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IRS Files Objection to Holley Bankruptcy

The Internal Revenue Service
has filed an objection to the bankruptcy plan of Holley Performance Products.

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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, according to recent Daily News reports.

In an objection filed by the IRS earlier said 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," stated the report.


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

"IRS attorneys do this kind of thing to ‘preserve their rights,’ "
Tomlinson wrote DN. "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 March 19.


Holley filed for bankruptcy protection and released its
reorganization plan on Feb. 11. The company listed 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.

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


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.

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