Court File and Parties

COURT FILE NO.: CV-19-612116-00CL

DATE: 20190111

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF VARI-FORM INC., Applicant

BEFORE: McEwen J.

COUNSEL: John MacDonald, Tracy Sandler, and Robert Carson, for the Applicant Roger Jaipargas, for FCA Group Evan Cobb, for Bank of America Chris Burr and Milly Chow, for the Term Lenders Heather Meredith, for PwC, the proposed Monitor

HEARD: January 8, 2019

ENDORSEMENT

[1] On January 8, 2019 I granted the Initial Order with reasons to follow. I am now providing those reasons.

[2] Vari-Form Inc. (“Vari-Form”) is a manufacturer of hydroformed automotive and industrial components with facilities in Strathroy, Ontario. It provides structures for vehicles such chassis, frame rails, front-ends, and roof rails. It employs approximately 700 people, including approximately 200 temporary employees.

[3] Vari-form is the primary provider of hydroformed components to the Fiat Chrysler Automotive business, known as FCA Group (“FCA”), on certain of its vehicle lines.

[4] As set out in the affidavit of Vari-Form’s chief restructuring officer Pilar Tarry, the report of the proposed monitor PricewaterhouseCoopers Inc. (“PwC”) and Vari-Form’s factum, Vari-Form has experienced serious financial difficulties and has been unable to negotiate a sustainable solution with its secured lenders, key customers and other stakeholders.

[5] Vari-Form has therefore sought the protection of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”).

[6] The filed materials further disclose that Vari-Forms’ secured debt obligations consist of amounts owed under an ABL Credit Facility and Term Loan. The indebtedness under the ABL Credit Facility totals approximately $6 million. The indebtedness to the Term Loan Lenders totals approximately $64 million. The ABL Lender and the Term Loan Lender entered into a forbearance agreements with Vari-Form which are due to expire on January 11, 2019. Vari-Form also has significant unsecured debt - primarily in the form of funding it has received from Key Customers totalling approximately $26 million dollars and $2 million dollars of additional financing through a controlling shareholder.

[7] Vari-Form, the ABL Lender, Term Loan Lenders, Key Customers and other stakeholders have engaged in extensive negotiations. The various groups have been unable to achieve a global restructuring.

[8] Following those extensive negotiations it was determined that the most advantageous way to effect the restructuring was for a strategic sale to take place. This would involve FCA, through a wholly owned Canadian subsidiary 11032569 Canada Inc. (“110”) agreeing to act as a Stalking Horse Bidder. Counsel advise that the Key Customers have been generally made aware of these discussions. It further bears noting that FCA is also a significant Key Customer.

[9] Vari-Form, the ABL Lender, the Term Loan Lenders and FCA all support the requested stay of proceedings to maintain the status quo and permit the sales process to take place in an orderly fashion.

[10] They submit that such a sales process is expected to preserve a substantial portion of the current workforce and maintain pension obligations.

[11] As part of the sales process Vari-Form intends to make payments for goods and services supplied post-filing and seeks authorization to potentially pay pre-filing amounts to certain specific categories of creditors including logistics and supply chain providers, subject to certain conditions.

[12] Vari-Form has also negotiated for a DIP Facility with 110. The DIP Facility is in an aggregate principle amount of $22,794,000 and involves a delayed-draw term loan credit facility. The DIP Facility includes a number of sensible commercial terms. The proposal concerning the DIP Facility and charges are set out in paragraphs 33-39 of the factum. Vari-Form seeks to make payments to the ABL Lender to satisfy its loan from the DIP Facility as per paragraphs 43-46 of the factum. The DIP Facility does not secure pre-filing amounts.

[13] Insofar as the Sales Process is concerned, the overview of the proposed Stalking Horse ABA and the Bidding Procedures are set out in paragraphs 53-56 of the factum.

[14] It is contemplated that once a sale takes place the Term Loan Lenders will be paid $50 million dollars. They will suffer a shortfall.

[15] Having reviewed the materials filed and having heard the submissions of counsel I am satisfied that the Initial Order should go. Vari-Form, FCA, the ABL Lender and the Term Loan Lender all agree with the terms of the order, and are supported by PwC.

[16] Although the Initial Order is extensive and involves issues that this court often does not consider at the initial hearing, I am satisfied that under the circumstances of this case the request for relief are appropriate.

[17] In coming to this conclusion I have taken into account that Vari-Form, the secured lenders and other stakeholders have spent a considerable amount of time considering alternatives. There is also a concerted effort to try to retain customers and operate the business on an on-going basis, thus preserving jobs. The secured lenders support the application notwithstanding that the Term Loan Lenders will suffer a shortfall. As noted, the filed materials are extensive and deal with all of the outstanding issues in a fulsome fashion.

[18] Based on the foregoing and the additional information contained in the record, I am satisfied that Vari-Form is a debtor company to which the CCAA applies. It is unable to meet its liabilities as they become due and is therefore insolvent.

[19] It is appropriate to order a stay of proceedings in Vari-Form’s favour given all of the aforementioned circumstances.

[20] Furthermore, I am satisfied that the DIP Facility should be approved. Its terms, including payment of the ABL Credit Facility, payment of the specified pre-filing amounts to certain creditors, the interest rate and termination fees are reasonable. I also pause to note that the Priority Payables have been appropriately dealt with.

[21] Insofar as the Stalking Horse APA and Bidding Procedures are concerned I am satisfied that they also ought to be approved for the reasons set out in para. 57-60 of the factum. Even though the timeline has been somewhat truncated it is reasonable in the circumstances of this case as some urgency is required. The objective of the process to complete the sale by April 2019.

[22] I am also satisfied that the “waterfall” proposed, as set out in para. 59 of the Initial Order is fair and reasonable. It was the result of a negotiated settlement.

[23] PwC is a suitable monitor.

[24] The matter will return before me on January 28, 2019 as discussed with counsel. If this date should need to be changed for any reason it can be spoken to at a 9:30 am appointment.

McEwen J.

Date: January 11, 2019