Springer Aerospace has lost one-third of its workforce since it entered insolvency protection three months ago.
Last month, it terminated its chief restructuring officer.
Its financial records are so unreliable prospective purchasers can't tell what the business is worth.
Its biggest secured creditor has zero confidence in Springer's current management.
But the Echo Bay-based aircraft maintenance, repair and overhaul firm nonetheless managed to dodge a bullet this week that might well have ended its operations and forced liquidation of its assets.
On Wednesday, Caisse Desjardins Ontario Credit Union Inc. tried to convince Justice Michael A. Penny of the Superior Court of Justice that Springer's restructuring efforts were going nowhere.
Desjardins, which is owed $5.7 million by Springer, asked that the aircraft refurbisher be stripped of court-ordered protections granted under the Companies' Creditors Arrangement Act (CCAA) that prevented any legal actions against Springer.
"This motion involves a difficult balance," Judge Penny said in an endorsement released on Thursday.
On one hand, he said, is Desjardins, a first-in-priority secured creditor.
On the other hand is the possibility that a viable transaction might be possible from one of a dozen companies that have expressed interest in buying or investing in Springer Aerospace.
Judge Penny rejected Desjardins' proposal that Springer's CCAA protections be terminated and Raymond Chabot Inc. be appointed receiver and manager of Springer assets, undertakings and properties.
He did, however, agree to a number of requests from Springer:
- its debtor-in-possession (DIP) loan may be increased by up to $170,000
- a second phase of the company's search for new owners or investors is extended until March 21, 2023
- $70,000 is approved for a key employee retention program (KERP), details of which will be kept secret
Those orders are conditional on all parties working together toward a listing for sale of Springer Aerospace's real property and other assets.
About 500 pages of documents added this week to the Springer CCAA file include many new disclosures, few of them complimentary to the company:
Loss of employees
As of the date of this affidavit, Springer has approximately 65 employees, down from 100 employees as of the filing date [for CCAA protection on Nov. 23, 2022]," said Christopher Grant, Springer's chief executive office, in an affidavit sworn Monday in Toronto.
"Springer has lost a number of key employees to employment opportunities where employees do not need to work within the uncertainty of a CCAA proceeding," Grant said.
"The loss of these employees has affected Springer’s operations at a time when its stability is paramount. At this time, Springer retains sufficient employees to complete the current work-in-progress, with the KERP incentivizing employees to remain with Springer through the earlier of completion of the SISP [sale and investment solicitation process] and April 15, 2023."
"I believe that there is a material risk that further key employees may leave their employment at Springer given the perceived uncertainty created by these CCAA proceedings. To address the loss of employees, Springer and the monitor have created the KERP. The KERP contemplates paying key employees a bonus totalling 10 per cent of their annual salary on the earlier of April 14, 2023 and the completion of the SISP."
"Springer needs to focus its time and money on its restructuring efforts – supported by its hard-working, knowledgeable employees – and not on scoping the market for replacement employees or more expensive contractors with the assistance of staffing agencies," Grant said.
Termination of chief restructuring officer
Patrick Walsh, a $25,000-a-month-plus-expenses, Manhattan-based turnaround consultant retained in early December as Springer's chief restructuring officer, was terminated at the end of January.
Walsh helped to stabilize the company, including important communications with employees, key suppliers and customers, but the company then decided it instead needed someone with expertise in managing an aircraft maintenance, repair and overhaul firm.
"Given the finite financial resources available to Springer, funds were better utilized in maintaining the operations of Springer," Grant said in his sworn affidavit.
A dozen companies expressed interest in buying or investing
"Twelve parties executed non-disclosure agreements to gain access to the virtual data room [of propietary information about Springer]," Grant said.
This initial phase was designed to solicit non-binding letters of intent from bidders interested in Springer's assets and businesses.
Bidders who submitted letters of intent would then be allowed, if selected by Springer and a court-appointed monitor, to enter a second phase intended to allow bidders to do more extensive due diligence and to submit binding offers.
"The letters of intent express interest in purchasing the assets of Springer," Grant said.
"The proposed purchase prices vary widely, however the stated purchase prices are non-binding at this stage and are negotiable based on further due diligence."
"Springer seeks to avoid a liquidation to prevent the devastating impact of a business closure on this northern Ontario community. Vulnerable stakeholders such as employees, contractors, customers, and the surrounding northern Ontario and Indigenous communities will bear a heavy financial and social burden in a liquidation scenario," Grant said.
Financial records a mess
"During Phase I of the sale and investment solicitation, it became apparent that potential bidders were having difficulty analyzing Springer’s projected financial performance given certain shortcomings in its historical financial data," Grant said in his affidavit.
"The absence of accurate financial information is due to, in part, the significant turnover that Springer experienced in its finance department starting in 2021, including the departure of its chief financial officer in 2022, and the insufficient liquidity to pay the significant outstanding amounts owing to Springer’s accountants to finalize the 2022 financial statements."
"As a result, Springer’s 2022 financial statements, generated from its books and records, are likely inaccurate and are not reliable."
"Springer and the monitor communicated the apparent deficiencies in the 2022 financial statements to all potential bidders. Given the apparent lack of reliable financial data as well as the relatively short time frame of Phase I of the SISP, potential bidders found it challenging to project Springer’s performance and determine a suitable purchase price."
"As a result, some potential bidders requested more time to submit bids, and one potential bidder requested to have until the summer (due to managing timelines the bidder had on other opportunities it was pursuing) to submit a bid after performing a considerable amount of due diligence. With Springer’s cash flow pressures and lack of available debtor-in-possession funding under the current facility, Springer was not able to commit to an extension of the SISP until the summer," Grant said.
What Desjardins argued
"Springer, with the assistance of the chief restructuring officer and the monitor, has not received any Phase I bids... that comply with the requirements of the SISP," Desjardins said in a court submission.
"There are not viable bids that are sufficient to repay the debtors’ outstanding indebtedness to Desjardins after the payment of amounts secured by the administration charge and the DIP lender’s charge."
"Springer does not meet the test for increased interim financing and, accordingly, will not be able to continue operating."
"The SISP has failed and Desjardins has no confidence in Springer’s management, which has been unable to create accurate financial projections or carry out any restructuring throughout the duration of the CCAA proceedings to date."
"Desjardins’ position vis-à-vis its security over Springer has significantly deteriorated since the commencement of the CCAA proceedings and continues to deteriorate."
Founded in 1972, Springer Aerospace is one of Canada’s oldest Transport Canada-approved maintenance organizations.
It's located on more than 200 acres of real estate on Lakeview and Riverside Rds. in Echo Bay, owned by a sister company also under CCAA protection.
The properties are improved by:
- a 16,160-square-foot, 17-feet-high hangar that houses an industrial bay, the paint shop, offices and storage *a 24,373-square-foot, 30-feet-high hangar that houses an industrial bay for aircraft work as well as offices and amenities on a second floor *
- a 33,000-square-foot hangar that's 59 feet high at its peak, built in 2020, housing Springer’s largest industrial bay two single-family residences
- an airport (Bar River Airport, IATA code YEB, Transport Canada Local Identifier CPF2), including a main runway large enough to accommodate Boeing 737s for landing and takeoff.