Shiloh Industries in bankruptcy, gets $218 million stalking horse bid

By Caroline Salls

Pittsburgh, Aug. 31 – Shiloh Industries, Inc. filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware to facilitate a sale of substantially all of its assets, according to a company news release.

Shiloh said it has entered into a stalking horse stock and asset purchase agreement with Grouper Holdings, LLC, a subsidiary of MiddleGround Capital LLC, under which Grouper will acquire the company’s assets, including the equity interests of some of its direct and indirect subsidiaries, for $218 million in cash, subject to working capital and net debt adjustments.

Grouper has also agreed to assume some of the company’s liabilities.

The proposed transaction with MiddleGround is subject to the receipt of higher or otherwise better offers, court approval and other customary conditions.

According to an 8-K filed with the Securities and Exchange Commission, if Grouper is not ultimately the winning bidder, Shiloh would be required to pay it a break-up fee equal to $7.1 million and reimburse up to $1.5 million of its sale-related expenses.

The company’s operating entities outside the United States, while included in the agreement with MiddleGround, are not part of the court-supervised process, and its operations in Asia, Europe and Mexico are expected to continue as normal. Shiloh’s operations will continue throughout the sale process.

DIP financing

In conjunction with the proposed sale transaction, the company has received a commitment for $123.5 million in debtor-in-possession financing from its existing lenders, consisting of a $23.5 million new-money subfacility and a roll-up of $100 million of commitments under Shiloh’s existing revolving credit facility.

Upon court approval, this new financing, combined with cash generated from ongoing operations, is expected to be used to support the business throughout the sale process as Shiloh continues to take steps to address the ongoing challenges related to production shutdowns resulting from Covid-19 that have affected the automotive sector in recent months.

Bank of America NA is the DIP financing agent.

The facility will mature four months from the bankruptcy filing date.

Interest will accrue at Libor plus 1,000 basis points.

The company is seeking interim approval to access $18.1 million of the DIP financing.

“MiddleGround’s interest in Shiloh is a testament to the value they see in the highly competitive and universally innovative solutions we provide to our customers, driven by our hardworking, dedicated team,” Shiloh interim chief executive officer Cloyd J. Abruzzo said in the release. “We look forward to building on our unique strengths as part of MiddleGround, while improving Shiloh’s financial position for the long term.”

MiddleGround partner John Stewart said in the release “Despite recent market conditions, we see tremendous value in Shiloh’s business and differentiated product solutions serving the automotive sector.”

Shiloh has filed a number of customary motions with the court seeking approval to continue to support its operations during the court-supervised sale process, including approval to continue payment of employee wages and benefits without interruption and to honor customer commitments.

Debt details

According to court documents, Shiloh had $664.17 million in assets and $563.36 million in debt as of April 30.

The company’s largest unsecured creditors are Pension Benefit Guaranty Corp., based in Washington, D.C., with a $30.7 million pension claim; AK Steel Corp. of West Chester, Ohio, with a $2.9 million trade claim; Alcan Primary Products Corp. of Cleveland, with a $2.08 million trade claim; Olympic Steel Inc. of Palatine, Ill., with a $1.49 million trade claim; Kenwal Steel Corp. of Detroit, with a $1.4 million trade claim; Magretech Inc. of Bellevue, Ohio, with a $1.17 million trade claim; Doral Steel de Mexico S de RL de CV of San Pedro Garza Garcia, Mexico, with a $1.13 million trade claim; Steel Technologies of Chicago, with a $1.11 million trade claim; and Heidtman Steel Products Inc. of Cleveland, with a $1.01 million trade claim.

Retention plan

Shiloh said in the 8-K that the compensation committee of its board of directors approved a key employee retention plan under which some executive officers received one-time cash retention incentive awards.

Specifically, interim chief executive officer Cloyd Abruzzo received $600,000, vice president and corporate controller Scot Bowie received $197,000, and senior vice president and chief financial officer Lillian Etzkorn received $630,000.

Jones Day is serving as legal counsel to Shiloh, Houlihan Lokey Capital Inc. is serving as financial adviser, and Ernst & Young LLP is serving as restructuring adviser.

Shiloh Industries is a metal processing company based in Valley City, Ohio. The Chapter 11 case number is 20-12024.

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