Eclipse Aviation Corp., a company once bankrolled with a billion dollars from investors including Microsoft founders Bill Gates and Paul Allen, sold recently out of bankruptcy for just $40 million.
That’s according to Billy Ching, a partner at Nelson Mullins who represented the company which purchased Eclipse Aviation’s assets out Chapter 7 after approval by the U.S. Bankruptcy Court in Delaware.
Eclipse Aviation, an Albuquerque, N.M.-based company which makes high-tech, lightweight private jets, was founded in 1998 by Vern Raburn, a former Microsoft employee. “He’s the guy who brought in Bill Gates and Paul Allen,” Ching said.
Ching’s client, Eclipse Aerospace Inc., an investment group formed just for this purchase, was founded by investor Mason Holland, a “shrewd operator,” according to Ching, who also founded healthcare benefits software company Benefitfocus.com—which Nelson Mullins has represented—and retirement plan administrator American Pensions Inc.
The investors put up $20 million of their own money, he said, and financed the other $20 million using several private capital sources.
As Ching puts it, acquirer Eclipse Aerospace was “in the right place at the right time” to get a deal.
He explained that target Eclipse Aviation’s market edge was its low cost. The planes, once listed on the company’s Web site at more than $2 million, are, according to Ching, less expensive to purchase than other lightweight planes. They also cost less to operate—about $700 an hour as compared to $1,100 or $1,200 an hour, he said.
“That’s what gave Eclipse a huge competitive advantage, and it’s still five years ahead of its time,” Ching said.
That competitive advantage, which enabled the company to attract investors such as Gates, Allen; insulin pump inventor Alfred Mann; the state of New Mexico, which invested $45 million in industrial revenue bonds and offered $770,000 in property tax abatements; and even a $100 million investment as recently as last year from the European Technology and Investment Research Center, wasn’t enough to protect the company when the economy began to crumble.
“They [pre]sold over a thousand planes and took deposits of nearly $1 million,” Ching said, explaining that the company delivered about 260 planes before the capital crunch hit and the debt markets collapsed and, as he puts it, “That was all she wrote for Eclipse.”
Would-be purchasers sued to retrieve their deposits, the company closed a production plant and laid off workers and vendors began demanding their money or, in the case of Pratt & Whitney Canada, repossessing engines. Eclipse Aviation, Ching said, had several hundred million dollars in equity but more than $600 million in debt. “The equity owners were so far underwater on the debt that it wasn’t worth continuing to fund the company,” he said.
So, in November 2008, Eclipse Aviation filed for Chapter 11 reorganization. As recently as six months ago, Ching said, another bidder offered $200 million to purchase Eclipse Aviation’s assets in a Section 363 sale. The bidder, he said, could not get financing and when the deal fell through, the estate no longer wanted to fund the company and converted the bankruptcy to a Chapter 7 liquidation.
“Before we submitted our bid, there were several potential bidders and we developed a deal strategy and bid that we thought would be attractive and also protect our interests, but fortunately, no one else came to the table,” Ching said.
The court approved the sale in just 10 days—the normal process would take 20 to 30 days, according to Ching. It was, he said, “Truly law at the speed of sound, resolving more than two dozen creditor objections.”
Ching worked on the deal with Nelson Mullins colleagues William R. Gaines and Keri Chayavadhanangkur in Atlanta, as well as Boston lawyers Peter J. Haley and Michael Hollingsworth II.
Eclipse’s principal note holders were represented by attorneys at Covington & Burling in New York; the bankruptcy trustee was represented by Cooch & Taylor in Wilmington, Del.