Apparatus

Creditors Approve American LaFrances Reorganization Plan

Issue 5 and Volume 13.

A bid to revive bankrupt American LaFrance cleared a major hurdle late last month with an overwhelming vote by the company’s unsecured creditors to accept a plan of reorganization that pays those who are owed the most money less than 25 cents on a dollar.

The plan was scheduled to be confirmed by U.S. Bankruptcy Court Judge Brendan Linehan Shannon during a hearing on April 29, but lawyers representing American LaFrance asked that the hearing be adjourned until May 22 to give the company time to resolve outstanding issues.

The company has one secured creditor, Patriarch Partners LLC, a private equity and investment firm that was owed $154.5 million, and two groups of unsecured creditors that were owed a total of $88.8 million.

Patriarch, which was given approval by the judge to loan the company another $42 million during the bankruptcy, is to be repaid in full.

The unsecured creditors who were owed the most money – $87.8 million – were classified as general unsecured claims, and they are to receive 22.5 percent of what they were owed, according to the plan. Of the 882 creditors in that category, 220 voted in favor of the plan, 21 rejected it and 11 abstained, according to court documents. The ones who voted were owed a total of $53.2 million.

The other category of unsecured creditors – those who agreed to be paid $2,500 or less – were grouped as convenience class claims, which amounted to just over $1 million. Of 1,099 creditors in that category, court documents showed 272 voted for the plan, seven abstained and none voted against it.

Unsecured creditors are expected to receive their money in a few months. Some of them, such as fire departments that have contracts with American LaFrance to build apparatus or have warranty claims on apparatus already in service, are expected to receive the full value of their claims, according to David Fournier, a Delaware lawyer who represented the Committee of Unsecured Creditors in the bankruptcy case.

“The company has really been working hard to try to satisfy the concerns of those departments,” he said. “They have a long term objective of making sure they’ve got customers down the road, not just today.”

ALF Executives Optimistic

American LaFrance issued a statement the day after the adjourned April 29 hearing, announcing the results of the vote on the reorganization plan and quoting William Snyder, the company’s chief restructuring officer who praised the creditors committee for rallying support for the plan. “Based on broad and deep creditor support,” he said, “we are optimistic that the court will approve the plan.” 

American LaFrance’s financial troubles became evident in December when many of its employees were furloughed. On Jan. 28 it sought protection from its creditors – suppliers, other businesses and fire departments that were owed money or trucks – by filing for Chapter 11 reorganization in U.S. Bankruptcy Court in Delaware. While the company is based in Summerville, S.C., it is incorporated in Delaware.

At the time of the bankruptcy filing, American LaFrance executives boldly predicted the company would emerge from bankruptcy as a stronger manufacturer within 90 days, or by April 29.

Faster Than Most

Fournier, the creditors committee lawyer, said American LaFrance managed to move through the reorganization process faster than most companies that succeed in getting plans approved.

“Because Chapter 11 is such an expensive process and because Congress imposed some time limits back in 2005 that affect how quickly companies may want to get out of Chapter 11, we’ve tended to see cases moving through much more quickly over the last few years,” he said.

Over the past three months, American LaFrance executives said they closed or vacated six of 10 facilities, reduced overhead by 50 percent and cut in half the hours needed to produce most trucks.

The lay-off ended March 31, and the majority of furloughed employees decided to return to work, according to Bill Hinz, the company’s president and CEO. In public update on April 17, he said more than 20 finished trucks had been shipped since production resumed. 

The company, Hinz said, had streamlined its production process using principles of “lean manufacturing” and improved operations at its parts distribution center. “We’re striving to meet urgent orders on the same day received, to fill emergency orders within 24 hours and standard orders within 36 hours of receipt for all in-stock parts,” he said.

But one of the company’s biggest challenges will be to rebuild trust with those who lost money or whose orders for fire trucks were delayed or cancelled during the bankruptcy.

“We’re ready to repair our relationships with our suppliers, dealers and most importantly our customers by delivering on our promises and exceeding expectations,” Hinz wrote on April 17. 
“Our heritage is that of the industry leader, and we are preparing to reclaim our legacy.”

The Chapter 11 creditors committee, created as part of the bankruptcy process, was hostile early on and harsh in its criticism of American LaFrance and its lender, Patriarch Partners, which bought the company from Freightliner in 2005.

The creditors committee opposed American LaFrance’s bid for financing during the bankruptcy, as well as the reorganization plan, but eventually negotiated agreements on both issues.

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