The Budd Company

Case Overview

The Budd Company (Budd) was recognized as a leading manufacturer of stainless-steel rail cars, space vehicles, and defense products. Founded in Philadelphia in 1912, Budd was also a major supplier of part components to subsidiaries of General Motors, Ford, Buick, and other car makers in the automobile industry. At its peak, the company operated 39 factories with approximately 12,000 employees in North America.

By the 1980s, Budd began selling select business divisions as the US auto industry was declining due to market pressures and increased competition from foreign manufacturers. At the same time Budd sold its last remaining operation in 2012, the company was hit with several asbestos lawsuits. Despite its industry legacy, Budd filed for Chapter 11 protection in the Northern District of Illinois in March of 2014.

While the company’s cash reserves were approximately $350 million, they were projected to be insufficient to satisfy both Budd’s priority creditors and its long-term obligations – retiree health care benefits and environmental liability claims, each of which required continuing payment for decades. Following lengthy trial over the UAW’s retiree health care benefit rights and Budd’s rights under §1114 of the bankruptcy code to terminate those rights, the Debtor, the UAW and the Debtor’s parent, TKNA, entered into a settlement agreement that provided for a trust, to be funded with the Debtor’s then remaining cash and future payments from TKNA, to pay UAW retiree health care benefits. Trusts were also set up for asbestos claimants and the Debtor’s former executive retirees. Subsequent to completion of the UAW settlement, the Debtor continued a consensual Chapter 11 plan of liquidation.

Successful Outcome

Stretto was engaged by Proskauer Rose to coordinate administrative operating procedures while Budd’s legal advisers worked with the Chief Restructuring Officer and other turnaround professionals on the more substantive case aspects. At the onset of the engagement, Stretto’s Client Services Team leveraged the company’s nationwide bank network to achieve optimal results for Budd.

Identifying the right banking partner, Stretto was able to increase Budd’s liquidity by freeing up funds that were previously tied up in hard vehicles. Complying with the 345 code requirements, Stretto established a safe haven, along with implementing smart cash management to facilitate optimized returns on static funds, despite a 0% rate environment. Because of Stretto’s bank partner, Budd also enjoyed zero service and maintenance fees on their accounts.

Under this UST-approved structure, Budd continues to provide recoveries for retirees and victims of the asbestos litigation at no additional costs to the estate. Stretto’s integrated team of Banking Analysts and deposit-management experts provided invaluable cash- management support to assist Budd, and ensured recoveries to all related parties.

For more information about Stretto’s fiduciary solutions, please contact Brian Soper.