U.S. Bankruptcy Judge Burton Lifland has given Nicos Polymers Group permission to use the company's cash collateral to fund its daily operations during bankruptcy, and has appointed a court mediator to help Nicos and its main creditor restructure how the company's outstanding long-term debt can be repaid.
“We are continuing negotiations with the lender,” Fifth Mezzanine Partners II LP, said Nicos CEO Kevin Cronin in a phone interview Oct. 29. “We will start discussions early next week” under the supervision of mediator Bettine M. Whyte of the court-annexed mediation program for the U.S. Bankruptcy Court of New York.
Those two rulings Oct. 28 by Lifland, which allow Nicos to use cash collateral, represent a victory for the Nazareth, Pa., industrial plastics recycler, as Fifth Mezzanine had filed a motion to prevent that.
Earlier this week Cronin told Plastics News that he doesn't expect Nicos, which filed for Chapter 11 bankruptcy Oct. 13, to be in bankruptcy very long.
“The situation is not nearly as dire as it has been painted,” said Cronin. “Our cash flow is positive at this time and there has been no disruption to day-to-day business. Our problem is simply an issue of long-term debt service. There is no encumbrance on our business except the long-term debt.”
“This is a dispute with the lender over how we structure that debt,” said Cronin. “We expect our stay in bankruptcy proceedings to be relatively quick.”
How long the court-supervised mediation between Nicos and Fifth Mezzanine will last is unclear. But Judge Lifland did state in his court order that he thinks mediation could bring an end to the bankruptcy. “The court finds that the dispute could potentially be resolved by referral into the court-annexed mediation program,” he said.
Cronin said the next bankruptcy court hearing date will be Nov. 16, and Nicos will continue to operate its business as it normally does.
“We are taking steps to make sure the bankruptcy does not have an impact on day-to-day operations,” said Cronin. “We will continue to operate our machines. They will not go down. We have 106 employees and that number will not change.”
In an affidavit filed Oct. 13 with the court, Nicos — which was purchased three years ago by the investment group CrownBrook Debco LLC — said it had debts, as of Oct. 13, of more than $22 million compared to an aggregate net book value of cash, accounts receivable, inventory, fixed assets and other assets that were just $4.3 million.
Most of Nicos' debt is the $18.33 million long-term debt owed to Fifth Street, which helped CrownBrook Debco finance the acquisitions six months apart in 2007 of plastic recyclers Debco Plastics Inc. in Freeport, N.Y., and Nicos Polymers & Grinding Inc.
But Fifth Street said in its motion that the debt is actually higher — exceeding $20.3 million, not $18.33 million that Nicos claims it to be.
A holding company, CrownBrook Acquisition, is the majority member of CrownBrook Debco and owns about 81.09 percent of its membership interests.
Debco and Nicos had sales of $7.5 million and $13 million, respectively, before they were purchased by CrownBrook in 2007.