🔋New Chapter 11 Bankruptcy Filing - Exide Holdings Inc.🔋

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Exide Holdings Inc.

May 19, 2020

Georgia-based Exide Holdings Inc. and four affiliates (the “debtors”), among the world’s largest producers and recyclers of lead-acid batteries used in cars, boats, golf carts and more, filed for chapter 11 bankruptcy in the District of Delaware earlier this week. The filing sparked an entire industry to ask “is it a Chapter 22 or a Chapter 33?” The answer, depending upon your look-back period, is the latter. The fairer answer is probably the former and even that was 7 years ago with emergence 5 years ago (PETITION Note: the Exide Creditors’ Liquidating Trust had to make a notice of appearance in these new cases so, there’s that). Going back nearly two decades seems to be an impossible standard to hold any business to but 5-7 years seems much fairer.

Since we’re discussing labels, here’s another one: failure. Per the debtors:

Notwithstanding the Company’s efforts to implement its business plan following its emergence from the 2013 Chapter 11 Case and the support of its new owners and lenders, the Company continued to face liquidity, performance, and operational challenges that were more persistent and widespread than anticipated. Coupled with adverse industry and market factors as well as substantial environmental costs, these challenges have resulted in reduced liquidity.

Sooooo…that sucks. We admit it: we were hoping that this was a disruption story. That Elon Musk and the increasingly large cohort of lithium-ion battery using OEMs pushing out electric vehicles were putting the lead-acid battery manufacturers out to pasture. But that is not a state reason for this chapter 3…uh…chapter 2…uh, whatever the f*ck this is. Rather, the debtors state that their post-emergence liquidity issues stem from (a) mounting environmental remediation costs and litigation, (b) rising production costs (PETITION Note: because the debtors shut two recycling facilities, they are now subject to pricing pressures from outside manufacturers rather than just using their own recycled inputs), (c) operational inefficiencies caused by legacy mixed-use facilities, and (d), of course…wait for it…COVID-19. Duck for COVID-cover folks! The debtors say that the pandemic’s impact on demand for product is the cherry on top.

The debtors’ capital structure doesn’t help. Look at this beaut:

With that much funded debt, the debtors’ leverage ratio stands at 9.2x. Debt service averages approximately $26.8mm/year.

So, confronted with all of these factors, the debtors have been engaged in a marketing process since 2018. The continued deterioration of the business, however, ultimately led to a restructuring path and now the debtors intend to use the bankruptcy process to effectuate a sale of (i) the entire business or (ii) the Americas business and/or (iii) the sale of its Europe/Rest-of-World business or (iv) a liquidation (PETITION Note: the debtors fall into chapter 11 largely separated into four main business groups). The Ad Hoc Group has submitted a binding credit bid for the Europe/ROW business group which will serve as a stalking horse bid; they have also committed $15mm in DIP financing to service certain non-debtor affiliates in Europe with an additional $25mm DIP commitment for the administration of the cases coming from Blue Torch Capital LP. The debtors hope to go “effective” by the end of August: this means that everyone has a lot of work to do to try and and locate a buyer for the rest of the debtors’ businesses in the interim.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure:

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Jacqueline Marcus, Sunny Singh, Samuel Mendez, Alyssa Kutner, Jason Hufendick) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro, Brendan Schlauch)

    • Independent Directors: Alan Carr, William Transier, Harvey Tepner, Mark Barberio

    • Financial Advisor/CRO: Ankura Consulting (Roy Messing)

    • Investment Banker: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • Prepetition ABL Agent: Bank of America NA

      • Legal: Otterbourg PC (Daniel Fiorillo, David Morse, Jonathan Helfat)

    • Indenture Trustee

      • Legal: Arent Fox LLP (Andrew Silfen, Jordana Renert)

    • DIP Agent ($40mm): Blue Torch Capital LP

      • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matthew Bouslog, Michael Farag) & Cole Schotz PC (Norman Pernick, Patrick Reilley)

    • Ad Hoc Group

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alice Belisle Eaton, Robert Britton, Eugene Park, Claudia Tobler, Jacqueline Rubin, Douglas Keeton, David Weiss, David Giller) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Ian Bambrick)

    • Large equityholders: Mackay Shields LLC, AllianceBernstein LLP, D.E. Shaw Galvanic Portfolios LLC, Neuberger Berman Group LLC

    • Exide Creditors’ Liquidating Trust

      • Legal: Kelley Drye & Warren LLP (Dane Kane, Konstantinos Katsionis)

⛽️New Chapter 11 Bankruptcy Filing - Yuma Energy Inc.⛽️

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Yuma Energy Inc.

April 15, 2020

Houston-based Yuma Energy Inc. and three affiliates, oil and gas producers focused on the Rocky Mountain, Mid-Continent, Gulf Coast and West Texas regions of the US, filed chapter 11 cases in the Northern District of Texas.

There ain’t much new here worth noting given that every oil and gas company is troubled and they all sing the same tune about commodity prices post-2015. But there was one striking admission in Yuma’s bankruptcy papers that is nearly as pervasive as commodity price effects. In the company’s own words, “…the decline in the financial health of the company stemmed not only from dropping commodity prices, but more importantly with a continuing high level of G&A for a company it’s [sic] size….” That’s right: bloated G&A. It’s as prevalent in Texas as oil itself.

This case is a liquidation.

  • Jurisdiction: N.D. of Texas (Judge Mullin)

  • Professionals:

    • Legal: FisherBroyles LLP (H. Joseph Acosta, Lisa Powell)

    • Financial Advisor: Ankura Consulting Group (Anthony Schnur)

    • Investment Banker: Seaport Gordian Energy LLC

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

  • Other Parties in Interest:

⛽️New Chapter 11 Filing - CARBO Ceramics Inc. ($CRRT)⛽️

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CARBO Ceramics Inc.

March 29, 2020

Houston-based CARBO Ceramics Inc. and two affiliates (the “debtors”) are the latest oil and gas servicers to file for chapter 11 bankruptcy; they are manufacturers and sellers of ceramic tech products and services and ceramic proppant for oilfield, industrial and environmental markets. Make no mistake, though: they are indexed heavily to the oil and gas market.

Here’s a paragraph that literally scores of companies ought to just copy and paste (with limited edits) over the next several months as a wave of oil and gas companies crash into the bankruptcy system:

Beginning in late 2014, a severe decline in oil prices and continued decline in natural gas prices led to a significant decline in oil and natural gas drilling activities and capital spending by E&P companies. While modest price recoveries have occurred intermittently since that time, prices have generally remained depressed and recently fell precipitously again to near record low levels. The Company’s financial performance is directly impacted by activity levels in the oil and natural gas industry. A downturn in oil and natural gas prices and sustained headwinds facing the E&P industry have resulted in both reduced demand for the Company’s products and services and reduced prices the Company is able to charge for those products and services. Because drilling activity has been reduced over a protracted period of time, demand for all of the Company’s products and services (proppant, in particular) has been significantly depressed.

They can then follow it up with some astounding business performance figures like:

From 2014 to 2019, the Company’s total revenue for base ceramic media fell from approximately $530 million to approximately $34 million.

BOOM!

Of course, this financial pain will trickle down to others. Like railcar and distribution center lessors, among others.

The debtors have a consensual deal with their pre-petition secured lenders, Wilks Brothers LLC and Equify Financial LLC, to equitize their debt — including maybe the DIP if its not rolled into an exit facility. The deal is interesting because it provides 100% recovery to unsecured creditors of two debtors and a cash payment option to unsecured debtors of the main debtor. The lenders will see a liquidating trust with a whopping $100k so that certain avoidance actions can be pursued. And, finally, there’s a “death trap.” If the unsecured creditors vote to accept the plan, the pre-petition secured creditors will waive their “very significant unsecured deficiency claim.” If not, they’ll flood them into oblivion. Of course, this statement implies that the value of the business is negligible at this point. Reminder: revenue dipped from $530mm to $34mm in 2019. Can’t imagine numbers for 2020 are looking particularly rosy either. Finally, all of the above is subject to a “fiduciary out” — you know, in case, by some miracle, someone else actually wants this business (spoiler alert: nobody will).

Also interesting is the value of the NOLs here which dwarf the funded debt. 🤔

Wilks will fund a $15mm DIP to finance the cases with $5mm needed within the first 14 days of the cases. This, however, is subject to what we’ll call “The COVID-caveat.” Per the company:

The DIP Budget is based on information known to date and is the best estimate of the Debtors’ current expectations. It should be noted that the global outbreak of the COVID-19 virus and the severe disruption and volatility in the market has caused and continues to cause major challenges across all industries and may ultimately result in the Debtors’ falling short of their forecasted receipts.

Interestingly, they note further:

The Company’s New Iberia facility is currently non-operational due to a state-wide shelter-in-place order, but the Company, pursuant to applicable state law, is continuing to pay its employees. While the shelter-in-place order could terminate by April 10, 2020, it is possible that the order will be extended.

While the Company’s other facilities in Alabama and Georgia are still operational, it is possible that these states will also enact shelter-in-place orders in the near term that will force these facilities to go non-operational.

The simultaneous supply and demand shock in the oil market is unprecedented and may cause a substantial strain on or reduction in collections from the Company’s primary customers, many of whom are dependent on oil prices.

None of this is surprising but it’s interesting to see the various x-factors that are now part of the DIP sizing process.

As you all very well know, these are extraordinary times.

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

  • Capital Structure: $65mm RCF (Wilks Brothers LLC & Equify Financial LLC)

  • Professionals:

    • Legal: Vinson & Elkins LLP (Matthew Moran, Matthew Struble, Garrick Smith, Paul Heath, David Meyer, Michael Garza) & Okin Adams LLP (Matthew Okin, Johnie Maraist)

    • Financial Advisor: FTI Consulting Inc.

    • Investment Banker: Perella Weinberg Partners LP (Jakub Mlecsko)

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

  • Other Parties in Interest:

    • Prepetition Secured Lender & Major Equityholder: Wilks Brothers LLC & Equify Financial LLC

      • Legal: Norton Rose Fulbright LLP (Greg Wilkes, Francisco Vazquez)

      • Financial Advisor: Ankura Consulting Group LLC

New Chapter 11 Filing - Paddock Enterprises LLC

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Paddock Enterprises LLC

January 6, 2020

Ohio-based Paddock Enterprises LLC (aka Owens-Illinois Inc.) is the latest victim of asbestos-related liabilities to find itself in bankruptcy court. And by “latest” we mean the first in, like, a few days. Just last week, another Ohio-based manufacturer, ON Marine Services Company LLC, filed for bankruptcy after having had enough of dealing with decades-worth of claims within the tort system. ON filed for bankruptcy to address 6,000 claims emanating out of the 70s; Paddock filed for bankruptcy because its alternative to the tort system — “administrative claims agreements” — became increasingly untenable and it must still address 900 claims stemming from the 40s and 50s. That’s right, the 40s and 50s!! The purpose of filing for bankruptcy is to establish a 524(g) trust to deal with current and future asbestos claimants.

This case seems rather straight-forward and so we’ll spare you the long summary. In a nutshell, if a company at one time manufactured product with asbestos, it is generally f*cked. But there is an interesting commentary herein about these types of lawsuits and why bankruptcy is warranted. In the context of discussing its reserve coverage of asbestos-related tort expenditures ($722mm!), the company notes:

The Debtor believes that, although the established reserves are appropriate under ASC 450, its ultimate asbestos-related tort expenditures cannot be known with certainty because, among other reasons, the litigation environment in the tort system has deteriorated generally for mass tort defendants and Administrative Claims Agreements are becoming less reliable.

It gets better (PETITION Note: this is a long but worth-it passage):

What is certain is the incredible disparity between what the Debtor has historically paid, and is now being asked to pay, for Asbestos Claims, given the extent of its historical asbestosrelated operations. As of September 30, 2019, the Debtor had disposed of over 400,000 Asbestos Claims, and had incurred gross expense of approximately $5 billion for asbestos-related costs. In contrast, its total Kaylo sales for the 10-year period in which it sold the product were approximately $40 million. Asbestos-related cash payments for 2018, 2017, and 2016 alone were $105 million, $110 million, and $125 million, respectively. Although these cash payments show a modest decline, the overall volume and claimed value of Asbestos Claims asserted against the Debtor has not declined in proportion to the facts that (i) over 60 years have passed since the Debtor exited the Kaylo business, (ii) the average age of the vast majority of its claimants is now over 83 years old, (iii) these demographics produce increasingly limited opportunities to demonstrate legitimate occupational Kaylo exposures, and (iv) other recoveries are available from trusts established by other asbestos defendants. Rather, increasing settlement values have been demanded of the Debtor. And because the Debtor has settled or otherwise exhausted all insurance that might cover Asbestos Claims, it must satisfy all asbestos-related expenses out of Company cash flows.

Oh man. You’ve gotta love the plaintiff’s Bar. Those numbers are staggering. $40mm in 1940-1950 dollars would be equal to approximately $565mm in 2018 dollars. As compared to $5b in liability. And more to come. SHEEEESH. (PETITION Note: none of the foregoing is intended to disrespect any of the victims of the debtor’s product. Yes, we feel obligated to say that.)

There’s also a structural issue: the debtor entity subject to these extensive liabilities was incorporated in December 2019 as a direct wholly-owned subsidiary of O-I Glass Inc. ($OI), a $2b market cap glass container manufacturer. This is the classic “good company,” “bad company” structural separation. We suspect there’ll be at least some fireworks in bankruptcy court over this structure as creditors — almost exclusively the plaintiffs’ law firms — try to broaden the pool of potential proceeds from which they can recover monies for their clients.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure:

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Jeffrey Bjork, Christina Craige, Jeffrey Mispagel, Helena Tseregounis, Michael Faris, Lisa Lansio) & Richards Layton & Finger PA (John Knight, Michael Merchant)

    • Board of Directors: Kevin Collins, John Reynolds, Scott Gedris

    • Estimation Agent: Bates White LLC

    • Financial Advisor: Alvarez & Marsal LLC

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

  • Other Parties in Interest:

    • O-I Glass Inc.

      • Legal: Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Joseph Halsey)

    • Future Claims Representative: James Patton Jr.

      • Legal: Young Conaway Stargatt & Taylor LLP

      • Claims Analyst: Ankura Consulting Group LLC

New Chapter 11 Bankruptcy Filing - High Ridge Brands Co.

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High Ridge Brands Co.

December 18, 2019

Connecticut-based, private-equity-owned (Clayton Dubilier & Rice LLC) High Ridge Brands Co. (“HRB”) filed for bankruptcy in the District of Delaware. High Ridge what? Right, we wouldn’t expect you to know what HRB is but you may very well know several of the brands in its portfolio. Ever visit Nana’s house for the weekend, hop into the shower, and see a boatload of VO5 or White Rain shampoo on the shelf? Zest soap? Or have you ever seen some shadeball do this on the street?

Binaca.gif

Oh yeah. Nothing says class like Binaca! Anyway, all four of the aforementioned products are in HRB’s brand portfolio. That portfolio also includes the Coast, Firefly, LA Looks, Rave, Reach, Salon Grafix, SGX NYC, Thicker Fuller Hair, and the Zero Frizz brands; the most recent portfolio addition was, in late 2016, Dr. Fresh, which sounds like a Marvel superhero but is an oral-care brand focused on value toothbrushes and the like. This acquisition marked an expansion away from HRB’s historical focus on primarily skin cleaning and hair care products in the “value” segment. HRB describes their business model as follows:

“Given their focus on value price points, the goal of the Debtors’ early strategy was to minimize costs, which they did by concentrating supply and optimizing logistics to leverage unit volumes to create a low cost structure with fully outsourced manufacturing and logistics primarily in the United States. Said differently, the Debtors’ original business plan revolved around low-cost, low-margin, and high-volume product distribution.”

Interestingly, the gangbusters economy has not been so gangbusters for HRB and, by extension here, CD&R’s equity. HRB, therefore, has recently pivoted:

Given that the Company’s hair care and skin cleansing brand portfolio was concentrated in product segments (e.g., bar soap and hair spray) and price points (e.g., opening price points and value) that were shrinking due to shifting consumer preferences and a strong economy that led to a reduction in shelf space allotted to value priced products, the Debtors have focused recently on transformative innovation to drive topline growth in growing segments (e.g., natural products, texturizers, and body wash) at slightly higher price points. The company has also invested in capability and capacity across the organization to elevate the speed it can bring products to market, its customer service, and its performance management. These tactics, in conjunction with their recent acquisitions, have positioned the Debtors well for sustainable, profitable growth.

Now, if that last bit about razzle dazzle change and high prospects seems like a sales pitch to you, well, give yourself a pat on the back because that is precisely the point of this chapter 11 filing. And the first day filing papers reflect this: the First Day Declaration is replete with chest-pounding talk about how great HRB’s asset-light model is, how large the total addressable market is for their products, how diversified and recognizable their brands are, and how deep their customer relationships are. With respect to the latter, HRB touts its key customers: “Walmart, Dollar Tree, Dollar General, Walgreens, Kroger, Family Dollar, 99 Cents Only Stores, CVS, HEB, Wakefern and other blue chip retailers.” UM, WOULD THESE BE THE VERY SAME CUSTOMERS WHO ARE TAKING AWAY HRB’S SHELF SPACE? 🤔😜

Someone will have to buy into all of ⬆️ and disregard HRB’s actual recent performance — performance that has sucked sh*t to the tune of $301.1mm in net sales and a $62.5mm net loss (and $35.5mm of adjusted EBITDA…adjusted for what we wonder?). We would love to see the data room: given increased emphasis on higher quality product at affordable prices, among other factors, we bet the numbers are showing disturbing quarterly declines but that’s just a guess.

HRB highlights the following as events that led to its chapter cases:

  • Increased competition in the personal care industry and a shift away from its value brands;

  • An inability to account for increasing commodity costs when marketing to value customers;

  • A late shift to higher-margin products;

  • An education challenge in that HRB will now need to educate the consumer about its newer, higher-margin brands — something that has and will elevate marketing costs; and

  • A soap supplier (a) jamming HRB with higher costs and HRB not having replacements at the ready and (b) failing to deliver the supply HRB needed.

Of course, there’s also the capital structure. HRB has over $500mm of debt split between a $50mm revolving credit facility, a $213.4mm term loan, and $261mm of '25 8.875% senior unsecured notes (as well as $28.7mm of trade debt).

Tellingly, HRB wasn’t able to get its lenders on board with a restructuring transaction. Per HRB:

…the Debtors explored (1) a consensual restructuring among the Debtors, the Prepetition First Lien Lenders, and the Noteholders; (2) a plan of reorganization sponsored by the Prepetition First Lien Lenders; (3) a toggle plan with a focus on a sale of the Debtors’ assets with a reorganization backstop; (4) a chapter 11 sale process with the Prepetition First Lien Lenders acting as a stalking horse bidder; and (5) a chapter 11 sale process funded by a debtor-in-possession facility provided by the Prepetition First Lien Lenders or some subset thereof.

The Debtors’ initial goal was to effectuate a consensual restructuring out of court, and the Debtors engaged with both the Prepetition First Lien Lenders and the Ad Hoc Group to explore this possibility prior to commencing the Sale Process … in September of this year. As part of this, the Debtors provided the Ad Hoc Group with a significant amount of due diligence and held a number of meetings with the Ad Hoc Group’s professionals. Although the initial discussions did result in the Ad Hoc Group providing the Debtors with an initial set of potential terms for a restructuring, negotiations ultimately dwindled such that the Debtors decided they needed to pivot to other restructuring alternatives.

Now, it’s hard to say, from the outside looking in, what this all means. Getting this kind of deal done out-of-court was — depending on how concentrated the debt holdings are — probably unrealistic. It sounds like the lenders lacked not only the numbers to get something done but the conviction. There’s no restructuring support agreement here. There’s not even a stalking horse bidder. So, none of that is great.

On the plus side … maybe?… an earlier DIP commitment for $70mm has been decreased to $40mm ($20mm of which is a roll-up of prepetition amounts). HRB claims that this a reflection of the “liquidity position and forecasted liquidity needs over the course of the…cases” which would suggest that liquidity has improved since first discussing DIP financing back in August. Alternatively, it could mean that the DIP lenders are skittish given what appears to be a significant gap in the perception of value. The DIP matures in four months — presumably enough time to allow a sale process to play out through the beginning of February. Now the pressure is on PJT Partners Inc. ($PJT) to deliver a potential buyer.

*****

One final thing to note here: the petition lists HRB’s top 50 creditors and, of that 50, only a handful are trade creditors. Typically you’d see the indenture trustee listed as the top creditor, subsuming the entirety of the outstanding debt issuance outstanding. Here, HRB individually listed each of the noteholders. This could mean that the company has, for the most part, kept its trade current, relegating a very small subset to unpaid status. Indeed, those few creditors listed are owed more than 50% of the outstanding trade debt.

Furthermore, the company filed a critical vendor motion seeking to pay $26.5mm in critical vendor, shipper, 503b9 and foreign vendor claims. That conveniently wouldn’t leave much of an unsecured creditor body outside of the notes.

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $50mm RCF & $213.4mm TL (BMO Harris Bank NA), $261mm '25 8.875% senior unsecured notes (Wilmington Trust)

  • Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Ian Bambrick, Allison Mielke, Jared Kochenash) & Debevoise & Plimpton LLLP (M. Natasha Labovitz, Nick Kaluk III)

    • Financial Advisor/CRO: Ankura Consulting Group LLC (Benjamin Jones)

    • Investment Banker: PJT Partners LP (John Singh)

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

  • Other Parties in Interest:

    • Equity Sponsor: Clayton Dubilier & Rice LLC

    • DIP Administrative Agent & Agent under the Prepetition First Lien Credit Agreement: BMO Harris Bank NA

      • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Dov Goodman) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

    • Indenture Trustee for the 8.875% ‘25 Senior Notes: Wilmington Trust NA

      • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, Gianfranco Finizio) & Morris James LLP (Eric Monzo, Brya Keilson)

    • Ad Hoc Group of 8.875% ‘25 Senior Noteholders

😷New Chapter 11 Filing - Tarrant County Senior Living Center Inc. 😷

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Tarrant County Senior Living Center Inc.

November 5, 2019

Callback to earlier this year, in February, when we reported on the chapter 11 bankruptcy filing of SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador). Mirador — a Texas nonprofit — owned and operated a 228-unit CCRC, comprised of 125 independent living residences, 44 assisted living residences, 18 memory care residences, and 4 skilled nursing residences. It filed for bankruptcy because, among other things, it didn’t have the occupancy level — and, by extension, revenue — to satisfy its debts (owed to UMB Bank NA and others). The company used the bankruptcy process to effectuate a sale pursuant to Bankruptcy Code section 363.

We concluded our review of the situation as follows:

One last point here: considering that we now have two CCRC bankruptcies in the last two weeks and both are operated by SQLC, we’d be remiss if we didn’t highlight that SQLC also operates four other CCRCs: (a) Northwest Senior Housing Corporation d/b/a Edgemere; (b) Buckingham Senior Living Community, Inc. d/b/a The Buckingham; (c) Barton Creek Senior Living Center, Inc. d/b/a Querencia at Barton Creek; and (d) Tarrant County Senior Living Center, Inc. d/b/a The Stayton at Museum Way. With 33% of its CCRCs currently in BK, it seems that — for the restructuring professionals among you — these other SQLC facilities may be worth a quick look/inquiry.

You’re welcome. We called that from 9 months away.

Forth Worth Texas-based Tarrant County Senior Living Center Inc. filed a prepackaged bankruptcy case in the Northern District of Texas. The not-for-profit corporation has 188 independent living apartment-style residences, 42 residential-style assisted living suites, 20 memory support assist living suites and a skilled nursing facility with 46 beds. The facility is nearly completely occupied across the board with the weakest link being the independent living segment at 6.4% vacancy.

Pursuant to the Plan, only the holders of bond claims are impaired and entitled to vote. In other words, the bonds will take a haircut — and they’ve overwhelmingly voted in favor of said haircut — while general unsecured claimants and executory contract counter-parties ride through as if nothing even happened.

Nana won’t even notice this sucker filed for bankruptcy.

  • Jurisdiction: N.D. of Texas (Judge Jernigan)

  • Capital Structure:

  • Professionals:

    • Legal: DLA Piper LLP (Thomas Califano, Rachel Nanes, Andrew Zollinger)

    • Financial Advisor/CRO: Ankura Consulting (Louis Robichaux)

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

  • Other Parties in Interest:

    • UMB Bank NA

      • Legal: Mintz Levin Cohn Ferris Glovsky and Popeo PC (Daniel Bleck, Charles Azano)

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 Bankruptcy & CCAA Filing - Payless👢

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Payless Holdings LLC

February 18, 2019

Update coming on Wednesday.

  • Jurisdiction: E.D. of Missouri (Judge Surratt-States)

  • Professionals:

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Meredith Lahaie, Kevin Zuzolo, Julie Thompson, Caitlin Griffin, Patrick Chen, Abid Qureshi) & (local) Armstrong Teasdale LLC (Richard Engel Jr., Erin Edelman, John Willard)

    • Legal (Canadian CCAA): Cassels Brock & Blackwell LLP

    • Legal (Independent Managers): Seward & Kissel LLP

    • Board of Directors: Heath Freeman, Martin Wade, R. Joseph Fuchs, Scott Vogel, Patrick Bartels

    • Financial Advisor: Ankura Consulting Group LLC (Stephen Marotta, Adrian Frankum, Swapna Deshpande)

    • Investment Banker: PJ Soloman LP (Derek Pitts)

    • Asset Disposition Advisor: Malfitano Advisors LLC (Joseph Malfitano)

    • Liquidators: Great American Group LLC and Tiger Capital Group LLC

    • Corporate Communications Consultant: Reevemark LLC

    • Real Estate Advisors: A&G Realty Partners

    • CCAA Monitor: FTI Consulting Inc.

    • CCAA Monitor

      • Legal: Bennett Jones

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

  • Other Parties in Interest:

    • Pre-petition ABL Agent: Wells Fargo NA

    • Pre-petition Term Agent: Cortland Products Corp.

New Chapter 11 Bankruptcy Filing - Imerys Talc America Inc.

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Imerys Talc America Inc.

February 13, 2019

Merely a week ago we wrote:

PG&E Corporation's ($PCG) recent liability-based bankruptcy filing got us thinking: what other companies are poised for a litigation-based chapter 11 bankruptcy filing? We think we have a winner. 

Imerys S.A. is a French multinational company that specializes in the production and processing of industrial minerals. Its North American operations are headquartered in Roswell, Georgia and in San Jose, California. Included among Imerys' North American operations is Imerys Talc America. The key word in all of the foregoing is "Talc." 

If only we had purchased a lottery ticket.

Within days, Imerys Talc America Inc. and two affiliated debtors indeed filed for bankruptcy in the District of Delaware. The debtors mine, process and distribute talc for use in end products used in the manufacturing of products sold by third-parties —- primarily Johnson & Johnson Inc. ($JNJ). The debtors have historically been the sole supplier of cosmetic talk to JNJ. And, in part, because of that, they’re getting sued to Kingdom Come. Approximately 14,650 individual claimants are suing the debtors alleging personal injuries caused by exposure to talc mined, processed or distributed by the debtors. The debtors note:

Although personal care/cosmetic sales make up only approximately 5% of the Debtors’ revenue, approximately 98.6% of the pending Talc Claims allege injuries based on use of cosmetic products containing talc.

Whoa. What a number!! What a disparity! Low revenues and yet high claims! What a sham! That just goes to show how absurd these claims are!!

Just kidding. That sentence means absolutely nothing: it is clearly an attempt by lawyers to ignorantly wow people with percentages that have absolutely no significance whatsoever. Who gives a sh*t whether personal care/cosmetic sales are only a small fraction of revenues? If those sales are all laced with toxic crap that are possibly causing people cancer or mesothelioma, the rest is just pixie dust. In fact, it’s possible that 100% of 1% of sales are causing cancer, is it not?

Anyway, naturally, the debtors deny those claims but defending the claims, of course, comes at a huge cost. Per the Company:

…while the Debtors have access to valuable insurance assets that they have relied on to fund their defense and appropriate settlement costs to date, the Debtors have been forced to fund certain litigation costs and settlements out of their free cash flow due to a lack of currently available coverage for certain Talc Claims, or insurers asserting defenses to coverage. The Debtors lack the financial wherewithal to litigate against the mounting Talc Claims being asserted against them in the tort system.

Well that sucks. In addition to the debtors issues obtaining insurance coverage, they’re also apparently bombarded by claimants emboldened by the recent multi-billion dollar verdict rendered against JNJ.. We previously wrote:

While certain cases are running into roadblocks, the prior verdicts call into question whether Imerys has adequate insurance coverage to address the various judgments. If not, the company is likely headed into bankruptcy court — the latest in a series of cases that will attempt to deploy bankruptcy code section 524's channeling injunction and funnel claims against a trust. 

Indeed, given issues with insurance (and JNJ refusing to indemnify the debtors as expected in certain instances), the massive verdict, AND discussions with a proposed future claims representative, the debtors concluded that a chapter 11 filing would be the best way to handle the talc-related liabilities. And indeed a channeling injunction is a core goal. Per the debtors:

The Debtors’ primary goal in filing these Chapter 11 Cases is to confirm a consensual plan of reorganization pursuant to Sections 105(a), 524(g), and 1129 of the Bankruptcy Code that channels all of the present and future Talc Claims to a trust vested with substantial assets and provides for a channeling injunction prohibiting claimants from asserting against any Debtor or non-debtor affiliate any claims arising from talc mined, produced, sold, or distributed by any of the Debtors prior to their emergence from these Chapter 11 Cases. While the Debtors dispute all liability as to the Talc Claims, the Debtors believe this approach will provide fair and equitable treatment of all stakeholders.

The comparisons to PG&E were on point.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: $14.4mm inter-company payable.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Keith Simon, Annemarie Reilly, Richard Levy, Jeffrey Bjork, Jeffrey Mispagel, Helena Tseregounis) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele)

    • Financial Advisor: Alvarez & Marsal North America LLC

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

  • Other Parties in Interst:

    • Imerys SA

      • Legal: Hughes Hubbard & Reed LLP (Christopher Kiplok, William Beausoleil, George Tsougarakis, Erin Diers) & (local) Bayard PA (Scott Cousins, Erin Fay)

    • Future Claims Representative: James L. Patton Jr.

      • Legal: Young Conaway Stargatt & Taylor LLP

      • Financial Advisor: Ankura Consulting Group LLC

😷New Chapter 11 Bankruptcy Filing - Trident Holding Company LLC😷

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Trident Holding Company LLC

February 10, 2019

It looks like all of those 2018 predictions about healthcare-related distress were off by a year. We’re merely in mid-February and already there has been a full slate of healthcare bankruptcy filings. Here, Trident Holding Company LLC, a Maryland-based provider of bedside diagnostic and other services (i.e., x-ray, ultrasound, cardiac monitoring) filed for bankruptcy in the Southern District of New York. What’s interesting about the filing is that it is particularly light on detail: it includes the standard description of the capital structure and recent efforts to restructure, but there is a dearth of information about the history of the company and its financial performance. There is, however, a restructuring support agreement with the company’s priority first lien lenders.

Here’s a quick look at the company’s capital structure which is a large factor driving the company into bankruptcy:

Source: First Day Declaration

Source: First Day Declaration

As you can see, the company has a considerable amount of debt. The above-reflected “Priority First Lien Facility” is a fairly recent development, having been put in place as recently as April 2018. That facility, provided by Silver Point, includes a $27.1mm prepayment fee triggered upon the filing of the bankruptcy case. That’s certain to be a point of interest to an Official Committee of Unsecured Creditors. It also contributed to an onerous amount of debt service. Per the company:

In the midst of market and competitive challenges, Trident has significant debt service obligations. Over the course of 2018, Trident paid approximately $26,185,667.75 in cash interest on the Secured Credit Facilities. On January 31, 2019, the Company missed an interest payment of $9,187,477.07 on the Secured Credit Facilities, resulting in an Event of Default on February 8, 2019 after the cure period expired.

But, wait. There’s more. The recent uptick in distressed healthcare activity is beginning to aggregate and create a trickle-down bankruptcies-creating-bankruptcies effect:

Moreover, a number of recent customer bankruptcies – including those of Senior Care Centers, LLC, 4 West Holdings, Inc., and Promise Healthcare Group, LLC – have exacerbated the Company’s liquidity shortfall by limiting the collectability of amounts owed from these entities. A number of other customers who have not yet filed bankruptcy cases are generally not paying the Debtors within contractual terms due to their own liquidity problems. As a result of these collection difficulties and challenges with the new billing system in the Sparks Glencoe billing center, the Debtors recorded $27.8 million of extraordinary bad debt expense in 2018 and $12.7 million in 2017.

Ouch. Not to state the obvious, but if the start of 2019 is any indication, this is only going to get worse. The company estimates a net operating cash loss of $9.1mm in the first 30 days of the case.

Given the company’s struggles and burdensome capital structure, the company has been engaging its lenders for well over a year. In the end, however, it couldn’t work out an out-of-court resolution. Instead, the company filed its bankruptcy with a “restructuring support agreement” with Silver Point which, on account of its priority first lien holdings, is positioned well to drive this bus. And by “drive this bus,” we mean jam the junior creditors. Per the RSA, Silver Point will provide a $50mm DIP and drive the company hard towards a business plan and plan of reorganization. Indeed, the business plan is due within 36 days and a disclosure statement is due within a week thereafter. Meanwhile, the RSA as currently contemplated, gives Silver Point $105mm of take-back term loan paper and 100% of the equity of the company (subject to dilution). The first lien holders have a nice blank in the RSA next to their recovery amount and that recovery is predicated upon…wait for it…

…a “death trap.” That is, if they accept the plan they’ll currently get “ [●]%” but if they reject the plan they’ll get a big fat donut. Likewise, the second lien holders. General unsecured claimants would get a pro rata interest in a whopping $100k. Or the equivalent of what Skadden will bill in roughly, call it, 3 days of work??

The business plan, meanwhile, ought to be interesting. By all appearances, the company is in the midst of a massive strategic pivot. In addition to undertaking a barrage of operational fixes “…such as optimized pricing, measures to improve revenue cycle management by increasing collection rates, rationalizing certain services, reducing labor costs, better managing vendor spend, and reducing insurance costs,” the company intends to focus on its core business and exit unprofitable markets. While it retreats in certain respects, it also intends to expand in others: for instance, the company intends to “expand home health services to respond to the shifting of patients from [skilled nursing facilities] into home care.” Per the company:

Toward this end, Trident conducted successful home health care pilot programs in 2018 in two markets to optimize its Care at Home business model with radiology technicians dedicated to servicing home health patients. Trident hopes to expand this business model to an additional seven markets in 2019.

Like we said, a pivot. Which begs the question “why?” In addition to the debt, the company noted several other factors that drove it into bankruptcy. Chief among them? The rise of home health care. More from the company:

Trident has suffered ripple effects from the distress faced by skilled nursing facilities (“SNF”), which are its primary direct customers. SNF occupancy rates have declined to a multi-year low as a result of structural and reimbursement changes not yet offset by demographic trends. These structural changes include, among other things, patient migration to home health care. The decline in SNF occupancy rates has led to reduced demand for Trident’s services. At the same time, Trident has only had limited success reducing costs in response to lower volumes, as volume declines are driven by lower utilization per facility rather than a reduction in the number of facilities served.

This is a trend worth continued watching. Who else — like Trident — will be affected by this?

Large general unsecured creditors of the business include Grosvenor Capital Management, Jones Day (to the tune of $2.3mm…yikes), Konica Minolta Healthcare Americas Inc., McKesson ($MCK)(again!!…rough couple of weeks at McKesson), Quest Diagnostics Inc. ($DGX), Cardinal Health Inc. ($CAH) and others. They must be really jacked up about that pro rata $100k!!

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

  • Capital Structure: see above.

  • Professionals:

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Jason Kestecher, James Mazza Jr., Justin Winerman)

    • Independent Director: Alexander D. Greene

    • Financial Advisor: Ankura Consulting (Russell Perry, Ben Jones)

    • Investment Banker: PJT Partners LP (Mark Buschmann, Josh Abramson, Willie Evarts, Meera Satiani, Elsa Zhang)

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

  • Other Professionals:

    • Priority First Lien Admin Agent: SPCP Group LLC/Silver Point Finance LLC

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Robert Britton, Lewis Clayton, Aidan Synnott, Christman Rice, Michael Turkel)

      • Financial Advisor: Houlihan Lokey LP

    • First Lien Agent: Cortland Capital Market Services LLC

      • Legal: White & Case LLP (Thomas Lauria, Erin Rosenberg, Jason Zakia, Harrison Denman, John Ramirez)

    • Ad Hoc Group of First Lien Lenders

      • Legal: Kirkland & Ellis LLP (Patrick Nash)

      • Financial Advisor: Greenhill & Co. Inc.

    • Second Lien Agent: Ares Capital Corporation

    • Ad Hoc Group of Second Lien Lenders

      • Legal: Latham & Watkins (Richard Levy, James Ktsanes)

    • Large Creditor: McKesson Medical-Surgical Inc.

      • Legal: Buchalter P.C. (Jeffrey Garfinkle)

    • Large Creditor: Quest Diagnostics

      • Legal: Morris James LLP (Brett Fallon)

    • Equity Sponsor: Revelstoke Capital Partners

      • Legal: Winston & Strawn LLP (Carey Schreiber, Carrie Hardman)

    • Equity Sponsor: Welltower Inc.

      • Legal: Sidley Austin LLP (Andrew Propps, Bojan Guzina)

    • Official Committee of Unsecured Creditors

      • Legal: Kilpatrick Townsend & Stockton LLP (David Posner, Gianfranco Finizio, Kelly Moynihan)

      • Financial Advisor: AlixPartners LLP (David MacGreevey)



😷New Chapter 11 Bankruptcy Filing - SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador)😷

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SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador)

2/8/19

We started reading the papers for the bankruptcy filing of SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador) and started scratching our heads. “Have we read this before?” we wondered. The answer is, effectively, ‘yes.’ On January 30th, Mayflower Communities Inc. d/b/a The Barrington of Carmel filed for bankruptcy. As with Mirador, here, SQLC is the sole member of and administrator and operator of The Barrington of Carmel, too. And therein lies the familiarity: the first several pages of Mirador’s First Day Declaration filed in support of the bankruptcy have the exact same description of the continuing care retirement community business as that filed in The Barrington of Carmel case. Which makes sense: there’s the same CRO and financial advisor in both cases. And, so, we have to complement the efficiency: why reinvent the wheel?

Whereas Barrington was a 271-unit CCRC, Mirador — a Texas nonprofit — owns and operates a 228-unit CCRC, comprised of 125 independent living residences, 44 assisted living residences, 18 memory care residences, and 4 skilled nursing residences. Mirador makes all of its revenue from operation of the CCRC. Mirador is a smaller CCRC than Barrington and, similarly, its assets and liabilities are fewer. As of the petition date, the company reported approximately $53mm in assets and $118mm in liabilities, the bulk of which is comprised of $74.5mm of long-term municipal bond obligations (UMB Bank NA) and $13.9mm of subordinated notes.

So what factored into the company’s bankruptcy filing? It blames, among other things, (i) the inability to sustain pricing and the level of entrance fees needed to support its debt, (ii) the Great Recession’s effect on housing prices which had the trickle-down effect of impairing the ability of potential residents to sell their houses and pay the necessary entrance fee (which, in turn, led to below-model occupancy levels and depressed cash flow), and (iii) the competitive senior housing market in Corpus Christi.

To combat these trends, the company lowered its entrance fees to fill occupancy. While that worked, it “also produced the negative effect on the long-term financial ability of the Debtor to pay Resident Refunds as they became due.” See, this complicated things. Per the Debtors:

“The Debtor’s initial Life Care Residents often executed 90% refundable contracts, which resulted in higher Resident Refund obligation. In an effort to maintain occupancy levels, newer Life Care Residents often paid a lower cost Entrance Fee. Thus, as earlier Residents moved out of the Facility and became eligible for Resident Refunds, the Entrance Fees received from New Residents were not sufficient to cover the Debtor’s Resident Refund obligations. This pattern continued such that as of late 2017, the Debtor owed and was unable to pay Resident Refunds of approximately $2 million.”

This appears to be the nonprofit version of a Ponzi scheme, but we digress. In addition to the above, the company also stream-lined costs and curtailed company-wide expenses and administrative overhead. Ultimately, the company hired a slate of bankruptcy professionals and began a marketing process for the assets — a process that, in the end, culminated in the stalking horse offer by Aldergate Trust and Methodist Retirement Community for $20,350,000 in cash plus the assumption of certain liabilities. The agreement also includes the assumption of all Residence Agreements of former residents, preserving those residents’ rights to refunds. With this sale (and the proceeds therefrom) as its centerpiece, the company also filed a plan and disclosure statement on day one.

One last point here: considering that we now have two CCRC bankruptcies in the last two weeks and both are operated by SQLC, we’d be remiss if we didn’t highlight that SQLC also operates four other CCRCs: (a) Northwest Senior Housing Corporation d/b/a Edgemere; (b) Buckingham Senior Living Community, Inc. d/b/a The Buckingham; (c) Barton Creek Senior Living Center, Inc. d/b/a Querencia at Barton Creek; and (d) Tarrant County Senior Living Center, Inc. d/b/a The Stayton at Museum Way. With 33% of its CCRCs currently in BK, it seems that — for the restructuring professionals among you — these other SQLC facilities may be worth a quick look/inquiry.

  • Jurisdiction: S.D. of Texas

  • Capital Structure: see above.

  • Company Professionals:

    • Legal: Thompson & Knight LLP (Demetra Liggins, Cassandra Sepanik Shoemaker)

    • Financial Advisor: Larx Advisors (Keith Allen)

    • CRO: Ankura Consulting (Louis Robichaux IV)

    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Indenture Trustee: UMB Bank NA

      • Legal: McDermott Will & Emery (Nathan Coco)

    • Stalking Horse Purchaser: Aldergate Trust and Methodist Retirement Community

😷New Chapter 11 Bankruptcy Filing - Mayflower Communities Inc. (d/b/a The Barrington of Carmel)😷

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Mayflower Communities Inc. (d/b/a The Barrington of Carmel)

January 30, 2019

Mayflower Communities, Inc. (d/b/a The Barrington of Carmel), a non-profit senior living retirement community of 271 units in the State of Indiana, filed for bankruptcy in the Northern District of Texas earlier this week. As a continuing care retirement community (“CCRC”), Barrington provides a battery of services to its residents ranging from recreational activities to assisted living, memory support, skilled nursing, and rehabilitation. Residents can get apartment homes on site.

The business model, however, is…well, interesting. Per the Company:

CCRCs, however, are often operationally and financially complex. More specifically, CCRCs can be challenging to operate because they require the maintenance of a broad range of services to seniors in varying stages of the aging process. Additionally, CCRCs require a steady flow of new residents in order to maintain day-to-day operations and to remain current on financial obligations, including, most importantly, obligations to current and former residents.

New residents = new revenue, which is also needed to meet debt obligations and comply with resident refund obligations.

Revenue comes from entrance fees ranging from approximately $316k to $650k, monthly serve fees from $2,800 to $7,600, and other per diem fees for skilled nursing, optional services fees and unit upgrade fees. In exchange, however, Barrington takes on a significant commitment. Per the company:

Unlike a pure rental retirement community, whereby a resident pays monthly fees for services (which fees may increase as the resident’s needs change), the Continuing Care Contract is a life care residency contract whereby a resident will pay an Entrance Fee and fixed monthly fees for Barrington’s commitment to provide life care services for the duration of the resident’s life, regardless of whether (i) the resident’s needs change over time which may require additional services to be provided by Barrington, or (ii) the costs of providing such services increase for Barrington. Significantly, Barrington’s commitment to provide life care services continue even if the resident’s financial condition deteriorates and is unable to continue to make its payments.

Non-profit, indeed. That sounds like a recipe for fiscal disaster.

The company reported $96.5mm in assets and $151.9mm in liabilities, including oversight fees owed to its management company, $52.4mm in resident refund obligations, $92.7mm (plus accrued interest) of long-term municipal bond obligations and $4.1mm of subordinated note obligations.

The aforementioned debt is a big problem. Compounding matters is the fact that the senior housing market in the geographic vicinity is “very competitive” which led to rental price and, by extension, margin, compression. Lower-than-projected revenues combined with the debt led to Barrington defaulting on its municipal bond obligations back in November. Consequently, the Bond Trustee commenced a receivership action. To forestall the Bond Trustee’s subsequent efforts to, among other things, displace the board and sole member, pursue a sale of the facility, and potentially reject continuing care contracts, the company filed for bankruptcy wherein it will leverage the “automatic stay” and “potentially pursue a sale of the Facility.”

  • Jurisdiction: N.D. of Texas

  • Company Professionals:

    • Legal: DLA Piper LLP (Thomas Califano, Rachel Nanes, Andrew Zollinger)

    • Financial Advisor/CRO: Ankura Consulting LLC (Louis Robichaux IV) & Larx Advisors Inc.

    • Investment Banker: Cushman & Wakefield U.S., Inc.

    • Claims Agent: Donlin Recano & Company (*click on company name above for free docket access)

  • Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - Maremont Corporation

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Maremont Corporation

January 22, 2019

Michigan-based Maremont Corporation, a subsidiary of publicly-traded non-debtor automobile component manufacturer Meritor Inc. ($MTOR), has filed for bankruptcy along with three affiliates in the District of Delaware. The company was a manufacturer, distributor and seller of aftermarket auto products — many of which contained asbestos; currently, it has no ongoing operations and its only assets are an intercompany receivable, a rent-producing commercial property with Dollar General as a tenant, a few bank accounts, and some insurance assets. In contrast, the company has significant liabilities — notably asbestos-related liabilities including defense and other costs associated with defending 13k pending personal injury and wrongful death claims.

The company, in consultation with its parent and committees of Future Claimants and current Asbestos Claimants, arrived at a prepackaged plan under section 524(g) of the Bankruptcy Code. The plan envisions a personal injury trust to be funded, in large part, by Meritor (via the repayment of a remaining receivable, a contribution of intercompany payables and a $28mm settlement payment) and a channeling injunction that protects the company (and Meritor) from future suit and liability arising out of the company’s asbestos legacy. Instead, any and all asbestos-related personal injury claims may only be pursued against, and paid from, the personal injury trust.

Meritor, like most of the stock market, got beaten up yesterday. There’s no telling whether the multi-million dollar payout here had anything to do with that.

Source: Yahoo!

Source: Yahoo!

For the uninitiated, this (horrifically boring) bankruptcy filing presents us with a good opportunity to highlight a potential structure (and its limitations) for any imminent Pacific Gas & Electric Company (“PG&E”) chapter 11 bankruptcy filing. PG&E’s issues — as have, by this point, been extensively documented — largely emanate out of (i) some oppressive California state liability laws (inverse-condemnation — definitely), (ii) man-made global warming and resultant mudslides and wildfires (probably), and (iii) at least a glint of negligence (probably). While the company has $18.4b of (mostly unsecured) debt, the catalyst to bankruptcy may be its multi-billion dollar liability from the aforementioned CA-state laws and years of environmental disaster.

Similar to Maremont, PG&E is likely to end up with some kind of plan of reorganization that features a litigation trust (for affected claimants) and a channeling injunction. Except, as John Rapisardi and Daniel Shamah of O’Melveny & Myers point out, there are limitations to that structure. They write:

There is one significant obstacle to any PG&E bankruptcy: the likely inability to discharge liabilities associated with wildfires that have not yet occurred. There have been numerous mass tort bankruptcies in the past that have been resolved through the formation of a litigation trust and channeling injunction, forcing litigants into a single forum where claims are satisfied through trust assets. See, e.g., 11 U.S.C. §524(g) (channeling injunction for asbestos debtors); In re TK Holdings, Doc. No. 2120, Case No. 17-11375 (Bankr D. Del.) (confirmation order with channeling injunction for debtor that manufactured airbags with defective components). But that structure only works for claims based on prior conduct or acts. PG&E, in contrast, faces perennial liability associated with wildfires and inverse condemnation. It may be challenging to discharge the inverse-condemnation liabilities associated with a post-petition wildfire. See 28 U.S.C. §959(a) (debtors-in-possession may be sued “with respect to any of their acts or transactions in carrying on business connected with such property.”).

Prior conduct or acts, huh? A discontinued product that happened to contain asbestos fits that bill. Likewise, a remedied airbag (the TK Holdings referenced above refers to Takata Airbags). Sadly — especially for Californians, there is nothing prior about environmental issues. Those are very much a present and future thing.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Company Professionals:

    • Legal: Sidley Austin LLP (James Conlan, Andrew O’Neill, Alison Ross Stromberg, Blair Warner, Alex Rovira) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)

    • Claims Estimation Advisor: Alvarez & Marsal Disputes and Investigations LLC

    • Claims Agent: Donlin Recano (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Future Claimants Representative: James L. Patton Jr.

      • Legal: Young Conaway Stargatt & Taylor LLP

      • Claims Estimation Advisor: Ankura Consulting Group LLC

New Chapter 11 Bankruptcy Filing - FR Dixie Holdings Corp.

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FR Dixie Holdings Corp.

November 2, 2018

Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.

For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.”

The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:

Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.

Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $19.6mm revolver, $267.4mm TL (Wilmington Trust NA), $8mm unsecured loans    

  • Company Professionals:

    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, David Baruch) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach, Elizabeth Justison, Tara Pakrouh)

    • Financial Advisor: BDO USA LLP

    • Investment Banker: PJT Partners LP (Peter Laurinaitis, Joseph Fallon)

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

  • Other Parties in Interest:

    • Ad Hoc Group of Prepetition Secured Lenders

      • Legal: Davis Polk & Wardwell LLP & (local) Morris Nichols Arsht & Tunnell LLP

      • Financial Advisor: Ankura Consulting Group

Updated 11/2 7:45am CT

New Chapter 11 Filing - 4 West Holdings LLC

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4 West Holdings LLC

3/6/18 

Texas-based licensed operator or manager of 42 skilled nursing facilities in 7 states has filed a prearranged bankruptcy. The company blames "the performance of the current group of operating Facilities has been negatively impacted by industry headwinds, regulatory actions at certain Facilities, and an inefficient geographic footprint in certain regions in the United States" for its filing.

Similar to HCR Manorcare which filed for bankruptcy earlier this week, 4 West and its affiliates emanate out of a sale leaseback transaction with a publicly-traded REIT counterparty, Omega Healthcare Investors, Inc. ($OHI). And, similarly, this business suffers from many of the same problems, 

Since 2015, the Debtors have faced significant liquidity constraints caused principally by: (a) unfavorable commercial agreements and certain liabilities assumed as part of Merger, including regulatory and personal liability claims; (b) historical losses at certain of the Debtors’ previously-operated facilities, (c) a decline in performance within the current portfolio for a variety of industry-wide developments; and (d) significant capital expenditure needs. Further, the Debtors also faced rent payment obligations to the Omega Parties under the Master Leases, which were significantly higher than their operating income could support.

Consequently, the debtor has entered into a restructuring support agreement with Omega that is predicated upon two parts: (i) a transaction whereby certain unprofitable facilities will transition to a designee of Omega and (ii) a transfer of the more successful facilities to the Plan Sponsor, SC-GA 2018 Partners LLC, which is injecting the company with $225mm of new liquidity by way of $195mm in cash and $30mm note. The Omega Parties will provide a $30mm DIP credit facility to fund the cases. 

  • Jurisdiction: N.D. of Texas (Judge Hale)

  • Capital Structure: $14.2mm funded RCF (Sterling National Bank), secured Master Leases (Omega), $15mm funded LOC (OHI Asset RO, LLC), $6.2mm secured note (New Ark Mezz Holdings, LLC), $1.1mm unsecured promissory note (SA Mezz Holdings, LLC)

  • Company Professionals:

    • Legal: DLA Piper (US) LLP (Thomas Califano, Daniel Simon, Dienna Corrado, Andrew Zollinger, David Avraham)

    • Financial Advisor: Crowe Horwath LLP

    • Restructuring Advisor/CRO: Ankura Consulting (Louis Robichaux, Ben Jones, Chris Hebard)

    • Investment Banker: Houlihan Lokey Capital Inc. (Andrew Turnbull, Ryan Sandahl, Angus Schaller, Adam Montague)

    • Independent Director: Drivetrain Advisors LLC (John Brecker)

    • Healthcare Ombudsman: Melanie Cyganowski

      • Legal: Otterbourg P.C. (Keith Costa)

    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)

  • Other Parties in Interest:

    • DIP Lender: OHI Asset RO, LLC

      • Legal: Bryan Cave LLP (Keith M. Aurzada, Michael P. Cooley, Mark Duedall, Leah Fiorenza McNeill, David Unseth)

    • Plan Sponsor: SC-GA 2018 Partners, LLC

      • Legal: Nelligan LLP (Patrick Nelligan, James Muenker)

    • Sterling National Bank

      • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson, Bradley Giordano, Edward Ripley)

    • Official Committee of Unsecured Creditors (Pharmerica Corporation, Healthcare Services Group, Medline Industries, Alana Healthcare, Ominicare Inc., Joerns Healthcare LLC, Regional Ambulance

      • Legal: Pepper Hamilton LLP (Francis Lawall, Donald Detweiler, Joanna Cline) & (local) Norton Rose Fulbright US LLP (Louis Strubeck Jr., Ryan Manns, Elizabeth Boydston)

      • Financial Advisor: CohnReznick LLP (Clifford Zucker)

Updated 5/18/18

New Chapter 11 Filing - Fallbrook Technologies Inc.

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Fallbrook Technologies Inc. 

2/26/18 Recap: Texas-based inventor of and patent-holder in the NuVinci Technology, a potential gear replacement technology, has filed for bankruptcy to implement a balance sheet restructuring. The company's "game changer" NuVinci Technology purportedly "changes the way mechanical power is transmitted to improve the performance and efficiency of transmission systems" and can be incorporated in bicycles, automotive accessory drives, electric vehicles, lawn care equipment and small wind turbines. 

In addition to commercializing its technology, the company deploys a licensing and royalties model. Unfortunately, however, the company's licensees aren't selling product with the NuVinci Technology thus far and, consequently, royalty revenue is non-existent. As such, "the Debtors’ revenue streams do not currently provide sufficient liquidity necessary to satisfy their debt and operating expense obligations." Not quite a game changer, yet, it seems. Due to this, the company fell short of financial covenants protecting its lenders. 

After an attempted but failed prepetition sale process, the company secured a DIP credit facility from Kayne Credit Opportunities Fund (QP) LLP in support of a prearranged bankruptcy agreed to with certain supporting noteholders for the purposes of deleveraging. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $49.6mm 12% '19 senior secured notes (inclusive of fees and PIK interest), $8.8mm secured bridge notes, $15.3mm '19 senior subordinated convertible notes     
  • Company Professionals:
    • Legal: Shearman & Sterling LLP (Ned Schodek, Jordan Wishnew) & (local) Young Conaway Stargatt & Taylor LLP (Pauline K. Morgan, Kenneth J. Enos, Jaime Luton Chapman, Betsy L. Feldman)
    • Financial Advisor/CRO: Ankura Consulting (Roy Messing)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Lender: Kayne Credit Opportunities Fund (QP) LLP
      • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland, Paul Shalhoub, Richard Choi) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Licensee: Dana Holding Corporation
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Aaron David) & (local) Cozen O'Connor (Mark Felger)

New Chapter 11 Bankruptcy - Orchard Acquisition Company LLC (The J.G. Wentworth Company)

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The J.G. Wentworth Company

  • 12/12/17 Recap: What's the statute of limitations for getting tagged with the "Chapter 22" label? While this may be out of bounds thanks to the passage of time, this is not the company's first foray in bankruptcy court, having previously filed during the financial crisis in 2009. It subsequently emerged under new private equity ownership and then IPO'd in 2013. This time around, the specialty-finance company in the business of providing financing solutions ((e.g., mortgage lending (as an approved issuer with Ginnie Mae, Freddie Mac, and Fannie Mae), structured settlement, annuity and lottery payment purchasing, prepaid cards, and personal loans)) filed a prepackaged bankruptcy pursuant to which its lenders will be swapping debt for at least 95.5% of the new equity and some cash. Holders of partnership interests and tax-related claims will get the remaining equity (subject to dilution by the 8% of equity set aside for management allocations). The company will eliminate its $449.5mm of debt and have a $65-70mm revolving credit facility to utilize going forward. The company blames regulatory requirements and a highly competitive market that pressured rates, service levels, products, and fees for its downfall. 
  • Jurisdiction: D. of Delaware (Judge Gross)
  • Capital Structure: $449.5mm '19 first lien TL (Jefferies Finance LLC)     
  • Company Professionals:
    • Legal: Simpson Thatcher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, Randi Lynn Veenstra, Haley Garrett, Nicholas Baker, Bryce Friedman) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach)
    • FInancial Advisor: Ankura Consulting
    • Investment Banker: Evercore 
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Jefferies Finance LLC
      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Natasha Tsiouris, Erik Jerrard) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill, D. Ryan Slaugh)
      • Financial Advisor: FTI Consulting Inc. (formerly CDG Group LLC)
    • New RCF Commitment Party (HPS Investment Partners LLC)
      • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Kelly DiBlasi, Damian Ridealgh) & (local) Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Matthew Talmo)

Updated 12/13/17

New Chapter 11 Filing - Model Reorg Acquisition LLC (aka Perfumania Inc.)

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Model Reorg Acquisition LLC (Perfumania Inc.)

  • 8/26/17 Recap: New York-based vertically-integrated specialty retailer (226 retail locations, mostly mall-based) and wholesale distributor of perfumes and fragrances (to the likes of Sears, Target, Walmart and Walgreens) filed for bankruptcy pursuant to a prepackaged plan of reorganization. The company is seeking approval of a $83,750,000 Wells Fargo DIP facility ("DIP") which will roll into an exit facility. What caused the filing? The overall retail bloodbath, naturally. Since 2015, the company has lost tens of millions of dollars, closed 105 retail locations, decreased the pace of brick-and-mortar openings and focused efforts - like the rest of the retail world - on e-commerce expansion. This way you could buy your one gallon bottle of CK One online rather than in a crappy mall stall. Awesome. The structure of this case is as follows: the DIP requires a completed case within 90 days to ensure that the reorganized (and newly private) company can take advantage of Q4 seasonality. The prepackaged plan leaves general unsecured creditors unimpaired and reinstates the unsecured notes. It also provides a $2/share recovery for shareholders who opt-in to a release of principals (notably, the shares were trading at $1.33/share at Friday's market close). The stockholder consideration will be paid via a $14.26mm equity infusion, which also serves as consideration for 100% of the reorganized equity. The transaction also preserves approximately $40mm of net operating losses and other tax attributes that will inure to the benefit of the owners. 
  • Jurisdiction: D. of Delaware (Judge Sontchi)
  • Capital Structure: $175mm senior credit facility ($18.78mm funded)(Wells Fargo Bank), $125.4mm unsecured debt +$54.8mm accrued and unpaid interest (3 different notes). Public equity ($PERF).     
  • Company Professionals:
    • Legal: Skadden Arps Slate Meagher & Flom LLP (J. Gregory Milmoe, Lisa Laukitis, Raquelle Kaye, Anthony Clark)
    • Financial Advisor: Ankura Consulting Group LLC (Stephen Marotta)
    • Investment Banker: Imperial Capital LLC (Robert Warshauer)
    • Real Estate Advisor: A&G Realty Partners LLC (Andrew Graiser)
    • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Agent to Senior Credit Facility: Wells Fargo Bank
      • Legal: Otterbourg P.C. (Daniel Fiorillo)
    • CIII Holdings LLC
      • Legal: Nastasi Partners PLLC (Ancela R. Nastasi, Marshall E. Tracht, Moshie Solomon, William S. Katchen, Andrew Gottesman) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller)

Updated 9/18/17

First Day Declaration filed 8/26/17

First Day Declaration filed 8/26/17

New Chapter 11 Filing - Foundation Healthcare Inc.

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Foundation Healthcare Inc.

  • 6/22/17 Recap: Once publicly-traded owner ($FDNH) and manager of surgical facilities that, at its peak, owned and/or managed 5 surgical hospitals, 9 ambulatory surgical centers and 3 outpatient departments in the Southeastern United States filed for bankruptcy to liquidate. Boom, done. 
  • Jurisdiction: N.D. of Texas (Nelms)
  • Company Professionals:
    • Legal: Husch Blackwell LLP (Vickie Driver, Christina Stephenson)
    • Financial Advisor/CRO: Ankura Consulting Group LLC (Michael Miller)
    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)

Updated 7/11/17

New Filing - Filip Technologies Inc.

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Filip Technologies Inc.

  • 10/8/16 Recap: NYC-based maker of cloud-based location software and wearable watch hardware for kids files for chapter 11 bankruptcy to effectuate an expedited sale to potential White Knight stalking horse bidder while receiving DIP financing from AT&T.   
  • Jurisdiction: D. of Delaware
  • Capital Structure: $480k secured debt (AT&T), $125k unsecured debt, $3.1mm unsecured convertible notes      
  • Company Professionals:
    • Legal: Moore & Van Allen (Zachary Smith & Hillary Crabtree) & (local) Bielli & Klaudner LLC (David Klaudner)
    • Financial & Restructuring Advisor: Ankura Consulting LLC (Roy Messing, Michael Swetz, Margaret Brennan, John Rapisardi)
    • Investment Banker: Widebridge Group
    • Claims Agent: KCC
  • Other Parties in Interest:

Updated 12/30/16