By Cameron Kinvig
Contributing Writer for The Texas Lawbook
Dallas-based Reddy Ice Holdings, Inc., the largest packaged ice manufacturer in the United States, filed for Chapter 11 bankruptcy protection on April 5, 2012, citing approximately $531 million in liabilities as compared to about $434 million in assets. Unlike some recent large bankruptcy filings—such as the American Airlines, Inc. case—which are often filed in either Delaware or the Southern District of New York, Reddy Ice filed its cases in Dallas, apparently in the belief that the courts here would provide a fair and speedy venue for its reorganization efforts.
Reddy Ice’s plan was far different —and far more complex—than a traditional “pre-pack.” The company not only needed to restructure itself and its capital structure, but it also wanted to merge with Arctic Glacier Income Fund, a competitor that had filed for bankruptcy protection in Canada in February, 2012 at the same time. As a “pre-pack” case, Reddy Ice lacked the necessary support from a sufficient number of its lenders to support confirmation on the date the case was filed. The plan’s main support was offered by Centerbridge Capital Partners, the hedge fund holding the majority of the first-lien indebtedness, which wanted to pursue the Arctic acquisition.
Reddy Ice’s plan was extremely complex, and contemplated (a) its first-lien indebtedness expanding to include financing to pay for the Arctic acquisition, (b) conversion of approximately $70 million in first-lien indebtedness to equity, should the acquisition not go through, (c) the first-lien indebtedness controlling the reorganized company through one share of super-voting stock, (d) the total conversion of approximately $138 million of second-lien notes to equity (which would still lack voting control of the company), (e) payment of approximately 50-60 cents on the dollar to holders of third-priority debt, (f) the roll-up of a $50 million revolving credit facility into a $70 million new loan, and (g) the veritable “gifting” of between $.12 and $.17 per share to holders of equity.
The plan also contemplated a complex rights offering to holders of first and second-lien debt that would provide the company with additional working capital to fund the reorganization, and the option for preferred shares to be converted to new common equity should certain financial goals be met, or if the company decided to become a publicly-traded entity.
Add in an anti-trust class-action lawsuit, and you have a bankruptcy that was far from simple, a plan that was far from enjoying unanimous creditor approval as of the date of filing, and a case that was not really “pre-packaged” at all.
But those obstacles did not forestall the company’s stay in bankruptcy. Assigned to Bankruptcy Judge Stacey Jernigan, the case rapidly progressed. First-day motions, including the all-important critical vendor motions, were heard and granted the day after the filing date. The class-action lawsuit was settled in record time, with the settlement promptly approved by the Bankruptcy Court.
And, most impressively, an order confirming Reddy Ice’s 467-page plan of reorganization was signed on May 22, 2012—a mere forty-eight (48) days after the case was filed. This was a major feat for a company that had significant disagreements with its creditors as of its bankruptcy filing date, and demonstrates that the Northern District of Texas can be an efficient venue for complex Chapter 11 bankruptcy filings.
The local bankruptcy practice can be a very important part of the North Texas economy, and Reddy Ice—along with cases like the Texas Rangers bankruptcy—shows that it’s time for this part of the economy to grow. The bankruptcy legal practice brings approximately $100 million to the Delaware economy each year, with countless tens of millions more channeled to the New York City economy. The Northern District of Texas has shown it can be just as time and cost efficient, and just as user-friendly as either Delaware or the Southern District of New York. For companies and creditors seeking efficiency, a knowledgeable court system and expertise among the local bar, as well as a Court that is willing to take the time to devote itself to a complex bankruptcy case, it is clear that the Northern District of Texas is open for business.
(Cameron Kinvig is a lawyer at Hunton & Williams in Dallas. He specializes in bankruptcy and restructuring. He is a 2006 graduate of the SMU Dedman School of Law.)
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