A US aerospace company has filed for Chapter 11 protection after a Canadian contract dispute sent its debts skyward.
The Nordam Group and four of its subsidiaries, represented by Weil Gotshal & Manges and Richards Layton & Finger, filed the petition in the US Bankruptcy Court for the District of Delaware on 22 July.
Tulsa, Oklahoma-based Nordam wants a US$45 million debtor-in-possession (DIP) financing package approved, with JP Morgan Chase its DIP agent.
In his first-day declaration, Nordam’s chief restructuring officer John DiDonato told the court that the company had racked up “substantial costs” under a long-term development and manufacturing agreement with engine maker Pratt & Whitney Canada (P&WC).
DiDonato, a managing director of bankruptcy adviser Huron Consulting Services, said the 2010 deal to develop and build the nacelle – the pod that houses an aircraft engine – for the Gulfstream G500 jet aircraft, had cost it over US$200 million.
He said Nordam’s earnings had fallen from about US$88 million in 2008 to about US$50 million in 2017. The company’s revolving credit facility had matured on 18 June with about US$266.5 million outstanding, DiDonato said.
Attempts to agree on a deal with the lenders, including an arbitration, had failed to solve Nordam’s money woes, he added.
The company started in 1969 as the Northeastern Oklahoma Research, Development and Manufacturing Company (NORDAM) and grew over time from eight employees to 2,000, operating in North America, Europe and Asia.
Aside from its four wholly owned subsidiaries, the company has four direct foreign subsidiaries and five indirect subsidiaries incorporated in Europe, Asia and Australia, which are not Chapter 11 debtors.
Its manufacturing business has three facilities in Tulsa, one in Chihuahua, Mexico, and one in Altrincham, near Manchester in the UK.
DiDonato said the business was able to make parts “for almost any part of an airplane”. Most of its business came from “blue-chip” companies such as P&WC and Gulfstream.
The company also has a repair and maintenance arm and a smaller business called PartPilot, an online market for aviation components.
It has US$285.9 million in total debt, made up of the revolving credit facility and an unsecured US$20 million promissory note. Of that debt, US$19.2 million is due as well as US$264,000 in accrued interest.
DiDonato told the court Nordam was historically profitable, but its agreement with P&WC had “jeopardised this profitable position”.
Under the October 2010 nacelle deal with P&WC, Nordam agreed to manufacture nacelles for P&WC’s PW800 aircraft engine, to power Gulfstream G500 and G600 jets. Nordam would pay the early engineering and design costs in exchange for later sale profits.
But “unanticipated design changes” in the years after the agreement “led to materially higher costs being incurred”.
The company and P&WC tried to agree to resolve Nordam’s obligations from 2013.
In December 2017 P&WC started arbitration under International Chamber of Commerce rules, asserting a repudiation and breach of the nacelle contract. The dispute was “resolved in a stipulation among the parties in early May 2018”, the court was told.
On 24 July, Judge Mary Walrath approved Nordam’s motion to pay its employees and settle other obligations, and for the court to jointly administer its Chapter 11 cases.
This story originally appeared in ALN's sister magazine Global Restructuing Review.
In the US Bankruptcy Court for the District of Delaware
The NORDAM Group, Inc, case 18-11699
Judge Mary Walrath
Counsel to Nordam
- Weil Gotshal & Manges
Partners Ray Schrock and Ryan Dahl, counsel Jill Frizzley and associates Daniel Gwen and Natasha Hwangpo in New York
- Richards Layton & Finger
Directors Daniel DeFranceschi and Paul Heath with associates Brett Haywood and Megan Kenney in Wilmington
Counsel to United Technologies Corporation and Pratt & Whitney Canada Corporation
- Wachtell Lipton Rosen & Katz
Partner John Lynch, of counsel Philip Mindlin and Douglas Mayer and associates Neil Chataniand Angela Herring in New York
- Stevens & Lee
Partner Joseph Huston Jr in Wilmington
Counsel to Gulfstream Aerospace Corporation
- King & Spalding
Partner Sarah Borders and senior associate Taejin Kim in Atlanta
- Morris James
Partner Stephen Miller in Wilmington
Counsel to DIP agent JP Morgan Chase
- Simpson Thacher & Bartlett
Partner Elisha Graff, counsel Nicholas Baker and associate David Baruch in New York
- Duane Morris
Managing partner Michael Lastowski in Wilmington
Counsel to Citibank
- Latham & Watkins
Partner Keith Simon and associate Jeffrey Mispagel in New York