Hostess CFO Says Asset Sale Valued At $64.25 Million Is Valid

by Tara Arick on August 22, 2013 · 0 comments

in Bankruptcy,Contract Law

- From LexisNexis® Mealey’s™ Daily Legal News.

The chief financial officer (CFO) of bankrupt Old HB Inc., formerly known as Hostess Brands Inc., on Aug. 19 filed a declaration in support of the sale of real estate and equipment assets free and clear of all liens and encumbrances for $ 64.25 million (In Re: Old HB Inc. f/k/a Hostess Brands Inc., No. 12-22052, Chapter 11, S.D. N.Y. Bkcy.).

Hostess filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Jan. 11, 2012. In the course of conducting the bankruptcy, Hostess was renamed Old HB.

Asset Sale

David Rush, CFO of Old HB, seeks approval of the sale of various assets.

According to Rush, following the shutdown of Old HB’s operations in November 2012, it pursued an orderly wind-down and sale of its assets. After reviewing initial indications of interest, Old HB determined to market and sell groups of its assets in order to maximize value.

Old HB also retained Hilco Real Estate LLC (Hilco) to value Old HB’s real property and related assets. Hilco also marketed those assets for sale.

As a result of Hilco’s marketing process, Old HB received approximately 405 offers, but only one buyer offered to purchase all of the assets on an as-is basis, Rush says.

Bids

Old HB and Hilco analyzed the purchase price to determine whether it was reasonable, Rush says.

Moreover, Rush says that he participated in “extensive discussions” with Old HB, the law firm Jones Day and Hilco regarding the bids and ultimately concluded that some bids should be disqualified because they failed to meet the requirements of the bidding procedures order.

Of the remaining bids, Rush says the highest and best collections of bids included bids to purchase 90 real estate properties that were for sale for $ 40.6 million. Hilco advised Rush that the liquidation value of the remaining 50 properties, for which no bids were received, was $ 16.2 million.

Analysis

Additional analysis was provided by FTI Consulting Inc., Rush adds. Pursuant to that analysis, FTI concluded that the likely carrying costs related to the properties would be incurred over an additional six-month marketing period and each property faced potential expenses of $ 10,000 to remediate environmental hazards. FTI ultimately calculated that these additional carrying costs would be approximately $ 1.9 million in the aggregate, Rush says.

Furthermore, FTI estimated the additional costs associated with having to close multiple separate transactions rather than a single transaction to deal with all the properties at once, Rush says. Total broker commissions related to multiple transactions would cost $ 522,100, Rush adds.

Calculation

Based on estimated legal expenses of $ 15,000 per transaction, by FTI’s calculation, Old HB would incur an additional $ 2.1 million in legal expenses, Rush says.

Consequently, Rush says that at auction, following numerous rounds of bidding, the highest bid was $ 64.25 million, by Heritage Global Partners Inc. (HGP), which was a proper and reasonable bid.

Old HB and Rush are represented by Corinne Ball of Jones Day in New York.

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