AFTER exhausting all of its options to refinance the company over the past year, a liquidity crisis finally forced Arctic Glacier Income Fund on Wednesday to seek protection from the courts.
Madam Justice Lori Spivak granted the Winnipeg-based packaged ice company approval for a court-supervised recapitalization under the Companies' Creditors Arrangement Act (CCAA).
Within the next few days, letters will sent to dozens of companies or investors, inviting them to make offers on the company. An expedited 100-day process is now underway to find a buyer for the company, but only serious bidders need apply.
The co-ordinated action had the full co-operation of its secured lenders -- West Face Capital and Canada Pension Plan Investment Board (CPPIB) -- which are owed a total of $259 million and are seeking at least that much for the company.
Kevin McElcheran, the lawyer representing Arctic Glacier, said the action was necessary because the company had run out of credit and needed the CCAA action to secure ongoing working capital.
"The company had been going through the process (of seeking a buyer or recapitalization) for some time and needed a fresh start," McElcheran said.
Included in the CCAA process is an arrangement for existing creditors to make an additional $50 million of funds available for the company in what is called debtor-in-possession financing (DIP).
"The company cannot survive without the DIP," McElcheran told Spivak.
While the action puts the company in "suspended animation," as one finance expert familiar with the company characterized it, it also means the company will continue to operate as a going concern, with all suppliers being paid and no employees laid off.
But it could also make Arctic more vulnerable to competitive market pressure.
McElcheran told the court a reduction in revenue is expected.
It also means all current litigation against the company will be stayed until it emerges from CCAA protection.
Depending on the price the company is eventually able to attract, it could also mean investors are left with nothing. As well, multimillion-dollar legal settlements Arctic agreed to in the aftermath of the U.S. Department of Justice (DOJ) antitrust investigation may end up going unpaid -- Arctic still owes $10 million to the DOJ -- and the $8-million severance that would have to be paid to senior management if they were let go after a change of control may also fall by the wayside.
The court appointed Alvarez & Marsal Canada Inc. as monitor of Arctic Glacier to oversee the CCAA proceedings. The order's duration is for an initial period of 30 days, subject to extension by the court.
An application will be made seeking recognition of the CCAA proceedings in the United States under Chapter 15 of the U.S. Bankruptcy Code.
Arctic Glacier units were delisted from the Toronto Stock Exchange last month and moved to the Canadian National Stock Exchange (CNSX:AG.UN). The units closed up half a cent to 4.5 cents on Wednesday.
Unitholders have been feeling the pain for some time. Last summer, after months of efforts, Arctic was unable to refinance $90.6 million in debt that was then converted to equity, substantially diluting any value former equity holders had enjoyed.
Then, later last year the company breached its covenants with secured lenders because of poor financial performance, technically putting it in default of its loans.
It was all downhill from there.
All the while, the company was racking up huge expenses for lawyers and financial advisers who had been trying to orchestrate recapitalization since the fall of 2010.
But despite all the negatives, industry sources say there will be interest from investors in purchasing the company, which still generates substantial cash flow from operations.
Arctic Glacier has 39 production plants and 47 distribution facilities across Canada and the northeast, central and western United States.