Allied Systems proposed asset sale draws objection from Yucaipa Co.

By Jim Witters

Wilmington, Del., Sept. 5 - Allied Systems Holdings, Inc.'s proposed sale of substantially all of its assets to a new company formed by its requisite lenders drew an objection from Yucaipa Co. affiliates, who joined three other objecting parties in a Sept. 4 filing with the U.S. Bankruptcy Court for the District of Delaware.

The proposed $105 million sale to New Allied Acquisition Co. LLC is, in fact, a sale to a number of shell acquisition vehicles created by Allied's requisite lenders BDCM Opportunity Fund II, Black Diamond CLO 2005-1 and Spectrum Investment Partners, Yucaipa says.

The New Allied offer includes a credit bid and the assumption of certain liabilities.

The objectors - Yucaipa American Alliance Fund I, LP, Yucaipa American Alliance (Parallel) Fund I, LP, Yucaipa American Alliance Fund II, LP and Yucaipa American Alliance (Parallel) Fund II, LP - hold $138 million in principal amount of first-lien Allied debt and $20 million in principal amount of second-lien debt.

Yucaipa describes itself as a "likely major future equity holder" of the reorganized debtor.

Yucaipa, which has been battling Black Diamond/Spectrum for control of Allied and the bankruptcy case, lost its bid to be declared requisite lender.

Yucaipa joins the official committee of unsecured creditors, the Teamsters National Automobile Transporters Industry Negotiating Committee and unsuccessful bidder Jack Cooper Holdings Corp. in opposing the New Allied as the prevailing bidder at the August auction.

Yucaipa objections

Yucaipa says the New Allied deal:

• Constitutes an end run around the sale procedures approved by the court;

• Is materially worse than the verbal offer accepted by the debtors at auction;

• Is based on the reorganized debtor's division of the assets "based on a scheme to provide the bulk of 'real' value" to Black Diamond/Spectrum while leaving the other creditors with liabilities;

• Is fraught with execution risk because the first-lien credit agreement precludes New Allied's right to credit bid, pledge the first-lien debt to support the sale and restrict distributions to Yucaipa; and

• Violates the distribution scheme mandated by the bankruptcy code.

Proposed structure

The pending sale would divide Allied's assets between two companies, New Allied Acquisition and Axis/Allied LeaseCo Holdings LLC.

One of the Axis subsidiaries, New Allied Management Service LLC, will hold "all the assets," including vehicle and real estate leases, Yucaipa says.

"The creation of such a structure can only be explained by Black Diamond and Spectrum's desire to impermissibly prejudice Yucaipa's rights and separate the assets of the debtors' businesses from their liabilities, so as to protect Black Diamond and Spectrum in the event of a subsequent liquidation of the assets," the objection states.

Yucaipa is asking the court to reject the proposed sale.

The three other objectors asked the court to reject the Black Diamond/Spectrum deal and reopen the auction.

The sale hearing is scheduled for noon ET on Sept. 10.

Allied Systems is a Decatur, Ga.-based distributor of new and used vehicles. The company filed for bankruptcy on June 11, 2012 under Chapter 11 case number 12-11564.

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