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Case #468
Morris-Anderson Recoveries Beat All Estimates in Ingersoll Bankruptcy
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When Ingersoll International filed for Chapter 11 bankruptcy in 2003, the outlook was bleak. The Rockford, IL-based custom machine tool manufacturer was $42 million in debt to its bank group, owed $30 million to trade creditors, had $34 million in unfunded pension obligations, was out of cash, faced the almost certain shutdown of its two U.S. plants and the last of a number of potential buyers had just bowed out of negotiations. The bank group assessed its loan position to be substantially impaired by at least $20 million.
Less than two years later, its U.S. assets and the stock in its German subsidiaries were sold, secured lenders were paid in full, trade creditors are going to get a 10% distribution and terminated employees will receive at least some of the benefits from their Ingersoll pension plans.
The picture began to brighten when Morris-Anderson & Associates, a turnaround-management and performance-improvement consulting firm with eight offices nationally, took over supervision of the company’s wind-down, sale and liquidation tasks. Morris-Anderson & Associates has been providing strategic, financial and operational consulting services to financially distressed and underperforming businesses since 1980, and the firm’s seasoned professionals are skilled at creating value in viable companies, or at negotiating optimal terms if liquidation becomes unavoidable as a value-optimization strategy.
“When Ingersoll filed for bankruptcy, the consensus was that even if it sold all the assets and collected all the receivables, it would never be able to pay even the principal on the secured debt, let alone the interest and fees,” says Dave Petersen, one of the Morris-Anderson & Associates consultants who worked with Ingersoll. “But as we went forward, we found ways to dramatically increase value”
By bringing some factory employees back to finish work in progress, negotiating advantageous terms with key customers, placating creditors, and maintaining bankruptcy reporting and communications, Morris-Anderson & Associates could market Ingersoll companies in Rockford and Midland, MI, as going concerns with viable customers as opposed to pure liquidations. The result? Three businesses (2 U.S. and 1 German) that comprised Ingersoll have been sold and are operating at full strength or better. Dan Dooley, Senior Principal of Morris-Anderson & Associates commented, “What was amazing was that our team sold two U.S. businesses as going concerns that were completely shut down for two months other than for some minor totally customer-funded inventory build-outs we had negotiated.”
“We’re back to where we were and perhaps a bit stronger than before, which in the machine tool business is not an inconsiderable accomplishment,” says Bram Bone, President of the new Ingersoll CM Systems in Midland. “Morris-Anderson & Associates really wanted to help this company come back alive, because they saw the potential.”
Similarly, in Rockford, what is now Ingersoll Machine, Inc. has more employees—and more business—than ever. To maximize value, Morris-Anderson & Associates’ marketing efforts spanned the globe. Dalian, a Chinese company, bought CM Systems, and Italian machine tool manufacturer Comozzi now owns Ingersoll Machine.
Based on management’s cash forecasts, the Board had expected to be forced to file bankruptcy in Q4 2002. The Company originally asked Morris-Anderson & Associates only to manage the cash in order to keep the company afloat while prospective buyers made their assessments and hopefully bought the Company.
“In many cases when we’re called in to do this, it’s too late by the time we get there,” Petersen says. “In this case though, we were asked to see how bad the cash situation really was and whether the Company would have to file as management forecasted. We bought another six months.”
Managing the cash gave Petersen and his team an inside view of the company that was invaluable when bankruptcy finally was the only option left.
We already knew the company and its customers, suppliers and capabilities,” Petersen says. “We could talk about the potential for the business and how key management changes could eradicate the problems of the recent past.”
While Morris-Anderson & Associates was seeking new buyers in the United States, it was partnering with investment banker Brown Gibbons Lang & Company to sell the stock Ingersoll International owned in its German subsidiaries. That $45M sale—combined with the U.S. company sales of $15.6 million and $3.5 million, respectively, and about $5.5 million that resulted from resuming limited operations—provided enough cash to satisfy secured lenders and other immediate claims. In addition, Morris-Anderson & Associates identified forgotten revenue from other sources, such as a refund for environmental cleanup on property sold to the city of Rockford, IRS refunds, a customer bankruptcy distribution due Ingersoll and various other overlooked assets.
“When companies are in trouble, all the focus is on at least getting the lenders paid as much as possible,” Petersen says. “It’s crisis management at its worst, and a lot of things can fall through the cracks. It’s amazing what we can turn up when the hard assets are gone.”
As the bankruptcy progressed, Petersen’s team made sure tasks were completed on time and that Ingersoll’s Board, its creditors and the Bankruptcy Court were kept fully informed via weekly conference calls.
The results speak for themselves:
• The “impaired” bank group paid in full
plus interest and fees
• The PBGC received a $20 million cash
settlement on pension liabilities
• The Unsecured creditors are projected to
receive a 10% dividend or $3 million
plus they have a customer(s) to continue
to sell to
• All in all, a full $40 million increase in
value over everyone’s original expectations
Morris-Anderson & Associates’ Dooley sums it up. “The payback on our services, based on the increase in value over expectations, was roughly 20 times the cost to the estate, a win-win for everyone on the heels of the demise of a once proud and profitable company.”
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