GSE Wins Approval of Recovery Plan Giving Lenders Control

GSE Environmental Inc., a maker of landfill liners and manhole systems, won court approval of a reorganization plan that hands control of the company to holders of $173.4 million in secured notes.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, today approved a program giving all the new stock to first-lien lenders, including Littlejohn Opportunities Master Fund LP, Tennenbaum Opportunities Partners V LP and Strategic Value Partners LLC.

Under the plan, negotiated with first-lien lenders before the May Chapter 11 filing, trade claims will be paid in full if the creditor is willing to continue doing business with GSE for one year and grant normal market trade-credit terms. General unsecured creditors will share a $1.3 million recovery pool.

The U.S. Trustee objected to a provision that contemplates the assumption of pre-petition employee incentive and retention plans awarding participants based on their performance during the bankruptcy case, saying it violated the bankruptcy code.

GSE said the employee plans will be assumed under the recovery plan and don’t harm any of the company’s stakeholders. Removing the plans would reduce recoveries to unsecured creditors. The creditors committee supported the plan.

“I’m going to overrule the objection,” said Walrath, warning she didn’t want other companies seeing it as a precedent to allow pre-petition bonuses to evade scrutiny during the bankruptcy process.

Special Circumstances

The GSE case involved “different circumstances,” under which executives hadn’t had recent bonuses some months before bankruptcy was initiated, the judge said.

GSE’s liners are used in waste management and the mining industry. The Houston-based company, with sales of about $419 million last year, has 625 employees worldwide, about 240 of them full-time, according to court papers.

The company listed assets of $269.5 million and debt of $261.9 million as of March 31. Its secured debt of about $193.1 million included the $173.4 million in notes and $18 million due under a credit facility.

The case is In re GSE Environmental Inc., 14-bk-11126, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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