Create an Account or Login to Existing Account
7-Day Free Trial
HTML Document View
Full title: Statement /Notice of Filing of Debtors' Third Amended Disclosure Statement and Certain Amended Exhibits Thereto (related document(s)94) filed by Jane Vanlare on behalf of Automotores Gildemeister SpA.
Document posted on May 9, 2021 in the bankruptcy, 43 pages and 0 tables.
Bankrupt11 Summary (Automatically Generated)
The Debtors, together with each of the Debtor’s Chilean, Brazilian, and/or Uruguayan tax identificationnumber, as applicable, are: Automotores Gildemeister SpA (79.649.140-K), AG Créditos SpA (76.547.689-5),Marc Leasing, S.A. (96.658.270-7), Fonedar S.A. (216288040014), Camur S.A. (216589740015), Lodinem S.A. (217115010014), Carmeister S.A. (96.630.690-7), Maquinaria Nacional S.A. (Chile) (96.812.980-5), RTC S.A. This hypothetical Liquidation Analysis (the “Liquidation Analysis”) represents the liquidation value of the assets of the Debtors and certain assets pledged to the 7.5% Notes due 2025 (as defined in the Plan, or the “Secured Notes”) that are owned by non-Debtor entities located in Peru and Costa Rica.The Liquidation Analysis assumes foreign liquidation proceedings in a total of five jurisdictions: the three countries where Debtor assets are located: Chile, Uruguay, and Brazil, as well as non-Debtor jurisdictions of Peru and Costa Rica.As a starting point, the Debtors used the unauditedDecember 31, 2020 financial statements as a proxy for expected asset values on the Chapter 7Conversion Date (unless otherwise noted) and made pro-forma adjustments to those values toreflect, where appropriate, various probable offsets or adjustments deemed to be a moreaccurate predictor of value in a liquidation scenario.After considering the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in this case, including (i) increased costs and expenses of a liquidation, including priority amounts and likely fees due to a Trustee and its professional advisors, (ii) the erosion in value of assets in the context of the expeditious liquidation required and the “forced sale” atmosphere that would prevail in multiple jurisdictions, and (iii) the difficulty in being able to sell individual assets or components of businesses, the Debtors have determined that confirmation of this Plan will provide each creditor and equity holder with a recovery that is not less than it would receive pursuant to a liquidation of the Debtors under Chapter 7 of the Bankruptcy Code.
List of Tables
Document ContentsCLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 Jane VanLare Adam Brenneman Proposed Counsel to the Debtors and Debtors-in-Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11 Automotores Gildemeister SpA, et al.,1 Case No. 21-10685 (LGB) Debtors. Jointly Administered NOTICE OF FILING OF DEBTORS’ THIRD AMENDED DISCLOSURE STATEMENT AND CERTAIN AMENDED EXHIBITS THERETO PLEASE TAKE NOTICE that on April 12, 2021, Automotores Gildemeister SpA and certain of its affiliates, as debtors and debtors-in-possession in the above-captioned chapter 11 cases (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). PLEASE TAKE FURTHER NOTICE that, on April 12, 2021, the Debtors filed the Debtors’ Joint Prepackaged Chapter 11 Plan (ECF No. 2) (the “Plan”) and the Disclosure Statement for the Joint Prepackaged Plan of Reorganization of Automotores Gildemeister SpA and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (ECF No. 3) (the “Disclosure Statement”) in connection with the Plan. PLEASE TAKE FURTHER NOTICE that, on April 14, 2021, the Debtors filed an Amended Disclosure Statement for the Joint Prepackaged Plan of Reorganization of 1 The Debtors, together with each of the Debtor’s Chilean, Brazilian, and/or Uruguayan tax identification number, as applicable, are: Automotores Gildemeister SpA (79.649.140-K), AG Créditos SpA (76.547.689-5), Marc Leasing, S.A. (96.658.270-7), Fonedar S.A. (216288040014), Camur S.A. (216589740015), Lodinem S.A. (217115010014), Carmeister S.A. (96.630.690-7), Maquinaria Nacional S.A. (Chile) (96.812.980-5), RTC S.A. (89.414.100-K), Fortaleza S.A. (76.856.380-2), Maquinarias Gildemeister S.A. (78.862.000-8), Comercial Gildemeister S.A. (76.856.310-1), and Bramont Montadora Industrial e Comercial de Vehiculos S.A. (04.926.142/0002-16). The location of the corporate headquarters and the service address for Automotores Gildemeister SpA is: 11000 Avenida Las Condes Vitacura, Santiago, Chile.
1Automotores Gildemeister SpA and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (ECF No. 27) (the “Amended Disclosure Statement”) clarifying that the Voting Record Date (as defined in the Amended Disclosure Statement) is April 9, 2021. PLEASE TAKE FURTHER NOTICE that on April 29, 2021, the Debtors filed the Debtors’ Amended Joint Prepackaged Chapter 11 Plan (ECF No. 80) (the “Amended Plan”)2 and the Second Amended Disclosure Statement for the Joint Prepackaged Plan of Reorganization of Automotores Gildemeister SpA and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (ECF No. 81) (the “Second Amended Disclosure Statement”). PLEASE TAKE FURTHER NOTICE that on May 10, 2021, the Debtors filed the Third Amended Disclosure Statement for the Joint Prepackaged Plan of Reorganization of Automotores Gildemeister SpA and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (ECF No. 94) (the “Third Amended Disclosure Statement”) including certain amended exhibits thereto. PLEASE TAKE FURTHER NOTICE that attached hereto as Exhibit 1 is a changed-pages only comparison of the Third Amended Disclosure Statement against the Second Amended Disclosure Statement, without exhibits. PLEASE TAKE FURTHER NOTICE that attached hereto as Exhibit 2 is a comparison of the Debtors’ Financial Projections, filed as Exhibit C to the Third Amended Disclosure Statement, against the Financial Projections filed with the Disclosure Statement and Amended Disclosure Statement. PLEASE TAKE FURTHER NOTICE that attached hereto as Exhibit 3 is a comparison of the Debtors’ Liquidation Analysis, filed as Exhibit D to the Third Amended Disclosure Statement, against the Liquidation Analysis filed with the Disclosure Statement and Amended Disclosure Statement. PLEASE TAKE FURTHER NOTICE that attached hereto as Exhibit 4 is a comparison of the Debtors’ Valuation Analysis, filed as Exhibit F to the Third Amended Disclosure Statement, against the Valuation Analysis filed with the Disclosure Statement and Amended Disclosure Statement. Copies of the Amended Plan and the Third Amended Disclosure Statement can be obtained free of charge by visiting the website maintained by the Debtors’ claims and solicitation agent, Prime Clerk LLC, at https://cases.primeclerk.com/gildemeister, calling Prime Clerk LLC at (877) 328-3687 (U.S. Toll Free), (347) 532-5859 (International Toll) or (929) 203-3359 (Spanish-speaking operator) or emailing Prime Clerk LLC at email@example.com. 2 Capitalized terms used but not defined in this notice have the meanings ascribed to them in the Amended Plan.
2Dated: May 10, 2021 CLEARY GOTTLIEB STEEN & HAMILTON LLP New York, New York /s/ Jane VanLare Jane VanLare Adam Brenneman One Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 Proposed Counsel for the Debtors and Debtors-in-Possession
3Exhibit 1 Changed-Pages Only Redline of the Third Amended Disclosure Statement (Without Exhibits)
4CLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 Adam Brenneman Jane VanLare Proposed Counsel to the Debtors and Debtors-in-Possession UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK X : In re : Chapter 11 Automotores Gildemeister SpA, et al., 1 : : Case No. 21-10685 (LGB) Debtors. : : Jointly Administered : : : X SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR THE JOINT PREPACKAGED PLAN OFREORGANIZATION OF AUTOMOTORES GILDEMEISTER SPA AND ITS DEBTOR AFFILIATES PURSUANT TOCHAPTER 11 OF THE BANKRUPTCY CODE THIS IS A SOLICITATION OF VOTES TO ACCEPT OR REJECT THE PLAN IN ACCORDANCE WITHSECTION 1125 AND WITHIN THE MEANING OF SECTION 1126 OF THE BANKRUPTCY CODE, 11 U.S.C. §§ 1125, 1126. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCYCOURT. THIS DISCLOSURE STATEMENT WILL BE SUBMITTED TO THE BANKRUPTCY COURT FORAPPROVAL FOLLOWING SOLICITATION AND THE DEBTORS’ FILING FOR RELIEF UNDER CHAPTER 11OF THE BANKRUPTCY CODE. THE INFORMATION IN THIS DISCLOSURE STATEMENT IS SUBJECT TOCHANGE. THIS DISCLOSURE STATEMENT IS NOT AN OFFER TO SELL ANY SECURITIES AND IS NOTSOLICITING AN OFFER TO BUY ANY SECURITIES. Dated: April 29May 10, 2021 1 The Debtors, together with each of the Debtor’s Chilean, Brazilian, and/or Uruguayan tax identificationnumber, as applicable, are: Automotores Gildemeister SpA (79.649.140-K), AG Créditos SpA (76.547.689-5),Marc Leasing, S.A. (96.658.270-7), Fonedar S.A. (216288040014), Camur S.A. (216589740015), Lodinem S.A. (217115010014), Carmeister S.A. (96.630.690-7), Maquinaria Nacional S.A. (Chile) (96.812.980-5), RTC S.A. (89.414.100-K), Fortaleza S.A. (76.856.380-2), Maquinarias Gildemeister S.A. (78.862.000-8), ComercialGildemeister S.A. (76.856.310-1), and Bramont Montadora Industrial e Comercial de Vehiculos S.A. (04.926.142/0002-16). The location of the corporate headquarters and the service address for AutomotoresGildemeister SpA is: 11000 Avenida Las Condes Vitacura, Santiago, Chile.
5As of December 31, 2020, the total stockholders’ equity of Gildemeister was $34,220,000,composed of $340,192,000 in total capital issued and $374,412,000 in total retained earnings andother items. D. Related Party Transactions Minvest Loan Under the Minvest Loan, described above in Section V.C, Lodinem S.A. is obligated to Minvest S.A. inan amount of $1,643,500. Under the Plan, the Minvest Loan Claim will be Allowed as a Class 5 Claim in theamount of $1,643,500, plus accrued and unpaid interest, if any. In the twelve months prior to the Petition Date,the Company has paid $76,704 to Minvest S.A. in interest on account of the Minvest Loan. Share Purchase Agreement Under the Share Purchase Agreement described above in Section V.C., Gildemeister acquired 160 sharesissued by Maquinaria Nacional S.A. owned by Minvest S.A. The amount due after a series of transactions was ofUS$1,800,000, payable in 6 annual installments each June 30th. The last installment of $300,000 is due on June30, 2021. Under the Plan, the Share Purchase Agreement Claim shall be Allowed as a Class 5 Claim in the amountof $300,000. In the twelve months prior to the Petition Date, the Company has paid $297,549 to Minvest S.A. onaccount of the Share Purchase Agreement. Headquarters in Pudahuel The Company leases the headquarters in Pudahuel from Inmobiliaria Gildemeister S.A., a companycontrolled by certain of the shareholders that own Minvest S.A., including Ricardo Lessmann. The lease isrenewable from year to year and was extended on March 1, 2021 for a one year term. The renewal of the lease andany increases in rent payable are subject to approval by the Board of Directors of Gildemeister. At the time of thelatest lease extension, an independent appraisal of the property’s value was made by three independent firms whovalued the property at between $15.9 to $17.9 million with an average valuation of $16.8 million. Under thecurrent terms of the lease (as amended and extended on March 1, 2021), the annual lease payments areapproximately $1.2 million. In the twelve months prior to the Petition Date, the Company has paid $1,052,234.48to Inmobiliaria Gildemeister, S.A. in rent payments under this lease. Novapromo Importaciones y Exportaciones Novapromo Limitada (“Novapromo”), which is owned by SebastianLessmann, the son of Ricardo Lessman, provides services to Gildemeister under that certain Contrato deAbastecimiento (or “Supply Contract”), dated as of December 31, 2018. Under the Supply Contract, Novapromomanufactures, develops and imports safety kits and document holders for Hyundai and Fortaleza vehicles. TransctionsTransactions between the Company and Novapromo are approved as related party transactionsat board meetings of the Company and are reflected in the Company’s financial statements. In the twelve months prior to the Petition Date, the Company has paid $267,343.64 to Novapromo underthe Supply Contract and $75,692.38 for payments related to the marketing and storage of products.
6XVI. RECOMMENDATION The Debtors believe the Plan is in the best interest of all creditors and urge the Holders of Claimsentitled to vote to accept the Plan and to evidence such acceptance by returning their Ballots and MasterBallots so they will be received by the Balloting Agent no later than May 18, 2021. Dated: April 29May 10, 2021 Respectfully submitted, Automotores Gildemeister SpA (on behalf of itself and each of the Debtors) By:/s/ Eduardo Moyano Name: Eduardo Moyano Title: Chief Financial Officer Prepared by: CLEARY GOTTLIEB STEEN & HAMILTON LLP 1 Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 Proposed Counsel for the Debtors and Debtors-in-Possession
7Exhibit 2 Redline of Financial Projections
8FINANCIAL PROJECTIONS OF THE REORGANIZED DEBTORS ON A CONSOLIDATED BASISIn connection with the Disclosure Statement, the Debtors’ management team (“Management”) prepared these Financial Projections for the years 2021 through 2028. The Financial Projections were prepared by Management and are based on several assumptions made by Management with respect to the future performance of the Reorganized Debtors’ operations on a consolidated basis. The Debtors have prepared the Financial Projections based on information available to them, including information derived from public sources that have not been independently verified. The Financial Projections have not been audited or reviewed by independent accountants. No representation or warranty, expressed or implied, is provided in relation to fairness, accuracy, correctness, completeness, or reliability of the information, opinions, or conclusions expressed herein. The Debtors believe that the Plan meets the feasibility requirement set forth in section 1129(a)(11) of the Bankruptcy Code, as confirmation is not likely to be followed by liquidation or the need for further financial reorganization of the Debtors or any successor thereto under the Plan. In connection with the planning and development of a plan of reorganization and for the purposes of determining whether such plan would satisfy this feasibility standard, the Debtors analyzed their ability to satisfy their post-Effective Date financial obligations while maintaining sufficient liquidity and capital resources. The Debtors do not, as a matter of course, publish their business plans or strategies, projections or anticipated financial position. Accordingly, the Debtors do not anticipate that they will, and disclaim any obligation to, furnish updated business plans or the Financial Projections to holders of Claims or Interests or other parties in interest going forward, or to include such information in documents required to be filed with the SEC or other regulatory bodies or otherwise make such information public, unless required to do so by the SEC or other regulatory bodies pursuant to the provisions of the Plan. THESE FINANCIAL PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SEC OR GUIDELINES ESTABLISHED BY THE AMERICAN INSTITITUE OF CERTIFIED PUBLIC ACCOUNTANTS, THE CHILEAN ASSOCIATION OF ACCOUNTANTS OR THE INTERNATIONAL ACCOUNTING STANDARDS BOARD FOR PREPARATION AND PRESENTATION OF PROSPECTIVE FINANCIAL INFORMATION. ALTHOUGH MANAGEMENT HAS PREPARED THE FINANCIAL PROJECTIONS IN GOOD FAITH AND BELIEVES THE UNDERLYING ASSUMPTIONS TO BE REASONABLE, IT IS IMPORTANT TO NOTE THAT NEITHER THE DEBTORS NOR THE REORGANIZED DEBTORS CAN PROVIDE ANY ASSURANCE THAT SUCH ASSUMPTIONS WILL BE REALIZED. AS DESCRIBED IN DETAIL IN THE DISCLOSURE STATEMENT, A VARIETY OF RISK FACTORS COULD AFFECT THE REORGANIZED DEBTORS’ CONSOLIDATED FINANCIAL RESULTS AND MUST BE CONSIDERED. ACCORDINGLY, THE FINANCIAL PROJECTIONS SHOULD BE REVIEWED IN CONJUNCTION WITH A REVIEW OF THE DISCLOSURE STATEMENT AND THE ASSUMPTIONS DESCRIBED HEREIN, INCLUDING ALL RELEVANT QUALIFICATIONS AND FOOTNOTES. The Financial Projections contain certain forward-looking statements, all of which are based on various estimates and assumptions. Such forward looking statements are subject to inherent uncertainties and to a wide variety of significant business, economic, and competitive risks, including those summarized herein. When used in the Financial Projections, the words, “anticipate,” “believe,” “estimate,” “will,” “may,” “intend,” “expect,” and similar expressions should be generally identified as forward-looking statements. Although the Debtors believe that their plans, intentions, and expectations reflected in the forward-looking statements are reasonable, the Debtors cannot be sure that such plan, intentions and expectations will be achieved. These statements are only predictions and are not guarantees of future performance or results. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by a forward-looking statement. All forward-looking statements are attributable to the Debtors acting on their behalf and are expressly qualified in their entirety by the cautionary statements set forth herein. Forward-looking statements speak only to circumstances as of the date on
9which they are made. Except as required by law, the Debtors expressly disclaim any obligation to update any forward-looking statement, whether because of new information, future events, or otherwise. The Financial Projections should be read in conjunction with the assumptions, qualifications, and explanations set forth in the Disclosure Statement and the Plan in their entirety as well as the notes and assumptions set forth below. The Financial Projections are subject to inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond Management’s control. Although Management believes these assumptions are reasonable under the circumstances, such assumptions are subject to significant uncertainties, including, but not limited to: (a) fluctuations in the supply of and demand for new vehicles, (b) the uncertainty inherent in estimating future revenues and discounted future cash flows; (c) changes in the availability and cost of capital; (d) planned asset sales; (e) the foreign exchange rate of local currency relative to the US dollar; and (f) the effects of existing and future laws and governmental regulations. The Debtors believe, based on preliminary tax and accounting analyses, that they will not incur significant income taxes over the forecast horizon. To the extent it is later determined that these accounting and tax analyses are incorrect, the Reorganized Debtors’ consolidated projections could be materially impacted. Additional information regarding these uncertainties are described in the Disclosure Statement. Should one or more of the risks or uncertainties referenced in the Disclosure Statement occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in the Financial Projections. Further, new factors could cause actual results to differ materially from those described in the Financial Projections, and it is not possible to predict all such factors, or to the extent to which any such factors or combinations may cause actual results to differ from those contained in the Financial Projections. The Financial Projections herein are not, and must not be viewed as, a representation of fact, prediction or guaranty of the Reorganized Debtors’ consolidated performance. Overview Actual balances may vary from those reflected in the opening balance due to variances in projections. The reorganized pro forma debt capital structure from the period ending June 30, 2021 through December 31, 2028 contain certain pro forma adjustments as a result of consummation of the Plan. Assumptions A. Overview The Debtors or entities controlled by the Debtors (collectively, the “Company”) are engaged in the importation and distribution of vehicles in Chile, Peru, Costa Rica and Uruguay, as well as any other business reasonably incidental, complementary or accessory to the above. For instance, these subsidiaries are engaged in marketing of motor vehicles, their components, accessories, elements and spare parts, maintenance services, insurance brokerage and loans. The Company is the sole distributor of several established and emerging global vehicle brands, and provides customers with a broad array of options, ranging from economy to luxury vehicles. The Company has built a retail distribution network in the markets in which it operates. The Debtors have a retail network of 46 and 3 dealerships in Chile and Uruguay, respectively, while the non-Debtors have a network of 19 and 2 dealerships in Peru and Costa Rica, respectively. The Company also distributes vehicles to 160 franchised dealerships, including 68 franchised dealerships located in Chile and 90 franchised dealerships located in Peru. A portion of the Debtors’ operations in Uruguay were sold in March 2021. The Debtor operations in Brazil are in the process of wind-down and do not have going concern operations. B. Presentation The Financial Projections herein reflect the consolidated financial results for the Chilean operations (which reflect certain Debtors) and the Peruvian operations (which reflect non-debtors). The Uruguayan, Brazilian and Costa Rican operations are treated as an investment; therefore, only dividend cash flows from these operations are reflected in the Financial Projections.
10C. Plan Consummation The Financial Projections include projected financial statements for 2021-2028 and an Assumed Effective Date of June 30, 2021. D. Accounting Policies The Financial Projections have been prepared using accounting policies that are materially consistent with those applied in the Debtors’ consolidated historical financial statements, except for the following pro forma adjustments made for simplification purposes: (1) the operations of Uruguay, Costa Rica and Brazil are not consolidated, but treated as an investment and only reflect the dividend income of such operations; and (2) pro forma debt reflects the principal outstanding, excluding original issue discount (“OID”), and reclassification of certain items from other liabilities. E. Total Revenue Total revenue consists of the sale of new and used vehicles, services, spare parts and commissions, net of value-added taxes, returns, rebates and discounts. F. Chile and Peru New Vehicle Markets As a consequence of COVID-19 in Chile and Peru and the measures implemented to contain it, which included a partial lockdown in Chile and a full lockdown in Peru, the vehicle markets in both countries severely contracted in 2020. The Debtors expect the market to recover to pre-COVID-19 levels in Chile and Peru by 2022. In the long term, based on market estimates, the market in Chile is expected to grow in line with GDP, and the market in Peru is expected to grow at a higher rate than GDP because the current vehicle penetration level is low. Chile 2019A 2020A 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Light & medium vehicles 348,668 239,742 334,860 370,000 398,700 426,800 454,800 472,500 491,000 510,200Growth (yoy) -17% -31% 40% 10% 8% 7% 7% 4% 4% 4% Trucks 12,249 9,871 13,319 13,551 14,093 14,657 15,243 15,548 15,859 16,176Growth (yoy) -16% -19% 35% 2% 4% 4% 4% 2% 2% 2% Buses 3,483 2,677 3,766 3,889 3,950 4,011 4,171 4,254 4,340 4,426Growth (yoy) 15% -23% 41% 3% 2% 2% 4% 2% 2% 2% Peru 2019A 2020A 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Light & medium vehicles 153,410 108,292 128,560 149,800 160,286 169,903 180,097 190,903 202,357 214,499Growth (yoy) 6% -29% 19% 17% 7% 6% 6% 6% 6% 6% Trucks 16,311 10,211 12,313 14,310 15,741 17,001 18,361 19,738 21,218 22,809Growth (yoy) -9% -37% 21% 16% 10% 8% 8% 8% 8% 8% G. Cost of Goods Sold Cost of goods as a percentage of sales is expected to remain relatively flat throughout the projection period. H. General and Administrative Expenses In 2020, the Debtors reduced costs significantly in response to the pandemic and the Reorganized Debtors are projected to continue to implement cost controls going forward. The Debtors’ personnel costs have been impacted by a reduction of headcount in 2020 and the exit from the Premium business in 2020 and 2021. After 2021, the Reorganized Debtors’ headcount is projected to increase to deliver top line growth expected from a stronger wholesale market. Marketing & advertisement expenditures were reduced significantly in 2020 given the impact of the pandemic. As the market recovers, the Reorganized Debtors expect to launch larger marketing & advertising campaigns to increase their market share. Professional services are expected to increase at the rate of inflation post-2021 to reflect the services of ordinary professionals such as auditors and legal counsel.
11Depreciation and amortization expenses are expected to decline through 2022 as a result of asset sales before increasing as a result of an increase in PP&E (asset revaluations and capital expenditures). Consolidated SG&A 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Personnel $48 $48 $50 $56 $62 $68 $73 $78 Marketing & advertisement 12 16 18 20 22 23 26 27 Professional services 7 7 8 9 10 11 12 13 Depreciation and amortization1 18 17 18 20 23 25 27 30 Other2 21 23 22 25 28 31 34 37 Total SG&A – Consolidated $107 $111 $116 $130 $145 $159 $172 $185Notes 1 Includes amortization of capitalized leases 2 Includes rent, services, materials and supplies, maintenance, travel, communication, severance, and other general expensesI. Working Capital From 2021 onward, (a) inventory is expected to normalize at a lower level than the historical average due to tight working capital controls and vehicle mix, (b) days of accounts receivable are expected to be lower than in 2020, although at a level higher than in 2019, and (c) days of accounts payable are expected to be consistent in the long term with levels in 2019. J. Capital expenditures After 2021, the Reorganized Debtors expect annual capital expenditures to normalize at a level of approximately $8 million. K. Asset Sales The Company has initiated a divestiture program of non-core real estate and other assets expected to result in proceeds over the next few years as outlined in the Pro Forma Summary Income and Cash Flow Statement below. L. Interest Expense Post-emergence interest expense is forecasted based on the Reorganized Debtors’ anticipated pro forma consolidated capital structure. The consolidated pro forma capital structure includes $56 million of local bank debt, $2430 million of New Senior Tranche Secured Notes, $229255 million of New Junior Tranche Secured Notes, and $11181 million of Subordinated Notes. The Pro Forma Summary Income and Cash Flow Statement assume that the Reorganized Debtors elect to PIK interest related to the New Senior Tranche Secured Notes, New Junior Tranche Secured Notes, and Subordinated Notes for the maximum time period permitted under the respective Indentures. Pro Forma Capital Structure The below table presents the pro forma capital structure based on an Assumed Effective Date of June 30, 2021. The pro forma capital structure assumes that the Reorganized Debtors will have a new working capital facility in place in Chile at emergence. $ in millions Pre1 Δ Pro Forma Existing debt Bank debt $56 – $56 DIP 2427 (2427) – 7.5% Secured Notes due 2025 510 (510) – 7.5% Unsecured Notes due 2021 10 (10) – 8.25% Unsecured Notes due 2021 22 (22) – 6.75% Unsecured Notes due 2023 3 (3) – New debt: New Senior Secured Notes – 2430 2430 New Junior Secured Notes – 229255 229255 New Subordinated Notes – 11181 11181 Total debt $624627 ($204205) $420422 Unrestricted cash (4143) – (4143) Net Debt $583 ($204205) $379 Note 1 Excludes accrued interest
12Pro Forma Summary Income and Cash Flow Statement The pro forma summary income and cash flow statement assumes that the Reorganized Debtors will have a new working capital facility in place in Chile at emergence. Pro forma summary income and cash flow statement 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Total revenue $925 $1,031 $1,154 $1,314 $1,484 $1,638 $1,794 $1,942COGS (777) (874) (978) (1,112) (1,256) (1,386) (1,517) (1,643)SG&A (107) (111) (116) (130) (145) (159) (172) (185) Other adjustments1 20 20 21 24 27 30 33 35 EBITDA $61 $66 $82 $96 $111 $124 $138 $149 Change in working capital (107) (78) (42) (43) (48) (43) (43) (39)Cash taxes 1 (8) (2) (3) (5) (6) (8) (9) CapEx (6) (8) (8) (8) (8) (8) (8) (8) Other2 27 (28) (13) (10) (9) (6) (8) (4) Disposal of assets 57 116 45 – – – – – Unlevered free cash flow $33 $61 $62 $31 $40 $60 $72 $89 Cash interest (13) (17) (18) (19) (3941) (4042) (4143) (4244)Debt issuance / (repayment) (14) (36) (34) 1 (1) (11) (10) (18)Other3 (1011) (0) 0 (0) (0) (3) (0) (0) Levered Free cash flow $1820 $7 $10 $13 ($02) $64 $2018 $2826Unrestricted cash $8386 $9193 $101104 $114116 $114 $120118 $141137 $169163Restricted cash 22 43 52 60 69 75 83 87 Notes 1 Includes adjustments related to depreciation and amortization, discontinued operations and the reclassification of supplier credits as working capital 2 Includes dividends from associates, investments in associates, related party loans, equity financing, other operating cash flows and other investing cash flows 3 Includes transaction expenses and foreign exchange differences Projected Debt Balances Projected debt balances 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E Bank debt $95 $132133 $151 $169 $186 $196 $209 $215 Senior Tranche New Secured Notes – – – – – – – – Junior Tranche New Secured Notes 225258 188224 169208 184227 184227 184227 184227 184227Subordinated Notes 11785 12894 142103 156114 168123 181132 195142 210153
13Exhibit 3 Redline of Liquidation Analysis
14LIQUIDATION ANALYSIS Introduction This hypothetical Liquidation Analysis (the “Liquidation Analysis”) represents the liquidation value of the assets of the Debtors and certain assets pledged to the 7.5% Notes due 2025 (as defined in the Plan, or the “Secured Notes”) that are owned by non-Debtor entities located in Peru and Costa Rica. This Liquidation Analysis includes such non-Debtor assets in its calculations because the liquidation of the Debtor entities would trigger contractual defaults and allow Holders of the Secured Notes to foreclose on the non-Debtor collateral. Section 1129(a)(7) of the Bankruptcy Codes requires that each Holder of an Impaired Allowed Claim or Interest either (i) accepts the Plan or (ii) receives or retains under the Plan property of a value, as of the Effective Date, that is not less than the value such Holder would receive or retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code on the Effective Date of the Plan. This analysis was conducted by separately conducting a hypothetical liquidation of each of the thirteen Debtor entities.1 The purpose of the Liquidation Analysis that follows is to provide information in order for the Bankruptcy Court to determine that the Plan satisfies this requirement. The Liquidation Analysis was prepared to assist the Bankruptcy Court in making this determination and should not be used for any other purpose. To demonstrate that the Plan satisfies this standard, the Debtors, in consultation with their legal and financial advisors, have prepared the Liquidation Analysis under a hypothetical liquidation under Chapter 7 that: (i) estimates the realizable liquidation value of the Debtors’ assets and (ii) estimates the distribution to creditors resulting from the liquidation, net of estimated Chapter 7 related fees and wind down costs. Under Chapter 7, the assets of the Debtors would be subject to liquidation and values would be measured under an orderly liquidation value (“OLV”) premise. OLV reflects the gross amount, in USD million, translated from various foreign currencies using the exchange rates as of December 31, 2020 that can be realized from a liquidation sale, given reasonable market exposure to find a purchaser, with the seller being compelled to sell on an “as-is”, “where is” basis, as of a specific date. This analysis is based upon several significant assumptions. The Liquidation Analysis does not purport to be a valuation of the Debtors’ assets and is not necessarily indicative of the values that may be realized in an actual liquidation. In fact, some of these assets may not be available for sale for an undetermined period of time, and they may diminish in value if a local bankruptcy proceeding is also commenced in various jurisdictions such as Chile or Uruguay and/or a local administrator is named to administer one or more of the estates during the pendency of a Chapter 7 proceeding or a foreign court-appointed liquidation. This Liquidation Analysis was prepared in connection with the filing of the Debtors’ Disclosure Statement and Plan. The Debtors have prepared this Liquidation Analysis based on a hypothetical liquidation under Chapter 7 of the Bankruptcy Code. The Liquidation Analysis presents the Debtors’ determination of the hypothetical liquidation value of their businesses if a Chapter 7 trustee (the “Trustee”) were appointed and charged with winding down the estates. Under a Chapter 7 liquidation, it is assumed solely for purposes of this analysis that the Trustee would sell all of the Debtors’ major assets or surrender them to the respective lien holders, and the cash proceeds, net of liquidation related costs, would then be distributed to holders of claims in accordance with relevant local laws. Estimating recoveries in any hypothetical Chapter 7 liquidation case is uncertain due to the number of unknown variables. Thus, extensive use of estimates and 1 Following guidance from the Court at the April 15, 2021 first day hearing, the Debtors, in consultation with their financial advisor, FTI, prepared a revised liquidation analysis providing hypothetical creditor recoveries on a per-Debtor basis. Based on the assumptions herein that were applied consistently across all Debtors as outlined in this Exhibit, certain of the Debtors are modeled as administratively insolvent. As a result, the net proceeds available to Shareholders on an aggregate basis illustrate an immaterial negative result. The primary effect of these revisions is an estimated 0.4 percent (%) increase in the hypothetical recovery for the 7.5% Notes due 2025 (both secured and deficiency claims) and a 3.3 percent (%) increase in the hypothetical recovery for general unsecured claims.
15assumptions have been made that, although considered reasonable, are inherently subject to significant business, economic and competitive uncertainties and contingencies beyond the control of the Debtors. In the event of a Chapter 7 liquidation, actual results may vary materially from the estimates and projections set forth in the Liquidation Analysis. Similarly, the actual amount of allowed claims in a Chapter 7 liquidation could materially and significantly differ from the amount of claims estimated in the Liquidation Analysis. The Liquidation Analysis presents only information provided by the Debtors’ management and does not include an independent evaluation of the underlying assumptions. The Liquidation Analysis has not been examined or reviewed by independent accountants in accordance with standards promulgated by the American Institute of Certified Public Accountants. This Liquidation Analysis considers certain regulations set forth by the liquidation statutes in the jurisdictions in which the Debtors’ and non-Debtor affiliate assets are located—Chile, Uruguay, Brazil, Peru, and Costa Rica. THE LIQUIDATION ANALYSIS IS NOT INTENDED AND SHOULD NOT BE USED FOR ANY OTHER PURPOSE THAN THAT EXPLAINED ABOVE. THE LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF THE DEBTORS’ ASSETS AS A GOING CONCERN, AND THERE MAY BE A SIGNIFICANT DIFFERENCE BETWEEN THE LIQUIDATION ANALYSIS AND THE VALUES THAT MAY BE REALIZED IN AN ACTUAL LIQUIDATION. THIS ANALYSIS ASSUMES “LIQUIDATION VALUES” BASED ON THE DEBTORS’ BUSINESS JUDGMENT IN CONSULTATION WITH THE DEBTORS’ ADVISORS. WHILE THE DEBTORS MAKE NO ASSURANCES, IT IS POSSIBLE THAT PROCEEDS RECEIVED FROM ANY GOING CONCERN SALE OF THE DEBTORS’ ASSETS OR BUSINESS UNITS WOULD BE MORE THAN HYPOTHETICAL LIQUIDATION VALUES, THE COSTS ASSOCIATED WITH ANY SALE WOULD BE LESS, FEWER CLAIMS WOULD BE ASSERTED AGAINST THE BANKRUPTCY ESTATES AND/OR CERTAIN ORDINARY COURSE CLAIMS WOULD BE ASSUMED BY THE BUYER OF THE DEBTORS’ BUSINESSES. THE UNDERLYING FINANCIAL INFORMATION IN THE LIQUIDATION ANALYSIS WAS NOT COMPILED OR EXAMINED BY ANY INDEPENDENT ACCOUNTANTS. NEITHER THE DEBTORS NOR THEIR ADVISORS MAKE ANY REPRESENTATION OR WARRANTY THAT THE ACTUAL RESULTS WOULD OR WOULD NOT APPROXIMATE THE ESTIMATES AND ASSUMPTIONS REPRESENTED IN THE LIQUIDATION ANALYSIS. ACTUAL RESULTS COULD VARY MATERIALLY. THE LIQUIDATION ANALYSIS HAS BEEN PREPARED SOLELY FOR THE PURPOSES OF ESTIMATING THE ASSET PROCEEDS AVAILABLE IN A HYPOTHETICAL CHAPTER 7 LIQUIDATION. NOTHING CONTAINED IN THIS LIQUIDATION ANALYSIS IS INTENDED AS OR CONSTITUTES A CONCESSION OR ADMISSION FOR ANY PURPOSE OTHER THAN THE PRESENTATION OF A HYPOTHETICAL LIQUIDATION ANALYSIS FOR PURPOSES OF THE BEST INTERESTS TEST. THE LIQUIDATION ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING ASSUMPTIONS. General Assumptions The Liquidation Analysis is based upon an estimate of the proceeds that may be realized by the Debtors in the event that the Debtors’ and certain non-Debtor assets are liquidated in an orderly manner under Chapter 7 of the Bankruptcy Code. The Liquidation Analysis assumes foreign liquidation proceedings in a total of five jurisdictions: the three countries where Debtor assets are located: Chile, Uruguay, and Brazil, as well as non-Debtor jurisdictions of Peru and Costa Rica. As noted, proceeds of non-Debtor assets are included in these calculations because a liquidation of the Debtors would trigger contractual rights allowing Holders of the Secured Notes to foreclose on non-Debtor collateral located in Peru and Costa Rica. In addition, the liquidation of the Debtors assets will likely result in the liquidation of the group’s non-Debtor operations
16as well due to the fact that the Debtors and non-Debtors hold distribution contracts for the importation of vehicles and spare parts with the same counterparties and the liquidation of the Debtors will likely cause the rescission of the distribution contracts in all the jurisdictions in which the Debtors and non-Debtors operate. The Liquidation Analysis does not include recoveries resulting from any potential preference claims, fraudulent conveyance litigation, or other avoidance actions, if such actions exist. The Liquidation Analysis is based upon the Debtors’ unaudited balance sheet as of December 31, 2020 (unless otherwise noted) and upon projections developed by the Debtors for certain assets to reflect various probable offsets or adjustments deemed to be a more accurate predictor of value in a liquidation scenario. Management of the Debtors does not believe at this time that projected information on other assets or liabilities would vary significantly. However, this analysis is subject to change as a result of any changes to the Debtors’ planned operating activities. In addition to the above, the following key assumptions were made: Liquidation Analysis Depends on Estimates and Assumptions. The determination of thehypothetical proceeds from, and costs of the liquidation of the assets, is an uncertain processinvolving the extensive use of estimates and assumptions that, although considered reasonableby the Debtors, are inherently subject to significant business, and economic uncertainties andcontingencies beyond the control of the Debtors. Inevitably, some assumptions in theLiquidation Analysis would not materialize in an actual Chapter 7 liquidation andunanticipated events and circumstances could affect the ultimate results in an actual Chapter 7liquidation. The Debtors prepared the Liquidation Analysis for the sole purpose of establishinga reasonable good faith estimate of the proceeds that would be generated if the Debtors’ assetswere liquidated in accordance with chapter 7 of the Bankruptcy Code (a “Chapter 7Liquidation”) upon conversion of these Chapter 11 Cases (the “Chapter 7 Conversion Date”)on the Effective Date of the Chapter 11 Plan. No independent appraisals were conducted inpreparing the Liquidation Analysis. The Liquidation Analysis is not intended and should notbe used for any other purpose other than set forth herein. The underlying financial informationin the Liquidation Analysis was not compiled or examined by any independent accountants. Accordingly, while deemed reasonable based on the facts currently available, neither theDebtors nor their advisors make any representations or warranties that the actual results wouldor would not approximate the estimates and assumptions represented in the LiquidationAnalysis. Conversion and Appointment of a Trustee: On the Chapter 7 Conversion Date, it is assumedthat a trustee would be appointed (the “Chapter 7 Trustee”) to oversee the liquidation of theestates. As a baseline, the Liquidation Analysis used each of the Debtors’ unaudited assets andliabilities as of December 31, 2020, and then, as set forth herein, the book values of certainassets and liabilities were adjusted, where appropriate, to reflect various probable offsets oradjustments deemed to be a more accurate predictor of value in a liquidation scenario. Theseunaudited estimates are derived from each Debtor’s financial statements or more recentfinancial information, where available. The Debtors do not believe the use of such estimateswill result in a material change to estimated recoveries on conversion unless otherwise noted. Liquidation Process and Time. Following the appointment of a Chapter 7 Trustee, theliquidation period is assumed to last a total of 7 to 12 months to substantially liquidate all ofthe Debtors’ and non-Debtor affiliate assets in the five jurisdictions, depending on the countryand scenario assumed. This Liquidation Analysis further assumes that the liquidation processcommences immediately following the Chapter 7 Conversion Date and all reasonable effortsare taken to liquidate assets in accordance with the bankruptcy laws of the country in whichthe assets are domiciled. For example, under the Chilean bankruptcy law, the liquidation ofassets must be performed in a seven-month period in the case of real estate and four months
17for all other assets. The Liquidation Period may be extended four additional months by agreement of a majority of the creditors. Although the Chilean bankruptcy law provides for additional four-month extensions, in reality, additional extensions are difficult to obtain. For the Debtors located in Chile, this analysis assumes the liquidation is performed in the time frame provided by the Chilean bankruptcy law with no extensions in the low-end of the estimated recovery range (the “Low Scenario”), and a single four-month extension in the high-end of the estimated recovery range (the “High Scenario”). For the Debtors located in Uruguay, the Low Scenario assumes a Liquidation Period of 7 months and the High Scenario assumes 12 months. The Liquidation Analysis assumes a liquidation of all of the Debtors’ assets including (a) cash and equivalents, (b) accounts receivable, (c) inventories, (d) property, plant and equipment, (e) intellectual property and (f) other assets. The Liquidation Analysis assumes that the Trustee does not possess the operational expertise or capability to continue to operate the Debtors’ business efficiently or safely for the extended period required to conduct a going concern sale process. The individual sale of all marketable assets of the estate are assumed to take place concurrently with each other. Actual asset sales and wind-down of operations would happen immediately after service to customers is discontinued on the Conversion Date. All distributions would be made as and when proceeds from the disposition of assets and collection of receivables are received; however, the projected recoveries have not been discounted to reflect the present value of any distributions. Estimates of Claims: In preparing the Liquidation Analysis, the Debtors estimated AllowedClaims based on a review of their books and records as of December 31, 2020. TheLiquidation Analysis also includes estimates for Claims that could be asserted and Allowed ina Chapter 7 Liquidation, including Administrative Expenses, employee-related obligations,wind down costs (as detailed herein), Chapter 7 Trustee fees, and other Allowed Claims. Todate, the Bankruptcy Court has not estimated or otherwise fixed the total amount of AllowedClaims. For purposes of the Liquidation Analysis, the Debtors have estimated the amounts ofAllowed Claims and provided ranges of projected recoveries based on certain assumptions. Therefore, the Debtors’ estimates of Allowed Claims set forth in the Liquidation Analysisshould not be relied upon for any purpose other than considering the hypothetical distributionsunder a Chapter 7 liquidation. Nothing contained in the Liquidation Analysis is intended tobe or constitutes a concession or admission by the Debtors. The actual amounts of AllowedClaims in the Chapter 11 Cases could materially differ from the estimated amounts set forth inthe Liquidation Analysis. Factors Considered in Valuing Hypothetical Liquidation Proceeds: Factors that couldnegatively impact the recoveries set forth in the Liquidation Analysis, include, but are notlimited to: (a) turnover of key personnel; (b) challenging economic conditions mainly drivenby the COVID-19 pandemic in the Debtors’ key markets; (c) delays in the liquidation process;(d)loss of market share to key competitors; and (e) termination of key importation rights bythe Original Equipment Manufacturers (or “OEMs”) due to the liquidation commencement. These factors may limit the amount of the proceeds generated by the liquidation of the Debtors’assets (the “Liquidation Proceeds”) available to the Trustee. Tax Consequences: The Debtors’ management believes that it is unlikely that material taxablegains would be triggered through a liquidation of the Debtors’ assets. However, if there wereto be a taxable gain from the liquidation of the Debtors’ assets, the Debtors believe that anyrealized gains would result in only minimal tax liability, if any, because such gains would besubject to potential offset by the Debtors’ current pretax losses and/or net operating loss carryforwards.
18 Waterfall and Recovery Range: The Liquidation Analysis assumes that the proceeds generatedfrom the liquidation of all of the Debtors’ assets as of the Chapter 7 Conversion Date, will bereasonably available to the Trustee. After deducting the costs of liquidation, including theTrustee’s fees and expenses and other administrative expenses incurred in the liquidation, theTrustee would allocate net Liquidation Proceeds to holders of Claims and equity holders ateach Debtor entity in accordance with the priority scheme set forth in section 726 of theBankruptcy Code and respective foreign insolvency laws. The Liquidation Analysis estimateslow and high recovery percentages for Claims and Equity Interests upon the Trustee’sapplication of the Liquidation Proceeds. As a starting point, the Debtors used the unauditedDecember 31, 2020 financial statements as a proxy for expected asset values on the Chapter 7Conversion Date (unless otherwise noted) and made pro-forma adjustments to those values toreflect, where appropriate, various probable offsets or adjustments deemed to be a moreaccurate predictor of value in a liquidation scenario. While the Debtors expect to continue toincur obligations in the ordinary course of business until the Chapter 7 Conversion Date (whichobligations have not been reflected herein), the ultimate inclusion of such additionalobligations is not expected to materially change the results of the Liquidation Analysis. TheLiquidation Analysis does not reflect any potential recoveries that might be realized by theTrustee’s potential pursuit of any avoidance actions, as the Debtors have not completed ananalysis of the viability of such avoidance actions. The Debtors have worked with theiradvisors to estimate ranges of recoveries as provided in this Liquidation Analysis. These rangesare estimates and should not be relied upon by any party. The Debtors do not provide assuranceof any recovery in a Chapter 7 scenario. Notes to Liquidation Analysis The following Notes to the Liquidation Analysis identify and describe the significant assumptions that were utilized in its preparation. 1. Notes on Estimated Liquidation Value of Assets (A)Cash and Equivalents. The Debtors’ cash and cash equivalents comprise cash balances and timedeposits with maturities of three months or less from the Chapter 7 Conversion Date that are subjectto an insignificant risk of changes in their fair market value, and are used by the Debtors in themanagement of their short-term commitments. The Liquidation Analysis assumes that operationsduring the liquidation period would not generate additional cash available for distribution exceptfor net proceeds from the disposition of non-cash assets. The cash and cash equivalent values arebased on the balance sheet date as of December 31, 2020 and are expected to be representative ofthe cash available for liquidation. The estimated recovery on the adjusted pro-forma balance ofCash and Cash Equivalents is estimated at 100%. (B) Restricted Cash: This amount consists of cash collateral placed with a financial institution to openletters of credit for the purchase of new vehicles or spare parts inventory from an OEM. This cashhas been paid to the financial institution acting as the agent of the purchase order. In effect, thisamount reflects prepaid inventory because the OEM will be paid from this cash collateral once itmakes delivery of the vehicles or spare parts the Debtor(s) ordered, at which point inventory willbe recognized by the Debtor. As a result, the estimated recovery rate on the restricted cash balanceis assumed to be consistent with the estimated recovery on inventory which is based on the specificautomotive brand and ranges between 40% to 60%, as described further in note (F). (C)Accounts Receivable: Accounts receivables include insured receivables from wholesale and retailcustomers, non-insured receivables from wholesale and retail customers, credit card receivables,fleet sales receivables (bulk sales to individual companies or governments), advances made to
19certain suppliers and other receivables. The pro-forma accounts receivable balance includes adjustment for offset advances to certain suppliers with payables owed to those same suppliers and related party receivables reclassified to net related party receivables. The recovery of the pro-forma receivables will be impacted by: (1) impact on collections as a result of loss of warranty from the sale of new vehicles (see inventory section for more details); and (2) the credit-worthiness of wholesale customers with receivables. Estimated recovery percentages have been assigned to different categories of receivables ranging between 20% and 100%, with receivables recovery ranging between 40% and 60%; VAT receivables and loans to employees with 100% recovery; and other receivables ranging between 20% and 40%. As a result, the overall estimated recovery on the Accounts Receivable ranges between 37.5537.35% to 57.0356.78%. (D)Accounts Receivable from Related Entities: The Debtors’ accounts receivable from related entitiestotals approximately USD 73.3 million. This Liquidation Analysis estimates that these balancesare not recoverable in liquidation given that substantially all of the balance is held between Debtors,netting out in the consolidation of the Debtors’ estates. (E) Prepaid Expenses. Prepaid expenses consist primarily of performance guarantees and guaranteeddeposits, as well as prepaid insurance, prepaid leases, prepaid maintenance and prepaid advertising. The Debtors do not estimate a recovery on these assets as the majority refer to guarantees that maybe exercised under a liquidation scenario; insurance policies that would be maintained during thewind-down of operations and/or relatively minor prepayments whose unamortized balances will bedifficult and lengthy in practice to recover. (F) Inventory. Inventory is comprised of new vehicles, used vehicles and spare parts. A portion of theinventory is used as collateral for bank debt used to finance its purchases. The liquidation of new and used vehicle inventory will be impacted by: (1)Lack of warranty coverage. The Debtors are the sole importers of the new vehicle and spareparts automotive brands sold in each jurisdiction and, accordingly, the Debtors provide the warrantyservices in the countries in which they operate. As a result, the liquidation of the Debtors may resultin no warranty guarantee for the inventory sold during the Liquidation Period. This may bemitigated by certain brands establishing distribution agreements with other parties or honoringwarranties themselves, but this is uncertain. As a result, the risk of an un-honored warranty willlikely remain during the Liquidation Period; (2)Uncertain Demand. Vehicle markets are sensitive to GDP growth and consumer confidence. Demand for new and used vehicles may be negatively impacted as a result of the COVID-19pandemic’s impact on the economies in which the Debtors operate due to potentially higherunemployment, lower access to credit and lower consumer confidence;(3)Consumer price elasticity. The perceived consumer value of different brands will result inpotentially different levels of discounts required to liquidate the new and used inventory; and(4)Form of payment. The unwillingness of the Debtors to receive used vehicles as partial paymentfor new vehicles will result in only creditworthy customers or cash only purchases. As a result, itis assumed that the new vehicle recovery will range between 40% and 60% depending on the brandand jurisdiction and 30% and 50% for used vehicle or discontinued vehicles inventory.
20The liquidation of spare parts inventory will be impacted by: (1)Existence of bulk purchasing. There is a limited market for the purchase of spare parts inbulk involving a significant volume of SKUs in many of the jurisdictions in which theDebtors operate, which will likely result in depressed prices for spare parts;(2)Addressable spare parts market for each brand. The existing vehicle market size withwhich the spare parts inventory will be compatible will be an important factor indetermining the attractiveness to customers and necessary discounts required to spurdemand; and (3)Demand expectation for spare parts. The expected spare parts demand as a result of theCOVID-19 pandemic is likely to increase as consumers opt to fix their existing vehiclesfor longer as they defer replacements for newer models. As a result, it is assumed that thespare parts inventory will range between 4% and 22%. (4)Consequently, the aggregated recovery of inventory is estimated to range between 40%and 50%. (G)Property, Plant and Equipment: Property, plant and equipment (“PP&E”) assets consist primarilyof land, building, leased assets, equipment and other assets. PP&E includes real estate property inChile and Uruguay held in trust and serving as collateral for the Secured Notes. In addition, thereare assets held in trust as collateral for the Secured Notes from non-Debtors which are beingreflected as proceeds from non-Debtors in this analysis. As a result, this analysis reflects thoseassets that are held in trust for the benefit of the Secured Notes and those which are not. Trust assetsare considered bankruptcy-remote under local law, and therefore administrative expenses are notapplied against the recovery of these assets. The analysis considers capital gains for propertieswhose recovery is higher than its fiscal value, as well as offsets by the Debtors’ current pretaxlosses and net operating loss carry forwards. The estimated recovery range of land and buildingassets ranges between 25% and 60% depending on the individual property’s location andmarketability. The remaining PP&E is primarily related to leased assets and equipment. Leasedassets include leases which are accounted for as assets under IFRS 16 and therefore reflect anaccounting treatment rather than a true asset owned by the Debtors. As a result, a recovery of zerois assumed for this category and consequently no related claim is recognized. The remainingequipment assets reflects technology-related hard assets, furniture and fixtures and supplies forwhich a recovery of 10% to 40% has been assumed depending on the type of asset. As a result, theoverall recovery of PP&E is assumed to be between 36% and 4445%. (H)Intangible Assets. Intangible assets relate to software licenses, trademarks and goodwill. Given thenature of these assets, no recovery is assumed for the purpose of this liquidation analysis. (I) Investments: The investments reflect primarily the investment of the Chilean parent’s equityholding in its subsidiaries, including Debtors and non-Debtor subsidiaries, and joint ventures (or“JV”) in which Automotores Gildemeister SpA holds a 50% interest. The Debtors do not expect toobtain a recovery from the disposition of joint venture interests. In the event of a liquidation underChapter 7 of the Bankruptcy Code, the JV’s business will be significantly impacted, which wouldreduce the value of the JV and likely result in disputes with the JV partner. The Debtors haveassumed that any potential recovery will be offset by potential disputes resolutions with its JV partner, thus resulting in zero recovery from its JV assets.
21(J) Deferred Tax Assets balances: Deferred tax assets are recognized by the Debtors in respect oftemporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. Deferred tax assets and liabilities were notincluded as their recovery is assumed to be zero and no claim exists. 2. Notes on Expenses and Claims Associated with the Liquidation of Assets(A)Chapter 7 Trustee Fees. Trustee fees are the fees associated with the appointment of a Chapter 7trustee in accordance with section 362 of the Bankruptcy Code. Trustee fees are estimated basedon the requirements of the Bankruptcy Code and historical experiences in other similar cases andare projected to be approximately 3% of gross liquidation proceeds, excluding cash, in accordancewith section 362 of the Bankruptcy Code. In addition, local administrator fees are included in theseamounts based on the local Bankruptcy laws and Debtors’ management best estimates. (B) Chapter 7 Professional Fees. Such amounts include legal, investment banking, appraisal, brokerage,and accounting services required to assist the Debtors and the Trustee with the liquidation processand assumes such wind-down and associated fees. Fee estimates are based upon the Debtors’management’s review and guidance on such costs. (C)Wind-Down Expenses. Wind-down revenues and expenses reflect the continuance of operationsnecessary to liquidate inventory on hand, including the Debtors’ staff, rents and operatingexpenditures in each of the countries, however excluding broker and third-party commissions onsale of any assets. The Low Scenario assumes a Liquidation Period of 7 months across the Debtors,while the High Scenario assumes a period of 11 months for the Chilean Debtors (assuming a four-month extension is granted by the Chilean Bankruptcy Court) and 12 months for the UruguayanDebtors. In the case of Brazil, a much shorter liquidation time frame is assumed given theimmaterial assets in the Brazilian Debtor. In addition, a portion of corporate staff will need to beretained to deal with Trustee requests, creditor queries and to maintain a minimum level of booksand records. Revenue collections are assumed to be zero as vehicle sales revenue is captured in theinventory liquidation and the maintenance services segment is assumed to be shut down atconversion date. Expenses related to those staff who remain are expected to be higher than inhistorical periods due to the need to motivate corporate and sales staff to provide their servicesduring this period. Expenses are expected to decline near the end of the Liquidation Period to zero. (D)Commissions on Real Estate & Other Sales. Commissions on real estate sales reflect the assumedcommission on the liquidation of real estate and general assets of the Debtors. Commissionestimates were based upon the Debtors’ management’s review and guidance on such costs andrange between 1% and 5% depending on the jurisdiction. (E) Administrative Claims – Employee Notice Period Compensation. These amounts comprise salariesand termination expenses. These expenses include the costs associated with the four-week noticeperiod that the Debtors must provide to the Debtors’ employees under Chilean law, beforeterminating them. It is assumed that if the employees do not receive compensation during the fullnotice period, they may not work during the wind-down period. (F) Severance and Other Personnel Related Costs: Severance and other personnel related costs arethose that would be due and payable pursuant to the Chilean liquidation statute. In accordance withthe Chilean liquidation statute, the Debtors’ employees are entitled to severance payments thataccrue until the date of payment and up to a maximum of three months’ minimum wages (currentlyequal to 90 UF or approximately USD 3,700) for each year of work, or a fraction thereof if there isa remainder of more than six months, with a limit of ten years. Any amount exceeding the three
22months’ wages is treated as an unsecured, non-priority claim. These amounts relate to the accrued vacations and personnel withholdings during the 180 days before the Petition Date. Management and advisors have adopted the accrual in the Debtors’ Balance Sheet as of December 31, 2020 as an approximate estimate of the balance that would be due in such a scenario for the purposes of this Liquidation Analysis. (G)Outstanding taxes. Outstanding taxes relate to taxes owed to tax authorities, such as withholdingtaxes and income taxes, in the countries in which the Debtors operate, which will be required to bepaid from the Debtors’ estates. 3. Notes on Distribution of Proceeds (A)2025 Secured Notes. This amount reflects the outstanding balance of the Secured Notes as ofDecember 31, 2020. The Secured Notes are secured by first-priority liens on certain of the Debtors’and non-Debtors’ real estate and other assets and will receive the benefit of its liquidation value. No further interest on the 2025 Secured Notes’ principal is assumed to accrue during theliquidation. (B) Secured Bank Debt and Factored Receivables: Represents the secured claims from financialinstitutions used to purchase inventory and mortgages of certain real estate properties, as well asfactoring providers. (C)Unsecured Notes: Represents the balances with respect to the 2011 Unsecured Notes due in 2021,the 2016 Unsecured Notes due in 2021 and the 2013 Unsecured Notes due in 2023. TheseUnsecured Notes reflect the noteholders who did not participate in the 2016 or 2019 debtrestructurings. (D)General Unsecured Claims. General unsecured claims include: (G1D1) accounts payable due tovendors; (G2D2) the estimated under-secured portion of secured debt; (G3D3) the non-priorityportion of the severance payments that exceeds the three-month minimum wages amount; and(G4D4) other potential contingent claims; and (D5) Related Party Claims. Although not directlyincluded in the Liquidation Analysis, the analysis considers accounts payables and potentialcontingent claims in Peru and Costa Rica. Conclusion After considering the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in this case, including (i) increased costs and expenses of a liquidation, including priority amounts and likely fees due to a Trustee and its professional advisors, (ii) the erosion in value of assets in the context of the expeditious liquidation required and the “forced sale” atmosphere that would prevail in multiple jurisdictions, and (iii) the difficulty in being able to sell individual assets or components of businesses, the Debtors have determined that confirmation of this Plan will provide each creditor and equity holder with a recovery that is not less than it would receive pursuant to a liquidation of the Debtors under Chapter 7 of the Bankruptcy Code.
23Debtors’ Hypothetical Liquidation Analysis
37Claim Recovery Summary based on Debtors’ Hypothetical Liquidation Analysis
38Exhibit 4 Redline of Valuation Analysis
39ESTIMATED ENTERPRISE VALUATION OF THE REORGANIZED DEBTORS ON A CONSOLIDATED BASISTHE VALUATION INFORMATION CONTAINED IN THE FOLLOWING ANALYSIS IS NOT A PREDICTION ORGUARANTEE OF THE ACTUAL MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BEISSUED PURSUANT TO THE PLAN. THIS VALUATION IS PRESENTED SOLELY FOR THE PURPOSE OF PROVIDINGADEQUATE INFORMATION AS REQUIRED BY SECTION 1125 OF THE BANKRUPTCY CODE TO ENABLE THE HOLDERS OFCLAIMS ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN TO MAKE AN INFORMED JUDGMENT ABOUT THE PLANAND SHOULD NOT BE USED OR RELIED UPON FOR ANY OTHER PURPOSE, INCLUDING THE PURCHASE OR SALE OFCLAIMS AGAINST THE DEBTORS. Solely for the purpose of the Plan and Disclosure Statement, Rothschild & Co USInc. (“Rothschild & Co”), as investment banker to the Debtors, has estimated a range of the total enterprise value(“Total Enterprise Value”) and implied equity value (“Plan Equity Value”) of the Reorganized Debtors, on aconsolidated going concern basis that is pro forma for the transactions contemplated by the Plan. In preparing the estimates presented below, Rothschild & Co relied upon the accuracy, completeness, andfairness of financial and other information contained within the business plan furnished by the Debtors’management (the “Financial Projections”). Rothschild & Co did not attempt to independently audit or verify suchinformation, nor did it perform an independent appraisal of the assets or liabilities of the Debtors. As a result of the analysis described below and for purposes of the Plan, Rothschild & Co estimated theTotal Enterprise Value of the Reorganized Debtors on a consolidated basis to be approximately $460 million to$530 million with a mathematical midpoint estimate of approximately $495 million, as of June 30, 2021. Based onestimated pro forma net debt of $359364 million1 as of the assumed Effective Date, the estimated Total EnterpriseValue of the Reorganized Debtors results in a Plan Equity Value of $10196 million to $171166 million with amathematical midpoint estimate of approximately $136131 million. Rothschild & Co has assumed no changes thatwould materially affect estimated value occur between the date of the Disclosure Statement and the assumedEffective Date. Rothschild & Co’s estimated Total Enterprise Value does not constitute an opinion as to the fairness from afinancial point of view of the consideration to be received under the Plan or under the terms and provisions of thePlan. This valuation analysis is based on information as of March 26, 2021 and is based on financial informationprovided by the Debtors’ management, including the Financial Projections attached as Exhibit C of the DisclosureStatement. This valuation analysis is based on a number of assumptions, including but not limited to a successfulreorganization of the Debtors’ business in a timely manner, the achievement of the Financial Projections (includingcontemplated asset sales), continuity of a qualified management team, and capital market conditions consistentwith those that existed as of March 26, 2021. Neither Rothschild & Co nor the Debtors have any obligation to update, revise, or reaffirm the valuationanalysis and do not intend to do so. ROTHSCHILD & CO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL PROJECTIONS IN CONNECTION WITHTHE ESTIMATES OF THE TOTAL ENTERPRISE VALUE AND PLAN EQUITY VALUE, AND NO INDEPENDENT VALUATIONSOR APPRAISALS OF ESTIMATES OF THE DEBTORS WERE SOUGHT OR OBTAINED IN CONNECTION HEREWITH. ESTIMATES OF THE TOTAL ENTERPRISE VALUE AND PLAN EQUITY VALUE DO NOT PURPORT TO BE APPRAISALS ORNECESSARILY REFLECT THE VALUES THAT MAY BE REALIZED IF ASSETS ARE SOLD AS A GOING CONCERN INLIQUIDATION OR OTHERWISE. THE ESTIMATE OF THE RANGE OF THE TOTAL ENTERPRISE VALUE PREPARED BYROTHSCHILD & CO REPRESENTS THE HYPOTHETICAL ENTERPRISE VALUE RANGE OF THE REORGANIZED DEBTORS. SUCH ESTIMATE WAS DEVELOPED SOLELY FOR PURPOSES OF THE FORMULATION OF THE PLAN AND THE ANALYSISOF IMPLIED RELATIVE RECOVERIES TO CREDITORS THEREUNDER. SUCH ESTIMATE REFLECTS A COMPUTATION OFTHE RANGE OF THE ESTIMATED TOTAL ENTERPRISE VALUE OF THE REORGANIZED DEBTORS THROUGH THEAPPLICATION OF VARIOUS VALUATION TECHNIQUES AND DOES NOT PURPORT TO REFLECT OR CONSTITUTE 1 Reflecting reorganization value of $9166 million for the New Subordinated Notes
40APPRAISALS, LIQUIDATION VALUES, OR ESTIMATES OF THE ACTUAL MARKET VALUE THAT MAY BE REALIZEDTHROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO THE PLAN, WHICH MAY BE SIGNIFICANTLYDIFFERENT THAN THE AMOUNTS SET FORTH HEREIN. THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS UNCERTAINTIES AND CONTINGENCIESWHICH ARE DIFFICULT TO PREDICT AND WILL FLUCTUATE WITH CHANGES IN FACTORS AFFECTING THE FINANCIALCONDITION AND PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE ESTIMATE OF THE RANGE OF THE TOTALENTERPRISE VALUE OF THE REORGANIZED DEBTORS SET FORTH HEREIN IS NOT NECESSARILY INDICATIVE OF ACTUALOUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE SET FORTH HEREIN. BECAUSESUCH ESTIMATES ARE INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER THE DEBTORS, ROTHSCHILD & CO, NORANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THEIR ACCURACY. IN ADDITION, THE VALUATION OF NEWLYISSUED SECURITIES IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH AREDIFFICULT TO PREDICT. ACTUAL MARKET PRICES OF SUCH SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONGOTHER THINGS, FUNDED DEBT, PREVAILING INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THEANTICIPATED INITIAL SECURITIES HOLDINGS OF PREPETITION CREDITORS, SOME OF WHICH MAY PREFER TOLIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A LONG-TERM BASIS, THE POTENTIALLY DILUTIVEIMPACT OF CERTAIN EVENTS OR SECURITIES, AND OTHER FACTORS WHICH GENERALLY INFLUENCE THE PRICE OFSECURITIES. Rothschild & Co assumed that the Financial Projections were reasonably prepared in good faith and on abasis reflecting the Debtors’ most accurate, currently available estimates and judgments as to the future operatingand financial performance of the Reorganized Debtors. The estimated Total Enterprise Value and Plan Equity Valueranges assume the actual performance of the Reorganized Debtors will correspond to the Financial Projections inall material respects. If the business performs at levels below or above those set forth in the Financial Projections,such performance may have a materially negative or positive impact, respectively, on Total Enterprise Value andPlan Equity Value. In estimating Total Enterprise Value, Rothschild & Co: (a) reviewed certain internal financial andoperating data of the Debtors, including the Financial Projections; (b) discussed the Debtors’ operations and futureprospects with the Debtors’ senior management team; (c) reviewed certain publicly available financial data for, andconsidered the market value of, companies that Rothschild & Co deemed generally relevant in analyzing the valueof the Reorganized Debtors; (d) considered certain economic and industry information relevant to the operatingbusinesses; and (e) conducted such other studies, analyses, inquiries and investigations as it deemed appropriate. Rothschild & Co assumed and relied on the accuracy and completeness of all financial and other informationfurnished to them by the Debtors’ management as well as publicly available information. The estimated ranges ofTotal Enterprise Value and Plan Equity Value do not constitute a recommendation to any holder of Allowed Claimsor Interests as to how such person should vote or otherwise act with respect to the Plan. Rothschild & Co has notbeen asked to express any view as to what the trading value of the Reorganized Debtors’ securities would be onissuance or at any time. In performing its analysis, Rothschild & Co considered and applied (as applicable) the following valuationmethodologies to the operations of the Debtors: (a) a discounted cash flow analysis, (b) a publicly-tradedcompanies analysis, and (c) a precedent transactions analysis. Discounted cash flow analysis A discounted cash flow (“DCF”) analysis is an enterprise valuation methodology that estimates the value ofan asset or business by calculating the present value of expected future cash flows to be generated by that asset orbusiness, plus a present value of the estimated terminal value of that asset or business. Rothschild & Co’s DCFanalysis used the Financial Projections’ estimated debt-free, after-tax free cash flows through December 31, 2028. These cash flows were then discounted at a range of estimated weighted average costs of capital (“Discount Rate”)for the Reorganized Debtors. The Discount Rate reflects the estimated blended rate of return that would beexpected by debt and equity investors to invest in the Reorganized Debtors’ business based on a target capital
41structure. The Total Enterprise Value was determined by calculating the present value of the Reorganized Debtors’consolidated unlevered after-tax free cash flows, including projected asset sales, based on the Financial Projections,plus an estimate for the value of the Reorganized Debtors beyond the projection period, known as the terminalvalue. In determining the estimated terminal value of the Reorganized Debtors, Rothschild & Co relied upon theperpetuity growth method which estimates a range of the values of the Reorganized Debtors at the end of theprojection period based on applying a perpetuity growth rate to terminal year cash flows. The range of growthrates was selected based on estimates of the long-term GDP growth rates and long-term inflation rates for the corecountries where the Reorganized Debtors operate their businesses, as well as considerations related to theReorganized Debtors’ industry. To determine the Discount Rate range, Rothschild & Co used the estimated cost of equity and theestimated after-tax cost of debt for the Reorganized Debtors, assuming a targeted, long-term, debt-to-totalcapitalization ratio. Rothschild & Co calculated the cost of equity based on (i) the capital asset pricing model, whichassumes that the expected equity return is a function of the risk-free rate, country risk premium, equity riskpremium, and the correlation of the stock performance of the selected publicly traded companies to the return onthe broader market, (ii) an adjustment related to the historical equity risk premium based on the absolute levels ofcompanies’ equity market capitalizations, and (iii) an adjustment to reflect the Reorganized Debtors’ substantialdegree of concentration of business associated with Hyundai and to reflect the risk related to the customs issue inPeru. Rothschild & Co did not make an independent assessment of the go-forward tax environment. Publicly-traded companies analysis A publicly-traded companies analysis estimates the value of a company based on a comparison withcertain other publicly-traded companies in lines of business and with operating characteristics similar in certainrespects to the company being valued. Under this methodology, certain financial multiples and ratios that measurefinancial performance and value are calculated for each selected company and then applied to certain of theReorganized Debtors’ financial metrics to imply a Total Enterprise Value for the Reorganized Debtors. Although theselected companies were compared to the Reorganized Debtors for the purposes of this analysis, no entity used inthis analysis is closely comparable to the Reorganized Debtors. The selection of publicly-traded entities for thispurpose was based upon characteristics that were deemed relevant based on Rothschild & Co’s professionaljudgment. The selection of appropriate companies is a matter of judgment and subject to limitations due to samplesize and the availability of meaningful market-based information. Accordingly, Rothschild & Co’s comparison of theselected companies to the Reorganized Debtors and analysis of the results of such comparisons was not purelymathematical, but instead necessarily involved complex considerations and judgments concerning differences infinancial and operating characteristics, diversity of business operations, diversity of geographic locations, size,concentration of suppliers, and other factors that could affect the relative values of the selected companies and theReorganized Debtors. Precedent transactions analysis A precedent transactions analysis estimates the value of a company by examining public and privatemergers and acquisitions. Under this approach, transaction values are commonly expressed as multiples of variousmeasures of financial metrics such as EBITDA. These transaction multiples are calculated based on the purchaseprice (including any debt assumed) paid to acquire companies that are comparable to the Reorganized Debtors. Rothschild & Co reviewed M&A transactions involving automotive importers and retailers in South and CentralAmerica. The transactions analyzed occurred in different fundamental and other market conditions from thoseprevailing in the marketplace currently and, therefore, may not be the best indication of value in the currentmarket. The analysis of selected precedent transactions necessarily involves complex considerations and judgmentsconcerning financial and operating characteristics and other factors that could affect the acquisition value of thecompanies concerned. The reasons for and circumstances surrounding each acquisition are specific to suchtransaction. There are inherent differences between the businesses, operations, market conditions at the time of
42such transaction, and prospects of each target and of the Reorganized Debtors. Therefore, qualitative judgmentsmust be made concerning the differences between the characteristics of these transactions, and issues that couldaffect the price an acquirer is willing to pay in an acquisition. The number of completed transactions for whichpublic data is available also limits this analysis. Furthermore, the data available for the precedent transactions mayhave discrepancies due to varying sources of information.