Eclipse Aviation files bankruptcy, names largest shareholder stalking horse bidder for asset sale

By Caroline Salls

Pittsburgh, Nov. 25 - Eclipse Aviation Corp. filed for Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware amid plans to sell substantially all of its assets.

According to court documents, although Eclipse achieved greater manufacturing volume than most other aircraft manufacturers, it was unable to meet its targeted throughput needed to support its business plan, and the company was not able to control costs.

The company said inventory holdings increased based on unachieved production goals, while per aircraft costs increased based in part on lower production volumes.

As a result, Eclipse said it continued to lose larger-than-expected sums of money on each aircraft manufactured and has not reached a positive cash flow.

Because of a variety of factors, including the current global economic uncertainties, the company's efforts to raise capital outside of bankruptcy were unsuccessful, and Eclipse's cash balance declined to levels that jeopardize the continued operation of the company.

In connection with the bankruptcy filing, Eclipse requested court approval of $20 million in debtor-in-possession financing from the Alfred E. Mann Living Trust and ETIRC Aviation, Sarl, Eclipse's largest shareholder. The company said Alfred E. Mann is a preferred shareholder and a member of its board of directors.

Proceeds will be used to fund the company's post-bankruptcy working capital needs.

The company is seeking interim access to $8 million of the DIP financing.

In addition to the DIP loan, the company said it will be able to use $2 million of cash collateral of its noteholders.

The DIP facility will mature on the earliest of 100 days from the bankruptcy filing date, 35 days from the filing date if a final order has not been entered, upon a sale of substantially all of the company's assets and on the effective date of a plan of reorganization.

Interest will be Libor plus 800 basis points.

Sale procedures

In addition, Eclipse said it has selected ETIRC Aviation as the stalking horse bidder in the proposed sale of substantially all of the company's assets.

ETIRC's stalking horse bid includes a $28 million cash component, $160 million of ETIRC senior secured notes and 15% of the shares of the bidder's common stock.

The proposed transaction also includes buyer-funded transaction expenses, with $5 million of the expenses to be funded directly by ETIRC and another $50 million to be funded half by the buyer and half from sale proceeds.

If ETIRC is not the high bidder, Eclipse will pay it a $4 million break-up fee.

Competing bids are due by noon ET on Jan. 6, and all bids must include a $5 million deposit.

Initial overbids must be for at least $5 million more than the stalking horse bid, plus the amount required to repay Eclipse's DIP financing in full. Subsequent bids at auction must be for at least $1 million more than the previous bid.

Debt details

The company listed $100 million to $500 million in assets and more than $1 billion in debt.

Eclipse's largest unsecured creditors include:

• Kings Road Investments Ltd., New York, with a $92.3 million bond claim;

• HBK Master Fund, Dallas, with an $84.9 million bond claim;

• Citadel Horizons, Chicago, with a $53.4 million bond claim;

• Fuji Heavy Industries, with a $31.8 million trade claim;

• Hampson Aerospace, Grand Prairie, Texas, with a $31.3 million trade claim;

• Pratt & Whitney Canada Corp., Quebec, with a $30.1 million trade claim;

• UBS Securities, New York, with a $30 million bond claim;

• Silver Oak Capital, New York, with a $26.1 million bond claim;

• PAR Investment Partners, LP, Boston, with a $25.6 million bond claim; and

• Citadel Investment Group, Chicago, with a $25.2 million bond claim.

Eclipse is an Albuquerque-based aircraft manufacturer. Its Chapter 11 case number is 08-13031.

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