National Envelope's Chapter 11 Bankruptcy Loan Challenged

A group of senior secured lenders are challenging a request by National Envelope Corp. to borrow $138.9 million as part of their Chapter 11 bankruptcy restructuring.  The senior lenders claim that the bankruptcy loan terms would force the company to quickly sell its assets for less value then they would otherwise get.

The lenders–LBC Credit Partners LP, LBC Creditor Partners Parallel LP, Island Funding LLC and Wayzata Recovery Fund LLC–said in court papers Thursday that a quick sale is likely to exclude “strategic buyers” willing to pay full value for the company’s business.

As a result, the lenders said they are bound to end up with “significantly diminished recoveries.”

The lenders, which say they are owed $36 million under a Term B loan they provided the company prior to its bankruptcy filing, urged the U.S. Bankruptcy Court in Wilmington, Del., to deny National Envelope’s bankruptcy-loan request.

National Envelope, which was founded in 1956 by Holocaust survivor William Ungar and which is still owned by the Ungar family filed for bankruptcy with $70.6 million under a revolving facility and $74.3 million under Term A and B loans after experiencing declining revenues in the past few years. The lenders of the Term B loans insist that there is enough value in the company that they could recover all of their claims if the company was sold.  However, National Envelope has made it clear that if thee bankruptcy loan is approved and the company sold, they would only be able to provide partial payment to the Term B lenders.