Sirva's Gathany takes aim at unsecured creditor objections to proposed reorganization plan

By Rebecca Melvin

New York, April 21 - Measures Sirva Inc. took to conserve cash prior to its Feb. 5 bankruptcy filing ranged from withholding invoice payments to negotiating credit facility amendments that added $65 million to liquidity in January, Douglas Gathany, Sirva senior vice president and treasurer, testified on Monday at the U.S. Bankruptcy Court for the Southern District of New York.

"With respect to general disbursements for service providers, we would hold checks for about a week," Gathany said at a contested hearing for approval of its disclosure statement and reorganization plan.

With respect to the credit agreement, "the amendments allowed us to manage liquidity through the month of January, with $20 million more in term loan funding to have enough operating liquidity to get to the early February pre-pack filing, in effect to bridge that period between Jan. 22 and Feb. 5."

Term lenders also subordinated $45 million of revolver bonds as part of the amendment.

Gathany's testimony took aim at objections that the official committee of unsecured creditors has to Sirva's proposed disclosure statement and plan of reorganization.

The unsecured creditors say the proposed plan is improper and unfairly discriminates against some creditors, who will receive no payment of claims upon confirmation of the plan.

Sirva is a relocation company that owns Allied Van Lines and North American Van Lines.

Gathany told the court that Sirva's total enterprise value is between $274 million and $320 million, with a midpoint of $297 million. The numbers were slightly lower than the initial disclosure statement's figures, which put the value of the entire enterprise as a going concern at between $284 million and $344 million.

The unsecured creditors pointed out in their objection that the face amount of the new credit facility of $215 million and the second-lien facility of $200 million exceeds the amount Sirva claims that it is worth. The unsecured creditors also pointed out that Sirva is a $4 billion company.

Gathany acknowledged that Sirva has total annual revenue of $4 billion, of which $2.4 billion is in relocation services. But he said $2 billion, or 80%, of relocation services revenue is from the purchase and sale of homes, which is essentially a pass through that doesn't represent operating revenue.

North American moving services represent $1.2 billion of revenue, of which 85% flows through to agents, he said.

As of the petition date, Sirva had $20 million in cash and cash equivalents invested in overnight accounts, he said.

The figure was close to the "tens of thousands" of claims that are at issue among "class 5" creditors.

The hearing was set to continue on Tuesday.

As previously reported, the primary purpose of Sirva's bankruptcy cases is debt-for-equity restructuring that will free up its operations from a heavy debt service burden and strengthen its balance sheet.

The plan will reduce Sirva's outstanding bank debt by about $200 million and annual cash interest expense by about $54 million.

To supplement its liquidity position, the company has arranged debtor-in-possession financing, with an initial commitment of $150 million, from members of its current lender group.

The DIP financing will convert into a $215 million senior secured credit facility upon emergence, $130 million of which will be available for revolver borrowings and letters of credit.

Westmont, Ill.-based Sirva filed its pre-packaged Chapter 11 covering 60 debtor entities. Its Chapter 11 case number is 08-10375.

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