Wildec - Case Summary

Business Description

WILDEC, LLC and Decker & Williams, LLC (collectively, the “Debtors”) are real estate holding companies that operate as lessors of commercial properties. The Debtors are managed by their sole owner.

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Operations Overview

The Debtors’ operations consist of leasing and managing two commercial real estate properties in Washington. The companies do not have any employees.

WILDEC Property

• WILDEC owns a one-story commercial office building located at 1720 75th St. SW, Everett, WA.
• The property is currently leased to Alpine Cleaning and Restoration, generating monthly rental income of $17,000.
• WILDEC has entered into a Real Estate Purchase and Sale Agreement with an affiliate of its tenant to sell the property for $3.5 million and intends to seek court approval for the sale.

DW Property

• Decker & Williams (DW) owns a 3,430-square-foot commercial office building on an 18,731-square-foot lot at 202 Lincoln Ave., Mukilteo, WA.
• The property is leased to Grady Excavation, Inc., generating $6,000 in monthly rent.
• An additional 36 parking spaces are leased on a month-to-month basis to various parties, producing an average of $3,500 to $4,200 in monthly income, which fluctuates based on tenant payment schedules.
• The DW Property is unencumbered and is currently listed for sale.

Cash Management

• The Debtors maintain several bank accounts to manage their operations. WILDEC holds an operating account with Columbia Bank, while DW utilizes a checking and a money market account with US Bank.
• All rental income is deposited into these operating accounts, which are used to pay all business expenses.

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Prepetition Obligations

The Debtors’ liabilities primarily consist of secured debt on one of their properties and significant contingent claims arising from litigation related to general indemnity agreements.

Secured Debt

• The WILDEC Property is encumbered by two deeds of trust:
  • A senior deed of trust in favor of Columbia Bank securing a promissory note with an unpaid principal balance of approximately $766,300. The loan was originated in September 2015 for $1.05 million and matures on December 15, 2025, following a recent 90-day extension.
  • A junior deed of trust in favor of Markel Insurance Company securing a disputed claim of $2.8 million. The Debtors assert that they neither knew of nor authorized the execution or recording of this lien, which stems from a General Agreement of Indemnity.

Contingent Liabilities and Litigation

• The Debtors, along with their principal and other related parties, executed General Agreements of Indemnity (GAIs) in favor of Travelers Casualty and Surety Company of America and Markel Insurance Company. These GAIs have led to significant litigation.
  • Travelers Action: Travelers has sued the Debtors and other indemnitors in the U.S. District Court for the Western District of Washington, seeking specific performance of its GAI. Travelers has a pending motion for partial summary judgment that would require the indemnitors to deposit collateral security exceeding $15 million and furnish certain financial records.
  • Zurich Litigation: Zurich American Insurance Company has also filed a complaint in the Western District of Washington against the Debtors and an affiliated entity, Elcon Corporation, seeking $248,000 for alleged breach of contract related to unpaid insurance premiums. The Debtors dispute any liability, contending they were improperly listed as "additional insureds" on policies for which they had no operational need. A motion for summary judgment is pending in this case.

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Events Leading to Bankruptcy

The Debtors' financial distress is a direct consequence of the collapse of Elcon Corporation (“Elcon”), an affiliated electrical contracting company owned by the same principals.

Collapse of Affiliate Elcon Corporation

• Elcon, a 42-year-old contractor focused on large public works projects, maintained a $7 million line of credit with Key Bank, secured by substantially all of its assets. Its projects were bonded by Travelers and Markel.
• In April 2023, Key Bank declared a default on the credit line, alleging an "overadvance," and commenced aggressive collection actions. These actions included issuing notices to Elcon's contractors, which effectively froze the company's receivables.
• According to the Debtors, this action prevented Elcon from funding its ongoing bonded projects, causing otherwise profitable projects to default and transforming anticipated profits into significant liabilities. A general receiver was subsequently appointed over Elcon's assets.

Indemnity Claims and Chapter 11 Filing

• Elcon's project defaults required its sureties, Travelers and Markel, to pay obligations on the bonds. This, in turn, triggered substantial indemnity obligations against the Debtors under the previously executed GAIs.
• The significant cost of defending the ensuing Travelers and Zurich litigation substantially depleted the Debtors' cash reserves.
• Faced with mounting legal pressure and dwindling liquidity, the Debtors filed for Chapter 11 protection to stay the pending litigation, preserve the equity in their properties, and consummate an orderly sale of their assets to pay secured lenders in full.