Katy Industries files bankruptcy to implement asset sale agreement

By Caroline Salls

Pittsburgh, May 15 – Katy Industries, Inc. filed Chapter 11 bankruptcy on May 14 in the U.S. Bankruptcy Court for the District of Delaware after reaching an agreement with a newly created entity co-owned by Highview Capital, LLC and affiliates of Victory Park Capital Advisors for the sale of substantially all of Katy’s assets for a combined cash and credit bid offer, according to a news release.

The entity created for the sale transaction is Jansan Acquisition, LLC.

According to the sale motion, the stalking horse bid includes the assumption of Encina obligations, a $7.5 million credit bid of outstanding debtor-in-possession financing amounts, a credit bid of all amounts due under the company’s second-lien credit agreement and assumption of additional liabilities.

Katy said this agreement would provide long-term financial stability and give it the financial resources necessary to sustain its ongoing operations and continue to implement its business strategies.

Sale procedures

Under Section 363 of the Bankruptcy Code, the company said it will file a motion for the implementation of bidding procedures to allow other companies the opportunity to submit bids through a court-supervised process.

The company said Lincoln International LLC is being retained to conduct a sale process under the bid procedures, pursuant to which Lincoln will seek higher or better offers from prospective bidders interested in purchasing the business as a whole or any of its component parts.

If Jansan is not ultimately the high bidder, Katy will pay it a $1.75 million breakup fee and reimburse up to $350,000 of its sale-related expenses.

The minimum initial overbid amount is $1 million. Bids at auction must be made in minimum increments of $250,000.

Katy proposed a bid deadline of 5 p.m. ET on June 30, a July 6 auction and a July 10 sale hearing.

The sale is expected to be completed within 60 to 90 days.

“We believe this transaction is in the best interests of our customers, employees, creditors and stakeholders,” Katy president and chief executive officer Robert Guerra said in the release.

“Our goal is to put the company on the proper financial footing, de-lever our balance sheet and use the influx of new funding to recover the business and position our operations for future growth while, at the same time, providing a mechanism to address the liquidity constraints and legacy liabilities that have impacted our ability to operate efficiently and effectively.”

Operations unaffected

Guerra said the Chapter 11 case and sale process should have no significant impact on the company’s ability to fulfill its obligations to its customers and employees.

“Our daily operations will continue as usual, our vendors will be paid for all supplies furnished and services rendered subsequent to the filing, and all day-to-day aspects of the business will continue without interruption,” Guerra said.

Katy also filed motions designed to allow it to continue paying employee wages, medical benefits and other programs without interruption.

DIP financing

In addition to the availability of cash collateral under its current first-lien facility, Katy received a commitment for up to $7.5 million in debtor-in-possession financing from the newly created entity co-owned by Highview Capital and affiliates of Victory Park.

The company said the DIP financing will be used to maintain uninterrupted service and delivery of products to Katy customers during the completion of the sale transaction and to ensure payment to vendors for post-bankruptcy purchases.

Interest on the DIP financing will accrue at Libor plus 1,500 basis points.

The facility will mature on the earliest of 150 days from the bankruptcy filing date, upon completion of a sale of the collateral, 45 days after the bankruptcy filing date if a final order has not been entered, upon acceleration of the loan and termination of the commitments under an event of default and the effective date of a Chapter 11 plan.

Subject to court approval, up to $4.5 million of the financing will be available on an interim basis.

Debt details

According to court documents, Katy had $821,321 in total assets and $58.42 million of total debt as of May 10.

The company’s largest unsecured creditor is Deltco of Wisconsin, Inc., based in Ashland, Wis., with a $1.48 million goods sold/services rendered claim.

No other unsecured creditors were listed with claims of $1 million or more.

The company is represented by DLA Piper LLP (US).

Katy is a St. Louis-based manufacturer, importer and distributor of commercial cleaning and consumer storage products. The Chapter 11 case number is 17-11101.

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