Maker of protective gear for GIS seeks Chapter 11
A small San Antonio maker of protective equipment worn by service members and troops blamed the resurgence of COVID-19 late last year and February’s winter storm for pushing it into bankruptcy.
Alamo Strategic Manufacturing Inc., which produces elbow and knee pads and cold-weather gloves, listed assets and liabilities each in the range of $1 million to $10 million in a Chapter 11 petition.
At a bankruptcy hearing Monday, Allen Debard, a lawyer for Alamo Strategic, said a rise in coronavirus cases in December led some of its suppliers to significantly shrink their workforce — resulting in capacity cuts. The company relies on subcontractors to handle sewing, packaging and shipping.
That was followed by power and water outages during February’s storm, disrupting Alamo Strategic’s supply chains. It took almost a month before delivery of materials resumed and the company could ship its products to the Defense Department, Debard said.
Meanwhile, some merchant cash advance companies that Alamo Strategic had turned to for funding began automatically withdrawing $60,000 to $70,000 a week from its bank account. That hurt the company’s ability to
operate, Debard said.
U.S. Bankruptcy Judge Craig Gargotta remarked on the convergence of events.
“Between COVID and the freeze and a number of other things, how it affects distribution and supplies and all of that, there’s only so much any of us can do,” the judge said.
The cash advance companies have been advised that they can’t make automatic withdrawals, given the bankruptcy filing. Chapter 11 allows debtors to reorganize their debts and pay creditors over time.
Debard expects that it will be a quick trip in bankruptcy despite Alamo Strategic’s recent woes.
“This is truly a case that we think will thrive in a Chapter 11, where there is just a breathing spell to have prepetition creditors cease collection efforts, allow the debtor to operate and collect on these good receivables,” he added.
The Defense Department is Alamo Strategic’s sole customer. The company posted a roughly $1.5 million profit on about $15 million in revenue last year, and it earned about $810,000 on $4.7 million in sales in 2019, court filings show.
The company is not in default under the contracts, Debard said.
Alamo Strategic is owned by CEO Rene Sosa and employs five people.
The company received a long-term, low-interest $150,000 Economic Injury Disaster Loan from the Small Business Administration. In return, Alamo Strategic pledged as collateral various assets, including amounts owed the business.
Debard asked Gargotta to approve a request allowing the company to pay its critical vendors up to $950,000. They are government-approved vendors, and without them, Alamo Strategic won’t survive, he
said.
It’s possible some of the vendors that haven’t been paid could seek to reclaim materials they provided Alamo Strategic before its bankruptcy filing, Debard said.
The vendors that Alamo Strategic wants to pay weren’t disclosed by name.
“We don’t want to hurt anybody’s feelings,” Debard told the judge. “Everybody’s critical but, obviously, some are more critical than others. If we were to divulge exactly who we are going to pay every penny to, that might even cause more trouble than not paying anybody.”
Naming vendors usually is a condition of approving such requests, Gargotta said. He declined to make a ruling Monday. Instead, the judge will take up the request Wednesday after Debard can consult with a bankruptcy trustee.
Gargotta approved a request to allow Alamo Strategic to pay wages owed to employees.