After agreeing to several loan amendments and three forbearances, lender GE Capital Corp., represented by Paul, Hastings, Janofsky & Walker partner Jesse H. Austin III, appears poised to collect on the approximately $108 million—and possibly more—it is owed by the nation's largest privately held envelope company.

That's because NEC Holdings Corp., a Uniondale, N.Y.-based envelope manufacturer with operations in Austell and other parts of the country, on June 10 filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the District of Delaware.

Bankruptcy documents indicate the filing comes after a truncated move to sell the company, which pushed it into default with its lender in mid-May.

But it doesn't look as if NEC, the holding company for envelope manufacturer National Envelope Corp., will stay in Chapter 11 long. Austin said the primary goal behind the bankruptcy filing was to position the company to sell itself via a 363 sale within the bankruptcy. A 363 sale allows purchasers to acquire NEC's assets, but—unlike in a sale outside bankruptcy—gives lenders the potential to leave behind certain liabilities such as environmental liabilities. The filing also opened the way for NEC to receive a quick shot of debtor-in-possession funding—enough to keep the company operating until it can be purchased by private equity investor The Gores Group, with which it has a June 4 letter of intent, before the end of August.

NEC has received a judicial nod for that funding; the court approved a $138.9 million senior secured, super priority DIP facility from pre-petition lender GE Capital on Friday. The agreement, Austin said, essentially serves as a refinancing—known as a roll-up—of NEC's existing, defaulted debt, which has three components: a revolving credit loan with $70 million outstanding, through which NEC can borrow an additional $10 million; a $38 million Term A loan and a $35 million Term B loan, also known as a "last out" loan, meaning all of the proceeds to the GE Capital lenders must be paid in full before any Term B loan holders get their recovery.

A DIP agreement attached as an exhibit in one of the court files lays out a series of milestones NEC must meet, including: execute a definitive asset purchase agreement for a 363 sale before July 2; hold an auction by Aug. 23; and close on the sale, once it is authorized by the court, by Aug. 31.

Austin worked on the case with Paul, Hastings associate Cassie Coppage. NEC's bankruptcy counsel are from Young Conaway Stargatt & Taylor in Wilmington, Del., and Latham & Watkins in Chicago. Fulbright & Jaworski serves as special counsel.

The company, which was founded in 1952 by Holocaust death camp survivor and Polish immigrant William Ungar, filed for Chapter 11 protection for 28 entities around the country, including its Georgia affiliate, National Envelope-South. It still is a family-owned business, and according to court documents, began growing via strategic acquisitions in 1991.

The company employs more than 3,300 workers, produces an estimated 37 billion envelopes per year and holds a 21 percent share of the $3.7 billion North American envelope market.

But, as CFO James Shelby Marlow noted in his declaration, over the past three years the company has been hard hit by "the global recession and the displacement of traditional print communications and media by electronic formats."

Consolidated net sales have fallen from $866.8 million in 2007 to $676.2 million in 2009. The company has posted net losses every year since 2007, although it has stemmed that deficit somewhat thanks to layoffs, facility sales and other restructuring efforts.

In addition to secured creditor GE Capital, the company also owes about $89 million to unsecured trade creditors, according to court filings, including $43 million to International Paper Co. in Memphis, $2.7 million to Neenah Paper Inc. in Alpharetta and more than $500,000 to printing and imaging company Pitman Co. in Kennesaw.

Austin said the lenders were patient with NEC in part because the company has had a long relationship with GE Capital, which "tries to work with its borrowers as much as possible, and if you're the senior lender and have last-out dollars behind you, you have some level of comfort."

He also pointed out that NEC's story was compelling: Ungar, the company's founder, "came to the United States with effectively nothing and built this business. He is still alive, he's still chairman of the board, he's 91 or 92. The other board members are his four daughters. There's a good history there; it is not something you go out and immediately abandon because it runs into some problems. Unfortunately, we're not using envelopes like we used to."

The case is NEC Holdings Corp., No. 10-11890.