EZ Lube files bankruptcy, plans to sell substantially all assets

By Caroline Salls

Pittsburgh, Dec. 9 - EZ Lube LLC filed 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 an affidavit filed by chief restructuring officer Stephen V. Coffey, the company's operating performance has been declining and its business has been impacted by the national economic downturn, high gas prices and changes in operations implemented in response to negative publicity, which alleged pressure sales and non-performance of services, and an agreement with the California Department of Consumer Affairs/Bureau of Automotive Repairs.

As a result of all of these factors, Coffey said EZ Lube's "earnings and cash flow have declined well below the levels required to service [the company's] significant debt."

EZ Lube Acquisition Co. LLC, an affiliate of the company's second-lien lender, is the stalking horse bidder for the proposed asset sale.

EZ Lube Acquisition's bid includes the amount required to repay EZ Lube's debtor-in-possession facility, either in cash or through assumption of the DIP obligations, plus $1.5 million in cash, plus the difference of the amount provided for professional fee claims less the amount of professional fee claims paid at closing, plus a $2 million credit bid amount.

If EZ Lube Acquisition is not the high bidder at auction, the company will reimburse up to $500,000 of its sale-related expenses.

Competing bids are due by 4 p.m. ET on March 13.

All bids must include a $1 million deposit and must exceed the stalking horse bid by at least $500,000. Subsequent bids at auction must be for at least $100,000 more than the previous bid.

DIP loan terms

In conjunction with the bankruptcy filing, EZ Lube has secured a commitment for $62.48 million of DIP financing from agent Goldman Sachs Specialty Lending Group, LP.

The company is requesting interim access to $2.5 million of the DIP financing.

Interest on the $9 million revolving credit facility portion of the DIP loan will be Base rate plus 700 basis points, and interest on the term loan portion will be Base rate plus 450 bps.

The DIP facility will mature on the earliest of 180 days from the bankruptcy filing date, 45 days after entry of the interim order if a final order has not been entered, the effective date of a plan of reorganization, upon the sale of substantially all company assets or upon the dismissal or conversion of the company's Chapter 11 bankruptcy case.

The company will pay a $270,000 facility fee and a $100,000 per year administration fee.

According to Coffey's affidavit, EZ Lube had $113 million in assets and $114.4 million in debt as of Dec. 31, 2007. The bankruptcy petition listed between $100 million and $500 million of both assets and debt.

The company's largest unsecured creditors include ExxonMobile Oil Corp., Fairfax, Va., with a $3.39 million trade claim and Filpac, Midvale, Utah, with a $1.23 million trade claim.

EZ Lube is a Santa Ana, Calif.-based quick lube operator. Its Chapter 11 case number is 08-13256.

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