ALF Gets New Financing – Production Workers Return

Financially distressed American LaFrance got access to much needed money when a U.S. Bankruptcy Court judge in Delaware approved its Chapter 11 proposal for financing, and last month production employees began returning to work.

“We are at this time in the process of bringing back our shop workforce that had been furloughed,” President Bill Hinz said in a written statement issued March 17. “The gradual ramp-up of our direct labor force signals clearly we are successfully working through supplier parts challenges. We still face obstacles as it related to the supplier base, but we are now able to make timely payments.”

The company furloughed many of its production employees in mid-December. When it filed for Chapter 11 protection from its suppliers and others who were owed money on Jan. 29, it predicted those workers would return by March 10.

American LaFrance had asked for $50 million in debtor-in-possession financing, and Judge Brendan Linehan Shannon approved $42 million, an amount that was negotiated by the company, its lenders and the creditors committee. The committee represents suppliers, other businesses and fire departments that have unsecured claims against the ALF totaling $85.5 million, according to a revised creditor list filed by the company March 7.

The creditors committee has been sharply critical of ALF and its lender, Patriarch Partners LLC, a private equity and investment firm that bought the company in 2005 from Freightliner.

But the judge in approving the proposal for debtor-in-possession financing said, “The terms of this order reflect the debtor’s exercise of prudent business judgment under exigent circumstances and are consistent with its fiduciary duty.”

The judge also issued an order approving bid procedures for the sale of substantially all of ALF’s assets.  If a reorganization plan is not approved by the creditors or the court, Patriarch is expected to bid $154.5 million, the amount it was owed by the company when ALF filed for bankruptcy court protection. Other bids to buy ALF’s assets must be submitted by April 14.

In response to objections from the creditors committee, ALF filed an amended reorganization plan and an amended disclosure statement on March 11.

The new disclosure statement said the company hired a new chief executive officer, A. Matthew Karmel, the president of Asia-Pacific operations of MAG Industrial Automation Systems, the third largest machine tool supplier in the world.

Karmel is the third ALF CEO in a little over six months. The disclosure statement said Bill Hinz, who was appointed CEO in October, would remain as part of senior management when Karmel assumes his position in April.

Hinz, in his March 17 statement, said he will become chairman of ALF and Karmel will be “reporting directly to me.”

Hinz replaced John Stevenson, who is identified in the disclosure statement as a likely target of a lawsuit by ALF, along with Stevenson’s former chief operating officer, David Mulder. The company said they may be accused of breach of fiduciary duty.

Stevenson and Mulder are being blamed for lack of controls that led to inaccurate financial reporting and “ultimately contributed to ALF’s financial losses,” according to the disclosure statement.

The company, which lost more than $100 million the previous two years, is also contemplating lawsuits against Freightliner and IBM. The disclosure statement said IBM was involved in a “problem-riddled transition” to a new enterprise resource planning (ERP) system.

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