Nailite will seek an asset sale
by Ben Fidler
Updated 04:41 PM EST, Feb-17-2009
Bankrupt Nailite International Inc. plans to name a stalking-horse bidder and sell its assets as the struggling siding manufacturer attempts to lessen its debt load and survive the economic crisis, according to court papers.
Miami-based Nailite, which filed for Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Feb. 13, is getting $3 million debtor-in-possession financing from Premier Exteriors Holdings LP, an affiliate of the entity which bought Nailite's $32 million worth of senior debt just a month ago.
The DIP will give Nailite roughly a two-month funding window to sell its assets. The DIP matures on the earlier of April 17, the consummation date of a sale or the effective date of a plan.
Nailite must also stay in line with several milestones regarding the sale of the company to remain in compliance with the funding. The debtor, for example, must win bidding procedures approval in less than two weeks (Feb. 25), complete an auction by March 24, and close the deal by March 30.
The DIP is priced at a base rate plus 550 basis points, with the base rate defined in documents as the greater of prime and 5%. The loan carries a $50,000 closing fee.
Like other companies that rely on homebuilding, Nailite has fallen on tough times. Home starts in 2008 plummeted about 56% from their peak in 2005 "with no expected increase in the short term" given the tenuous state of the economy, court papers said.
As a result, Nailite's earnings have dropped by about 67% between 2004 and 2008. In the fourth quarter of 2008 alone, home starts were down 64% compared to the prior year, causing a backbreaking 176% free fall in earnings from the same period a year earlier.
Nailite's financing performance, combined with a huge spike in warranty claims, has "overwhelmed" Nailite to the point where it has been unable to pay its debts. Nailite has "periodically" been in default of its senior debt for more than five years, but the buildup of all its losses caused it to miss its interest and principal payment on Dec. 31.
The company's lender, National City Bank, promptly terminated Nailite's revolver, claiming its roughly $32 million in debt was payable immediately. Premier Exteriors has since bought up that debt.
Nailite then hired AlixPartners LLP as its restructuring adviser and began to evaluate its alternatives. The company filed for Chapter 11 to try to revamp its capital structure and live on through a sale.
Nailite produces injection-molded polypropylene-based cedar and masonry replica siding, selling its products in the residential construction and remodeling markets through various building material and siding distributors throughout the world.
The debtor listed between $50 million and $100 million in both assets and debts in its petition.
Steven Yoder, Gabriel MacConaill and R. Stephen McNeill are debtor counsel at Potter Anderson & Corroon LLP in Wilmington.