Creditors seek more than $1 billion in lawsuit against old Werner Co.

By Rebecca Melvin

New York, Jan. 29 - Hedge fund Levine Leichtman Capital Partners is leading litigation against former officers, shareholders and advisers of the old Werner Holding Co. (DE) Inc., seeking more than $1 billion in damages, according to plaintiff attorney J. Christopher Shore of White & Case LLP.

"Levine Leichtman has funded the litigation of this plan, but all creditors that have allowed claims in the old Werner Co. will be beneficiaries of proceeds of the case," Shore said.

"There are $1.8 billion in filed claims," he said.

The plaintiff is the court-approved and court-authorized litigation designee of the Old Ladder Liquidation Trust, which was established in connection with the older Werner Co. liquidating plan confirmed last October by the U.S. Bankruptcy Court for the District of Delaware.

The 187-page complaint was filed Jan. 24 with the U.S. District Court for the Southern District of New York.

Among individuals and institutions listed as defendants in the complaint are Investcorp Bank, Murray Devine Co., Leonard Green & Partners LP, Loughlin Meghji & Co. and members of the Solot and Werner families, who formerly owned the company.

Murray Devine and Leonard Green declined to comment on the lawsuit, and family members could not be reached for comment.

The complaint traces back 10 years, pointing to a $330 million cashout distributed to shareholders plus $50 million in fees and management bonuses that were above the level of equity that existed in the company at the time, the complaint alleges.

More than 100 parties were recipients of the cashout, and among the highest individual amounts distributed were Howard Solot's $16.7 million, the Craig Werner Trust's $12.5 million, and Bruce Werner's $11.4 million, according to the complaint.

Investcorp, which bought the company at that time, proceeded to reinvest $122 million and purchased newly issued stock representing 67% of the company, and then borrowed about $300 million in bonds and bank debt. Among the debt was a public bond offering of $135 million of 10% senior subordinated notes due 2007.

Subsequently, the high level of debt and increasingly tough market conditions caused the company's financial situation to deteriorate significantly, the complaint alleges.

In addition, the company and its advisers "Knowingly made materially false representations to the company's lenders and bondholders," the complaint says.

The company's debt so exceeded its assets that it left unpaid more than $100 million of secured creditor claims.

Old Ladder, formerly Werner Holding Co. (DE), was a Greenville, Pa., manufacturer and distributor of ladders, climbing equipment and ladder accessories. It filed for bankruptcy on June 12, 2006, and its Chapter 11 case number is 06-10578.

There is also a new Werner Co. that continues to makes ladders and climbing equipment that is not the subject of litigation started by the litigation trust.

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