After nine months under Chapter 11 bankruptcy protection, Huffy Corp. last week provided some guidance on its plans for reorganization. HUF filed papers with the SEC pertaining to an “agreement in principle” between Huffy and a group of creditors including The Sinosure Group and the Unsecured Creditors Committee. The Sinosure Group has been providing credit insurance to Huffys suppliers. Additionally, Sinosure is an agency of the Chinese government providing export credit insurance to Chinese exporters, including many of Huffys suppliers.
Huffy plans to emerge from bankruptcy as an independent, private company under new ownership. The company further stated that it expects current equity holders will not receive any distributions and their equity interests will be cancelled.
Under the agreement, the Sinosure Group will receive 30% of Huffys new voting common equity in the form of new Class A shares and a $3 million note. The Class A common shares will entitle The Sinosure Group to elect the majority of Huffys board of directors. In addition to this control over the board, the Sinosure Group will have the ability to earn up to 51% of the aggregate new common voting stock over the next 5 years. Seventy percent of the new common equity in the form of new Class B shares and a $9 million note will be issued to the other unsecured creditors. The notes and post-confirmation trade credit will be secured by two separate liens on Huffys assets, the first lien on HUF intangible assets and the second on other assets.
Huffy is working to finalize and file this Plan of Reorganization and Disclosure Statement with the Bankruptcy Court sometime next month. The disclosure statement is subject to approval by the Court and Huffy plans to begin soliciting acceptances of the Plan of Reorganization from its creditors in August 2005 and for the Bankruptcy Court to conduct a confirmation hearing for the Plan in September 2005.
Huffy will also request that the Pension Benefit Guaranty Corporation take over payments to its pension plan. The company will file with the Bankruptcy Court to terminate the Huffy Corporation Retirement Plan. Huffy has roughly 3,600 retirees drawing from its pension plan and only about 130 current employees. According to the company, 99% of its current retirees would see no change in their pension benefits if the court approves the request, because the PBGC would take over responsibility for paying out the benefits. The PBGC is a unit of the U.S. federal government that insures pension plans. Huffy described this as a “key component of the Plan of Reorganization.”
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