IRS Files Objection to Holley Bankruptcy

The Internal Revenue Service has filed an objection to the bankruptcy plan of Bowling Green, KY-based automotive parts supplier Holley Performance Products. The IRS said the court should delay confirming Holley's Chapter 11 bankruptcy plan, so the IRS can have more time to "consider whether its claims are being treated fairly," and examine claims it may hold against the company.

From Knight Ridder/Tribune Business News

BOWLING GREEN, KY — The Internal Revenue Service has filed an objection to the bankruptcy plan of Bowling Green, KY-based automotive parts supplier Holley Performance Products.

The IRS said the court should delay confirming Holley’s Chapter 11 bankruptcy plan so the IRS can have more time to "consider whether its claims are being treated fairly" and examine claims it may hold against the company.

IRS trial attorney Jan Geht wrote in the objection filed earlier this week that the IRS is willing to waive its objection if Holley inserts language into its reorganization plan that would allow "claims to pass through the present case with no alteration of legal or equitable rights."

Holley Chief Financial Officer Tom Tomlinson called the objection a "placeholder" in an e-mail to the Daily News.

"IRS attorneys do this kind of thing to ‘preserve their rights,’ " Tomlinson wrote. "To my knowledge, there are no back taxes, and I am confident that even if we’ve missed something, it would be insignificant. All taxes will be paid in the normal course of business under the plan."

Holley’s bankruptcy restructuring plan will be considered by Judge Peter J. Walsh of the U.S. Bankruptcy Court in Wilmington, DE, on Wednesday.

Holley filed for bankruptcy protection and released its reorganization plan on Feb. 11 — listing assets of $106 million and liabilities of $243 million on its Jan. 28 balance sheet. Court documents show Holley’s majority shareholder, funds managed by Kohlberg & Co., stopped giving the company the cash it needed to make interest payments on its debt last year, causing a default on its second lien and unsecured notes in September.

Holley specializes in performance engine parts with products used throughout the world in racing, street, marine and powersport markets. The company is one of the nation’s largest supporters of drag racing.

Tomlinson said last month that customers, suppliers and almost 600 Holley employees will not be affected by the restructuring, which includes converting its debt into equity by canceling out Holley’s old capital structure and formally establishing a new one.

According to Tomlinson, the restructuring will cut Holley’s debt by about $100 million, wiping out equity held by Kohlberg & Co.

Under the reorganization plan, Holley would give ownership of 90 percent of the company to holders of $146 million worth of 12.5 percent second lien secured notes due 2009. The second lien debt holders would also get $50 million in new notes, according to court documents. Bondholders that own Holley’s $4.2 million 12.25 percent senior unsecured notes are slated to get either $100 in cash for each $1,000 worth of bonds, or warrants to purchase equity in the reorganized company.

"I wouldn’t want to be a bondholder," said Ron Coomes, president, CEO and sole shareholder of Philmo in Franklin, KY — one of Holley’s top 20 unsecured creditors set to be paid in full, according to the restructuring plan. But Coomes said he has already been paid and received a check for $96,000 on Feb. 15.

Earlier this month, Holley received permission from Walsh to use its $60 million loan from Wells Fargo Foothill Inc. and other lenders to finance the restructuring. Holley agreed to pay off lenders’ pre-bankruptcy claims and will use the remaining cash to finance operations, according to court documents.

As part of Holley’s Chapter 11 reorganization, the loan will convert to $65 million that will fund its exit from bankruptcy.

After the restructuring, Holley’s debt levels will improve, Tomlinson said, from its historically over-leveraged position in the past decade. As the restructuring frees up Holley’s cash flow and significantly reduces the amount of interest it pays to service its debt, the company said it is poised to take advantage of future growth opportunities with additional acquisitions.