Hilco Global Mexico´s Investment transaction, including the acquisition of debt and the liquidation of collateral located in Mexico, guaranteeing a loan to a Canadian multinational company in bankruptcy court.
CERTUS CANADA, a Canadian auto parts manufacturer, was in a Bankruptcy and Insolvency Act in Ontario, Canada. Toronto Dominion Bank (TDB) was the creditor of loans to CERTUS CANADA guaranteed by machinery and equipment (M&E) located in Queretaro, Mexico, owned by CERTUS CANADA´s subsidiary in Mexico CERTUS MEXICO (Collateral).
A bidding process for the machinery and equipment was held for the sale of CERTUS M&E and a Canadian based Industry Competitor was awarded the deal. The competitor, however, could not complete the transaction given their limited operational capacity in Mexico.
HGM’s objective was to help the principals of the company to maximize recovery and liquidate the collateral located in Mexico and earn income from the transaction.
HGM negotiated with TDB and acquired its portfolio with CERTUS CANADA, including all collection rights and the collateral. By virtue of this acquisition, HGM, CERTUS CANADA and CERTUS MEXICO executed a separate “Acknowledgment of indebtedness agreement” whereby CERTUS CANADA acknowledges HGM as its senior creditor, and CERTUS MEXICO acknowledges HGM as the sole beneficiary of collateral (M&E).
When HGM acquired TDB’s loan to Certus, HGM realized that TDB had not completed the steps required to become a register its liens of Certus’s assets, but also realized this could be cured. There was a competing lien by Bancomext, a national development Bank, that could claim seniority if these steps were not corrected. Accordingly, HGM carried out the registration as the sole beneficiary of the collateral (M&E) before the Central Secured Transactions Registry (RUG) (equivalent to UCC System) and assured its standing as a senior creditor. Bancomext tried to legally take possession of the assets once it realized that HGM was taking steps to take possession of the assets, but HGM had already taken the legal steps necessary to claim seniority and HGM was able to take control of the assets in one day.
HGM as the as the sole beneficiary of the collateral (M&E) reached an agreement with the landlord of the property in México where the assets were located, guaranteeing certain unpaid rent, and HGM took the material possession of property and the M&E and hired private security to safeguard it. This was a key element of the transaction of the facility since the assets were located in a leased facility inside a large industrial park, and access would otherwise be compromised.
CERTUS CANADA and CERTUS MEXICO entered into a services agreement whereby HILCO´s monetization company had the right to liquidate the machinery and equipment owned by CERTUS MEXICO (collateral). The proceeds from the assets´ liquidation were deposited into a HGM´s account created to receive the proceeds from liquidation and pay off HGM as its main senior creditor. Assets were sold through a binational auction (USA and Mexico); assets were sold and delivered to Asia and Middle East, as well as Mexico and USA among other countries. HGM’s deep knowledge of the import/export requirements for machinery and equipment under a maquiladora temporary import regime was essential to provide clear track of title and to be able to deliver machinery and equipment, and inventory to buyers.
All of this was completed with 6 months from the time HGM acquired TDB’s loan to the delivery an empty facility back to the Landlord. Also, significantly, there were hazardous materials on site that had to be disposed of in compliance with strict rules and regulations; this was also handled by HGM’s expertise in these matters.
Much of the machinery for injection and plastic handling had little use (2016 to 2019) and was from well-known brands, which increased the interest of the assets in the market.
However, one of the main challenges was determining the fair value and the strategy that would allow monetizing the chroming line since it was not from a recognized brand and represented an additional complexity to find an motivated buyer who would give it continued use.
For this reason, based on HGM’s experience in understanding and valuating this type of asset and its desirability in the Mexican market, it was possible to maximize its value by strategically sectioning its components, dividing up those that were equipment that could be of general use, from those of high-value materials such as nickel, copper, and titanium. Finally, lower value materials such as steel, plastics, wood, cardboard, and others were divided into lots as scrap.
- It is critical to validate the absence of existing liens on the collateral and to properly register the liens on collateral in the RUG.
- Securing access rights is indispensable to possess and remove the collateral.
- Knowledge of the import/export requirements for machinery and equipment under a maquiladora temporary import regime is essential to provide clear track of title and to be able to deliver machinery and equipment, and inventory to buyers.
- Having access to a global market for M&E facilitates the monetization of industrial collateral.