Bankruptcy Fresh Start

Natural Products Group has filed a prepackaged Chapter 11 bankruptcy with $286 million in assets and $804 million in liabilities.  Lenders who hold 90 percent of the company’s loans voted in favor of the bankruptcy and Nature Products Group is expected to emerge from bankruptcy in 60 days or less.

The company plans to borrow up to $20 million to fund operations during its bankruptcy, known as a debtor-in-possession loan.

Lenders owed approximately $530 million will end up owning 85 percent of the reorganized company’s equity under the restructuring plan. They will also have a new term loan worth $125 million.

Lenders owed about $216 million under a separate loan will be allocated warrants that will allow them to purchase up to 5 percent of the equity in the reorganized company.

While initial investors will be wiped out, the company’s direct sales network of 750,000 independent contractors will receive their pay and compensation as usual during the bankruptcy process. Creditors taking ownership in a corporate debtor’s business is becoming very common in many prepackaged bankruptcies and even in bankruptcies that aren’t prepackaged.  However, this type of arrangement may not work well for every company and corporate debtors should not completely depend on such an arrangement taking place during their bankruptcy.  Also, corporate debtors should carefully assess the long-term benefit of handing over ownership to creditors in exchange for reductions in debt.  This is important to consider, because in some cases it may not be profitable or even feasible to allow creditor ownership as part of bankruptcy reorganization.

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