jlg Doc 22 Filed 04/03/17 Entered 04/03/17 16:16:21 Main Document Pg 1 of 12

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1 Pg 1 of 12 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re: : Chapter 11 : ANGELICA CORPORATION, et al., : Case No (JLG) : Debtors. 1 : (Joint Administration Pending) : x DECLARATION OF BRADLEY JORDAN IN SUPPORT OF DEBTORS MOTION FOR APPROVAL OF AND AUTHORITY TO ENTER INTO POSTPETITION FINANCING AND USE CASH COLLATERAL I, Bradley Jordan, pursuant to 28 U.S.C. 1746, hereby declare as follows: 1. I am a Managing Director of the firm Houlihan Lokey Capital, Inc. ( Houlihan Lokey ), which has its principal office at 245 Park Avenue, 20th Floor, New York, New York I am authorized to make this declaration (this Declaration ) in support of the Motion of Debtors pursuant to 11 U.S.C. 105, 361, 362, 363, and 364 and Fed. R. Bankr. P. 4001, and Local Rules and for Authority to (A) Obtain Postpetition Financing, (B) Use Cash Collateral, (C) Grant Certain Protections to Prepetition Secured Parties, and (D) Related Relief, filed contemporaneously herewith (the Motion ). 2 The Debtors engaged Houlihan Lokey in September 2016 to serve as their investment banker to provide restructuring advice. 2. Houlihan Lokey (NYSE: HLI) is a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, valuation, and strategic consulting. The firm serves corporations, institutions, and governments worldwide from twenty- 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are as follows: Angelica Corporation (5260); Clothesline Holdings, Inc. (1081); Angelica Textile Services, Inc. NY (6508); Royal Institutional Services, Inc. (8906); and Angelica Textile Services, Inc. CA (5010). The location of the Debtors corporate headquarters is 1105 Lakewood Parkway, Suite 210, Alpharetta, Georgia Capitalized terms use but not defined herein shall have the meanings ascribed to such terms in the Motion.

2 Pg 2 of 12 four offices located in the United States, Europe, and the Asia-Pacific region. Independent advice and intellectual rigor are hallmarks of the firm's commitment to client success across its advisory services. Houlihan Lokey is ranked as the No. 1 M&A advisor for all U.S. transactions, the No. 1 global restructuring advisor, and the No. 1 global M&A fairness opinion advisor over the past 20 years, according to Thomson Reuters. Houlihan Lokey annually serves more than 800 clients ranging from closely held companies to Global 500 corporations. 3. Houlihan Lokey's Financial Restructuring Group, which has more than 170 professionals, is one of the leading advisors and investment bankers to debtors, secured and unsecured creditors, acquirers, and other parties-in-interest involved in financially troubled companies based in a variety of industries and requiring complex financial restructurings, both in and outside of bankruptcy. Houlihan Lokey has been, and currently is, involved in some of the largest restructuring cases in the United States, including representing debtors in: Relativity Fashion, LLC, Case No (MEW) (Bankr. S.D.N.Y.), In re Phoenix Brands, LLC, Case No (BLS) (Bankr. D. Del. Jul. 5, 2016); In re Trump Entertainment Resorts, Inc., Case No (KG) (Bankr. D. Del. Sept. 9, 2014); In re Northhampton Generating Co., LP, Case No (JCW) (Bankr. W.D.N.C. Dec. 5, 2011); In re AES Thames, L.L.C., No (KJC) (Bankr. D. Del. Feb. 1, 2011); In re MSR Resort Golf Course LLC, Case No (SHL) (Bankr. S.D.N.Y. Feb. 1, 2011); In re Truvo USA LLC, No (AJG) (Bankr. S.D.N.Y July 1, 2010); In re Mark IV Indus., Inc., Case No (SMB) (Bankr. S.D.N.Y. Apr. 30, 2009); In re Premier Inter. Holdings, Inc., Case No (CSS) (Bankr. D. Del. Jun. 13, 2009); In re Aventine Renewable Energy Holdings, Inc., Case No (KG) (Bankr. D. Del. Apr. 7, 2009); In re Foamex Inter. Inc., Case No (KJC) (Bankr. D. Del. Feb. 18, 2009); and In re Buffets Holdings, Inc., Case No (MFW) (Bankr. D. 2

3 Pg 3 of 12 Del. Jan. 22, 2008). In addition, Houlihan Lokey has been involved in restructuring situations representing official creditors' committees including recent retentions on: In re THQ, Inc., Case No (MFW) (Bankr. D. Del. Dec. 19, 2012); In re Overseas Shipping Group, Inc., Case No (PJW) (Bankr. D. Del. Nov. 14, 2012); In re Arcapita Bank B.S.C., Case No (SHL) (Bankr. S.D.N.Y. Mar. 19, 2012); In re Gen. Growth Props., No (ALG) (Bankr. S.D.N.Y Apr. 16, 2009); In re Chemtura Corp., No (REG) (Bankr. S.D.N.Y. Mar. 18, 2009); In re Smurfit-Stone Container Corp., Case No (BLS) (Bankr. D. Del. Jan. 26, 2009); In re WCI Communities Inc., Case No (KJC) Bankr. D. Del. Aug. 4, 2008); In re SemGroup LP, Case No (BLS) (Bankr. D. Del. Jul. 22, 2008); In re Lehman Brothers Holdings Inc., Case No (JMP) (Bankr. S.D.N.Y. Sept. 15, 2008); In re Delta Airlines, Inc., Case No (PCB) (Bankr. S.D.N.Y. Sept. 14, 2005); In re Refco, Inc., Case No (RDD) (Bankr. S.D.N.Y. Oct. 17, 2005); In re WorldCom, Inc., Case no (AJG) (Bankr. S.D.N.Y. July. 21, 2002); In re Enron Corp., Case No (AJG) (Bankr. S.D.N.Y. Dec. 2, 2001). 4. I hold a B.B.A. with distinction from the University of Michigan and an MBA with distinction from the Darden School of Business at the University of Virginia. My business address is 245 Park Avenue, 32nd Floor, New York, New York I joined Houlihan in 1998 and I have extensive experience with chapter 11 cases and other distressed restructurings, having advised debtors, creditors committees and other constituencies for approximately 13 years. 5. I have been involved as an advisor in a wide range of special situation transactions throughout my career, involving both out-of-court transactions and chapter 11 cases, including Arcapita Bank B.S.C. (Bahrain), Atkins International, the Boyds Collection, Centro 3

4 Pg 4 of 12 Properties Group (Australia), Deep Ocean Group AS (Norway), Greatwide Logistics, Hancock Fabrics, Intrawest ULC (Canada), J.L. French Automotive, Lehman Brothers, Inc., Neenah Foundry Co., Nellson Nutraceutical, Noranda Aluminum, Quebecor World, Inc. (Canada), Tekni-Plex, Inc., Tower Automotive, Inc., and Trico Marine Services. 6. I have been one of the principal senior engagement personnel working on Houlihan Lokey s engagement with the Debtors since September 9, In connection with the marketing and sale process and the stalking horse asset purchase agreement, I, along with Houlihan Lokey s engagement team, participated directly in discussions, due diligence, and negotiations alongside the Debtors senior management, outside counsel, and other advisors. 7. I submit this Declaration in support of the Debtors Motion for approval of and authority to enter into a $65 million first-lien secured debtor-in-possession financing facility (as described in the Motion, the Postpetition Facility ) and to use cash collateral. In particular, I submit this Declaration as evidence that the proposed Postpetition Facility is (a) the best postpetition financing alternative available to the Debtors under the circumstances, (b) in the best interests of the Debtors, their estates, and all parties in interest in these chapter 11 cases, and (c) the product of arms length negotiations. 8. Except as otherwise indicated, all facts set forth in this Declaration are based upon my personal knowledge of the Debtors operations and finances, my experience, my review of relevant documents, information provided to me by Houlihan Lokey employees working under my supervision or information provided to me by members of the Debtors management or their other advisors. If called upon to testify, I could and would testify competently to the facts set forth herein on that basis. 4

5 Pg 5 of 12 Debtors Capital Structure and Need for Postpetition Financing 9. The Debtors prepetition capital structure is explained in detail in the Declaration of John Makuch Pursuant to Rule of the Local Bankruptcy Rules for the Southern District of New York and in Support of the Debtors Chapter 11 Petitions and First Day Relief (the Makuch Declaration ), which has been filed with the Court contemporaneously herewith, (Docket No. 3). In short, substantially all of the Debtors assets are subject to prepetition liens. The Debtors have outstanding funded debt obligations consisting of (a) approximately $53.7 million in senior secured first lien borrowings, including undrawn letters of credit, under the Prepetition ABL Facility and (b) $86.2 million in principal amount of senior secured second lien borrowings under the Prepetition Junior Credit Agreement. The obligations under the Prepetition ABL Facility are secured by first-priority liens on all of the Debtors assets (with certain specified exceptions). The obligations under the Prepetition Junior Credit Agreement are secured by second-priority liens on the Debtors assets. 10. As a result of the regulatory changes in the healthcare industry that began in 2010, Angelica has faced increasing pricing pressures from its customers and a more challenging operating environment. As a result, Angelica s revenues have declined substantially over the last several years and, after the loss of its largest customer in late-2015, have impacted Angelica s ability to service its long-term debt obligations. The Debtors have determined that a going concern sale is necessary and in the best interests of the Debtors and all stakeholders, and that chapter 11 is necessary to effectuate that sale. Postpetition Facility Is Best Postpetition Financing Available to Debtors 11. In my role as investment banker, I was actively involved in the Debtors analysis of their postpetition financing options. Based on my experience and involvement in the consideration and negotiation of the Postpetition Facility, including engaging in good-faith, 5

6 Pg 6 of 12 arms length negotiations with the Postpetition Agent (on behalf of the Postpetition Lenders), I believe that the Postpetition Facility should be approved. 12. The Debtors and their advisors determined that, in light of the Debtors prepetition capital structure and the existing liens on substantially all of the Debtors assets, in order to obtain the necessary liquidity to administer their chapter 11 cases and execute the sale process, the Debtors either would have to (a) find a postpetition lender willing to extend credit that would be junior to the Prepetition Senior Liens or Prepetition Junior Liens or be unsecured or (b) obtain postpetition financing secured by liens that would prime the Prepetition Senior Liens or Prepetition Junior Liens. 13. In January 2017, the Debtors spoke with their existing lenders about providing postpetition financing in the context of the ongoing sales process. In mid-february, the Debtors began contacting potential third-party postpetition lenders, consisting of banks and financing firms. Houlihan Lokey spoke with six third-party lenders, all of which executed an NDA to review the opportunity. This solicitation process did not yield any offers as the potential third-party providers were not interested in a priming fight with the Prepetition Senior Lenders nor were they interested in providing unsecured credit or junior secured credit. Further, the Debtors concluded that raising postpetition financing on a nonconsensual priming basis would be much more expensive and disruptive to their business than what could reasonably be achieved by entering into the Postpetition Facility with the Prepetition Senior Lenders. The Prepetition Senior Lenders clearly communicated that they would not consent to being primed by any thirdparty lender. Accordingly, given the collateral values and lack of unencumbered assets, the Debtors focused their postpetition financing efforts on securing financing from the Prepetition Senior Lenders. 6

7 Pg 7 of For several weeks, the Debtors and their advisors engaged in rigorous negotiations with the Prepetition Senior Lenders and their advisors to obtain the best financing terms available. In addition, the Debtors advisors continued to solicit additional financing from potential purchasers, but as of the Commencement Date, had not been successful in achieving a commitment. The negotiations were conducted at arm s length and properly may be characterized as hard bargaining by all interested parties. Mere days before the Commencement Date, key terms of the Postpetition Loan Agreement such as the maturity date, the sale-related milestones, and the adequate protection provisions were still being negotiated. With third-parties being unwilling to provide unsecured or junior secured credit and unwilling to enter into a priming fight with existing senior secured lenders who would not consent to priming, I believe the Postpetition Facility is, overall, the only realistic financing available to the Debtors under the circumstances. I believe this Postpetition Facility absolutely critical to the Debtors ability to administer their chapter 11 cases. 15. The ABL Lenders ultimately agreed to provide the Postpetition Facility, which is on terms that I believe to be fair and reasonable to the Debtors. The Postpetition Loan Agreement addresses the Debtors liquidity needs during the sale process by permitting the Debtors to draw up to $37,625,000 million upon entry of the Interim Order and, upon entry of the Final Order, draw up to an additional $27,375,000 million. The Debtors immediate obligations under the Postpetition Loan Agreement are secured by a priming, first-priority postpetition security interest in and lien on all prepetition and postpetition real and personal, tangible and intangible property and assets of each of the Debtors, the Prepetition Senior Collateral, and the proceeds, products, offspring, rents and profits of all of the foregoing, 7

8 Pg 8 of 12 including insurance proceeds (collectively, the Postpetition Collateral ; such security interests and liens, the Postpetition Liens ). 16. The Debtors are permitted to use the proceeds of the Postpetition Facility and cash collateral for working capital, general corporate purposes, and the administration of these chapter 11 cases through the conclusion of the sale process, all in accordance with the Budget. The Budget is based on the Debtors 13-week cash-flow forecasts and may be updated from time to time with consent of the Postpetition Lenders. Under the Postpetition Loan Agreement, the Debtors are permitted to make disbursements on a rolling four-week basis, in the aggregate, up to 7.5% greater than the Debtors projected total disbursements for that period. This arrangement provides significant financial flexibility to the Debtors. Additionally, the Postpetition Agent will have cash dominion over the Debtors bank accounts, consistent with the cash dominion status Angelica was subject to prepetition under the Prepetition ABL Facility. Under the terms of the cash dominion process, the Debtors will submit to the Postpetition Agent daily funding requests to operate their business throughout the sale process. 17. Subject to Court approval, the Debtors expect to have approximately $10 million in incremental available liquidity upon entry of the Interim Order approving the Postpetition Facility and use of Cash Collateral. 18. The Postpetition Facility preserves the status quo, and provides the Debtors with sufficient liquidity to fund the business and the Sale Process in order to pursue and consummate a successful asset sale. It contains the best available pricing in the circumstances and was negotiated in good faith and at arms length. As discussed below not only is the Postpetition Facility the Debtors most attractive postpetition financing option available, it is the Debtors only option at this time as no other potential postpetition lender was willing to lend into a non- 8

9 Pg 9 of 12 consensual priming situation, providing financing on a junior basis, or satisfying the Prepetition Senior Lenders in full and then extending additional credit. 19. The Prepetition Senior Lenders have consented to the priming of their liens in exchange for certain customary protections, including the granting of certain liens and superpriority administrative expense status to the Prepetition Secured Parties as adequate protection. The DIP Obligations will be secured by, among other interests, a priming first priority lien on the collateral of the Prepetition Senior Lenders. 20. The Postpetition Facility addresses the Debtors need for certainty and stability during the Interim Period. By demonstrating ongoing capability to meet ordinary course obligations during the sale process, the Debtors will be able to assure their employees, customers, and vendors that the Debtors have sufficient capital to continue their operations in the ordinary course and to pursue a successful asset sale. In short, the Postpetition Facility is the best postpetition financing alternative available to the Debtors under the circumstances. Approving and authorizing the Debtors entry into the Postpetition Facility would benefit all parties in interest in these cases by preserving the status quo, providing the Debtors flexibility in operating their business and pursuing a sale transaction, and bringing certainty and stability to the sale process contemplated in these cases. 21. The terms of the Postpetition Facility contemplate the roll-up of the outstanding funded obligations under the Prepetition ABL Facility (the Roll-Up ) in the amount of approximately $53.7 million. Under the Roll-Up feature of the Postpetition Loan Agreement, any proceeds of the Postpetition Collateral shall be used to pay down the Prepetition Senior Obligations. The Roll-Up is designed as a creeping roll-up whereby the Debtors postpetition 9

10 Pg 10 of 12 receipts are applied to the Prepetition Senior Obligations, and corresponding amounts are advanced to the Debtors under the Postpetition Facility. 22. Based on information received by the Debtors in their prepetition marketing process, including the indications of interest received, the Prepetition Senior Obligations are oversecured. Thus, the Roll-Up simply advances the payment of debt that would be satisfied by the Debtors estates regardless of the outcome of the sale process. The practical result of the Roll-Up is a reduction in the amount of default interest that otherwise would be paid by the estates, thereby increasing the available assets to satisfy the claims of other creditors. Further, no parties in interest will be prejudiced by the Roll-Up, because the Prepetition Senior Liens and Prepetition Junior Liens will be subject to review by the Creditors Committee when appointed. 23. Lastly, the Roll-Up, among other things, was a requirement in order to obtain the Prepetition Senior Lenders consent to the use of Cash Collateral and the priming of their prepetition liens. For these reasons, and as further discussed below, the Debtors assert that the Roll-Up is justified in these cases and in the best interests of their creditors and estates. Accordingly, I believe that the Postpetition Facility is the best postpetition financing available to the debtors. Postpetition Facility Was Negotiated in Good Faith and at Arms Length 24. Together with the Debtors and their other advisors, I took an active role in the negotiation of the Postpetition Facility. As discussed in paragraphs above, the Debtors determined to enter into the Postposition Facility only after a competitive, robust marketing process. The Debtors surveyed various sources of postpetition financing, including potential financing from the Prepetition Lenders and unrelated third parties. In exploring those options, 10

11 Pg 11 of 12 the Debtors were cognizant of the challenges presented by the fact that substantially all of the Debtors assets are encumbered by the Prepetition Senior Liens and Prepetition Junior Liens. 25. As I set forth in paragraphs 12 and 13 above, despite their efforts, the Debtors were unable to procure sufficient financing (a) in the form of unsecured credit allowable under section 503(b)(1), (b) as an administrative expense under section 364(a) or (b), (c) in exchange for the grant of a superpriority administrative expense claim pursuant to section 364(c)(1), or (d) without granting priming liens pursuant to section 364(d). They were also unable to obtain postpetition financing or other financial accommodations from any alternative prospective lender or group of lenders on more favorable terms and conditions than those for which approval is sought herein. Given that substantially all of the Debtors assets are encumbered, no party was willing to consider providing postpetition financing on competitive terms other than the Postpetition Lenders and the Debtors determined that they could not obtain postpetition financing without priming the Prepetition Senior Lenders. 26. Thus financing was available only under sections 364(c) and (d) of the Bankruptcy Code and that the Prepetition Lenders would not agree to be primed by any third party. 27. Accordingly, I believe that the Postpetition Facility was negotiated in good faith and at arms length. It represents the best possible postpetition financing alternative available to the Debtors under the circumstances. As a result, I believe that the Court should approve and authorize the Debtors entry into the Postpetition Facility and use of Cash Collateral contemplated thereby. 11

12 Pg 12 of 12 Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the foregoing statements are true and correct to the best of my knowledge, information, and belief. Dated: April 3, 2017 New York, New York /s/ Bradley Jordan Bradley Jordan Managing Director Houlihan Lokey Capital, Inc. 12