⛽️New Chapter 11 Bankruptcy Filing - Unit Corporation ($UNT)⛽️

Unit Corporation

May 22, 2020

Oklahoma is where a lot of the action is at. Unit Corporation ($UNT) is a publicly-traded Tulsa-based holding company that, through three operating segments, offers (i) oil and gas exploration and production, (ii) contract drilling and (iii) midstream services. Like every other oil and gas company under the sun, this one has too much funded debt. $789mm to be exact, split between a $139mm RBL facility and $650mm in ‘21 subordinated unsecured notes. And like every other oil and gas company under the sun, it cannot sustain its capital structure. For months now, the debtors have been the bankruptcy equivalent of deadbeats — bouncing from one standstill agreement to the next so as not to get hit with a meaningful on-schedule redetermination liability that they wouldn’t be able to satisfy (PETITION Note: this is particularly relevant because they had already been hit by a “wildcard” or “off-schedule” redetermination in January, knocking their borrowing base down $75mm. Instant liability! Yay!!). On brand, the debtors likewise couldn’t afford their semi-annual May 15 interest payment.

Why the bankruptcy now? Well, you’ve seen this movie many times already in the last month or so. You’ve got a starring role for Vladimir Putin. And a starring role for MBS. And you’ve got a few plagues for added drama: first, plummeting commodity prices and then a global pandemic. These factors negatively impacted liquidity and sparked a number of strategic processes including (a) the sale of 50% ownership in Superior Pipeline Company to SP Investor Holdings LLC for $300mm in spring of 2018 and (b) an attempted up-tier exchange of the subordinated notes into newly issued 10% senior secured notes and 7% junior notes. The debtors, however, were unable to successfully obtain the requisite number of tenders. Not only would the exchange have extended the debtors’ maturity profile and eliminated short-and-medium term refi risk, it would have removed the danger that the debtors would trigger a springing maturity in their RBL. Oh well.

Luckily the debtors got themselves an agreement with 70% of the subordinated noteholders and the RBL lenders on the terms of a consensual financial restructuring transaction — like, as the shotclock was about to go off (read: when the standstill agreement expired on May 22, the filing date). The deal includes, among other things, (i) a $36mm new money DIP credit facility, (ii) a debt-for-equity swap by the noteholders for equity in each of reorganized Unit Corp and the upstream and contact drilling opcos, (iii) a new $180mm exit facility from the RBL lenders in exchange for a 5% exit fee paid in post-reorg equity in reorganized Unit Corp. (PETITION Note: apparently the RBL lenders have no interest in owning equity in contact drilling services), and (iv) payment in full in cash or reorganized equity to general unsecured claimants depending upon which entity they have a claim against. Notably, equityholders who do not opt out of releases will receive out-of-the-money warrants exercisable for an aggregate of 12.5% of the interests in the reorganized Unit Corp entity.

We’d be remiss if we didn’t highlight one other aspect of these cases. As is all the rage these days, management got away with an amended incentive structure on the eve of bankruptcy that enriched them all to the tune of $900k. Sweeeeeet. Meanwhile, they spent a good chunk of November ‘19 through April ‘20 sh*tcanning their employees and promising them 4 weeks of severance for every year of service up to 104 weeks. While this is admittedly a pretty rich severance plan, it appears that the restructuring support agreement memorializing the above-referenced transaction proposes to renege on this policy and instead provide merely four to 13 weeks severance to employees. You’ve gotta love these oil and gas execs: they’re wildly proficient at destroying value but still manage to always siphon some off for themselves. It’s awesome.

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

• Capital Structure: $139mm RBL facility (BOKF NA), $650mm in ‘21 subordinated unsecured notes (Wilmington Trust NA)

• Professionals:

  • Legal: Vinson & Elkins LLP (Harry Perrin, Paul Heath, Matthew Pyeatt, David Meyer, Lauren Kanzer, Zachary Paiva, Emily Tomlinson)

  • Financial Advisor: Opportune LLP (Gary Pittman)

  • Investment Banker: Evercore Group LLC (Bo Yi)

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

• Other Parties in Interest:

  • RBL Agent: BOKF NA

    • Legal: Frederic Dorwart Lawyers PLLC (Samuel Ory) & Bracewell LLP (William A. Trey Wood III)

    • Financial Advisor: Huron Consulting Group Inc.

  • Ad Hoc Group

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Lauren Tauro)

    • Financial Advisor: Greenhill & Co. Inc.

New Chapter 11 Bankruptcy Filing - J.C. Penney Company Inc. ($JCP)

J.C. Penney Company Inc.

May 15, 2020

Let’s be clear about something right off the bat. Encino Man, Captain America and Austin Powers could all suddenly surface from being entombed in ice for decades and even THEY wouldn’t be surprised that Texas-based J.C. Penney Company Inc. (and 17 affiliates, the “debtors”) filed for chapter 11 bankruptcy.

There are a couple of ways to look at this one.

First, there’s the debtors’ way. Not one to squander a solid opportunity, the debtors dive under “COVID Cover”:

“Before the pandemic, the Company had a substantial liquidity cushion, was improving its operations, and was proactively engaging with creditors to deleverage its capital structure and extend its debt maturities to build a healthier balance sheet. Unfortunately, that progress was wiped out with the onset of COVID-19. And now, the Company is unable to maintain its upward trajectory through its “Plan for Renewal.” Moreover, following the temporary shutdown of its 846 brick-and-mortar stores, the Company is unable to responsibly pay the upcoming debt service on its over-burdened capital structure.”

The debtors note that since Jill Soltau became CEO on October 2, 2018, the debtors have been off to the races with their “Plan for Renewal” strategy. This strategy was focused on getting back to JCP’s fundamentals. It emphasized (a) offering compelling merchandise, (b) delivering an engaging experience, (c) driving traffic online and to stores (including providing buy online, pickup in store or curbside pickup — the latest in retail technology that literally everyone is doing), (d) fueling growth, and (e) developing a results-minded culture. The debtors are quick to point out that all of this smoky verbiage is leading to “meaningful progress” — something they define as “…having just achieved comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half, and successfully meeting or exceeding guidance on all key financial objectives for the 2019 fiscal year.” The debtors further highlight:

The five financial objectives were: (a) Comparable stores sales were expected to be down between 7-8% (stores sales were down 7.7%); (b) adjusted comparable store sales, which excludes the impact of the Company’s exit from major appliances and in-store furniture categories were expected to be down in a range of 5-6% (adjusted comparable store sales down 5.6%); (c) cost of goods sold, as a rate of net sales was expected to decrease 150-200 basis points (decreased approximately 210 basis points over prior year, which resulted in improved gross margin); (d) adjusted EBITDA was $583 million (a 2.6% improvement over prior year); and (e) free cash flow for fiscal year 2019 was $145 million, beating the target of positive.

Not exactly the highest bar in certain respects but, sure, progress nonetheless we suppose. The debtors point out, on multiple occasions, that prior to COVID-19, its “…projections showed sufficient liquidity to maintain operations without any restructuring transaction.” Maintain being the operative word. Everyone knows the company is in the midst of a slow death.

To prolong life, the focus has been on and remains on high-margin goods (which explains the company getting out of low-margin furniture and appliances and a renewed focus on private label), reducing inventory, and developing a new look for JCP’s stores which, interestingly, appears to focus on the “experiential” element that everyone has ballyhooed over the last several years which is now, in a COVID world, somewhat tenuous.

Which gets us to the way the market has looked at this. The numbers paint an ugly picture. Total revenues went from $12.87b in fiscal year ‘18 to $12b in ‘19. Gross margin also declined from 36% to 34%. In the LTM as of 2/1/20 (pre-COVID), revenue was looking like $11.1b. Curious. But, yeah, sure COGs decreased as has SG&A. People still aren’t walking through the doors and buying sh*t though. A fact reflected by the stock price which has done nothing aside from slowly slide downward since new management onboarded:

All of this performance has also obviously called into question the debtors’ ability to grow into its capital structure:

Here’s a more detailed look at the breakdown of unsecured funded debt:

And yet, prior to COVID, the debt stack has more or less held up. Here is the chart for JCP’s ‘23 5.875% $500mm senior secured first lien notes from the date of new management’s start to today:

Here is the chart for JCP’s ‘25 8.624% $400mm second lien notes from the date of new management’s start to today:

And here is our absolute favorite: JCP’s ‘97 7.625% $500mm senior unsecured notes:

The fact that these notes were in the 20s mere months ago is mind-boggling.

We talk a lot about how bankruptcy filings are a way to tell a story. And, here, the debtors, while not trying to hide their stretched balance sheet nor the pains of brick-and-mortar department stores with a 846-store footprint, are certainly trying to spin a positive story about management and the new strategic direction — all while highlighting that there are pockets of value here. For instance, of those 846 stores, 387 of them are owned, including 110 operating on ground leases. The private brand portfolio — acquired over decades — represents 46% of total merchandise sales. The debtors also own six of their 11 distribution centers and warehouses.

With that in mind, prior to COVID, management and their advisors were trying to be proactive about the balance sheet — primarily the term loans and first lien secured notes maturing in 2023. In Q3 ‘19, the debtors engaged with their first lien noteholders, term lenders and second lien noteholders on proposals that would, among other things, address those maturities, promote liquidity, and reduce interest expense. According to the debtors, they came close. A distressed investor was poised to purchase more than $750mm of the term loans and, in connection with a new $360mm FILO facility, launch the first step of a broader process that would have kicked maturities out a few years. In exchange, the debtors would lien up unencumbered collateral (real estate). Enter COVID. The deal went up in smoke.

There’s a new “deal” in its stead. A restructuring support agreement filed along with the bankruptcy papers contemplates a new post-reorg operating company (“New JCP”) and a new REIT which will issue new common stock and new interests, respectively. Beyond that, not much is clear from the filing: the term sheet has a ton of blanks in it:

There’s clearly a lot of work to do here. There’s also the “Market Test” element which entails, among other things, running new financing processes, pursuing potential sale/leaseback transactions, and pursuing a sale of the all or part of the debtors’ assets. If the debtors don’t have a business plan by July 14 and binding commitments for third-party financing by August 15, the debtors are required to immediately cease pursuing a plan and must instead pursue a 363 of all of their assets. Said another way, if the economy continues to decline, consumer spending doesn’t recover, and credit markets tighten up, there’s a very good chance that JCP could liquidate. Remember: retail sales sunk to a record low in April. Is that peak pain? Or will things get worse as the unemployment rate takes root? Will people shop at JC Penney if they even shop at all? There are numerous challenges here.

The debtors will use cash collateral for now and later seek approval of a $900mm DIP credit facility of which $450mm will be new money (L+11.75% continues the trend of expensive retail DIPs). It matures in 180 days, giving the debtors 6 months to get this all done.

*****

A few more notes as there are definitely clear winners and losers here.

Let’s start with the losers:

1. The Malls. It’s one thing when one department store files for bankruptcy and sheds stores. It’s an entirely different story when several of them go bankrupt at the same time and shed stores. This is going to be a bloodbath. Already, the debtors have a motion on file seeking to reject 20 leases.

2. Nike Inc. ($NKE) & Adidas ($ADDYY). Perhaps they’re covered by 503(b)(9) status or maybe they can slickster their way into critical vendor status (all for which the debtors seek $15.1mm on an interim basis and $49.6mm on a final basis). Regardless, showing up among the top creditors in both the Stage Stores Inc. bankruptcy and now the J.C. Penney bankruptcy makes for a horrible week.

3. The Geniuses Who Invested in JCP Debt that Matures in 2097. As CNBC’s Michael Santoli noted, “This JC Penney issue fell only 77 years short of maturing money-good.”

4. Bill Ackman & Ron Johnson. This.

And here are the winners:

1. The New York Times. Imperfect as it may be, their digitalization efforts allow us all to read and marvel about the life of James Cash Penney, a name that so befitting of a Quentin Tarantino movie that you can easily imagine JC chillin with Jack Dalton on some crazy Hollywood adventure. We read it with sadness as he boasts of the Golden Rule and profit-sharing. Profits alone would be nice, let alone sharing.

2. Kirkland & Ellis LLP. Seriously. These guys are smoking it and have just OWNED retail. In the past eight days alone the firm has filed Stage Stores Inc., Neiman Marcus Group LTD LLC and now JCP. It’s a department store hat trick. Zoom out from retail and add in Ultra Petroleum Corp. and Intelsat SA and these folks are lucky they’re working from home. They can’t afford to waste any billable minutes on a commute at this point.

3. Management. They’re getting what they paid for AND, consequently, they’re getting paid. No doubt Kirkland marched in there months ago and pitched/promised management that they’d secure lucrative pay packages for them if hired and … BOOM! $7.5mm to four members of management!

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

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Christopher Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse, Jake William Gordon) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • OpCo (JC Penney Corporation Inc.) Independent Directors: Alan Carr, Steven Panagos

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman)

  • PropCo (JCP Real Estate Holdings LLC & JC Penney Properties LLC) Independent Directors: William Transier, Heather Summerfield

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP (James Mesterharm, Deb Reiger-Paganis)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Christian Tempke, Michael Weitz)

  • Store Closing Consultant: Gordon Brothers Retail Partners LLC

  • Real Estate Consultants: B. Riley Real Estate LLC & Cushman & Wakefield US Inc.

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

    • Legal: Arnold & Porter Kaye Scholer

  • RCF Agent: Wells Fargo Bank NA

    • Legal: Otterbourg PC & Bracewell LLP (William Wood)

    • Financial Advisor: M-III Partners (Mo Meghli)

  • TL Agent: JPMorgan Chase Bank NA

  • Indenture Trustee: Wilmington Trust NA

  • Ad Hoc Group of Certain Term Loan Lenders & First Lien Noteholders & DIP Lenders (H/2 Capital Partners, Ares Capital Management, Silver Point Capital, KKR, Whitebox Advisors, Sculptor Capital Management, Brigade Capital Management, Apollo, Owl Creek Asset Management LP, Sixth Street Partners)

    • Legal: Milbank LLP (Dennis Dunne, Andrew Leblanc, Thomas Kreller, Brian Kinney) & Porter Hedges LLP

    • Financial Advisor: Houlihan Lokey (Saul Burian)

  • Second Lien Noteholders (GoldenTree Asset Management, Carlson, Contrarian Capital Management LLC, Littlejohn & Co.)

    • Legal: Stroock & Stroock & Lavan LLP (Kris Hansen) & Haynes and Boone LLP (Kelli Norfleet, Charles Beckham)

    • Financial Advisor: Evercore Group LLC (Roopesh Shah)

  • Large equityholder: BlackRock Inc. (13.85%)

⛽️New Chapter 11 Bankruptcy Filing - Diamond Offshore Drilling Inc. ($DO)⛽️

Diamond Offshore Drilling Inc.

April 26, 2020

Houston-based Diamond Offshore Drilling Inc. and 14 affiliates (the “debtors”), a contract drilling services provider to the oil and gas industry filed for bankruptcy in the Southern District of Texas. The company has 15 offshore drilling rigs: 11 semi-submersibles and four ultra-deepwater drillships deployed around the world (primarily in the Gulf of Mexico, Australia, Brazil and UK). Offshore drilling was already challenged due to excess supply of rigs — and has been since 2014. Recent events have made matters much much worse.

Thanks MBS. Thanks Putin. Thanks…uh…debilitating pandemic. The left-right combination of the Saudi/OPEC/Russia oil price war and COVID-19 has the entire oil and gas industry wobbling against the ropes. The pre-existing reality for offshore services companies “worsened precipitously” because of all of this. And so many companies will fall. The question is at what count and at what strength will they be able to get back on their feet. Given that this is a free-fall into bankruptcy with no pre-negotiated deal with lenders, it seems that nobody knows the answer. How could they? More on this below.

Unfortunately, the services segment the debtors play in is particularly at risk. “Almost all” of the debtors’ customers have requested some form of concessions on $1.4b of aggregate contract backlog. One customer, Beach Energy Ltd. ($BEPTF), “recently sought to formally terminate its agreement with the Company” (an action that is now the subject of an adversary proceeding filed in the bankruptcy cases). The debtors have been immersed in negotiations with their contract counter-parties to navigate these extraordinary times. It doesn’t help when business is so concentrated. Hess Corporation ($HES) is 30% of annual revenue; Occidental Petroleum Corporation ($OXY) is 21%; and Petrobras ($PBR) is 20%. BP PLC ($BP) and Royal Dutch Shell ($RDS.A) are other big customers.

With the writing on the wall, the debtors smartly drew down on their revolving credit facility — pulling $436mm out from under Wells Fargo Bank NA ($WFC). WFC must’ve loved that. Times like these really give phrases like “relationship banking” entirely new meaning. The debtors also elected to forgo a $14mm interest payment on its 2039 senior notes. Yep, you read that right: the company previously issued senior notes that weren’t set to mature until 2039. Not exactly Argentina but holy f*ck that expresses some real optimism (and froth) in the markets (and that issuance isn’t even the longest dated maturity but let’s not nitpick here)!

Yeah, so about that capital structure. In total, the debtors have $2.4b in funded debt. In addition to their $442mm of drawing under their revolving credit facility, the debtors have:

• $500mm of 5.7% ‘39 senior unsecured notes;

• $250mm of 3.45% ‘23 senior unsecured notes;

• $750mm of 4.875% ‘43 senior unsecured notes; and

• $500mm of 7.785% ‘25 senor unsecured notes.

As we’ve said time and time again: exploration and production is a wildly capital intensive business.

So now what? As we said above, there’s no deal here. The debtors note:

The Debtors determined to commence these Chapter 11 Cases to preserve their valuable contract backlog, and preserve their approximately $434.9 million in unrestricted cash on hand while avoiding annual interest expense of approximately $140.1 million under the Revolving Credit Facility and the Senior Notes, and to stabilize operations while proactively restructuring their balance sheet to successfully compete in the changing global energy markets. The Debtors and their Advisors believe cash on hand provides adequate funding at the outset of these cases. The Debtors are well-positioned to successfully emerge from bankruptcy with a highly marketable fleet, a solid backlog of activity, a strong balance sheet and liquidity position, and a differentiated approach and set of capabilities. Despite the volatile and current uncertain market conditions, the Debtors remain confident in the need for their industry, its importance around the world, and the critical services they provide.

We suspect the debtors will hang out in bankruptcy for a bit. After all, placing a value on how “critical” these services are in the current environment is going to be a challenge (though the relatively simple capital structure makes that calculation significantly easier…assuming the value extends beyond WFC). One thing seems certain: Loews Corporation ($L) is gonna have to write-down the entirety of its investment here.

*****

We’d be remiss if we didn’t highlight that, similar to Whiting Petroleum’s execs, the debtors’ executives here got paid nice bonuses just prior to the bankruptcy filing. PETITION Note: We don’t have data to back this up but there appeared to be a much bigger uproar in Whiting’s case about this than here. Which is not to say that people aren’t angry — totally factually incorrect — but angry:

Because equity-based comp doesn’t exactly serve as “incentive” when the equity is worth bupkis, the debtors paid $3.55mm to employees a week before the filing and intend to file a motion to seek bankruptcy court approval of their go-forward employee programs.

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

• Capital Structure: $442mm RCF (inclusive of LOC)(Wells Fargo Bank NA). See above.

• Professionals:

  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Robert Britton, Christopher Hopkins, Shamara James, Alice Nofzinger, Jacqueline Rubin, Andrew Gordon, Jorge Gonzalez-Corona) & Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson, Genevieve Graham)

  • Financial Advisor: Alvarez & Marsal LLC (Nicholas Grossi)

  • Investment Banker: Lazard Freres & Co. LLC

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

• Other Parties in Interest:

  • Prepetition RCF Agent: Wells Fargo Bank NA

    • Legal: Bracewell LLP

    • Financial Advisor: FTI Consulting

  • Indenture Trustee: The Bank of New York Mellon

  • Ad Hoc Group of Senior Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Evercore Group LLC

  • Major Equityholder: Loews Corporation

    • Legal: Sullivan & Cromwell LLP (James Bromley)

  • Official Committee of Unsecured Creditors: The Bank of New York Mellon Trust Company NA, National Oilwell Varco LP, Deep Sea Mooring, Crane Worldwide Logistics LLC, Kiswire Trading Inc., Parker Hannifin Corporation, SafeKick Americas LLC

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Marty Brimmage, Kevin Eide, Patrick Chen, Matthew Breen)

    • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns)

    • Investment Banker: Perella Weinberg Partners LP (Alexander Tracy)

📺 New Chapter 11 Bankruptcy Filing - Frontier Communications Inc. ($FTR) 📺

Frontier Communications Inc.

April 14, 2020

We often highlight how, particularly in the case of oil and gas companies, capital intensive companies end up with a lot of debt and a lot of debt often results in bankruptcy. In the upstream oil and gas space, exploration and production companies need a lot of upfront capital to, among other things, enter into royalty interest agreements with land owners, hire people to map wells, hire people to drill the earth, secure proper equipment, procure the relevant inputs and more. E&P companies literally have to shell out to pull out.

Similarly, telecommunications companies that want to cover a lot of ground require a lot of capital to do so. From 2010 through 2016, Connecticut-based Frontier Communications Inc. ($FTR) closed a series of transactions to expand from a provider of telephone and DSL internet services in mainly rural areas to a large telecommunications provider to both rural and urban markets across 29 states. It took billions of dollars in acquisitions to achieve this. Which, in turn, meant the company took on billions of dollars of debt to finance said acquisitions. $17.5b, to be exact. Due, in large part, to the weight of that heavy debt load, it, and its 28922932892 affiliates (collectively, the “debtors”), are now chapter 11 debtors in the Southern District of New York (White Plains).*

The debtors underwrote the transactions with the expectation that synergistic efficiencies would be borne out and flow to the bottom line. PETITION readers know how we feel about synergies: more often than not, they prove elusive. Well:

Serving the new territories proved more difficult and expensive than the Company anticipated, and integration issues made it more difficult to retain customers. Simultaneously, the Company faced industry headwinds stemming from fierce competition in the telecommunications sector, shifting consumer preferences, and accelerating bandwidth and performance demands, all redefining what infrastructure telecommunications companies need to compete in the industry. These conditions have contributed to the unsustainability of the Company’s outstanding funded debt obligations—which total approximately $17.5 billion as of the Petition Date.

Shocker. Transactions that were meant to be accretive to the overall enterprise ended up — in conjunction with disruptive trends and intense competition — resulting in an astronomical amount of value destruction.

As a result of these macro challenges and integration issues, Frontier has not been able to fully realize the economies of scale expected from the Growth Transactions, as evidenced by a loss of approximately 1.3 million customers, from a high of 5.4 million after the CTF Transaction closed in 2016 to approximately 4.1 million as of January 2020. Frontier’s share price has dropped … reflecting a $8.4 billion decrease in market capitalization.

😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬

Consequently, the debtors have been in a state of liability management ever since the end of 2018. Subsequently, they (i) issued new secured notes to refinance a near(er)-term term loan maturity, (ii) amended and extended their revolving credit facility, and (iii) agreed to sell their northwest operations and related assets for $1.352b (the “Pacific Northwest Transaction”). The Pacific Northwest Transaction has since been hurdling through the regulatory approval process and seems poised to close on April 30, 2020.**

While all of these machinations were positive steps, there were still major issues to deal with. The capital structure remained robust. And “up-tier” exchanges of junior debt into more senior debt to push out near-term maturities were, post-Windstream***, deemed too complex, too short-term, and too likely to end up the subject of fierce (and costly) litigation**** As the debtors’ issued third quarter financials that were … well … not good, they announced a full drawn down of their revolver, instantly arming them with hundreds of millions of dollars of liquidity.

$FTR with the clean sweep - Revs, margins, ebitda, FCF, churn, subs, ARPC all worse sequentially. https://t.co/vn49m5PDPP

— JV (@AyyouEm) November 5, 2019

The company needed reconstructive surgery. Band-aids alone wouldn’t be enough to dam the tide. In many respects, the company ought to be commended for opting to address the problem in a wholesale way rather than piecemeal kick, kick, and kick the can down the road — achieving nothing but short-term fixes to the enrichment of really nobody other than its bankers (and Aurelius).

And so now the company is at the restructuring support agreement stage. Seventy-five percent of the holders of unsecured notes have agreed to an equitization transaction — constituting an impaired consenting class for a plan of reorganization to be put on file within 30 days. Said another way, the debtors are taking the position that the value breaks within the unsecured debt. That is, that the value is at least $6.6b making the $10.949b of senior unsecured notes the “fulcrum security.” Unsecured noteholders reportedly include Elliott Management Corp., Apollo Global Management LLC, Franklin Resources Inc., and Capital Group Cos. They would end up the owners of the reorganized company.

What else is the RSA about?

• Secured debt will be repaid in full on the effective date;

• A proposed DIP (more on this below) would roll into an exit facility;

• The unsecured noteholders would, in addition to receiving equity, get $750mm of seniority-TBD take-back paper and $150mm of cash (and board seats);

• General unsecured creditors would ride through and be paid in full; and

• Holders of secured and unsecured subsidiary debt will be reinstated or paid in full.

The debtors also obtained a fully-committed new money DIP of $460mm from Goldman Sachs Bank USA. This has proven controversial. Though the DIP motion was not up for hearing along with other first day relief late last week, the subject proved contentious. The Ad Hoc First Lien Committee objected to the DIP. Coming in hot, they wrote:

Beneath the thin veneer in which these so-called “pre-arranged” cases are packaged, lies multiple infirmities that, if not properly addressed by the Debtors, will ultimately result in the unraveling of these cases. While the Debtors seek to shroud themselves in a restructuring support agreement (the “RSA”) that enjoys broad unsecured creditor support, the truth is that underlying that support is a fragile house of cards that will not withstand scrutiny as these cases unfold. Turning the bankruptcy code on its head, the Debtors attempt through their RSA to pay unsecured bondholders cash as a proxy for their missed prepetition interest payment, postpetition interest to yet other unsecured creditors of various subsidiaries, and complete repayment to prepetition revolver lenders that are attempting, through the proposed debtor-inpossession financing (the “DIP Loan”), to effectively “roll-up” their prepetition exposure through the DIP Loan, all while the Debtors attempt to deprive their first lien secured creditors of contractual entitlements to default interest and pro rata payments they will otherwise be entitled to if their debt is to be unimpaired, as the RSA purports to require. While those are fights for another day, their significance in these cases must not be overlooked.

Whoa. That’s a lot. What does it boil down to? “F*ck you, pay me.” The first lien lenders are pissed that everyone under the sun is getting taken care of in the RSA except them.

• You want to deny us our default interest. F+ck you, pay me.

• You want a DIP despite having hundreds of millions of cash on hand and $1.3b of sale proceeds coming in? F+ck you, pay me.

• You want a 2-for-1 roll-up where, “as a condition to raising $460 million in debtor-in-possession financing, the Debtors must turn around and repay $850 million to their prepetition revolving lenders, thus decreasing the Debtors’ overall liquidity on a net basis”? F+ck you, pay me.

• You shirking our pro rata payments we’d otherwise be entitled to if our debt is to be unimpaired? F+ck you, pay me.

• You want to pay unsecured senior noteholders “incremental payments” of excess cash to compensate them for skipped interest payments without paying us default interest and pro rata payments? F+ck you, pay me.

• You want to use sale proceeds to pay down unsecureds when that’s ours under the first lien docs? F+ck you, pay me.

• You want to pay interest on the sub debt without giving us default interest? F+ck you, pay me.

• You want to do all of this without a proper adequate protection package for us? F+ck you, pay me.

The second lien debtholders chimed in, voicing similar concerns about the propriety of the adequate protection package. For the uninitiated, adequate protection often includes replacement liens on existing collateral, super-priority claims emanating out of those liens, payment of professional fees, and interest. In this case, both the first and second liens assert that default interest — typically several bps higher — ought to be included as adequate protection. The issue, however, was not up for hearing on the first day so all of this is a preview of potential fireworks to come if an agreement isn’t hashed out in coming weeks.

The debtors hope to have a confirmation order within four months with the effective date within twelve months (the delay attributable to certain regulatory approvals). We wish them luck.

______

*Commercial real estate is getting battered all over the place but not 50 Main Street, Suite 1000 in White Plains New York. Apparently Frontier Communications has an office there too. Who knew there was a speciality business in co-working for bankrupt companies? In one place, you’ve got FULLBEAUTY Brands Inc. and Internap Inc. AND Frontier Communications. We previously wrote about this convenient phenomenon here.

**The company seeks an expedited hearing in bankruptcy court seeking approval of it. It is scheduled for this week.

***Here is a Bloomberg video from June 2019 previously posted in PETITION wherein Jason Mudrick of Mudrick Capital Management discusses the effect Windstream had on Frontier and predicted Frontier would be in bankruptcy by the end of the year. He got that wrong. But did it matter to him? He also notes a CDS-based short-position that would pay out if Frontier filed for bankruptcy within 12 months. For CDS purposes, looks like he got that right. By the way, per Moody’s, here was the spread on the CDS around the time that Mudrick acknowledged his CDS position:

Here it was a few months later:

And, for the sake of comparison, here was the spread on the CDS just prior to the bankruptcy filing last week:

Clearly the market was keenly aware (who wasn’t given the missed interest payment?) that a bankruptcy filing was imminent: insurance on FTR got meaningfully more expensive. Other companies with really expensive CDS these days? Neiman Marcus Group (which, Reuters reports, may be filing as soon as this week), J.C. Penney Corporation Inc., and Chesapeake Energy Corporation.

****Notably, Aurelius Capital Management LP pushed for an exchange of its unsecured position into secured notes higher in the capital structure — a proposal that would achieve the triple-frontier-heist-like-whammy of better positioning their debt, protecting the CDS they sold by delaying bankruptcy, and screwing over junior debtholders like Elliott (PETITION Note: we really just wanted to squeeze in a reference to the abominably-bad NFLX movie starring Ben Affleck, an unfortunate shelter-in indulge). On the flip side, funds such as Discovery Capital Management LLC and GoldenTree Asset Management LP pushed the company to file for bankruptcy rather than engage in Aurelius’ proposed exchange.

---

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

• Capital Structure: $850mm RCF, $1.7b first lien TL (JP Morgan Chase Bank NA), $1.7b first lien notes (Wilmington Trust NA), $1.6b second lien notes (Wilmington Savings Fund Society FSB), $10.95mm unsecured senior notes (The Bank of New York Mellon), $100mm sub secured notes (BOKF NA), $750mm sub unsecured notes (U.S. Bank Trust National Association)

• Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Chad Husnick, Benjamin Rhode, Mark McKane, Patrick Venter, Jacob Johnston)

  • Directors: Kevin Beebe, Paul Keglevic, Mohsin Meghji

  • Financial Advisor: FTI Consulting Inc. (Carlin Adrianopoli)

  • Investment Banker: Evercore Group LLC (Roopesh Shah)

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

• Other Parties in Interest:

  • Major equityholders: BlackRock Inc., Vanguard Group Inc., Charles Schwab Investment Management

  • Unsecured Notes Indenture Trustee: Bank of New York Mellon

    • Legal: Reed Smith LLP (Kurt Gwynne, Katelin Morales)

  • Indenture Trustee and Collateral Agent for the 8.500% ‘26 Second Lien Secured Notes

    • Legal: Riker Danzig Scherer Hyland & Perretti LLP (Joseph Schwartz, Curtis Plaza, Tara Schellhorn)

  • Credit Agreement Administrative Agent: JPMorgan Chase Bank NA

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

  • DIP Agent: Goldman Sachs Bank USA

    • Legal: Davis Polk & Wardwell LLP (Eli Vonnegut, Stephen Piraino, Samuel Wagreich)

  • Ad Hoc First Lien Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Gregory Laufer, Kyle Kimpler, Miriam Levi)

    • Financial Advisor: PJT Partners LP

  • Second lien Ad Hoc Group

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Susheel Kirpalani, Benjamin Finestone, Deborah Newman, Daniel Holzman, Lindsay Weber)

  • Ad Hoc Senior Notes Group

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

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Committee of Frontier Noteholders

    • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Michael Price)

    • Financial Advisor: Houlihan Lokey Inc.

  • Ad Hoc Group of Subsidiary Debtholders

    • Legal: Shearman & Sterling LLP (Joel Moss, Jordan Wishnew)

  • Official Committee of Unsecured Creditors

    • Legal: Kramer Levin Naftalis & Frankel LLP (Amy Caton, Douglas Mannal, Stephen Zide, Megan Wasson)

    • Financial Advisor: Alvarez & Marsal LLC (Richard Newman)

    • Investment Banker: UBS Securities LLC (Elizabeth LaPuma)

New Chapter 11 Bankruptcy Filing - LSC Communications Inc.

LSC Communications Inc.

April 13, 2020

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

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

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

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

And then there’s this:

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

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

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

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

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

LSC Annual Report 3/2/20

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

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

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

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

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

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

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

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

• Professionals:

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

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

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

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

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

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

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

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

  • Official Committee of Unsecured Creditors

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

⚓️New Chapter 11 Bankruptcy Filing - American Commercial Lines Inc.⚓️

American Commercial Lines Inc.

February 7, 2020

Indiana-based American Commercials Lines Inc. and ten affiliates (the “debtors”), large liquid and dry cargo shippers with an active fleet of approximately 3,500 barges, filed a prepackaged bankruptcy case in the Southern District of Texas to (i) effectuate a comprehensive restructuring of $1.48b of debt ($536mm RCF and $949mm term loan) and (ii) inject the debtors with much-needed new capital via a rights offering. Now, we know what you’re thinking: the debtors are just the latest victims of the oil and gas crash. While oil and gas do make up some small portion of the debtors’ revenues (10%), this is incorrect. Other factors complicated the debtors’ efforts to service their bulk of debt (see what we did there?). Hold on to your butts, people.

The company notes:

Beginning in early 2016, the inland barge industry entered a period of challenging conditions that have resulted in reduced earnings. These challenges were brought on by a variety of international trade, macroeconomic, industry capacity, and environmental factors. The industry has experienced a prolonged period of declining freight rates, grain volume volatility related to international competition and tariffs on U.S.-grown soybeans, and excessive operating costs incurred as a result of extreme flooding conditions. Freight rates during 2016 and 2017 were under continued downward pressure from reduced shipping demand for metals, grain, refined products, petrochemicals, chemicals and crude oil. These declines resulted in part from pressure on the U.S. steel industry linked to dumping of foreign steel into U.S. markets, increased international competition in grain exports, and the decline in North American crude oil production in response to an oversupply of global crude oil.

Wow. So much to unpack there. It’s as if the debtors’ diversified revenue streams all fell smack dab in the middle of each and every declining sector of the US economy. Reduced steel shipments due to Chinese dumping ✅. Distress in agriculture leading to less volume ✅. Oil and gas carnage ✅.

Compounding matters was increased barge supply (read: competition) due to an increase in coal shipments. That’s right, folks. We’re back to coal. Less coal production = redeployed ships looking for replacement cargo = more competition in the liquid and dry cargo space = decreased freight rates.

The debtors got a temporary reprieve in late 2017 when the Trump administration imposed steel tariffs. A short-lived recovery in steel prices combined with a temporary recovery in oil prices and, due to the above issues, a slowdown in barge construction, helped rates recover a tad.

It didn’t last. In mid-2018, China imposed tariffs on US-grown soybeans. Agricultural products constitute 36% of the debtors’ revenues. Combined with flooding that disrupted farming and navigable waterways, the debtors experienced approximately $86mm in increased operating costs. So, yeah, no bueno. As the debtors note with no intended irony, all of these factors amount to a “perfect storm” heightened mostly by an unsustainable and unserviceable debt load.

A few things to highlight here in terms of the process and trajectory of the cases:

• This serves as yet another example where the pre-petition lenders used the debtors’ need for additional time to fund a short-term bridge and, in exchange, lock down a full rollup of the pre-petition debt into a $640mm DIP credit facility. The term lenders will also provide a $50mm DIP to fund the administration of the cases.

• The term lenders are equitizing their $949mm term loan, getting 100% 7.5% “take back preferred equity” and “new common equity” in return. Their estimated recovery is 38%. Post-reorg, the major owners of the debtors, therefore, will be Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

• The company will get a $150mm of new money via a backstopped rights offering supported by certain holders of term loan claims. This new money infusion (in exchange for 10% junior preferred equity to that noted above and provided subject to a 7% backstop premium) will presumably give the debtors some additional runway should the market forces noted above persist.

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

• Capital Structure: $536mm RCF and $949mm term loan

• Professionals:

  • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Parker Milender) & Porter Hedges LLP (John Higgins, Eric English) & Seward & Kissel LLP

  • Post-Reorg Independent Director: Scott Vogel

  • 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 ABL & DIP ABL Agent: Wells Fargo Bank NA

    • Legal: K&L Gates LLP (David Weitman, Christopher Brown)

  • Preptition Term Loan Agent: Cortland Capital Market Services LLP

  • Ad Hoc Group of Term Lenders: Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Erik Jerrard) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

    • Financial Advisor: Evercore Group LLC

  • Large Equityholder: Platinum Equity
    

🥛New Chapter 11 Filing - Southern Foods Group LLC (d/b/a Dean Foods Company)🥛

Southern Foods Group LLC (d/b/a Dean Foods Company)

November 12, 2019

In one corner: innovation. In the other corner: disruption. Dean Foods Co. $DF, the largest US supplier of milk, is struggling as a result. From back in March: https://t.co/Rk8xRVdW86 (paywall) https://t.co/TNpq1s4rzc

— 💥PETITION💥 (@petition) May 21, 2019

We’ve published these charts before here but they’re worth revisiting:

Since we’re all about the charts right now, here’s another one — perhaps the ugliest of them all:

Yup, Southern Foods Group LLC (d/b/a Dean Foods Company) has been a slow-moving train wreck for some time now. In fact, we wrote about the disruption it confronts back in March. It’s worth revisiting (we removed the paywall).

Alas, the company and a long list of subsidiaries finally filed for bankruptcy yesterday in the Texas (where things seem to be getting VERRRRRY VERRRRRY busy these days; see below ⬇️).

Once upon a time everyone had milk. Serena and Venus Williams. Dwight Howard. Mark McGuire. Tyra Banks. The Olsen twins. David Beckham. Giselle. The “Got Milk? campaign was pervasive, featuring A-listers encouraging folks to drink milk for strong bones. Things have certainly changed.

Dean Foods’ long history begins in 1925; it manufactures, markets and distributes branded and private label dairy products including milks, ice cream, creamers, etc. It distributes product to schools, QSRs like McDonald’s Inc. ($MCD), small format retailers (i.e., dollar stores and pharmacies), big box retailers like Walmart Inc. ($WMT)(which accounted for 15.3% of net sales in ‘18), and the government. Its products include, among many others, Friendly’s, Land O Lakes and Organic Valley. This company is a monster: it has 58 manufacturing facilities in 29 states, 5000 refrigerated trucks and 15,000 employees (40% of whom are covered by collective bargaining agreements). Milk, while on the decline, remains big business.

How big? Per the company:

In 2018, Dean Foods’ reported consolidated net sales of $7.755 billion, gross profit of $1.655 billion, and operating income of $(315.2) million. Through the first 6 months of 2019, Dean Foods’ reported consolidated net sales of $3.931 billion, gross profit of $753.2 million, and operating income of $(96.2) million.

Those are some serious sales. And losses. And the company also has a serious capital structure:

Milk production is a capital intensive business requiring a variety of inputs: raw milk, resin to make plastic bottles (which likely infuse all of us with dangerous chemicals, but whatevs), diesel fuel, and juice concentrates and sweeteners. Hence, high debt. So, to summarize: high costs, low(er) demand, lots of debt? No wonder this thing is in trouble.

What are the stated reasons for the company’s chapter 11 filing?

• Milk Consumption Declines. “For the past 10 years, demand has fallen approximately 2% year-over-year in North America.” This is consistent with the chart above.

• Loss of Pricing Power. Because volumes declined, economies of scale also decreased. “Delivered cost per gallon rose approximately 20.7% between 2018 and 2013 as a result of volume deleverage.” That’s vicious. Talk about a mean spiral: as volumes went down, the company couldn’t support the input volumes it had previously and therefore lost pricing power. “Dean Foods suffered a full year 2018 year-over-year decline in fluid milk volume of 5.8% following a 2017 year-over-year decline of 4.2%. Moreover, Dean Foods’ volume declines continue to outpace the overall category; while category volumes declined by approximately 4%8 year-over-year through the end of September, 2019, Dean Foods experience declines of over 11.4%.” Apparently, this impacted Dean Foods disproportionately. Any buyer looking at this has to wonder how these issues can be remedied.

• Market Share Disruption. New forms of “milk” have taken market share. “Sales of nut and plant beverages grew by 9% in 2018 and had sales of $1.6 billion, according to the Plant Based Foods Association.”

• Retail Consolidation. It doesn’t help when, say, Dollar General merges with Family Dollar. That gives the dollar stores increased leverage on price. And that’s just one example.

• “The BigBox Effect.” The biggest retailers have become increasingly private label focused and, in turn, vertically integrated. Take Walmart, for example. In 2018, the retailer opened its first U.S. food production facility in Indiana. Want to guess what kind of food? Why would we be mentioning it? This new facility amounted to a 100mm gallon loss of volume to Dean Foods.

• “The Loss Leader Effect.” We often talk about the venture-backed subsidization of commonplace lifestyle items, e.g., Uber Inc. ($UBER). Retailers have, in recent years, aggressively priced private label milk to drive foot traffic. “As retailers continue to invest in private-label milk to drive foot traffic, private label margin over milk contracted to a historic low of $1.26 in June, before falling even further to $1.24 in September.”

• Freight Costs. They’ve been up over the last few years. This is a different version of
  ”The Amazon Effect” ($AMZN).

All of these are secular issues that a balance sheet solution won’t remedy. Buyer beware. 😬🤔

So, what CAN the bankruptcy achieve? Yes, the obvious: the balance sheet. Also, there is a contingent liability of over $722.4mm that results from the company’s participation in an underfunded multi-employer pension plan. And liquidity: the bankruptcy will avail the company of a $850mm DIP credit facility. It may also allow the company to pursue a sale transaction to its long-time commercial partner and largest single raw milk vendor, Dairy Farmers of America (which is wed $172.9mm). Surely they must be aware of the secular trends and will price any offer accordingly, right? RIGHT? Either way, those ‘23 notes look like they might be about to take a bath.*

*Likewise certain trade creditors. The debtors state that that they have $555.7mm of total outstanding accounts payable and claim $257mm needs to go to critical vendors and another $189.2mm to 503(b)(9) admin claimants. That leaves a small subset of creditors due a bit more than $100mm holding the bag. This also explains the sizable DIP.

Meanwhile, one of the largest unsecured creditors is Acosta Inc., with a contingent, disputed and unliquidated claim arising out of litigation. Acosta is unlikely to recover much on this claim which is a bit ironic considering that an Acosta bankruptcy filing is imminent. Womp womp.

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

• Capital Structure: see above

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Steven Szanzer, Daniel Meyer, Nate Sokol, Alexander Bernstein, Charlotte Savino, Cameron Adamson) & Norton Rose Fulbright LLP (William Greendyke, Jason Boland, Bob Bruner, Julie Goodrich Harrison)

  • Financial Advisor: Alvarez & Marsal LLC (Jeffrey Stegenga, Brian Fox, Tom Behnke, Taylor Atwood)

  • Investment Banker: Evercore Group LLC (Bo Yi)

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

• Other Parties in Interest:

  • Receivables Securitization Agent, RCF Agent & DIP Agent: Rabobank USA

    • Legal: White & Case LLP (Scott Greissman, Philip Abelson, Elizabeth Fuld, Rashida Adams, Andrew Zatz) & Gray Reed & McGraw LLP (Jason Brookner, Lydia Webb, Amber Carson)

  • Unsecured Bond Indenture Trustee: Bank of New York Mellon NA

    • Legal: Emmett Marvin & Martin LLP (Thomas Pitta, Edward Zujkowski, Elizabeth Taraila)

  • Ad Hoc Group of 6.5% ‘23 Unsecured Noteholders: Ascribe III Investments LLC, Broadbill Investment Partners LLC, Ensign Peak Advisors Inc., Kingsferry Capital LLC, Knighthead Capital Management LLC, MILFAM Investments LLC

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Robert Britton, Douglas Keeton, Grace Hotz) & Pillsbury Winthrop LLP (Hugh Ray III, William Hotze, Jason Sharp)

  • Official Committee of Unsecured Creditors: Central States Southeast and Southwest Areas Pension Fund, The Bank of New York Mellon Trust Company NA, Pension Benefit Guaranty Corporation, Land O’ Lakes Inc., California Dairies Inc., Consolidated Container Company LP, Select Milk Producers Inc.

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Meredith Lahaie, Martin Brimmage, Joanna Newdeck, Julie Thompson, Patrick Chen, Madison Gardiner)

    • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns)

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

Update 1/11/20

🌑New Chapter 11 Bankruptcy Filing - Murray Energy Holdings Co.🌑

Murray Energy Holdings Co.

October 20, 2019

Ohio-based Murray Energy Holdings Co. and its 90+ affiliated debtors are now part of a not-so-exclusive club: the Bankrupted Coal Company Club (the “BCCC”)! Unlike some more recent small(er) coal bankruptcy filings, this one is a behemoth: the debtors own and operate 13 active mines in Ohio, West Virginia, eastern and western Kentucky, Alabama, Illinois, and Utah*; their primary product is thermal coal used for electricity (though, with recent acquisitions, the debtors are also now in the steel-making business). To give you a sense of the magnitude of this company, here are some key figures:

• Produced 53mm tons of bituminous coal in 2018;

• Employs 5,500 people, including 2,400 active union members EXCLUSIVE of folks employed through the debtors’ partnership with soon-to-be-BCCC-member Foresight Energy LP ($FELP);

• Generated $2.5b in coal sales and $542.3mm of EBITDA in 2018; and

• Carries $2.7b of funded debt on balance sheet, $298mm of annual interest and amort expenses, AND $8b+ in actual or potential liability obligations under various pension and benefit plans. In 2018, the debtors’ statutory or CBA-related employee and retiree obligations totaled approximately $160mm. These are key factors that explain why, ultimately, despite every effort to hold out, this company capitulated into bankruptcy.

This is a story of unfettered expansion and spending, hubris, misplaced trust in new Washington on the part of Robert Murray, and utterly savage disruption.

The disruption side of the equation is compelling. Per the company:

“The thermal coal markets that Murray traditionally serves have been meaningfully challenged over the past three to four years, and deteriorated significantly in the last several months. This sector-wide decline has been driven largely by (a) the closure of approximately 93,000 megawatts of coal-fired electric generating capacity in the United States, (b) a record production of inexpensive natural gas, and (c) the growth of wind and solar energy, with gas and renewables, displacing coal used by U.S. power plants.”

Interestingly, this one statement ties together so much of what we’ve all been seeing in the restructuring space. Over the last several years, there have been a number of power company bankruptcies and through bankruptcy or otherwise, capacity has been cut considerably (indeed, FirstEnergy is a recipient of Murray Energy coal and undoubtedly took measures to cut back on coal supply). Fracking across the US has led to a deluge of natural gas — so much so that producers are flaring excess natural gas due to a lack of pipe infrastructure with which to transport it. Despite structural challenges, natural gas exports are on the rise. From the U.S. Energy Information Administration just yesterday:

“From January through June of 2019, U.S. net natural gas exports averaged 4.1 billion cubic feet per day (Bcf/d), more than double the average net exports in 2018 (2.0 Bcf/d), according to data in the U.S. Energy Information Administration’s (EIA) Natural Gas Monthly. The United States became a net natural gas exporter (exported more than it imported) on an annual basis in 2017 for the first time in almost 60 years.”

And as this odd illustration shows, the US is becoming increasingly dependent — in large part due to federal and state emissions standards — upon solar and wind for its electricity needs. The debtors highlight:

“…coal-fired installed capacity as a percentage of total installed capacity has fallen from 26 percent in 2013 to 20 percent in 2019, with coal-fired generation as a percentage of total generation falling from 35 percent in 2013 to 27 percent in early 2019. Natural gas and renewables installed electricity generation capacity in the United States as a percentage of total installed capacity has increased from 59 percent in 2013 to 67 percent in 2019, and natural gas and renewables generation as a percentage of total generation increased from 42 percent in 2013 to 48 percent in early 2019.”

YIKES. That is a DRAMATIC change. They continue:

“During its peak in 2007, coal was the power source for half of electricity generation in the United States and by early 2019, coal-fired electricity generation fell to approximately 27 percent. These challenges have intensified recently as (i) certain electric utility companies have filed for bankruptcy protection and others have sought, and received, subsidies for their nuclear generation capacity to avoid bankruptcy, at the expense of coal-fired facilities, (ii) domestic natural gas prices hit 20-year lows this past summer, and (iii) overall demand for electricity in the United States has declined two percent in 2019, further depleting demand for coal at domestic utilities.”

MAGA!!

The international story, though, ain’t much better, with the company noting a “perfect storm of negative forces” that includes:

“…low liquefied natural gas prices; a recent trade war driving Russia to increase exports; mild weather across the Northern Hemisphere led to a reduction in demand for heating in both Europe and Asia; higher freight costs; and a prolonged monsoon season in India which kept demand depressed while conditions cleared for a record eight months.”

As if all of that isn’t bad enough, the competitive landscape has been horrific and while we suppose its admirable to try and holdout to avoid the embarrassment and stigma of bankruptcy, that strategy clearly becomes untenable when literally every other competitor in the US has already joined the BCCC and stripped themselves of burdensome debt and pension obligations. The company acknowledges as much:

“…while Murray has historically been able to navigate the challenges of the coal marketplace, these rapidly deteriorating industry conditions have caused more than 40 coal companies to file for bankruptcy since 2008, with more than half a dozen major operators filing in the last year alone. These bankruptcies have affected thousands of workers across the United States, and they have left their mark on Murray. Competitors have used bankruptcy to reduce debt and lower their cost structures by eliminating cash interest obligations and pension and benefit obligations, leaving them better positioned to compete for volume and pricing in the current market, while Murray continued to satisfy its significant financial obligations required by the weight of its own capital structure and legacy liability expenses. As a result, Murray generated little cash after satisfying debt service obligations, paying employee health and pension benefits, and maintaining operations.”

That’s a quaint narrative but it’s also a bit misleading.

Several years ago, Bob Murray declared he would be the last man standing in coal. In the years since he expanded the company significantly and took on a lot of debt to do so: https://t.co/5HjPiUonzv pic.twitter.com/90h9IVyHig

— ⚡Taylor Kuykendall (@taykuy) October 29, 2019

While every other company was falling apart, Mr. Murray went on a shopping spree, snapping up Consolidation Coal Company, Foresight Energy LP (coming soon to a bankruptcy court near you), Mission Coal Company LLC, Armstrong Energy Inc., and certain Colombian assets. This undoubtedly led to increased integration costs and debt. During that time, the debtors deployed every capital structure trick in the book to extend maturities and kick the can down the road. That road has come to an end at the bankruptcy court doors.

Here is that sweet clean capital structure:

Man, that’s a beaut.

Rounding out the company’s extensive liabilities are the obligations to employees under CBAs and pension and benefit plans.

Pursuant to these CBAs, Murray contributes to three multi-employer retirement plans. If you want a sense of how employer-employee relations have changed since the 1970s, look no farther than the debtors’ obligations under what they’ve dubbed the “1974 Pension Plan.” Per the debtors:

“Following the large wave of chapter 11 filings in 2015 and 2016, more than half a dozen large U.S. coal companies collapsed into bankruptcy over the last several years and withdrew from the 1974 Pension Plan. When an employer withdraws, its vested beneficiaries remain in the 1974 Pension Plan and are referred to as “orphan” beneficiaries. The remaining contributing employers become responsible for the benefits of these orphaned participants who were never their employees. As a result, approximately 95 percent of beneficiaries who currently receive benefits from the 1974 Pension Plan last worked for employers that no longer contribute to the Plan. As of January 2019, 11 employers contribute to the 1974 Pension Plan, compared to over 2,800 in 1984. This has placed significant stress on the 1974 Pension Plan and the small number of contributing employers—Murray most of all. If Murray withdraws from the 1974 Pension Plan, the withdrawal liability could be $6.4 billion or more, with annual estimated payments of approximately $32 to $35 million in perpetuity.”

Whoa. And that’s just one plan: the company is also on the hook for others, not to mention $1.9b in other federally-mandated post-employment benefits, asset retirement obligations and environmental obligations.

Murray Energy has filed for bankruptcy. This is terrible if not surprising news for thousands of retired coal miners — Murray was basically the last big employer keeping their pension plan afloat. Now Murray will very likely try to shed pension obligations in bankruptcy court.

— Dave Jamieson (@jamieson) October 29, 2019

“Likely”?!?

The company has a restructuring support agreement with 60% of its “consenting superpriority lenders” and “consenting equityholders” (read: Robert Murray) that outlines the general terms of a path forward: a sale with the superpriority lenders as stalking horse bidder, DIP lender, and funder of administrative expenses. Those lenders committed to provide a $350mm DIP commitment. From here, the clock is ticking.

The debtors hope to have an auction within 135 days and plan confirmation within 195 days. And within 106 days the debtors want to have a solution their CBA/retiree problem or file a motion seeking to reject those agreements and modify those benefits.

Murray Energy, the largest coal company in the United States, filed for bankruptcy. If Murray rejects the UMWA pension plan obligations in Chapter 11 bankruptcy, the UMWA pension fund will be insolvent by 2020. Before last night it was projected to be insolvent by 2022.

— Senator Joe Manchin (@Sen_JoeManchin) October 29, 2019

There is, as with most cases, a “cooler talk” aspect to this filing: there’s the Kirkland-is-dominating-with-yet-another-coal-bankruptcy-representation-post-westmoreland-and-mission-coal-and-armstrong-energy-which-means-that-A&M-is-dominating-which-means-that-Prime-Clerk-is-dominating-and-what-the-f*ck-happened-to-Jones-Day-which-used-to-crush-coal-filings-with-Peabody-and-Alpha-Natural-but-now-seems-to-be-unraveling-narrative, but putting aside that inside baseball crap and how much frikken cash this case is going to print for all of the above, it’s the miners themselves — those guys who were in the depths of the earth (as distinct from the white-collar professionals who always talk about “the trenches” and “hard fought” negotiations) — who are very likely to get completely and utterly shafted here. As if getting misled or lied to by Mr. Murray — however good his intentions may have been — and Mr. Trump wasn’t enough, they’re now facing the very real possibility of losing the benefits that they worked especially hard to get. All while the professionals are billing $1650/hour. Bankruptcy is vicious.

To point here is the UMWA’s statement about the bankruptcy:

“Today’s filing by Murray Energy for Chapter 11 bankruptcy reorganization comes as no surprise. This day has been coming for some time.

Coal production in this country continues to decline, due to the glut of natural gas on the market and continued government preference for gas and renewable energy to replace coal-fired power generation. Combined with a recent severe reduction in coal exports, these factors delivered a one-two punch that an over-extended Murray Energy could not withstand.

Now comes the part where workers and their families pay the price for corporate decision-making and governmental actions. Murray will file a motion in bankruptcy court to throw out its collective bargaining agreement with the union. It will seek to be relieved of its obligations to retirees, their dependents and widows. We have seen this sad act too many times before.”

Let’s pour one out for the little guys.

*This number is contradicted in the bankruptcy papers. In one instance, the company’s new CEO indicates that there are 13 owned and operated mines; in another he says 18. Whatevs. What are 5 mines in the scheme of things (we’re kidding…WTF, y’all?). The company also owns and operates a mine in Colombia, South America.

• Jurisdiction: S.D. of Ohio (Judge Hoffman Jr.)

• Capital Structure: See Above

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Nicole Greenblatt, Ross Kwasteniet, Joseph Graham, Alexander Nicas, Mark McKane, Tricia Schwallier) & Dinsmore & Shohl LLP (Kim Martin Lewis, Alexandra Horwitz)

  • Financial Advisor: Alvarez & Marsal LLC (Robert Campagna)

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • Prepetition ABL Agent: Goldman Sachs Bank USA

  • Prepetition FILO and DIP FILO Lender: GACP Finance Co. LLC

    • Legal: Sidley Austin LLP (Jennifer Hagle, Leslie Plaskon, Anna Gumport) & Frost Brown Todd LLC (Ronald Gold, Erin Severini

  • Prepetition Superpriority Agent: GLAS Trust Company LLC; DIP Administrative Agent: GLAS USA LLC; DIP Collateral Agent: GLAS Americas LLC

    • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Benjamin Loveland) & Frost Brown Todd LLC (Douglas Lutz, A.J. Webb, Bryan Sisto)

  • Term Loan Agent: Black Diamond Commercial Finance LLC

    • Legal: Ropes & Gray LLP (Gregg Galardi) & Keating Muething & Klekamp PLLC (Robert Sanker)

  • 1.5L Notes Indenture Trustee: U.S. Bank N.A.

  • 2L Notes Indenture Trustee (‘20 and ‘21): The Bank of New York Mellon Trust Company N.A.

  • Ad Hoc Group of Superpriority Lenders

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen, James McClammy) & Frost Brown Todd LLC (Douglas Lutz, A.J. Webb, Bryan Sisto)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Equityholders (Robert Murray)

    • Legal: Willkie Farr & Gallagher (Brian Lennon, Matthew Feldman)

  • Official Committee of Unsecured Creditors (Bank of NY Mellon Trust Company NA, CB Mining Inc., Joy Global, RM Wilson Co., UMWA 1974 Pension Trust, United Mine Workers of America International Union, Wheeler Machinery Co.)

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

    • Investment Banker: Moelis & Co. (William Derrough)

⛽️New Chapter 11 Bankruptcy Filing - Sheridan Holding Company II, LLC⛽️

Sheridan Holding Company II, LLC

September 15, 2019

Houston-based Sheridan Holding Company II LLC and 8 affiliated debtors filed a chapter 11 bankruptcy case in the Southern District of Texas with a nearly-fully-consensual prepackaged plan of reorganization. The plan, once effective, would eliminate approximately $900mm(!) of pre-petition debt. The case is supported by a $100mm DIP credit facility (50% new money).

Why so much debt? While this is an oil and gas story much like scores of other companies we’ve seen march through the bankruptcy court doors, the business model, here, is a bit different than usual. Sheridan II is a “fund”; it invests in a portfolio of working interests in mature onshore producing properties in Texas, New Mexico and Wyoming. Like Matt Damon in “Promised Land,” the debtors scour God’s country in search of properties, acquires working interests in those properties, and then seeks to deploy their special sauce (“application of cost-effective reinvestments, operational improvements, and enhanced recovery programs to the acquired assets”) to eke out product and, ultimately, sell that sh*t at a profit. This, as you might suspect, requires a bunch of capital (and equity from LPs like Warburg Pincus).* Hence the $1.1b of debt on balance sheet. All of this is well (pun intended) and good, provided the commodity environment cooperates. Which, we all know all too well, has not been the case in recent years. Peace out equity. Peace out sub debt.

Interestingly, some of that debt was placed not too long ago. Confronted with the oil and gas downturn, the debtors took the initiative to avoid bankruptcy; they cut off distributions to LPs, took measures to decrease debt, cut opex, capex and SG&A, and engaged in a hedging program. In 2017, the debtors raised $455mm of the subordinated term loan (with PIK interest galore), while also clawing back 50% of distributions previously made to LPs to the tune of $64mm. Everyone needed to have skin in the game. Alas, these measures were insufficient.

Per this plan, that skin is seared. The revolving lenders and term lenders will receive 95% of the common stock in the reorganized entity with the subordinated term lenders getting the remaining 5%. YIKES. The debtors estimate that the subordinated term lenders will recover 2.6% of the amount of their claims under the proposed plan. 2.6% of $514mm = EPIC VALUE DESTRUCTION. Sweeeeeeeeet. Of course, the limited partners are wistfully looking at that 2.6%. Everything is relative.

*****

Some additional notes about this case:

• The hope to have confirmation in 30 days.

• The plan includes the ability to “toggle” to a sale pursuant to a plan if a buyer for the assets emerges. These “toggle” plans continue to be all of the rage these days.

• The debtors note that this was a “hard fought” negotiation. We’ve lost count of how many times professionals pat themselves on the backs by noting that they arrived at a deal, resolving the issues of various constituencies with conflicting interests and positions. First, enough already: this isn’t exactly Fallujah. You’re a bunch of mostly white males (the CEO of the company notwithstanding), sitting around a luxury conference table in a high rise in Manhattan or Houston. Let’s keep some perspective here, people. Second, THIS IS WHAT YOU GET PAID $1000+/hour to do. If you CAN’T get to a deal, then that really says something, particularly in a situation like this where the capital structure isn’t all-too-complex.

• The bulk of the debtors’ assets were purchased from SandRidge Energy in 2013. This is like bankruptcy hot potato.

• Independent directors are really becoming a cottage industry. We have to say, if you’re an independent director across dozens of companies, it probably makes sense to keep Quinn Emanuel on retainer. That way, you’re less likely to see them on the opposite side of the table (and when you do, you may at least temper certain bulldog tendencies). Just saying.

Finally, the debtors’ bankruptcy papers provide real insights into what’s happening in the oil and gas industry today — particularly in the Permian Basin. The debtors’ assets mostly rest in the Permian, the purported crown jewel of oil and gas exploration and production. Except, as previously discussed in PETITION, production of oil out of the Permian ain’t worth as much if, say, you can’t move it anywhere. Transportation constraints, while relaxing somewhat, continue to persist. Per the company:

“Prices realized by the Debtors for crude oil produced and sold in the Permian Basin have been further depressed since 2018 due to “price differentials”—the difference in price received for sales of oil in the Permian Basin as compared to sales at the Cushing, Oklahoma sales hub or sales of sour crude oil. The differentials are largely attributable to take-away capacity constraints caused by increases in supply exceeding available transportation infrastructure. During 2018, Permian Basin crude oil at times sold at discounts relative to sales at the Cushing, Oklahoma hub of $16 per barrel or more. Price differentials have narrowed as additional take-away capacity has come online, but crude oil still sells in the Permian Basin at a discount relative to Cushing prices.”

So, there’s that teeny weeny problemo.

If you think that’s bad, bear in mind what’s happening with natural gas:

“Similarly, the Henry Hub natural gas spot market price fell from a peak of $5.39 per million British thermal units (“MMBtu”) in January 2014 to $1.73 per MMBtu by March 2016, and remains at approximately $2.62 per MMBtu as of the Petition Date. In 2019, natural gas prices at the Waha hub in West Texas have at times been negative, meaning that the Debtors have at times either had to shut in production or pay purchasers to take the Debtors’ natural gas.”

It’s the natural gas equivalent of negative interest rates. 😜🙈

*All in, this fund raised $1.8b of equity. The Sheridan Group, the manager of the debtors, has raised $4.6b across three funds, completing nine major acquisitions for an aggregate purchase price of $5.7b. Only Sheridan II, however, is a debtor (as of now?).

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

• Capital Structure: $66 RCF (Bank of America NA), $543.1mm Term Loan (Bank of America NA), $514mm ‘22 13.5%/17% PIK Subordinated Term Loans (Wilmington Trust NA) — see below.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Steven Serajeddini, Spencer Winters, Stephen Hackney, Rachael Marie Bazinski, Jaimie Fedell, Casey James McGushin) & Jackson Walker LLP (Elizabeth Freeman, Matthew Cavenaugh)

  • Board of Directors: Alan Carr, Jonathan Foster

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • Administrative agent and collateral agent under the Sheridan II Term Loan Credit Agreements: Bank of America NA

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Stephen Piraino, Nathaniel Sokol)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Administrative Agent under the Sheridan II RBL: Bank of America NA

    • Legal: Vinson & Elkins LLP (William Wallander, Bradley Foxman, Andrew Geppert)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Ad Hoc Group of Subordinated Term Loans (Pantheon Ventures US LP, HarbourVest Partners LP)

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Gabriel Morgan, Clifford Carlson)

    • Financial Advisor: PJT Partners LP

  • Limited Partner: Wilberg Pincus LLC

    • Legal: Willkie Farr & Gallagher LLP (Brian Lennon)

Source: First Day Declaration

⛽️New Chapter 11 Filing - Weatherford International Plc⛽️

Weatherford International Plc

July 1, 2019

There hasn’t been a MASSIVE bankruptcy filing in a while. Windstream Holdings Inc. filed back in late February and while there’s been plenty of chapter 11 activity since, there hasn’t been anything quite as large in the last several months. There is now. Enter Weatherford International Plc.

Late on Friday, Weatherford, an Irish public limited company, filed an 8-K with the SEC with a proposed plan of reorganization and disclosure statement; it and several affiliated debtors intend to file prepackaged chapter 11 cases in the Southern District of Texas on Monday, July 1.* The timing is appropriate: nothing screams “Independence!” like a massive chapter 11 bankruptcy filing that has the effect of eliminating six billion tyrannical dollars from the balance sheet. YEE HAW. G-D BLESS AMERICA.

Here is a snapshot of Weatherford’s pre and post-bankruptcy capital structure:**

And all of the action is at the pre-petition notes level of the cap stack.*** The holders of the $7.4b of pre-petition notes**** will walk away with 99% of the equity in the reorganized company (subject to various means of dilution) — a 63% recovery based on the offered valuation of the company. They will also receive up to $1.25b of new tranche b senior unsecured convertible notes and the right to participate in new tranche a senior unsecured notes. Every other class — but for existing equity (which will get wiped out) — will ride through as if this shabang ain’t even happening.

You must be wondering: how in bloody hell does a company rack up over $8b of debt? $8 BILLION!! That’s just oil and gas, darling.

Weatherford is a provider of equipment and services used in the drilling, evaluation, completion, production, and intervention of oil and natural gas wells; it operates in over 80 countries worldwide and has service and sales locations in nearly all of the oil and natural gas producing regions in the world. It operates in a highly commoditized industry and so the company dedicates millions each year to research and development in an effort to separate itself from the pack and provide value to end users that is unmatched in the market.

Which, by its own admission, it fails to do. All of that R&D notwithstanding, Weatherford nevertheless provide a commoditized product in a tough macro environment. And while all of that debt should have helped position the company to crush less-capitalized competitors, it ultimately proved to be an albatross.

To service this debt, the debtors require stability in the oil and natural gas markets at prices that catalyze E&P companies to drill, baby, drill. An oil field services company like Weatherford can only make money if there are oil operations to service. With oil and natural gas trading at low levels for years…well, you see the issue. Per the company’s 8-K:

The sustained drop in oil and gas prices has impacted companies throughout the oil and gas industry including Weatherford and the majority of its customers. As spending on exploration, development, and production of oil and natural gas has decreased so has demand for Weatherford’s services and products. The decline in spending by oil and gas companies has had a significant effect on the Debtors’ financial health. To illustrate, on a consolidated basis, the Company’s cash flows from operating activities have been negative $304 million, negative $388 million, and negative $242 million in fiscal years 2016, 2017, and 2018, respectively.

While not quite at Uber Inc. ($UBER) levels, this company is practically lighting money on fire.

Relating to the competition:

The oilfield services and equipment industry is saturated with competition from various companies that operate in the same sector and the same regions of the world as Weatherford. The primary competitive factors include safety, performance, price, quality, and breadth of products and services. Weatherford also faces competition from regional suppliers in some of the sectors in which it operates as these suppliers offer limited equipment and services that are specifically tailored to the relevant local market. Some of the Company’s competitors have better financial and technical resources, which allows them to pursue more vigorous marketing and expansion activities. This heavily competitive market has impacted the Company’s ability to maintain its market share and defend or maintain the pricing for its products and services. Heavy competition has also impacted the Company’s ability to negotiate contract terms with its customers and suppliers, which has resulted in the Company accepting suboptimal terms.

The squeeze is on, ladies and gentlemen. As E&P companies look to cut costs in the face of increased pressure from investors to lean out, they are putting companies like Weatherford through the ringer. You bet your a$$ they’re getting “suboptimal terms.”

Compounding matters, of course, is the government:

…operations are also subject to extensive federal, international, state and local laws and regulations relating to environmental production, waste management and cleanup of hazardous materials, and other matters. Compliance with the various requirements imposed by these laws and regulations has also resulted in increased capital expenditures as companies in these sectors have had to make significant investments to ensure compliance.

Well GOSH DARN. If only Weatherford had unfettered ability to pollute the hell out of the countryside and our waters all of that debt could be paid off at par plus. Those gosh darn government hacks.

All of these factors combined to strain the debtors’ liquidity “for an extended period of time.” Accordingly, the company went into cost cutting mode.***** In Q4 ‘17, it eliminated 900 jobs to the tune of $114mm in annualized savings. In 2018, the company — with the assistance of McKinsey Restructuring & Transformation Services — continued with workforce reductions, facility consolidations, and other measures.

Yet, the squeeze continued. Per the company:

Despite implementing these efficient and strategic initiatives, the Company continued to face declining revenue and cash flow, as well as market challenges. Due to the Company’s increasingly tight liquidity, its key vendors began requiring shortened payment terms, including pay on delivery or prepayment for all supplies purchased by the Company. This contributed to additional pressure on liquidity that the Company could not sustain. Additionally, as discussed above, the highly competitive market that the Company operates in posed challenges for the Company in winning new bids, resulting in decreased revenue.

Weatherford was therefore forced to divest assets. YOU KNOW YOU’RE LEVERAGED TO THE HILT WHEN YOU SELL NEARLY $1B OF ASSETS AND IT BARELY MOVES THE NEEDLE. Sale proceeds were coming in just to go back out for debt service. The company had a leverage ratio of OVER 10X EBITDA. THIS IS AN UNMITIGATED F*CKING DISASTER. What’s actually astonishing is that the company notes that it retained Lazard Freres & Co LLC ($LZ) and Latham & Watkins LLP in December ‘18 and April ‘19, respectively. Taking them at their word (and we could have sworn Latham was in there much earlier than April), WHAT THE HELL WERE THEY WAITING FOR? $600mm of annual interest payments, pending maturities, untenable leverage relative to competitors, AND squeezing vendors and the company only got its sh*t together in April? They couldn’t possibly have been THAT inept. Ah, who are we kidding? We’re talking about bankruptcy here.

Now, though, the company has a deal****** and so the upshot is that it is well-positioned for a quick trip into bankruptcy. Indeed, it seeks plan confirmation no later than September 15, 2019 — a nice not-as-speedy-as-other-recent-prepacks-but-speedy prepack. To finance the cases, the company will seek approval of up to $750mm DIP revolver and a $1b DIP term loan. And it is optimistic that it will be well-positioned for the future:

We’ll see.

*The company will also push through Bermuda and Irish proceedings.

**JPMorgan Chase Bank NA ($JPM) is the agent on the prepetition term loan, the prepetition revolving credit agreement, and the A&R facility.

***Only three entities out of an organizational structure of 255 or so direct and indirect subsidiaries are on the hook for the prepetition notes, thereby limiting the number of actual debtor entities that will be subsumed by these cases.

****The pre-petition notes consist of 13 — yes, THIRTEEN — different issuances of notes with interest rates ranging from 4.5% to 9.875% and maturities ranging from 2020 through 2042.

*****Well, as it relates to certain peeps, of course. The debtors’ non-debtor affiliates still had money to make a May 2019 payout to participants in the Executive Bonus Plan.

******The ad hoc noteholder committee is represented by Akin Gump Strauss Hauer & Feld LLP and Evercore Group LLC ($EVR).

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

• Capital Structure:

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Keith Simon, David Hammerman, Annemarie Reilly, Lisa Lansio) & (local) Hunton Andrews Kurth LLP (Timothy Davidson, Ashley Harper)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Lazard Freres & Co LLC

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

• Other Parties in Interest:

  • Ad Hoc Prepetition Noteholder Committee

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Kate Doorley)

    • Financial Advisor: Evercore Group LLC

  • DIP Agent: Citibank NA

    • Legal: Shearman & Sterling LLP (Frederic Sosnick, Ned Schodek, Sara Coelho, Ian Roberts)

⛽️New Chapter 11 Bankruptcy Filing - Edgemarc Energy Holdings LLC⛽️

Edgemarc Energy Holdings LLC

May 15, 2019

Pennsylvania-based Edgemarc Energy Holdings LLC and its eight affiliated debtor affiliates are the latest in a string of oil and gas related bankruptcy filings. Don’t let $73/barrel brent crude and $63/barrel West Texas Intermediate prices full you: this is one of many oil and gas filings on the near term horizon.

Edgemarc is a natural gas E&P company focused on the Appalachian Basin in Ohio and Pennsylvania; it and its affiliates control approximately 45k net acres and have drilled and developed 60 producing wells. Now, everyone knows that, right now, the Permian Basin in West Texas is the shizz and, therefore, hearing about the Appalachian Basin may put some of you on edge. But, here, there was an extraordinary externality that really helped push the company into bankruptcy, other more macro factors notwithstanding.

In September 2018, a pipeline and gathering system under construction by a third-party (ETC Northeast Pipeline LLC) exploded. This pipeline was meant to be the gathering and processing avenue for the debtors’ natural gas. Imagine spending a ton of time milking a farm full of cows only to have the production facility designed for processing and transporting the milk explode right as you were about to bring your product to market. Kinda hard to make money in that scenario, right? The same applies to drilling for natural gas: its hard to generate revenue when you can’t process, transport and sell it. And, unfortunately, repair hasn’t been easy: what was supposed to be a “within weeks” project now looks poised to push well into 2020.

According to the debtors, a subsequent dispute with ETC prevented the debtors from flowing their gas through alternative pipelines. Consequently, the debtors “had no other means of selling gas from the affected wells” and opted to “shut in” their Pennsylvania wells and pause all remaining Pennsylvania operations — a hit to 33% of the company’s production activity. Compounding matters, the debtors and ETC are now embroiled in litigation. 😬

Suffice it to say that any company that suddenly loses the ability to sell 33% of its product will struggle. Per the company:

The Debtors’ inability to sell gas from their Pennsylvania properties had a substantial negative impact on their liquidity and ability to satisfy their funded debt, contractual and other payment obligations.

Ya think?!?!? The debtors have approximately $77mm of funded debt; they also has fixed transportation services agreements pursuant to which they agreed to fixed amounts of transportation capacity with various counterparties that exposes the debtors to financial liability regardless of whether they actually transport nat gas. This is so critical, in fact, that the debtors have already filed motions seeking to reject transportation services agreements with Rover Pipeline LLC, Rockies Express Pipeline LLC, and Texas Gas Transmission LLC. Combined, those three entities constitute 3 of the top 4 creditors of the estate, to the tune of over $6mm. These obligations — along with a downward redetermination of the borrowing base under the debtors’ revolving credit facility — severely constrained the debtors’ ability to operate. The debtors have, therefore, filed for chapter 11 with the hope of finding a buyer; they do not have a stalking horse purchaser lined up (though they do have a commitment for a $107.79mm DIP from their prepetition lenders, of which $30mm is new money). The company generated consolidated net revenue of $116.9mm in fiscal 2018.

Significantly, the company is seeking to reject a “marketing service agreement” and “operational agency agreement” with BP Energy Company ($BP), pursuant to which BP agreed to purchase and receive 100% of the debtors’ nat gas capacity. We gather (see what we did there?) that it’s hard to perform under those agreements when you can’t transport your product: accordingly, BP is listed as the debtors’ largest unsecured creditor at ~$41mm. BP’s rights to setoff and/or recoupment (PETITION Note: Weil Gotshal & Manges LLP just happened to write about these two remedies this week here) will be a major facet of this case: if BP is able to exercise remedies, the debtors ability to operate post-restructuring will be threatened. Per the company:

Docket #17, Rejection Motion.

The privately-held company is owned primarily by affiliates of Goldman Sachs and the Ontario Teachers’ Pension. Absent “holdup value,” we can’t imagine they’ll get any return on their investment given the circumstances.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure:

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Darren Klein, Lara Samet Buchwald, Aryeh Falk, Jonah Peppiatt) & (local) Landis Rath & Cobb (Adam Landis, Kerri Mumford, Kimberly Brown, Holly Smith)

  • Directors: Patrick J. Bartels Jr., Scott Lebovitz, Sebastien Gagnon, Baird Whitehead, Zvi Orvitz, Romeo Leemrijse, Verlyn Holt, Jack Golden, George Dotson, Callum Streeter, Alan Shepard

  • Financial Advisor: Opportune LLC and Dacarba LLC

  • Investment Banker: Evercore Partners

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

• Other Parties in Interest:

  • Prepetition & DIP Agent: Keybank NA

    • Legal: Hunton Andrews Kurth LLP (Timothy Davidson, Joseph Rovira) & (local) Connolly Gallagher LLP (Jeffrey Wisler)

  • Equityholders: Goldman Sachs & Ontario Teachers’ Pension Plan Board

    • Legal: Wachtell Lipton Rosen & Katz (Richard Mason, Emil Kleinhaus, Michael Cassel) & (local) Drinker Biddle & Reath LLP (Steven Kortanek, Patrick Jackson, Joseph Argentina Jr.)

  • ETC

    • Legal: Akerman LLP (John MItchell, David Parham, Yelena Archiyan) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

New Chapter 11 Bankruptcy Filing - Achaogen Inc.

Achaogen Inc.

April 15, 2019

Biopharma is where it’s at!!

San Francisco-based Achaogen Inc. ($AKAO) is the latest in a slate of biopharma debtors who have found their way into bankruptcy court — here, the District of Delaware. Achaogen is focused on “the development and commercialization of innovative antibiotic treatments against multi-drug resistant gram-negative infections.” To date, its operations have been centered around the discovery, development and commercialization of products, making it as far as clinical trials in certain instances. As if inspired by the fact that its filing came on the heels of the much-anticipated Game of Thrones (final) Season 8 premiere, the company colorfully notes its primary purpose:

Achaogen designed its lead product, ZEMDRI® (plazomicin), to fight what the Center for Disease Control (“CDC”) calls a “nightmare bacteria” and has listed as the highest category threat of “urgent.” ZEMDRI can be used to treat patients who have limited or no alternative treatment options from infections with these nightmare bacteria. Even with its current financial situation, Achaogen continues to commercialize ZEMDRI, in part because Achaogen believes that ZEMDRI can save lives for patients who may literally have no alternative.

Nightmare bacteria!! Sheesh that’s chilling.

Even more chilling is the company’s discussion of gram-negative bacteria — found “everywhere, in virtually all environments on Earth that support life.” These bacteria are becoming increasingly resistant to common antibiotics. Achaogen calls this “a global crisis…we take for granted.” The company’s core (patented) product, ZEMDRI, is designed to “retain its effectiveness in killing these more resistant bacteria.” While ZEMDRI received FDA approval for IV-treatment of patients with complicated urinary tract infections in July 2018, the FDA rejected ZEMDRI for treatment of patients with bloodstream infections, citing a lack of substantial evidence of effectiveness.

What does the company have going for it? Again, as of July 2018, it has a commercially viable product in the United States. It also has global commercialization rights. And patent protect in the US through approximately 2031 or 2032. It sells to either specialty distributors or physician-owned infusion centers. It has agreements with Hovione Limited and Pfizer for the manufacturing of its product. Finally, it has another product in development, C-Scape, which is an oral antibiotic for treatment of patients suffering from urinary tract infections caused by a particular bacteria.

So, what’s the issue? As PETITION readers have come to learn, the development and manufacture of biopharma products is a time and capital intensive process. Indeed, the company has an accumulated deficit of $559.4mm as of December 31, 2018. This bit is especially puzzling given the company’s position that the world confronts a “global crisis”:

In the past year, there has been a dramatic downturn in the availability of financing from both the debt and equity markets for companies in the anti-infective field, based in part on the withdrawal from the space by certain large pharmaceutical companies. For example, Novartis recently announced that it is shutting down its antibacterial and antiviral research, which was followed by similar moves from Eli Lilly, Bristol-Myers Squibb and AstraZeneca.3 Allergan has also recently announced its intention to divest its anti-infective business, consisting of three commercialized products. This “big pharma flight” from antiinfective research, development and commercialization has created significant challenges for early-stage biotech companies seeking to develop and commercialize novel and much needed drugs in this sector, as opportunities for partnerships, joint R&D relationships, and merger/acquisition transactions have diminished. This sector-wide trend has negatively affected not just Achaogen but many of its competitors. Achaogen, however, has been especially impacted because it has reached the point in its life cycle where it needs substantial capital infusion to drive commercialization of its recently FDA approved drug, ZEMDRI.

Look: we don’t take everything debtors say as gospel. After all, first day pleadings are an opportunity to frame the story and set the tone of a case. But if the company is right about what it’s saying and nobody appears to give two sh*ts, well, color us a wee bit concerned. Why isn’t anybody talking about this?

Anyway, in February 2018, the company entered into a loan and security agreement with Silicon Valley Bank for $50mm. The original agreement provided SVB with a security interest in virtually all of the company’s assets — including proceeds of intellectual property — but not a security interest in the IP itself. $15mm remains outstanding under the loan. In November 2018, the company retained Evercore Group LLP to run a strategic sale process but no viable purchaser emerged. It’s not worth saving the world unless you can make some dinero, we suppose.

After engaging in various liquidity maximization efforts (including job cuts), fundraising initiatives (including an insufficient equity raise), and licensing discussions with entities abroad, the company ultimately decided that nothing would generate enough liquidity for the company to avoid chapter 11. The company notes, “although Achaogen’s out-of-court sale process did not yield any acceptable bids, many parties had expressed interest in bidding at any potential 363 auction sale, where it could pursue the Assets free and clear of existing liabilities.” The company, therefore, filed for chapter 11 to pursue a new sale process; it has no stalking horse bidder teed up. To market its assets, the company has replaced Evercore with Cassel Salpeter & Co. LLC.

In support of the bankruptcy case, SVB committed to provide the company with a $25mm DIP credit facility of which $10mm is new money and $15mm is a roll-up of the aforementioned pre-petition debt. In exchange, SVB now gets a security interest in the company’s IP.

The company’s unsecured debt is comprised of lease obligations, minimum purchase requirements under its manufacturing contract, a success fee tied to the company’s FDA approval, and $18.7mm of trade debt. New Enterprise Associates Inc., a reputed Silicon Valley venture capital firm, is the company’s largest equity holder with approximately 10.76% of the company’s shares. Prior to its 2014 IPO, the company had raised $152.1mm starting with its Series A round in August 2004: it IPO’d at a valuation of $200.4mm, having issued 6.9mm shares at $12/share to the public. It’s equity is likely worth f*ck all. Well, not exactly: we suppose this isn’t ENTIRELY “f*ck all”:

But it’s pretty darn close. Now the issue is what price the IP will fetch in a bankruptcy sale process. It will have to be tens of millions of dollars for NEA to have any sort of recovery.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $15mm secured debt (Silicon Valley Bank)

• Professionals:

  • Legal: Hogan Lovells US LLP (Erin Brady, Richard Wynne, Christopher Bryant, John Beck) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Matthew Talmo, Paige Topper)

  • Financial Advisor: Meru LLC

  • Investment Banker: Cassel Salpeter & Co., LLC

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

• Other Professionals:

  • Prepetition & DIP Lender ($25mm): Silicon Valley Bank

    • Legal: Morrison & Foerster LLP ( Alexander Rheaume, Todd Goren, Benjamin Butterfield, David Ephraim) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Official Committee of Unsecured Creditors (Hovione Limited, EsteveQuimica SA, Solar Capital Ltd.,. Crystal BioScience, World Courier)
    
    

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

Jones Energy Inc.

April 14, 2019

Austin-based independent oil and natural gas E&P company, Jones Energy Inc., filed a prepackaged chapter 11 bankruptcy to restructure its $1.009b of debt ($450mm senior secured first lien notes and $559mm unsecured notes across two tranches). In case you didn’t realize, oil and gas exploration and production is a capital intensive business.

The company operates primarily in the Anadarko Basin in Oklahoma and Texas. Its territory is the aggregation of acreage accumulated over the years, including the 2009 purchase of Crusader Energy Group Inc. out of bankruptcy for $240.5mm in cash.

We’re not going to belabor the point as to why this company is in bankruptcy: the narrative is no different than most other oil and gas companies that have found their way into bankruptcy court over the last several years. Indeed, this chart about sums things up nicely:

It’s really just a miracle that it didn’t file sooner. Why hadn’t it? Per the company:

…the Debtors consummated a series of liquidity enhancing transactions, including equity raises, debt repurchases, strategic acquisitions, non-core asset sales, and modifications of their operations to reduce their workforce and drilling activities. This included a Company-wide headcount reduction in 2016 resulting in the termination of approximately 30% of the Debtors’ total workforce, as well as halting drilling activity spanning several months during the worst of the historic commodity downturn.

But…well…the debt. As in, there’s too much of it.

And debt service costs were too damn high. In turn, the company’s securities traded too damn low:

Source: Disclosure Statement

What’s more interesting here is the process that unfolded. In February 2018, the company issued $450mm of 9.25% ‘23 senior secured first lien notes. The proceeds were used to repay the company’s senior secured reserve-based facility and eliminate the restrictive covenants contained therein. The company also hoped to use the proceeds to repurchase some of its senior unsecured notes at a meaningful discount to par. In a rare — yet increasingly common — show of unity, however, the company’s unsecured lenders thwarted these efforts by binding together pursuant to a “cooperation agreement” and telling the company to take its pathetic offer and pound sand. (PETITION Note: its amazing what lenders can achieve if they can solve for a collective action problem). This initiated a process that ultimately led to the transaction commemorated in the company’s announces restructuring support agreement.

So what now? The senior secured lenders will equitize their debt and come out with 96% of the common stock in the reorganized entity. Holders of unsecured debt will get 4% equity and warrants (exercisable for up to a 15% ownership stake in the reorganized company), both subject to dilution by equity issued to management under a “Management Incentive Plan.” The company has a commitment for $20mm of exit financing lined up (with the option for replacement financing of up to $150mm).

Hopefully the company will have better luck without the albatross of so much debt hanging over it.

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

• Capital Structure: $450mm 9.25% ‘23 senior secured first lien notes (UMB Bank NA), $559mm 6.75% ‘22 and 9.25% ‘23 unsecured notes (Wells Fargo Bank NA)

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Anthony Grossi, Ana Rotman, Rebecca Blake Chaikin, Mark McKane, Brett Newman, Kevin Chang) & (local) Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz)

  • Independent Directors: Tara Lewis, L. Spencer Wells

  • Financial Advisor: Alvarez & Marsal LLC (Ryan Omohundro)

  • Investment Banker: Evercore Group LLC (Daniel Aronson)

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

• Other Parties in Interest:

  • Ad Hoc Group of First Lien Noteholders

    • Legal: Milbank LLP (Dennis Dunne, Evan Fleck, Michael Price) & (local) Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

    • Financial Advisor: Lazard Freres & Co. LLC

  • Ad Hoc Group of Crossover Holders

    • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Benjamin Schak) & (local) Haynes and Boone LLP (Charlie Beckham, Kelli Norfleet)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Metalmark Capital LLC

    • Legal: Vinson & Elkins LLP (Andrew Geppert, David Meyer, Jessica Peet, Michael Garza)

Updated 4/15/19 2:05 CT

New Chapter 11 Filing - Hexion Holdings LLC

Hexion Holdings LLC

April 1, 2019

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

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

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

This is what that capital structure looks like:

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

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

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

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: See above.

• Professionals:

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

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

  • Financial Advisor: AlixPartners LLP

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

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

• Other Parties in Interest:

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

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

    • Financial Advisor: Evercore Group LLC

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

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

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Ad Hoc Group of 1.5 Lien Noteholders

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

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

    • Legal: Simpson Thacher & Bartlett LLP

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

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

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

    • Legal: Arnold & Porter Kaye Scholer LLP

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

  • Sponsor: Apollo

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

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

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

Updated:

⛽️New Chapter 11 Filing - Southcross Energy Partners LP⛽️

Southcross Energy Partners LP

April 1, 2019

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

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

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

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

• Jurisdiction: D. of Delaware (Judge Walrath)

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

• Professionals:

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

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • Prepetition RCF & Unsecured Agent: Wells Fargo Bank NA

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

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

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

  • Post-Petition Lenders and Ad Hoc Group

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

  • Southcross Holdings LP

    • Legal: Debevoise & Plimpton LLP (Natasha Labovitz)

  • Stalking Horse Bidder:
    

Updated 9:39 CT

New Chapter 11 Bankruptcy Filing - Windstream Holdings Inc.

Windstream Holdings Inc.

February 25, 2019

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

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

• Capital Structure: see below.

• Professionals:

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

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

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest:

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

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

    • Legal: Reed Smith LLP (Jason Angelo)

  • Prepetition TL and RCF Agent: JPMorgan Chase Bank NA

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

  • Ad Hoc Group of Second Lien Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Houlihan Lokey Capital

  • Ad Hoc Group of First Lien Term Lenders

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

    • Financial Advisor: Evercore

  • Midwest Noteholders

    • Legal: Shearman & Sterling LLP

  • Uniti Group Inc.

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

    • Financial Advisor: Rothschild & Co.

  • Large Unsecured Creditor: AT&T Corp.

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

  • Large Unsecured Creditor: Verizon Communications Inc.

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

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

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

New Chapter 22 Filing - New MACH Gen LLC

New MACH Gen LLC

6/11/18

In ⓶⓶Is A Fresh Batch of Chapter 22s Coming?⓶⓶, we asked "Did Talen Energy's Acquisition of MACH Gen Miss the Mark? (Short Synergy)". Apparently the answer is yes to both questions: MACH Gen is now in bankruptcy court for the second time in four years. 

New MACH Gen LLC and four affiliated debtors have filed a prepackaged chapter 11 bankruptcy that seeks to partially equitize its first lien debt, transfer interests in the Harquahala facility in Arizona to the First Lien Lenders, eliminate approximately $95 million of debt off of the company's balance sheet, shed approximately $20 million of annual interest expense, and reorganize around two of the debtor entities. If the plan is effectuated, the company will emerge from bankruptcy with a (slightly) trimmed down balance sheet including (i) $512 million of first lien debt split among a revolving credit facility and two term loans and provided by the prepetition First Lien Lenders and (ii) approximately $25 million in a new second lien term loan provided by Talen Energy Supply LLC. The First Lien Lenders have also agreed to provide a $20 million DIP credit facility. The proposed plan of reorganization appears to be fully consensual among the various debt and equity interest holders. Accordingly, the company hopes to confirm the plan within 45 days of filing and obtain regulatory approvals another within an additional 45 days. 

The company is the owner and manager of a portfolio of three natural gas-fired electric generating facilities: (1) a 1,080 MW facility located in Athens, New York that achieved commercial operation on May 5, 2004 (the “Athens Facility”); (2) a 1,092 MW facility located in Maricopa County, Arizona, that achieved commercial operation on September 11, 2004 (the “Harquahala Facility”); and (3) a 360 MW facility, located in Charlton, Massachusetts, that achieved commercial operation on April 12, 2001 (the “Millennium Facility,” and collectively with the Athens Facility and the Harquahala Facility, the “Facilities”). The company generates revenue by selling energy, capacity and ancillary services from the Facilities into relevant power markets. In the last fiscal year, the company generated approximately $269 million of operating revenue at a net loss of approximately $10 million. 

These numbers shouldn't really be surprising. In May we highlighted the following:

"Here is where natural gas prices were (i) in April 2014 around the time of the bankruptcy filing (5.97), (ii) in November 2015 (2.08) at the time of the Talen acquisition, (iii) in June 2016 (2.57) at the time of the announced Riverstone transaction, (iv) in December 2016 at the time the transaction closed (3.58) and (v) where they stand now (~2.69):"

This change in the natural gas market (and regulatory hurdles) flipped "compelling future projections" to "a challenging operating environment" and, in 2016, the company "significantly underperformed" its way to a net loss of $589.8 million. Given the current environment for natural gas, we'll see whether this transaction does the trick. After all, as the company notes, "[a]though the Plan will result in the elimination of debt, Reorganized MACH Gen will continue to have a significant amount of indebtedness after the Effective Date." See you in four years? 

• Jurisdiction: D. of Delaware
• Capital Structure: $132.9mm first lien RCF (CLMG Corp., Beal Bank SSB), $465.1mm first lien TL,      
• Company Professionals:
  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Kenneth Enos, Elizabeth Justison)
  • Financial Advisor: Alvarez & Marsal LLC (Ryan Omohundro)
  • Investment Banker: Evercore LLC (Bo Yi)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
• First Lien & DIP Agent: CLMG Corp.
• First Lien Lenders: Beal Bank USA/SSB
  • Legal: White & Case LLP (Thomas Lauria, Scott Greissman, Elizabeth Feld)
• Talen Energy Supply LLC 
  • Legal: Skadden Arps Slate Meagher & Flom LLP (Lisa Laukitis) 

New Chapter 11 Filing - Enduro Natural Resources LLC

Enduro Natural Resources LLC

5/15/18

Enduro Natural Resources LLC, an oil and natural gas producer with properties in North Dakota, Wyoming, Texas, Louisiana and New Mexico, has filed for bankruptcy to effectuate a three-package asset sale to three separate stalking horse bidders.  The company notes in an endearingly self-aware way, 

"Like many other upstream energy companies, the Debtors did not anticipate in the early part of this decade that they would eventually succumb to the demands of repaying the capital they borrowed to invest in their exploration and production activities. But the prices of crude oil and natural gas declined dramatically beginning mid-year 2014, as a result of robust nonOrganization of the Petroleum Exporting Countries' ("OPEC") supply growth led by unconventional production in the United States, weakening demand in emerging markets, and OPEC's decision to continue to produce at high levels." 

While the company took a variety of measures to combat the effects of these externalities -- including operational fixes and a prior out-of-court restructuring transaction -- its leverage remained too high in relation to asset value. Indeed, in the aggregate, the combined offers for the three packages of assets equates to $77.5 million which doesn't even clear the first lien debt. 

Finally, the beauty of a huge wave of same-industry chapter 11 filings is that you start seeing the same players over and over again. Among its top creditors are some other oil and gas companies with plenty of experience in bankruptcy court, i.e., Exco Operating Company and Basic Energy Services and, soon, Pioneer Natural Resources. The good times continue to roll in the upstream exploration and production space. 

• Jurisdiction: D. of Delaware
• Capital Structure: $208.7mm first lien RCF (Bank of America NA), $141mm second lien debt (Wilmington Trust NA)   
• Company Professionals:
  • Legal: Latham & Watkins LLP (George Davis, Caroline Reckler, Matthew Warren, Jason Gott, Lindsay Henrikson) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond Coyle)
  • Financial Advisor: Alvarez & Marsal North America LLC
  • Investment Banker: Evercore LLC
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Sponsor & Major Second Lien Lender: Riverstone Holdings LLC
  • First Lien Agent: Bank of American NA
    • Legal: Davis Polk & Wardwell LLP (Damian S. Schaible, Aryeh Ethan Falk) & (local) Morris, Nichols, Arsht, & Tunnell LLP
    • Financial Advisor: RPA Advisors

New Chapter 11 Filing - Southeastern Grocers LLC

Southeastern Grocers LLC

3/27/18

Southeastern Grocers LLC, the Jacksonville Florida-based parent company of grocery chains Bi-Lo, Winn-Dixie and others, has filed a prepackaged bankruptcy in the District of Delaware - mere weeks after Tops Holding II Corporation, another grocer, filed for bankruptcy in the Southern District of New York. The company notes that, as part of the chapter 11 filing, it intends to "close 94 underperforming stores," "emerge from this process likely within the next 90 days," and "continue to thrive with 582 successful stores in operation." Unlike Tops, it helps when you don't have any collective bargaining agreements.

More to come...

• Jurisdiction: D. of Delaware
• Capital Structure: $385mm ABL (Deutsche Bank AG New York Branch), $425mm 9.25% '19 secured notes (Wilmington Savings Fund Society, FSB), $522mm 8.625%/9.375% '18 Senior PIK Toggle Notes unsecured notes (Wells Fargo Bank, NA)     
• Company Professionals:
  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Matthew Barr, Sunny Singh) & (local) Richards Layton & Finger PA (Daniel J. DeFranceschi, Paul N. Heath, Amanda R. Steele) 
  • Financial Advisor: FTI Consulting Inc.
  • Investment Banker: Evercore Group LLC (Stephen Goldstein)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Independent Director: Neal Goldman
• Other Parties in Interest:
  • Ad Hoc Group of Unsecured Noteholders & 9.25% '19 Senior Secured Noteholders
    • Legal: Morrison & Foerster LLP (Dennis Jenkins, Brett Miller) & (local) Drinker Biddle & Reath LLP (Steven Kortanek)
    • Financial Advisor: Moelis & Company LLC
  • Private Equity Sponsor: Lone Star Funds
    • Legal: King & Spalding LLP (W. Austin Jowers, Paul Ferdinands)

Source: First Day Declaration

New Chapter 11 Filing - Tops Holding II Corporation

Tops Holding II Corporation

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

• Jurisdiction: S.D. of New York

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

• Company Professionals:

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

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

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

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

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

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

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

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

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

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

    • Financial Advisor: Lazard Freres & Co. LLC

  • DIP TL Agent: Cortland Capital Markets Services LLC

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

  • Southpaw Asset Management LP

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

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

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

    • Financial Advisor: Zolfo Cooper LLC