Signal International in bankruptcy; assets to be sold under agreement

By Caroline Salls

Pittsburgh, July 13 – Signal International, Inc. filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware.

Chief financial officer Christopher S. Cunningham said in a statement filed with the court that the Chapter 11 filing “is the consensual culmination of seven years of protracted and highly contentious multi-action litigation and negotiations” between the company and litigation plaintiffs.

Cunningham said Signal and the plaintiffs reached a global settlement embodied in a plan support agreement. The plan support agreement is joined by the company’s first-lien lenders and also resolves Signal’s default under its first-lien loan, as well as the litigation plaintiffs’ threatened claims against the first-lien lenders.

The parties to the plan support agreement include the Teachers’ Retirement System of Alabama and the Employees’ Retirement System of Alabama (together, the RSA) and the litigation claimants.

“In short, the plan support agreement spares Signal, the first-lien lenders and the litigation plaintiffs, as well as the court, from contentious and value-destroying bankruptcy litigation while preserving Signal’s assets as a going concern and maximizing the value of Signal’s estate,” Cunningham said.

Plan agreement terms

Specifically, the plan support agreement provides for an open market sale of substantially all of Signal’s assets, with the RSA serving as stalking horse bidder, and a distribution to the litigation plaintiffs of between $20 million and $22 million from proceeds of a Texas note depending on the performance of the loan.

The RSA will be entitled to credit bid the amount of Signal’s debtor-in-possession financing as the stalking horse bidder for the company’s assets.

The agreement also calls for a gift payment of $400,000 to be shared by the holders of allowed general unsecured claims.

Holders of equity interests will receive no distribution under the company’s plan.

DIP financing

In connection with the bankruptcy filing, the company obtained a commitment for $90.09 million in DIP financing from the RSA.

The DIP facility is comprised of up to $15 million in revolving credit to be used for general working capital and liquidity purposes and for the payment of administrative expenses, up to $5 million in revolving credit to be used for credit enhancement obligations under customer contracts and up to $70.09 million to be used for repayment of first-lien credit agreement debt.

The facility will mature on the earliest of Nov. 24, 2015, the date the lender elects to terminate the availability period and accelerate the obligations and the sale closing date.

The interest rate will be 8¼%.

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

Debt details

According to court documents, Signal has $10 million to $50 million in assets and $50 million to $100 million of debt.

The company’s largest unsecured creditors are:

Max Specialty Insurance Co. of Hawthorne, N.Y., with a $3.98 million judgment claim;

Jacob Joseph Kadakkarappally of New York, with a $3.72 million judgment claim;

Padavettiyil Isaac Andres of New York, with a $2.21 million judgment claim;

Palanyandi Thangamani of New York, with a $2.21 million judgment claim;

Hemant Khuttan of New York, with a $2.2 million judgment claim; and

Sony Vasudevan Sulekha of New York with a $1.92 million judgment claim.

The company is represented by Young Conaway Stargatt & Taylor, LLP.

Signal International is a Mobile, Ala.-based marine construction firm. The Chapter 11 case number is 15-11498.

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