New Chapter 11 Bankruptcy Filing - Golden Eagle Entertainment $ENT

Golden Eagle Entertainment

July 22, 2020

Suffice it to say, high correlation to the airline and cruiseline industries is a credit negative these days. A few months ago Speedcast — a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses — discovered this the hard way and free fell into bankruptcy court. There’s still no resolution of that case. Similarly, Global Eagle Entertainment Inc. ($ENT), a business that generates revenue by (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other “away-from-home” nontheatrical markets, and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets, couldn’t avoid trouble once COVID-19 shutdown its core end users. No monthly recurring revenue model can save a company when its clients are effectively closed for business AND there’s $855.6mm of funded debt to service. Not to state the obvious.

Things may get worse before they get better. The company’s largest customer is Southwest Airlines Co. ($LUV) (21% of overall revenue) and it has a pretty bearish take on …

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• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $85mm RCF, $503.3mm TL, $188.7mm second lien notes, $82.5mm unsecured convertible notes.

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Madeleine Parish, Ted Dillman, Helena Tseregounis, Nicholas Messana, Eric Leon) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond, Betsy Feldman)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Greenhill & Co. Inc.

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

• Other Parties in Interest:

  • Prepetition First Lien Admin Agent & DIP Agent: Citibank NA

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius)

  • Ad Hoc DIP & First Lien Lender Group: Apollo Global Management, L.P., Eaton Vance Management, Arbour Lane Capital Management, Sound Point Capital Management, Carlyle Investment Management LLC, Mudrick Capital Management, BlackRock Financial Management, Inc.

    • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Michael Cohen, Jason Goldstein) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

  • Second Lien Agent: Cortland Capital Market Services LLC

  • Second Lien Noteholders: Searchlight Capital Partners LP

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Michael Turkel, Irene Blumberg, Elizabeth Sacksteder) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Southwest Airlines Inc.

    • Legal: Vinson & Elkins LLP (William Wallander, Paul Heath, Robert Kimball, Matthew Struble) & Saul Ewing Arnstein & Lehr LLP (Lucian Murley)

  • AT&T Corp.

    • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Brett Turlington)

  • Terry Steiner International

    • Legal: Loeb & Loeb LLP (Daniel Besikof, Geneva Shi)

  • Telesat International Limited

    • Legal: Hodgson Russ LLP (Garry Graber)

  • Nantahala Capital Management LLC

    • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

🚗 New Chapter 11 Bankruptcy Filing - Techniplas LLC 🚗

Techniplas LLC

May 6, 2020

Wisconsin-based Techniplas LLC and seven affiliates (the “debtors”), producers and manufacturers of plastic components used primarily in the automotive and transportation industries, filed for bankruptcy in the District of Delaware. “The Company produces, among other things, automotive products, such as fluid and air management components, decorative and personalization products, and structural components, as well as nonautomotive products, such as power utility and electrical components and water filtration products.” After cobbling together acquisitions over the course of the decade, the debtors’ business is now global in scale and its main customers are the leading OEMs in the US, Europe and Asia; it had net sales of $475mm and a net loss of $21mm in fiscal ‘19.

A bit more about the business. The debtors’ primary operating unit, “Techniplas Core,” acts “…as a manufacturer of technically complex, niche products across a wide range of applications and end markets, including the automotive and truck, industrial, and commercial markets.” This is roughly 83% of the business. In addition, the debtors have “Techniplas Prime,” which, aside from sounding like a Transformer that may or may not have it out for the human race, acts as a matchmaker between excess manufacturing capacity and customers in need of manufacturing. Per the debtors:

Serving as a nexus between customers, including OEMs, and other manufacturing companies, Techniplas Prime acts as an extension of Techniplas Core by delivering to customers the manufacturing capabilities of its Prime Partners. This makes Techniplas Prime asset-light and creates a “win-win” scenario for customers and Prime Partners.

Interestingly, this business segment was once dubbed “The Airbnb of Auto Manufacturing,” a moniker that makes almost zero sense and completely misunderstands the Airbnb model but, yeah sure, cheap “by-association” points, homies! Per Forbes:

[Founder George] Votis saw Techniplas Prime as an e-manufacturing platform from which customers could order parts electronically according to their own specifications, and have them built by local factories with unused capacity.

Except it’s not a platform. Like, at all. Airbnb is a digital two-sided platform that brings hosts and travelers together and seemlessly connects them. Techniplas Prime…well…

…well…page not found. Airbnb may be struggling in this COVID environment but we can assure you that you’re not EVER getting a 404 when going to their site. Platform…pssssfft. The Forbes article later contradicts itself saying:

…they focused on 3-D printing and advanced manufacturing technology companies that had spare capacity available for contract operations, for which Techniplas Prime is essentially the broker.

Right. Being a broker is different than being a platform y’all. But we digress.

The debtors have a simple capital structure consisting of a $17.59mm ABL, $175mm in 10% ‘20 notes, and a $6.77mm interim financing agreement for total funded debt around $200mm. The debtors, primarily due to this capital structure, began pursuing strategic alternatives in early 2017. Both an attempted sale process and debt refinancing failed. Thereafter, the debtors explored in 2018 a term loan refinancing of the preptition notes and/or a public equity listing in London. Those, too, failed. For this, the debtors blame a downturn in the automotive market and uncertainty from Brexit (PETITION Note: we’ve been foreshadowing that declining production capacity by the major OEMs was going to rattle through the supply chain so nobody should be surprised by this revelation).

In mid-’19, an attempted sale to a strategic buyer, private equity firm The Jordan Company, kicked off but that, despite some forward-moving progress involving a note purchase agreement and an unexercised call option for 100% of the membership interests in the debtors, ultimately fell through due to the inability to refi out the pre-petition notes. Subsequent attempts — now involving ad hoc group of noteholders and Jordan — also came close but ultimately failed due to deteriorating operating performance that pre-dated OOVID. COVID merely exacerbated things. Per the debtors:

Many customers suspended or drastically reduced production, resulting in a swift drop in demand for the Debtors’ products. Additionally, many of the locations where the Company had offices and manufacturing plants worldwide issued lockdown orders and permitted only essential business to remain open in an effort to control the outbreak and protect the health and safety of the public.

All of this was too much to handle: Jordan peaced out. Liquidity increasingly became an issue and so the debtors obtained a $6.7mm super senior priority bridge financing from the ad hoc group. Indeed, the ad hoc group is stepping up big here: in addition to providing the liquidity the debtors needed to get in chapter 11, they’ve agreed to provide a DIP ($20-25mm new money with a $100mm roll-up) and serve as stalking horse bidder — offering $105mm to purchase the debtors’ international operations and three remaining US-based manufacturing facilities. The debtors hope to close the sale within 44 days of the petition date.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: See above.

• Professionals:

  • Legal: White & Case LLP (David Turetsky, Andrew Zatz, Fan He, Robbie Boone Jr., John Ramirez, Sam Lawand, Thomas MacWright) & Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Johnna Darby, Daniel Thompson)

  • Financial Advisor/CRO: FTI Consulting Inc. (Peter Smidt, Andrew Hinkelman)

  • Investment Banker: Miller Buckfire & Co. LLC (Richard Klein)

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Techniplas Acquisition Co. LLC

  • Pre-Petition ABL & DIP ABL Agent: Bank of America NA

    • Legal: Sidley Austin LLP (Dennis Twomey, Elliot Bromagen) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, David Queroli)

  • DIP Term Agent: Wilmington Savings Fund Society FSB

    • Legal: Cole Schotz PC (Daniel Geoghan, J. Kate Stickles, Patrick Reilley)

  • Indenture Trustee: US Bank NA

    • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

  • Ad Hoc Noteholder Group ‘20 10% Senior Secured Notes

    • Legal: Arnold & Porter Kaye Scholer LLP (Jonathan Levine, Brian Lohan, Jeffrey Fuisz, Gerardo Mijares-Shafai)

New Chapter 11 Bankruptcy Filing - LSC Communications Inc.

LSC Communications Inc.

April 13, 2020

Chicago-based LSC Communications Inc. ($LSC) and 21 affiliated debtors (the “debtors”), a provider of traditional and digital print products, print-related services and office products, filed for bankruptcy in the Southern District of New York. The company is the result of a 2016 spinoff from R.R. Donnelley & Sons and though it subsequently diversified its business into logistics, it still deals with old-school categories like print magazines, catalogs, books, directories, various other print-related services, and office products. In fact, it is one of the largest printers of books in the US. All of which is to say that the debtors were ripe for disruption.

Nothing about this ought to be surprising to people who have been paying attention to the retail and media landscape over the last decade. Nevertheless, it is painful to read:

Although the Company is a market leader in the printing and printing related services industries, the Company’s product and service offerings have been adversely impacted by a number of long-term economic trends. Digital migration has substantially impacted print production volume, in particular with respect to printed magazines as advertising spending continues to move away from print to electronic media. Catalogs have experienced volume reductions as retailers and direct marketers allocate more of their spending to online advertising and marketing campaigns and some traditional retailers and director marketers go out of business in the face of increased competition from online retailers. The Company saw an unprecedented drop in demand for magazines and catalogs in 2019, with the faster pace of decline in demand primarily due to the accelerating movement from printed platforms to digital platforms.

Thanks Facebook Inc. ($FB). Clearly all of the Restoration Hardware Inc. ($RH) catalogues in the world couldn’t offset the shift of advertising away from print media and soften this blow.

And then there’s this:

Demand for printed educational textbooks within the college market has been adversely impacted by electronic substitution and other trends such as textbook rental programs and free open source e-textbooks. The K-12 educational sector has seen an increased focus on e-textbooks and e-learning programs, but there has been inconsistent adoption of these new technologies across school systems. Consumer demand for e-books in trade and mass market has impacted overall print book volume, although e-book adoption rates have stabilized and industry-wide print book volume has been growing in recent years.

Apropos to the brief discussion above about Mary Meeker’s presentation, we’ve got news for these guys: these trends away from printed textbooks are going to gather steam post-COVID. And while we’re happy to see an uptick in physical book production, it’s unclear whether that is a short-term trend or a longer-term rebound. Someone is going to have to get comfortable betting on the latter. More on this in a moment.

As if the secular trends weren’t bad enough, the debtors’ attempt to consolidate with Quad/Graphics Inc. ($QUAD) (synergies!) in late 2018 met with resistance. The DOJ filed a civil antitrust lawsuit seeking to block the proposed merger and ultimately the parties agreed to terminate the merger. While LSC received a reverse termination fee that exceeded the amount of transaction costs, the proposed merger (i) hindered the debtors’ ability to make much-needed operational fixes (i.e., plant consolidation and footprint optimization), (ii) affected new business development efforts and strained existing customer relationships, and (iii) created uncertainty among the employee ranks that, in some respects, sparked attrition.

All of the above led to an internal restructuring. The debtors set their sights on nine plant closures and footprint reductions — primarily in magazines and catalog manufacturing; they also renegotiated a number of unprofitable customer contracts. Bear in mind: all of this was pre-COVID. Matters can only have gotten worse.

What does all of this look like from a financial perspective? The debtors filed their annual report in early March and the numbers don’t lie:

LSC Annual Report 3/2/20

Net sales declined 13% and while there was a corresponding decline in the cost of sales, SG&A remained constant and restructuring costs ballooned.* The magazines/catalogues/logistics segment declined 7.3%. The book segment fell 3.6%. Office products were a rare bright spot up 8.1% (PETITION Note: this is a relatively small portion of the debtors’ business and we’ll see how that plays out going forward given that there may be a huge shift there).

Due to this piss poor operating performance, the debtors tripped their consolidated leverage ratio and minimum interest ratio covenants in their credit agreement. That’s right: you didn’t think this story would be complete without a significantly over-levered balance sheet, did you?

The company has $972mm of total funded indebtedness broken out among a revolver ($249mm + $50.8mm in outstanding letters of credit), a term loan ($221.9mm) and senior secured notes ($450mm at 8.75%). The term loan requires quarterly principal payments of $10.625mm. While the entire capital structure is secured by an “equal first-priority" ranking with respect to the collateral, the revolver has a “first-out” priority and is entitled first to any proceeds from the collateral while the term loan and the senior secured notes enjoy pari passu status. This is where the rubber meets the road: that’s a lot of parties to get to agree on a transaction.

Before it could agree to anything, however, the debtors needed time and therefore entered into a widely reported forbearance in early March. S&P Global Ratings promptly slapped a downgrade on the company saying that it believed a debt restructuring was likely within 90 days. What a genius call!! While all of this was happening, the debtors continued to deteriorate:

During its March discussions with creditors, the Debtors began to see a significant decrease in their available liquidity, driven in part by the long-term industry trends discussed above and made acute by the severe economic impact of the COVID-19 pandemic.

Which begs the question: what is the value of this business? Cleary nobody can agree on that: there is no restructuring support agreement here. Instead, there appears to be an arms-locked resignation that a parallel-path is needed to (i) nail down some DIP financing to shore up liquidity ($100mm at L+6.75%) and buy time, (ii) continue to discuss a balance sheet restructuring, AND (iii) simultaneously market test the business via a strategic marketing process. A lot of people will need to wait and see how this plays out, primarily pensioners owed over $50mm and various trade creditors including the bankruptcy-familiar RR Donnelley & Sons Co. ($RRD), Eastman Kodak Company ($KODK) and Verso Paper Holding LLC.

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

• Capital Structure: $249mm funded RCF (plus $50.8mm LOCs), $221.9mm funded TL (Bank of America NA), $450mm ‘23 8.75% senior secured notes (Wells Fargo Bank NA)

• Professionals:

  • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, Alexa Kranzley, Christian Jensen) & Young Conaway Stargatt & Taylor LLP

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • DIP Agent ($100mm): Bank of America NA

    • Legal: Moore & Van Allen PLLC (David Eades, Charles R. Rayburn III, Zachary Smith)

  • Ad Hoc Group of Term Lenders: Bardin Hill Investment Partners LP, Eaton Vance Management, HG Vora Capital Management, LLC, Marathon Asset Management, Shenkman Capital Management, Sound Point Capital Management LP, and Summit Partners Credit Advisors, L.P.

    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Sarah Gryll, Lucas Barrett)

  • Ad Hoc Group of Secured Noteholders: Capital Research and Management Company, Manulife Investment Management, Atlas FRM LLC, TD Asset Management Inc.

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Eaton, Claudia Tobler)

  • Official Committee of Unsecured Creditors

    • Legal: Stroock & Stroock & Lavan LLP (Frank Merola, Brett Lawrence, Erez Gilad, Harold Olsen, Gabriel Sasson)

🛰New Chapter 11 Bankruptcy Filing - OneWeb Global Limited🛰

OneWeb Global Limited

March 27, 2020

We have been complaining for months about how bankruptcy was getting boring. There are only so many retail, oil and gas, biopharma or mass tort cases to write about before things start to get really … and we mean REALLY … monotonous. And so a shout out to Softbank’s Masa Son: as always, you’ve supplied some much needed novelty to the mix! Amidst countless stories of one Softbank portfolio company after another getting a new directive, fresh discipline or retraded on deals (cough, WeWork), portfolio company OneWeb Global Limited and eighteen affiliates (the “debtors”) filed for bankruptcy.

As far as Softbank investments go, the debtors are SOOOOOOOO on brand. It is almost literally a “moonshot,” an uber-ambitious project aiming to deploy “the world’s first global satellite communications network to deliver high-throughput, high-speed, low-latency Internet connectivity services, having an ability of channeling 50 megabits per second, with a latency of less than 50 millisecond, and capable of connecting everywhere, to everyone.” Since 2012, the debtors have been developing a low-Earth orbit satellite constellation system and associated ground infrastructure “capable of delivering communication services for use by consumers, businesses, governmental entities, and institutions, including schools, hospitals, and other end-users whether on the ground, in the air, or at sea.” This means they have started mass producing small satellites, acquiring various authorizations and spectrum icenses (i.e., the use of Ku-band and Ka-band radio-frequency spectrum on a global basis) and domestic market access/services authorizations; they have also completed three launches of 70 satellites in the last year. “OneWeb was well on its way to growing its constellation to 648 satellites with the goal of beginning customer service demonstrations in late 2020 and providing full global commercial coverage by late 2021 or early 2022.” Right. Just like Uber Inc. ($UBER) is delivering autonomous cars and WeWork is sustainably spreading its community-first mission across the world. You have to hand it to Masa Son: the man has some vision. Some entrepreneurial spirit. Eventually, though, there has to be money to support the ambition.

Right. So, about the money. The debtors have raised a lot of it — no surprise considering the capital intensive nature of the business. The raises include:

• A $500mm equity raise backed by Airbus Group Inc. Hughes Network Systems LLC, Intelsat Corporation, Qualcomm Incorporated and Virgin Group Ltd.

• A $1.2b equity raise, $1b of which came from Softbank Group Corp. and the other $200mm from existing investors.

• A $408mm note issuance to Softbank as administrative and collateral agent.

• A $1.56b senior note issuance (and corresponding warrant issue) secured by substantially all of the debtors’ assets including share pledges and rights to radiofrequency authorizations. This issuance rolled-up the $408mm note.

In total, the debtors has over $1.73b in funded debt outstanding as of the petition date on top of the $1.7b of equity raised.

And yet it is in bankruptcy first and foremost because of liquidity issues. As a development stage company, it is what the venture capitalists would call “pre-revenue.” Worse than that, development is time-consuming and expensive and the build out of the debtors’ systems “exhausted [their] existing equity and debt financing.” Again, this is Softbank: massive cash burn is part of its playbook. We’ve all seen this movie before. There’s always tons of money until — poof! — suddenly there’s not. Since 2019, the debtors have been seeking investments from existing and new investors but nobody would bite. It seems that investors hesitated to throw good money after bad; it is also safe to presume that, by this point, a certain level of post-WeWork-fiasco Softbank taint burdened the process. Investors are leery of lighting good money on fire after bad.

Toss in COVID-19 and we’ve got ourselves a combustible situation. Per the debtors:

OneWeb had been hopeful to achieve an out of court solution to its deteriorating liquidity position. After several due diligence meetings during the first and second weeks of March 2020, the Company believed that it was going to be able to secure a long-term funding arrangement from existing shareholders. However, on March 12, 2020, as the markets began to feel the impact of COVID-19, OneWeb was notified that its current investors would not commit to a long term solution. On March 16, 2020, OneWeb entered into a term sheet for bridge financing to be consummated by March 26, 2020. On March 21, 2020, the Company was notified that the bridge financing offer was unavailable. Unfortunately, the anticipated funding opportunities OneWeb pursued were significantly and precipitously impacted by the COVID-19 pandemic and the resulting shuttering of the global economy. OneWeb, in an effort to preserve liquidity during these difficult social, political, and economic times, began shutting down nonessential aspects of its business in order to preserve the value of its existing assets.

Consequently, the debtors laid off 90% of their workforce and halted development. With the consensual use of Softbank’s cash collateral, the debtors filed chapter 11 “to provide them with the necessary breathing space to wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets.”

Given the volatility currently in the market, there’s no telling how long they’ll have to wait.

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

• Capital Structure: see above.

• Professionals:

  • Legal: Milbank LLP (Dennis Dunne, William Schumacher, Andrew Leblanc, Tyson Lomazow, Lauren Doyle)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • Softbank

    • Legal: Morrison & Foerster LLP (Gary Lee, Todd Goren)

  • Collateral Agent: GLAS

    • Legal: Arnold & Porter Kaye Scholer (Jonathan Levine)

  • EchoStar Operating LLC and Hughes Network Systems LLC

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

  • Airbus DS Satnet LLC and Airbus Group Proj B.V.

    • Legal: Hogan Lovells US LLP (Ronald Silverman, Christopher Bryant, M. Hampton Foushee, Craig Ulman)
      

🐄New Chapter 11 Bankruptcy Filing - Borden Dairy Company🐄

Borden Dairy Company

January 5, 2020

Dallas-based Borden Dairy Company and 17 affiliated companies joined fellow dairy manufacturer, Dean Foods Company (which we’ve written about here, here, here and, lastly, here upon its chapter 11 filing) in bankruptcy court this week. Why? “Like other milk producers and distributors, Borden is facing a multi-year trend of shrinking margins and increasing competition. These negative trends have been exacerbated by declining margin over milk at retail even as the price of raw Class 1 milk has been increasing.” Boo Moo.

What a storied history. Founded by Gail Borden in 1856 (PETITION Note: read the link if you want to feel awful about yourself and what you’ve accomplished in your life), the New York Condensed Milk Company started the first successful condensed milk processing plant in 1861. In the latter part of the 19th century, the company added processed and evaporated milk to its offerings and pioneered the use of glass milk bottles.

In 1919, the company changed its name to Borden Company in honor of Mr. Borden. This was a period of great uncertainty — one captured in Hemingway’s “The Sun Also Rises” — but that didn’t stop Mr. Borden’s descendants from expanding their dairy-fueled reign. They acquired two of the largest ice cream manufacturers in the US, while also adding cheese and acquiring a chemicals company. Over those years, Borden acquired over 200 companies. “Elsie the Cow” was born in 1936 and became a well known mascot.

By the 80s, Borden was the world’s largest dairy operator with sales exceeding $7.2b. Then gravity prevailed. By the early 90s, the company experienced financial distress borne out of two much expansion over the years and sold to KKR for $2b. KKR then dismantled Borden by selling off divisions and brands to various buyers.

The debtors underwent a comprehensive restructuring in 2017. At the time of the restructuring, the debtors took on a $275mm credit facility held, in tranches, by PNC Bank and KKR. The effective interest rate on the term loan facilities was 9.3% as of 12/31/19, which is on top of the 4.95% interest due under the revolving portion of the loan. So, yeah, debt and the debtors’ interest expense nut is a big part of this bankruptcy filing.

The company is no longer the behemoth it once was. Nevertheless, it employees over 3000 people and makes tens of thousands of service calls to its customers (e.g., Walmart Inc. & Sam’s Club ($WMT)), Kroger Inc. ($KR), 7-Eleven, CVS HealthCorp. ($CVS), Starbucks Inc. ($SBUX), etc.).

But its number suck. In 2018, the company had a total net income loss of $14.6mm on ~$1.2b of sales. In 2019, the loss widened to $42.4mm. Liquidity, therefore, is a big issue — and it’s compounded by (a) interest expense and amort payments on the term loan and (b) employee obligations under mandatory retirement plans and settlements related to pension funds. More on this below.

The macro reasons for the debtors’ problems sound like a Dean Foods’ encore:

• The milk industry is highly competitive ✅;

• Non-dairy products and beverages are stealing share (DISRUPTION!!) ✅;

• Discount grocers have “intensified competition and reduced the margin over milk at retail” ✅; and

• Walmart and other retailers who use milk as a loss leader are napalming margins ✅;

• Commodity and freight costs are up ✅.

The company doesn’t tip its hand as to what it hopes to achieve in bankruptcy other than a “breathing spell” to get its sh*t in order. The Wall Street Journal noted:

Borden Chief Executive Tony Sarsam told The Wall Street Journal that he believes Acon, which took a major stake in the company in 2017, will be the primary owner of the business after the bankruptcy. He declined to say how much debt Borden would erase as part of its bankruptcy restructuring.

Acon is currently one of the debtors’ majority owners.

*****

There’s one thing that the Wall Street Journal doesn’t pick up on though. The debtors’ pensioners are about to get the royal screw.

The debtors note that, pre-filing, they made periodic payments pursuant to two settlement agreements they entered into in connection with their withdrawal from its (a) Central States, Southeast and Southwest Areas Pension Fund terminated in ‘14 (“Central States”) and (b) Retail, Wholesale and Department Store International Union pension fund terminated in ‘16 (“RWDSU”). In connection with the ‘17 restructuring, the debtors established a special purpose account funded with $30mm to fund these settlement payments — $185,225/month to Central States and $6,000/month to RWDSU. The account now has $26.6mm in it.

The debtors are laying claim to this money; they note that it is unencumbered by their lenders nor the pensioners.

This hasn’t been a great time for pensioners. With coal bankruptcies galore, Jack Cooper, and now the dairy producers, anxiety levels must be through the roof.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $275mm of funded debt (see above). $30mm Term Loan A (PNC), $175mm Term Loan B (KKR Credit Advisors US LLC), $70mm RCF (PNC)

• Professionals:

  • Legal: Arnold & Porter Kaye Scholer (D. Tyler Nurnberg, Seth Kleinman, Sarah Gryll, Jeffrey Fuisz) & Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Kenneth Enos, Elizabeth Justison, Betsy Feldman)

  • Independent Directors: Harold Strunk, Andrea Fischer Newman

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

• Other Parties in Interest:

  • ACON Dairy Investors LLC

  • New Laguna LLC

  • Agent, RCF Facility Lenders & Term Loan A Facility Lenders: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon, Josef Mintz, John Lucian, Gregory Vizza)

  • Term Loan B Facility Lenders: KKR Credit Advisors US LLC/Franklin Square Holdings LP

    • Legal: King & Spalding LLP (Roger Schwartz, Peter Montoni, Christopher Boies, Stephen Blank) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller, Matthew Harvey, Matthew Talmo)

  • Official Committee of Unsecured Creditors

    • Legal: Sidley Austin LLP (Matthew Clemente, Genevieve Weiner, Michael Fishel, Michael Burke) & Morris James LLP (Carl Kunz III, Eric Monzo, Brya Keilson)

⛽️New Chapter 11 Filing - Legacy Reserves Inc.⛽️

Legacy Reserves Inc.

June 18, 2019

CNBC: What is it you like about the Permian Basin?

Munger: It's got a lot of oil in it

— Tara Lachapelle (@taralach) May 6, 2019

Even at 95 years old, you can’t get one past Charlie Munger. #Legend.

The Permian Basin in West Texas is where it’s at in the world of oil and gas exploration and production. Per Wikipedia:

As of 2018, the Permian Basin has produced more than 33 billion barrels of oil, along with 118 trillion cubic feet of natural gas. This production accounts for 20% of US crude oil production and 7% of US dry natural gas production. While the production was thought to have peaked in the early 1970s, new technologies for oil extraction, such as hydraulic fracturing and horizontal drilling have increased production dramatically. Estimates from the Energy Information Administration have predicted that proven reserves in the Permian Basin still hold 5 billion barrels of oil and approximately 19 trillion cubic feet of natural gas.

And it may be even more prolific than originally thought. Norwegian research firm Rystad Energy recently issued a report indicating that Permian projected output was already above 4.5mm barrels a day in May with volumes exceeding 5mm barrels in June. This staggering level of production is pushing total U.S. oil production to approximately 12.5mm barrels per day in May. That means the Permian now accounts for 36% of US crude oil production — a significant increase over 2018. Normalized across 365 days, that would be a 1.64 billion barrel run rate. This is despite (a) rigs coming offline in the Permian and (b) natural gas flaring and venting reaching all-time highs in Q1 ‘19 due to a lack of pipelines. Come again? That’s right. The Permian is producing in quantities larger than pipelines can accommodate. Per Reuters:

Producers burned or vented 661 million cubic feet per day (mmcfd) in the Permian Basin of West Texas and eastern New Mexico, the field that has driven the U.S. to record oil production, according to a new report from Rystad Energy.

The Permian’s first-quarter flaring and venting level more than doubles the production of the U.S. Gulf of Mexico’s most productive gas facility, Royal Dutch Shell’s Mars-Ursa complex, which produces about 260 to 270 mmcfd of gas.

The Permian isn’t alone in this, however. The Bakken shale field in North Dakota is also flaring at a high level. More from Reuters:

Together, the two oil fields on a yearly basis are burning and venting more than the gas demand in countries that include Hungary, Israel, Azerbaijan, Colombia and Romania, according to the report.

Permian Slowdown Continues; U.S. Rig Count Declines by Six: Led once again by declines in the Permian Basin, the U.S. rig count declined by six units in the week ended June 14 to finish at 969, according to the latest data from Baker Hughes... https://t.co/huCTiSD0i2 #NatGas pic.twitter.com/RxHsCiCt5B

— Shale Daily (@shaledaily) June 14, 2019

All of which brings us to Legacy Reserves Inc. ($LGCY). Despite the midstream challenges, one could be forgiven for thinking that any operators engaged in E&P in the Permian might be insulated from commodity price declines and other macro headwinds. That position, however, would be wrong.

Legacy is a publicly-traded energy company engaged in the acquisition, development, production of oil and nat gas properties; its primary operations are in the Permian Basin (its largest operating region, historically), East Texas, and in the Rocky Mountain and Mid-Continent regions. While some of these basins may produce gobs of oil and gas, acquisition and production is nevertheless a HIGHLY capital intensive endeavor. And, here, like with many other E&P companies that have recently made their way into the bankruptcy bin, “significant capital” translates to “significant debt.”

Per the Company:

Like similar companies in this industry, the Company’s oil and natural gas operations, including their exploration, drilling, and production operations, are capital-intensive activities that require access to significant amounts of capital.  An oil price environment that has not recovered from the downturn seen in mid-2014 and the Company’s limited access to new capital have adversely affected the Company’s business. The Company further had liquidity constraints through borrowing base redeterminations under the Prepetition RBL Credit Agreement, as well as an inability to refinance or extend the maturity of the Prepetition RBL Credit Agreement beyond May 31, 2019.

This is the company’s capital structure:

The company made two acquisitions in mid-2015 costing over $540mm. These acquisitions proved to be ill-timed given the longer-than-expected downturn in oil and gas. Per the Company:

In hindsight, despite the GP Board’s and management’s favorable view of the potential future opportunities afforded by these acquisitions and the high-caliber employees hired by the Company in connection therewith, these two acquisitions consumed disproportionately large amounts of the Company’s liquidity during a difficult industry period.

WHOOPS. It’s a good thing there were no public investors in this thing who were in it for the high yield and favorable tax treatment.*

Yet, the company was able to avoid a prior bankruptcy when various other E&P companies were falling like flies. Why was that? Insert the “drillco” structure here: the company entered into a development agreement with private equity firm TPG Special Situations Partners to drill, baby, drill (as opposed to acquire). What’s a drillco structure? Quite simply, the PE firm provided capital in return for a wellbore interest in the wells that it capitalized. Once TPG clears a specified IRR in relation to any specific well, any remaining proceeds revert to the operator. This structure — along with efforts to delever through out of court exchanges of debt — provided the company with much-needed runway during a rough macro patch.

It didn’t last, however. Liquidity continued to be a pervasive problem and it became abundantly clear that the company required a holistic solution to its balance sheet. That’s what this filing will achieve: this chapter 11 case is a financial restructuring backed by a Restructuring Support Agreement agreed to by nearly the entirety of the capital structure — down through the unsecured notes. Per the Company:

The Global RSA contemplates $256.3 million in backstopped equity commitments, $500.0 million in committed exit financing from the existing RBL Lenders, the equitization of approximately $815.8 million of prepetition debt, and payment in full of the Debtors’ general unsecured creditors.

Said another way, the Permian holds far too much promise for parties in interest to walk away from it without maintaining optionality for the future.

*Investors got burned multiple times along the way here. How did management do? Here is one view (view thread: it’s precious):

Time for another round of:

"These incompetent fucks bankrupted an energy company...now how much will they pay themselves for it?"

This week's edition: Legacy Reserves $LGCY

Real ones will remember that $LGCY had a #4 seed in the Worst Midstream / MLP Management Team Bracket

— Mr. Skilling (Parody) (@mr_skilling) May 24, 2019

😬

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

• Capital Structure: See above.

• Professionals:

  • Legal: Sidley Austin LLP (Duston McFaul, Charles Persons, Michael Fishel, Maegan Quejada, James Conlan, Bojan Guzina, Andrew O’Neill, Allison Ross Stromberg)

  • Financial Advisor: Alvarez & Marsal LLC (Seth Bullock, Mark Rajcevich)

  • Investment Banker: Perella Weinberg Partners (Kevin Cofsky)

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

• Other Parties in Interest:

  • Official Committee of Unsecured Creditors (Wilmington Trust NA, Dalton Investments LLC, Paul Drueke, John Dinkel, Nicholas Mumford)

  • GSO Capital Partners LP

    • Legal: Latham & Watkins LLP (George Davis, Adam Goldberg, Christopher Harris, Zachary Proulx, Brett Neve, Julian Bulaon) & (local) Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

  • DIP Lender: Wells Fargo Bank NA

    • Legal: Orrick LLP (Raniero D’Aversa, Laura Metzger)

  • Prepetition Term Agent: Cortland Capital Market Services LLC

    • Legal: Arnold & Porter Kaye Scholer LLP (Gerardo Mijares-Shafai, Seth Kleinman)

  • Indenture Trustee: Wilmington Trust NA

    • Legal: Pryor Cashman (Seth Lieberman, Patrick Sibley, Andrew Richmond)

  • Ad Hoc Group of Senior Noteholders (Canyon Capital Advisors LLC, DoubleLine Income Solutions Fund, J.H. Lane Partners Master Fund LP, JCG 2016 Holdings LP, The John C. Goff 2010 Family Trust, John C. Goff SEP-IRA, Cuerno Largo Partners LP, MGA insurance Company Inc., Pingora Partners LLC)

    • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Stephen Piraino, Michael Pera) & (local) Rapp & Krock PC (Henry Flores)

Updated 7/7/19 #188

New Chapter 11 Bankruptcy Filing -- Fusion Connect Inc.

Fusion Connect Inc.

June 3, 2019

We previously wrote about Fusion Connect Inc. ($FSNN), providers of “Unified Communications-as-a-Service” and “Infrastructure-as-a-Service” in “⛈A Dark "Cloud" on the Horizon⛈.” Therein we marveled at how special Fusion must be…to fail SO SPECTACULARLY in today’s cloud here, cloud there, cloud everywhere, everyone’s gaga for cloud environment. Cloud is SO captivating that it wasn’t until the company filed a piss poor 8-K back in April that a B. Riley FBR ($RILY) analyst FINALLY had an epiphany and declared that the company’s stock ought to be downgraded from “buy” to “neutral” (huh?!?) with a price target of $0.75 — down from $9.75/share. This is despite the fact that the stock hadn’t traded anywhere in the vicinity of $9.75/share in ages — nowhere even close, actually — but whatevs. Clearly, his head was in the cloud(s). This, ladies and gentlemen, demonstrates, in a nutshell, the utter worthlessness of equity analyst reports.🖕

But this isn’t a story about shoddy analyst research. That would be wholly unoriginal. This is a story about synergies and burdensome debt. Because, like, that’s so super original that you won’t read of it again until…well…you scroll below to the next bit of content about FTD!! 🙄

Boiled down to its simplest form, this company is the product of an acquisition strategy (and reverse merger) gone wrong. Like, in a major, major way. Per the company:

The Company pursued the Birch Merger with a vision of leveraging its existing processes and structures to create synergies between Fusion’s and Birch’s joined customer bases, combine network infrastructure assets to improve operational efficiencies, and ultimately drive material growth in Fusion’s and Birch’s combined annual revenue. In connection with the Birch Merger and MegaPath Merger, the Company incurred $680 million in secured debt. (emphasis added)

That reverse merger closed at the end of Q2, 2018. Yet…

Unfortunately, due to underperformance compared to business projections, the Company found itself with limited liquidity and at risk of default under its debt documents by early 2019.

Wait, what? Limited liquidity and risk of default by “early 2019”?!? Who the f*ck diligenced and underwrote this transaction?!? This sitch is so bad, that the company literally didn’t have enough liquidity to make a recent $6.7mm amort payment under the first lien credit agreement and a $300k interest payment on its unsecured debt. This is the company’s pre-petition capital structure:

• $20mm super senior L+10% June 2019 debt

• $43.3mm Tranche A Term Loans L+6.0% May 2022 debt

• $490.9mm Tranche B Term Loans L+8.5% May 2023 debt

• $39mm Revolving Loans L+6.0% May 2022 debt

• $85mm Second Lien L+10.5% November 2023 debt

• $13.3mm Unsecured Debt

Back in April we summed up the situation as follows:

The company’s recent SEC reports constitute a perfect storm of bad news. On April 2, the company filed a Form 8-K indicating that (i) a recently-acquired company had material accounting deficiencies that will affect its financials and, therefore, certain of the company’s prior filings “can no longer be relied upon,” (ii) it won’t be able to file its 10-K, (iii) it failed to make a $7mm interest payment on its Tranche A and Tranche B term loan borrowings due on April 1, 2019, and (iv) due to the accounting errors, the company has tripped various covenants under the first lien credit agreement — including its fixed charge coverage ratio and its total net leverage ratio.

Again, who diligenced the reverse merger?!? 😡

So here we are. In bankruptcy. To what end?

The company is seeking a dual-path restructuring that is all the rage these days: everyone loves to promote optionality that will potentially result in greater value to the estate. In the first instance, the company proposes, as a form of “stalking horse,” a “reorganization transaction” backed by a restructuring support agreement with certain of its lenders. This transaction would slash $300mm of the company’s $665mm of debt and result in the company’s first lien lenders owning the company. That is, unless a buyer emerges out of the woodwork with a compelling purchase price. To promote this possibility, the company is filing a bid procedures motion with the bankruptcy court with the hope of an eventual auction taking place. If a buyer surfaces with mucho dinero, the company will toggle over to a sale pursuant to a plan of reorganization. This would obviously be the optimal scenario. Absent that (and maybe even with that), we’ve got a jaw-dropping example of value destruction. “Fail fast,” many in tech say. These cloud bros listened!! Nothing like deep-sixing yourself with a misguided poorly-diligenced acquisition. Bravo!!

The company has secured a commitment for a fully-backstopped $59.5mm DIP that subsumes the $20mm in super senior pre-petition bridge financing recently provided by the first lien lenders. Is this DIP commitment good for general unsecured creditors? Is any of this generally good for unsecured creditors? Probably not.

Major creditors include a who’s who of telecommunications companies, including AT&T Inc. ($T) (first Donald Trump and now THIS…rough week for AT&T), Verizon Communications Inc. ($VZ), XO Communications (owned by VZ), Frontier Communications Corp. ($FTR)(which has its own issues to contend with as it sells assets to sure up its own balance sheet), CenturyLink Inc. ($CTL), Level 3 Communications ($LVLT), Time Warner Inc. ($TWX), and….wait for it…bankrupt Windstream Communications ($WINMQ). Because the hits just keep on coming for Windstream….

Jurisdiction: S.D. of New York (Judge Bernstein)

• Capital Structure: see above.

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Sunny Singh, Natasha Hwangpo)

  • Board of Directors: Matthew Rosen, Holcombe Green Jr., Marvin Rosen, Holcombe Green III, Michael Del Guidice, Lewis Dickey Jr., Rafe de la Gueronniere, Neil Goldman)

  • Financial Advisor: FTI Consulting Inc. (Mark Katzenstein)

  • Investment Banker: PJT Partners (Brent Herlihy, John Singh)

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

• Other Parties in Interest:

  • Ad Hoc First Lien Lender Group

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen)

    • Financial Advisor: Greenhill & Co. Inc.

  • DIP Lender: Credit Suisse Loan Funding LLC

  • DIP Agent, Prepetition Super Senior Agent & Prepetition First Lien Agent: Wilmington Trust NA

    • Legal: Arnold & Porter Kaye Scholer (Michael Messersmith, Sarah Grylll, Alan Glantz)

  • Prepetition Second Lien Successor Agent: GLAS America LLC & GLAS USA LLC

  • Ad Hoc Group of Tranche A Term Loan/Revolving Lenders

    • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Soogy Lee, Edward Linden)

  • Second Lien Lenders

    • Legal: Proskauer Rose LLP (Charles Dale, Jon English)

  • Large Unsecured Creditor: AT&T

    • Legal: Norton Rose Fulbright US LLP (David Rosenzweig, Francisco Vazquez)

Updated 6/4/19 at 5:42am

New Chapter 11 Filing - Hexion Holdings LLC

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:

(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 Filing - Southcross Energy Partners LP⛽️

Southcross Energy Partners LP

April 1, 2019

We’ve been noting — in “⛽️Is Oil & Gas Distress Back?⛽️“ (March 6) and “Oil and Gas Continues to Crack (Long Houston-Based Hotels)“ (March 24) that oil and gas was about to rear its ugly head right back into bankruptcy court. Almost on cue, Vanguard Natural Resources Inc. filed for bankruptcy in Texas on the last day of Q1 and, here, Southcross Energy Partners LP kicked off Q2.

Dallas-based Southcross Energy Partners LP is a publicly-traded company ($SXEE) that provides midstream services to nat gas producers/customers, including nat gas gathering, processing, treatment and compression and access to natural gas liquid (“NGL”) fractionation and transportation services; it also purchases and sells nat gas and NGL; its primary assets and operations are located in the Eagle Ford shale region of South Texas, though it also operates in Mississippi (sourcing power plants via its pipelines) and Alabama. It and its debtor affiliates generated $154.8mm in revenues in the three months ended 09/30/18, an 11% YOY decrease.

Why are the debtors in bankruptcy? Because natural gas prices collapsed in 2015 and have yet to really meaningfully recover — though they are up from the $1.49 low of March 4, 2016. As we write this, nat gas prices at $2.70. These prices, combined with too much leverage (particularly in comparison to competitors that flushed their debt through bankruptcy) and facility shutdowns, created strong headwinds the company simply couldn’t surmount. It now seeks to use the bankruptcy process to gain access to much needed capital and sell to a buyer to maximize value. The company does not appear to have a stalking horse bidder lined up.

The debtors have a commitment for $137.5mm of new-money post-petition financing to fund its cases. Use of proceeds? With the agreement of its secured parties, the debtors seek to pay all trade creditors in the ordinary course of business. If approved by the court, this would mean that the debtors will likely avoid having to contend with an official committee of unsecured creditors and that only the secured creditors and holders of unsecured sponsor notes would have lingering pre-petition claims — a strong power move by the debtors.

• Jurisdiction: D. of Delaware (Judge Walrath)

• Capital Structure: $81.1mm funded ‘19 RCF (Wells Fargo Bank NA), $430.875mm ‘21 TL (Wilmington Trust NA), $17.4mm unsecured sponsor notes (Wells Fargo NA)

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Darren Klein, Steven Szanzer, Benjamin Schak) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Joseph Barsalona II, Eric Moats)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • Prepetition RCF & Unsecured Agent: Wells Fargo Bank NA

    • Legal: Vinson & Elkins LLP (William Wallander, Brad Foxman, Matt Pyeatt) & (local) Womble Bond Dickinson US LLP (Ericka Johnson)

  • Prepetition TL & DIP Agent ($255mm): Wilmington Trust NA

    • Legal: Arnold & Porter Kaye Scholer LLP (Seth Kleinman, Alan Glantz)

  • Post-Petition Lenders and Ad Hoc Group

    • Legal: Willkie Farr & Gallagher LLP (Joseph Minias, Paul Shalhoub, Leonard Klingbaum, Debra McElligott) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)

  • Southcross Holdings LP

    • Legal: Debevoise & Plimpton LLP (Natasha Labovitz)

  • Stalking Horse Bidder:
    

Updated 9:39 CT

New Chapter 11 Bankruptcy Filing - Windstream Holdings Inc.

Windstream Holdings Inc.

February 25, 2019

See here for our write-up on Winstream Holdings Inc.

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

• Capital Structure: see below.

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Stephen Hessler, Ross Kwasteniet, Marc Kieselstein, Brad Weiland, Cristine Pirro Schwarzman, John Luze, Neda Davanipour)

  • Legal (Board of Directors): Norton Rose Fulbright US LLP (Louis Strubeck Jr., James Copeland, Kristian Gluck)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest:

  • DIP Lender ($500mm TL, $500mm RCF): Citigroup Global Markets Inc.

  • Prepetition 10.5% and 9% Notes Indenture Trustee: Wilmington Trust NA

    • Legal: Reed Smith LLP (Jason Angelo)

  • Prepetition TL and RCF Agent: JPMorgan Chase Bank NA

    • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Nicholas Baker, Jamie Fell)

  • Ad Hoc Group of Second Lien Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Houlihan Lokey Capital

  • Ad Hoc Group of First Lien Term Lenders

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Andrew Rosenberg, Samuel Lovett, Michael Rudnick)

    • Financial Advisor: Evercore

  • Midwest Noteholders

    • Legal: Shearman & Sterling LLP

  • Uniti Group Inc.

    • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Eli Vonnegut, James Millerman)

    • Financial Advisor: Rothschild & Co.

  • Large Unsecured Creditor: AT&T Corp.

    • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan, Ginger Clements, Peta Gordon) & AT&T (James Grudus)

  • Large Unsecured Creditor: Verizon Communications Inc.

    • Legal: Stinson Leonard Street LLP (Darrell Clark, Tracey Ohm)

  • Official Committee of Unsecured Creditors (AT&T Services Inc., Pension Benefit Guaranty Corporation, Communication Workers of America, AFL-CIO CLC, VeloCloud Networks Inc., Crown Castle Fiber, LEC Services Inc., UMB Bank)

    • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Brett Miller, Todd Goren, Jennifer Marines, Erica Richards)

New Chapter 11 Bankruptcy Filing - Gastar Exploration Inc.

Gastar Exploration Inc.

October 31, 2018

The fallout from the oil and gas downturn appears to have a long tail.

Gastar Exploration Inc. ($GST), an oil and natural gas exploration and production company focused on shale resource plays in Oklahoma filed a prepackaged bankruptcy in the Southern District of Texas.

For anyone looking for a short primer on what exactly transpired in oil and gas country upon the 2014 downturn in commodity prices is in luck: the company provides a succinct explanation in its bankruptcy filings. It notes:

The market difficulties faced by the Debtors are consistent with those faced industry-wide. Oil and gas companies and others have been challenged by low natural gas prices for years. Since January 2014, natural gas prices fell from a peak of $5.39 per MMBtu in January 2014 to $1.73 per MMBtu by March 2016, and remain at approximately $3.17 per MMBtu. The price of crude oil has similarly plummeted from a high of $107.26 per barrel in June 2014 to a low of $29.64 per barrel in January 2016. Crude oil prices remain at approximately $67 per barrel. Additionally, NYMEX futures curves for both natural gas and crude oil are backward dated, indicating an expectation among real-money traders in the derivatives market that these commodity prices are expected to decline over the next several years.

These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues are generated from the sale of unrefined oil and gas. Over 160 oil and gas companies have filed for chapter 11 since the beginning of 2015. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings.

The Debtors were not immune to these macro-economic forces.

With hundreds of millions of dollars of debt, the company managed to avoid a bankruptcy filing during that time. This is primarily due to a 2017 refinancing transaction that it consummated with Ares Management LLC pursuant to which the company took on new first lien term loans, new second lien converts, and obtained a $50mm equity investment from Ares. The capital structure, at the petition date, is comprised of these term loans and converts. The company intended the new financing to help it weather the downturn and bridge it to a more favorable operational performance and capital markets environment. Alas, it’s in bankruptcy. So, we guess we know how those intentions played out in reality. Indeed, the company experienced significant operational challenges that resulted in a decreased in well production performance — a result that came to pass only after the company incurred the costs of production. Sheesh.

Now the company seeks, in partnership with Ares, to push through a speedy chapter 11 bankruptcy that would have the effect of deleveraging the balance sheet by approximately $300mm, handing all of the equity to Ares (on account of their second lien notes claims), and wiping out the preferred and common equity — which would only be entitled to warrants in reorganized Gastar if they don’t object to the restructuring or seek the appointment of an official committee of equity security holders. Which in the case of both common equityholders (Fir Tree Capital Management LP & York Capital Management Global Advisors LLC) and preferred equityholders…uh…is exactly what they’re doing. Clearly those warrants weren’t much of a carrot. And Judge Isgur happens to have previously demonstrated a soft spot in his heart for equity committees. See, e.g., Energy XXI.

Prior to the first day hearing, Fir Tree and York (by attorneys Quinn Emanuel - a sign of seriousness) filed an emergency motion seeking the appointment of an equity committee alleging, among other things, that the company’s plan is a pure Ares jam fest. They seek an investigation of Ares’ actions (including the refinancing transaction), citing the Energy XXI case, and noting in the process that with unsecured creditors riding through the plan, there is no viable adversary to the debtor other than the zeroed-out equity. Which makes this a private equity vs. hedge fund hootenanny!

Subsequently, an ad hoc committee of preferred stockholders filed a motion joining the arguments of Fir Tree and York, noting, however, that as a preferred equity they’re liquidation preference trumps the interest of the common stockholders. They, too, want an investigation into Ares’ involvement in these cases.

A hearing is scheduled for later this week.

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

• Capital Structure: see below (+$13.3mm in hedging obligations).     

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Ross Kwasteniet, Anna Rotman, John Luze, Ciara Foster, Brett Newman) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Financial Advisor: Dacarba LLC

  • Investment Banker: Perella Weinberg Partners LP (Kevin Cofsky)

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

• Other Parties in Interest:

  • Financial Sponsor: Ares Management LLC

    • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Robert Liubicic, Haig Maghakian)

  • Minority Shareholders: Fir Tree Capital Management LP & York Capital Management Global Advisors LLC

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Emily Smith, K. John Shaffer, Benjamin Finestone, Kate Scherling)

  • Ad Hoc Committee of Preferred Stock Holders (Aedes LLC)

    • Legal: Hunton Andrews Kurth LLP (Paul Silverstein, David Zdunkewicz, Brian Clarke, Timothy Tad Davidson II)

  • DIP Agent & TL Agent: Wilmington Trust NA

    • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, Brian Lohan, Seth Kleinman)

Source: First Day Declaration

New Chapter 11 Filing - Gibson Brands Inc.

Gibson Brands Inc.

5/1/18

After months of speculation (which we have covered here and elsewhere), the famed Nashville-based guitar manufacturer has finally filed for Chapter 11. We're old enough to remember this:

Late Tuesday, GIbson Brands CEO Henry Juszkiewicz denied all of the reports and indicated via press release that a plan was underway to salvage the brand.

What Mr. Juszkiewicz didn't say was that "a plan" actually meant a "plan of reorganization." Which is okay: nobody believed him anyway. 

And here's why: in the company's First Day Declaration, the company proudly boasts,

The Debtors' strength, rooted in their iconic Gibson, Epiphone, KRK, and other brands that have shaped the music industry for over 100 years, have been the brands of choice for countless musicians and recording artists, including some of the most legendary guitarists in history such as Muddy Waters, BB King, Elvis Presley, Pete Townsend, Keith Richards, Duane Allman, Elvis Costello, Lenny Kravitz, Slash, Dave Grohl, Joe Bonamassa, and Brad Paisley, among others. 

Anyone else see an issue with this lineup? Legends, sure, but not exactly a group of artists you see listed on Coachella posters. Even in a publicly-available document, this company doesn't know how to market itself to the masses. Case and point, after Guitar Center got its out-of-court deal done last week, we wrote the following:

Gibson may want to embrace the present. But we digress. 

Unbeknownst to many, however, Gibson is more than just its legendary guitars. No doubt, guitars are a big part of its business. According to the company's First Day Declaration (which, for the record, is one of the more jumbled incoherent narratives we've seen in a First Day Declaration in some time), 

Gibson has the top market share in premium electric guitars, selling over 170,000 guitars annually in over eighty (80) countries worldwide and selling over 40% of all electric guitars priced above $2,000.

But the company also expanded to include a "Professional Audio" segment, its musical instrument and pro-audio segment ("MI," which is positive cash flow), and a "Gibson Innovations" business ("GI"), which stems from a 2014 leveraged transaction. The latter business has been a drag on the overall enterprise ever since the transaction eventually leading to breaches of certain financial covenants under the company's senior secured bank debt financing agreements. The company was forced to pay down the debt to the tune of $60 million since the Fall of 2017, a cash drain which severely accentuated liquidity issues within that business. It came to this brutal reality: 

...the GI Business became trapped in a vicious cycle in which it lacked the liquidity to buy inventory and drive sales while at the same time it lacked the liquidity to rationalize its workforce to match its diminished operations.

That's rough. Even rougher is that on April 30, 2018, the GI business initiated formal liquidation proceedings under the laws of at least 8 different countries. Looks like Mr. Juszkiewicz' previous expansion "plan" was an utter disaster. 

⚡️Warning: Geeky stuff to follow ⚡️:

Now, the company is left with restructuring around the EBITDA- positive MI business with the hope of maximizing recovery for stakeholders. The holders of 69% of the principal amount of notes (PETITION NOTE: for the uninitiated, this satisfies the 2/3 in amount requirement of the bankruptcy code; unknown whether they satisfy the second prong of 1/2 in number) have entered into a Restructuring Support Agreement which would effectively equitize the notes and transfer ownership of MI to the noteholders. The company has also entered into a $135 DIP credit facility backstopped by an ad hoc group of noteholders to finance the company's trip through bankruptcy (the mechanic of which effectively rolls up some of the prepetition debt into the postpetition facility, giving the noteholders higher distribution priority). 

The RSA envisions a transaction whereby the company will exit bankruptcy with an untapped asset-backed lending facility and enough exit financing to pay off the DIP facility. So, the noteholders will collect some nice fees for about 9 months. The lenders under the DIP facility will have the option to cover the DIP monies into equity in the reorganized company at a 20% discount to the plan's valuation. 

⚡️Geeky Stuff Over. Now Back to Regularly Scheduled Snark ⚡️:

Naturally, current management has somehow convinced the new owners, i.e., the funds converting their notes into equity, that they're so invaluable that they should receive millions in "transition"-based compensation and warrants for upside preservation. Makes total sense. David Berryman, who runs Epiphone, will get a one year employment agreement paying $3.35 million, 5 year-warrants, and health benefits; Mr. Juszciewicz will get a one year "consulting agreement" paying $2.1 million, 5 year-warrants and health benefits (plus other profit-sharing incentives). It sure pays to run a company into bankruptcy these days. Naturally, they'll also get releases from any liability. Because, you know, bankruptcy!!

One final note: Thomas Lauria and White & Case LLP are listed as the 22nd highest creditor. Popping popcorn. 

• Jurisdiction: D. of Delaware 
• Capital Structure: $17.5 million ABL (Bank of America NA)/ $77.4 million Term Loan (GSO Capital Solutions Fund II AIV-I LP), $375 million '18 8.875% senior secured notes (Wilmington Trust NA), $60 million ITLA loan (GI Business only)
• Company Professionals:
  • Legal: Goodwin Proctor LLP (Michael H. Goldstein, Gregory W. Fox, Barry Z. Bazian) & (local) Pepper Hamilton LLP (David Stratton, David Fournier, Michael Custer, Marcy McLaughlin)
  • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Brian Fox) 
  • Investment Banker: Jefferies LLC (Jeffrey Finger)
  • Independent Directors: Alan Carr & Sol Picciotto
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Agent: Cortland Capital Market Services LLC
    • Legal: Arnold & Porter Kaye Scholer (D. Tyler Nurnberg, Steven Fruchter, Sarah Gryll) & (local) Young Conaway (same four names as below)
  • Prepetition ABL Agent: Bank of America NA
    • Legal: Winston & Strawn LLP (Jason Bennett, Christina Wheaton)
  • Indenture Trustee: Wilmington Trust NA
    • Legal: Shipman & Goodwin LLP (Marie Hofsdal, Patrick Sibley, Seth Lieberman, Eric Monzo)
  • Ad Hoc Group of Noteholders
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Robert Britton, Adam Denhoff, Kellie Cairns) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Betsy Feldman)
  • Ad Hoc Minority Noteholders Committee (Lord Abbett & Co. LLC, Wilks Brothers LLC)
    • Legal: Brown Rudnick LLP (Robert Stark, Steven Levine, Brian Rice) & (local) Ashby & Geddes PA (William Bowden)
  • Equity Holder: GSO Capital Partners LP
    • Legal: White & Case LLP (J. Christopher Shore, Andrew Zatz, Richard Kebrdle) & (local) Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Margaret Manning)

Updated 5/2 5:12 pm CT

New Chapter 11 Filing - iHeartMedia Inc.

iHeartMedia Inc.

3/14/18

iHeartMedia Inc., a leading global media company specializing in radio, outdoor, mobile, social, live media, on-demand entertainment and more, has filed for bankruptcy -- finally succumbing to its $20 billion of debt ($16 billion funded) and $1.4 billion of cash interest in 2017. WOWSERS. The company purports to have "an agreement in principle with the majority of [its] creditors and [its] financial sponsors that reflects widespread support across the capital structure for a comprehensive plan to restructure...$10 billion..." of debt.

The company notes $3.6 billion of revenue and unparalleled monthly reach ((we'll have more to say about this in this Sunday's Members-only newsletter (3/18/18) - this claim deserves an asterisk)). 

Still, as it also notes, the company faces significant headwinds. It states in its First Day Declaration,

"Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending by the Debtors’ customers, which resulted in a corresponding decline in advertising revenues across the Debtors’ business. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry and the entry of on-demand streaming services, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast radio. The Debtors have taken various operational steps to stem the negative effect of these trends; among other initiatives, the Debtors have successfully developed emerging platforms including its industry-leading iHeartRadio digital platform and nationally-recognized iHeartRadio-branded live events that are audio and video streamed and televised nationwide."

The company ought to expect these trends to continue.

Large creditors include Cumulus Media Inc. (~$5.6 million...yikes) and Spotify (~$2 million).  

• Jurisdiction: S.D. of Texas
• Capital Structure:    

• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Brian Wolfe, William Guerrieri, Christopher Marcus, Stephen Hackney, Richard U.S. Howell, Benjamin Rhode, AnnElyse Gibbons) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
  • Financial Advisor to the Company: Moelis & Co. 
    • Legal: Latham & Watkins LLP (Caroline Reckler, Matthew Warren)
  • Restructuring Advisor to the Company: Alvarez & Marsal LLC
  • Legal for the Independent Directors: Munger Tolles & Olson LLP (Kevin Allred, Seth Goldman, Thomas Walper, John Spiegel)
  • Financial Advisor to the Independent Directors: Perella Weinberg Partners LP
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Large Equity Holders: Bain Capital & Thomas H. Lee Partners
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Christopher Lopez, Gabriel Morgan)
  • Potential Buyer: Liberty Media Corporation & Sirius XM Holdings Inc.
    • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Alfredo Perez)
  • Successor Trustee for the 6.875% '18 Senior Notes and 7.25% '27 Senior Notes: Wilmington Savings Fund Society, FSB
    • Legal: White & Case LLP (Thomas Lauria, Jason Zakia, Erin Rosenberg, J. Christopher Shore, Harrison Denman, Michele Meises, Mark Franke, Michael Garza) & Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Ashley Harper)
  • Successor Trustee for the 11.25% '21 Priority Guaranty Notes
    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, Kristin Elliott)
  • Successor Trustee for the 14.00% Senior Notes due 2021
    • Legal: Norton Rose Fulbright (US) LLP (Jason Boland, Christy Rivera, Marian Baldwin Fuerst)
  • Term Loan/PGN Group
    • Legal: Jones Day (Thomas Howley, Bruce Bennett, Joshua Mester)
  • Ad Hoc Group of Term Loan Lenders
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Tyler Nurnberg, Sarah Gryll, Christopher Odell, Hannah Sibiski) 
  • TPG Specialty Lending Inc.
    • Legal: Schulte Roth & Zabel LLP (Adam Harris, David Hillman, James Bentley) & (local) Jones Walker LLP (Joseph Bain, Laura Ashley) 
  • Special Committees of the Board of Clear Channel Outdoor Holdings Inc.
    • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Christopher Koenig, Jennifer Jay Hardy)
  • Ad Hoc Committee of 14% Senior Noteholders of iHeart Communications
    • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matt Williams, Keith Martorana, Matthew Porcelli) & (local) Porter Hedges LLP (John Higgins, Aaron Power, Samuel Spiers)
  • 9.00% Priority Guarantee Notes due 2019 Trustee: Wilmington Trust NA
    • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Fliman, Brian Wells) & (local) Haynes and Boone, LLP (Charles Beckham Jr., Martha Wyrick, Kelsey Zottnick)
  • Citibank N.A.
    • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Locke Lord LLP (Berry Spears)
  • Delaware Trust Company
    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer, Monica Tarazi, Victor Noskov)
  • Official Committee of Unsecured Creditors
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Charles Gibbs, Marty Brimmage)

Updated 3/30/18

New Chapter 11 Filing - Orexigen Therapeutics Inc.

Orexigen Therapeutics Inc. 

3/12/18

Orexigen Therapeutics is a publicly-traded ($OREX) biopharmaceutical company with one FDA-approved product - "Contrave" - an adjunct to a reduced-calorie diet and exercise for chronic weight management in certain eligible adults. (Before we continue, please take a minute to appreciate the exquisite creativity these folks deployed with the name, "Contrave." Control + crave = Contrave. We hope they didn't shell out too much cash money to the brand consultants for that one). 

Anyway, the drug could theoretically service the 36.5% of adults the Center for Disease Control & Prevention has identified as obese, a potential market of 91-93 million people in the United States alone. And that number is predicted to rise to 120 million people in the next several years. Yikes: that's 33% of the U.S. population. Apropos, the drug is the number one prescribed weight-loss brand in the US with over 1.8 million prescriptions written to date, subsuming 700,000 patients. The drug is also approved in Europe, South Korea, Canada, Lebanon, and the UAE. 

All of that surface-level success notwithstanding, the company has lost approximately $730 million since its inception. This is primarily because it has been spending the last 16 years burning cash on R&D, clinical studies for FDA approval, recruitment, manufacturing, marketing, etc., both in and outside the U.S. And people wonder why drugs are so expensive. The company believes it could be profitable by 2019 under its existing operating model and revenue forecasts; it enjoys a patent until 2030. 

Obviously the patent is critical because the company, through its banker, attempted a sale prior to the bankruptcy filing but proved unsuccessful. The goal of the bankruptcy filing, therefore, is to effectuate a sale with the benefit of "free and clear" status. While no stalking horse bidder is lined up, The Baupost Group LLC, is leading a group of secured noteholders (including Ecori Capital, Highbridge Capital and UBS O'Connor) to provide a $35 million DIP credit facility and buy the company some time. Will they end up owning it? 

• Jurisdiction: D. of Delaware 
• Capital Structure: $165mm 0% '20 convertible notes (The Baupost Group LLC), $115mm 2.75% '20 convertible notes ($25 million outstanding, Wilmington Trust NA), $49.6mm 2.75% '20 convertible exchange senior notes ($38.9 million outstanding, US Bank NA) 
• Company Professionals:
  • Legal: Hogan Lovells LLP (Christopher Donolo, Eric Einhorn, Christopher Bryant, Jon Beck, Sean Feener) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Jose Bibiloni)
  • Financial Advisor: E&Y
  • Investment Banker: Perella Weinberg Partners 
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Collateral Agent & Prepetition Trustee: U.S. Bank NA
    • Legal: Kelley Drye & Warren LLP (James Carr, Benjamin Feder)
  • DIP Lenders
    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Eric Winston)
  • DIP Administrative Agent: Wilmington Trust Company
    • Legal: Arnold & Porter (Tyler Nurnberg)
  • DIP Lender: Highbridge Capital Management LLC
    • Legal: Brown Rudnick LLP (Robert Stark, Stephen Levine, Uchechi Egeonuigwe) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
  • Official Committee of Unsecured Creditors
    • Legal: Elliott Greenleaf PC (Rafael Zahralddin-Aravena, Eric Sutty) & (local) Irell & Manella LLP (Jeffrey Reisner, Michael Strub Jr., Kerri Lyman)

Updated March 30, 2018

New Chapter 11 Filing - Tops Holding II Corporation

Tops Holding II Corporation

• 2/21/18 Recap: When a company's "Overview" in its First Day Declaration basically leads with union metrics (12,300 unionized employees of 14,000 total employees) and collective bargaining agreement numbers (12 of them), you know there's gonna be a war with employees. The fact that the footprint is 169 stores-wide in three states almost seems like a footnote. As does the fact that the business started in the 1920s and seemingly thrived through 2007 when, naturally, private equity got involved and went on a debt-ridden acquisition spree. But hang on: we're getting ahead of our skis here. So, what happened here? Well, clearly, the company has to negotiate with its unions; it also seeks to deleverage its ballooning balance sheet and take care of some leases and supply agreements. The company has secured $265mm in DIP financing to fund the cases; it says that it "intend[s] to remain in chapter 11 for approximately six (6) months." We'll believe it when we see it. Anyway, WHY does it need to take all of these steps? Well, as we stated before: private equity, of course. "Despite the significant headwinds facing the grocery industry, over the past five years, the Company has experienced solid financial performance and has sustained stable market share. The vast majority of the Company’s supermarkets generate positive EBITDA and the Company generates strong operating cash flows. Transactions undertaken by previous private equity ownership, however, saddled the Company with an unsustainable amount of debt on its balance sheet. Specifically, the Company currently has approximately $715 million of prepetition funded indebtedness...." Ah, private equity = a better villain than even Amazon (though Amazon gets saddled with blame here too, for the record). But wait: don't forget about the pensions! "[T]he Company has been embroiled in a protracted and costly arbitration with the Teamsters Pension Fund concerning a withdrawal liability of in excess of $180 million allegedly arising from the Company’s acquisition of Debtor Erie Logistics LLC" from its biggest food supplier, C&S Wholesale Grocers Inc., the 10th largest private company in the US. Moreover, the company has been making monthly pension payments; nevertheless, the pension is underfunded by approximately $393mm. The company continues, "Utilizing the tools available to it under the Bankruptcy Code, the Company will endeavor to resolve all issues relating to the Teamsters Arbitration and address its pension obligations, and the Company will take reasonable steps to do so on a consensual basis." Oy. What a hot mess. We can't even read that without ominous music seemingly popping up out of nowhere. More to come.

• Jurisdiction: S.D. of New York

• Capital Structure: $112mm RCF (inclusive of a $10mm FILO and $34mm LCs, Bank of America NA), $560mm 8% '22 senior secured notes, $67.5mm 9% '21 opco unsecured notes, $8.6mm 8.75%/9.5% '18 holdco unsecured notes

• Company Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Stephen Karotkin, Sunny Singh)

  • Financial Advisor/CRO: FTI Consulting Inc. (Michael Buenzow, Armen Emrikian, Paul Griffith, Ronnie Bedway, Andy Kopfensteiner)

  • Investment Banker: Evercore (David Ying, Stephen Goldstein, Jeremy Matican, Elliot Ross, Jonathan Kartus, Andrew Kilbourne)

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

  • Prepetition ABL Agent & DIP ABL Agent: Bank of America NA

    • Legal Counsel: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Amelia Joiner, Matthew Ziegler)

  • Indenture Trustee for Senior Notes due 2018, notes due 2021 and Senior Secured Notes: U.S. Bank NA

    • Legal: Thompson Hine LLP (Irving Apar, Elizabeth Frayer, Derek Wright)

  • Ad Hoc Noteholder Group & DIP TL Lenders (Column Park Asset Management LP, Fidelity Management & Research Company, HG Vora Capital Management LLC, Signature Global Asset Management, Silver Point Capital LP)

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Diane Meyers, Lauren Shumejda)

    • Financial Advisor: Lazard Freres & Co. LLC

  • DIP TL Agent: Cortland Capital Markets Services LLC

    • Legal: Arnold & Porter Kaye Scholer LLP (Tyler Nurnberg, Alan Glantz)

  • Southpaw Asset Management LP

    • Legal: Cooley LLP (Jeffrey Cohen, Steven Siesser, Sheila Sadighi, Andrew Behlmann)

  • Official Committee of Unsecured Creditors (PepsiCo, Inc., Valassis Direct Mail, Inc., Osterweis Strategic Income Fund, U.S. Bank N.A., the UFCW Local One Pension Fund, the Teamsters Local 264, and Benderson Development Company, LLC)

    • Legal: Morrison & Foerster LLP (Brett Miller, Dennis Jenkins, Jonathan Levine, Erica Richards)

    • Financial Advisor: Zolfo Cooper LLC

New Chapter 11 Bankruptcy - Cumulus Media Inc.

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.

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

Updated 10/5/17 11:40 am

New Chapter 11 Filing - EMAS Chiyoda Subsea Limited

EMAS Chiyoda Subsea Limited

• 2/28/17 Recap: Some offshore blood here. The Houston-based deepwater subsea construction service company (which sounds pretty bada$$ btw) suffered from declining revenue and cash flow (read: declining demand), high costs and increasingly limited access to credit. Hence, bankruptcy. With the benefit of a $90mm dual-tranche DIP, the Company will sell its marine base in Texas and otherwise use bankruptcy to restructure the balance sheet.
• Jurisdiction: S.D. of Texas
• Capital Structure: $480mm secured debt & $175mm unsecured debt    
• Company Professionals:
  • Legal: Skadden Arps (George Panagakis, Justin Winerman, Robert Fitzgerald) & (local) Porter Hedges LLP (John Higgins, Joshua Wolfshohl, Eric English, Brandon Tittle)
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name for docket)
• Other Parties in Interest:
  • Tranche A Lender (Subsea 7 Finance UK PLC)
    • Legal: Arnold & Porter Kaye Scholer (Mark Liscio) & (local) Freshfields Bruckhaus Deringer (Linda Martin)
  • Tranche B Lender (Chiyoda Corp.)
    • Legal: White & Case LLP (Roberto Kampfner) & (local) Haynes & Boone LLP (Charles Beckham Jr.)
  • DNB Bank ASA, Singapore Branch (agent and security trustee)
    • Legal: Milbank Tweed Hadley & McCloy (Dennis Dunne, Tyson Lomazow, Nelly Almeida) & (local) Haynes & Boone LLP (Bradley Foxman)

Updated 3/26/17