A Virginia bankruptcy judge approved the sale of Kinsale-based Potomac Supply to American Industrial Partners last week for $10 million in a deal expected to be finalized in December. AIP plans to continue operations at the company that was once a major employer in Westmoreland County.
The sale, which is less than what the company owes creditors including Regions Bank, would bring the major issues of a lengthy case to a close.
Potomac Supply filed for Chapter 11 bankruptcy in January of this year, citing financial troubles that began as early as 2007 and worsened with slumps in the forest products industry. In September, they sought to auction assets valued at about $17 million, but the auction was cancelled because early bids were too low.
According to court documents, the company remained on the market as its attorneys worked aggressively to find a buyer and initiated discussions with several potential purchasers. They believed they had a deal with Chesapeake Bay Enterprise Inc., who paid Potomac a $500,000 deposit. Chesapeake was set to pay about $20.3 million but that deal fell through when its lender backed out.
According to Chief Executive Officer William Carden Jr., whose family founded Potomac Supply in 1948, a priority has been to keep the 100 or so workers the company has been able to retain employed. The company laid off about 100 workers earlier this year. The AIP sale should forestall further lay-offs.
Attorneys say the sale also satisfies Regions Bank, who agreed to receive less than the $17.3 million they were owed so that unsecured creditors could receive partial compensation, about 10 cents on the dollar.
In court proceedings, a representative for a committee of creditors admitted to federal judge Douglas O. Tice, with the U.S. Bankruptcy Court for the Eastern District of Virginia, that the AIP offer was the only practicable offer made.
Potomac Supply, Regions bank and the creditors’ committee believe Chesapeake forfeited the deposit and that it can be used to compensate creditors.
Not so, said Chesapeake attorney John Maddock in an earlier interview. The company worked “almost around the clock to procure alternate financing,” he said, and will seek return of the deposit.
Potomac Supply’s 690,000 square feet of buildings sit on 159 acres in Westmoreland County. Potomac’s “non-core” assets will be liquidated at a later date, according to attorneys.