April 17, 2012
By: John Clark
Reddy Ice Holdings Inc., the maker of the ubiquitous brand of packaged ice, is planning to file for Chapter 11 bankruptcy in a few weeks, according to a recent report from the Wall Street Journal.
The ice company, which is based in Dallas, plans to grant ownership of the debt-ridden company to a hedge fund that holds the majority of the company’s debt, sources indicate.
Observers expect the bankruptcy filing to happen within the next week or two, and they also believe that, after bankruptcy, Reddy Ice could try to merge with Arctic Glacier Inc., a rival Canadian company that has also fallen on hard times.
Reddy Ice’s filing is known as a prearranged bankruptcy, which is a type of bankruptcy plan created by companies that allows them to restructure their finances outside of bankruptcy court.
Prearranged bankruptcies typically receive support from creditors before being passed to a bankruptcy court for approval. These types of filings help companies minimize their time in court, which often makes the process cheaper and faster.
Today, bankruptcy attorneys for the company are working behind closed doors to finalize the terms of the prearranged bankruptcy for Reddy Ice, which is reportedly at least $450 million in debt.
The company makes cubed ice that is packed in plastic bags sold in both convenience stores and supermarkets. Reddy Ice also manufactures blocks of ice and dry ice.
Sources say that Reddy Ice makes about $330 million in annual revenues, which vastly outpaces its closest rivals in the United States, but it has recently suffered a dramatic drop in sales due to increased competition from machines that allow grocers and other vendors to make their own ice.
In addition, decreased home construction due to the recent recession has had a surprisingly strong impact on the company’s bottom line, as fewer construction workers are filling coolers with food and drink during hot work days.
So, rather than go through a prolonged bankruptcy process, the company is looking to unload its assets on Centerbridge, a hedge fund that often buys the discounted debt owned by struggling companies.
In exchange for control over the company, Centerbridge is reportedly willing to assume responsibility for the debts of Reddy Ice.
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