The order comes after an interim hearing in Chattanooga on Monday to determine the viability of a loan agreement between Hardwick and Keltic Financial Partners II, LLC of Tarrytown, N.Y.
The order, issued Monday, contains the court’s finding that Hardwick “has an urgent, immediate and continuing need for the financing proposed to be provided by Lender ... which was filed with the Court on December 27.
“Without the ability to access the line of credit to be provided by Lender pending the final hearing on the Motion, the Debtor would not be able to continue to operate in Chapter 11 and or maximize the value of its assets,” the order further states.
The ruling will allow Hardwick to access a $1 million line of revolving credit to continue employment and operating expenses while the company argues its case for bankruptcy protection.
Should a second hearing to finalize the order result in a judgment in Hardwick’s favor, the loan documents state the initial line of credit would be doubled.
In layman’s terms, the line of credit will allow the company to continue to do business with its creditors who will not allow the business to continue purchasing goods or services on credit. It will allow the company a stream of cash assets that can be utilized to substitute cash payments where credit would be the normal procedure.
Hardwick has reported to the court that “a majority of its suppliers have placed it on a ‘cash up front’ payment basis, including but not limited to Burlington, Milliken, HMS and Lucerne Textiles.”
It does not mean the company has no assets or capital. It means the company, because of its bankruptcy filing, has limited options with which to purchase goods and services.
The company, which has been in operation since 1880, filed for bankruptcy last month after the Pension Benefit Guaranty Corporation demanded immediate payment of liabilities related to the company’s terminated pension plan and threatened filing a tax lien on Hardwick’s assets if an immediate payment was not forthcoming.
The company filed for the bankruptcy protection only a few days after receiving the notice from PBGC, which Hardwick said came after there had been no response to additional information the company had provided upon request.
During the interim hearing, the court heard the arguments of both counsels and testimony of witnesses.
Judge Shelley D. Rucker found Hardwick had exhausted every potential avenue to find available credit during the bankruptcy process in an amount “necessary for the maintenance and preservation of its assets and operation of its business.”
The judge found the terms and conditions of the agreement to be “fair, reasonable and the best available under the circumstances.”
Rucker also found that the terms of the loan agreement “reflect [Hardwick’s] exercise of prudent business judgment.”
The law Hardwick is using in this process defines the company as “debtor in possession.”
Under Chapter 11 bankruptcy laws, the DIP continues to run the business and has the powers and obligation of a trustee to operate in the best interest of any creditors.
Being allowed the secured line of credit allows the company to have liquidity it might otherwise be denied to continue normal operations.
It does require court approval for any actions that may fall outside the scope of regular business activities.
All of these actions are fallout from Hardwick’s discontinuing its pension plan in 2012.
Tommy Harper, chairman and president of Hardwick, previously told the Cleveland Daily Banner that after 35 years of having the plan, the demographics, in conjunction with an economic downturn and reduced stock market, made the plan “no longer feasible for us.”
He noted in that same interview the actions of PBGC were “unexpected” and while the company was debt-free, it could not weather paying the amount of $4,616,587 which the PBGC said it was due in a Nov. 22 letter.
The letter said if the amount was not paid by Dec. 2, a tax lien against the company of $2.3 million would be filed.
Hopper said that would have “essentially put a firewall around the company.”
Harper said the company attempted to work with PBGC, but the chief of negotiations quickly fired back, denying it had pushed the issue to the brink.
Sanford Rich, chief of negotiations and restructuring for the PBGC, issued a press release three days after Hopper’s comments were published. The release disputed Hopper’s claims the PBGC was responsible for Hardwick having to file for bankruptcy, saying Hopper’s statement “isn’t true” and that “Hardwick wasn’t willing to work with us.”
The court is scheduled to hold a hearing to finalize the line of credit order Jan. 24 at 9:30 a.m. in the U.S. Bankruptcy Court for the Eastern District in Chattanooga.
Hopper was not available for comment Tuesday as Hardwick Clothes was closed for the New Year’s holiday.