Halifax County believes there is interest in outside parties buying the currently defunct Klausner II sawmill, according to documents filed in the Delaware district of the United States Bankruptcy Court.
The statements come in the form of an application authorizing the employment and retention of Cypress Holdings as investment banker for the troubled company which planned to build to completion what has been described as a state-of-the-art sawmill using European technology.
The application specifically says, “Halifax County became convinced that a sale of the debtor’s operations to a going concern was possible, such that it has determined to cooperate in the debtor’s sale efforts.”
The document also says, “There is serious buyer interest in the debtor, also from buyers that would seek to complete the debtor’s construction and generate an operating sawmill, giving rise to the highest value for creditors substantial benefits to a similar economically disadvantaged community.”
Cypress was retained by Klausner before its filing for Chapter 11 bankruptcy under an April 2 engagement letter. “Cypress’ efforts were particularly important with respect to the debtor, because on or about April 13, 2020, the county government of Halifax County filed an action in North Carolina state court, seeking, among other things, a declaratory judgment to terminate its economic development agreement with the debtor and to recover the funds Halifax County had expended for land acquisition for the debtor and necessary improvements on such land.”
The county also exercised its right of entry and power of termination by recording the action in the public registry. That action effectively made Klausner no longer the owner of the land where the proposed sawmill is located — off Highway 301 outside Enfield. “Unless Cypress could begin work pre-petition, and make substantial progress, it would be very challenging for the debtor to convince Halifax County and other constituents that a value maximizing series of transactions could be accomplished, so as to avoid the debtor from being sold piecemeal for the benefit, frankly, of virtually no one other than land and equipment liquidators.”
Cypress says in the application it made progress with Klausner’s sawmill in Florida, which also filed for Chapter 11. “Indeed, in the case of KL One, Cypress’ efforts have resulted in approved post-petition financing to fund the KL One case and more recently, the execution of a stalking horse agreement that will yield a purchase price of $26 million for KL One’s operating assets, plus the assumption of certain of KL One’s liabilities.”
The Klausner One sawmill sale “is to a going concern buyer, expected to generate good jobs and future tax revenue to a depressed area of North Central Florida. If the KL One sale is approved and closes, it will bring a result for that debtor, its creditors, and its local community that was almost unimaginable just four months ago, when KL One lay abandoned with no employees, no money, no hopes of a sale, no management or professionals, and at risk of piecemeal dismemberment via a fast-approaching tax sale and the imposition of and execution on judgment liens from a bevy of pre-petition collection actions.”
The application will be heard in the Wilmington, Delaware bankruptcy court on August 31 at 10 a.m. before United States Bankruptcy Judge Karen B. Owens, according to a motion signed today.
Meanwhile the attorney for a committee of unsecured creditors filed a statement supporting the proposed settlement between Klausner and the county.
“The committee understands that a robust sales process is the general unsecured creditors’ best hope for a recovery in this case,” the statement says. “The motion seeks approval of a settlement with Halifax County which will permit a sale of substantially all of the debtor’s assets including the land on which the saw mills sits. The committee believes that inclusion of the land in the sale will result in a higher sale price than through a piecemeal sale of the debtor’s personal property.
“Moreover, the settlement provides certainty to a tenuous situation. Without the settlement, lenders are reluctant to provide debtor in possession financing to fund the case through a sales process. The settlement provides the pathway to DIP financing and an ultimate sale of the debtor’s assets for the highest value possible.”
Halifax County Attorney Glynn Rollins has previously stated the goal of the settlement is to have a new owner purchase the property through the bankruptcy proceedings and bring the facility online.
Klausner was announced by former Governor Beverly Perdue in 2012 as an economic development project which would bring 350 jobs to Halifax County and represented what was to be a $130 million investment.
Several setbacks and delays occurred during construction over the next several years, and the debtor’s sawmill never became fully operational, which caused a drain on liquidity, previous documents reviewed in the case show.
