June 27, 2012
By: John Clark
Northstar Aerospace Inc., a major aircraft parts supplier, is hoping to sell at least $70 million in assets during its bankruptcy liquidation process, according to a recent report from Reuters detailing the struggles of the aerospace company.
The company reportedly sought protection from creditors in both the United States and Canada by filing for Chapter 11 bankruptcy a few weeks ago.
In order to repay its debts, the company has agreed to a tentative deal with Wynnchurch Capital Ltd. that would allow Northstar to sell a large pool of its assets to the group for $70, sources say.
Sources refer to Wynnchurch Capital as a “stalking horse,” which is a term used in corporate bankruptcies to describe a company that is chosen from a group of prospective bidders to make the first offer for the bankruptcy company’s assets.
So, while the term may sound pejorative, companies filing for bankruptcy are often eager to discover potential stalking horses to purchase their assets. But despite the promise of the tentative deal, Northstar officials have expressed concern that the current arrangement would not allow it to repay its secured creditors.
As a result, the company is still seeking a better bid for its remaining assets. By filing for bankruptcy, Northstar joined a growing list of aircraft manufacturers who are either in bankruptcy court or are considering filing for debt relief.
The recent recession sapped many airlines’ demand for new aircrafts, and the imminent removal of armed forces in Iraq and Afghanistan, coupled with the budget cuts for the U.S. Department of Defense, have reduced the government’s demand for aircraft parts.
Since Northstar’s largest customers include the U.S. government and several small private aircraft companies, its financial health suffered a serious decline during the past few years.
During its bankruptcy filing, though, Northstar says that it has received nearly $4 million in extra financing from various lenders, suggesting that some creditors believe there is still some life in the company.
But Northstar faces a long road to financial health, as it has upwards of $100 million in debt, and only $70 million in assets, according to sources.
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