Restructuring &
Turnaround Advisory

Kevin Kaden Partner

Kate Matson Manager

What led this 40-year-old chain that defined the age of the book superstore to go into bankruptcy? Besides the challenges facing the book industry from mass merchandisers and online retailers, Borders did not adapt to the changes in technology as well as some of its competitors. Borders’ strategy of stocking various digital e-readers did not compete with the identifiable Kindle and Nook offered by Amazon and Barnes & Noble, respectively, and Borders did not align with any particular device until May 2010, with the Kobo e-reader. Additionally, Borders had a significant real estate footprint, with hundreds of 25,000-sq.-ft. superstores. Leases signed at the height of the market meant it was virtually impossible to turn a profit.

We were engaged by the Official Committee of Unsecured Creditors of Borders Group, Inc., which filed for Chapter 11 bankruptcy protection in February 2011. The Borders case is a classic example of BDO’s ”One-Stop-Shop” working together: BDO Consulting’s business restructuring, real estate advisory, employee benefits consultants and BDO Capital Advisors. In conjunction with the committee’s legal counsel, our team analyzed and challenged the DIP agreement and was successful in gaining certain concessions. We also analyzed and challenged the debtors’ business and merchandising plans for the proposed go forward business to determine the likely profitability of the debtors’ stores. In conjunction with the proposed plan, BDO Consulting’s real estate experts took an in-depth look at the real estate footprint and evaluated leases, including lease termination agreements. We assisted in the debtors’ attempt to sell the company as a going concern, analyzed short-term cash flow issues and insured a back-up liquidation plan was ready to be implemented to preserve creditors’ value. Unfortunately, despite the efforts of the debtors and the committee’s advisors, no going concern buyer was found during the sale process and all Borders stores were liquidated in September 2011. Efforts are ongoing to maximize the return to the unsecured creditors, and a plan of liquidation was confirmed at the end of the year.

Business Restructuring Services professionals who worked on this matter included Bill Lenhart, Kevin Kaden and Kate Matson.

David E. Berliner Partner

Bill Giovanniello Director

Solar manufacturer Solyndra set off a political firestorm when it filed for bankruptcy in early September. Touted as an innovative green energy provider thanks to its proprietary solar photovoltaic panel technology, Solyndra received a highly publicized $535 million loan guarantee from the U.S. Department of Energy in March 2009. A little more than two years later, the company was brought down by rapid changes in the solar market, including crushing competition from cheaper Chinese manufacturers.

The technology at the heart of solar energy is good. It offers a clean energy alternative that is better for the environment and more viable than other clean sources like nuclear. The industry is struggling for other reasons. First, it lacks the scale needed to compete with cheaper electricity-generating fuel like coal. Second, many companies rushed to market to manufacture more product than necessary given real demand levels. This is partially due to artificial demand created by the 2008 TARP program’s heavy emphasis on green jobs and the tax credits provided by federal, state and local governments to encourage the use of solar technologies. With fewer players in the industry, there is significant potential for solar panel technology, particularly in the corporate environment. Solyndra, while being held up as the poster child for solar energy investments gone wrong, also faltered under a slightly different set of circumstances than its peers. Unlike other solar manufacturers that produce polysilicon panels, Solyndra used a rolled-tube technology that was expensive to deploy, but in early 2009 was cheaper and easier for consumers to install.

BDO was selected to serve as the financial advisor to the Official Committee of Unsecured Creditors. Working in conjunction with committee counsel, we were successful in getting the company and secured lenders to extend the sales process to give the company adequate time to speak with potential purchasers and enable an adequate time to conduct due diligence. Unfortunately, the bids that were submitted for the November turnkey auction were not sufficient and the company decided to delay the auction until February. A back-up liquidation plan is being developed in the event the new auction does not produce significant value.

Business Restructuring Services professionals who worked on this matter included David Berliner, Bill Giovanniello and Howard Weber.

Jerry Shapiro Managing Director

Blockbuster Video filed bankruptcy in response to a slowdown in its core video store business, disk-by-mail business and its inability to get to critical mass in its online services. The holders of certain of Blockbuster's senior secured notes formed an ad-hoc committee to negotiate and implement a restructuring and to provide a DIP loan to the company, including the "roll up" of their pre-petition notes. Our client, the Trustee for the notes, was concerned that not all of its holders were being treated equally and that, as a result, it might need to intervene to make sure that it was fulfilling its fiduciary duties.

In a extremely short time frame, BDO Consulting developed findings and conclusions on cash flow and EBITDA projections, valuation, reorganization/sale process and timing, collateral preservation and other factors affecting DIP adequacy and terms in preparation for opposition to the DIP financing.  As a result, at the eleventh hour, the ad-hoc committee agreed to allow all senior noteholders to participate in the DIP loan, and the Trustee did not object.  We supported the Trustee throughout the initial stages of the case until it was assured that their holders’ interests were protected. Blockbuster was ultimately sold to Dish Network, with plans to leverage Blockbuster’s brand and extensive customer list and increase penetration of the on-line video rental market.

Business Restructuring Services professionals who worked on this matter included Bill Lenhart and Jerry Shapiro.

Michele Michaelis Director

Böwe Bell + Howell (BBH) designs, develops and delivers mail production solutions for customers in the U.S. and Europe. When the company filed for bankruptcy in April 2011, it was the second largest provider of high volume production mail solutions in the U.S. Its products include large scale mail inserting and finishing systems used by high volume mailers including utilities, credit card companies and direct-mail firms. The majority of its revenues are based on recurring long-term renewable maintenance and service agreements. The company’s downward spiral toward bankruptcy began In 2003 when Böwe Systec AG acquired a 50 percent stake in BBH from a private equity firm. As a result of the change in ownership, the company replaced its CEO and adopted new strategies which focused primarily on distributing Böwe Systec AG’s high-end inserting products. This new strategy alienated some of BBH’s existing customers, leading to the loss of several profitable maintenance and service contracts and caused BBH to become heavily reliant upon Böwe Systec AG for products and parts. Thereafter, in May 2010, Böwe Systec AG entered insolvency proceedings in Germany, which then led to BBH experiencing significant supply disruptions, compounding BBH’s already strained operations as a result of the recession. These issues made it impossible for the company to refinance its credit facility before the maturity date and inevitably forced BBH to file for bankruptcy in April 2011.

BDO Consulting was engaged by the Official Committee of Unsecured Creditors of BBH. We analyzed the debtors’ budget and the DIP lending facility provided by the stalking horse bidder. We also analyzed and prepared reports for the Unsecured Creditors Committee that evaluated the Debtors’ projected receipts and disbursements against actual figures and evaluated the likelihood of the survival of the company. In conjunction with the committee’s legal counsel, we assisted counsel in developing leveraged points to negotiate a global settlement between the debtors and the Unsecured Creditors Committee that provided the best recovery scenario for the unsecured creditors. In June 2011, Versa Capital Management, Inc. completed the acquisition of the assets of BBH through a credit bid as the stalking horse bidder in a 363 sales process.

Business Restructuring Services professionals who worked on this matter included David Berliner and Michele Michaelis.

Howard Weber Manager

Cross-border restructurings come with a host of complications. When dealing with disparate jurisdictions and legal systems, problems quickly multiply. Sorting out confusing books and records in one location is difficult enough; recreating them in numerous countries and pursuing legal actions under various different bankruptcy laws is quite challenging.

This was the situation presented in early 2010 by the U.S. bankruptcy filing of Bozel SA, a Luxembourg holding company that held an estimated one-third of the worldwide market share for additives used by steel mills in the production of high-grade steel. While based in Luxembourg, the details of Bozel’s case spanned multiple countries thanks to its global operations. The filing revealed a host of issues: a complete lack of books and corporate records; seriously deteriorated operations in Brazil, where the bulk of the debtor’s value was located; severe cash shortages; non-payment of key material vendors; significant legal proceedings in the UK and the British Virgin Islands (where Bozel’s parent company was based); potential Brazilian governmental license and permit issues; and tax problems. It became clear that Bozel, which would normally have been a company with significant value given its market share, was close to running out of cash and ceasing operations.

BDO Consulting’s Business Restructuring Services practice was appointed financial advisor to Bozel in August 2010 after protracted court hearings that spanned the British Virgin Islands and Luxembourg. BDO in the British Virgin Islands had been appointed liquidator in the court-ordered insolvency of Bozel’s parent company, and tapped our practice in New York to help transfer corporate governance away from Bozel’s original shareholder. We leveraged the breadth and depth of BDO’s international network to swiftly address Bozel’s cash flow and operational issues in coordination with BDO member firms in Brazil, France, Luxembourg, Tortola and the British Virgin Islands to work with Bozel’s local country management and the debtor’s legal advisors.

Bozel secured a DIP loan to address cash needs, designed and executed an in-court sale process, completely recreated the books and records of the debtor, solicited creditor claims on multiple continents, negotiated and settled with senior lenders in Europe, analyzed potential preference and avoidance actions available under the bankruptcy code and dealt with tax issues in multiple jurisdictions. As a result, we were able to stabilize Bozel’s finances and close the sale to a strategic buyer that preserved the value of the company’s French and Brazilian operations.

Business Restructuring Services professionals who worked on this matter included Jerry Shapiro and Howard Weber.

Shante George Manager

Jackson Hewitt Tax Services (JHTS), the second largest individual income tax  preparation firm in the U.S., was forced into bankruptcy by its secured lenders as a result of its inability to repay or refinance its outstanding loan balance. Recent federal regulations had severely limited one of its most profitable products, the refund anticipation loan. Without this significant source of revenue and profits, JHTS was unable to service its secured debt. Ultimately, JHTS struck a deal with its secured lenders to utilize certain protections afforded by the Bankruptcy Code in order to consummate the sale of the entity to the lenders in exchange for a portion of the outstanding debt. The prepackaged plan provided no recovery for unsecured creditors.

The Official Committee of Unsecured Creditors engaged BDO Consulting in June 2011 to assist it in objecting to the July 2011 sale of JHTS and the proposed Plan of Reorganization.  The company had scheduled a Joint Disclosure Statement/ confirmation hearing for only three weeks after the filing date.

Working closely with counsel, we were successful in getting the court to delay the combined hearing for four weeks.  During that time, we analyzed the debtors’ valuation of the business and issues related to the best interests of the creditors’ test for plan confirmation and developed several strategic objections that were brought before the court. As a result of our efforts, and counsel JHTS revised its plan to provide the unsecured creditors with a modest cash recovery as well as the potential proceeds of certain avoidance actions that were assigned to an unsecured creditors’ trust. The committee unanimously voted to support the revised plan.

Business Restructuring Services professionals who worked on this matter included David Berliner, Michele Michaelis, Shante George and Don Levy.

William Creelman Managing Director

Carol Pinlac Manager

MMFX Technologies Corporation is a California-based technology company that utilizes its proprietary micro- and nanotechnologies to produce steel that is five times more corrosion resistant and up to three times as strong as and substantially more ductile than conventional steel. In April 2006, MMFX acquired a steel mill in Canada through its Canadian subsidiary, borrowing approximately $65 million at the subsidiary level (guaranteed by the parent company) to fund the acquisition and startup costs. Production began in September 2008, just prior to the global financial crisis. Shortly thereafter, the industry experienced a precipitous drop in demand for steel and steel prices plummeted. Unable to generate profits in the difficult operating environment, MMFX shuttered the mill and production ceased in June 2009, resulting in a default in its secured obligations. As part of the company’s Canadian subsidiary’s reorganization under the Companies’ Creditors Arrangement Act (CCAA) in Canada, the company sold its steel mill to its secured lender. The shortfall in recovery to the secured lenders at the Canadian subsidiary resulted in almost $60 million of deficiency claims against the parent company. The parent company filed bankruptcy in December 2010 to seek to resolve these claims.

We were retained as financial advisor to the Official Committee of Unsecured Creditors of MMFX. BDO was able to directly link, on a probability weighted basis, the company’s backlog of potential orders to the company’s forecast and cash receipts/disbursements forecasts. The company was not previously able to do this. BDO used this new forecasting tool to evaluate and re-forecast the company’s cash flow and liquidity position, and determined that a potential liquidity crisis was much closer than management anticipated. As
a result, we helped drive the company to an expedited sale process which could be completed prior to a liquidity crisis occurring, resulting in significantly more value to the creditors and plan sponsors. Working together with counsel, the plan sponsors and the committee, BDO helped to achieve an approximate 65 percent-70 percent payout for the unsecured creditors, which was significantly more than the 5 percent which was expected.

Business Restructuring Services professionals who worked on this matter included Bill Creelman and Carol Pinlac.

No Fear was a specialty retailer targeting teens and young adults embracing action sports and casual lifestyle apparel.  During the late 1990s, No Fear sold its products primarily through traditional distribution channels, such as department stores. It also successfully licensed the No Fear brand name throughout the U.S. and Europe.  In 2000, in an effort to grow the business even further, the company launched a “No Fear”-branded specialty retail store concept and grew its store base steadily over the course of the decade, reaching 53 stores as of September 2010, with plans to reach 100 in the next few years. However, the impact of the recession on consumer spending, along with the company taking on more leverage to fund the store expansion plan, led to economic difficulties.

In February 2011, No Fear filed for bankruptcy. BDO Consulting was engaged by the Official Committee of Unsecured Creditors. At the start of the case, management’s stated strategy was to raise new capital to fund a reorganization of the business and, if that was not successful, sell the business. However,
management had little understanding of how much time the company had before running out of money. Working closely with the committee’s legal counsel, we played a key role in analyzing the company’s liquidity position to find out how much time the company had before experiencing a liquidity crisis (it turned out to
be only a few months) and developed a timeline and “dual path” strategy to allow it to try to raise capital while at the same time embarking on an effort to sell the business, all within a timeframe that would allow a closing before the company ran out of cash. As it turned out, the company was sold at auction after it was
determined that new capital for a reorganization was not available. BDO Capital assisted in significantly influencing the marketing process and sale results, resulting in the price being bid up by over 66 percent at auction. Efforts are ongoing to wind down the operations of the remaining estate and maximize the return to the unsecured creditors.

Business Restructuring Services professionals who worked on this matter included Bill Creelman and Carol Pinlac.

Don Levy Manager

Raser Technologies, a geothermal energy company based in Provo, Utah, was overladen with large amounts of debt and an underperforming geothermal plant, which did not produce enough revenue to cover the company’s costs. The debtor’s business required significant capital investment; however, the company was
unable to sustain operations with one operational underperforming geothermal plant and a second plant under construction.

We were engaged as financial advisor to the Official Committee of Unsecured Creditors, which filed for Chapter 11 bankruptcy protection on April 27, 2011. At the outset of this case, unsecured creditors were slated to receive no recovery. Nevertheless, we prepared various business and financial analyses and worked closely with committee counsel in negotiating a plan structure that provides unsecured creditors the ability to receive a recovery from the pursuit of potential causes of action. This potential recovery also includes a sharing in distributions obtained through litigation stemming from the construction of Raser’s underperforming geothermal plant. We are currently engaged as the liquidating trustee, and will administer the estate and any proceeds received from post-confirmation litigation.

P. Greg Baracato Managing Director

Trico Marine provides subsea and marine support vessels and services to the oil and natural gas exploration and production companies offshore operations in the United States, North Sea, Mexico, Asia Pacific Region, Brazil, West Africa, Middle East and the Mediterranean. The economic slowdown during 2009 and 2010 resulted in a reduction of operating and capital expenditures, primarily in the offshore oil and gas industries, requiring offshore services to be provided by debtors. Due to the decline in oil and gas prices, the utilization and day rates in the towing and supply business have increased, as well as the supply of vessels, making it difficult for debtors to generate the liquidity required to service their pre-petition debts.

Having experience valuing the shipping assets and analyzing operational issues, along with BDO Valuation Advisors, we served as financial advisors to the secured bondholders.  We developed recovery scenarios based upon the appraised value of collateral, including various types of offshore vessels, evaluated cash collateral budgets and assisted counsel in negotiating a settlement with the debtors, first lien lenders and unsecured creditors of the company.  Based upon our analysis and support, a successful Chapter 11 plan was negotiated that resulted in a settlement in excess of bondholder expectations and a plan confirmation in August 2011.