⛽️New Chapter 11 Bankruptcy Filing - Nine Point Energy Holdings Inc.⛽️

Nine Point Energy Holdings Inc.

Colorado-based Nine Point Energy Holdings Inc. (along with three affiliates, the “debtors”) is and independent oil and gas exploration and production company focused on the Williston Basin in North Dakota and Montana. It is the successor to Triangle USA Petroleum Corporation, which filed for chapter 11 bankruptcy in June 2016 and confirmed a plan in March 2017. Four years later, it’s back in bankruptcy court. 😬

Followers of E&P bankruptcies have become accustomed to disputes relating to E&P companies and their midstream gathering, transportation and processing providers. Here, Caliber Midstream Partners LP was the debtors’ largest midstream services provider — “was” being the operative word after the debtors terminated the long-term midstream services agreements on the eve of bankruptcy. The story, however, doesn’t end there.

The debtors are willing to enter into a new arrangement with Caliber going forward. It’s unclear how the new arrangement might differ from the existing arrangement because redaction, redaction, redaction. The economic terms of the contract have not been disclosed. 🤔

And so here we are with another potential “running with the land” scenario. If you’re unfamiliar with what this is, you clearly haven’t been paying attention to E&P bankruptcy cases. Just Google it and you’ll pull up probably 8928394829248929 law firm articles on the topic. As this will be a major driver in the case, it probably makes sense to refresh your recollection.

Why are the debtors in bankruptcy? All of the usual reasons, e.g., the big drop in oil prices thanks to COVID-19 and Russia/OPEC. Nothing really new there.

So what does this filing achieve? For starters, it will give the debtors an opportunity to address the Caliber contracts. Moreover, it will avail the debtors of a DIP facility from their pre-petition lenders in the amount of ~$72mm — $18mm in new money and $54mm on a rollup basis (exclusive of an additional $16.1mm roll-up to account for pre-petition secured swap obligations)(8% interest with 2% commitment fee). Finally, the pre-petition-cum-DIP-lenders have agreed to serve as the stalking horse purchaser of the debtors’ assets with a credit bid floor of $250mm.


Date: March 15, 2021

Jurisdiction: D. of Delaware (Judge Walrath)

Capital Structure: $256.9mm credit facility, $16.1mm swap obligations

Company Professionals:

  • Legal: Latham & Watkins LLP (Richard Levy, Caroline Reckler, Jonathan Gordon, George Davis, Nacif Taousse, Alistair Fatheazam, Jonathan Weichselbaum, Andrew Sorkin, Heather Waller, Amanda Rose Stanzione, Elizabeth Morris, Sohom Datta) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond Coyle, Ashley Jacobs, Jacob Morton)

  • Board of Directors: Patrick Bartels Jr., Dominic Spencer, Frederic Brace, Gary Begeman, Alan Dawes

  • Financial Advisor: AlixPartners LLP (John Castellano)

  • Investment Banker: Perella Weinberg Partners LP (John Cesarz)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • Pre-petition & DIP Agent: AB Private Credit Investors LLC

    • Legal: Proskauer Rose LLP (Charles Dale, David Hillman, Michael Mervis, Megan Volin, Paul Possinger, Jordan Sazant) & Landis Rath & Cobb LLP (Adam Landis, Kerri Mumford, Matthew Pierce)

  • Ad Hoc Group of Equityholders: Shenkman Capital Management, JP Morgan Securities LLC, Canyon Capital Advisors LLC, Chambers Energy Capital

    • Legal: Willkie Farr & Gallagher LLP (Jeffrey Pawlitz, Matthew Dunn, Mark Stancil) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • Midstream Counterparty: Caliber Measurement Services LLC, Caliber Midstream Fresh Water Partners LLC, and Caliber North Dakota LLC

    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk, Tristan Sierra, Edward Soto, Lauren Alexander) & Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Taylor Haga, Nader Amer)

📺New Chapter 11 Bankruptcy Filing - MobiTV Inc.📺

MobiTV Inc.

On Monday, Emeryville, California-based MobiTV, Inc. and an affiliated debtor filed for chapter 11 bankruptcy in the District of Delaware. MobiTV is “a creative thinking technology company making TV better.” Which is funny because we’re willing to bet that literally nobody thinks about MobiTV when they think about whether they enjoy their television-watching user experience. Anyway, what that actually means is MobiTV sells a white-label software application to cable providers that allows consumers to stream programming on (i) streaming devices like Roku, Apple TV, Amazon Fire TV, XBox or (ii) a smart TV, without the need for a set-top cable box. Key customers include T-Mobile USA Inc. ($TMUS) and over 120 cable/broadband television providers to deliver content to over 300k end user subscribers. In other words, if you’re streaming HBO via T-Mobile, your experience may very well be powered by MobiTV.

MobiTV has been around since 2000 and had gone through several shifts in its fortunes and business model. In 2020, MobiTV generated $13M in revenue with an operating loss of approximately $34M. That is a long fall from grace for a company that filed for an IPO in 2011 with reported 2010 sales of $67M. At the time, MobiTV was entirely focused on providing licensed TV programming to the personal devices of customers on wireless networks with AT&T Inc. ($T)Sprint, and T-Mobile accounting for almost all of the company’s revenues. MobiTV had raised over $110M from investors like Menlo VenturesRedpoint VenturesAdobe Ventures, and Hearst Ventures.

But despite its rosy trajectory, MobiTV withdrew its IPO filing a few months later citing unfavorable market conditions. In hindsight, there were obviously deeper problems with the business model. Broadcast TV viewing on mobile devices failed to take off in the way the company predicted and MobiTV pivoted away from serving wireless carriers.

Its new target customer was midsize cable providers. Set-top boxes have long been at the center of consumers interactions with cable providers. But these boxes have plenty of drawbacks:

Pay-TV providers (and their consumers) are looking for a way beyond set-top boxes, which can be expensive for consumers to buy, costly to maintain for the pay-TV providers and often limited in their functionality. Their clunkiness, in fact, has made them ripe for disruption, and many now opt for lighter options like Fire TV or Apple TV to bypass those services altogether. In other words, pay-TV providers need to find other routes to providing services to customers that can compete better with the newer generation of video services. (emphasis added)

MobiTV saw the shift towards streaming devices and smart TVs and aimed to position itself as a “television as a service provider” to midsized cable providers like C SpireDirectLink, and Citizens Fiber. These companies lack the R&D budgets of the likes of Comcast Corporation ($CMCSA) to invest in user interface and software applications in their set-top boxes. In 2017, MobiTV raised $21M from Oak Investment Partners and Ally Bank ($ALLY) (at a reported ~$400M valuation!) to develop its MobiTV ConnectTM Platform, “a product for pay TV and on-demand TV providers to stream broadcast TV and offer other services, like catch-up and recording, without the need of a set-top box.

The idea was to capture some of the “customer ownership” that was slipping from cable set-top boxes to streaming devices and services. In 2019, MobiTV raised $50M more from Oak Investment Partners and Ally Bank as well as Cedar Grove Partners to fund further growth. At the time, MobiTV had about 90 cable providers signed up as customers.

Middlemen can make good money and at first glance it seemed like MobiTV might have been able to carve out a position for itself. MobiTV offered cable providers a small way to stem the tide of cord cutting and the proliferation of streaming services like HBO MaxNetflix Inc ($NFLX)Hulu, and the rest. As TechCrunch laid out, “The pitch that MobiTV makes to pay TV providers goes something like this:”

…set-top-box-free pay TV services gives operators a wider array of channels and potentially more flexibility in how they are provisioned. At the same time, a solution like MobiTV’s potentially lowers the total cost of ownership for providers by removing the need for the set-top boxes.

That’s not to say that some of its customers are not using both, though: they can provide a certain set of channels directly through boxes, and the MobiTV service gives them the option of having another set that are offered on top of that.

By 2020, MobiTV’s customer base had grown to about 120 midsize cable TV operators as well as legacy T-Mobile customers. Revenue was growing and its subscribers and customers bases were both increasing. So what the hell happened here? 🤔

An agnostic software solution for cable providers to capture some of the shift towards streaming? Coupled with more people stuck at home from a pandemic? If this product were ever going to work, one would think it would have been during the last year. From the First Day Declaration:

That’s the entirety of section D. Maybe we are dense but it would be interesting to know what exactly about the COVID-19 pandemic and related stay-at-home orders materially impaired the Company’s growth opportunities. Seems like that should have been good for business, no?

But we can speculate.

As every content provider has rolled out their own streaming service over the last twelve months, MobiTV was probably in the worst position in the entire television streaming value chain. On the supply side, content providers are focused on promoting their own streaming services and have little reason to give any sort of pricing concessions to a niche service provider like MobiTV. This surely kept MobiTV’s licensing costs at an elevated level.

On the demand side, consumers likely were not calling in to their cable providers demanding MobiTV considering they could get the same content with a $30 Roku, their streaming subscriptions, and their broadband bill. Cable providers apparently were willing to pay for the service, but not enough to keep the company from losing money.

After 20 years of trying to figure out what its business model was, MobiTV finally threw in the towel and management took COVID cover.

The “tell” that the business issues were more elemental than COVID? The fact that the company has been operating under a series of 17 amendments and forbearance agreements.

At the time of its Ch. 11 filing, MobiTV had ~$25M of debt obligations, owed entirely to its sole pre-petition secured lender, Ally Bank.

In 2017 Ally Bank provided MobiTV a $10M term loan as well as a $5M revolving credit facility which was fully drawn. The original maturity of these loans was February 3, 2019, but following the aforementioned amendments and forbearance agreements, the maturity date was pushed back to January 2021. To fund the business in the interim, Oak Investment Partners threw good money after bad, underwriting three Subordinated Convertible Promissory Notes on August 6, 2020 ($4mm); December 14, 2020 ($1mm); and December 30, 2020 ($0.3mm). As a condition to one of Ally Bank’s credit amendments, MobiTV engaged FTI Capital Advisors LLC to evaluate strategic alternatives. A subsequent marketing effort came up empty: the “alternatives” were non-existent.

Consequently, on January 29, 2021, MobiTV and Ally Bank entered into another amendment and forbearance. T-Mobile — the customer most reliant upon the MobiTV’s services — provided $2.5mm in bridge financing lest they upset thousands of customers right around Super Bowl time. On February 12, 2021, T-Mobile agreed to provide an additional ~$2.3mm and Ally Bank agreed to forbear until February 26, 2021.

Following negotiations with Ally Bank and T-Mobile, the interested parties concluded that a sale process should be implemented through the filing of chapter 11. An affiliate of T-Mobile, TVN Ventures, LLC, has committed to a $15mm DIP credit facility (12%), junior to the pre-existing pre-petition Ally Bank position. As of this writing, management is still seeking a stalking horse bidder to backstop the sale process.

At $13mm of revenue with an operating loss that high, there’s a very good chance that T-Mobile knows it’s buying this thing with that DIP commitment.


Date: March 1, 2021

Jurisdiction: D. of Delaware (Judge Silverstein)

Capital Structure: $25mm funded debt

Company Professionals:

  • Legal: Pachulski Stang Ziehl & Jones LLP (Debra Grassgreen, Mary Caloway, Maxim Litvak, Nina Hong, Jason Rosell)

  • Financial Advisor: FTI Consulting Inc. (Chris LeWand, Catherine Moran, Chris Post, Chris Tennenbaum, Doug Edelman)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • DIP Lender: T-Mobile USA Inc. and TVN Ventures LLC

    • Legal: Alston & Bird LLP (William Sugden, Jacob Johnson) & Young Conaway Stargatt & Taylor LLP (Edmon Morton, Kenneth Enos)

  • Silicon Valley Bank

    • Legal: Morrison Foerster LLP (Alexander Rheaume, Benjamin Butterfield) & Ashby & Geddes LLP (Gregory Taylor, Katharina Earle)

  • Ally Bank

    • Legal: McGuireWoods LLP (Kenneth Noble, Kristin Wigness, Ha Young Chung) & Richards Layton & Finger PA (John Knight, David Queroli)

  • Official Committee of Unsecured Creditors:

    • Legal: Fox Rothschild LLP (Seth Niederman, Michael Sweet, Gordon Gouveia)

New Chapter 11 Bankruptcy Filing - RGN-Group Holdings LLC (d/b/a Regus)

RGN-Group Holdings LLC

We have yet to really see it run through the system but there’s no doubt in our minds that there is a commercial real estate and commercial mortgage-backed security massacre on the horizon. The hospitality sector, in particular, ought to be on the receiving end of a pretty harsh shellacking. More on this in a future edition of PETITION.

For now, the most high profile CRE activity we’ve seen thus far is the trickle of Regus locations that have filed for bankruptcy. Regus is an on-demand and co-working company with 1000 locations across the United States and Canada. Set up as special purpose entities with individual leases, the structure is such that IWG Plc f/k/a Regus Corporation (OTCMKTS: $IWGFF) serves as both ultimate parent and lender but isn’t a guarantor or obligor under any of the downstream leases.* This non-recourse structure allows for individual Regus locations to plop into bankruptcy — all with an eye towards working out lease concessions or turning over — without taking down the entirety of the enterprise.**

The first outpost, RGN-Columbus IV LLC, filed for bankruptcy in Delaware back on July 30. Since then, sixteen additional Regus affiliates have filed with the most recent ones descending upon Delaware last week: RGN-Philadelphia IX LLC, RGN-Chevy Chase I LLC, RGN-Los Angeles XXV LLC, RGN-San Jose IX LLC, RGN-New York XXXIX and RGN-Denver XVI LLC. All of the cases filed under Subchapter V of chapter 11 of the bankruptcy code (though, thanks to the addition of more locations, the case has been re-designated under Chapter 11).***

The description of the overall business model is precious:

IWG’s business model begins with entry into long-term non-residential real property leases (each, a “Lease”) with property owners (each, a “Landlord”) that provide the Company unoccupied office space (the “Centers”). Based on significant market research on potential client needs in local markets and the unique requirements of their existing clients, IWG engineers each of the Centers to meet the architectural style, service, space, and amenity needs of those individuals, companies, and organizations who will contract for use of subportions of the Centers. IWG markets its Centers under an umbrella of different brand names, each tailored to appeal to different types of clients and those clients’ specialized needs. These clients (the “Occupants”) enter into short-term licenses (each, an “Occupancy Agreement”) to use portions of the Centers, which are customizable as to duration, configuration, services, and amenities. When operating successfully, a Center’s Occupants’ license payments (“Occupancy Fees”) will exceed the combined cost of the underlying long-term lease, management cost, and operating expenses of the Center. (emphasis added)

It’s the “when operating successfully” part that always bewildered watchers of the co-working business model generally. After all, it was easy to see the mass expansion of co-working spaces amidst the longest bull run in market history. Indeed, Regus apparently had “Good first half performance overall given COVID-19 impact in Q2.” The question was: what happens in a downturn? The answer? You start to see the model when it operates unsuccessfully. In this scenario, occupancy rates dip lower than expected. Prior geographic expansion begins to look irresponsible. Pricing declines to attract new sales and renewals. And current occupants begin to stretch their payables.**** In total, it ain’t pretty. By way of example, take a look at some of the numbers:*****

Source: PETITION, Chapter 11 Petitions

Source: PETITION, Chapter 11 Petitions

But while the operating performance of those select locations may be ugly AF, the structure bakes in this possibility and isolates the cancer. Aside from the landlords, the locations have virtually no creditors.

  • Each debtor location is an obligor pursuant to a senior secured loan agreement with Regus making for an intercompany obligation. There’s no other funded debt.

  • The debtors are otherwise subject to a management agreement with non-debtor Regus Management Group LLC (“RMG”) pursuant to which each debtor is obligated to reimburse RMG for gross expenses incurred directly by RMG in performing management services plug a 5.5% vig on gross revenues.

  • The debtors are also subject to an equipment lease agreement with debtor RGN-Group Holdings LLC. Under this agreement the debtors are obligated for the original cost of fixtures, furniture and equipment plus a margin fee.

  • As if those agreements didn’t siphon off enough revenue, the debtors are also subject to franchise agreements pursuant to which the debtors have the right to operate an IWG business format in their respective locations and use certain business support services, advice and IT in exchange for a monthly 12% vig on gross revenue.

Given most of the debtors’ obligations are intercompany in nature, what did Regus do? It tried to stick it to its landlords. Duh.

Like so many other companies navigating these troubled times, the Company instituted a variety of comprehensive actions to reduce costs and improve cash flow and liquidity, including the deferral of rent payments and engagement with Landlords to negotiate forbearances, temporary accommodations, and, where possible, permanent modifications to the various Leases to bring them in line with the COVID-19-adjusted market realities so as to permit the Company to continue operating Centers at those respective locations despite the uncertainty when the pandemic will subside and when (and indeed, whether) the U.S. will return to something resembling the pre-pandemic “business as usual.”

Certain landlords, of course, played ball. That helped lessen Regus’ funding burden in the US. But, of course, others didn’t. Indeed, various landlords sent default/eviction notices. Hence the aforementioned bankruptcy filings:

…the Debtors commenced their Chapter 11 Cases to prevent the forfeiture of the Lease Holder Debtors’ Leases, and to preserve all Debtors’ ability to operate their respective businesses—thereby, importantly, protecting the Occupants of the Lease Holder Debtors’ Centers from any disruption to their businesses. I expect that the “breathing spell” from Landlords’ collection efforts that will be afforded by the chapter 11 process will allow the Debtors, and the Company more broadly, to more fully explore the possibility of restructuring their various contractual obligations in order to put the Company’s North American portfolio on a surer footing going forward, so as to allow the Debtors to emerge from this process stronger and more viable than when they went in. If these restructuring efforts prove unsuccessful, the Lease Holder Debtors intend to utilize the procedures available to them under the Bankruptcy Code to (i) orderly wind down the operation of the applicable Centers (including, to the extent necessary, the removal of the FF&E from the leased premises, and to the extent possible, transition of the Occupants to other locations), (ii) liquidate the amounts due to the Landlords under their respective Leases and guarantees, as well as amounts due to the Debtors’ affiliates under their respective agreements, and (iii) to make distributions to creditors in accordance with their respective priorities under the Bankruptcy Code and applicable law.

Said another way: this is gonna be a landlord/tenant battle. Regus has offered to provide $17.5mm of DIP financing to give the debtors time to negotiate with their landlords. To the extent those negotiations (continue to) fail, the debtors will no doubt begin to reject leases left and right.

*****

They likely won’t be alone. Per The Wall Street Journal:

The world’s biggest coworking companies are starting to close money-losing locations across the globe, signaling an end to years of expansion in what had been one of real estate’s hottest sectors.

The retreat reflects an effort to slash costs at a time when the coronavirus is reducing demand for office space, and perhaps for years to come. It also shows how bigger coworking firms, in a race to sign as many leases as possible and grab market share, overexpanded and became saddled with debt and expensive leases.

The share of coworking spaces that have closed is still small. In the first half of the year, closures accounted for just 1.5% of the space occupied by flexible-office companies in the 20 biggest U.S. markets, according to CBRE Group Inc.

Knotel, for instance, seems to be making a habit of getting sued for unpaid rent. Query whether we’re at the tip of the iceberg for co-working distress.


*Other debtor entities, however, like RGN-Group Holdings LLC, RGN-National Business Centers LLC and H Work LLC do sometimes act as guarantors. Hence their bankruptcy filings. RGN-Group Holdings LLC isn’t a lease holder; rather, it owns all of the furniture, fixtures, equipment and other personal property and leases it all fo the respective SPE centers across the US pursuant to Equipment Lease Agreements.

**The nuance of this structure was constantly lost in the furor over WeWork back when WeWork was a thing that people actually cared about. Since we’re on the topic of WeWork, we suppose we ought to explain the video above. WeWork’s eccentric founder, Adam Neumann, was on record saying that he thought WeWork would thrive during a downturn due to its flexible structure — a point that has obviously been disproven by what’s transpired over the past few months. That said, and to be fair, he clearly didn’t have “social distancing” in mind when he hypothesized that result.

***We wrote about Subchapter V last month in the context of Desigual’s bankruptcy filing. We said:

Luckily for a lot of businesses, the Small Business Reorganization Act (SBRA and a/k/a Subchapter V) went into effect in February. Coupled with amended provisions in the CARES Act, the SBRA will make it easier for a lot of smaller businesses to restructure because:

It established a higher threshold ($7.5mm vs. $2.7mm) to qualify which means more businesses will be able to leverage the streamlined SBRA process to restructure. Previously, businesses over that cap couldn’t utilize Subchapter V which made any shot at reorganization via bankruptcy far too expensive for smaller businesses. The only alternative was dissolution and liquidation.

Debtors under SBRA can spread a payment plan for creditors over 3-5 years. Debtors get the benefit of the payments spread out over time and creditors can potentially recover more. Aiding this is the fact that admin expenses also get paid over time and debts are not discharged until all plan payments are fulfilled.

A plan must be filed within 90 days. The shorter time frame also contains cost.

A trustee must be appointed and effectively takes the place of a UCC which may only be formed on showing of cause.

Companies are taking advantage of this.

****It probably stands to reason that various client programs the debtors typically depend upon are less likely to generate results under this scenario. The debtors nevertheless filed a motion seeking to continue these programs. They include (a) rebate programs for occupants who spend over a certain annual amount, (b) occupancy agreement promotions such as discounts, reduced rent costs, one or more months of free rent, etc., and (c) occupant referral fees. Suffice it to say, occupants likely aren’t referring in many other occupants during COVID. Consequently, the debtors ultimately withdrew this motion. All of this brings up another criticism of WeWork: what, exactly, is a co-working space’s moat? As justification for these programs, the debtors say:

The Lease Holders operate in a very competitive and dynamic market and with many competitors for the same customers. The loss of one or more Occupants could significantly impact the Debtors’ profitability, and therefore, the Client Programs require timely coordination on the part of the Lease Holders to ensure the maximum generation of customer agreement profits and brand awareness during this restructuring.

Case and point.

*****These numbers are YTD for the period ended June 30, 2020.


For more commentary and analysis about distressed investing, restructuring and/or bankruptcy, please visit us here.


Dates:

RGN-Columbus IV LLC (July 30, 2020)

RGN-Chapel Hill II LLC (August 2, 2020)

RGN-Chicago XVI LLC (August 3, 2020)

RGN-Fort Lauderdale III LLC (August 8, 2020)

RGN-Group Holdings LLC (August 17, 2020)

H Work, LLC (August 17, 2020)

RGN-National Business Centers LLC (August 17, 2020)

RGN-Lehi LLC (August 27, 2020)

RGN-Lehi II LLC (August 27, 2020)

RGN Atlanta XXXV LLC (August 29, 2020)

RGN-Arlington VI LLC (August 30, 2020)

RGN-Chevy Chase I LLC (September 2, 2020)

RGN-Philadelphia IX LLC (September 2, 2020)

RGN-Denver XVI LLC (September 3, 2020)

RGN-New York XXXIX (September 3, 2020)

RGN-Los Angeles XXV LLC (September 3, 2020)

RGN-San Jose IX LLC (September 4, 2020)

Jurisdiction: D. of Delaware (Judge Shannon)

Capital Structure: N/A

Company Professionals:

  • Legal: Faegre Drinker Biddle & Reath LLP (James Conlan, Mike Gustafson, Patrick Jackson, Ian Bambrick, Jay Jaffe)

  • Financial Advisor: AlixPartners LLP (Stephen Spitzer)

  • Restructuring Advisor/Chief Restructuring Officer: Duff & Phelps LLC (James Feltman)

  • Claims Agent: Epiq Corporate Restructuring LLC (Click here for free docket access)

  • Subschapter V Trustee: Gibbons PC (Natasha Songonuga)

Other Parties in Interest:

  • Regus Corporation, Regus Management Group, LLC and Franchise International GmbH

    • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, James Hughes Jr., Joseph Barry, Justin Duda, Ryan Hart)

  • Starwood Capital Group

    • White & Case LLP (Harrison Denman, John Ramirez) & Potter Anderson & Corroon LLP (Christopher Samis, Aaron Stulman)

🔥 New Chapter 11 Bankruptcy Filing - IMH Financial Corporation 🔥

IMH Financial Corporation

July 23, 2020

So this is a smaller one but it’s not retail and it’s not oil and gas and so, f*ck it, we’re digging in purely for the sake of diversification. So, what is it? IMH Financial Corporation is a real estate investment holding company with assets consisting of (i) the MacArthur Place Hotel & Spa in Sonoma California (which looks “lit” by the way…intentional word choice, read below), (ii) thousands of undeveloped acreage and related water rights outside of Albuquerque New Mexico (sounds super practical for, like, an apocalyptic scenario like, say, a global pandemic that kills tens of thousands of people), (iii) other real estate assets (discussed below) and (iv) a boat load of tax attributes due to years of money losing endeavors ($475mm and $280mm federal and state NOLs, respectively). The company has no funded secured or unsecured debt (outside of a small PPP loan that it believes qualifies for forgiveness). Other unsecured debt consists of mostly professional service providers (e.g., law firms). This case is primarily about …

TO READ THE REST OF THIS POST, YOU MUST BE A PETITION MEMBER. YOU CAN BECOME ONE HERE.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: No secured debt.

  • Professionals:

    • Legal: Snell & Wilmer LLP (Christopher Bayley, Steven Jerome, Benjamin Reeves, Jill Perella, James Florentine, Molly Kjartanson) & Ashby & Geddes PA (William Bowden, Gregory Taylor, Benjamin Keenan, Stacy Newman, Katharina Earle)

    • Special Committee Legal: Holland & Knight LLP (Lori Wittman, W. Keith Fendrick)

    • Investment Banker: Miller Buckfire (James Doak)

    • Claims Agent: Donlin Recano & Co., Inc. (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Preferred Equity Holder, DIP Lender, Exit Lender & Post-Reorg EquityHolder: JPMorgan Chase Funding Inc.

      • Legal: Hahn & Hessen LLP (Jeffrey Schwartz, Joshua Divack) & Landis Rath & Cobb LLP (Adam Landis, Richard Cobb, Matthew Pierce)

    • Preferred Equity Holder: Juniper Realty Partners LLC

      • Legal: Munger Tolles & Olson LLP (David Lee)

👰🏾New Chapter 11 Bankruptcy Filing - Occasion Brands LLC 👰🏾

Occasion Brands LLC

July 22, 2020

Occasion Brands LLC is owner and operator of three e-commerce properties that hock dresses for proms, homecomings, weddings, and other special occasions; it owns promgirl.com, simplydresses.com, and KleinfeldBridalParty.com. The company is owned by a lower middle market private equity shop called Milestone Partners. Thanks primarily to promgirl.com, the business generated gross revenue over $50mm in both ‘18 and ‘19.

TO READ THE REST OF THIS POST, YOU MUST BE A PETITION MEMBER. YOU CAN BECOME ONE HERE.

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

  • Capital Structure: $1.5mm of secured indebtedness via promissory notes (Milestone Partners), $2.5mm Allure promissory note, $1.325mm PPP (JPMorgan Chase Bank NA)

  • Professionals:

    • Legal: Sills Cummis & Gross PC (S. Jason Teele, Daniel Harris)

    • Financial Advisor: Insight Partners LLC (Robert Nolan)

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

  • Other Parties in Interest:

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 …

TO READ THE REST OF THIS POST, YOU MUST BE A PETITION MEMBER. YOU CAN BECOME ONE HERE.


  • 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 - Permian Holdco 1 Inc.

Permian Holdco 1 Inc.

July 19, 2020

Permian Holdco 1 Inc. and three affiliates (the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware. We know. It’s shocking. How in hell could a manufacturer of above-ground wellsite fluid containment and processing systems for oil and gas E&P companies be in trouble?!? The debtors’ pre-pretition lender will serve as DIP lender ($5mm) and stalking horse purchaser, credit bidding the DIP and prepetition credit facility amount ($28.6mm) as appropriate/necessary. Riveting stuff.

  • Jurisdiction: D. of DE (Judge Walrath)

  • Capital Structure: $28.6mm RCF & TL (New Mountain), $19.435mm unsecured promissory notes

  • Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Robert Poppiti Jr., Joseph Mulvihill, Jordan Sazant)

    • Financial Advisor/CRO: CM Advisory LLC (Chris Maier)

    • Investment Banker: Seaport Gordian Energy LLC

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

  • Other Parties in Interest:

💊 New Chapter 11 Bankruptcy Filing - AAC Holdings Inc. ($AACH)💊

AAC Holdings Inc.

June 20, 2020

Tasteless joke alert: if there’s one thing that we would’ve thought would benefit from COVID it would be addiction. Our expenses are WAY DOWN across the board with one exception: alcohol.

We joke about it but the sad and honest truth is that there were a lot of people who likely needed help over the last several months that were unable to get it. Overdose deaths are spiking across the country. And so we hope that people are able to (safely) find answers/help now that things are finally opening back up across most of the country. Our tastelessness aside, it really isn’t a joking matter.

Unfortunately, American Addiction Centers ($AACH) has been kicking around the bankruptcy bin for a very long time now — long before COVID struck. Everyone knew a bankruptcy filing was coming. S&P Ratings has a “D” rating on this thing; Moody’s is rocking a Caa2. The first lien term loan due 2023 was, as of last week, just a hair over 41. Suffice it to say, all the signs were out there for the Tennessee-based inpatient and outpatient provider of substance abuse services.

And so AAC has finally met its fate. The company filed for chapter 11 in the District of Delaware in a rare Saturday night filing, listing $517.4mm of total debts against $449.4mm of total assets. That is textbook insolvency right there.

The company has a commitment of $62.5mm in DIP financing from its pre-petition lenders to fund the cases, operate in the ordinary course while in bankruptcy, and pursue a marketing process for the sale of its assets; it will use the bankruptcy process to de-lever its balance sheet; it notes that there’ll be no layoffs or facility closures as a result of the filing and that the company hopes to emerge from bankruptcy within 125 days. To this end, the company has an RSA with 89% of its first lien senior lenders and more than 50% of its junior lenders.

  • Jurisdiction: D. of Delaware (Judge Dorsey)

  • Capital Structure: $47mm senior lien facility, $316.6mm junior lien facility

  • Professionals:

    • Legal: Greenberg Traurig LLP (David Kurzweil, Alison Elko Franklin, Dennis Meloro) & Chipman Brown Cicero & Cole LLP

    • Directors: Scott Vogel, Michael Logan

    • Financial Advisor: Carl Marks Advisors (Jette Campbell)

    • Investment Banker: Cantor Fitzgerald

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

  • Other Parties in Interest:

    • DIP & Pre-Petition Agent: Ankura Trust Company LLC

New Chapter 33 Bankruptcy Filing - NorthEast Gas Generation LLC

NorthEast Gas Generation LLC

June 18, 2020

Texas-based NorthEast Gas Generation LLC (along with three affiliates, the “debtors”), an indirect subsidiary of non-debtors Talen Energy Corporation and NorthEast Gas Generation Holdings LLC (f/k/a MACH Gen LLC), filed for bankruptcy in the District of Delaware. This is the third chapter 11 in six years. You could be excused for thinking that, after two prior rodeos, the balance sheet would be pretty light. Alas, that is not the case. The debtors have $585.2mm of funded indebtedness split between a $554.7mm first lien credit facility and a much smaller $30.5mm second lien credit facility (PETITION Note: there are also LOCs of $23.2mm). Behind all of that is approximately $10.5mm of trade debt.

Low natural gas prices have persisted, unfortunately, and that has placed downward pressure on electric energy prices. Moreover, supply continues to outpace demand thanks to energy saving tech, alternatives, and more. Apparently global warming ain’t helping either: a warmer-than-normal winter reduced home heating levels. All of these factors affected the debtors’ ability to generate revenue and service their debt. The bankruptcy filed was tripped by the urgent need for liquidity and the ability to enter into a DIP financing agreement. This critical funding will bridge the debtors to some sort of transaction that will “allow them to effectuate an orderly restructuring process in chapter 11, pursuant to which the Debtors anticipate consummating a transaction that will transfer, sell, or otherwise convey substantially all of the Debtors’ assets to the First Lien Secured Parties or their designee.

  • Jurisdiction: D. of Delaware (Judge Walrath)

  • Capital Structure: $585.2mm

  • Professionals:

    • Legal: Richards Layton & Finger PA (Mark Collins, Dan DeFranceschi, Jason Madron, Brendan Schlauch)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • DIP Admin Agent & DIP Lenders: CLMG Corp. & Beal Bank USA & Beal Bank SSB

      • Legal: White & Case LLP (Scott Greissman, Philip Abelson, Elizabeth Feld, Rashida Adams) & Fox Rothschild LLP (Jeffrey Schlerf)

    • Talen Energy Supply LLC

      • Weil Gotshal & Manges LLP (Matt Barr, Bryan Podzius, Alexander Welch, Ronit Berkovich & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Taylor Haga)

💊 New Chapter 11 Bankruptcy Filing - Proteus Digital Health Inc.💊

Proteus Digital Health Inc.

June 15, 2020

In a week chock full of chapter 11 bankruptcy filings, in our opinion, the filing of California-based medtech company Proteus Digital Health Inc. is the most interesting and unique. Sure Extraction Oil & Gas ($XOG) is a publicly-traded oil and gas exploration and production company but, aside from the fact that it operates primarily in Colorado rather than Texas or Oklahoma, there’s nothing particularly fresh or interesting about it. We get it already: oil and gas is f*cked.

In contrast (and with apologies for the long block quote), when’s the last time you read about a chapter 11 debtor that does this:

The Debtor is a pioneer and leader of the “Digital Medicines” industry. “Digital Medicines” are oral pharmaceuticals formulated with an ingestible sensor aimed at tracking a patient’s adherence to prescribed medication treatments. When patients use Digital Medicines, their mobile devices collect information about medication taken and safely transmit the data via the cloud to the healthcare provider. Care teams are able to see if their patients are properly taking their medication and observe and analyze real-time data regarding the patient’s overall health such as heart rate, activity and rest. Digital Medicines enable care teams to manage larger patient populations and make medical decisions without the need for a patient to physically travel to the doctor’s office. Digital Medicines can help accelerate the trend toward conducting medical consultations over the internet. This opportunity is especially pronounced in rural areas and developing economies both domestically and internationally, particularly in light of challenges posed by the COVID-19 pandemic and resulting social distancing measures.

That’s like some Minority Report sh*t right there. Founded in 2002, the debtor has spent the better part of two decades developing its tech, testing its tech, commencing clinical trials, obtaining FDA approval of its drug-device combination product, entering into a marketing and distribution relationship with Otsuka Pharmaceutical Co. Ltd. ($OTSKY)(which it later expanded the scope of), and agreeing to a multi-year outcomes-based initiative with the State of Tennessee’s Medicaid program with a focus on hepatitis C treatment of underserved populations. The company currently “…has a panel of more than 20 Digital Medicines that treat cardiovascular and metabolic diseases including hypertension and diabetes being prescribed to patients in the United States.” Its patent portfolio is 400 strong.

On the flip side, the company is currently “pre-revenue.” And as you can imagine, accomplishing all of the above required a significant amount of upfront capital. There’s a reason why this company raised venture capital all the way through a Series H round: $461.5mm, actually, according to Angelist, with the last round of $50mm taking place in April 2016. The company’s cap table includes, among many others, The Carlyle Group ($CG)(Series B & C rounds), Medtronic PLC ($MDT)(Series D round), Novartis Pharma AG ($NVS)(Series E & F rounds), and PepsiCo Inc. ($PEP)(Series G round). The company also has a $9.5mm pre-petition credit facility.

In late 2019, the company experienced a severe liquidity crisis due, in part, to complications arising out of the expanded collaboration agreement with Otsuka. The debtor nearly wiggled its way out of trouble; it negotiated a synchronized deal with Otsuka and its prepetition lender that would coordinate (a) payments in from Otsuka and (b) payments out to the lender and (c) let the company get back to business as usual and buy it some time to source additional financing. But then COVID-19 struck and the company again found itself in a position where it wouldn’t be possible to live up to its obligations — in this case, a $7.75mm repayment to its pre-petition lender on or before April 30. This thing is like whack-a-mole.

The company spent April and May trying to negotiate itself out of its quagmire and hired Raymond James & Associates Inc. ($RJF) as investment banker to pursue a marketing and sale process. The company entered into a series of agreements with Otsuka and its lender to stem the tide but, ultimately, the shot clock ran out:

In light of all of these circumstances, and after having explored multiple options and carefully considering the alternatives, the Board, in consultation with managements and the Debtor’s advisors, made the difficult decision to file for chapter 11 protection in order to preserve the Debtor’s assets and conduct a sale process or other transaction, all in an effort to maintain continuity of business operations (including the Debtor's TennCare initiative) and maximize going concern value for the benefit of the Debtor’s creditors and equity stakeholders. The Debtor anticipates that it will seek approval of appropriate bidding and sale procedures in the early weeks of the Chapter 11 Case.

The pre-petition lender has consented to the use of its cash collateral to fund the case. Now we’ll see if there are any buyers out there who are as impressed with the premise of Digital Medicines as we are.*

*Full disclosure, we’re going purely off of what the debtor describes and have no medical knowledge whatsoever to opine on the efficacy of such initiatives. Sure sounds cool AF though.

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $9.5mm secured debt (OrbiMed Royalty Opportunities II LP)

  • Professionals:

    • Legal: Goodwin Procter LL (Nathan Schultz, Barry Bazian, Aretm Skorostensky) & Potter Anderson & Corroon LLP (L. Katherine Good, Aaron Stulman)

    • Financial Advisor/CRO: SierraConstellation Partners LLC (Lawrence Perkins)

    • Board of Directors: Shumeet Banerji, Regina Benjamin, Robert Epstein, Frank Fischer, Alan Levy, Ryan Schwarz, Joseph Swedish, Jonathan Symonds, Immanuel Thangaraj, Andrew Thompson

    • Investment Banker: Raymond James & Associates

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

  • Other Parties in Interest:

    • Prepetition Lender: OrbiMed Royalty Opportunities II LP

    • Large Series A Preferred Equityholder: Spring Ridge Ventures I LP

    • Large Series B Preferred Equityholders: Carlyle Venture Partners II LP, Adams Street V LP, BVCF IV LP

💪 New Chapter 11 Bankruptcy Filing - 24 Hour Fitness Inc. 💪

24 Hour Fitness Inc.

June 15, 2020

California-based 24 Hour Fitness Inc. (along with ten affiliates, the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware after it became apparent that it’s hard to sustain a fitness business when, as a practical matter, you’re really 0 Hour Fitness Inc. When you have 3.4mm customers across 445 (leased) locations across the United States, it’s awfully hard for a business that typically does $1.5b in revenue and $191 in adjusted EBITDA to make money when a pandemic rips through the nation and shuts down business entirely. This, ladies and gentlemen, like the few airlines who have filed for bankruptcy to date, is as pure-play a COVID-19 story as they come these days.

Now, that’s to not to suggest that everything was copacetic prior to the quarantine. The business had some pimples on it. The debtors’ CRO cites the selling/operating model’s negative impact on financial performance. But the biggest and scariest pimples are the debtors’ balance sheet and lease portfolio. The former includes $1.4b of funded debt; the latter, 445 locations leased across the country, of which 135 have already been deemed unnecessary and are the subject of a first day executory contract rejection motion (PETITION Note: the debtors denote this as “a first wave.”). When revenues stop coming into the coffers, these tremendous amounts become quite an overhang and a liquidity drain.

The filing, among other things, helps solve for the liquidity issue. The debtors have obtained a commitment for a $250mm new-money senior secured DIP facility from an ad hoc group of lenders. While there is no restructuring support agreement in place here, the ad hoc group is comprised of 63.3% of the aggregate principal amount outstanding under the prepetition credit facility and approximately 73.9% of the face amount of the $500mm in senior unsecured notes. In other words, there’s a solid amount of support here but not enough yet to command the senior class of debt.

Luckily, the debtors gave themselves a form of pre-DIP. Wait. Huh? What are we referring to?

…the Debtors were obliged to close all of their fitness clubs nationwide on March 16, 2020, in response to this national emergency. As a result, the Debtors were no longer able to generate new sources of revenue (by winning new members) and, on or about April 15, 2020, the Debtors suspended billing on account of monthly membership dues.fn

In the footnote, the debtors note:

To date, litigation has been commenced in connection with the Debtors’ monthly billing on a post-March 16 basis, notwithstanding, among other things, the Debtors’ rights under their various membership agreements. The Debtors reserve all rights, claims, and defenses in this regard.

Uh, apparently, 0 Hour Fitness Inc. = 30 Days of Payment Inc. We’ll see whether this short-term liquidity grab created long term customer retention issues.*

Moreover, the fact that they apparently laid off thousands of employees via conference call probably won’t amount to a whole lot of goodwill. Just sayin’.

Now it’s wait and see. The debtors have reopened approximately 20 locations in Texas and hope to have the majority of their other non-rejected clubs open by the end of June. We’ll see if the uptick in COVID cases in certain states throws a wrench in that plan. To combat any COVID-related perception risk, the debtors are instituting some new measures:

…the Debtors have taken an innovative approach to the reopening of their clubs, instituting market-leading strategies to keep their members and employees safe, including an app-based reservation system to ensure that their clubs remain in compliance with applicable social distancing guidelines, a touchless check-in system to limit members’ and employees’ contact with surfaces, and cleaning schedules that ensure that entire clubs are sanitized every hour. (emphasis added)

Gosh. We see sh*t like this — the airlines are also making similar statements about newly implemented cleanliness standards — and it really makes us wonder: what the bloody hell were these cesspools doing pre-COVID?!?!? Clearly not enough.

And, yet, otherwise, we have some sympathy for these businesses. This is a brand new paradigm. The debtors indicate that they’re implementing a reservation-based system where people are locked into an hour-max workout after which the gym will be closed for 30 minutes for a “deep clean.” That is not exactly a seamless and frictionless user experience. Moreover, what kind of chemicals are going to be dumped all over the facility every 60 minutes? These are tough issues.

As far as social distancing:

…the Debtors are utilizing space in their clubs in creative ways in order to continue to offer members a range of amenities and services. For example, the Debtors are utilizing their basketball courts to hold group exercise classes, including by relocating stationary bike equipment to continue to offer indoor cycling classes, so that members and equipment can be properly spaced to comply with social distancing guidelines.

Source: First Day Declaration

Source: First Day Declaration

No offense but does THIS really worth going to the gym for? You can use apps for a fraction of the cost and do this at home…mask-less.

So what now?

The DIP financing will buy the debtors some time to evaluate new trends. Will those people who paid for a month when the gym was closed come back? Will the news about employee treatment effect the “brand”? Will all of those people who bought home gyms or learned to run need to go to a gym? The re-opening notwithstanding, all of these questions will directly impact valuation. Indeed, how do you value this business with so many massive question marks? Well, luckily, we have the debt to get a sense of what that answer might be. And considering that, at the time of this writing, the term loan is bid in the high 20s and the unsecured notes are bid around 3 — that’s right, 3 — it’s pretty clear who is getting (generally) wiped out in this scenario and where the market thinks the value breaks.

*Honestly, this was a dirty move but from the debtors’ perspective, it also totally makes sense.

  • Jurisdiction: D. of Delaware (Judge Owens)

  • Capital Structure: $95.2mm ‘23 RCF, $835.1mm ‘25 Term Loan, $500mm 8% ‘22 unsecured notes (Wells Fargo Bank NA)

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Ryan Preston Dahl, Kevin Bostel, Kyle Satterfield, Ramsey Scofield, Jackson Que Alldredge, Jacob Mezei, Alexander Cohen, Sarah Schnorrenberg) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Peter Keane)

    • Directors: Marc Beilinson, Stephen Hare, Roland Smith

    • Financial Advisor/CRO: FTI Consulting Inc. (Daniel Hugo)

    • Investment Banker: Lazard Freres & Co. LLC (Tyler Cowan)

    • Real Estate Advisor: Hilco Real Estate LLC

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

  • Other Parties in Interest:

    • Ad Hoc Group

      • Legal: O’Melveny & Myers LLP (John Rapisardi, Adam Rogoff, Daniel Shamah, Diana Perez, Adam Haberkorn) & Richards Layton & Finger PA (Mark Collins, Michael Merchant, David Queroli)

    • Prepetition Agent: Morgan Stanley Senior Funding Inc.

      • Legal: Latham & Watkins LLP (Alfred Xue)

    • DIP Agent: Wilmington Trust

      • Legal: Covington & Burling (Ronald Hewitt)

    • Senior Notes Indenture Trustee: Wells Fargo Bank NA

      • Legal: Reed Smith LLP (Eric Schaffer, Luke Sizemore, Mark Eckard)

    • Large equityholders: AEA, Fitness Capital Partners LP, 2411967 Ontario Limited

🍔 New Chapter 11 Bankruptcy Filing - Maines Paper & Food Service Inc. 🍔

Maines Paper & Food Service Inc.

June 10, 2020

Sooooooo…this is a different one. Maines Paper & Food Service Inc. and 12 affiliates (the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware. For a company with a 100-year history — starting with the sale of “nickel candy” to local grocers on through an expansion into fountain supplies, toys and paper products in the 40s and then further expansion into foodservice in the 70s — it seems safe to say the last two years have been as active as any. Indeed, this bankruptcy filing marks the culmination of a two-year roller-coaster process.

Let’s talk about the foodservice business. The debtors operate in over 30 states; they have 10 distribution centers and 3 retail stores across the Northeastern, Midwestern and Southern regions of the US. They have two primary business units. First, their foodservice supply chains solutions unit (the “QSR Business”) provides centralized purchasing and distribution services for QSR (“quick service restaurant”) chains like Burger King ($QSR), Tim Hortons ($QSR), Wendy’s Co. ($WEN), Applebees ($DIN), IHOP ($DIN) and Chilis. For these clients, the debtors manage (i) sourcing and purchasing of food product, (ii) delivery to their distribution centers and (iii) from there, shipping to individual franchisees. They’re not a food producer; they’re not a food seller. They are as middle man as you can get.

The second segment is the logistics services business unit (the “Darden Business”) which services restaurants owned by Darden Restaurants Inc. ($DRI). This business is similar to the QSR Business but for the fact that Darden procures its own foodservice products and the debtors merely handle the logistical side of making sure that the food then gets to DRI’s many restaurant brands.

The restaurant space — as we’ve documented time and time again — has been very challenging for years. Long-time PETITION readers will recall that we’ve highlighted on multiple occasions how rising wages, labor shortages and trucking challenges were nibbling away at already-relatively-low margins. As a servicer to restaurants, the debtors, too, suffered from these issues. Per the debtors:

Even prior to the COVID-19 pandemic, the Debtors faced several years of significant operating pressures resulting from industry-wide truck driver and warehouse labor shortages. During 2018, the foodservice distribution industry specifically, and the distribution & logistics industries more generally, experienced a significant labor shortage, primarily due to the robust labor market. For the Company, these labor shortages caused delivery-related challenges and amplified expenses due to a greater reliance on independent contractors and increases in overtime and shrink cost. The Debtors took steps to identify and implement a number of cost-rationalization initiatives together with scheduled customer resignations in order to manage their costs and address these challenges. However, the cumulative effect of these operational challenges was severe: the Debtors experienced a $29.9 million pre-tax loss in 2018 and a $25.9 million pre-tax loss in 2019.

The debtors’ owners, the Maines Brothers, started waving the white flag in the summer of ‘18. They hired advisors and attempted to divest the company.

They weren’t successful. While a sale didn’t happen, the debtors and their advisors were able to recapitalize the business and otherwise shore up liquidity. At that point the company complemented its existing asset-backed revolving credit facility with a term loan (issued by a non-debtor and secured by certain real estate) and a promissory note issued to an affiliate of Darden. Moreover, the debtors were able to obtain price increases and a small cash infusion from two of its then-largest QSR Business customers (presumably QSR and DIN). These improvements set the company up for a second bite at the sale apple.

And, indeed, by February ‘20, the company received letters of intent that, combined, would have led to the sale of the business in parts. One buyer wanted the QSR Business; another the company’s NY-based corporate headquarters and the Darden Business. About a month and a half away from closing COVID-19 entered the mix.

To say that COVID-19 crushed the debtors’ business would be an understatement. Customer volumes instantly fell by up to 87%. All of the debtors’ end customers were shut down. This is the part of the aforementioned roller-coaster where the seat belt breaks and yet the car is riding up a monstrous ascent. The company’s proposed buyers balked and the PNC Bank NA ($PNC), as agent under the ABL, exercised control over the company’s cash and withdrew its support of the going concern transaction. To make matters worse, several large customers terminated their distribution agreements.

But that’s not all. Lineage Bluebird Debtco LLC, an affiliate of Lineage Foodservice Solutions LLC, saw an opportunity and seized it. Like, literally. They took out PNC in April ‘20 and commenced a partial strict foreclosure of the company’s assets. Get out those Article 9 textbooks folks. What this means is that they took title to the company’s primary assets, i.e., inventory and receivables, its corporate HQ, and other real estate. They then entered into a foreclosure agreement pursuant to which they forgave $80mm of senior secured debt under the ABL, contributed $7.5mm in cash to fund a post-foreclosure wind down in court and another $2mm to pay holders of general unsecured claims pursuant to a plan of liquidation (PETITION Note: trade debt totals over $100mm, exclusive of special first day relief). Lineage also made job offers to the ~850 Maines employees. Lineage is pushing for plan confirmation within the next 90 days which, no doubt, will include releases.

After this untimely sequence of events, it appears the releases are the best the Maines Brothers can hope for at this juncture.

*****

One other point here. In some respects this is a decent result because at least the employees get to keep their jobs. But it’s important to acknowledge the cascading effects stemming from the foreclosure of this business and subsequent consolidation into a competitor.

The most illustrative way to see this is via the debtors’ executory contract rejection motion. While it’s largely possible that a number of these contracts would not have been assumed and assigned in conjunction with the Feb ‘20 sale transactions, it’s equally plausible that many of them would have been. COVID-19 struck and all of that went out the window. In turn, now all of the business that the debtors’ contract counterparties had looks to follow. Most likely, that business is simply redundant to Lineage.

By way of illustration, the debtors are now rejecting, among other things:

  • Multiple retail store leases, undoubtedly contributing to the struggles that landlords already face;

  • Multiple distribution center leases … ditto above (though, we’d think distribution center leases may have a better rebound scenario);

  • Several other real estate leases (i.e., cold storage centers, nurseries, farms);

  • Recycling and waste treatment contracts; and

  • Vehicle lease and, separately, vehicle maintenance contracts.

Multiply this throughout the economy and it’s easier to understand why the market finally corrected a bit this week after a huge euphoric run.


  • Jurisdiction: D. of Delaware (Judge Owens)

  • Capital Structure: $10.329mm RCF (Lineage), $10mm promissory note (Darden Direct Distribution Inc.), $1.7mm unsecured term note (M&T Bank)

  • Professionals:

    • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns, Maxim Litvak)

    • Director: James D. Decker

    • Financial Advisor/CRO: Huron Consulting Group (John DiDonato, Mark Western, David McCormack, Abhimanyu Gupta)

    • Investment Banker:

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

  • Other Parties in Interest:

    • Lineage Logistics Inc.

      • Legal: Latham & Watkins LLP (Peter Gilhuly, Nacif Taousse) & Young Conaway Stargatt & Taylor LLP (Michael Nestor)

    • Restaurant Brands International Inc.

      • Legal: Genovese Joblove & Battista PA & Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere) & Genovese Joblove & Battista PA

    • PLM Fleet LLC f/k/a MAC Trailer Leasing Inc.

      • Legal: McCarter & English LLP (Matthew Rifino)

⛽️ New Chapter 11 Bankruptcy Filing - Templar Energy LLC ⛽️

Templar Energy LLC

May 31, 2020

Templar Energy LLC (and six affiliates, the “debtors”), an Oklahoma City-based independent oil and gas exploration and production company that operates primarily in the Greater Anadarko Basin of Western Oklahoma and the Texas Panhandle, filed a prepackaged plan of liquidation early Monday morning — the culmination of a multi-year effort to stave off the inevitable.

A quick flashback. Four years ago oil and gas companies were collapsing into bankruptcy left and right. After oil and gas prices fell hard, the oil and gas tide rolled out and left a lot of investors stranded naked on the beach. Most funds were of the view that this was just a hiccup. One fund after another raised billions after billions of dollars thinking that energy was “where it’s at.” We now know how off-kilter that thesis was.

Some companies back then were luckier than others. Thanks in large part to its relatively simple and highly concentrated capital structure and a clear demarcation of value based on prevailing commodity prices of the time, in September 2016, Templar Energy was able to consummate an out-of-court restructuring that extinguished $1.45b of second lien debt. Repeat: $1.45 BILLION of second lien debt — a tremendous amount of value destruction a mere four years after the company’s formation. Of course, as with all things there are nuances here. “Value destruction” is a relative phrase that applies to the par holders of the debt when originally issued. Certain second lien lenders who participated in the out-of-court restructuring may very well have purchased the paper for cents on the dollar once the par guys had to pull the ripcord. Destruction there, therefore, is a function of price. There’s no way to know (from publicly available information) whether any of the original holders of second lien paper came out ahead upon receiving $133mm in cash and 45% of the equity in exchange for their second lien paper. It’s certainly possible that some did.

It’s also highly probable that some didn’t. Take Ares Management LLC, Bain Capital and Paulson & Co. Inc. for instance; they each participated in a rights offering for participating preferred equity in the company in exchange for $220mm dumped into this turd (plus $145mm placed by legacy equity holders). Given that the RBL IS NOW IMPAIRED here, clearly that equity check hasn’t borne fruit. It was also used to pay the aforementioned $133mm of cash recovery so … suffice it to say … this does not seem like one that the aforementioned funds will be referencing in future LP-oriented marketing materials.

Emanating out of that ‘16 transaction is the debtors’ current $600mm RBL. This time around, it is the fulcrum security. The debtors note, “Critically the claims under the RBL Facility are deeply impaired.” And the RBL lenders have no intention of owning the assets — predominantly leases with various oil and gas mineral owners covering non-exclusive working interests in approximately 2,165 oil and gas wells over approximately 273,400 continuous acres of property. Let’s be clear here: first lien lenders generally aren’t in the business of horizontal drilling and hydraulic fracking. Of course, right now, the debtors aren’t really in the business of horizontal drilling and hydraulic fracking. At least technically speaking. Given where oil and gas prices are — thanks Putin/MBS on the supply side, COVID-19 on the demand side — the debtors aren’t even conducting any drilling. Typically they operate anywhere up to 13 rigs at a time. All of which is to say that the lenders’ position explains why this is a sale + plan of liquidation case rather than a second debt-for-equity play.*

To aid the debtors’ attempts to continue pre-petition sale efforts post-petition, certain of the RBL Lenders have committed to a $37.5mm DIP (with a 0.5-to-1 $12.5mm rollup). Pursuant to a restructuring support agreement, the RBL lenders have agreed to receive their pro rata share of any net sale proceeds and all remaining cash held by the debtors’ estates as of the plan effective date minus (i) cash needed to repay the DIP, (ii) wind down funds, and (iii) monies placed into a professional fee escrow. Royalty owners, materialman and mechanics’ lienholders will be paid in full. General unsecured claimants and equity will get wiped.

*We should note — to hammer home the point — that one of the events that hammered the debtors’ liquidity position was the RBL lenders’ April 1, 2019 redetermination down of the RBL borrowing base to $415mm. This regularly scheduled redetermination analysis created an immediate $22mm “deficiency payment” liability for the debtors as it had $437mm borrowed at the time. The debtors stopped making those payments in November 2019. They’ve been in a state of forbearance with the RBL lenders ever since.

$37.5mm DIP with $12.5 rollup

  • Jurisdiction: D. of Delaware (Judge )

  • Capital Structure:

  • Professionals:

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Robert Britton, Sarah Harnett, Teresa Li) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Jaime Luton Chapman, Tara Pakrouh)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Guggenheim Securities LLC (Morgan Suckow)

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

  • Other Parties in Interest:

    • DIP Agent ($37.5mm): Bank of America NA

    • Consenting RBL Lenders

      • Legal: Morgan Lewis & Bockius LLP (Amy Kyle, Andrew Gallo) & Richards Layton & Finger PA

      • Financial Advisor: RPA Advisors LLC

    • Large Class A equityholders: Ares Management LLC, Paulson & Co. Inc., Bain Capital, Lord Abbett, Archview Investment, Bank of America, Seix Advisors, Bardin Hill/Halcyon Loan Invest Management, Oppenheimer Funds

New Chapter 11 Bankruptcy Filing - PQ New York Inc. (a/k/a Le Pain Quotidien)

PQ New York Inc.

May 27, 2020

New York-based and Belgium-company-owned PQ New York Inc., otherwise known to most as Le Pain Quotidien, filed for chapter 11 bankruptcy in the District of Delaware (along with 104 affiliates) to effectuate a sale of assets to LPQ USA LLC, an affiliate of Aurify Brands. Aurify Brands incubates in-house brands (e.g., Melt Shop) and harvests previously-created brands too (e.g., Five Guys Burgers and Fries). It intends to re-open no fewer than 35 of LPQ’s 98 restaurants (and, to this end, has already filed a lease rejection motion delineating which leases, subject to a negotiation between landlords and the proposed purchaser, are subject to rejection). LPQ USA LLC provided the debtors a $522k bridge loan pre-petition and roll that loan up into a $3mm post-petition DIP credit facility to fund working capital needs during the course of the cases.

This is not a pure COVID story. The debtors financial performance began to decline pre-pandemic as customer preferences shifted away from the casual dining concept towards other concepts like “grab n go.” This trend, combined with management turnover and lack of investment at the store level, led the debtors to begin exploring strategic alternatives for their European and US-based businesses in Q3 of 2019.

Let’s put some numbers around this. In 2018, the debtors had $175mm of sales and $4.4mm in EBITDA. In 2019, sales dropped to $153mm and EBITDA swung by over $20mm to -$16.8mm. Even worse? There was no hope on the horizon. With expensive leases and eroding same store sales, the debtors forecast negative EBITDA through 2023 absent a severe operational restructuring. Prior to COVID slamming the economy and shutting everything down, the debtors had already determined that a bankruptcy filing would be necessary to help negotiate lease terms with landlords, secure funding, and pursue a sale. The shutdown just postponed things for a while.

  • Jurisdiction: D. of Delaware (Judge Dorsey)

  • Capital Structure: $522k bridge loan

  • Professionals:

    • Legal: Richards Layton & Finger PA (Mark Collins, Michael Merchant, Jason Madron, Brendan Schlauch)

    • Financial Advisor/CRO: PwC (Steven Fleming)

    • Investment Banker: SSG Advisors LLC

    • Real Estate Advisor: RCS Real Estate Advisors

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

  • Other Parties in Interest:

    • Stalking Horse Purchaser: LPQ USA LLC

      • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Morton Branzburg)

🚘 New Chapter 11 Bankruptcy Filing - Advantage Holdco Inc. (a/k/a Advantage Rent-a-Car) 🚘

Advantage Holdco Inc.

May 26, 2020

Florida-based Advantage Holdco Inc. (along with six affiliates, the “debtors”) is the second car rental business to file for chapter 11 bankruptcy in the last week. The debtors list at least $500mm in liabilities against $100mm-$500mm in assets. Rut roh. They also noted that “[a]fter any administrative expenses are paid, no funds will be available to unsecured creditors.” RUT ROH.

Get ready for the “private equity bros destroyed car rental” argument: Catalyst Capital Group Inc., a Toronto-based private equity firm, owns, through affiliates, 100% of the debtors’ equity after purchasing assets (from The Hertz Corporation as luck would have it) out of the 2014 Simply Wheelz LLC d/b/a Advantage Rent-a-Car bankruptcy and merging it with a subsequent acquisition of E-Z Rent-a-Car in 2015. As powerful as private equity firms tend to be, however, they, despite what some might think, didn’t conspire to shutdown the global economy. By extension, they didn’t have any hand in the pandemic stopping nearly all air travel — affecting, in turn, businesses like Advantage that depend on customers coming in and out of airports (much like Hertz). Nor did they have any control over people deciding not to go visit Las Vegas, Nevada — perhaps one of the gnarliest cities in the world — where Advantage also happens to have certain hotel partnerships it leverages to rent cars to people who want to say…blow sh*t up in the desert. Shocking we know! PE doesn’t control G-d.

Unlike Hertz, Advantage tends to target the leisure-discount segment of the rental car sector. Similar to Hertz, though, it generates predominantly all of its revenue from vehicle rentals (from airports mostly), ancillary products like insurance and navigation services and the wholesale disposition of automobiles previously used in the rental fleet. Sound familiar? Only so much room for creativity in this business model, broheims.

In 2019, the debtors did ~$271.5mm in revenue with $165.1mm attributable to rental and $106.4mm to the other stuff we previously noted. Which just goes to show how much of a money maker that bullsh*t insurance you always debate is.

There’s more bankruptcy Inception at play here: The Hertz Corporation ($HTZ) once owned this company but divested it to avoid antitrust scrutiny. Earlier this week, HTZ filed for bankruptcy. Not it is also involved in this bankruptcy; it is the debtors’ 11th largest general unsecured creditor. Whoops.

  • Jurisdiction: D. of Delaware (Judge Dorsey)

  • Capital Structure: $30.2mm unsecured loan (Aberdeen Standard Investments Inc.)

  • Professionals:

    • Legal: Cole Schotz PC (Justin Alberto, Norman Pernick, Patrick Reilley, J. Kate Stickles)

    • Financial Advisor: Mackinac Partners (Matthew Pascucci)

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

  • Other Parties in Interest:

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

Exide Holdings Inc.

May 19, 2020

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

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

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

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure:

  • Professionals:

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

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

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

    • Investment Banker: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • Prepetition ABL Agent: Bank of America NA

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

    • Indenture Trustee

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

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

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

    • Ad Hoc Group

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

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

    • Exide Creditors’ Liquidating Trust

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

💊 New Chapter 11 Bankruptcy Filing - Akorn Inc. ($AKRX) 💊

Akorn Inc.

May 20, 2020

Akorn Inc. ($AKRX), a specialty pharmaceutical company based in Illinois that develops, manufactures and markets generic and branded prescription pharmaceuticals, finally filed for chapter 11 bankruptcy.

Why “finally?” Well, back in January 2019 the company, in conjunction with an announcement of new executive and board appointments, noted that restructuring professionals (Cravath Swaine & Moore LLP, PJT Partners LP and AlixPartners LLP)* were assisting with the formulation of a business plan and discussions with stakeholders. In December 2019, the publicly-traded company acknowledged in an SEC filing that bankruptcy was on the table, sending the stock into a 33% freefall. Subsequently, in February 2020, the company announced in connection with its Q4 and annual earnings that it had reached an agreement with its lenders to execute a sale of the business “potentially using Chapter 11 protection.” A sale, however, could not generate sufficient value to cover the outstanding funded indebtedness under the company’s term loan credit agreement. Shortly thereafter in March, the company defaulted under said agreement and the company and its lenders pivoted to discussions about a credit bid with an ad hoc group of term lenders serving as stalking horse purchaser of the assets in chapter 11. Alas, here we are. The company and 16 affiliates (the “debtors”) “FINALLY” find themselves in court with recently inked asset purchase and restructuring support agreements in tow. The debtors will use the bankruptcy process to further their sale process and market test bids against the term lenders’ proposed $1.05b credit bid; they hope to have an auction in the beginning of August with a mid/late-August sale hearing.

The sale process, however, is not where the excitement is here.

We are now in an age — post COVID-19 — where M&A deals falling apart is becoming commonplace news and debates about force majeure and “material adverse effect” rage on in the news and, eventually, in the courts. In that respect, Akorn was ahead of the curve.

In April 2017, Akorn and Fresenius Kabi AG ($FSNUY), a massive German healthcare company, announced a proposed merger with Akorn shareholders set up to receive $34/share — a sizable premium to the then prevailing stock price in the high-20s. (PETITION Note: for purposes of comparison, the stock was trading at $1.26/share on the aforementioned announcement of annual earnings). Akorn shareholders approved the merger but then the business began to suffer. Per the debtors:

…Akorn began to experience a steep and sustained drop-off in financial performance drive by a variety of factors, including, among other things: consolidation of buyer power leading to price reductions; the FDA’s expedition of its review and approval process for generic drugs, leading to increased competition and resultant additional price and volume erosion; and legislative attempts to reduce drug prices.

Almost exactly a year later — after all kinds of shady-a$$ sh*t including anonymous letters alleging data integrity and regulatory deficiencies at Akron facilities and sustained poor financial performance — Fresenius was like “we out.” Lawsuits ensued with Akorn seeking to enforce the merger and Fresenius parrying with “material adverse effect” defenses. The Delaware Chancery Court agreed with Fresenius.

This is America so lawsuits beget lawsuits and Fresenius’ announcement that the merger was at risk spawned (i) federal class action litigation against Akron and certain of its present and former directors and officers and (ii) federal and state law derivative litigation. Akorn ultimately settled the class action litigation but four groups of hedge funds opted out and continue to pursue claims against Akorn. Meanwhile, Akorn lost its appeal of the Delaware Chancery Court decision and a decision on Fresenius’ claims for damages remain reserved. Fresenius has at least a $74mm claim.

This litigation overhang — coupled with the debtors’ $861.7mm in term loans (emanating out of strategic acquisitions in 2014) — is what drives this bankruptcy. The debtors believe that, upon resolution of these issues, it is well-positioned to thrive. They had $682mm revenue in ‘19 and $124mm of adjusted EBITDA. In Q1 ‘20, the company achieved adjusted EBITDA of $59mm (PETITION Note: “adjusted” being an operative word here). Large wholesale distributors like AmerisourceBergen Corporation ($ABC), Cardinal Health Inc. ($CAH), and McKesson Corporation ($MCK) are large customers. The U.S. healthcare system is shifting towards generics and big brand-name pharmaceuticals are rolling off-patent and “driving generic opportunities.” Pre-petition efforts to find a buyer who shares the debtors’ optimism, however, proved unfruitful.

Armed with a $30mm DIP commitment from certain of the term lenders in the ad hoc group, the debtors will swiftly determine whether the prospect of owning these assets “free and clear” will generate any higher or better offers.

*Kirkland & Ellis LLP, in its quest for 32,892,239% restructuring market share, ultimately displaced Cravath.

  • Jurisdiction: D. of Delaware (Judge Owens)

  • Capital Structure: $861.7mm ‘21 Term Loans (Wilmington Savings Fund Society FSB)

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Patrick Nash, Nicole Greenblatt, Gregory Pesce, Christopher Hayes) & Richards Layton & Finger PA (Paul Heath, Amanda Steele, Zachary Shapiro, Brett Haywood)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: PJT Partners LP (Mark Buschmann)

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

  • Other Parties in Interest:

    • Term Loan & DIP Agent ($30mm): Wilmington Savings Fund Society FSB

      • Legal: Wilmer Cutler Pickering Hale and Dorr LLP

    • Ad Hoc Group of Term Lenders

      • Legal: Gibson Dunn & Crutcher (Scott Greenberg, Steven Domanowski, Jeremy Evans, Michael J. Cohen) & Young Conaway Stargatt & Taylor LLP (Robert Brady)

      • Financial Advisor: Greenhill & Co. LLC (Neil Augustine)

    • Large equityholders: Blackrock Inc., The Vanguard Group, Akorn Holdings LP, Stonehill Capital Management LLC

🚘 Special Edition: The Hertz Corporation ($HTZ) 🚘

The Hertz Corporation

May 22, 2020

Go here for our free a$$-kicking write-up about the situation.

  • Jurisdiction: D. of Delaware (Judge Walrath)

  • Professionals:

    • Legal: White & Case LLP (Thomas Lauria, Matthew Brown, J. Christopher Shore, David Turetsky, Ronald Gorsich, Aaron Colodny, Doah Kim, Jason Zakia) & Richards Layton & Finger PA (Mark Collins, John Knight, Brett Haywood)

    • Canadian Legal: McCarthy Tetrault LLP (David Galainena)

    • Financial Advisor: FTI Consulting Inc. (Michael Buenzow)

    • Investment Banker: Moelis & Co.

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

  • Other Parties in Interest:

    • Barclays Bank PLC

      • Legal: Latham & Watkins LLP (George Davis, Suzzanne Uhland, Christopher Harris, Adam Goldberg, Heather Waller, Adam Ravin, Andrew Sorkin) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming)

    • Indenture Trustee: Wells Fargo Bank NA

      • Legal: Foley & Lardner LLP (Mark Hebbeln, Harold Kaplan) & Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

    • Ad Hoc Group of Litigation Creditors

      • Lega: Pachulski Stang Ziehl & Jones LLP (John Fiero, Colin Robinson)

    • Official Committee of Unsecured Creditors

      • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Moers Mayer, Amy Caton, Daniel Eggermann, Alice Byowitz) & Benesch Friedlander Coplan & Aronoff LLP (Jennifer Hoover, Kevin Capuzzi, John Gentile)

🚚 New Chapter 11 Filing - Comcar Industries Inc. 🚚

Comcar Industries Inc.

May 17, 2020

Florida-based Comcar Industries Inc. and 31 affiliates (the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware — the latest trucking company to end up in bankruptcy court (Callback to “🚛 Dump Trucks 🚛 ,” a PETITION deep dive into the industry which included a review of Celadon Group Inc.’s chapter 11 bankruptcy filing). Comcar is a holding company with four stand-alone trucking business units ((as well as (a) logistics services, (b) supplies, parts and repairs, and (c) fleet maintenance services)). Through the bankruptcy filing, the debtors intend to effectuate a sale of all four units.

Each unit services a different part of the trucking market:

  • CCC Transportation LLC (“CCC”) is a bulk bulk carrier that primarily handles construction materials;

  • CT Transportation LLC (“CT”) is a flatbed carrier that specializes in construction materials;

  • CTL Transportation LLC (“CTL”) is a liquid bulk chemical transporter; and

  • MCT Transportation LLC (“MTL”) is a refrigerated and dry van commodities transporter.

Formed in the 1950s, the debtors grew over the years in order to provide all of these offerings. To do so, they, naturally, took on debt. Funded debt stands at $64.8mm including an ABL, a term loan, and various real estate-backed loans. Servicing the debt has been a challenge going as far back as 2014.

Trucking industry struggles have compounded matters. Per the debtors:

The trucking industry has experienced significant headwinds starting in 2019. During the first half of 2019, the $800 billion American trucking industry began to experience a recession and a reported 640 trucking companies went bankrupt. By mid-2019, the trucking freight market continued to soften. The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates. Compared to the year immediately prior, 2019 showed a steady decline in freight rates, including spot freight rates and contractual rates.

Rates weren’t the only problem. Volumes also declined.

During 2019, truck volumes decreased for nine consecutive months and the trucking industry braced itself for a decrease in demand through the third quarter of 2020. As a result, spot and contract prices, which increased thirty percent (30%) in 2018, decreased twenty percent (20%) in 2019. The decrease in truckload linehaul rates was driven by (1) spot rates that were below contract rates by unsustainably larger margins than, (2) capacity additions and (3) stalled growth in the consumer and industrial economy.

All of this hit the the top and bottom lines. In 2019, the debtors suffered a 26% YOY revenue decrease across all units. CCC got hit the most, down 44.2%. CT got hit the least. Yet even that was down 19.7%. In total, the debtors lost $25mm in 2019 and $6mm through March 27, 2020.

Luckily, as with Celadon Group Inc. previously, there is a market for these trucks. The debtors have a buyer lined up for the CT and CTL businesses for $9mm and $8.6mm, respectively. Similarly, the debtors have a buyer for the MCT business. They would like to proceed with private sales of each of these businesses stating that “…the terms offered … are materially superior to the terms that the Debtors could hope to achieve at any auctions….” Pursuant to the proposed DIP, these sales need to be consummated by the end of July.

The debtors pre-petition ABL and Term Loan lenders (which includes an affiliate of PIMCO) have committed to funding a $15mm DIP — some of which will pay down pre-petition debt, some of which ($1.33mm) will roll-up pre-petition term loans, and the rest for liquidity to fund the cases.


  • Jurisdiction: D. of Delaware (Judge Dorsey)

    1. Capital Structure: $14mm ABL (Sterling National Bank), $25.3mm Term Loan (B2 FIE VIII LLC as lender, US Bank NA as agent), $6.2mm secured real estate loan (CenterState Bank NA), $7mm CWI Real Estate Loan (Commercial Warehousing Inc.),

    2. Professionals:

      • Legal: DLA Piper US LLP (Stuart Brown, Jamila Justine Willis, Tara Nair)

      • Independent Manager: Tobias Keller

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

      • Investment Banker: Bluejay Advisors LLC

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

    3. Other Parties in Interest:

      • Prepetition ABL Agent: Sterling National Bank

        • Legal: Greenberg Traurig LLP

      • Prepetition Term Loan Agent and DIP Agent: US Bank NA

        • Legal: Seward & Kissel LLP

      • Prepetition Term Loan Lender & DIP Lender: B2 FIE VIII LLC (Pimco)

        • Legal: Latham & Watkins LLP (Jason Bosworth)

🍣 New Chapter 11 Bankruptcy Filing - Sustainable Restaurant Holdings Inc. 🍣

Sustainable Restaurant Holdings Inc.

May 12, 2020

Portland-based Sustainable Restaurant Holdings Inc., the holding company behind ten environmentally-friendly restaurants under the Bamboo Sushi and Quickfish brands, filed for bankruptcy in the District of Delaware. The company is owned by Kristofor Lofgren (42.1%) and supported by the Bain Capital Double Impact Fund LP (35.4%).

The company suffered, predictably, once COVID-19 struck and changed the business dynamic for restaurants all over the country. An attempted shift to take-out delivery wasn’t enough to drive revenue and shore up liquidity. The company makes no mention of any attempt to secure PPP funds pursuant to the CARES Act but, presumably, it wouldn’t have been eligible due to its connection to Bain. Bain, however, is stepping up to fund a $375k DIP that will fund the chapter 11 bankruptcy cases and hopefully buy the debtors time to locate a potential buyer of their assets.

  • Jurisdiction: D. of Delaware (Judge )

  • Capital Structure: ~$1.5mm unsecured note

  • Professionals:

    • Legal: Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti)

    • Independent Director: Pamela Corrie

    • Financial Advisor: Getzler Henrich & Associates LLC (David Campbell)

    • Investment Banker: SSG Capital Advisors LLC

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

  • Other Parties in Interest:

    • Major Equityholder & DIP Lender ($375k): Bain Capital Double Impact Fund LP