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A potential buyer has emerged for KLN Steel - Report
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Saturday, 18 Feb 2012

A potential buyer has emerged for bankrupt San Antonio furniture maker KLN Steel Products Co LLC and two sister companies.

Mr Patricia Tomasco, a lawyer for KLN, told US Bankruptcy Judge Mr Craig Gargotta that there is an undisclosed party that has submitted a draft letter of intent to buy the companies. He added that "It meets our minimum criteria, and we're excited about it."

The identity of the prospective buyer could be known by February 29th 2012, the deadline KLN has set for filing its reorganization plan. KLN officials hope to have the plan confirmed by April 15th 2012.

Mr Tomasco said that KLN has entered into confidentiality agreements with 10 parties that presumably are interested in buying the bankrupt companies. He added that it's too early in the process to know whether the party involved in the draft letter of intent will end up as a stalking horse bidder.

A stalking horse bidder submits the first bid for a bankrupt company, and then other potential buyers have the opportunity to submit competing bids.

KLN manufactures steel furniture for military barracks and university dorms. Sister company Furniture by Thurston in Grass Valley makes wood furniture. Combined, the companies listed USD 29.8 million in assets and USD 29.5 million in debts.

A third company, Dehler Manufacturing Inc reported assets of about USD 2.8 million and USD 20.1 million in debts.

The three companies filed for Chapter 11 bankruptcy protection in November after lender Banco Popular North America refused to fund their payroll. The bank is owed about USD 27 million.

Mr Tomasco said that if a sale occurred, the three companies would be combined as one and new stock would be issued to the owners, who would then sell the stock to the buyer.

Mr Eric Taube, a lawyer for Banco Popular, said that "I'm cautiously optimistic. It looks like a good proposal."

Banco Popular has agreed to allow KLN to continue using its cash to pay expenses through April 30. The bank holds liens on the cash, which KLN needs to continue operating.

Any sale of the three companies would not include 4200 Pan Am LLC, a related company that owns the 170,000 square foot facility where KLN and Dehler operate. The building owner also filed for bankruptcy protection after Banco Popular posted the property at 4200 Pan Am Expressway for foreclosure.

In January 2012, KLN sued Ladensohn in bankruptcy court, alleging that he wishes to weaken or hobble the company, a charge he has denied. This month, a Ladensohn related company filed court papers alleging that KLN owes rent on a portion of a building it formerly occupied at 2 Winnco Drive, not far from KLN's headquarters.

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