😷New Chapter 11 Bankruptcy Filing - Quorum Health Corporation😷

Quorum Health Corporation

April 7, 2020

Tennessee-based Quorum Health Corporation, an operator of general acute care hospitals and outpatient healthcare facilities, filed for bankruptcy in the District of Delaware (along with a long list of affiliates). COVID-19!! Not quite. This turd has been circling around the chapter 11 bankruptcy bin for years now. The fact that it is only now filing for bankruptcy under the cloud of COVID simply serves as cover for its fundamentally unsound capital structure, its lack of integration post-spinoff and the composition of its patient base (rural and dependent upon Medicare and Medicaid). Your Nana’s acute care powered by private equity/Wall Street!

About that capital structure…we’re talking: $99mm ABL + $47mm RCF + $785.3mm in first lien loans and $400mm of senior notes for a solid total of ~$1.285b in funded debt. All of this debt was placed in connection with the debtors’ origin story: a 2015 spinoff from Community Health Systems Inc. ($CYH). Troubles began from there. The company states:

The assets the Company received in the Spin-off were not initially set up as an integrated, stand-alone enterprise and presented certain day-one integration challenges, including addressing significant geographic dispersion that resulted in a lack of scale in key markets. In addition, certain of the hospitals that the Company received in the Spin-off were underperforming….

If you’re wondering whether this spin-off might lead to fraudulent conveyance claims well, to (mis)quote Elizabeth Warren, the company’s plan of reorganization has a Trust for that. That ought to be fun.

Otherwise, this is a deleveraging transaction. The ABL and holders of first lien claims will come out whole. Likewise, general unsecured claims will ride through. The holders of the senior notes will equitize their claims and come out, prior to dilution, with 100% of the post-reorg equity. Certain lenders will write a $200mm equity check. The case is on a quick one-month timeline through which it will be funded by a $100mm DIP; therefore, come May, this hospital system will, hopefully, be ready to confront a post-COVID-19 world.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: ABL (UBS AG), RCF and Term Loan (Credit Suisse AG), $421.8mm ‘23 11.625% Senior Notes (Wilmington Savings Funds Society)

• Professionals:

  • Legal: McDermott Will & Emery LLP (Felicia Perlman, Bradley Giordano, David Hurst, Megan Preusker)

  • Financial Advisor/CRO: Alvarez & Marsal (Paul Rundell, Steve Kotarba, David Blanks, Douglas Stout

  • Investment Banker: MTS Health Partners LP

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

  • Consenting First Lien Lenders

    • Legal: Milbank LLP (Dennis Dunne, Tyson Lomazow)

    • Financial Advisor: Houlihan Lokey

  • Consenting Noteholders

    • Legal: Kirkland & Ellis LLP (Nicole Greenblatt, Steven Serajeddini)

    • Financial Advisor: Jefferies LLC

  • Major Shareholders: Mudrick Capital Management, LP, KKR & Co. Inc., York Capital Management Global Advisors LLC, Davidson Kempner Capital Management LP, and The Goldman Sachs Group Inc.

New Chapter 11 Bankruptcy Filing - Things Remembered Inc.

Things Remembered Inc.

2/6/19

This has been a rough week for "out-of-court" restructurings in the retail space. On the heals of Charlotte Russe's collapse into bankruptcy after an attempted out-of-court solution, Things Remembered Inc. filed for bankruptcy in the District of Delaware on February 6, 2019. We recently wrote about Things Remembered here. Let's dig in a bit more. 

The 53-year old retailer filed with a stalking horse purchaser, Ensco Properties LLC, in line to purchase, subject to a tight 30-day timeframe, a subset of the company's store footprint and direct-sales business. The company writes in the most Trumpian-fashion imaginable:

"Although stores not acquired will need to close, the going-concern sale wills save hundreds of jobs and potentially many more and provide an improved, and significantly less risky, recovery to stakeholders." What does "potentially many more" mean? Don't they know how many people are employed at the locations being sold as well as corporate support? Seems like a Trumpian ad lib of corresponding inexactitude. But, whatever. 

What caused the need for bankruptcy?

"Like many other retailers, the Company has suffered from adverse macro-trends, as well as certain microeconomic operational challenges. Faced with these challenges, the Company initiated multiple go-forward operational initiatives to increase brick-and-mortar profitability, such as store modernization through elimination of paper forms and the addition of iPads to streamline the personalization and sale process, and by shuttering a number of underperforming locations. The Company also sought to bolster the Debtors’ online-direct sale business, including aggressive marketing to loyal customers to facilitate sales through online channels, attracting new customers via an expanded partnership with Amazon, and increasing service capabilities for the business-to-business customer segment."

Read that paragraph and then tell us that retail management teams (and their expensive advisors) have any real clue how to combat the ails confronting retail. Elimination of paper forms? Ipads? Seriously? Sure, the rest sounds sensible and comes right out of today's standard retail playbook, i.e., shutter stores, bolster online capabilities, leverage Amazon's distribution, tapping into "loyal customers," etc. We're surprised they didn't mention AR/VR, Blockchain, "experiential retail," pop-ups, advertising on scooters, loyalty programs, and all of the other trite retail-isms we've heard ad nauseum (despite no one actually proving whether any or all of those things actually drive revenue). 

The rest of the story is crazy familiar by this point. The "challenging operating environment" confronting brick-and-mortar and mall-based retail, specifically, led to missed sales targets and depressed profitability. Naturally there were operational issues that compounded matters and, attention Lenore Estrada (INSERT LINK), "…vendors have begun to place pressure on the supply chain cost structure by delaying or cancelling shipments until receiving payment." Insert cash on delivery terms here. Because that's what they should do when a customer is mid-flush. 

Anyway, shocker: negative cash flows persisted. Consequently, the company and its professionals commenced a marketing process that landed Enesco as stalking horse bidder. Enesco has committed to acquiring the direct-sales business (which constitutes 26% of all sales in 2018 and includes the e-commerce website, hq, fulfillment and distribution center in Ohio and related assets) and approximately 128 stores (subject to addition or subtraction, but a floor set at 50 store minimum). Store closings of approximately 220 stores and 30 kiosks commenced pre-petition. A joint venture between Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC is leading that effort (which again begs the question as to how Gymboree is the only recent retailer that required the services of four "liquidators"). The purchase price is $17.5mm (subject to post-closing adjustments). $17.5mm is hardly memorable. That said, the company did have negative $4mm EBITDA so, uh, yeeeeeaaaaah. 

$18.7mm '19 revolving credit facility (Cortland Capital Markets Services LLC); $124.9mm 12% '20 TL. 

The capital structure represents the result of an August 30, 2016 out-of-court exchange that, let's be honest here, didn't do much other than incrementally lessen the debt burden, kick the can down the road and get some professionals paid. If this sounds familiar, it's because it's not all that different than Charlotte Russe in those respects. 

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: $mm debt     

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Christopher Greco, Derek Hunger, Angela Snell, Spencer Winters, Catherine Jun, Scott Vail, Mark McKane) & (local) Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Kimberly Brown, Matthew Pierce)

  • Legal (Canada): Davies Ward Phillips & Vineberg LLP

  • Financial Advisor/CRO: Berkeley Research Group LLC (Robert Duffy, Brett Witherell)

  • Investment Bank: Stifel Nicolaus & Co. Inc. and Miller Buckfire & Co. LLC (James Doak)

  • Liquidators: Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC

    • Legal: Pepper Hamilton LLP (Douglas Herman, Marcy McLaughlin)

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Enesco Properties LLC  (Balmoral Funds LLC)

    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Maxim Litvak, Joseph Mulvihill)

  • Lender: Cortland Capital Market Services LLC

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Lisa Lansio) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Sponsor: KKR & Co.

  • Official Committee of Unsecured Creditors (Jewelry Concepts Inc., Gravotech Inc., Chu Kwun Kee Metal Manufactory, Brookfield Property REIT, Inc., Simon Property Group LP)

    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Kristin Elliott, Lauren Schlussel) & (local) Connolly Gallagher (N. Christopher Griffiths, Shaun Michael Kelly)

    • Financial Advisor: Province Inc. (Carol Cabello, Sanjuro Kietlinski, Jorge Gonzalez, Michael Martini)

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: See below.

• Company Professionals:

  • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Guggenheim Securities LLC (Durc Savini)

  • Liquidator: Gordon Brothers Group LLC

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

  • Real Estate Advisors: A&G Realty Partners

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

• Other Parties in Interest:

  • Barclays Bank PLC

    • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Citizens Bank NA

    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Steinhoff International Holdings N.V

    • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

  • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

    • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

New Chapter 11 Filing - Expro Holdings US Inc.

Expro Holdings US Inc.

• 12/18/17 Recap: Servicer to offshore, deepwater and other "technically challenging environments" filed a prepackaged bankruptcy to eliminate its entire $1.4b of debt (and attendant interest expense) via equity conversion in a balance sheet deleveraging transaction. Why did it file for bankruptcy? Private equity, of course. In 2008, the company turned down an acquisition offer from Halliburton in favor of a competing bid from a private equity group for $3.2b in cash, the largest LBO in the UK in 2008. Ok, so we're only half serious. Naturally, the oil and gas downturn led to a marked decline in demand for Expro's services. Psst: the PE-infused debt. The senior lenders will get the equity in the reorganized company while mezz loan holders and equity holders will get warrants. The company has lined up a $145mm DIP credit facility.
• Jurisdiction: S.D. of Texas
• Capital Structure: $125mm RCF (HSBC Bank USA), $1.261b TL, $18mm Mezz Loan.      
• Company Professionals:
  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Alice Eaton, Sarah Harnett, Alexander Woolverton) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
  • Financial Advisor: Alvarez & Marsal LLC (Julie Hertzberg, Jay Herriman)
  • Investment Banker: Lazard Freres & Co. 
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Mezzanine Facility Agreement Agent: Bank of New York Mellon
  • Credit Agreement Admin Agent: HSBC Bank USA
  • RCF Lenders
    • Legal: Sullivan & Cromwell LLP
  • Ad Hoc Group of First Lien Lenders
    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, James McClammy, Christopher Robertson) & (local) Haynes and Boone LLP (Charles Beckham Jr., Kelli Norfleet, Kelsey Zottnick)
    • Financial Advisor: Rothschild Inc.
  • Ad Hoc Group of Shareholders (Goldman Sachs, HPS Investment Partners LLC, KKR, Candover/Arle, Park Square)
    • Legal: Kirkland & Ellis LLP
    • Financial Advisor: Houlihan Lokey Inc.

New Chapter 11 Bankruptcy & CCAA - Toys "R" Us Inc.

Toys "R" Us Inc.

• 9/19/17 Recap: So. Much. To. Unpack. Here. We've previously discussed the run-up to this massive chapter 11 bankruptcy filing here and here. Still, suffice it to say that, unlike many of the other retailers that have predictably filed for bankruptcy thus far in 2017, this one was different. This one seemingly came out of nowhere - particularly given the proximity to the holiday shopping season. Before we note what this case is, lets briefly cover what it isn't and clear the noise that is pervasive on the likes of Twitter: this is NOT "RIP" Toys "R" Us. We don't get overly sentimental usually but the papers filed with the bankruptcy court were well-written and touching: this is a store, a brand, that means a lot to a lot of people. And it's not going anywhere (the company will have its challenges to assure people that this is the case). This is a financial restructuring not a liquidation: the company simply hasn't been able to evolve while paying $400mm in annual interest expense on over $5b of private equity infused debt. Plain and simple. Yes, there are other challenges (blah blah blah, Amazon), but with that debt overhang, it appears the company hasn't been able to confront them (PETITION side note: an ill-conceived deal with Amazon 18 years ago is mind-blowing when viewed from the perspective of Amazon's long game). With this filing, the company is signaling that the time for short term band-aids to address its capital structure is over. Now, "[t]he time for change, and reinvestment in operations, has come." Decisive. Management isn't messing around anymore. With a reduction in debt, the company will be unshackled and able to focus on "general upkeep and the condition of...stores, [its] inability to provide expedited shipping options, and [its] lack of a subscription-based delivery service." Indeed, the company intends to use a $3.1b debtor-in-possession credit facility to begin investing in modernization immediately.
• Interesting Facts:
  • Toy Manufacturers: Mattel ($MAT)(approx $136mm), Hasbro ($HAB) (approx $59mm) & Lego (approx $31.5mm) are among the top general unsecured creditors of the company. Mattel and Hasbro's stock traded down quite a bit yesterday on the rampant news of this filing. Query whether any of the $325mm of requested critical vendor money will apply to these companies.
  • The Power of the Media (read: NOT "fake news"): This CNBC piece helped push the company into bankruptcy. Bankruptcy professionals were retained in July (or earlier in the case of Lazard) to pursue capital structure solutions. In August the company engaged with some of its lenders. But then "...a news story published on September 6, 2017, reporting that the Debtors were considering a chapter 11 filing, started a dangerous game of dominos: within a week of its publication, nearly 40 percent of the Company’s domestic and international product vendors refused to ship product without cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Further, many of the credit insurers and factoring parties that support critical Toys “R” Us vendors withdrew support. Given the Company’s historic average of 60-day trade terms, payment of cash on delivery would require the Debtors to immediately obtain a significant amount—over $1.0 billion—of new liquidity." 
  • Revenue. The company generates 40% of its annual revenue during the holiday season.
  • Footprint. The company has approximately 1,697 stores and 257 licensed stores in 38 countries, plus additional e-commerce sites in various countries. The company has been shedding burdensome above-market leases and combining its Babies and Toys shops under one roof; it intends to continue its review of its real estate portfolio. Read: there WILL be store closures.
  • Eff the Competition. Toys has some choice words for its competition embedded in its bankruptcy papers; it accuses Walmart ($WMT) and Target ($TGT)(the "big box retailers") of slashing prices on toys and using toys as a loss leader to get bodies in doors; it further notes that "retailers such as Amazon are not concerned with making a profit at this juncture, rendering their pricing model impossible to compete with..." ($AMZN). Yikes. 
  • Experiential Retail. The company intends to invest in the "shopping experience" which will include (i) interactive spaces with rooms to use for parties, (ii) live product demonstrations put on by trained employees, and (iii) the freedom for employees to remove product from boxes to let kids play with the latest toys. And...wait for it...AUGMENTED REALITY. Boom. Toysrus.ar and Toysrus.ai here we come. 
• Jurisdiction: E.D. of Virginia (Judge Phillips)
• Capital Structure: see below     
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jamie Sprayragen, Anup Sathy, Edward Sassower, Chad Husnick, Joshua Sussberg, Robert Britton, Emily Geier) & (local) Kutak Rock LLP (Michael A. Condyles, 
    Peter J. Barrett, Jeremy S. Williams) & (Canadian counsel) Goodmans LLP
  • Legal to the Independent Board of Directors: Munger, Tolles & Olson LLP
  • Financial Advisor: Alvarez & Marsal North America LLC (Jeffrey Stegenga, Jonathan Goulding, Tom Behnke, Cari Turner, Jim Grover, Arjun Lal, Doug Lewandowski, Bobby Hoernschemeyer, Scott Safron, Kara Harmon, Nick Cherry, Adam Fialkowski)
  • Investment Banker: Lazard Freres & Co., LLC (David Kurtz)
  • Real Estate Consultant: A&G Realty Partners LLC (Andrew Graiser)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Communications Consultant: Joele Frank Wilkinson Brimmer Katcher
• Other Parties in Interest:
• ABL/FILO DIP Admin Agent: JPMorgan Chase Bank NA
  • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Brian Resnick, Eli Vonnegut, Veerle Roovers) & (local) Hunton & Williams LLP (Tyler Brown, Henry (Toby) Long III, Justin Paget)
• DIP Admin Agent (Toys DE Inc). NexBank SSB & Ad Hoc Group of B-4 Lenders (Angelo Gordon & Co LP; Franklin Mutual Advisors LLC, HPS Investment Partners LLC, Marathon Asset Management LP, Redwood Capital Management LLC, Roystone Capital Management LP, and Solus Alternative Asset Management LP)
  • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus, Neil Chatani) & (local) McGuireWoods LLP (Dion Hayes, Sarah Bohm, Douglas Foley)
• Ad Hoc Group of Taj Noteholders.
  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Samuel Lovett, Kellie Cairns) & (local) Whiteford Taylor & Preston LLP (Christopher Jones, Jennifer Wuebker)
• Steering Committee of B-2 and B-3 Lenders (American Money Management, Columbia Threadneedle Investments, Ellington Management Group LLC, First Trust Advisors L.P., MJX Asset Management LLC, Pacific Coast Bankers Bank, Par-Four Investment Management LLC, Sound Point Capital Management, Taconic Capital Advisors LP).
  • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, D. Tyler Nurnberg, Sarah Gryll, Rosa Evergreen)
• 12% ’21 Senior Secured Notes Indenture Trustee: Wilmington Trust, National Association.
  • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) ThompsonMcMullan PC (David Ruby, William Prince IV)
• Bank of America NA
  • • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, George Howard) & (local) Troutman Sanders LLP (Jonathan Hauser)
  • Private Equity Sponsors: Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. L.P. ($KKR), and Vornado Realty Trust ($VNO)
• Large Creditor: Mattel Inc.
  • Legal: Jones Day (Richard Wynne, Erin Brady, Aaron Gober-Sims) & (local) Michael Wilson PLC (Michael Wilson)
• Large Creditor: LEGO Systems Inc.
  • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Kelly DiBlasi) & (local) Walcott Rivers Gates (Cullen Speckhart)
• Large Creditor: American Greetings Corporation.
  • Legal: Baker & Hosteler LLP (Benjamin Irwin, Eric Goodman)
• Creditor: River Birch Capital
  • Legal: Andrews Kurth & Kenyon LLP (Paul Silverstein)
• Creditor: Owl Creek Asset Management
  • Legal: Stroock Stroock & Lavan LLP (Samantha Martin)
• TRU Trust 2016-TOYS, Commercial Mortgage Pass-Through Certificates, Series 2016-TOYS acting through Wells Fargo Bank NA
  • Legal: Dechert LLP (Allan Brilliant, Brian Greer, Stephen Wolpert, Humzah Soofi) & (local) Troutman Sanders LLP (Jonathan Hauser)
• Trustee: Tru Taj DIP Notes (Wilmington Savings Fund Society FSB)
  • Legal: Porter Hedges LLP (Eric English) & (local) Spotts Fain PC (James Donaldson)
• Committee of Unsecured Creditors (Mattel Inc., Evenflo Company Inc., Simon Property Group, Euler Hermes North America Insurance Co., Veritiv Operating Company, Huffy Corporation, KIMCO Realty, The Bank of New York Mellon, LEGO Systems Inc.)

First Day Declaration

First Day Declaration

Updated 10/5/17 11:40 am