New Chapter 11 Bankruptcy Filing - Jason Industries Inc. ($JASN)

Jason Industries Inc.

June 24, 2020

Wisconsin-based Jason Industries Inc. ($JASN) and seven affiliates (the “debtors”) filed a long-anticipated (prepackaged) chapter 11 bankruptcy case in the Southern District of New York on Wednesday — the latest in a line of manufacturers (e.g., Pyxus International Inc., Libbey Glass Inc., Exide Holdings Inc., Pace Industries LLC) to wind its way into bankruptcy court.

The company is an amalgam of decades of growth by acquisition: it launched its components and seating businesses with acquisitions in ‘93 and ‘95, respectively. Everything appeared to be hunky-dory heading into the Great Financial Crisis when things took a turn for the worse.

And so this isn’t the company’s first rodeo in distress. Back in ‘08-’09, the company engaged in a recapitalization transaction supported by Falcon Investment Advisors LLC and Hamilton Lane Advisors; it persevered through the downturn and ultimately sold to a special-purpose-acquisition-company (Quinpairo Acquisition Corp.) in 2014 for $538.6mm. The acquisition was financed through a combination of (i) the $172.5mm raised by the SPAC in its ‘13 IPO, (ii) rollover equity from the aforementioned sponsors (and management), and (iii) $420mm of first and second lien debt. Stick a pin in that last number: it comes back to haunt the debtors. 👻

In the years since, the company streamlined its operations — selling off assets (i.e., its fiber solutions business and a metal components business) and consolidating around two primary business segments. Through their industrial segment, the debtors manufacture a bunch of stuff used for industrial and infrastructure applications; and through their engineered components segment, the debtors manufacture (a) motorcycle seats, (b) operator seats for construction, agriculture, law and turf care and other industrial equipment markets, and (c) seating for the power sports market. Said another way, the company is heavily indexed to the automotive, heavy truck, steel and construction markets. Powered by approximately 700 employees in the US, the company did $338mm in net sales in 2019.

And that is part of the problem. $338mm in net sales represented an 8.2% ($30.1mm) dropoff from 2018. Adjusted EBITDA declined from $36.7mm in ‘18 to $24.8mm in ‘19. Both segments have been underperforming for years. The question is why?

The debtors cite a dramatic dropoff in demand in ‘19. They note:

This reduction was largely caused by reduced end market demand in key industries across the portfolio, specifically, weak economic conditions in Europe and Asia, lower industrial production in North America, and softening end market demand from OEM customers. For example, since as early as the first quarter of 2019, the Company has experienced reduced OEM build and channel inventory destocking. These problems were exacerbated by the operational disruption and demand reduction caused by the COVID-19 pandemic.

Consequently, the debtors busted out the standard playbook to try and manage liquidity (while parallel-tracking a fruitless pre-petition sale and marketing effort). They (a) intensified focus on growing market segments, (b) reduced capital investment in non-core businesses, (c) cut/furloughed labor and instituted pay reductions for execs and other employees (and eliminated a 401(k) match program), (d) closed plants and manufacturing facilities and deferred rent payments or negotiated reduced rent at leased properties, (e) accelerated the consolidation of plants acquired in a recent acquisition, and (f) invested in automation at their facilities to reduce future operating costs (read: replace expensive human beings) and expand margins. Still, the debtors struggled.

…the pandemic’s impact on orders and revenues, combined with preexisting fixed costs and debt service requirements, have constrained available working capital, reduced profitability and cash flow, and significantly impaired the Company’s ability to adequately finance operations.

Which gets us back to the capital structure:

Given where EBITDA numbers were coming in, this thing’s leverage ratio was through the roof. More to the point, the debtors deferred a March 31 second lien interest payment and had been operating under a series of forbearance agreements ever since. Luckily, the capital structure isn’t all-too-complicated and lends itself well to a prepackaged bankruptcy. And so here we are with a restructuring support agreement and proposed prepackaged plan which will effectively turn the company over to the first lien term lenders and, but for some warrants, wipe out the second lien term lenders. Here’s how the above capital structure breaks down:

Source: PETITION LLC

A couple of notable features here:

• Drop it Likes its Hot. There’s a “first lien put option” baked into the plan pursuant to which any first lien term lender who doesn’t want to own equity or the junior converts can “put” its pro rata share of that equity/converts to a first lien lender, Pelican Loan Advisors III LLC (or lenders as the case may be), which has agreed to backstop this baby. Pelican is managed by Monomoy Capital Partners.

• F*ck You Pay Me. Those first lien lenders who consented to forbearances all of those months are about to get paaaaaaayyyyyyyyydd. They’ll receive a pro rated share of and interest in $10mm worth of open market purchases by the debtors of first lien credit agreement claims held by consenting first lien lenders AND a forbearance fee equal to 4.00% of the principal amount of the first lien credit agreement loans held by the consenting lenders as of a date certain. The open market purchases were, presumably, accomplished prior to the filing with 2% of the fee already paid and the remaining 2% to be paid-in-kind on the earlier of the termination date of the RSA or the plan effective date.

• It’s a Trap! Warrants are technically going to be issued to the first lien term lenders and “gifted” to the second lien lenders. But only if they vote to accept the plan. Given the midpoint total enterprise value of $200mm and resultant deficiency claim, this is a nice absolute priority rule workaround. As reflected in the graphic above, the allowed deficiency claim of $64.9mm is obviously impaired and will get a big fat 🍩.

And so this is what the capital structure will look upon emergence:

The first lien lenders have consented to the use of their cash collateral to fund the cases.*

* ⚡️July 15, 2020 Update: The Second Lien Ad Hoc Committee, however, filed a limited objection to the cash collateral motion on the basis that a final order should (a) limit any credit bid to their collateral (noting that a material amount of assets — including 35% of the equity in foreign subs — are excluded from the first lien lenders’ collateral package, and (b) require a finding that there’s diminution of value of the first lien lenders’ collateral such that they, despite providing no new financing, ought to be granted a superpriority lien on previously unencumbered assets. The Committee also previewed objections it will have to the plan of reorganization. For a purportedly “prepackaged” chapter 11, this one looks like it could be more contentious than most. A final hearing on the cash collateral motion is set for July 22, 2020.⚡️

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

• Capital Structure: see above.

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Jonathan Henes, Emily Geier, Laura Krucks, Dan Latona, Jake Gordon, Yates French)

  • Financial Advisor: AlixPartners LLP (Rebecca Roof)

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

  • Claims Agent: Epiq Bankruptcy Solutions LLC

• Other Parties in Interest:

  • Large equityholder: Wynnefield Capital Management LLC

  • Ad Hoc Group of First Lien Creditors (Credit Suisse Asset Management LLC, Voya CLO Ltd., American Money Management Corp., First Eagle Alternative Credit LLC, Angel Island Capital Services LLC, Monomoy Capital Partners LP, Z Capital Partners LLC)

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Ryan Preston Dahl, Alexander Welch)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • First Lien Agent: The Bank of New York Mellon

  • Second Lien Agent: Wilmington Savings Fund Society FSB

    • Legal: Seward & Kissel LLP (John Ashmead, Gregg Bateman)

  • Ad Hoc Group of Second Lien Lenders: Corre Partners Management LLC, Newport Global Advisors

    • Legal: Brown Rudnick LLP (Steve Pohl, Shari Dwoskin, Kenneth Aulet)

    • Financial Advisor: DC Advisory LLC

Update July 17, 2020

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

The Hertz Corporation

May 22, 2020

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

• Jurisdiction: D. of Delaware (Judge Walrath)

• Professionals:

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

  • Canadian Legal: McCarthy Tetrault LLP (David Galainena)

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

  • Investment Banker: Moelis & Co.

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

• Other Parties in Interest:

  • Barclays Bank PLC

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

  • Indenture Trustee: Wells Fargo Bank NA

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

  • Ad Hoc Group of Litigation Creditors

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

  • Official Committee of Unsecured Creditors

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

🚢 New Chapter 11 Bankruptcy Filing - Speedcast International Limited 🚢

Speedcast International Limited

April 22, 2020

This is a fun one.

Speedcast International Limited, a publicly-traded Australian company headquartered in Houston and 32 affiliates (the “debtors”) filed rare freefall bankruptcy cases in the Southern District of Texas earlier this week. In a week where another 4.4mm people filed for unemployment, one thing seems abundantly clear: the Texas’ bankruptcy courts are going to need help. While Delaware has also been extremely busy, both the Northern District and Southern District of Texas are seeing rock solid bankruptcy flow these days. If the judges got volume bonuses, they’d be rolling in it.

Who’s the big loser? Well, with all of these bankruptcy hearings conducted telephonically, we reckon it’s the city of Houston. In normal times, there’d be a steady stream of suits flushing through the local economy there: staying at the hotels, eating at the restaurants, drinking at the bars. Brutal. But we digress. 🤔

One thing the restructuring industry gives us is an open window into how one domino can topple over others. For instance, the energy and cruise industries are clearly effed currently and so it stands to reason that service providers to those industries would also feel pain. This is where Speedcast comes in: it is a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses. They plug a hole: they offer telecom services to users in remote parts around the world, “primarily where there is limited or no terrestrial network.” Picture some evildoer in some decked out yacht-lair somewhere plotting to take over the world Austin Powers-style. He is probably leveraging Speedcast for IT solutions (PETITION Note: we’re just painting a picture folks; we’re not suggesting that the company merely deals with shady-a$$ mofos. Don’t @ us.). The business is truly international in scope.

Putting aside yacht-loving villains, Speedcast has high profile clients. Carnival Corp. ($CCL), for instance, contracted with Speedcast in December 2018 — long before any of Carnival’s customers contracted with the coronavirus. Cruisers streaming reports about their horrific cruise-going experiences likely used Speedcast product to get the word out. 😬 This was a growing business segment. Revenue increased by $36.5mm from fiscal year 2018 to 2019.

Likewise, the debtors’ energy business had also been growing. The debtors provide “high-bandwidth remote communication services to all segments of the global energy industry, including companies involved in drilling and exploration, floating production storage, offloading, offshore service, general service, engineering, and construction.” Revenue there increased from $158.3mm in FY18 to $164.5mm. We’re pretty sure we know which direction that number is heading in FY20.

Similarly, the debtors’ other business segments — Enterprise & Emerging Markets and Government — demonstrated growth between ‘18 and ‘19. All in, this is a $722.3mm revenue business. Unfortunately, it also had net losses of $459.8mm in FY19. So, yeah. There’s that. The debtors’ rapid expansion over the years apparently didn’t lead to immediate synergistic realization and the debtors suffered from margin compression, revenue declines from specific business lines, and other ails that affected performance and liquidity.

While there have been operational issues for some time now, those were just jabs. COVID-19 and the attendant global shutdown body slammed the company. The debtors note:

Further, the lasting and distressed market conditions in the maritime and oil and gas industries, and the recent and dramatic impact of the COVID-19 pandemic, have impacted all players in the global marketplace. The Company has been particularly hard hit by these adverse market conditions. The outsized impact on the Company’s Maritime Business and Energy Business customers has manifested in a dramatic reduction in cash receipts. This macroeconomic downturn, along with the above-mentioned headwinds that contributed to the lower than expected FY19 financial results, made clear that the Company would not satisfy the Net Leverage Covenant under the Credit Agreement.

Right. The debt. $689.1mm of it, to be exact (exclusive of financing arrangements) — of which approximately $590mm is a term loan. With a capital structure this simple, one would think that this is a case that is ripe for a prearranged deal memorialized via a pre-petition restructuring support agreement. But no. There isn’t one here. Why not?

The term lenders argue that the debtors engaged them too late in the game. Therefore, there wasn’t enough time to conduct due diligence on the business, they say. Surely quarantine ain’t helping matters on that front. Nor is the fact that the company is international in nature.

And so this is a traditional freefall balance sheet and operational restructuring — something you don’t really see much of anymore. This case looks headed towards either a sale — which we’re guessing is the term lenders preferred outcome (par plus accrued baby!) — or a plan that would equitize the term lenders and put the go-forward financing needs of the debtors on the shoulders of the term lenders. A plan would preserve the debtors’ net operating losses which, as noted above, could be meaningful.

The debtors and the ad hoc lenders did nail down a commitment for a multiple-draw super-priority senior secured term loan DIP which includes a $90mm new money portion ($35mm on an interim basis) and a $90mm roll-up ($35mm on an interim basis). Judge Isgur took some exception to the interim roll-up portion of the proposed facility but the debtors and the lenders were hand-in-hand saying that — particularly under the circumstances today — the interim roll-up was necessary and appropriate because the lenders need a “big incentive” to lend and “the lenders’ capital providers are getting squeezed themselves.” 🤔 (PETITION Note: The DIP market sounds vicious — though some of that, here, is attributable to the nature of the assets. Delta Airlines can place senior secured notes right now at around 7% because, well … duh … planes!). Judge Isgur did caution however that he wants no part of professionals throwing this interim roll-up in his face as precedent in an upcoming case (Um, we’ll see how that plays out…this financing environment ain’t exactly reversing overnight). While the ad hoc lenders are clearly in pole position for the DIP commitment, they’re syndicating the loan now (which would obviously affect the roll-up too). The DIP will push the professionals towards a path forward over the next couple of weeks and the hope is for a result to be consummated within six months.

Interestingly, the largest single unsecured creditor is an entity that suffers from its own issues and has reportedly hired bankruptcy professionals for advice: Intelsat SA is owed $44mm. In late March, Intelsat terminated their contract with the debtors in a pretty savage leverage play. We talk about leverage a lot in PETITION. There’s balance sheet leverage and then there is situational leverage. Intelsat flexed its muscles and exercised the latter. In exchange it got critical vendor designation, acknowledgement of the full amount of their pre-petition claim and mutual releases. Significantly, the debtors stressed the importance of the relationship, noting that the IT services were needed more than ever as vessels sail adjusted routes due to COVID (read: boats are circling around because governments won’t let passengers disembark).

We should know within a few weeks what a deal may look like here.

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

• Capital Structure: $87.7mm RCF, $591.4mm Term Loan, $10.6mm LOC

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Alfredo Perez, David Griffiths, Brenda Funk, Martha Martir, Kelly DiBlasi, Stephanie Morrison, Paul Genender, Amanda Pennington Prugh, Jake Rutherford) & Herbert Smith Freehills LLP

  • Independent Director: Stephe Wilks, Grant Scott Ferguson, Michael Martin Malone, Peter Jackson, Carol Flaton, David Mack)

  • Financial Advisor/CRO: FTI Consulting Inc. (Michael Healy)

  • Investment Banker: Moelis & Company Co. (Paul Rathborne, Adam Waldman)

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

• Other Parties in Interest:

  • Ad Hoc Group of Secured Lenders

    • Davis Polk & Wardwell LLP (Damian Schaible, David Schiff, Jonah Peppiatt, Jarret Erickson) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

    • Financial Advisor: Greenhill & Co. Inc.

  • DIP Agent: Credit Suisse AG

    • Skadden Arps Slate Meagher & Flom LLP (Steven Messina, George Howard, Albert Hogan III, David Wagener)

  • Large Creditor: Intelsat SA

    • Legal: Kirkland & Ellis LLP (Edward Sassower, Steven Serajeddini, Anthony Grossi) & Jackson Walker LLP (Matthew Cavenaugh)

  • Large Creditor: Inmarsat Global Limited

    • Legal: Steptoe & Johnson LLP (Michael Dockterman) & Norton Rose Fulbright US LLP (Jason Boland, Bob Bruner)

  • Official Committee of Unsecured Creditors

    • Legal: Hogan Lovells US LLP (S. Lee Whitesell, John Beck, David Simonds, Ron Silverman, Michael Hefter) & Husch Blackwell LLP (Randall Rios, Timothy Million)

⛽️New Chapter 11 Bankruptcy Filing - Whiting Petroleum Corporation ($WLL)⛽️

Whiting Petroleum Corporation

April 1, 2020

Denver-based Whiting Petroleum Corporation ($WLL) and four affiliates (the “debtors”), independent oil-focused upstream exploration and production companies focused primarily on the North Dakota and Rocky Mountain regions, filed for bankruptcy in the Southern District of Texas. This is a story that requires an understanding of the debtors’ impressively-levered capital structure to understand what’s going on:

• $1.072b ‘23 RBL Facility (JPMorgan Chase Bank NA)(springing maturity to 12/20 if the ‘21 notes below are not paid in full by 12/20)

• $189.1mm ‘20 1.25% convertible senior unsecured notes due 2020 (Bank of New York Mellon Trust Company, N.A.)

• $773.6mm ‘21 5.75% senior unsecured notes

• $408.3mm ‘23 6.25% senior unsecured notes

• $1b ‘26 6.625% senior unsecured notes

You’ve heard us talk about the capital intensive nature of E&P companies so … yeah … the above $3.443b of debt shouldn’t come as much of a surprise to you. The company is also publicly-traded. The stock performance over the years has been far from stellar:

What’s interesting here is that EVERYONE knows that oil and gas has been a value-destructive sh*t show for years. There’s absolutely ZERO need to belabor the point. Yet. That doesn’t stop the debtors’ CRO from doing precisely that. Here, embedded in the First Day Declaration, is a chart juxtaposing a $100 investment in WLL versus a $100 investment in an S&P 500 index and a Dow Jones U.S. E&P Index:

We should also add that the spike reflected in the above chart in the 2017 timeframe isn’t on account of some stellar improvement of operating performance; rather, it reflects a November 2017 1-to-4 reverse stock split which inflated the reflected price of the shares. Just to be clear.

Notwithstanding the hellacious performance since 2014, the debtors take pains to paint a positive picture that was thrown into disarray by “drastic and unprecedented global events, including a ‘price war’ between OPEC and Russia and the macroeconomic effects of the COVID-19 pandemic….” In fact, the debtors come in HOT in the introduction to the First Day Declaration:

The Debtors ended 2019 standing on solid ground. While the Debtors had more than $1 billion in unsecured bond debt set to mature prior to December 2020, the Debtors had significant financial flexibility to restructure their capital structure. Most importantly, the Debtors began 2020 with a committed revolving credit facility that provided them with committed financing of up to $1.75 billion—more than enough liquidity to service the Debtors’ 2020 maturities and fund anticipated capital expenditure needs throughout the year. For these reasons, the Debtors secured a “clean” audit report as recently as February 27, 2020.

And to be fair, the debt was doing just fine until the middle of February. Indeed, the unsecured notes didn’t hit distressed levels until right after Valentine’s Day. Check out this freefall:

Who needs open amusement parks when you can just follow that price action?

Already focused on “liability management” (take a drink!) given the looming ‘21 notes maturity and the corresponding RBL springing maturity, the debtors’ retained professionals shifted over to restructuring talks with an ad hoc committee of noteholders. The debtors also drew down $650mm on their revolver to ensure adequate go-forward liquidity (and, cough, avoid the need for a relatively more expensive DIP credit facility). After what sounds like serious deliberation (and opposition from the ad hoc committee), the debtors also opted to forgo the $190mm maturity payment on the convertible notes due April 1.

The debtors filed the case with the framework of a restructuring support agreement (aka a term sheet). That framework would equitize the converts and the unsecured notes, giving them 97% of the equity (for now … debt is also still under consideration). Unsecured claims will be paid in full. Existing equity would receive 3% of post-reorg equity and warrants. Post-reorg management will get 8% of the post-reorg equity. In total, this would amount to the evisceration of over $2b worth of debt. 😬

Speaking of management, a lot of people were up in arms over this bit in the debtors’ Form 8-K filed to announce the bankruptcy filing and term sheet:

That’s right. A nice immediately-payable bonus to management.

Remember that story of Lehman Brothers CEO Dick Fuld getting punched the day after Lehman’s bankruptcy on a treadmill in the corporate gym?

Fees like something like that may be coming soon to $WLL headquarters... 👀

— EnergyCynic (@EnergyCynic) April 1, 2020

We’d love to hear how this ISN’T a subversion of code provisions regarding KEIPS/KERPS. Seriously, write us: petition@petition11.com. Ensure stability huh? Tell us: WHERE THE F*CK ARE THESE GUYS GOING TO GO IN THIS ENVIRONMENT? But at least they’re passing up their (WILDLY WORTHLESS) equity awards and bonus payments. FFS.

Ok, fine. Maybe there were contractual provisions that needed to be taken into account. And maybe the alternative — sh*tcanning management and rejecting the employment contracts — doesn’t fit the construct of leaving an umimpaired class of unsecured creditors. Equity is wildly out-of-the-money and getting a tip here anyway. This, therefore, is just a transfer of value from the noteholders to the management. We have to assume that the noteholders, then, were aware of this before it happened. If not, they should be pissed. And the Directors — who make between $180,000 and $305,000 a year — ought to be questioned by said noteholders about potential breaches of duties.

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

• Capital Structure:

• Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brian Schartz, Gregory Pesce, Anna Rotman) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Veronica Polnick)

  • CRO: Stein Advisors LLC (Jeffrey Stein)

  • Financial Advisor: Alvarez & Marsal LLC (Julie Hertzberg)

  • Investment Banker: Moelis & Company

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

• Other Parties in Interest:

  • RBL Agent: JPMorgan Chase Bank NA

  • Ad Hoc Committee of Noteholders

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Beslisle Eaton, Michael Turkel, Omid Rahnama) & Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

    • Financial Advisor: PJT Partners LP

  • Creditor: Caliber North Dakota LLC

    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk)

New Chapter 11 Bankruptcy Filing - RentPath Holdings Inc.

RentPath Holdings Inc.

February 12, 2020

RentPath Holdings Inc. and eleven affiliated entities (the “debtors”), a digital marketing solutions enterprise that links property managers with prospective renters to simplify the residential rental experience, filed for bankruptcy in the District of Delaware. The business did $226.7mm of revenue in fiscal 2019 and had EBITDA of $46.8mm.

Where there’s money there’s competition. Where there’s competition, revenue maintenance becomes more challenging. And because of that competition, the debtors were forced to up their marketing spend and promotional activity which dented liquidity. A lack of liquidity presents some really big problems when your annual interest expense is $54.4mm on approximately $700mm of funded debt. For the math challenged, $46.8mm against approximately $700mm of funded debt means that this sucker has a leverage ratio of approximately 15. Or as President Trump would say, “It’s UUUUUUUUUUUGE.” Clearly that is unsustainable AF.

The good news is that the debtors have found themselves a potential buyer, CSGP Holdings LLC, an affiliate of CoStar Group Inc. ($CSGP), which has come forward with a $587.5mm cash bid (plus the assumption of certain liabilities) for the debtors’ assets. The debtors hope to consummate the sale pursuant to a plan of reorganization. To get there and fund the cases in the interim, the debtors obtained a fully-backstopped commitment of $74.1mm in DIP financing from certain members of the crossholder ad hoc committee and other first lien lenders.

• Jurisdiction: (Judge Shannon)

• Capital Structure: $37.95mm First Lien Revolving Facility, $479.75mm First Lien Term Loan, $170mm Second Lien Term Loan

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, David Griffiths, Andriana Georgallas, Gaby Smith, Alexander Cohen, Kyle Satterfield, Justin Pitcher, Leslie Liberman, Martha Martir, Richard Slack, Amanda Burns Shulak) & Richards Layton & Finger PA (Daniel DeFrancheschi, Zachary Shapiro)

  • Independent Director: Marc Beilinson, Dhiren Fonseca

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: Moelis & Company (Zul Jamal)

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

• Other Parties in Interest:

  • DIP Agent & First Lien Agent:

    • Legal: Paul Hastings LLP (Michael Baker, Shekhar Kumar)

  • Successor Second Lien Agent: Wilmington Savings Fund Society FSB

    • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Marie Polito Hofsdal) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Crossholder Ad Hoc Committee

    • Legal: Milbank LLP (Evan Fleck, Nelly Almeida, Andrew Harmeyer) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Second Lien Ad Hoc Committee

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Rachel Biblo Block) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Stalking Horse Purchaser: CSGP Holdings LLC (CoStar Group Inc.)

    • Legal: Jones Day (Daniel Moss, Nicholas Morin) & Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill)

  • Large Equityholders: Providence Equity & TPG

    • Legal: Vinson & Elkins LLP (David Meyer)

🏠New Chapter 11 Filing - Monitronics International Inc.🏠

Monitronics International inc.

June 30, 2019

We wrote about Monitronics International Inc. in July 2018 in "😬Home Security Company Looks Vulnerable 😬,” noting that “home security is a tough business (short Ascent Capital Group).” And, by “tough” we meant uber-competitive and saturated. It doesn’t help when you’re levered like a boss. We recommend you read the link above to understand the challenges these businesses faced in a better way than that described in the bankruptcy papers.

That said, the debtors’ capital structure is an important element of this story; they carry:

• $181.4mm ‘21 Revolving Credit Facility

• $1.072b ‘22 Term Loan

• $585mm ‘20 9.125% Senior Notes

Leverage + disruption = a recipe for disaster. This prepackaged bankruptcy filing is meant to address the former. Management will be on the clock to figure out the latter. A significantly deleveraged capital structure and a cash infusion will certainly help.

The debtors’ proposed prepackaged plan of reorganization will eliminate approximately $885mm of funded debt by way of equitizing the entirety of the senior notes, and reducing the revolving credit facility (by $50mm) and the amount of term loans (by $250mm). The term lenders will receive $150mm in cash (financed by a rights offering totaling $177mm) and equitize $100mm worth of their loans. The remainder of the term loan amount will be exchanged for take back paper issued by the reorganized debtors.

Source: First Day Declaration ($ in millions)

This is what the capital structure will look like pre and post-transaction:

Source: First Day Declaration ($ in millions)

The senior unsecured notes are fully exchanged for 18% of pre-diluted equity in the reorganized debtors.

The overall structure of the transaction is complex and depends upon some contingencies. This is the summary the debtors provided:

It might as well be gibberish at this point. Once we know whether Ascent toggle occurs we’ll have a better sense of who is contributing what. Moreover, once we the rights offering is consummated, the debtors’ new ownership will be more obvious.

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

• Capital Structure: See above.

• Professionals:

  • Legal: Latham & Watkins LLP (David Hammerman, Annemarie Reilly, Jeremy Mispagel, Liza Burton, Brian Rosen, Christopher Harris, Zachary Proulx) & King & Spalding LLP (Roger Schwartz, Sarah Primrose) & (local) Hunton Andrews Kurth LLP (Timothy Davidson, Ashley Harper)

  • Board of Directors: Jeffery Gardner, William Niles, Marc Beilinson, Sherman Edmiston III

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Moelis & Company LLC

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

• Other Parties in Interest:

  • Ad Hoc Lender Group (Term B-2 Lenders)(Anchorage Capital Group LLC, Boston Management and Research, BlueMountain Capital Management LLC, Eaton Vance Management, FS Global Advisor LLC, Invesco Advisors Inc., KKR Credit Advisors US LLC, Monarch Alternative Capital LP)

    • Legal: Jones Day (Paul Green, Scott Greenberg, Michael Schneidereit, Peter Saba)

    • Financial Advisor: Evecore LLC

  • Ad Hoc Group of Noteholders

    • Legal: Stroock & Stroock & Lavan LLP (Kristohper Hansen, Sayan Bhattacharyya, Jason Pierce) & (local) Haynes and Boone LLP (Kelli Norfleet, Stephen Pezanosky)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • KKR Credit Advisors US LLC

    • Legal: Proskauer Rose LLP (Chris Theodoridis)

  • Administrative Agent under Pre-Petition Credit Agreement: Bank of America NA

    • Legal: Morgan Lewis & Bockius LLP (Amelia Joiner) & ( Local) Winstead PC (Sean Davis)

  • Pre-Petition Agent: Cortland Capital Markets Services LLC

    • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, D. Tyler Nurnberg, Sarah Gryll)

  • Ascent Capital Group

    • Legal: Baker Botts LLP

😷New Chapter 11 Bankruptcy Filing - Aegerion Pharmaceuticals Inc.😷

Aegerion Pharmaceuticals Inc.

May 20, 2019

We were right and we were wrong. Back in November 2018, in “😬Biopharma is in Pain😬 ,” we snidely wrote, “Do Pills Count as ‘Healthcare’? Short Biopharma” riffing on the common trope that healthcare was a hot spot for restructuring activity.* No, we argued: the activity is really in publicly-traded biopharma companies with little to no sales, too much debt (and usually busted convertible notes) and attractive intellectual property. We went on to predict that Synergy Pharmaceuticals Inc. ($SGYP) and Aegerion Pharmaceuticals Inc. (a subsidiary of Novelion Therapeutics Inc. ($NVLN)) would both file for bankruptcy. Ding ding!!! We were right.** The former filed back in December and, now, the latter is also in bankruptcy court. Of course, with respect to the latter, we also wrote, “[c]ome February — if not sooner — it may be in bankruptcy court.” But let’s not split hairs.***

The company manufactures two approved therapies, JUXTAPID and MYALEPT, that treat rare diseases. On Sunday, we’ll discuss the future of these therapies and what the company seeks to achieve with this restructuring.

*To be fair, the healthcare space has, indeed, picked up in activity since then.

**For what it’s worth, we also predicted that Orchids Paper Products Company ($TIS) would be in bankruptcy soon, writing “This company doesn’t produce enough toilet paper to wipe away this sh*tfest. See you in bankruptcy court.” Three for three: this is precisely why — wait for the shameless plug — you should become a PETITION Member today.

***Maturity of the bridge loan was initially February 15, 2019 but the debtors had a right to extend, which they did.

• Jurisdiction: Southern District of New York (Judge )

• Capital Structure: $36.1mm 8% PIK ‘19 secured Novelion Intercompany Loan, $73.8mm Bridge Loan (Highbridge Capital Management LLC and Athyrium Capital Management LP), $304mm 2% unsecured convertible notes (The Bank of New York Mellon Trust Company NA)

• Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Paul Shalhoub, Andrew Mordkoff)

  • Financial Advisor/CRO: AlixPartners LLP (John Castellano)

  • Investment Banker: Moelis & Co. (Barak Klein)

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

• Other Parties in Interest:

  • DIP Agent: Cantor Fitzgerald Securities

  • Ad Hoc Group of Convertible Noteholders

    • Legal: Latham & Watkins LLP & King & Spalding LLP

    • Financial Advisor: Ducera Partners LLC

  • Novelion

    • Legal: Goodwin Proctor LLP & Norton Rose Fulbright Canada LLP

    • Financial Advisor: Evercore

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 Bankruptcy Filing - Parker Drilling Inc.

Parker Drilling Inc.

12/12/18

Back in October, in “Still Work to Do in Oil Country (Short Oil Field Services Companies),” we wrote the following:

Restructuring professionals attempting to extricate themselves from oil and gas work may have to wait a little bit longer. With companies like Houston-based Parker Drilling Corporation ($PKD) continuing to tread water, there may continue to be action in the space in the very near future. 

We added:

The signs of a near-term (read: Q4 ‘18) bankruptcy filing for Parker Drilling continue to shine through. Back in July, the company implemented a reserve stock split and adopted a short-term shareholder rights plan. While neither initiative, on its own, is dispositive of a chapter 11 filing, they are indicia. The former increases the market price per share of the common stock, ensuring compliance with NYSE listing requirements. Given a delisting notice received back in the spring, some level of stock split was basically a fait accompli. The latter is intended to “protect the best interests of the Company and its stakeholders”and is meant to preserve certain tax attributes that, if lost, would be tremendous value leakage to the estate…uh, company. The company noted:

“The Company believes these Tax Benefits are valuable assets that could offset potential future income taxes for federal income tax purposes. As of December 31, 2017, the Company had approximately $456 million of federal NOLs and $47 million of foreign tax credits.”

Of course, net operating losses only emanate out of a business that is (or was during a given fiscal year) unprofitable for tax purposes. So, there’s that. Which, putting the aforementioned shenanigans aside, is seemingly the bigger problem here.

For its second quarter ended June 30, 2018, PKD reported a net loss of $23.8mm on $118.6mm of revenue, a loss of $2.56/share. Adjusted EBITDA was $18.7mm. While those numbers aren’t so good, to say the least, they actually include a Q-over-Q increase of 8.1% in revenue (thanks to an increase in gross margin). Of course G&A expenses increased by $2.1mm because…wait for it…there were “professional fees fees related to ongoing capital structure analysis during the quarter.” You bet there were, homies.

We continued:

This capital structure isn’t complex and refinancing options, while theoretical, may be difficult given the company’s continued cash burn.

This is the company’s capital structure:

And so we concluded:

The path forward here given the liquidity needed seems pretty obvious: we expect to see a restructuring support agreement on this bad boy sometime soon with an attempted quick trip through bankruptcy court that de-levers the balance sheet, eliminates interest expense, and positions the company to make the capex necessary to capture the growth projected in the business plan.

So, what’s the latest? Well, as predicted, Houston-backed Parker Drilling Company, an international provider of contract drilling and drilling-related services and rental tools, filed an earnest bankruptcy petition and accompanying papers in the Southern District of Texas. Earnest? Why “earnest”? The company stated:

Adverse macro trends, including and especially the sustained downturn in commodity prices, have reduced demand for oilfield services provided by the Debtors, resulting in idle rigs, and placing downward pressure on the prices the Debtors are able to charge. Moreover, the Debtors are facing near term 2020 maturities of their 2020 Notes and ABL (each as defined in the First Day Declaration), for which the borrowing base has been tightened and which may not be re-financeable in the current environment under the existing capital structure.

Rather than hold out hope for a market recovery, or execute an inferior transaction that would at best provide more onerous financing without addressing their capital structure in a comprehensive manner, the Debtors have negotiated a comprehensive balance sheet reorganization to both reduce leverage and increase liquidity.

“Rather than hold out hope for a market recovery.” Those are poignant words that say a lot about the company’s outlook for oil in the near-term. It also says a lot about the company’s capital structure: clearly, there was no chance this company could grow into its balance sheet and/or refinance its upcoming debt. And, so, as we also predicted, the company’s bankruptcy filing is accompanied by a deal in hand with the major players in the company’s capital structure and equity profile: Brigade Capital Management, Highbridge Capital Management, Varde Partners, Whitebox Advisors. These four institutions collectively hold approximately 77% of the unsecured notes, approximately 62% of the outstanding preferred stock, and approximately 15% of the outstanding common stock. They’ve agreed to equitize the notes in exchange for equity in the reorganized company and to participate in a rights offering that will have the effect of capitalizing the reorganized entity with $95mm of new equity. The net effect of all of this will be a $375mm deleveraging of the company’s balance sheet.

The company has a commitment for a $50 DIP credit facility to fund the cases and a $50mm exit facility (with an upsize option up to $100mm) upon its emergence from chapter 11.

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

• Capital Structure: $80mm ABL (unfunded - Bank of America NA), $225mm ‘20 notes (The Bank of New York Mellon Trust Company, N.A.), $360mm ‘22 notes (The Bank of New York Mellon Trust Company, N.A.)

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Anna Rotman, Matthew Fagen, Jamie Netznik) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Financial Advisor: Alvarez & Marsal North America LLC (Lacie Melasi, John Walsh)

  • Investment Banker: Moelis & Co. (Bassam Latif)

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

• Other Parties in Interest:

  • Consenting Noteholders: Brigade Capital Management, Highbridge Capital Management, Varde Partners, Whitebox Advisors

    • Legal: Akin Gump Strauss Hauer & Feld LLP

    • Financial Advisor: Houlihan Lokey Capital Inc.

New Chapter 11 Bankruptcy Filing - Aegean Marine Petroleum Network Inc.

Aegean Marine Petroleum Network Inc.

November 6, 2018

On Sunday, November 4, 2018, we wrote the following in our “Fast Forward” segment:

Aegean Marine Petroleum Network Inc. ($ANW) is now subject to a fraud probe by international auditors. This thing will be in a bankruptcy court near you before too long.

We didn’t expect that prediction to come to fruition so quickly!

Admittedly, Aegean, one of the world’s largest independent marine fuel logistics companies with 57 owned and chartered vessels, has been a slow moving train towards bankruptcy for some time. The recent revelation of fraud — yes, fraud — is just the cherry on top. (PETITION Note: in frothy times come desperate shenanigans. This won’t be the last bankruptcy filed in the near-term that, in part, will have an element of fraud in the story.) And, alas, earlier, Aegean Marine Petroleum Network Inc. and 74 affiliated debtors filed for bankruptcy in the Southern District of New York. The more immediate trigger? The maturity of its 4% convertible unsecured notes.

Aegean blames an over-saturated market, limitations imposed by its lenders under the credit facilities, and…wait for it…the fraud…as reasons for its bankruptcy filing. Wait. Why are we describing the debtors’ ails in words when they’ve provided us with some crafty graphics to illustrate, in part, the “perfect storm of circumstances” that have plagued them:

Source: First Day Declaration

Aegean intends to use the bankruptcy process to address its capital structure (namely the maturity), stabilize operations and sell to Mercuria Energy Group Limited, a private company that, back in August, became the sole lender under both the debtors’ US and Global credit facilities. Mercuria also provided a DIP proposal that consists of a $160mm US credit facility, a $300mm global credit facility, and a $72mm term loan that the debtors deemed better than a proposed facility from an ad hoc group of unsecured convertible noteholders. The question will be to what degree a more robust and competitive sale process emerges now that this thing is finally in bankruptcy court.

• Jurisdiction: S.D.N.Y. (Judge Wiles)

• Capital Structure: $131.7mm US credit facility (ABN AMRO Bank NV), $249.6mm global credit facility (ABN AMRO Bank NV), $206.6mm aggregated across ten secured term loans, $172.5mm 4.25% convertible unsecured notes due 2021 (U.S. Bank NA), $94.55mm 4.00% convertible unsecured notes due 2018 (Deutsche Bank Trust Company Americas)  

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Jonathan Henes, Marc Kieselstein, Ross Kwasteniet, Cristine Pirro Schwarzman, Adam Paul, Benjamin Winger, Christopher Hayes, Bryan Uelk)

  • Independent Directors: Donald Moore, Raymond Bartoszek, Tyler Baron)

  • Audit Committee of the Board of Directors

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

  • Financial Advisor: EY Turnaround Management Services LLC (Andrew Hede)

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

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

• Other Parties in Interest:

  • Prepetition Agent: ABN AMRO Capital USA LLC

    • Legal: Willkie Farr & Gallagher LLP (Ana Alfonso)

  • Prepetition Agent: Aegean Baltic Bank SA

    • Legal: White & Case LLP (Scott Greissman, Elizabeth Feld, Mark Franke)

  • Indenture Trustee for the 4% ‘18 Convertible Senior Notes

    • Legal: Ropes & Gray LLP (Mark Somerstein, Patricia Chen)

  • Largest Equity Holder/Stalking Horse Buyer: Mercuria Energy Group Limited

    • Legal: Norton Rose Fulbright US LLP (Marc Ashley, Robert Kirby)

  • Official Committee of Unsecured Creditors (Deutsche Bank Trust Company Americas, U.S. Bank National Association, American Express Travel Related Services Company Inc.)

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

    • Financial Advisor: AlixPartners LLP

Source: First Day Declaration

Updated 11/17/18

🚗New Chapter 11 Bankruptcy Filing - ATD Corporation🚗

ATD Corporation

10/4/18

Recap: Please see here.

• Jurisdiction: D. of Delaware (Judge Carey)

• Capital Structure: See below.

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Chad Husnick, Spencer Winters, Joshua Greenblatt, Jacob Johnston, Mark McKane, Jaimie Fedell, Andre Guiulfo) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Jones, Timothy Cairns, Joseph Mulvihill)

  • Financial Advisor: AlixPartners LLP (James Mesterharm)

  • Investment Banker: Moelis & Co. (Adam Keil)

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

• Other Parties in Interest:

  • Term Lender Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Aidan Synnott, Jacob Adlerstein, Michael Turkel, David Giller, Oksana Lashko, Eugene Park, Jacqueline Rubin) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Andrew Magaziner)

    • Financial Advisor: Houlihan Lokey

  • DIP Agent and Pre-Petition ABL Agent (Bank of America)

    • Legal: Parker Hudson Rainer & Dobbs LLP (C. Edward Dobbs, Eric W. Anderson, James S. Rankin Jr., Jack C. Basham) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch)

  • DIP FILO Lenders & Consenting Noteholders

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss) & (local) Pepper Hamilton LLP (Evelyn Meltzer, Kenneth Listwak)

    • Financial Advisor: PJT Partners

  • Indenture Trustee: Ankura Trust Company LLC

    • Legal: King & Spalding LLP (Jeffrey Pawlitz, David Zubricki, Jared Zajec) & (local) Chipman Brown Cicero & Cole, LLP (William E. Chipman, Jr., Mark D. Olivere)

  • Michelin North America Inc.

    • Legal: Nelson Mullins Riley & Scarborough LLP (George B. Cauthen, Jody A. Bedenbaugh, Shane Ramsey) & (local) Bayard PA (Justin Alberto, Evan Miller)

  • Cooper Tire & Rubber Company

    • Legal: Jones Day (Timothy Hoffmann) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, D. Ryan Slaugh)

  • Sponsor: Ares Management

    • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Adam Moses)

  • Sponsor: TPG Capital

    • Legal: Weil Gotshal & Manges LLP (Ryan Dahl, Natasha Hwangpo)

😷New Chapter 11 & CCAA Bankruptcy Filing - Aralez Pharmaceuticals US Inc.😷

Aralez Pharmaceuticals US Inc.

8/10/18

Publicly-traded Ontario-based Aralez Pharmaceuticals US Inc. ($ARLZ), a specialty pharma company focused on the development and commercialization of cardiovascular products, filed for bankruptcy to pursue sales of its main operating businesses in the US and Canada. The company will use the bankruptcy process to sell its TOPROL-XL franchise, a beta-blocker used to treat high blood pressure, chest pain and heart failure, to its secured lender, Deerfield Management Company LP, for approximately $140mm; it will also sell its VIMOVO royalties and Canadian operations to Nuvo Pharmaceuticals Inc. ($NRI) in a transaction valued at $110mm. The company purchased the former franchise in late 2016 for $175mm so a sale for $140mm is a bit of a slap in the face.

The company blames its chapter 11 filing on Amazon. Just kidding. These pharma deals are so technical and boring that we had to write that just to see if you were still paying attention.

The company REALLY blames its chapter 11 filing on a “highly competitive”pharmaceuticals market “characterized by rapidly changing markets and technology, emerging industry standards and frequent introduction of new products.” It notes:

The market is dominated by a small number of highly-concentrated global competitors, many of which boast substantially greater resources than the Company, and competition is based on, among other things, product safety, reliability, availability, and price.

The company seeks approval of a $15mm DIP credit facility provided by Deerfield.

• Jurisdiction: Southern District of New York (Judge Glenn)

• Capital Structure: $203.1mm 12.5% term loan (plus $2.7mm in PIK interest); $75.5mm 2.5% ‘22 senior convertible secured notes (plus $200k in PIK interest).

• Company Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Paul V. Shalhoub, Robin Spigel, Debra C. McElligott)

  • Financial Advisor: Alvarez & Marsal Healthcare Industry Group LLC

  • Investment Banker: Moelis & Company (Barak Klein)

  • Claims Agent: Prime Clerk LLC

• Other Parties in Interest:

  • DIP Agent: Deerfield Management Company LP (Legal: Katten Muchin Rosenman LLP, Steven Reisman, Shaya Rochester, Peter Siddiqui, Paul Musser)

New Chapter 22 Filing - Geokinetics Inc.

Geokinetics Inc.

6/25/18

Just when we thought companies had mysteriously figured out how to stay out of bankruptcy court, alas, a filing!

And just when we thought oil and gas-related distress had ridden off into the proverbial Texan sunset, in walks Houston-based geophysical services provider Geokinetics Inc. into the Southern District of Texas with a plan to sell substantially all of its assets to (one-time bankruptcy candidate) SAE Exploration Inc. for $20mm. Looks like the oil and gas downturn still has some appetite for prey. And it must be tasty prey: this is the second time in four years that this company is in bankruptcy. #Scarlet22. Indeed, this company is so good at bankruptcy that, the first time, it emerged from chapter 11 a full year before it even confirmed its plan!! From paragraph 24 of the First Day Declaration:

"On March 10, 2014, GOK and certain affiliated subsidiaries confirmed a prepackaged chapter 11 plan of reorganization in the District of Delaware. Pursuant to the Plan, GOK equitized over $300 million of debt and paid off its revolving credit facility. On May 10, 2013, GOK and certain affiliated subsidiaries emerged from chapter 11."

And we thought Westworld had mind-bending timelines. Whoops. 

The company blames the prolonged downturn and certain discreet "operational difficulties" that resulted in uncollectable receivables for its bankruptcy. Wanting to jump ship as the iceberg approached, Wells Fargo sought to minimize its exposure but the company and its bankers, Moelis, weren't able to find a suitable secured loan facility to refinance its revolving loan. So Moelis toggled to "strategic alternatives" mode which, seemingly, included dumping this turd on unsuspecting public equity investors as the company -- under the guidance of Fried Frank Harris Shriver & Jacobson -- filed a confidential S-1 under the JOBS Act. Sounds a lot like Domo Inc. Or Tintri Inc., for that matter. #HailMary

Obviously the company didn't IPO. Instead, it continued to bleed cash. Ascribe Capital replaced Wells Fargo and funded bridge loans for some time until they were no longer willing to perform triage. The company and its advisors stepped on the gas, lined up the stalking horse bidder, and secured interest in a $15mm DIP credit facility -- from Whitebox Advisors and Highbridge Capital, two funds that are stakeholders in the stalking horse bidder -- and filed for bankruptcy. The proceeds of the DIP will be used, in part, to pay off Ascribe's bridge loans. 

Meanwhile, remember that IPO? It seems the company thought that that was a gigantic waste of time: among the top creditors are Fried Frank Harris Shriver & Jacobson LLP and Moelis & Co. ($MO). Savage. 

• Jurisdiction: S.D of Texas (Judge Jones)
• Capital Structure: $15.6mm Term Loan A (Ascribe Capital, Wilmington Trust), $6.8mm RCF (Ascribe Capital, Wilmington Trust)
• Company Professionals:
  • Legal: Porter & Hedges LLP (John Higgins, Joshua Wolfshohl, Aaron Power)
  • Financial Advisor: FTI Consulting Inc. 
  • Investment Banker: Moelis & Co. 
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Ascribe Investments LLC
    • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin, Bryce Friedman, Randi Lynn Veenstra, Megan Tweed, Sandeep Qusba, Yun Joo Lim) & (local) Haynes and Boone LLP (Charles Beckham Jr., Martha Wyrick)
  • SAExploration Inc.
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Sarah Link Schultz, Eric Seitz)
  • DIP Lenders: Whitebox Advisors LLC, Highbridge Capital Management LLC
    • Legal: Brown Rudnick LLP (Andreas Andromalos, Steven Levine, Jeffrey Jonas, Robert Stark, Kimberly Cohen)

Updated 6/26 6:54 PT

New Chapter 11 Filing - Nine West Holdings Inc.

Nine West Holdings Inc.

April 6, 2018

Nine West Holdings Inc., the well-known footwear retailer, has finally filed for bankruptcy. The company will sell its Nine West and Bandolino brands to Authentic Brands Group and reorganize around its One Jeanswear Group, The Jewelry Group, the Kasper Group, and Anne Klein business segments. The company has a restructuring support agreement in hand to support this dual-process. 

More on the situation here. 

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

• Capital Structure: See below.

Source: First Day Declaration

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, James Stempel, Joseph Graham, Angela Snell, Anna Rotman, Jamie Aycock, Justin Alphonse Mercurio, Alyssa Russell)

  • Financial Advisor: Alvarez & Marsal North America LLC (Ralph Schipani III, Julie Hertzberg, Holden Bixler, Amy Lee, Richard Niemerg, Theodore Langer, Stuart Loop, Thomas Koch, Michael Dvorak)

    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc, Alexander Lees)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Ari Lefkovits, David Hales, Mike Weitz, Nikhil Angelo, Okan Kender, Abigail Gay, Drew Deaton) & Consensus Advisory Services LLC

  • Authorized Officers: Stefan Kaluzny, Peter Morrow, Harvey Tepner, Alan Miller

  • Legal to the Authorized Officers: Munger Tolles & Olson LLP (Seth Goldman, Kevin Allred, Thomas Walper)

  • Financial Advisor to the Authorized Officers: Berkeley Research Group LLC (Jay Borow)

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

• Other Parties in Interest:

  • Stalking Horse Bidder/Buyer: Authentic Brands Group

    • Legal: DLA Piper LLP (Richard Chesley, Ann Lawrence, Rachel Ehrlich Albanese)

  • Prepetition ABL and FILO Agent: Wells Fargo NA

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

  • Administrative Agent for the prepetition secured and unsecured Term Loan Facilities: Morgan Stanley Senior Funding Inc.

  • Indenture Trustee for 3 series of Unsecured Notes: US Bank NA

    • Legal: White & Case LLP (J. Christopher Shore, Philip Abelson) & Seward & Kissel LLP (John Ashmead, Arlene Alves)

  • Ad Hoc Group of Secured Lenders (Farmstead Capital Management LLC, KKR Credit Advisors (US) LLC)

    • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Darren Klein, Adam Shpeen)

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Group of Crossover Lenders (Alden Global Capital LLC, Carlson Capital LP, CVC Credit Partners LLC, Silvermine Capital Management LLC, Trimaran Advisors)

    • Legal: King & Spalding LLP (Michael Rupe, Jeffrey Pawlitz, Michael Handler, Bradley Giordano)

    • Financial Advisor: Guggenheim Securities LLC

  • Brigade Capital Management, LP

    • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannel, Rachael Ringer)

    • Financial Advisor: Moelis & Company

  • Ad Hoc Group of 2019 Unsecured Noteholders (Whitebox Advisors LLC, Scoggin Management LP, Old Bellows Partners LP, Wazee Street Opportunities Fund IV)

    • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland)

  • Ad Hoc Group of 2034 Unsecured Noteholders

    • Legal: Jones Day

    • Financial Advisor: Houlihan Lokey

  • Administrative Agent for $247.5mm DIP ABL Facility

  • Administrative Agent for $50mm DIP TL Facility

  • Sponsor: Sycamore Partners LP

    • Legal: Proskauer Rose LLP (Mark Thomas, Peter Young, Michael Mervis, Jared Zajac, Chantel Febus, Alyse Stach)

  • KKR Asset Management

    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc)

  • Morgan Stanley & Co. LLC and Morgan Stanley Senior Funding Inc.

    • Legal: Ropes & Gray LLP (Gregg Galardi, Gregg Weiner)

  • Official Committee of Unsecured Creditors (Aurelius Capital Master Ltd., GLAS Trust Company LLC, PBGC, Simon Property Group, Stella International Trading (Macao Commercial Offshore) Ltd., Surefield Limited, U.S. Bank NA)

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, David Zensky, Deborah Newman, Arik Preis, Jason Rubin, Anthony Loring, Michael Byun, Patrick Chen)

    • Legal Conflicts Counsel: Kasowitz Benson Torres LLP (David Rosner, Howard Schub)

    • Financial Advisor: Protiviti Inc. (Guy Davis, Suzanne Roski, Heather Williams, John Eldred, Justin Koehler, Brian Taylor, Russell Brooks, Matthew Smith, Blake Parker, Lee Slobodien, Omkar Vale, Lok Lam, Sean Sterling) & Province Inc. (Michael Atkinson, Jason Crockett, Eunice Min, Byron Groth)

    • Investment Banker: Houlihan Lokey Capital Inc. (Saul Burian, Surbhi Gupta, Chris Khoury, Tejas Kullarwar, Matt Ender, Brendan Wu)

Updated 11/3/18 at 6:42 am CT

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 - The Weinstein Company Holdings LLC

The Weinstein Company Holdings LLC

3/19/18

The good news is that the company believes that its total exposure to victims (and creditors) is limited to 999 people/entities and its liability exposure is capped at $1 billion - or at least that's what one could glean from the boxes that the company checked on its chapter 11 petition. 

TWC Chapter 11 Petition

Let's review what's "new" here without regurgitating everything the mainstream media has covered the last several months... 

The Weinstein Company's primary assets fall into three categories: (i) the film library, (ii) the television business, and (iii) the unreleased films portfolio. The library consists of 277 films and thanks to distribution rights sales internationally and to the likes of Netflix and broadcast/cable networks, generates ongoing cash flow. The television business includes the Project Runway franchise and other content like Peaky Blinders, Scream and Six. The latter unreleased portfolio includes five completed films (including Benedict Cumberbatch's "Current War") and other projects in various stages of development. 

The sale effort to a consortium of investors including Yucaipa, Lantern Asset Management and Maria Contreras-Sweet is well documented. As is the Attorney General of New York's complaint against the company. Neither are worth noting in detail here after months of incessant press coverage. Notably, however, Lantern Asset Management stuck with the process after its consortium partners dropped out, agreeing to become the stalking horse bidder for the assets pursuant to a proposed expedited sale process. Why expedited? In the company's words,

"It is an understatement to say that the last six months have been trying for the Company. Intense media scrutiny and various other factors have resulted in, among other things, the Company’s loss of goodwill with employees, contract counterparties, key talent and the entertainment industry at large. In order to preserve the going concern value of the Company’s Assets for the benefit of its stakeholders, the Debtors have determined that a sale of substantially all of their Assets is necessary. Further, the Debtors believe that time is of the essence and that effectuating any such sale as quickly as possible is necessary to maintain operations and preserve value for the benefit of the Debtors’ stakeholders."

Well, also, the company has no cash and the buyer is pushing for speed as a condition to its bid. Lantern has that luxury as the remaining bidder; it is offering $310 million and the assumption of certain project-level non-recourse indebtedness (read: the debt associated with individual projects). Moreover, the company has indicated that Lantern anticipates retaining "most of the Company's employees." That's good: something positive must come out of this for those who had nothing to do with Mr. Weinstein's behavior. Speed is needed, the company argues, to prevent more employees from leaving (25% have already left). 

Some other miscellaneous facts of note:

1. Top Creditor. The number one creditor is a judgment creditor to the tune of $17.36 million.
2. It's Hard Out There for a Pimp. Boies Schiller & Flexner LLC is listed twice in the top 25 creditors. Fresh on the heels of the Theranos fraud suit, this has not been a good week for David Boies and company. 
3. Other Creditors. Other major creditors include Viacom International ($5.6 million), Sony Pictures Entertainment ($3.7 million), Creative Artist Agency ($1.49 million), and Disney ($1.13 million).
4. It's Hard Out There for a Pimp Part II. Several law firms are listed in the top 25 creditors for accounts payable due and owing for professional services. Notably, O'Melveny & Myers LLP is listed at #10 and $3.1 million; it had long been rumored to be representing the company leading into the bankruptcy filing. This means, more likely than not, that Cravath was hired as an 11th hour replacement, leaving O'Melveny as a creditor. Also, Debevoise & Plimpton LLP has been left hanging after conducting the internal investigation of the charges against Mr. Weinstein. 
5. The Cumberbatch. "Current War," the feature starring Benedict Cumberbatch is levered up by $7mm under a production-level loan agreement with East West Bank. Nothing unusual here: just a fun fact. We'll see if Cumberbatch's star power can raise this movie above the debt and the Weinstein taint. 
6. Timing. To the extent any bidder wants to trump Lantern Asset Management, the deadline for bids is April 30 and an auction will occur on May 2 for court approval on May 4. 
7. #FakeNews. The New York Times and the New Yorker both get credit for taking down Mr. Weinstein and for starting the #metoo movement and Time's Up campaign. 
8. Ramifications. The company notes that the response to Mr. Weinstein's misconduct was fast and furious including (i) Apple ceasing plans for a 10-part Elvis biopic to be produced by TWC; (ii) Lin Manuel Miranda demanding that TWC release its rights to the movie adaptation of In the Heights, (iii) Amazon ditching TWC, cancelling plans for a David O'Russell series and dropped TWC as co-producer of a Matthew Weiner series; (iv) Channing Tatum halting development of a movie with the company, and (v) Quentin Tarantino seeking a different studio for his next and ninth film, the first time he would use a studio other than TWC. 
9. Board of Directors. 5 members went running for the exits, including Paul Tudor Jones and Marc Lasry. 
10. Lawsuits. TWC has been named in at least 9 civil actions by victims of Mr. Weinstein, including a broad federal class action, two civil actions by Mr. Weinstein himself, and 6 civil actions by contract counterparties. 

Lastly, it has been reported that any and all NDAs will be "lifted" and no longer apply. This means that those who aren't as financially able as, say, Uma Thurman and Saima Hayek, may now speak out with impunity. Hopefully this frees various women from the shackles of their memories. 

• Jurisdiction: D. of Delaware (Judge Walrath)

• Capital Structure: $156.4mm secured debt (ex-accrued and unpaid interest, MUFG Union Bank NA), $15.6mm junior secured debt (UnionBanCal Equities Inc.), $18.1mm secured term loan (Bank of America NA), $45.4mm secured industries debt (AI International Holdings BVI Ltd.), $42.5mm secured production facility (MUFG Union Bank NA), $57.2mm of production level debt (including Spy Kids and Current War), $8.3mm secured debt (Viacom Media Networks)

• Company Professionals:
  • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Karin DeMasi) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Zachary Shapiro, Brett Haywood, David Queroli)
  • Restructuring Advisor/CRO: FTI Consulting (Robert Del Genio, Luke Schaeffer, Michael Healy, Thomas Ackerman)
  • Investment Banker: Moelis & Company LLC
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Stalking Horse Bidder: Lantern Asset Management
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Stephen Kuhn, Meredith Lahaie) & (local) Pepper Hamilton LLP (David Stratton, David Fournier) 
  • DIP Agent ($25mm): MUFG Union Bank NA (11% minimum)
    • Legal: Sidley Austin LLP (Jennifer Hagle) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady)
  • Official Committee of Unsecured Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP (James Stang, Debra Grassgreen, Robert Feinstein, Bradford Sandler)

Updated 3/30/18

New Chapter 11 Filing - iHeartMedia Inc.

iHeartMedia Inc.

3/14/18

iHeartMedia Inc., a leading global media company specializing in radio, outdoor, mobile, social, live media, on-demand entertainment and more, has filed for bankruptcy -- finally succumbing to its $20 billion of debt ($16 billion funded) and $1.4 billion of cash interest in 2017. WOWSERS. The company purports to have "an agreement in principle with the majority of [its] creditors and [its] financial sponsors that reflects widespread support across the capital structure for a comprehensive plan to restructure...$10 billion..." of debt.

The company notes $3.6 billion of revenue and unparalleled monthly reach ((we'll have more to say about this in this Sunday's Members-only newsletter (3/18/18) - this claim deserves an asterisk)). 

Still, as it also notes, the company faces significant headwinds. It states in its First Day Declaration,

"Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending by the Debtors’ customers, which resulted in a corresponding decline in advertising revenues across the Debtors’ business. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry and the entry of on-demand streaming services, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast radio. The Debtors have taken various operational steps to stem the negative effect of these trends; among other initiatives, the Debtors have successfully developed emerging platforms including its industry-leading iHeartRadio digital platform and nationally-recognized iHeartRadio-branded live events that are audio and video streamed and televised nationwide."

The company ought to expect these trends to continue.

Large creditors include Cumulus Media Inc. (~$5.6 million...yikes) and Spotify (~$2 million).  

• Jurisdiction: S.D. of Texas
• Capital Structure:    

• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Brian Wolfe, William Guerrieri, Christopher Marcus, Stephen Hackney, Richard U.S. Howell, Benjamin Rhode, AnnElyse Gibbons) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
  • Financial Advisor to the Company: Moelis & Co. 
    • Legal: Latham & Watkins LLP (Caroline Reckler, Matthew Warren)
  • Restructuring Advisor to the Company: Alvarez & Marsal LLC
  • Legal for the Independent Directors: Munger Tolles & Olson LLP (Kevin Allred, Seth Goldman, Thomas Walper, John Spiegel)
  • Financial Advisor to the Independent Directors: Perella Weinberg Partners LP
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Large Equity Holders: Bain Capital & Thomas H. Lee Partners
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Christopher Lopez, Gabriel Morgan)
  • Potential Buyer: Liberty Media Corporation & Sirius XM Holdings Inc.
    • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Alfredo Perez)
  • Successor Trustee for the 6.875% '18 Senior Notes and 7.25% '27 Senior Notes: Wilmington Savings Fund Society, FSB
    • Legal: White & Case LLP (Thomas Lauria, Jason Zakia, Erin Rosenberg, J. Christopher Shore, Harrison Denman, Michele Meises, Mark Franke, Michael Garza) & Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Ashley Harper)
  • Successor Trustee for the 11.25% '21 Priority Guaranty Notes
    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, Kristin Elliott)
  • Successor Trustee for the 14.00% Senior Notes due 2021
    • Legal: Norton Rose Fulbright (US) LLP (Jason Boland, Christy Rivera, Marian Baldwin Fuerst)
  • Term Loan/PGN Group
    • Legal: Jones Day (Thomas Howley, Bruce Bennett, Joshua Mester)
  • Ad Hoc Group of Term Loan Lenders
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Tyler Nurnberg, Sarah Gryll, Christopher Odell, Hannah Sibiski) 
  • TPG Specialty Lending Inc.
    • Legal: Schulte Roth & Zabel LLP (Adam Harris, David Hillman, James Bentley) & (local) Jones Walker LLP (Joseph Bain, Laura Ashley) 
  • Special Committees of the Board of Clear Channel Outdoor Holdings Inc.
    • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Christopher Koenig, Jennifer Jay Hardy)
  • Ad Hoc Committee of 14% Senior Noteholders of iHeart Communications
    • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matt Williams, Keith Martorana, Matthew Porcelli) & (local) Porter Hedges LLP (John Higgins, Aaron Power, Samuel Spiers)
  • 9.00% Priority Guarantee Notes due 2019 Trustee: Wilmington Trust NA
    • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Fliman, Brian Wells) & (local) Haynes and Boone, LLP (Charles Beckham Jr., Martha Wyrick, Kelsey Zottnick)
  • Citibank N.A.
    • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Locke Lord LLP (Berry Spears)
  • Delaware Trust Company
    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer, Monica Tarazi, Victor Noskov)
  • Official Committee of Unsecured Creditors
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Charles Gibbs, Marty Brimmage)

Updated 3/30/18

New Chapter 11 Filing - HCR Manorcare Inc.

HCR Manorcare

3/4/18 Recap: Ohio-based Carlyle-backed long-term care provider of 450 (i) skilled nursing and impatient rehab facilities, memory care facilities and assisted living facilities (the "Long-Term Care Business"), (ii) hospice and home health care agencies, and (iii) outpatient rehab clinics filed a prepackaged bankruptcy after months of back-and-forth with its REIT-parent and Master Lease counterparty, Quality Care Properties Inc. ($QCP). The bankruptcy will effectuate a transaction pursuant to which QCP will shed its REIT status and take on 100% of the stock in the reorganized HCR. 

Interestingly, retailers aren't the only businesses capitulating under the weight of their rent. Here, the revenues generated by the Long-Term Care Business weren't generating sufficient revenues to cover ordinary course operating expenses and monthly rent obligations to QCP. By way of illustration, 

"For the twelve months ended December 31, 2017, the Company had revenues of approximately $3.741 billion, 82% of which derived from the Long-Term Care Business, and reported a consolidated pre-tax loss from continuing operations of approximately $267.9 million. As of December 31, 2017, the Company had approximately $4.264 billion in total assets and approximately $7.118 billion in total liabilities, debt and financing obligations...."

Rough. In 2016, HCR paid approximately $442mm ($37mm a month) in minimum rent to QCP. In 2017, after extensive negotiations, the amount dipped to $290mm ($24mm a month). With amounts that staggering, no wonder the company struggled. 

The relationship between QCP and HCR emanates out of a 2011 sale-leaseback transaction. After said transaction, QCP became an independent publicly traded company. Significantly,

"At the time of the 2011 Transaction, the business environment in the post-acute/skilled nursing sector was favorable due to a number of factors, including an aging population, expected increases in aggregate skilled nursing expenditures, and supply constraints in the skilled nursing sector due to substantial barriers to entry. The parties negotiated the amount of rent payable under the MLSA against this background."

But, as we consistently point out here at PETITION, projections don't always pan out as planned. Indeed, after the consummation of the 2011 transaction, 

"...the operating environment for post-acute/skilled nursing facility operators has become significantly more challenging. Unfavorable trends for operators of skilled nursing facilities include (a) a shift away from a traditional fee-for-service model toward new managed-care models, which base reimbursement on patient outcome measures; (b) increased penetration of Medicare Advantage plans, which has reduced reimbursement rates, average length of stay and average daily census; (c) increased competition from alternative healthcare services such as home health agencies, life care at home, community-based service programs, senior housing, retirement communities and convalescent centers; and (d) reductions in reimbursement rates from government payors."

Obviously this is a bit of a problem when your have a month rent nut of $37mm. 

• Jurisdiction: D. of Delaware (Judge Gross)
• Capital Structure: $400mm '18 9.5% TL debt (RD Credit LLC), $150mm '19 9.5% RCF, $445mm guaranty obligations under the Master Lease.
• Company Professionals:
  • Legal: Sidley & Austin LLP (Larry Nyhan, Dennis M. Twomey, William A. Evanoff, Allison Ross Stromberg, Matthew E. Linder) & (local) Young Conaway Stargatt & Taylor LLP (Robert S. Brady, Edmon L. Morton, Justin H. Rucki, Ian J. Bambrick, Tara Pakrouh)
  • Financial Advisor/CRO: AlixPartners LLC (John Castellano)
  • Investment Banker: Moelis & Co.
  • Independent Directors: Sherman Edmiston, Kevin Collins
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest: TBD. 

Updated 3/5/18