Leading Ice Company Trying to Expand while in Bankruptcy

On April 12, 2012, Reddy Ice filed for chapter 11 bankruptcy in the Northern District of Texas, revealing that it has secured $70 million in debtor-in-posssion financing, which will allow the Company to pay for operating and restructuring costs during its bankruptcy case.  Reddy Ice is the largest manufacturer and distributor of packaged ice in the United States.

The Company primarily makes and sells bags of ice at super markets and convenience stores. In 2011, the Company sold 1.7 million tons of ice with a particular geographic focus in the southern United States.

Reddy Ice announced that it filed bankruptcy with a prenegotiated plan that was pre-approved by its first lien noteholders, second lien noteholders and discount notes, which collectively represented $500 million in secured debt, or the majority of secured debt of the Company.  This approach is anticipated to expedite the duration of the bankruptcy case.

According to the filing, the Company began discussions in 2011, to explore alternatives to address its capital structure with an informal group of first and second lien note holders, including Centerbridge. 

In addition to addressing the Company’s declining EBITDA and current debt, the restructuring is also intended to provide the Company with the opportunity to pursue a strategic acquisition of all or substantially all of the assets of Arctic Glacier Income Fund and its subsidiaries (“Arctic Glacier”).  As is the case with Reddy Ice, Arctic Glacier has encountered its own financial difficulties due to adverse trends in our industry in recent years.

On February 22, 2012, Arctic Glacier filed for protection under the Companies Creditors Arrangement Act in Canada and Chapter 15 of the Bankruptcy Code in the United States. In Canada, Arctic has initiated a Sale and Investor Solicitation Process, pursuant to which it seeks to solicit and implement various sale proposals and investment proposals from qualified bidders with respect to Arctic’s assets. Arctic Glacier’s insolvency proceedings in Canada can be found at the following link: Link

In the Reddy Ice bankruptcy case, it was announced that the proposed restructuring is dependent on whether Arctic Glacier can be purchased. If Arctic Glacier is acquired, Reddy Ice can issue pari passu first lien debt to finance the acquisition. If it is not acquired, Centerbridge will convert $68.2 million of first lien notes into preferred stock of Reddy Holdings with a liquidation preference of $75 million. In addition, if the acquisition is successful, Reddy Ice’s stock holders will receive an additional 5 cents on top of the already 12 cent proposed distribution.

Conclusion

 While acquiring companies during bankruptcy is not the norm, the Bankruptcy Code leaves sufficient flexibility for expansion of a business during a chapter 11 proceeding. Indeed, there are little objective limits on acquisitions under the Bankruptcy Code. And there is a good reason for that. If Reddy Ice is successful in its proposed acquisition, it will provide higher value to the stakeholders of the Company.



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  1. Business Bankruptcy Filings Are Down Substantially – Corporate Restructuring Review

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