KCP Advisory Helps Maximize Recovery for Creditors in Custom Alloy Chapter 11 Bankruptcy Case

Summary

Custom Alloy Corporation, a specialized manufacturer serving industrial and U.S. defense markets, filed for Chapter 11 protection in October 2022 after facing significant liquidity constraints.

KCP Advisory Group was retained as financial advisor to the Official Committee of Unsecured Creditors and later appointed Liquidation Trustee under the confirmed Chapter 11 plan. Through active creditor representation, financial analysis, litigation, claims reconciliation and post-confirmation administration, KCP helped preserve and maximize value for unsecured creditors, which resulted in a significant distribution to unsecured creditors that was nearly administratively insolvent.

Business Background

Custom Alloy Corporation was a New Jersey-based manufacturer of highly specialized fittings, forgings and pipe. The company employed more than 190 people and served a variety of industrial and defense customers, including as a critical supplier to U.S. Navy nuclear programs. Despite strong demand, Custom Alloy faced significant liquidity challenges and filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of New Jersey.

During the Chapter 11 case, the company pursued a sale of substantially all of its operating assets. A competitive auction process increased the transaction value from an initial stalking-horse bid of approximately $27.5 million to more than $37 million in total consideration. The transaction preserved the operating business and generated sufficient proceeds to pay senior secured debt, priority claims and administrative claims in full.

KCP Advisory Steps In

KCP was initially retained as financial advisor to the Official Committee of Unsecured Creditors. Working closely with the Committee and its counsel, KCP analyzed the company’s financial position, evaluated potential recoveries and provided the financial insight necessary to help protect the interests of unsecured creditors throughout the Chapter 11 process.

Following the asset sale and confirmation of the Chapter 11 plan, KCP was appointed Liquidation Trustee. In that role, KCP focused on converting the value preserved during the restructuring into actual creditor recoveries. The team’s work included reviewing and reconciling claims, objecting to overstated or unsupported claims, actively pursuing litigation, managing the Liquidation Trust and making distributions to holders of allowed claims.

KCP’s involvement throughout the case provided valuable continuity—from advocating for unsecured creditors during the restructuring to administering the estate on their behalf following confirmation.

Results

The Custom Alloy restructuring produced a strong outcome for unsecured creditors. Through the combination of value preservation during the Chapter 11 case and disciplined post-confirmation administration, KCP, as the Liquidation Trustee, was able to make significant distributions to allowed unsecured creditors.

Allowed general unsecured creditors received distributions of approximately 45.95% of their allowed claims.

This case demonstrates that maximizing creditor recovery does not end when a transaction closes or a Chapter 11 plan is confirmed. Effective claims management, cost control and post-confirmation administration can have a meaningful impact on the dollars ultimately returned to creditors.

For KCP, the Custom Alloy engagement reflects the firm’s ability to provide creditor-focused financial advisory services during a restructuring and then execute on that strategy through hands-on fiduciary and post-confirmation administration.

Restructuring and Turnaround

KCP Advisory Helps Food Manufacturer turn a loss into Sustainable Profitability

(Note: A fictitious business name has been used for confidentiality)

Summary

A-Z Foods was in trouble due to years of sub-optimal practices, a natural disaster, and huge debt. They were incurring a $2.5 – $3 million annual loss. The KCP team was able to identify several key problem areas and propose viable solutions including restructuring management, improving production processes, making better use of labor, adjusting the product mix, and reworking the price structure. The end result was a $2.5 – $3 million annual net profit.

Business Background

A-Z Foods is a family-owned manufacturer of fine edible products for over 60 years. A-Z receives revenue from direct sales of their own recognized brand as well as contract manufacturing for other manufacturers. Although the business was surviving, it was not thriving. A-Z had incurred a loss due to flooding as a result of a natural disaster and was not able to fully recover from the setback. They had significant outstanding debt with a private lender and were losing $2.5 – $3 million per year. The lender had expressed concern over repayment several times. Each time, the company devised a plan to become profitable and accelerate repayment. After several unsuccessful attempts, the lender had lost confidence in the ability of the management to pull themselves out of the situation. The lender required the hiring of a turnaround company to create a plan and report back to them. KCP Advisory was selected.

KCP Advisory Steps In

The objectives were clear: understand how A-Z got into the current situation, identify potential paths to profitability and then create a plan for how to achieve that profitability.

Identifying key issues is a large part of the turnaround process since many problem areas are straightforward to resolve once they are exposed. It was KCP’s mission to challenge every aspect of the existing system to find the real issues. The team began with a comprehensive analysis of the business including revenue, expenses, operations, and sales. Activities included analysis of the financial records as well as in-person tours of the factory floor and conversations with key management personnel. The extensive experience of the team guided them to ask the right questions and hone in on potential areas of concern. Their intuition was spot on, and they uncovered several areas of unnecessary waste that could be adjusted to achieve greater profitability.

Hidden Problems. Straightforward Solutions

The real magic of the KCP team was digging in to reveal issues that had eluded company management for years. Here are a just a few of the issues that were discovered:

Operations: When observing the factory floor, it was discovered that the first 45 minutes of the work day were less efficient because the equipment was not ready when workers arrived. This meant reduced worker productivity early in the day. The solution: a small number of staff members would arrive early to power up machinery.

Management: As a family-owned business, some of the management team did not hold positions that played to their strengths. Restructuring the management team allowed for better decision-making and execution.
Seasonality: The product lines had significantly higher demand during certain times of the year. This led to inefficiencies in usage of labor and equipment. The solution: identify items with a longer shelf life and boost their production during the “quiet” season.

Results

Several solutions were proposed, and most were implemented. A-Z is now thriving with a $2.5 – $3 million annual net profit.

If you are a lender concerned about the viability of a client, recommending KCP Advisory may be the best investment you can make to help your client and improve their repayment potential.