Guggenheim Willing to Finance Competitive Bidders in Diamond Sale

Guggenheim Corporate LLC, the company with whom Diamond Glass has entered into a debtor-in-possession agreement in its petition for reorganization under Chapter 11, is willing to provide financing for competitive bidders in the sale of the company, according to Michael Richman of Foley & Lardner, acting as pro hac counsel for the Kingston, Pa.-based company. (CLICK HERE for related story.)

"… The most remarkable feature of this is that Guggenheim has agreed, and it will be included in the bid procedures, to provide financing for competitive bidders on commercially reasonable terms, provided, of course, that the competitive bidders can meet normal market credit-worthy requirements," Richman told the U.S. Bankruptcy Court of Delaware at an April 2 hearing.

"I want to explain a little bit more about [the Guggenheim agreement] because while you might be sitting there thinking, 'oh, this is just another one of these secured lender buying the company on credit bid kinds of cases, it's remarkably quite different, and it is designed and will be designed, when the big procedures are presented at the next hearing, to ensure as open and competitive an auction as possible with all of the benefits to flow to the benefit of unsecured creditors, as well as preserving the ongoing-concern business and enterprise value and preserving the jobs and preserving the substance of this business."

He added that the company plans to ask for an auction in early June, but that the agreement isn't the "normal loan-to-own quickie sale, tie everything up and walk away with the company leave people with nothing kind of case."
Richman also mentioned that on April 1-the day of the filing-three of Diamond's suppliers "threatened to stop shipment of critical glass supplies, which would have interrupted business."

" … We needed Guggenheim's consent to allow us to use cash collateral before we had an opportunity to come to Your Honor," Richman recounted for the court. "We will be asking Your Honor to approve that as part of the relief today, but Guggenheim did consent. It was not a happy series of conversations with them, for obvious reasons, but I point this out again, because they have acted above and beyond the call of duty in a way that secured creditors usually do not in a Chapter 11 environment, and they deserve praise for that."

Richman also asked that the motion to continue to pay employee wages and benefits during the restructuring be reviewed early on.

"We had a threat this morning from the bank that deals with all of the employee paychecks that if they didn't get an order from the Court by one o'clock, they were going to freeze all the accounts," he said. "So we'd like to advance that first in the hopes that Your Honor will approve that first day, which can then be uploaded and can be sent to the bank …" (The motion was granted on an interim basis. CLICK HERE for related story.)

Richman also spoke to the importance of the company's motion to pay pre-petition claims to critical vendors. (This motion also ultimately was granted. CLICK HERE for related story.)

"So, the question, you know, the ultimate question is, we can fight about … whether critical vendors are getting paid pre-petition amounts or not, but if the end result of our litigating and contesting is we can't pay them and they shut the company off, we have nothing left to sell," he said. "We don't think that's a responsible way to proceed."

He also mentioned the strong role that relationships play in the auto glass industry as a whole.

"This business really is one that is a day-by-day existence dependent on these networks of relationships and they all talk to one another," Richman said. "There are blogs. There is the telephone. They're all aware of what's going on."

Bill Cogswell, president of the company, also participated in the hearing, and answered a number of questions about how the industry works. He noted that Diamond's business currently has a breakdown of approximately 30-percent insurance work, "43-ish" percent commercial work (fleets, for example), and "the balance in cash."

Cogswell also commented on how the company chose the 15 critical vendors named in the case. (At press time, the list of critical vendors had not been released. CLICK HERE to see a list of Diamond's largest glass industry creditors.)

"The intent is to try to utilize the pool to allow us the opportunity and leverage to keep the same terms and conditions, keep the product supply coming, keep the costing where it has been, and keep our customers happy, and keep our business going and growing and being healthy during this process, which is what it's all about," he said.

The Department of Justice trustee assigned to the case, David Buchbinder, asked Cogswell how he might respond to a vendorwhom was owed money and wanted payment in full before doing business with Diamond. Richman objected.

"The danger with this line of questioning and asking Mr. Cogswell hypotheticals about what they'll do is anybody that we have to negotiate [with] who reads this record is going to take away our leverage," Richman told the judge. "I mean, the whole point of the program is to be able to negotiate the best deal we can and hopefully not pay out what the Court's authorizing."

The judge overseeing the case, the Hon. Christopher S. Sontchi, sustained the objection.

Richard Bunchalk, chief financial officer for Diamond, also took the stand. Erika Morabito of Foley & Lardner, also serving as pro hac counsel for Diamond, questioned Bunchalk on how the amounts of payments the company sought for interim approval were determined, along with the total amount requested to be borrowed from Guggenheim—$7 million in full, $3.1 million on an interim basis.

When asked about the importance of the debtor-in-possession (DIP) agreement with Guggenheim, from which Diamond would gain the loan, Bunchalk responded, "It would be detrimental to the business if we did not get this money to continue to supply product and to make payroll, etc., and consequently would harm the value, the overall value of the business on a go-forward business."

As for how Guggenheim was chosen as the DIP, Bunchalk advised the company's investment banker, National City, recommended this option and that Guggenheim had favorable rates.

"And, quite frankly, there was no other vendor, no other banker, willing to come through," Bunchalk added.

He also noted that keeping the business running smoothly is an important factor in maintaining employee satisfaction—hence the need for the $3.1 million interim advance.

"If the shipments of the product and the sourcing of product is not available to our stores, we could either [sic] incur increased pricing," he said. "We could have jobs lost, and we can also have potentially a defection of our own employees, who see this on a day-to-day basis, and feel as though there's a problem with the company and think, 'It's a very easy access and easy entry into the industry' … [Technicians] go out on their own all the time, and it doesn't take a lot to set up shop, so if they start to feel threatened in any way that either payroll won't be met or there's a product supply problem, they can easily defect, all the way up through the regional manager level."

J. Scott Victor, a representative of National City, also was questioned, and noted that the company had been retained by Diamond on March 10 to explore its options.

Victor said the company met with seven other lenders, prior to the Chapter 11 filing, and "found that from those seven that none of them would be interested in providing junior capital, subordinate to the Guggenheim first lien."

When asked during what timeframe he met with the other lenders, Victor responded, "It was all last week, and if I had another six months, it wouldn't have made a difference."

He added the opposition to the deal was due to Diamond's current state-and the alternative that Guggenheim had proposed.

"[It was] because of the debtors' current financial performance and their balance sheet," he said. "There was and is, nor will there be, an alternative DIP that the debtor could get similar to the terms that Guggenheim has proposed."

Court documents in the case also note that as of April 2, Diamond was still working to reach an agreement with one un-named major supplier.

"... We put some emergency stop-gap measures in place with most of [our suppliers]," he said. "We still don't have it with one of them, which is our major supplier, and it's, unfortunately, causing a great amount of disrupt in our business right now."

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