AeroCision’s Chapter 11 plan confirmation hearing slated for Sept. 6

By Sarah Lizee

Olympia, Wash., Aug. 1 – AeroCision Parent, LLC’s hearing on confirmation of its pre-packaged Chapter 11 plan has been scheduled for Sept. 6, according to a notice filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

Background

As previously reported, the debtors’ prepetition debt consists of the following, in order of priority: $3.74 million of super-priority lien obligations with Citizens Bank, NA as agent, $97.22 million of first-lien debt and revolving credit facility debt with Citizens Bank as agent, $26.25 million of second-lien debt with Stellus Capital Investment Corp. as agent, and $1.97 million of debt under a loan agreement with First-Citizens Bank & Trust Co.

The debtors retained Jefferies LLC in late 2021 as investment banker to help raise the capital necessary to finance a transaction. However, due to volatility in the capital markets, the debtors were unable to secure a financing commitment, AeroCision said.

The debtors and Jefferies negotiated a forbearance agreement in May 2022 with the debtors’ secured creditors to get more time to secure a financing commitment and continued to engage with investors. But by the end of the forbearance period in August 2022, the debtors were still unable to obtain financing.

At that point, the debtors started negotiating a consensual restructuring transaction with majority equity holder Liberty Hall Capital Partners Fund I, LP and the prepetition secured creditors.

The parties later determined that the best path for addressing the debtors’ liquidity issues was a plan of reorganization that would minimize any disruption to operations and any impact on the debtors’ essential vendor and customer relationships.

The pre-packaged plan

The debtors solicited votes on a pre-packaged Chapter 11 plan of reorganization, which was unanimously accepted by voting creditors.

The plan provides for all third-party non-voting classes, including general unsecured creditors, to be paid in full or otherwise rendered unimpaired.

Through the plan, the debtors will restructure their current debt facilities with three new exit facilities that will also provide new funding, in addition to converting a debtor-in-possession facility. The new facilities will consist of a new super senior lien facility, a new first-lien facility and a new HoldCo term loan.

Citizens Bank and other prepetition first-lien lenders including Ally Bank, Channel Funding, LLC and Siemens Financial Services, Inc. will provide a $12.5 million DIP facility, maturing Sept. 25, 2023 and bearing interest at SOFR plus 600 basis points. The company is seeking interim access to $8.5 million of the DIP facility.

After converting the DIP loans, the new super senior loans will be secured by an all-asset, first-priority lien and pledge on all assets of the reorganized debtors.

On the effective date, the claim related to the bridge loan financing provided by Liberty Hall to the debtors shortly before the petition date will be converted to a $2.5 million super senior revolving loan under the new super senior lien facility.

Liberty Hall and other new equity sponsors will provide $3.75 million in additional new loans under the new super senior lien facility, $8.75 million in new equity financing and $1.25 million in incremental equity.

The DIP lenders will provide $2 million in new loans under the new super senior lien facility, in addition to the rollover of the DIP loans.

The prepetition second-lien lenders will provide $2 million in new loans under the new super senior lien facility.

On the effective date, the super-priority lien claims will be converted to new first-lien term loans. About $35.58 million in principal plus pro rata interest, fees and costs, of the first-lien claims will be converted to new first-lien term loans and $2.63 million in second-lien claims will be converted to a new first-lien term loan, to bring the total principal balance of the new first-lien term loan up to about $42.63 million.

The remaining principal balance plus pro rata interest, fees and costs owed on the first-lien claims will be converted into the new HoldCo term loan facility, which will be guaranteed by the reorganized debtors.

Under the plan, 100% of the second-lien claims will be extinguished and the second-lien lenders will receive the following treatment:

• $2.63 million will be converted to the new first-lien facility, provided that that amount will not accrue interests, fees or other expenses;

• $6.88 million will be converted into the new HoldCo term loan facility;

• 4% of the new common HoldCo equity; and

• The right to contribute $2 million in principal amount of the new super senior lien facility.

The company said the elimination of the second-lien debt and the conversion of a portion of the prepetition first-lien debt will reduce the debt at the reorganized debtors by about $27.5 million.

Current interests will be canceled.

AeroCision has asked the court to hold a hearing to consider approval of the disclosure statement and confirmation of the plan on Sept. 6.

New financing terms

According to a term sheet, the super senior facility and the new first-lien facility will mature on June 30, 2026 and bear interest at SOFR plus a credit spread adjustment plus 600 basis points, payable quarterly in cash or in kind as follows: from closing through June 30, 2024, at least 200 bps cash pay; from July 1, 2024 through June 30, 2025, at least 400 bps cash pay; and from July 1, 2025 through payment in full, all cash pay.

The new HoldCo term loan will mature June 30, 2026 and carry a return on capital structured as an exit fee calculated on the following schedule: SOFR plus a credit spread adjustment and 25 bps from closing through June 30, 2024; SOFR plus a CSA and 50 bps from July 1, 2024 through June 30, 2025; and SOFR plus a CSA and 75 bps from July 1, 2025 through payment in full.

The Chester, Conn.-based company is a supplier of complex engine components and assemblies for the global aerospace industry. It filed bankruptcy on July 31 under Chapter 11 case number 23-11032.

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