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Chapter 11 Case Study: Cypress Manufacturing

The Situation

The management of Cypress Manufacturing, LLC came to Greenberg & Bass with a familiar problem.  The owners had paid too much for the business and sales revenues had plummeted in the recession.  With bank debt at an unacceptable level and trade payables mounting, something had to be done to dramatically reduce the run rate and at the same time, increase sales.  In the period leading up to the Chapter 11 filing, management was pre-occupied with putting out fires and dealing with a chorus of growing demands that placed the company’s ability to remain in business at risk.  The client is a high quality manufacturer of mid tonnage plastic molds used to produce large quantities of plastic products for the aerospace and defense industry.  Secured claims totaled just under $2 million requiring monthly debt service of $27,000.  Unsecured claims totaled just under $1,550,000.

The Problem

The Company could not sustain the ongoing monthly payment requirement imposed by its secured lenders.   It could not keep up with its trade debt.   Its capital assets comprised of aging machines and equipment, although completely functional and in daily use, had depreciated significantly.  Business expense was not being properly controlled.

The Fix (The Reorganization Plan)

The primary lender’s secured claim of $1,418,351 was reduced to $275,000, consistent with the appraised value attributed to its collateral.  Payments were adjusted to reflect the reduction.  The balance of $1,143,350 became unsecured.  The secondary lender’s secured claim of around $360,000 was shifted entirely to unsecured.   The total amount of unsecured debt therefore increased to $3,037,682.   The payment to unsecured creditors was ten cents on the dollar.   The Company will pay that over a period of 5 years.   At the same time, management was able to substantially reduce operating expenses, including payroll.   Layoffs became a necessary part of the reorganization.

Final Results

On March 1, 2012, the Client successfully emerged from Chapter 11 with a confirmed plan of reorganization.  It had almost unanimous support from various classes of creditors.   The owners put up additional capital to fund out of the reorganization.   The post plan balance sheet is much healthier.  Monthly operating statements show profit and further efforts continue in the direction of seeking out new business. Much greater attention is paid to the expense side of operations.  The period of time from filing to plan confirmation was just over one year.