Now Packaging Itself for Chap. 11: Chesapeake

The paperboard and plastic packager joins E-retailer Parent Co. and heating-appliance maker in entering bankruptcy proceedings.
Stephen TaubDecember 30, 2008

Paperboard and plastic packager Chesapeake Corp. joined the growing ranks of companies filing for bankruptcy, and agreed to sell its U.S. operations to investors for $485 million.

Chesapeake — at least the third recent bankruptcy filer this week, along with E-commerce retailer Parent Co. and privately owned heating-appliance maker DHP Holdings II Corp. — said that its non-U.S. subsidiaries were not included in the Chapter 11 filing. There are no plans to place them in administration.

“After exploring a range of possible alternatives to improve our balance sheet and maintain the liquidity we need to operate our businesses in an extremely difficult economic environment, the management and board of directors of Chesapeake concluded that a court-supervised sale of our business operations is in the best interest of the Company and its stakeholders,” said president and CEO Andrew J. Kohut. “In particular, the sale transaction and Chapter 11 process will help us meet several critical objectives, including allowing ongoing operation of all of our businesses without interruption to supplier and customer relationships, providing a permanent solution to the high leverage at the parent company level and constrained liquidity, providing the most rapid path to a new organization with a much healthier balance sheet, and providing a bright future for our operating companies and their employees, customers and suppliers.”

The investor group includes Irving Place Capital Management L.P. and Oaktree Capital Management L.P. Terms call for the investor group to buy substantially all the assets of Chesapeake’s U.S. operating subsidiaries and the outstanding capital stock or other equity securities of its foreign subsidiaries. The company seeks court approval for a new debtor-in-possession financing facility of up to $37 million, while it completes the sale of the business operations to the investor group.

Parent Co.’s Monday Chapter 11 filing included nine of its subsidiaries, and the company blamed “the ongoing challenging retail environment.” It said it had hired investment banking firm Oppenheimer & Co. to explore strategic alternatives, including a sale of some or all Parent’s businesses.

In addition, the company said it may be delisted by Nasdaq for failure to file its Nov. 1 quarterly report on time. Parent has 60 days to submit a plan to Nasdaq to regain compliance. Two weeks ago, Parent announced that its accounting firm had issued a qualified opinion, questioning its ability to continue as a going concern.

The DHP filing was part of a plan to go out of business because of slowing U.S. sales and difficulty in obtaining credit, according to Bloomberg News. DHP, known for brands such as Reddy Heater, Master, Vanguard, All-Pro, Outdoor Leisure, GloWarm, and Comfort Glow, listed $126.8 million in debts and $132.5 million in assets. It stressed that its foreign units didn’t file for bankruptcy, however.

“The absence of further funding, coupled with the overall rapid decline in the economy, quickly and severely impacted the debtors’ operations,” Craig Dean, a principal of AEG Partners LLC who is DHP’s chief restructuring officer, told the court. Bloomberg pointed out that two predecessor companies, DESA Holdings Corp. and DESA International LLC, filed for Chapter 11 protection in 2002. Under that reorganization, private-equity firm HIG Capital Management bought the company for $198 million.

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