🥾New Chapter 15 Bankruptcy Filing & CCAA - The Aldo Group Inc.🥾

The Aldo Group Inc.

May 7, 2020

Retail pain doesn’t respect borders. Canada-based The Aldo Group Inc. and eight (8) affiliated companies (collectively, the “Debtors”) filed petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under chapter 15 of the United States Bankruptcy Code in support of a CCAA filing in Canada.

Aldo is a shoe retailer with stores in more than 100 countries. The Group notes roughly 3,000 points of sale with 700 directly owned stores and the remainder as franchises. There are 289 stores in Canada and 429 in the US.

In terms of funded debt, the Aldo Canada has CDN$140mm outstanding. Of that amount, Aldo US is an obligor on a CDN$100mm piece. Both entities are also co-borrowers on a CDN$300mm unsecured syndicated loan. Both the Aldo Canada and Aldo US have significant outstanding amounts to trade creditors including landlords who haven’t been paid for April or May.

Operating performance has been dogsh*t long before COVID hit the scene. Per the debtors:

Over the past few years, the Aldo Corporate Group has declined in profitability and regularly reported losses. For instance, for the twelve month period ending February 1, 2020, Aldo Canada posted a net loss from operations of approximately CDN$74,800,000 and Aldo U.S. posted a net loss of approximately USD$52,800,000. Taking into consideration yearend write-offs of amounts due from subsidiaries and affiliated and write-offs of future tax benefits that were recorded as an asset, Aldo Canada posted a net loss of approximately CDN$170,300,000 and Aldo U.S. posted a net loss of approximately USD$97,300,000.

Pre-COVID, the debtors were attempting an operational restructuring designed to de-emphasize brick-and-mortar stores and prop up e-commerce, wholesale and franchise channels. You know, like, the old playbook. They were also seeking to refinance the credit facility with an ABL. The “transformation” was allegedly on track when the pandemic struck precipitating an immediate liquidity crunch. Hence, the filing.

The debtors will use the filing to evaluate its store profitability, shed leases and contracts and restructure the unsecured loans both in Canada and the US.

It seems pretty safe to say that a good number of those US stores will join the retail garbage bin much to the chagrin of landlords.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: see above.

• Professionals:

  • Legal: Hogan Lovells US LLP (Peter Ivanick, Lynn Holbert, Alex Sher, Baraka Nasari) & Morris Nichols Arsht & Tunnell LLP (Eric Schwartz, Matthew Harvey, Paige Topper)

  • Canadian Monitor: Ernst & Young Inc.

  • Investment Banker: Greenhill & Co. Canada Ltd.

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

• Other Parties in Interest:

  • Largest Unsecured Creditor: Bank of Montreal

    • Legal: Chapman and Cutler LLP (Stephen Tetro, Aaron Krieger) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

New Chapter 11 Bankruptcy Filing - API Americas Inc. (f/k/a AP Foils Inc.)

API Americas Inc.

February 2, 2020

Kansas-based (like, real Kansas-based, as in not in Missouri) API Americas Inc. and its affiliate API (USA) Holdings Limited filed for bankruptcy in the District of Delaware.* API Americas is a manufacturer of foils, laminates, and holographic materials. Among other customers, API Americas provides (i) packaging to companies in the premium drinks, confectionery, tobacco, perfume, personal care, cosmetics, and healthcare sectors and (ii) laminated paper and board products to end users focused on fine spirits, tobacco, confectionary and beauty brands. It has facilities in both Kansas and Indiana.

The debtors appear to be victims of disruption.** They note:

The Debtors have suffered from operating losses over the last couple of years, arising out of three main factors. First, the Debtors have experienced a significant drop in demand for their products, due to unfavorable market dynamics and a shift toward more environmentally sustainable products. In large part, the drop in demand is due to tobacco customers shifting to lower cost, alternative packaging and a substantial portion of the US market moving from merchant to captive.

Given the recent push towards ESG, we suspect we’ll see more debtors note “a shift towards more environmentally sustainable”-everything as a significant headwind. Interestingly, the debtors also note that operating losses are also the result of competitive pressure stemming from overcapacity in the industry. In other words, the demand side is decreasing while the supply-side seems robust. What other companies will follow the debtors into bankruptcy as a result? 🤔

We’ve been commenting here at PETITION that the consumer has been carrying the US economy for months now as certain major manufacturing and services indices have, in contrast to increasing consumer confidence and spending numbers,*** been reflecting negative warning signs about the state of the economy.**** Interestingly, the debtors highlight:

…the manufacturing sector in general has faced economic headwinds in recent months. On January 10, 2020, the New York Times reported that the Institute of Supply Management’s manufacturing index for December 2019 reflected the fastest rate of contraction since June 2009.

We repeat: what other companies will follow the debtors into bankruptcy as a result? 🤔

The debtors have $44.4mm outstanding under its ‘17 $700mm revolving credit facility with PNC Bank NA. With the consent of PNC, they’ll use cash collateral to fund the cases.

So what now? Well, it’s a bit unclear. The papers give no indication of a trajectory for the cases but an attempted sale looks likely. That said, it doesn’t appear like a banker had been engaged at the time of filing.

*Ultimate parent API Group Limited entered administration proceedings in the UK on 1/31/20.

**The debtors cite other specific reasons for its financial distress including poor integration/consolidation of facilities and capex required after the acquisition of one of its plants. These issues cost the debtors $11mm over since 2016.

***Recent consumer confidence numbers continue to be positive.

Source: The Daily Shot

**** Of course, different surveys generally reflect mixed messaging on this front. For instance, the Fed manufacturing index showed some positive signs.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $44.4mm RCF (PNC Bank NA)

• Professionals:

  • Legal: Eversheds Sutherland US LLP (Edward Christian, Mark Sherrill) & Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Monique DiSabatino)

  • Financial Advisor: Ernst & Young LLP (Briana Richards, Jon Henrich)

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

• Other Parties in Interest:

  • Prepetition Lender: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon, Stanley Tarr, Mark Rabinowitz)

😷New Chapter 11 Bankruptcy Filing - REVA Medical Inc.😷

REVA Medical Inc.

January 14, 2020

Take cover folks: it’s raining med device bankruptcies these days.

San Diego-based REVA Medical Inc. develops bioresorbable polymer technologies for coronary artery disease, peripheral artery disease and embolization therapy. If that sounds technical, you’re right: just like every other med device company that finds its way into bankruptcy. The details of the products go right over our heads but, fortunately, the general themes are the same as far less technical debtors. In a nutshell: the company’s products are highly capital intensive and require access to equity and debt markets.

And, indeed, REVA has accessed those markets. It was publicly-traded on an Australian exchange; it also raised tens of millions ($56.8mm to be exact) by way of convertible notes; and, finally, it had access to a senior secured credit facility that looks like a whole lot like bridge financing to a bankruptcy. Indeed, on January 9, just four days prior to filing, the debtor’s gained access to an additional $4.4mm from Goldman Sachs Specialty Lending Group, L.P. which perfectly teed up a cash collateral motion (which was granted the next day). With all of that debt and “relatively minimal sales,” the debtor “has not yet generated revenue at a level sufficient to support its cost structure.” (PETITION Note: we really hope that forthcoming med device AND biopharma debtors borrow this language because it’s likely universally applicable…they can save themselves the cost of 0.2 billable hours). Compounding matters was the maturity of its first issuance of converts, putting the debtor on the hook for $25.5mm. Ruh roh.

The debtor ran into other issues. For one, the debtor’s distributor, Abbott Laboratories ($ABT), withdrew one of the debtor’s products from the market (“Absorb”) after adverse events and poor clinical trial results. Score one for ethics! Thereafter, the European Society of Cardiology published new guidelines that basically napalmed the debtor’s Absorb saying that it’s not useful/effective and might actually be harmful. Whoops!

But there’s some good news here. The debtor has a deal. The deal will erase $90mm of debt with the senior secured lenders and the holders of convertible notes receiving new equity in the reorganized (read: post-bankruptcy) company. This product will live to see another day with the hope of a major course correction.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $9.7mm senior secured credit facility (Goldman Sachs International), $25mm '14 7.54% convertible notes (matured 11/14/19)(Goldman Sachs International, Senrigan Capital Group), $47.1mm ‘17 8% convertible notes (GSI, Senrigan, Medtronic, Inc., HEC Master Fund LP, J.P. Morgan Securities plc, TIGA Trading Pty Ltd, and Saints Capital Everest LP)

• Professionals:

  • Legal: DLA Piper LLP (Thomas Califano, Stuart Brown, Jamila Willis)

  • Financial Advisor: Ernst & Young LLP

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

• Other Parties in Interest:

  • 5%+ Equityholders: Senrigan Capital Group, Goldman Sachs International, Robert Stockman, Elliott Associates, L.P, Brookside/Bain, Capital Public Equity, Cerberus Capital Management, JP Morgan, Citicorp Nominees PTY Limited, JP Morgan Nominees Australia Pty Limited, HSBC Custody Nominees (Australia) Limited –GSCO, HSBC Custody Nominees (Australia) Limited

  • Senior Secured Agent: Goldman Sachs International

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Kevin Bostel) & Richards Layton & Finger PA (Paul Heath, Zachary Shapiro, Sarah Silveira)

  • Senior Secured Lenders: MS Pace LP, Senrigan Capital Group Limited

  • Elliott Management Corporation

    • Legal: Debevoise & Plimpton LLP (Jasmine Ball) & Ashby & Geddes PA (William Bowden)

New Chapter 11 Bankruptcy Filing - Pernix Therapeutics/Pernix Sleep Inc.

Pernix Therapeutics/Pernix Sleep Inc.

February 18, 2019

In our January 30th Members’-only briefing entitled “😢Who Will Remember Things Remembered?😢 ,” we included a segment subtitled “Pharma Continues to Show Distress (Long Opioid-Related BK)” in which we discussed how Pernix Therapeutics Holdings Inc. ($PTX) looked like an imminent bankruptcy candidate. We noted how the company had previously staved off bankruptcy thanks to a refinancing transaction with Highbridge Capital Management. That refinancing now looks like a perfectly-executed loan-to-own strategy: Phoenix Top Holdings LLC, an affiliate of Highbridge, will serve as the stalking horse bidder of the company’s assets in exchange for $75.6mm plus the assumption of certain liabilities. Highbridge will also, after a competitive process pitted against other debtholders like Deerfield Management Company LP, provide the Debtors with a $34.1mm DIP facility — of which $15mm is new money, $5mm is an accordian facility, and the rest is a roll-up of the pre-petition ABL.

• Jurisdiction: D. of Delaware (Judge [ ])

• Capital Structure: see link above.

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Eli Vonnegut, Christopher Robertson) & (local) Landis Rath & Cobb LLP (Adam Landis, Kerri Mumford, Jennifer Cree, Nicolas Jenner)

  • Financial Advisor: Guggenheim Partners LLC (Stuart Erickson)

  • Investment Banker: Ernst & Young LLP

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Phoenix Top Holdings LLC (a Highbridge Capital Management affiliate)

  • Large debtholder: Deerfield Management Company LP

    • Legal: Sullivan & Cromwell LLP

  • DIP Agent: Cantor Fitzgerald Securities

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Sarah Ward)

Updated: 2/19/19 at 8:51 CT

✈️New Chapter 11 Bankruptcy Filing - ONE Aviation Corporation✈️

ONE Aviation Corporation

10/9/18

ONE Aviation Corporation, a New Mexico-based OEM of twin-engine light jet aircraft (e.g., the Eclipse jet, a twin-turbofan very light jet or “VLJ”), filed a prepackaged bankruptcy case that will give 97-100% of the equity to its senior prepetition lender, Citiking International US LLC. Holders of senior secured notes will get 3% of the equity and warrants if they check the “yes” vote in the “death trap” plan of reorganization. General unsecured claimants will get a big fat zero and a bunch of court-mandated paper to throw into the recycling bin. Citiking is providing the company with a $17mm DIP credit facility that will roll into an exit facility upon emergence from chapter 11.

The company has $198.8mm of total funded debt, including approximately $53.2mm representing amounts owed to certain state and local governments in the form of development loans. Womp womp.

Why is there a bankruptcy here? The company pursued growth strategies that simply never came to fruition, including targeting the “air taxi” industry and development of new capital-intensive airplane models. The company notes:

That strategy ultimately proved unsuccessful in the near term because, in addition to the negative macro-factors, including the condition of the U.S. and global economies, ONE Aviation was unable to raise the capital needed to complete the new airplane programs. The VLJ market, a market dependent on luxury spending, simply had not recovered from its downturn in 2008.

Liquidity, therefore, became constrained as the company found itself caught between building for the future and sustaining today. After a considerable sales and marketing process conducted by multiple bankers (Guggenheim Securities, first, Duff & Phelps, second) both in the U.S. and internationally, the company had no luck finding strategic or financial buyers. Hence bankruptcy with a plan to convey the company over to the prepetition first lien lender.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $58.6mm first lien RCF (Citiking), $43.3mm subordinated secured notes (Bank of New York Mellon Trust Company, N.A.), $20.5mm subordinated unsecured notes

• Company Professionals:

  • Legal: Paul Hastings LLP (Chris Dickerson, Brendan Gage, Nathan Gimpel, Todd Schwartz, Stephen Bandrowsky) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, M. Blake Cleary, Sean Beach, Jaime Lutan Chapman)

  • Financial Advisor: Ernst & Young LLP (Briana Richards, Brian Yano)

  • Investment Banker: Duff & Phelps Securities LLC (Vineet Batra)

  • Board of Directors: Michael Wyse, Jonathan Dwight, Alan Klapmeier, Kevin Gould, RJ Siegel

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

• Other Parties in Interest:

  • Administrative Agent & Collateral Agent: Cantor Fitzgerald Securities

    • Legal: Richards Kibbe & Orbe LLP (Gregory Plotko, Christopher Jarvinen) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Senior Prepetition Lender: Citiking International US LLC

    • Legal: Emmet Marvin & Martin LLP (Thomas Pitta) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Senior Subordinated Secured Noteholders

    • Legal: Manning Gross + Massenburg LLP (Marc Phillips)

Updated 10/9/18 at 5:12pm CT

New Chapter 15 Filing - U.S. Steel Canada Inc.

U.S. Steel Canada Inc.

• 6/2/17 Recap: Large steel producer files for Chapter 15 to satisfy a condition of its proposed plan in its 2014-originated CCAA case. 
• Jurisdiction: S.D. of New York
• Company Professionals:
  • Legal (Foreign Representative): Weil (Marcia Goldstein, Robert Lemons)
  • Legal (Debtor): McCarthy Tetrault LLP 
  • Monitor: Ernst & Young Inc. (Alex Morrison)
  • Legal: (Monitor): Bennett Jones LLP
  • DIP Lender: Brookfield Capital Partners Ltd.
  • Legal (DIP Lender): Osler Hoskin & Harcourt LLP

New Filing - Commonwealth of Puerto Rico

Commonwealth of Puerto Rico & Puerto Rico Sales Tax Financing Corporation ("COFINA")

• 5/3/17 Recap: The Commonwealth of Puerto Rico filed a petition for relief under Title III of the the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). Much has been written on this situation and so we're going to keep this brief. We're also going to shed the snark. Why? Well, because this is truly a sad story. GNP in Puerto Rico has declined over 14% in the last decade. The unemployment rate is 12.1% as of 10/16. The labor participation rate plummeted to 40%. The population has declined by 10% over the last decade. 46.1% of PR's residents live below the federal poverty level: the national average is 14.7% and Detroit's poverty level at the time of filing for Chapter 9 was 36%. Brutal. All in, the Commonwealth has $74 billion of bond debt and $48 billion of unfunded pension liabilities. A total dumpster fire.
• Jurisdiction: United States District Court for the District of Puerto Rico
• Capital Structure:

• Professionals:
  • Counsel to the Oversight Board: Proskauer Rose LLP (Martin Bienenstock, Scott Rutsky, Philip Abelson, Ehud Barak, Maja Zerjal, Timothy Mungovan, Steven Ratner, Paul Possinger) & O'Neill & Borges LLC (Hermann Bauer)
  • Strategic Consultant to the Oversight Board: McKinsey & Co.
  • Municipal Investment Banker to the Oversight Board: Citigroup Global Markets
  • Financial Advisor to the Oversight Board: Ernst & Young LLP
  • Counsel to the Puerto Rico Tax Agency and Financial Advisory Authority: O'Melveny & Myers LLP (John Rapisardi, Suzzanne Uhland, Peter Friedman)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Ad Hoc Retiree Committee
    • Legal: Bennazar Garcia & Milian CSP (A.J. Bennazar-Zequeira) & Clark Hill PLC (Robert Gordon, Shannon Deeby, Jennifer Green)
  • National Public Finance Guarantee Corporation
    • Legal: Weil (Marcia Goldstein, Kelly DiBlasi, Gabriel Morgan)
  • Ambac Assurance Corporation
    • Legal: Milbank Tweed & McCloy LLP (Dennis Dunne, Andrew Leblanc, Atara Miller)
  • UBS Family of Funds
    • Legal: White & Case LLP (John Cunningham)
  • Oppenheimer Funds
    • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Mayer, Amy Caton, Douglas Buckley, David Blabey Jr., Phillip Bentley)
  • American Federation of State, County and Municipal Employees
    • Legal: Saul Ewing LLP (Dipesh Patel, Sharon Levine)
  • The Employees Retirement System of the Government of the Commonwealth of Puerto Rico
    • Legal: DLA Piper LLP (Richard Chesley, Rachel Albanese)
  • Goldman Sachs Asset Management LP
    • Legal: McDermott Will & Emery LLP (James Kapp, Megan Thibert-Ind, William Smith)
  • Trustee: Bank of New York Mellon 
    • Legal: Reed Smith LLP (Luke Sizemore, Eric Schaffer, Kurt Gwynne)

Updated 5/11/17

From the Commonwealth's petition.

New Filing - Optima Specialty Steel LLC

Optima Specialty Steel

• 12/15/16 Recap: Miami-based independent specialty steel products manufacturer files for bankruptcy in the District of Delaware, capitulating under the weight of debt-laden acquisitions predicated on synergies and efficiencies that, shockingly, couldn't counteract various macroeconomic headwinds. The company cites low oil prices, a strong US dollar, excess capacity, slowing growth in other parts of the world (read: China), and decreased demand for specialty steel products. Unable to pay its December 15 debt maturity, the company filed to take advantage of the automatic stay - funded by cash collateral initially and seeking a DIP by January - and try to reorganize as a going concern.
• Jurisdiction: D. of Delaware
• Capital Structure: $171.7mm 12.5% senior secured notes (Wilmington Trust), $87.5mm 12% senior unsecured note (Wilmington Trust; privately-placed with DDJ Capital Management LLC)     
• Company Professionals:
  • Legal: Greenberg Traurig (Dennis Meloro, Nancy Mitchell, Paul Keenan, John Dodd, Ari Newman, Maria DiConza)
  • Financial Advisor: Ernst & Young LLP (Briana Richards)
  • Investment Banker: Miller Buckfire & Co., LLC (James Doak)
  • Claims Agent: Garden City Group (*click on company name for docket)
• Parties in Interest:
  • Ad Hoc Group of Unaffiliated Holders of Senior Secured Notes
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Jason Rubin)
  • Official Committee of Unsecured Creditors
    • Legal: Squire Patton Boggs (US) LLP (Stephen Lerner, Norman Kinel, Nava Hazan, Elliot Smith) & (local) Whiteford Taylor & Preston LLP (Christopher Samis, L. Katherine Good, Chantelle McClamb)
  • Wilmington Trust
    • Legal: Morrison & Foerster LLP (Jonathan Levine, James Newton) & (local) Morris Nichols Arsht & Tunnell LLP (Eric Schwartz, Matthew Harvey)
  • DDJ Capital Management LLC
    • Legal: Latham & Watkins LLP (Richard Levy, Ted Dillman)

Updated 1/6/17