American LaFrance LLC (the “Company” or “ALF”) announced that it has filed a voluntary petition for relief under Chapter 11 of the U.S. bankruptcy code in the United States Bankruptcy Court for the District of Delaware. Concurrent with the Chapter 11 filing, the Company announced that it has obtained $50 million in debtor-in-possession financing from its pre-bankruptcy lenders. The Company will continue to operate its manufacturing facilities and provide repair services as a debtor-in-possession. The Company has retained William K. Snyder, a Managing Partner with CRG Partners Group, LLC, as Chief Restructuring Officer.
The Company has already filed a Plan of Reorganization along with a motion for sale under Section 363 of the bankruptcy code in case the Plan of Reorganization is not approved. It is anticipated that the reorganization process will be completed in less than 90 days, at which time the Company will emerge from bankruptcy with ample liquidity for ongoing operations and a more viable debt structure. The Company has filed motions to honor customer warranties and employee wages, among other relief. The Company intends to honor its obligations to supply vehicles that are supported by performance bonds.
ALF’s Chapter 11 filing is the result of several factors, including significant operational difficulties encountered upon the separation of ALF’s business from the business of ALF’s former parent, Freightliner LLC. To address these operational problems and to fund general operating expenses, ALF has incurred approximately $100 million in secured debt since the business was purchased from Freightliner LLC.
American LaFrance LLC, through its predecessor entities, is one of the oldest fire, rescue, and EMS vehicle manufacturers in the United States, dating back to the its founding in 1832. The Company operates 8 manufacturing/servicing facilities and two company-owned vehicle dealerships.
Letter to Vendors
Dear Valued Vendor:
As a valued supplier of American LaFrance, LLC we felt it was vital for you to hear from us personally about an important action that the Company has taken.
On January 28, 2008, American LaFrance, LLC (“ALF” or the “Company”) filed a voluntary petition in the United States Bankruptcy Court for the District of Delaware, for reorganization under chapter 11 of the U.S. Bankruptcy Code. This was a difficult decision, and the Company explored a wide range of alternatives before making it. However, taking into account the various interests of all stakeholders, the Company determined that reorganization under Chapter 11 was the preferable alternative, and the right course of action for the long-term future of ALF.
We have secured a $50 million secured debtor-in-possession (DIP) credit facility provided by our lender. Through a first day motion, ALF will seek immediate authority to access the post-petition credit facility and intends to use the liquidity to purchase merchandise, pay employee salaries and benefits and for other general corporate purposes.
Unfortunately, federal law prohibits payment for goods and services received before the January 28, 2008 filing date. Payment on this pre-petition indebtedness is prohibited until after a plan of reorganization is accepted by the creditors and approved by the Court, and then only in accordance with the plan of reorganization. We regret any hardship you may experience in connection with these actions, but we encourage you to focus on the opportunities that lie ahead as we do everything possible to continue to work together productively in the weeks and months to come. The relationships ALF enjoys with its vendors are important to our future success, and while the Company cannot promise what amount will be paid on pre-petition trade claims, we will do everything we can to achieve a maximum recovery.
As you probably know, the Bankruptcy Code provides a priority status for post-petition purchases (goods and services received after the date of the filing). We can and will pay for such post-petition goods and services in the normal course of business and we believe it is in our mutual best interest for ALF to continue operating at maximum capacity. The daily operations of our manufacturing facilities will continue, and the Company intends to be competitive in its markets. To do so, however, ALF must continue purchasing goods and services from you on favorable terms. We look forward to continuing our relationship and thank you for your support during this challenging time.
ALF will do its best to keep you fully informed of developments relating to the Company’s chapter 11 case. You may also contact me directly should you have any questions.
Sincerely,
William Hinz
President and Chief Executive Officer
Questions and Answers
Q. Is American LaFrance going out of business?
A. No. Chapter 11 of the Bankruptcy Code allows a company to reorganize its finances and business affairs so that it can survive. Many well-known companies have been through Chapter 11 and have emerged as stronger companies—for example, Kmart, Macy’s, and United Airlines.
Q. How does the Chapter 11 filing affect operations?
A. With your help, American LaFrance will continue to be a leader in the emergency vehicle and heavy-duty truck industries. The effect on operations is dependent on the level of participation of the vendor community. If vendors continue shipments and the manufacturing facilities remain properly operational, then the adverse impact of the transition on customer behavior will be minimal.
Management is confident that if the manufacturing experience can remain pleasant for the customers during the reorganization, then the long-term prospects for American LaFrance are quite positive.
Q. Why should I continue to conduct business with American LaFrance?
A. There are really three key reasons to continue shipping to American LaFrance:
1. Priority status of post-petition claims – amounts owed for goods released to American LaFrance and services received by American LaFrance on the day of or any day after the filing for Chapter 11 are deemed administrative claims. The Bankruptcy Code requires American LaFrance to pay these amounts in full as a condition of emerging from Chapter 11.
2. Maximization of the value of pre-petition claims – the value of all pre-petition claims is highly dependent on the success of the entity during the reorganization process. As mentioned above, the success of the Company during the reorganization period is in large part due to the support of the vendor community. Therefore, each vendor has the opportunity to affect the value of its outstanding balance at the time of filing by continuing to do business with us.
3. Participation has its rewards – as a part of the reorganization process, American LaFrance will need a substantial amount of product very quickly to maximize sales. We hope that our existing vendors will choose to participate in this opportunity for increased sales.
Q. How will American LaFrance be able to pay for goods released to American LaFrance after the filing (post-petition goods)?
A. American LaFrance has obtained $50 million of debtor-in-possession (DIP) financing. DIP financing is simply a new loan that American LaFrance can use to finance operations and to provide liquidity during the conduct of the Chapter 11 case.
Q. If American LaFrance can pay for post-petition goods, why won’t American LaFrance pay me the current amount owed?
A. As indicated above, it is not that American LaFrance won’t pay. Rather, American LaFrance is not allowed to pay for pre-petition goods by law. This law is for the protection of all creditors, as it stops the Company from selectively paying its creditors and puts all creditors on the same level.
Q. Where did the Company file for Chapter 11?
A. The Company filed for Chapter 11 on January 28, 2008 in the District of Delaware.
Q. Is there a bankruptcy trustee?
A. No. A trustee is not ordinarily appointed in a Chapter 11 bankruptcy case. Existing management will continue to guide American LaFrance through the Chapter 11 process.
Q. How will American LaFrance get out of Chapter 11?
A. We will prepare documents called a plan of reorganization and a disclosure statement that outline our business plan and the restructuring of our debts. Those documents will be distributed to creditors, who will have an opportunity to vote on the reorganization plan. At that point, the bankruptcy court will decide whether to confirm the plan, and if it is confirmed, American LaFrance will emerge from Chapter 11 free from the restrictions of the bankruptcy process. The Company has filed a Plan of Reorganization as well as a sale motion to insure there is a rapid exit from bankruptcy.
Q. How long will that take?
A. It’s not possible for us to predict at this point, but our goal is to emerge from Chapter 11 as quickly as possible.
Q. How much will I be paid on my outstanding invoices?
A. We don’t know at this point. That will depend on a number of events in the Chapter 11 case, including the level of support we receive from our vendors. Rest assured that our goal is to achieve the maximum return for all of our creditors.
Q. What if I have additional questions?
A. Please call your buyer for information.
Q. What is the case number and where did it file?
A. The case is filed in Bankruptcy Court for the District of Delaware and the Judge is Brendan Shannon and the case number is 08-10178.
