Film equipment maker Gloucester Engineering Co. would be owned by New York private equity firm Blue Wolf Capital Management LLC under a proposed reorganization plan filed Sept. 29 in U.S. Bankruptcy Court in Boston.
Gloucester Engineering President Carl Johnson said the company expects to emerge from bankruptcy by the end of the year.
The plan has the support of a committee of unsecured creditors, suppliers that collectively are owed $13.6 million. It must be approved by bankruptcy Judge Joan Feeney.
Blue Wolf would convert its secured debt into equity in a reorganized Gloucester Engineering. A pool of critical suppliers would also get a 5 percent ownership stake.
The plan is being sponsored by Blue Wolf Equipment Holdings LLC, an affiliate of Blue Wolf Capital Fund II. In March, three creditors filed an involuntary Chapter 7 case that would have forced the liquidation of the company in Gloucester, Mass.
But in June, the court converted the case to a Chapter 11 reorganization, and Blue Wolf provided $6 million in debtor-in- possession financing to ensure Gloucester Engineering's continued operation. That followed an earlier financing package from Blue Wolf.
This is the next step in executing our turnaround, Johnson said in a news release issued Sept. 29, the day the plan was filed. [Gloucester Engineering] has continued to operate efficiently since filing for Chapter 11 in June and there has been no disruption to our customers.
Johnson cited two recent orders, totaling $5.2 million, for blown film equipment to customers in Southeast Asia and Europe. Our customers have remained loyal as we have worked to improve our cash flow and streamline our organization, Johnson said.
The news release said unsecured creditors support the plan. Reached by phone, Boston lawyer Mark Berman said that is correct, although some details still have to be worked out.
Berman said members of the unsecured creditors committee think it's important to keep Gloucester Engineering an ongoing business.
The creditors committee believes that one of the best things that it can do for unsecured creditors is to assist the company in reorganizing so it can continue to carry on business and be a purchaser for suppliers in the future, as well as an employer of people at its plant, and hopefully be successful in the future, he said.
Another plastics machinery maker, Davis-Standard LLC, had filed court papers in June expressing an interest in buying Gloucester. Reached Sept. 30, Davis-Standard President Charles Buckley said he had just read the plan, and company officials have not decided their own plans.
We're still digesting it. We haven't made up our mind what we're going to do yet, Buckley said. We've got to decide if we want to come with our own reorganization plan.
Under the plan, Blue Wolf will convert its financing into a new revolving loan exit facility for $7.5 million, secured by all assets of the company, and convert its secured claims into full ownership.
A group of critical suppliers will get 5 percent of the fully diluted common stock of a reorganized Gloucester Engineering, according to the filing.
Gloucester Engineering will set up a fund of $514,000 to pay back unsecured creditors. Berman said that equals about 3.8 percent of the claims.
The critical suppliers are also unsecured creditors, so they would get both the money and the stock. The list of critical suppliers had not been made public yet. Berman said companies designated critical suppliers would agree to supply Gloucester Engineering with goods on credit, after the plan becomes effective.