execute a transaction that will de-lever its balance sheet by approximately $270 million.
“Today marks an important milestone in our process to significantly reduce our debt so we can re-invest in long-term growth,” Nathan Jeppson, CEO of Northwest Hardwoods, said. “Throughout this process, we will continue to serve our customers and deliver on our mission of delivering the best hardwoods products in the industry. Given the strong level of support from our lenders and creditors, we expect to complete this process over the next 60 days.”
The RSA accomplishes several key objectives, including: 1) the reduction of Northwest Hardwoods’ debt by $270 million, 2) the reduction of debt service obligations, thereby increasing cash flow available for re-investment in the business and 3) the accomplishment of these objectives without reducing employee pay or benefits and with no expected impairments to customers or vendors.
Upon resolution, the secured noteholders will convert their approximately $379 million of secured notes into $110 million of new exit term loans and 99% of the equity in reorganized Northwest Hardwoods (subject to dilution by a management incentive plan). The remainder of the reorganized equity will be reserved for Northwest Hardwoods’ existing equity holders. In addition, Northwest Hardwoods received a commitment from Bank of America and Wells Fargo to refinance the existing ABL facility as part of the financial restructuring, ensuring that the company will continue to have access to a working capital facility going forward.
This approach will ensure that the company’s operations continue without interruption, with employees, suppliers, vendors, contract counterparties and other trade creditors continuing to be paid in full and in the ordinary course.
An ad hoc group of the holders of Northwest Hardwoods’ secured notes encompassing more than 90% of the company’s secured notes expressed its support of this agreement. A statement from the ad hoc group said, “We believe in the long-term growth of Northwest Hardwoods, its incredible employees and the strength of its management team. This action will allow the company to meaningfully reduce its overall debt without any interruption to current operations. We look forward to a successful process and future for Northwest Hardwoods”.
Northwest Hardwoods is represented by Gibson, Dunn & Crutcher and Young Conaway Stargatt & Taylor as legal co-counsels. The secured noteholders are represented by Willkie Farr & Gallagher as legal counsel and Guggenheim Securities as financial advisor.
Northwest Hardwoods is a manufacturer of North American hardwood lumber based on sawmill capacity, with current estimated annual hardwood lumber capacity of approximately 320 million board feet. Its North America operations include 20 facilities that produce more than 20 species of domestic hardwoods.