Orchids Paper committee claims proposed sale would cause insolvency

By Caroline Salls

Pittsburgh, June 27 – Orchids Paper Products Co.’s official committee of unsecured creditors objected to the company’s proposed sale of substantially all of its assets, arguing that the sale “is likely to result in an administratively insolvent estate,” according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

The committee said the company is seeking approval to sell substantially all of its assets to stalking horse bidder and pre-bankruptcy lender and debtor-in-possession lender Orchids Investment for $175 million, subject to receipt of higher or better offers.

The creditor group said the stalking horse bidder is buying substantially all of the Orchids debtors’ assets, but only assuming some of the debtors’ liabilities, and the proposed purchase price is substantially in the form of a credit bid with no cash payment to the company other than a wind-down payment.

“The committee has no objection to the ability of Orchids Investment to credit bid at the auction for those assets on which it has valid and perfected pre-petition liens and security interests, but with respect to those assets not subject to a valid and perfected pre-petition lien, the stalking horse must pay cash,” the objection said.

“The stalking horse cannot credit bid or pay for these unencumbered assets through the assumption of certain liabilities.”

The committee said the proposed sale will render the estate administratively insolvent if the stalking horse bidder is allowed to purchase substantially all of the debtors’ assets, including cash, cash equivalents and accounts receivable, for a cash payment of only $500,000 and leave behind various liabilities and only a limited wind-down payment.

Orchids, a Brentwood, Tenn.-based maker of consumer tissue products, filed for bankruptcy on April 1. The Chapter 11 case number is 19-10729.

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