Creditors' Committee Recommends AMS Liquidation

by Jim Milliot, PW Daily -- Publishers Weekly, 1/26/2007

In papers filed yesterday with the bankruptcy court, the Unsecured Creditors' Committee argued that because AMS is "hemorrhaging" money and "is no longer a viable entity," it should quickly ratchet back the scope of its operations and make plans to liquidate the company. The objection makes clear that the committee supports the efforts to sell PGW as an ongoing concern, but believes it is unlikely the wholesale part of the business can be saved.

The filing was a response to a motion by AMS for the court to give final approval to a $75-million debtor-in-possession credit facility. In its objection, the committee argued that the DIP facility will only benefit AMS's primary lender, Wells Fargo Foothill. Because AMS's business has "crumbled"—customers have canceled orders and are switching to new distributors—the longer the Chapter 11 proceeding drags on, the more likely it is that AMS will have less cash to pay back creditors, the motion states. "AMS's continued operations, and its mounting losses, will only constitute a significant financial drain on the Debtors' estates and the Debtors have not shown to the Court and/or the Committee that AMS's business can be revived," the motion states. Instead of using the proposed DIP credit facility and incur substantial new expenses, "AMS should utilize Foothill's cash collateral and immediately begin the process of orderly liquidation and/or sale of its assets," the objection states.

While the committee would welcome the sale of the company, the motion objects to the terms imposed by the DIP facility, which provides strict, and in the view of the committee, unrealistic deadlines for a sale to be accomplished. The deadlines, the objection states, "gives potential buyers an undue bargaining position and advantage over the Debtors in a sales process," the objection states.

The filing says the DIP facility has been drafted in such a way that rather than providing significant new liquidity to AMS, it merely provides a mechanism for Foothill to ensure that all its claims are covered.