Bankruptcy court approves termination of retirement plans

Terminating a company's Bargaining Unit Retirement Plans seems to have been the best solution for all parties involved in the Chapter 11 bankruptcy of Wire Rope Corporation of America.

The U.S. Bankruptcy Court for the Western District of Missouri approved the company's motion for distress termination after finding the company would likely be forced to liquidate otherwise, which would result in a bigger loss than if the plans were terminated.

Wire Rope filed its voluntary Chapter 11 case in May 2002 after suffering losses in 1999, 2000 and 2001. Ira Glazer, the company's chief restructuring officer and chief executive officer during the court proceedings projected earnings for the next three years, showing the company had hope of restructuring, but only if the retirement plans were terminated.

The company would be required to meet a statutory minimum funding requirement through 2006 of an estimated $20.7 million if the plans were not terminated. Glazer testified that it would be unlikely Wire Rope would be able to meet that requirement without going into liquidation. In order to reorganize, the company would have to obtain debt or equity financing. Prior to the court's review of the case, a plan of reorganization was sent to 59 potential investors, and only three showed interest, and all three indicated that the retirement plans must be terminated for them to invest in the company.

It is clear to the Court in the present case that the Debtor will not be able to obtain either the debt financing or the equity financing - and both appear to be required if the company is to survive - that would enable it to obtain confirmation of a plan of reorganization, Judge Jerry Venters wrote. Nor is it likely that the Debtor would be able to operate outside bankruptcy if the Plans are not terminated -

In order to operate outside of bankruptcy, Wire Rope would need $35 million in debt financing and $10 million in equity financing - in addition to the $20.7 million for its minimum contributions to the retirement plans.

[I]t is certainly understandable that lenders and investors would be reluctant to extend credit to the Debtor and take and equity position in the Debtor when the Debtor has such an imposing contribution requirement in its immediate future, Judge Venters wrote.

Although it is unlikely Wire Rope would be able to find financing for such a large amount, the Court also considered whether the company could pay its debts if the retirement plans were not terminated. The Court referred to In the Matter of Sewell Manufacturing Company Inc. (Bankr. N.D. Ga. 1996), in which that court approved the motion for distress termination. The cash flow projections and burdens imposed by the retirement plans are very different in Sewell and the case at bar, but the ability to carry on outside of bankruptcy was equally unlikely without the termination of the plans.

With the company's projected earnings over the next three years, the company would be able to meet the minimum requirement for the retirement plans, but it would not be able to pay almost nothing on its debts.

While the Debtor arguably might be able to continue in business without making any payments on its unsecured debt, there is little question that the Debtor will not be able to remain in business for long if it cannot make the required payments on its secured debt (which is substantial), Judge Venters wrote.

Under its current proposed plan for repayment of its debts, Wire Rope would be left with only $9.9 million to apply to the retirement plans, which would not meet the minimum requirements.

Under this analysis, then, the Debtor could not be expected to pay its debts under the proposed plan of reorganization and continue in business unless the Retirement Plans are terminated, Judge Venters wrote.

Based on the unlikelihood that the company would be able to survive if the retirement plans remained, and the support of the local Unions, creditors' committee and the unsecured creditors, the court terminated Wire Rope's retirement plans.

[C]ounsel for the Creditors' Committee advised the Court at the conclusion of the hearing that the unsecured creditors recognize that the reorganization process cannot go forward without termination of the Retirement Plans, and that the only reasonable alternative would be liquidation, in which case the unsecured creditors would likely receive nothing, Judge Venters wrote.

In re: Wire Rope Corporation of America Inc., case number 02- 50493-JWV, handed down December 30.

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