New Chapter 11 Bankruptcy Filing - Stein Mart Inc. ($SMRT)

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Stein Mart Inc.

Man. This story sucks. Stein Mart Inc. ($SMRT), a publicly-traded specialty off-price retailer with 281 stores across the Southeast, Texas, Arizona and California is the latest retailer to file bankruptcy (along with two affiliates).

To set the stage, imagine Han and Lando taking a fun little ride on a desert skiff. Suddenly a riot breaks out and amidst the confusion Lando falls off the skiff. Luckily, Han is able to grab Lando’s hand so that Lando doesn’t plummet into the gnarley tentacles of some strange sand beast that randomly happens to be there. As Han pulls Lando up out of reach of the beast, all of the sudden some crazy space virus flows through the airspace and smacks Han straight in the lungs. As he clutches his throat struggling to breathe, he releases Lando who consequently hurls straight down towards the beast and suffers a horrific death.

Now replace (a) Han with Kingswood Capital Management LLC, (b) Lando with Stein Mart, and (c) the “crazy space virus” with COVID-19 and you’ve basically got the story of Stein Mart’s collapse into bankruptcy court. Like many other retailers in this macro climate, Stein Mart was teetering pre-COVID. Sales have been on the decline since 2016. But then in January, Kingswood — along with an entity managed by the Chairman of the company — offered a roughly 20% premium over SMRT’s then-stock price ($0.90/share) to take Stein Mart private. Stein Mart, which had been on distressed watch lists around that time, seemed to be on the receiving end of a much-needed and wildly opportune lifeline. Of course, COVID ended that. Take a look at this mind-boggling decline in YOY performance:

Screen Shot 2020-08-14 at 11.11.32 AM.png

Ab. So. Lutely. Brutal. Just brutal.

Kingswood agreed. Per the company:

…on April 16, 2020, the Merger Agreement was terminated prior to closing because the COVID19 pandemic forced the Company to close all of its stores and the Company was unable to satisfy the minimum liquidity closing condition in the merger agreement.

Was that the definitive end of the deal? No! The parties continued to discuss new deal parameters but then we, as a country, couldn’t get our sh*t in order. With the country averaging 1000+ deaths a day and tens of thousands of new daily COVID infections, Kingswood got skittish:

The Company has subsequently engaged in discussions with Kingswood regarding sale of the Company as a going-concern in recent months pursuant to a bankruptcy sale; however, a transaction presently appears unlikely given the COVID-19 resurgence.

The resurgence is notable because the company has a significant number of stores in Florida, Texas and California. Consequently,…

The Company’s updated financial projections, following the July resurgence of COVID-19, indicated that the Company would not have sufficient liquidity to continue operating the business in the ordinary course consistent with past practice.

So now the company is liquidating. The company projects $250mm in gross recovery from the liquidation of inventory, equipment, fixtures, leases IP and other assets. As of the petition date, it owes its senior secured lender, Wells Fargo Bank NA ($WFC), $84mm; it also owed its term lender, Gordon Brothers Finance Company, $35mm. Tack on administrative expenses for the professionals administering the case and recoveries for those creditors owed a sum total of $770mm in total liabilities begins to look a bit bleak.

*****

A couple of additional notes:

First, this company appears to have been addicted to factoring. Among the companies top six general unsecured creditors are CIT Commercial Services, Wells Fargo Trade Capital Services, and White Oak Commercial Finance.

Second, you can add SMRT to the list of companies that tapped PPP funds yet couldn’t avoid a bankruptcy filing. It received $10mm from Harvest Small Business Finance LLC.

Third, we’re back to borderline collusion among the liquidation firms. The company’s financial advisor issued RFPs to five liquidation consultants. It received two bids back: one from SB360 Capital Partners LLC and one from a Hilco Merchant Resources-led joint venture that included three — that’s right, three — competitors. Per the company:

The Debtors are of the view that in the current environment, where numerous large retailers are being simultaneously liquidated, joint venture liquidation bids are common because a single liquidation firm may not have the resources to staff and manage the entire project. (emphasis added)

Said another way, the retail industry is such an utter dumpster fire right now that liquidators simply don’t have the bandwidth to manage mandates like these on their own (or so the story goes).

While liquidation sales launch, the company will also seek to sell its leases and IP. Except…

…substantial doubt exists as to whether any buyers will be found for leases given the current depressed condition of the retail real estate market.

And they…

…do not anticipate the sale of intellectual property will produce substantial value.

Right. In case you haven’t noticed, the rubber meets the road with these retailers with the IP. That’s why there was the law suit in the Neiman Marcus matter. That’s why there was the asset stripping transaction in the J.Crew matter. But Stein Mart? IP? Brand? Hahahahaha. The company’s bankers tried selling this turd for over 2.5 years. The only buyer was Kingswood, a small LA-based PE fund with a portfolio of four companies and, well, Stein himself. The IP only had value to him. Go figure. And this is after three — yes, three — separate sale and marketing processes.

Is there a chance a buyer emerges from the shadows? Sure. Miracles happen. If not, Wells and Gordon Brothers will be fine. The professionals will get paid. The unsecured creditors will get hosed. Equity will…well forget about it. At least the equity market is finally getting these right (though reasonable minds could certainly question why the stock is trading as high as it is):

Screen Shot 2020-08-14 at 11.12.13 AM.png

The greater likelihood is that this sucker ends in structured dismissal or a conversion to chapter 7.

It’s crazy. Eight months ago the company was headed for a new chapter. Instead the book shut closed.

August 12, 2020

Jurisdiction: M.D. of FL (Judge Funk)

Capital Structure: see above

Company Professionals:

  • Legal: Foley & Lardner LLP (Gardner Davis, John Wolfel, Neda Sharifi, Richard Guyer, Mark Wolfson, Marcus Helt)

  • Financial Advisor: Clear Thinking Group (Patrick Diercks)

  • Liquidators: Hilco Merchant Resources LLC, Gordon Brothers Retail Partners LLC, Great American Group LLC, Tiger Capital Group LLC, SB360 Capital Partners LLC

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

Other Parties in Interest:

  • RCF Lender: Wells Fargo Bank NA

    • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Smith Hulsey & Busey (John Thomas, Stephen Busey)

⛽️ New Chapter 11 Bankruptcy Filing - Vista Proppants and Logistics LLC ⛽️

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Vista Proppants and Logistics LLC

June 9, 2020

You wouldn’t know it from the equity price action in oil and gas this week but lest there be any confusion: generally speaking, oil and gas is still very much f*cked.

Privately-held (The Lonestar Prospects Holdings Company LLC and First Reserve) Texas-based Vista Proppants and Logistics LLC (along with its affiliate filers, the “debtors”) is yet another victim of the oil and gas malaise. Its principal business is producing mine-to-wellhead high-quality, fine-grade “Texas Premium White” frac sand for end users in TX and OK. The business includes mining (via debtor subsidiary Lonestar Prospects Management LLC), trucking (via debtor subsidiary MAALT LP, and transloading (via debtor subsidiary MAALT Specialized Bulk LLC). The company operates three mines in Texas, twelve transloading terminals in TX and OK, three trucking facilities in TX, and a fleet of approximately 100 “last-mile” transport vehicles. Spoiler alert: when oil prices break through the floor and everyone cuts back capacity, there ain’t a whole lot of need for frac sand. Toss in a little COVID into the mix — further decimating the oil and gas space — and, well, here we are in bankruptcy court. The debtors have shut down their mining operations and aren’t engaging in any trucking and transloading activity.

As you might expect, even with all of the cost cutting initiatives under the sun, not operating can have an effect on liquidity. And indeed that’s the case here: the debtors ran out of money to service their operations and their $357+mm of debt (Ares Capital Corporation ($ARCC)). The bankruptcy filing avails the debtors of $11mm of DIP financing and provide an opportunity for the debtors to pursue a sale of their assets to Ares or a third-party buyer.

The other thing this bankruptcy filing does is provide the debtors of the same opportunity that previous frac sand provider, Emerge Energy Services, took advantage of in bankruptcy court. That is, the rejection of railcar leases. These fixed cost contracts make no sense for the debtors anymore as they simply don’t have the volumes to transport. Indeed, the debtors have already filed a slate of contract rejection motions.

Along those lines, this isn’t the first frac sand chapter 11 bankruptcy and it likely isn’t the last either.

*For the avoidance of doubt, ARCC placed this sucker on non-accrual previously. Notably, Bloomberg reported on various comments that Ares’ CEO Michael Arougheti said this week at the Morgan Stanley Virtual U.S. Financials Conference:

“There is a little bit of a risk that people are underestimating the level of distress in the small business and consumer landscape absent the government support,” Michael Arougheti, chief executive officer at Ares Management Corp. said. “When you look at the government aid programs, they’ve generally been structured to get us through June and July, and after that is a big question mark.”

Vista seems apropos of that comment. The question is whether Vista is also the canary in the coal mine for BDC investments. Bloomberg also noted:

The firm’s portfolio companies have received capital injections from equity owners to support business, he said. Within its credit holdings, Ares has been able to negotiate stronger covenants and higher loan prices. The firm is “cautiously optimistic” of receiving debt payments in June, he said.

Set your alarms.

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

  • Capital Structure: $357.5mm Term Loan (Ares Capital Corporation), $21.9mm ABL (PlainsCapital Bank), MAALT Facility

  • Professionals:

    • Legal: Haynes and Boone LLP (Stephen Pezanosky, Ian Peck, David Staab)

    • Financial Advisor: Alvarez & Marsal LLC (Gary Barton)

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

  • Other Parties in Interest:

    • Ares Capital Corporation

      • Legal: Sidley Austin LLP (Dennis Twomey, Charles Persons, Juliana Hoffman)

    • Lonestar

      • Legal: Jackson Walker LLP (Kenneth Stohner Jr., Vienna Anaya)

    • PlainsCapital Bank

      • Legal: Foley & Lardner LLP (Holland O’Neil, Thomas Scannell)

New Chapter 11 Bankruptcy & CCAA Filing - Pier 1 Imports Inc. ($PIR)

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Pier 1 Imports Inc.

February 17, 2020

Fort Worth, Texas-based Pier 1 Imports Inc. and seven affiliates (the “debtors”) have fulfilled their obvious destiny and finally fallen into bankruptcy court in the Eastern District of Virginia. Contemporaneously, the debtors filed a CCAA proceeding in Canada to effectuate the closure of all Canadian operations. Color us pessimistic but we’re not feeling so great about the debtors’ go-forward chances in the US either.

We’ve covered the debtors ad nauseum in previous editions of PETITION. Here — supported by an ode to “Anchorman” — we described the debtors’ recent HORRIFIC financial performance and noted how a bankruptcy would be sure to confuse a peanut gallery accustomed to spouting regular (and sometimes inaccurate) hot takes about how private equity is killing retail.* We wrote:

The reaction to this surely-imminent bankruptcy (and, if we had a casino near us, liquidation) is going to be interesting. It is sure to flummox the “Private Equity is Killing Retail” camp because, well, it’s not PE-backed. Similarly it’ll confuse the “You Shouldn’t Put So Much Debt on Retail” cohort because, well, there really isn’t that much debt on the company’s balance sheet. Chuckling in the corner will be “The US is Over-Stored” team … And “The Millennials Aren’t Buying Homes and Furnishing Them With Chinese-Made Tchotchkes” gang (thanks a ton, Marie Kondo) … And the “Management Has Blown Chunks, The Assortment Sucks” bunch … And, finally, “The Amazon Effect” squad….

Over the weekend, The New York Times ran a piece from Austan Goolsbee, an economics professor at the University of Chicago’s Booth School of Business, that — no disrespect to the professor — says many of the same things PETITION has been saying for a LONG LONG time. That is, “The Amazon Effect” is overstated. He argues that “three major economic forces have had an even bigger impact on brick-and-mortar retail than the internet has”: (1) big box stores, (2) income inequality, and (3) the preference shift away from goods towards services. It’s fair to say that these three forces affected the debtors in a big big way.**

Surely, e-commerce has a lot to do with it too. As one PETITION advisor said about the debtors’ wares yesterday:

“You can just order that sh*t online. You don’t need to try it on.”

It’s a fair point.

Another fair point that Mr. Goolsbee omits from his analysis is the role of management. It’s safe to say that the US is suffering from an epidemic of retail ineptitude.

And like the coronavirus, it keeps spreading from one retailer to the next.***

But we digress.

The business has clearly suffered:

From fiscal years 2014 to 2018, the company’s net income dropped from $108 million to about $11.6 million and in fiscal year 2019 Pier 1 experienced a $198.8 million loss.

So, what’s the upshot here? The debtors announced a plan support agreement and intend to use the chapter 11 bankruptcy process to (a) continue to shutter the previously announced ~450 stores (read: get ready for a lot of lease rejections) and (b) pursue a sale pursuant to a chapter 11 plan of reorganization of what remains of the debtors’ business. Frankly, this was masterful messaging: the announcement relating to a plan support agreement and potential plan of…wait for it…”reorganization”(!) head-faked the entire market into thinking this thing might actually be salvageable. That’s where the fine print comes in.

The debtors have dubbed this an “all weather” chapter 11 plan because it provides for either a sale or the equitization of the term loan at the term lenders’ election. This begs the question: will Pathlight Capital LP want to own this thing?🤔 This bit was eye-catching:

“To be clear, the term loan lenders have made no decision at this point, but instead support the process as outlined in the plan support agreement.”

Yeah, we bet they do. Qualified bids will be due on or before March 23 and the lenders have until March 27 to make their election. Which way will the winds blow?

Note that “the process” isn’t currently supported by a stalking horse purchaser. 🤔

Note further that the debtors are required under the DIP to distribute informational packages and solicitations for sale of the debtors’ assets on a liquidation basis to liquidators by March 9.🤔 🤔

It looks like we’ll know the answer very soon.

To finance the cases, the debtors obtained a committed for a $256mm DIP credit facility. The facility includes a $200mm revolving loan commitment and a $15mm first in last out term loan, each provided 50/50 by Bank of America N.A. and Wells Fargo National Association, and a $41.2mm term loan from Pathlight. This was the pre-petition capital structure:

Screen Shot 2020-02-18 at 11.39.07 AM.png

The DIP effectively just rolls up much of the pre-petition debt. There is no new money. The messaging here, then, is also critical: the DIP facility ought to provide customers, vendors and employees comfort that there is access to liquidity if needed. Cash collateral usage, however, is the main driver here: the debtors believe that operating cash flow will suffice to handle working capital needs and bankruptcy expenses.

To summarize, we have another distressed retailer that is scratching and clawing to live. They’ve taken all of the usual steps to extend runway: cost cuts, footprint minimalization, new management. Bankruptcy is a last-ditch effort to survive: the debtors take pains to try and convince some prospective buyer that there is life left in the debtors’ brick-and-mortar business:

The remaining go-forward stores achieved superior sales and customer metrics in the last twelve months compared to the closing stores, including approximately 15% greater sales per square foot on average.

And if that doesn’t do it, there’s the argument that there’s an e-commerce play here. The debtors similarly go to great lengths to state OVER AND OVER AGAIN that e-commerce represents 27% of total sales. They’re practically screaming, “Look at me, look at me! We can be interesting to you [Insert Authentic Brands Group here]!”

Pathlight is sure as hell hoping someone bites.

*Kirkland & Ellis…uh…we mean, the “debtors” appear to agree, stating, in reference to private equity, that “[t]oo many pundits have sought to point in too many wrong directions,” citing pieces in RetailDive and The Wall Street Journal. THAT ladies and gentlemen, is client advocacy!

**It’s also fair to say that Professor Goolsbee does his readers a disservice by neglecting the overall picture which, no doubt, also includes over-expansion, too much retail per capita, private equity and over-levered balance sheets. These cowboys are closing 400+ stores for a reason.

Of course, long time PETITION readers know that we’ve been arguing for a LOOOOONG time that the “perfect storm” hitting retail is a confluence of factors that cannot just be lazily summarized as “private equity” or “The Amazon Effect.” It’s good to see that the folks at Kirkland & Ellis agree:

In the face of the longest bull run in U.S. history (close to 3,000 days and counting), a myriad of factors have collectively changed the ways in which consumers and retailers interact—creating for retailers what is tantamount to a perfect storm—and directly contributing to the struggles retailers face in a shifting marketplace.5

Then it’s as if they lifted this footnote straight out of previous PETITION briefings:

Screen Shot 2020-02-18 at 1.39.17 PM.png

***Not to cast aspersions, but the resume of the current PIR CEO is…uh…interesting: prior experience includes FullBeauty Brands, HHGregg, and Marsh Supermarkets. Any of those names sound familiar to bankruptcy professionals?

  • Jurisdiction: E.D. of Virginia (Judge Huennekens)

  • Capital Structure: $140mm RCF + $47.3mm LOC, $189mm Term Loan (Wilmington Savings Fund Society FSB), $9.9mm industrial revenue bonds

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Emily Geier, AnnElyse Scarlett Gains, Joshua Altman) & Kutak Rock LLP (Michael Condyles, Peter Barrett, Jeremy Williams, Brian Richardson)

    • Canadian Legal: Osler Hoskin & Harcourt LLP

    • Independent Directors: Steven Panagos & Pamela Corrie

    • Financial Advisor: AlixPartners LLP (Holly Etlin)

    • Investment Banker: Guggenheim Securities LLC (Durc Savini)

    • Real Estate Advisor: A&G Realty Partners LLC

    • Liquidation Consultant: Gordon Brothers Retail Partners LLC

      • Legal: Riemer & Braunstein LLP (Steven Fox, Anthony Stumbo)

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

  • Other Parties in Interest:

    • DIP ABL Agent: Bank of America NA

      • Legal: Morgan, Lewis & Bockius LLP, Hunton Andrews Kurth LLP, and Norton Rose Fulbright Canada LLP

    • DIP ABL Term Agent: Pathlight Capital LP

      • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) and Troutman Sanders LLP (Andrew Buxbaum)

    • Ad Hoc Term Lender Group: Eaton Vance Management, Insight North America LLC, Marathon Asset Management LP, MJX Asset Management LLC, Whitebox Advisors LLC, ZAIS Group LLP

      • Legal: Brown Rudnick LLP (Robert Startk, Uchechi Egeonuigwe, Steven Pohl, Sharon Dwoskin) & Whiteford Taylor & Preston LLP (Christopher Jones, Vernon Inge, Corey Booker)

      • Financial Advisor: FTI Consulting Inc.

    • Large Equityholders: Charles Schwab Investment Management, Dimensional Fund Advisors LLP

    • Official Committee of Unsecured Creditors: Bhati & Company, Synergy Home Furnishings LLC, United Parcel Services Inc., Brixmor Operating Partnership LP, Brookfield Property REIT Inc.

      • Legal: Foley & Lardner LLP (Erika Morabito, Brittany Nelson, Timothy Mohan) & Cole Schotz PC (Seth Van Aalten)

      • Financial Advisor: Province Inc. (Paul Huygens, Sanjuro Kietlinski, Walter Bowser, Paul Navid, Shane Payne, Courtney Clement)

New Chapter 11 Filing - Hooper Holmes Inc. (d/b/a Provant Health)

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Hooper Holmes Inc. (d/b/a Provant Health)

8/27/18

Kansas-based Hooper Holmes Inc. ($HPHW), a provider of comprehensive health and wellbeing programs, e.g., biometric screening services, flu shots, lab testing and more, filed for bankruptcy in the Southern District of New York. The company does business as Provant Health Solutions LLC ("PHS), an entity it merged with as recently as 2017. And that is part of the problem: the company incurred tens of millions in debt over the last few years in connection with the PHS merger and a prior acquisition of Accountable Health Solutions Inc., a provider of, among other things, telephonic health coaching and wellness portals. 

The company will use the bankruptcy process to effectuate a sale of substantially all of its assets to a stalking horse bidder, Summit Health Inc., for $27mm in cash and the assumption of certain liabilities. The company's prepetition secured lenders will finance the cases via a proposed $13.6mm DIP credit facility. 

  • Jurisdiction: S.D. of New York (Judge Drain)
  • Capital Structure: See below.   
  • Company Professionals:
    • Legal: Foley & Lardner LLP (Richard Bernard, Timothy Mohan, Jill Nicholson, Geoff Goodman, Michael Riordan, John Melko) & Halperin Battaglia Benzija LLP (Christopher Battaglia)
    • Financial Advisor: Phoenix Management (James Fleet, Albert Mink)
    • Investment Banker: Raymond James & Associates Inc. (Geoffrey Richards)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Term Lender: SWK Funding LLC
      • Legal: Holland & Knight LLP (Arthur Rosenberg)
    • Stalking Horse Bidder: Summit Health Inc., a subsidiary of Quest Diagnostics Inc.
      • Legal: Bass Berry & Sims PLC (Paul Jennings) & Weil Gotshal & Manges LLP (Gary Holtzer, Jessica Liou, John Conte)
Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 Filing - GST AutoLeather Inc.

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GST AutoLeather Inc.

  • 10/3/17 Recap: Disruption, illustrated. The automobile industry is at the beginning of a downturn marked by auto price reductions and a drop in new vehicle production. Automobile output is down 4% over the past year as automobile dealers are placing fewer manufacturing orders and dealing with excess supply. Moreover, auto OEMs are decreasing the leather content in certain new vehicles. Finally, automobiles are lasting longer and "the climbing popularity of ride-sharing services, such as Uber and Lyft...diminish consumers' needs for their own cars." Put simply, there is a demand side decline. Consequently, here, the Southfield Michigan-based supplier of leather interiors filed a freefall bankruptcy with the hope of consummating an expedited (approximately 2-month timeframe) 363 asset sale. The company has secured a $40mm DIP credit facility to fund its bankruptcy; it continues talks with its senior lenders about a stalking horse bid to purchase the company. In addition to the aforementioned macro factors, the company blames its deteriorated financial performance on (i) issues associated with certain new customer launches in Europe, (ii) supply chain issues with a critical Chinese supplier who is using leverage to extract out-of-contract economics from the company and (iii) constraints imposed by significant working capital investments to mitigate supply chain disruption to its customers (which include the likes of major auto OEMs, e.g., Audi, BMW/Mini, Daimler, Fiat Chrysler, Ford, General Motors, Hyundai, Honda, Porsche, PSA, Nissan, Kia, Toyota and Volkswagen).
  • Jurisdiction: D. of Delaware (Judge Silverstein)
  • Capital Structure: $24mm '19 RCF, $140mm '20 TL-B (Royal Bank of Canada), $32mm mezz debt (Triangle Capital Corp./Alcentra Capital Corp.)
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Ryan Blaine Bennett, Michael Slade, Alexandra Schwarzman, Timothy Bow, Benjamin Rhode, Luke Ruse) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)
    • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Jonathan Hickman, Jay Herriman)
    • Investment Banker: Lazard Middle Market (Jason A. Cohen)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Sponsor: Advantage Partners
    • Lender Group (Royal Bank of Canada, as DIP Admin Agent)
      • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford, Shlomo Maza) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Justin Rucki)
      • Financial Advisors: FTI Consulting
    • Mezzanine Lenders:
      • Legal: McGuireWoods LLP (Anne Croteau, Douglas Foley) & (local) Benesch Friedlander Coplan & Aronoff LLP (Jennifer Hoover, William Alleman Jr.)
    • Official Committee of Unsecured Creditors
      • Legal: Foley & Lardner LLP (Erika Morabito, Brittany Nelson, John Simon, Richard Bernard, Leah Eisenberg) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Kevin Shaw, Christopher Jones, David Gaffey)
      • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns, Peter Chadwick, Michelle Tran, Kevin Beard, Jay Wu)
      • Investment Banker: Configure Partners LLC (Jay Jacquin)

Updated 11/15/17 7:55 am CT

New Chapter 11 Bankruptcy - Appvion Inc.

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Appvion Inc.

  • 10/2/17 Recap: The 100+-year old Appleton Wisconsin-based manufacturer of specialty coated paper has filed for bankruptcy. The company operates in two segments, the thermal paper segment and the carbonless paper segment. The thermal paper segment, on the surface, seems like it would be the most susceptible segment to technological disruption. It is used in four principal end markets: 1) point-of-sale for retail receipts and coupons (PETITION Note: you could understand why this would seemingly be in decline with Square and other P.O.S. stations now emailing receipts - not to mention more and more retail being done online); 2) label products for shipping, warehousing, medical and clean-room supplies (PETITION Query: perhaps the shipping labels offsets the paper receipts?); 3) tags and tickets for airline/baggage applications, events and transportation tickets, lottery and gaming applications (PETITION Note: one of us bought a baseball a scannable paperless ticket the other day from Stubhub...hmmm); and 4) printer, calculator and chart paper for engineering, industrial and medical diagnostic charts. The thermal paper segment is 60% of the company's net sales and has enjoyed annual average growth rates between 1-3%. Somewhat shockingly. PETITION Note: We would have liked to have seen those four sub-segments separated out. Meanwhile, the carbonless paper segment accounts for the other 40% of net sales; it produces coated paper products for design and print applications. The paper is used in a variety of end markets including government, retail, financial, insurance and manufacturing. This segment has been in structural decline since 1994, down approximately 7-11% annually due to the rise of new technologies in digital laser, inkjet and thermal printers. Oh, and electronic communications: the company just throws that in their bankruptcy papers like it's an afterthought. In other words, government and corporations are relying more on email than on the printed page which, duh, obviously impacts this segment. The company owns there manufacturing plants and leases three warehouses; it also has 915 union employees - owed $112.6mm in obligations - who probably ought to get ready to get bent (they are represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the “USW”). The company blames the chapter 11 filing on negative industry trends, an unsustainable degree of balance sheet leverage, inability to adequately address near-term maturities and rapidly deteriorating liquidity. Liquidity became even more of an issue after the company issued a "going concern" warning and received an S&P credit downgrade - two things that obviously made suppliers skittish and resulted in demands for disadvantageous trade terms. Recognizing decreased liquidity, the company appears to have taken as much cost out of the business as it can which, from the looks of the company's papers, may be artificially inflating the numbers on the thermal side in the face of technological innovation. PETITION Note: the assumptions the bankers concoct for this side of the business ought to be watched very carefully. Somewhat surprisingly, despite a full slate of advisors and months of lead-up to the filing, this is a classic free-fall into bankruptcy: there doesn't appear to be any restructuring support agreement with the lenders whatsoever. There is, however, a proposed $325.2mm DIP credit facility which would include $85mm of new money and a $240.2mm rollup of pre-petition money (in other words, the full amount of pre-petition TL & RCF monies outstanding, ex-interest). Nothing like being senior in the cap stack. Final PETITION Note: anyone think this will be the last paper-related bankruptcy in, say, the next 12 months? This is starting to look like 2007 all over again...
  • Jurisdiction: D. of Delaware
  • Capital Structure: $335mm first lien TL & $100 RCF ($240.8mm outstanding included accrued/unpaid interest), $250mm '20 9% second lien senior notes, $24mm A/R securitization, $6mm Industrial Development Bonds, $500k TL with the State of Ohio
  • Company Professionals:
    • Legal: DLA Piper (US) LLP (Richard Chesley, Stuart Brown, Jamila Willis, Kaitlin Edelman)
    • Financial Advisor/CRO: AlixPartners LLP (Alan Holtz, Pilar Tarry, Nathan Kramer)
    • Investment Banker: Guggenheim Securities LLC (Ronen Bojmel)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Strategic Communications Consultant: Finsbury LLC
  • Other Parties in Interest:
    • DIP Admin Agent: Wilmington Trust, NA
      • Legal: Covington & Burling LLP (Ronald Hewitt) & (local) Pepper Hamilton LLP (David Fournier)
    • DIP Lenders
      • Legal: O'Melveny & Myers LLP (George Davis, Daniel Shamah, Matthew Kremer, Jennifer Taylor) & (local) Richards Layton & Finger P.A. (Mark Collins, Michael Merchant, Brett Haywood)
    • Prepetition Credit Agreement Admin Agent: Jefferies Finance LLC
      • Legal: Jones Day (Scott Greenberg, Brad Erens) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns)
    • Key Bank National Association
      • Legal: Reed Smith LLP (Peter Clark II, Jennifer Knox, Emily Devan)
    • Fifth Third Bank
      • Legal: Vedder Price PC (Michael Eidelman, Michael Edelman) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill, D. Ryan Slaugh)
    • Ad Hoc Committee of Holders of the 9% '20 Second Lien Senior Secured Notes (ADK Capital LLC, ALJ Capital Management LLC, Archer Capital Management LP, Armory Advisors LLC, Barings LLC, Mackenzie Investments, MAK Capital One LLC, Nomura Corporate Research and Assset Management, Riva Ridge Master Fund Ltd., Rotation Capital Management LP, Scott's Cove Management LLC)
      • Legal: Stroock Stroock & Lavan LLP (Jayme Goldstein, Samantha Martin) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)
    • Second Lien Senior Secured Notes Indenture Trustee: US Bank NA
      • Legal: Foley & Lardner LLP (Richard Bernard, Derek Wright, Mark Prager)
    • Official Committee of Unsecured Creditors
      • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Jeffrey Prol, Wojciech Jung) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz, Morton Branzburg, Sally Veghte)

Updated 10/26/17

New Chapter 11 Filing - Gulfmark Offshore Inc.

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Gulfmark Offshore Inc.

  • 5/17/17 Recap: Everyone has been waiting for the offshore action and it's finally here. Except, its fairly anticlimactic. Here, the publicly-traded Houston-based offshore oil and gas logistics services provider filed for bankruptcy to effectuate a financial restructuring pursuant to a Restructuring Support Agreement signed with holders of its unsecured senior notes. The noteholders will get approximately 36% of the equity in the newly reorganized company along with rights to purchase an additional 60% equity slug pursuant to a backstopped $125mm rights offering. Existing equity will get a small equity "kiss" and some warrants. This is so boring that EVEN WE can't really find much to make fun of. 
  • Jurisdiction: D. of Delaware
  • Capital Structure: $100mm RCF ($72mm funded)(Royal Bank of Scotland), NOK600mm Norwegian Facility ($44.3mm funded)(DNB Bank ASA), $430mm '22 6.375% unsecured senior notes (funded)(US Bank NA)    
  • Company Professionals:
    • Legal: Weil (Gary Holtzer, Ronit Berkovich, Debora Hoehne) & (local) Richards Layton & Finger PA (Mark Collins, Zachary Shapiro, Brett Haywood, Christopher De Lillo)
    • Financial Advisor: Alvarez & Marsal LLC (Brian Fox, Kevin Larin, RIchard Niemerg, Don Koetting, Lacie Melasi, Robert Country)
    • Investment Banker: Evercore Group LLC (Stephen Hannan, David Andrews, Sachin Lulla, Pranav Goel, Arth Patel)
    • Claims Agent: Prime Clerk LLC (*click on company name above for access to free docket)
  • Other Parties in Interest:
    • Indenture Trustee: US Bank NA
      • Legal: Foley & Lardner LLP (Derek Wright, Mark Prager)
    • Ad Hoc Group of Unsecured Noteholders
      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Evan Fleck, Nelly Almeida) & (local) Morris Nichols Arsht & Tunnell LLP (Gregory Werkheiser, Robert Dehney)
        • Financial Advisor: Houlihan Lokey Capital Inc.
    • Prepetition Multicurrency RCF Lender: Royal Bank of Scotland
      • Legal: Sullivan & Cromwell LLP (Michael Torkin, Brian Glueckstein, David Zylberberg) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joseph Barry, Ian Bambrick)
      • Financial Advisor: FTI Consulting Inc.
    • Prepetition NOK Lender: DNB Bank ASA
      • Legal: Hughes Hubbard & Reed LLP (Christopher Kiplok, Anson Frelinghuysen, Erin Diers) & (local) Bayard PA (Erin Fay)
      • Financial Advisor: Guggenheim Securities LLC
    • Gulfmark Rederi AS
      • Legal: Norton Rose Fulbright US LLP (Jason Boland, William Greendyke) & (local) Womble Carlyle Sandridge & Rice LLP (Matthew Ward)

Updated 7/12/17 9:301 am CT

New Chapter 11 Filing - Chellino Crane Inc.

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Chellino Crane Inc.

  • 5/5/17 Recap: Illinois-based heavy crane operating company that services refineries, power and chemical plants filed for bankruptcy under the weight of its outstanding debt on equipment and union obligations. The downturn in the oil and gas industry, unfortunately, led to projected revenue misses and a liquidity crisis. The filing is meant to address the capital structure and equipment footprint.
  • Jurisdiction: N.D. of Illinois
  • Capital Structure: $51.6mm secured debt (First Midwest)    
  • Company Professionals:
    • Legal: Sugar Felsenthal Grals & Hammer LLP (Jonathan Friedland, Elizabeth Vandesteeg, Jack O'Connor, Nicole Stefanelli, Leland Chait)
    • Financial Advisor: Conway MacKenzie Inc. (Jeffrey Zappone, J. Kotas, J. Marek)
    • Investment Banker: FocalPoint Securities LLC (Michael Fixler, Bryant Yu, Clinton Miyazono, Patrick Shin)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Lender & DIP Lender: First Midwest
      • Legal: Foley & Lardner LLP (Mark Prager)
    • Official Committee of Unsecured Creditors
      • Legal: Brown Rudnick LLP (Gerard Cicero, Bennett Silverberg) & (local) Freeborn & Peters LLP (Shelly DeRousse, Devon Eggert, Elizabeth Janczak)
      • Financial Advisor: Emerald Capital Advisors (John Madden, Christopher Saitta)

Updated 8/26/17

New Chapter 11 & CCAA Filing - SquareTwo Financial Services Corporation

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SquareTwo Financial Services Corporation

  • 3/19/17 Recap: Colorado-based privately held acquirer, manager, and collector of charged-off U.S. and Canadian consumer and commercial accounts-receivable filed a prepackaged plan of reorganization seeking to split the company into an acquired-co and "wind down co", with Resurgent Holdings LLC putting in approximately $264mm of new money in exchange for 100% equity in the acquired co. This is on the heels of a prior recapitalization that provided for the exchange of second lien notes for a 1.5 Lien Term Loan & preferred stock (enter Apollo and KKR here). Under the proposed plan of reorganization, the lenders holding claims under the first lien credit facilities will get paid in full; the holders of claims under the 1.5 Lien Term Loan will get a pro rata share of remaining cash; Resurgent will own the remaining business (with the rest liquidated); and the remaining creditors - including the second lien holdouts and the Pennsylvania Public School Employees' Retirement System (?!?!) - will get a big fat donut. Because who gives a sh*t about public school teachers anyway: what have they ever done for folks who work at Apollo and KKR?
  • Jurisdiction: S.D. of New York
  • Capital Structure: $60mm first lien RCF ($41mm out) & $105mm first lien Term Loan (Cerberus Business Finance LLC), $15mm 1.25 Lien Term Loan (plus $1.3mm interest) & $176.1 mm 1.5 Lien Term Loan (plus $15.4mm interest) (Cortland Capital Market Services LLC), $1.9 mm second lien notes (unexchanged in prior recapitalization)(U.S. Bank National Association)    
  • Company Professionals:
    • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Robin Spigel, Debra McElligott, Gabriel Brunswick) & (Canadian counsel) Thornton Grout Finnigan LLP (D.J. Miller, Leanne Williams, Asim Iqbal, Mitch Grossell)
    • Financial Advisor: AlixPartners LLC (Mark Thorson)
    • Investment Banker(s): Keefe Bruyette & Woods Inc. & Miller Buckfire & Co. (John McKenna)
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
  • Other Parties in Interest:
    • Prepetition Agent & DIP Agent: Cerberus Business Finance LLC
      • Legal: Schulte Roth & Zabel LLP (Frederic Ragucci, Adam Harris)
    • Ad Hoc Group of 1.25 lien and 1.5 lien Lenders (Apollo Capital Management LP, KKR Credit Advisors LLC)
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Elizabeth McColm, Michael Turkel)
    • Prepetition 1.25 Lien and 1.5 Lien Agent: Cortland Capital Market Services LLC
      • Legal: Holland & Knight LLP (Barbra Parlin, Joshua Spencer)
    • U.S. Bank National Association
      • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso) & (local) Maslon LLP (Clark T. Whitmore)
    • Preferred Stock Holders: Apollo Investment Corporation & KKR Financial CLO 2007-1 Ltd.
    • Majority Common Stock Holders: Norwest Mezzanine Partners II LP & Pennsylvania Public School Employees' Retirement System
    • New Money Investor: Resurgent Holdings LLC
      • Legal: Foley & Lardner LLP (Patricia Lane, Michael Small, Benjamin Rikkers, Jack Haake)
    • Official Committee of Unsecured Creditors
      • Legal: Arent Fox LLP (Robert Hirsh, George Angelich, Jordana Renert)
      • Financial Advisor: Gavin/Solmonese LLC (Ted Gavin)

Updated 5/31/17