New Chapter 11 Filing - Sungard Availability Services Capital Inc.

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Sungard Availability Services Capital Inc.

May 1, 2019

Pennsylvania-based Sungard Availability Services Capital Inc., a provider of “critical production and recovery services to global enterprise companies,” with $977mm of net revenue and $203mm of EBITDA in fiscal 2018 filed a prepackaged chapter 11 plan in the Southern District of New York on Wednesday and, if you blinked, you may have missed its residency in bankruptcy. Indeed, some lost their minds because Kirkland & Ellis LLP was able to shepherd the case in and out of bankruptcy in less than 24 hours — breaking the previous record only recently set in FullBeauty. Yes, people care about these things.*

The upshot of this expeditious bankruptcy case is that (a) the company shed nearly $900mm of debt from its balance sheet (reducing debt down to approximately $400-450mm) and (b) transferred 89% ownership to a variety of debt-for-equity swapping funds such as GSO Capital Partners, Angelo Gordon & Co., and Carlyle Group (who will also receive $300mm in senior secured term loan paper). Major equity holders — Bain Capital Integral Investors LLC, Blackstone Capital Partners IV LP, Blackstone GT Communications Partners LP, KKR Millennium Fund LP, Providence Equity Partners V LP, Silver Lake Partners II LP, TPG Partners IV LP — had their equity wiped out. We had previously highlighted KKR’s investment here in “A Hot-Potato Plan of Reorganization. Short BDC Retail Exposure,” discussing the broader context of BDC lending. This is what the capital structure looks like and will look like:

Source: Disclosure Statement

Source: Disclosure Statement

That balance sheet is the driver behind the bankruptcy filing. Per the company:

This legacy capital structure was created based upon the Company’s historical operating model and performance and is unsustainable under current market conditions. When the capital structure was put in place, the Company benefited from a larger revenue base with substantially higher free cash flow. As business conditions evolved and the Company’s revenue declined, cash flow available to service debt and invest in products and services substantially declined. Consolidated net revenue declined by approximately 18% from approximately $1.2 billion in 2016 to approximately $977 million in 20188 while adjusted EBITDA margins remained within a range of approximately 20% to 22%. Negative net cash flow from 2016 to 2018 was approximately $80 million.

In other words, this is as clear-cut a balance sheet restructuring that you can get. Indeed, general unsecured claims are — as you might expect from a prepackaged plan of reorganization — riding through unimpaired. This consensual restructuring is clearly the right result. Getting it in and out of court so quickly is a bonus.

Yet, lest anyone get too high on their own supply, it’s important to note that, while this is a good result under the circumstances, there is a significant amount of value destruction illustrated by this filing. The term lenders are getting merely an estimated 50-73% recovery while the noteholders are getting 7-14%**. Now, it IS reasonable to expect that the “par guys” blew out of this situation long ago. And it is also reasonable to assume that the current holders of loans and notes got in at a significant discount so “value destruction” really is a matter of timing/pricing. For the avoidance of doubt, however, there’s no question that certain lenders experienced some pain on the path to this filing. Here is the chart representing the company’s notes:

Screen Shot 2019-05-03 at 11.12.24 AM.png

So, while some are surely celebrating, others are surely licking their wounds.

*We don’t really want to be too flip about this. As critics of the bankruptcy process, we’re all for seeing more efficient uses of the bankruptcy court — even if that does mean that fees were run up pre-petition without any oversight whatsoever.

**You always have to take these recovery amounts with a grain of salt. In case the rampant Chapter 22s haven’t already taught you that.

  • Jurisdiction: S.D. of New York (Judge Drain)

  • Capital Structure:

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Jonathan Henes, Emily Geier, Ryan Blaine Bennett, Laura Krucks

    • Board of Directors: Darren Abrahamson, Patrick J. Bartels Jr., Randy Hendricks, John Park, David Treadwell

    • Financial Advisor/CRO: AlixPartners LLP (Eric Koza)

    • Investment Banker: Centerview Partners (Samuel Greene)

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • DIP Agent: JPMorgan Chase Bank NA

    • Secured Lender Group

      • Jones Day (Scott Greenberg, Michael Cohen, Nicholas Morin)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Crossover Group

      • Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Naomi Moss)

      • Financial Advisor: PJT Partners LP

    • Large Equityholders: Bain Capital Integral Investors LLC, Blackstone Capital Partners IV LP, Blackstone GT Communications Partners LP, KKR Millennium Fund LP, Providence Equity Partners V LP, Silver Lake Partners II LP, TPG Partners IV LP

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Jacob Adlerstein)

New Chapter 11 Filing - Hexion Holdings LLC

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Hexion Holdings LLC

April 1, 2019

What we appreciate that and, we hope thanks to PETITION, others will eventually come to appreciate, is that there is a lot to learn from the special corporate law, investment banking, advisory, and investing niche labeled “restructuring” and “distressed investing.” Here, Ohio-based Hexion Holdings LLC is a company that probably touches our lives in ways that most people have no knowledge of: it produces resins that “are key ingredients in a wide variety of industrial and consumer goods, where they are often employed as adhesives, as coatings and sealants, and as intermediates for other chemical applications.” These adhesives are used in wind turbines and particle board; their coatings prevent corrosion on bridges and buildings. You can imagine a scenario where, if Washington D.C. can ever get its act together and get an infrastructure bill done, Hexion will have a significant influx of revenue.

Not that revenue is an issue now. It generated $3.8b in 2018, churning out $440mm of EBITDA. And operational performance is on the upswing, having improved 21% YOY. So what’s the problem? In short, the balance sheet is a hot mess.* Per the company:

“…the Debtors face financial difficulties. Prior to the anticipated restructuring, the Debtors are over nine times levered relative to their 2018 adjusted EBITDA and face annual debt service in excess of $300 million. In addition, over $2 billion of the Debtors’ prepetition funded debt obligations mature in 2020. The resulting liquidity and refinancing pressures have created an unsustainable drag on the Debtors and, by extension, their Non-Debtor Affiliates, requiring a comprehensive solution.”

This is what that capital structure looks like:

Screen Shot 2019-04-01 at 12.28.48 PM.png
Screen Shot 2019-04-01 at 12.29.02 PM.png

(PETITION Note: if you’re wondering what the eff is a 1.5 lien note, well, welcome to the party pal. These notes are a construct of a frothy high-yield market and constructive readings of credit docs. They were issued in 2017 to discharge maturing notes. The holders thereof enjoy higher priority on collateral than the second lien notes and other junior creditors below, but slot in beneath the first lien notes).

Anyway, to remedy this issue, the company has entered into a support agreement “that enjoys the support of creditors holding a majority of the debt to be restructured, including majorities within every tier of the capital structure.” The agreement would reduce total funded debt by $2b by: (a) giving the first lien noteholders $1.45b in cash (less adequate protection payments reflecting interest on their loans), and 72.5% of new common stock and rights to participate in the rights offering at a significant discount to a total enterprise value of $3.1b; and (b) the 1.5 lien noteholders, the second lien noteholders and the unsecured noteholders 27.5% of the new common stock and rights to participate in the rights offering. The case will be funded by a $700mm DIP credit facility.

*Interestingly, Hexion is a derivative victim of the oil and gas downturn. In 2014, the company was selling resin coated sand to oil and gas businesses to the tune of 8% of sales and 28% of segment EBITDA. By 2016, segment EBITDA dropped by approximately $150mm, a sizable loss that couldn’t be offset by other business units.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: See above.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Andrew Parlan, Hugh Murtagh, Caroline Reckler, Jason Gott, Lisa Lansio, Blake Denton, Andrew Sorkin, Christopher Harris) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele, Brendan Schlauch)

    • Managers: Samuel Feinstein, William Joyce, Robert Kaslow-Ramos, George F. Knight III, Geoffrey Manna, Craig Rogerson, Marvin Schlanger, Lee Stewart

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Moelis & Company LLC (Zul Jamal)

    • Claims Agent: Omni Management Group (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Ad Hoc Group of First Lien Noteholders (Angelo Gordon & Co. LP, Aristeia Capital LLC, Barclays Bank PLC, Beach Point Capital Management LP, Capital Research and Management Company, Citadel Advisors LLC, Contrarian Capital Management LLC, Credit Suisse Securities USA LLC, Davidson Kempner Capital Management LP, DoubleLine Capital LP, Eaton Vance Management, Federated Investment Counseling, GoldenTree Asset Management LP, Graham Capital Management LP, GSO Capital Partners LP, Heyman Enterprise LLC, Hotchkis and Wiley Capital Management LLC, OSK VII LLC, Pacific Investment Management Company LLC, Silver Rock Financial LP, Sound Point Capital Management LP, Tor Asia Credit Master Fund LP, UBS Securities LLC, Whitebox Advisors LLC)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Daniel Fisher, Naomi Moss, Abid Qureshi)

      • Financial Advisor: Evercore Group LLC

    • Ad Hoc Group of Crossover Noteholders (Aegon USA Investment Management LLC, Aurelius Capital Master Ltd., Avenue Capital Management II LP, Avenue Europe International Management, Benefit Street Partners LLC, Cyrus Capital Partners LP, KLS Diversified Asset Management LLC, Loomis Sayles & Company LP, Monarch Alternative Capital LP, New Generation Advisors LLC, P. Schoenfeld Asset Management LP)

      • Legal: Milbank LLP (Samuel Khalil, Matthew Brod)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Ad Hoc Group of 1.5 Lien Noteholders

      • Legal: Jones Day (Sidney Levinson, Jeremy Evans)

    • Pre-petition RCF Agent & Post-petition DIP Agent ($350mm): JPMorgan Chase Bank NA

      • Legal: Simpson Thacher & Bartlett LLP

    • Trustee under the First Lien Notes: U.S. Bank NA

      • Legal: Kelley Drye & Warren LLP (James Carr, Kristin Elliott) & (local) Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

    • Trustee of 1.5 Lien Notes: Wilmington Savings Fund Society FSB

      • Legal: Arnold & Porter Kaye Scholer LLP

    • Trustee of Borden Indentures: The Bank of New York Mellon

    • Sponsor: Apollo

    • Official Committee of Unsecured Creditors: Pension Benefit Guaranty Corporation; Agrium US, Inc.; The Bank of New York Mellon; Mitsubishi Gas Chemical America; PVS Chloralkali, Inc.; Southern Chemical Corporation; Wilmington Trust; Wilmington Savings Fund Society; and Blue Cube Operations LLC

      • Legal: Kramer Levin Naftalis & Frankel LLP (Kenneth Eckstein, Douglas Mannal, Rachael Ringer) & (local) Bayard PA (Scott Cousins, Erin Fay, Gregory Flasser)

      • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated:

New Chapter 11 Bankruptcy Filing - Weatherly Oil & Gas LLC

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Weatherly Oil & Gas LLC

February 28, 2019

Restructuring in the oil and gas space has been quiet of late but we here at PETITION suspect that may change very soon. While oil has been on the rise (in the mid-60s at the time of this writing) — and there are both potential political and supply-side roadblocks growing domestically that may help push prices upward — there nevertheless appear to be cracks forming. We’ve been noting that Jones Energy ($JONE), Sanchez Energy Corporation ($SN), Southcross Energy Partners LP ($SXEE), and Vanguard Natural Resources all look distressed and headed towards chapter 11 bankruptcy filings (or a chapter 22 filing, as the case may be with Vanguard). Recent price action for several other companies also reflects some doubt about the oil and gas space.

Take, for instance, Alta Mesa Holdings LP ($AMR). Per The Houston Chronicle:

Houston oil and gas company Alta Mesa Resources is struggling to stay afloat, laying off roughly one-fourth of its employees and writing down the value of its assets by $3.1 billion because of admitted failures in its financial reporting.

The company's three top executives, CEO Hal Chappelle, Chief Operating Officer Michael Ellis and Chief Financial Officer Michael McCabe, resigned abruptly a few weeks ago.

The company disclosed in an SEC filing that the write-down stems from “ineffective internal control over financial reporting due to an identified material weakness.” We’re conjecturing here, but that sure sounds like diplomatic Texan for “we effed up pretty badly…perhaps even fraudulently.” Consequently, the plaintiffs’ lawyers are circling this puppy like vultures and, well, this:

Indeed, the company’s $500mm 7.875% senior unsecured bonds due 2024 got UTTERLY HOUSED, dipping down over 40% in a week and approximately 50% versus a month ago. This chart is BRUTAL:

Source: TRACE

Source: TRACE

We’ll take a deeper dive into Alta Mesa soon for our Members: if you’re not a Member well, we hope you revel in ignorance.

The price action of once-bankrupt Chaparral Energy Inc. ($CHAP) is also notable: it saw its stock collapse over 20% and its $300mm 8.75% senior unsecured notes due 2023 fall nearly 17%. More debt BRUTALITY here:

Source: TRACE

Source: TRACE

Long trips to Texas.

Here, Weatherly Oil & Gas LLC is an oil and gas acquisition and exploration company focused on Arkansas, Louisiana and Texas; it operates over 800 well bores (over half shut-in or non-producing) on 200k net acres. The company blames continued low commodity prices and fundamentally changed lending practices for its bankruptcy. Specifically, the company notes:

Lending practices moved from a reserves-based approach to a cash-flow based approach, limiting access to capital growth and forcing the Debtor to utilize free cash flow to pay down senior debt instead of making other capital expenditures.

Without capital and with an expensive production focus, the company struggled in the face of a glut of competition.

The company has a transaction support agreement pursuant to which it intends to sell its assets to multiple purchasers and then pursue a plan of liquidation. Angelo Gordon Energy Servicer LLC, the company’s prepetition lender, will provide a $1mm DIP to fund the cases. Halliburton Energy Services is the company’s largest unsecured creditor with an approximate $2.9mm claim.

  • Jurisdiction: S.D. of Texas (Judge Isgur)

  • Capital Structure: $90.2mm term loan (Angelo Gordon Energy Servicer LLC)

  • Professionals:

    • Legal: Jackson Walker LLP (Matthew Cavenaugh, Kristhy Peguero, Vienna Anaya)

    • Financial Advisor/CRO: Ankura Consulting Group LLC (Scott Pinsonnault)

    • Marketing Agent: TenOaks Energy Partners LLC

    • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Prepetition Term Lender & DIP Lender ($1mm): Angelo Gordon Energy Servicer LLC

      • Legal: Vinson & Elkins LLP (Harry Perrin, David Meyer, Steven Zundell, Michael Garza)

    • Buyer: BRG Lone Star, Ltd.

    • Buyer: EnSight IV Energy Partners, LLC

    • Sponsor: Weatherly East Texas LLC

      • Legal: Kirkland & Ellis LLP (Gregory Pesce, Brett Newman)

New Chapter 11 Filing - R.E. Gas Development LLC (a/k/a Rex Energy)

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R.E. Gas Development LLC

5/18/18

Pennsylvania-based R.E. Gas Development LLC and its affiliates are independent publicly-traded ($REXX) oil and gas companies operating in the Appalachian Basin with a focus on drilling and exploration activity in the Marcellus Shale, Utica Shale and Upper Devonian Shale, mostly throughout Western Pennsylvania. Like most other exploration and production companies that have found their way in bankruptcy court over the last several years, the sudden steep decline in crude oil and nat gas prices that began in 2014 significantly affected the company's liquidity and ability to manage its balance sheet. After all, this company isn't operating in the Permian. Revenues for 2017 were $205.3 million. 

After months and months of foreplay, the company enters bankruptcy court with a restructuring support agreement ("RSA") in tow: it provides for a dual path pursuant to which the company will, in agreement with its secured lenders, pursue a sale of substantially all assets or, in the absence of qualified bids, pursue a plan process pursuant to which the first lien lenders (i.e., Angelo Gordon) will swap (DIP) debt for equity in the reorganized company. The RSA purportedly has the support of 100% of the first lien lenders and 71.8% of the outstanding second lien notes.

To fund the company throughout the dual process, the company seeks a $411 million DIP credit facility, the proceeds of which will be used to (i) roll up $261 million of prepetition loans and (ii) settle the "makewhole provision" under the first lien credit agreement to the tune of $50 million. The makewhole was put into place at the time of the issuance of the first lien loan just short of a year ago.  For the uninitiated, the makewhole entitles the lender to certain economics in the event the lenders are "repaid in whole or in part prior to the maturity date or the outstanding indebtedness under the facility is accelerated for any reason." The economics are calculated "based on the sum of remaining interest payments and certain fees due on all loans for the remainder of the make whole period, which terminates on October 28, 2019." In other words, Angelo Gordon structured this to give themselves the utmost economics in the (highly likely) case of an event of default and eventual bankruptcy. Solid planning on their part -- assuming, in particular, that the assets fetch a purchase price that will clear the first lien debt and makewhole amount. Respect. 

So, lo and behold, there was an event of default called in February for failure to deliver quarterly financial statements (which led to other defaults as well). In April, the lenders, after a short forbearance period, issued a notice of acceleration. Cha ching! Makewhole!!

The DIP credit agreement imposes fairly expedited -- but not wholly unreasonable (relative to other recent cases) -- timing on the company, including closing of any sale or confirmation of a plan 170 days after the filing date. 

  • Jurisdiction: W.D. of Pennsylvania (Judge Deller)
  • Capital Structure: see below.
  • Company Professionals:
    • Legal: Jones Day (Scott Greenberg, Tom Howley, Michael Cohen, Anna Kordas, Rachel Biblo Block) & (local) Buchanan Ingersoll and Rooney PC (James Newell, Timothy Palmer, Tyler Dischinger)
    • Financial Advisor: FTI Consulting Inc. (Albert Conly)
    • Investment Banker: Perella Weinberg Partners (Alexander Tracy)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition First Lien Admin Agent: Angelo Gordon Energy Servicer
      • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin) & (local) Duane Morris LLP
      • Financial Advisor: PJT Partners
    • Informal Group of 1%/8% Senior Secured Second Lien Notes due 2020 of Rex Energy Corporation
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Stephen Kuhn, Kevin Zuzolo) and (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
      • Financial Advisor: Stephens Inc.
    • Wilmington Savings Fund Society FSB
      • Legal: Morrison & Foerster LLP (Jonathan Levine, Daniel Harris) & (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
    • BOKF, National Association
      • Legal: Arent Fox LLP (Andrew Silfen, George Angelich, Jordana Renert) & (local) Federic Dorwart, Lawyers PLLC (Samuel Ory)
    • Official Committee of Unsecured Creditors
      • Legal: Brown Rudnick LLP (Robert Stark, Chelsea Mullarney, Sigmund Wissner-Gross, Brian Rice, Steven Pohl, Andrew Carty, Bennett Silverberg, Chelsea Mullarney, Emily Koruda, Justin Cunningham) & (local) Leech Tishman Fuscaldo & Lampl LLC (Patrick Carothers, David Lampl, John Steiner)
      • Financial Advisor: Conway MacKenzie Inc. (John Young Jr.)
Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 Bankruptcy - Cumulus Media Inc.

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Cumulus Media Inc.

  • 11/29/17 Recap: It has become routine for a company to tout the synergistic benefits of an acquisition. But synergies only come from solid execution and integration of the new properties into the existing franchise. As we often see, that's a pipe dream that often fails to come to fruition. Take, Cumulus Media, for instance, which from 1998 through 2013, "completed approximately $5 billion worth of acquisitions to grow its network and station businesses," including two large recent acquisitions (Citadel Broadcasting in 2011 and Westwood One in 2013). Notably, "[t]he Company struggled to develop the management and technology infrastructure required to integrate the acquired assets and to support and manage its expanding portfolio. Additionally, certain of the acquisition projections proved erroneous and a number of subsequent management decisions failed to achieve their desired results. The Company was thus unable to achieve the cash flow projections it had made to support the prices paid for those acquisitions...." Projections didn't translate to reality? Color us shocked. Combine these operational challenges with "industry challenges" and you've got a recipe for decreased YOY trends in ratings, revenue and EBITDA. Since 2012. Yikes. But like most bankruptcies, this is a storm of multiple elements. Clearly, the above-noted transactions led to a tremendous amount of incurred debt, capex for integration, and interest expense on that debt. But, in addition, "advertiser and listener demand for radio overall has been negatively impacted by the availability of content and advertising opportunities in growing digital streaming and web-based digital formats, resulting in declines in radio industry revenue and listenership. As a result of these general industry pressures, high acquisition prices and subsequent poor performance, Cumulus Media found itself with an excessive level of debt relative to its earnings and rapidly approaching maturities on its funded debt." So, in other words, blame the debt, Facebook ($FB), Google ($GOOGL), Netflix ($NFLX), Amazon ($AMZN), podcasts, etc., for the decline in radio consumption. So, now the company is in bankruptcy with a restructuring support agreement in place to equitize the term loan. The term loan lenders will get take-back paper and 83.5% percent of the reorganized company. The noteholders will get 16.5% of the equity subject to management incentive plan. Shareholders will get bupkis. 
  • Jurisdiction: S.D. of New York (Judge Chapman)
  • Capital Structure: $1.73b TL (JP Morgan Chase Bank NA), $637mm 7.75% senior notes (U.S. Bank NA)   
  • Company Professionals:
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Lewis Clayton, Jacob Adlerstein, Claudia Tobler)
    • Financial Advisor: Alvarez & Marsal North America LLC (David Miller)
    • Investment Banker: PJT Partners LP
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
    • Board of Directors: Mary Berner, Jill Bright, Ralph Everett, Jeffrey Marcus, Ross Oliver, Jan Baker
  • Other Parties in Interest:
    • Ad Hoc Group of Term Loan Lenders (Eaton Vance Management and Boston Management & Research, Franklin Mutual Advisors, Highland Capital Management LP, JP Morgan Chase Bank NA, Silver Point Finance LLC, Symphony Asset Management LLC and Nuveen Fund Advisors, Voya Investment Management Co. LLC, Beach Point Capital Management LP)
      • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Michael Solow, Seth Kleinman)
      • Financial Advisor: FTI Consulting LLC
    • Ad Hoc Senior Noteholder Group (Angelo Gordon & Co. LLP, Brigade Capital Management, Capital Research and Management Co., Greywolf Capital Management LP, Waddell & Reed Investment Corporation)
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Abid Qureshi, Kate Doorley)
    • Administrative Agent: JP Morgan Chase Bank NA
      • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Nicholas Baker)

Updated 11/30/17

New Chapter 11 Bankruptcy & CCAA - Toys "R" Us Inc.

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Toys "R" Us Inc.

  • 9/19/17 Recap: So. Much. To. Unpack. Here. We've previously discussed the run-up to this massive chapter 11 bankruptcy filing here and here. Still, suffice it to say that, unlike many of the other retailers that have predictably filed for bankruptcy thus far in 2017, this one was different. This one seemingly came out of nowhere - particularly given the proximity to the holiday shopping season. Before we note what this case is, lets briefly cover what it isn't and clear the noise that is pervasive on the likes of Twitter: this is NOT "RIP" Toys "R" Us. We don't get overly sentimental usually but the papers filed with the bankruptcy court were well-written and touching: this is a store, a brand, that means a lot to a lot of people. And it's not going anywhere (the company will have its challenges to assure people that this is the case). This is a financial restructuring not a liquidation: the company simply hasn't been able to evolve while paying $400mm in annual interest expense on over $5b of private equity infused debt. Plain and simple. Yes, there are other challenges (blah blah blah, Amazon), but with that debt overhang, it appears the company hasn't been able to confront them (PETITION side note: an ill-conceived deal with Amazon 18 years ago is mind-blowing when viewed from the perspective of Amazon's long game). With this filing, the company is signaling that the time for short term band-aids to address its capital structure is over. Now, "[t]he time for change, and reinvestment in operations, has come." Decisive. Management isn't messing around anymore. With a reduction in debt, the company will be unshackled and able to focus on "general upkeep and the condition of...stores, [its] inability to provide expedited shipping options, and [its] lack of a subscription-based delivery service." Indeed, the company intends to use a $3.1b debtor-in-possession credit facility to begin investing in modernization immediately.
  • Interesting Facts:
    • Toy Manufacturers: Mattel ($MAT)(approx $136mm), Hasbro ($HAB) (approx $59mm) & Lego (approx $31.5mm) are among the top general unsecured creditors of the company. Mattel and Hasbro's stock traded down quite a bit yesterday on the rampant news of this filing. Query whether any of the $325mm of requested critical vendor money will apply to these companies.
    • The Power of the Media (read: NOT "fake news"): This CNBC piece helped push the company into bankruptcy. Bankruptcy professionals were retained in July (or earlier in the case of Lazard) to pursue capital structure solutions. In August the company engaged with some of its lenders. But then "...a news story published on September 6, 2017, reporting that the Debtors were considering a chapter 11 filing, started a dangerous game of dominos: within a week of its publication, nearly 40 percent of the Company’s domestic and international product vendors refused to ship product without cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Further, many of the credit insurers and factoring parties that support critical Toys “R” Us vendors withdrew support. Given the Company’s historic average of 60-day trade terms, payment of cash on delivery would require the Debtors to immediately obtain a significant amount—over $1.0 billion—of new liquidity." 
    • Revenue. The company generates 40% of its annual revenue during the holiday season.
    • Footprint. The company has approximately 1,697 stores and 257 licensed stores in 38 countries, plus additional e-commerce sites in various countries. The company has been shedding burdensome above-market leases and combining its Babies and Toys shops under one roof; it intends to continue its review of its real estate portfolio. Read: there WILL be store closures.
    • Eff the Competition. Toys has some choice words for its competition embedded in its bankruptcy papers; it accuses Walmart ($WMT) and Target ($TGT)(the "big box retailers") of slashing prices on toys and using toys as a loss leader to get bodies in doors; it further notes that "retailers such as Amazon are not concerned with making a profit at this juncture, rendering their pricing model impossible to compete with..." ($AMZN). Yikes. 
    • Experiential Retail. The company intends to invest in the "shopping experience" which will include (i) interactive spaces with rooms to use for parties, (ii) live product demonstrations put on by trained employees, and (iii) the freedom for employees to remove product from boxes to let kids play with the latest toys. And...wait for it...AUGMENTED REALITY. Boom. Toysrus.ar and Toysrus.ai here we come. 
  • Jurisdiction: E.D. of Virginia (Judge Phillips)
  • Capital Structure: see below     
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (Jamie Sprayragen, Anup Sathy, Edward Sassower, Chad Husnick, Joshua Sussberg, Robert Britton, Emily Geier) & (local) Kutak Rock LLP (Michael A. Condyles, 
      Peter J. Barrett, Jeremy S. Williams) & (Canadian counsel) Goodmans LLP
    • Legal to the Independent Board of Directors: Munger, Tolles & Olson LLP
    • Financial Advisor: Alvarez & Marsal North America LLC (Jeffrey Stegenga, Jonathan Goulding, Tom Behnke, Cari Turner, Jim Grover, Arjun Lal, Doug Lewandowski, Bobby Hoernschemeyer, Scott Safron, Kara Harmon, Nick Cherry, Adam Fialkowski)
    • Investment Banker: Lazard Freres & Co., LLC (David Kurtz)
    • Real Estate Consultant: A&G Realty Partners LLC (Andrew Graiser)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Communications Consultant: Joele Frank Wilkinson Brimmer Katcher
  • Other Parties in Interest:
  • ABL/FILO DIP Admin Agent: JPMorgan Chase Bank NA
    • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Brian Resnick, Eli Vonnegut, Veerle Roovers) & (local) Hunton & Williams LLP (Tyler Brown, Henry (Toby) Long III, Justin Paget)
  • DIP Admin Agent (Toys DE Inc). NexBank SSB & Ad Hoc Group of B-4 Lenders (Angelo Gordon & Co LP; Franklin Mutual Advisors LLC, HPS Investment Partners LLC, Marathon Asset Management LP, Redwood Capital Management LLC, Roystone Capital Management LP, and Solus Alternative Asset Management LP)
    • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus, Neil Chatani) & (local) McGuireWoods LLP (Dion Hayes, Sarah Bohm, Douglas Foley)
  • Ad Hoc Group of Taj Noteholders.
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Samuel Lovett, Kellie Cairns) & (local) Whiteford Taylor & Preston LLP (Christopher Jones, Jennifer Wuebker)
  • Steering Committee of B-2 and B-3 Lenders (American Money Management, Columbia Threadneedle Investments, Ellington Management Group LLC, First Trust Advisors L.P., MJX Asset Management LLC, Pacific Coast Bankers Bank, Par-Four Investment Management LLC, Sound Point Capital Management, Taconic Capital Advisors LP).
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, D. Tyler Nurnberg, Sarah Gryll, Rosa Evergreen)
  • 12% ’21 Senior Secured Notes Indenture Trustee: Wilmington Trust, National Association.
    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) ThompsonMcMullan PC (David Ruby, William Prince IV)
  • Bank of America NA
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, George Howard) & (local) Troutman Sanders LLP (Jonathan Hauser)
    • Private Equity Sponsors: Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. L.P. ($KKR), and Vornado Realty Trust ($VNO)
  • Large Creditor: Mattel Inc.
    • Legal: Jones Day (Richard Wynne, Erin Brady, Aaron Gober-Sims) & (local) Michael Wilson PLC (Michael Wilson)
  • Large Creditor: LEGO Systems Inc.
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Kelly DiBlasi) & (local) Walcott Rivers Gates (Cullen Speckhart)
  • Large Creditor: American Greetings Corporation.
    • Legal: Baker & Hosteler LLP (Benjamin Irwin, Eric Goodman)
  • Creditor: River Birch Capital
    • Legal: Andrews Kurth & Kenyon LLP (Paul Silverstein)
  • Creditor: Owl Creek Asset Management
    • Legal: Stroock Stroock & Lavan LLP (Samantha Martin)
  • TRU Trust 2016-TOYS, Commercial Mortgage Pass-Through Certificates, Series 2016-TOYS acting through Wells Fargo Bank NA
    • Legal: Dechert LLP (Allan Brilliant, Brian Greer, Stephen Wolpert, Humzah Soofi) & (local) Troutman Sanders LLP (Jonathan Hauser)
  • Trustee: Tru Taj DIP Notes (Wilmington Savings Fund Society FSB)
    • Legal: Porter Hedges LLP (Eric English) & (local) Spotts Fain PC (James Donaldson)
  • Committee of Unsecured Creditors (Mattel Inc., Evenflo Company Inc., Simon Property Group, Euler Hermes North America Insurance Co., Veritiv Operating Company, Huffy Corporation, KIMCO Realty, The Bank of New York Mellon, LEGO Systems Inc.)
First Day Declaration

First Day Declaration

First Day Declaration

First Day Declaration

Updated 10/5/17 11:40 am

Chapter 11 Filing - Rooster Energy Ltd.

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Rooster Energy Ltd.

  • 6/2/17 Recap: Integrated oil and gas offshore exploration and production company with properties located in the outer continental shelf of Gulf of Mexico filed for bankruptcy because it was an offshore exploration and production company operating in the Gulf of Mexico. 
  • Jurisdiction: W.D. of Louisiana
  • Capital Structure: $53.1mm '18 debt (Angelo Gordon Energy Servicer LLC), $24mm subordinate secured debt (K2 Principal Fund LP)    
  • Company Professionals:
    • Legal: Baker Donelson Bearman Caldwell & Berkowitz PC (Jan Hayden, Edward Arnold III, Lacey Rochester, Susan Mathews, Daniel Ferretti)
    • Financial Advisor: Opportune LLP (Sean Clements)
    • Investment Banker:
    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Official Committee of Unsecured Creditors (Cochun Properties)
      • Legal: Heller Draper Patrick Horn & Dabney LLC (William Patrick III, Tristan Manthey)
    • Official Committee of Unsecured Creditors (Rooster)
      • Legal: Arent Fox LLP (George Angelich)

New Chapter 15 Filing - Tervita Corporation

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Tervita Corporation