🧀 New Chapter 11 Bankruptcy Filing - CEC Entertainment Inc. 🧀

CEC Entertainment Inc.

June 24, 2020

For our rundown, please go here.

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

• Capital Structure: $1.089b funded debt ($760mm TL, $108 RCF, $6mm LOC, $215.7mm notes)

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Alfredo Perez, Andrew Citron, Rachael Foust, Scott Bowling)

  • Board of Directors: David McKillips, Andrew Jhawar, Naveen Shahani, Allen Weiss, Peter Brown, Paul Aronzon

  • Financial Advisor: FTI Consulting Inc. (Chad Coben)

  • Investment Banker: PJT Partners LP (Jamie O’Connell)

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

  • PE Sponsor: Queso Holdings Inc./AP VIII CEC Holdings, L.P. (Apollo)

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP

  • First Lien Credit Agreement Agent: Credit Suisse AG, Cayman Islands Branch

    • Legal: Davis Polk & Wardwell LLP (Eli Vonnegut) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

  • Ad Hoc Group of First Lien Lenders: American Money Management Corp, Arbour Lane Capital Management, Arena Capital Advisors LLC, Ares Management LLC, Bank of Montreal, BlueMountain Capital Management, Carlson Capital LP, Catalur Capital Management LP, Citibank NA, Credit Suisse AG, Deutsche Bank New York, Fidelity Management & Research Co., Fortress Investment Group LLC, GS Capital Partners LP, Hill Path Capital, Indaba Capital Fund LP, ICG Debt Advisors, Jefferies Financ LLC, J.H. Lane Partners Master Fund LP, Monarch Alternative Capital LP, MSD Capital LP, MSD Partners LP, Octagon Credit Investors LLC, Par Four Investment Management LLC, RFG-Clover LLC, Second Lien LLC, UBS AG, Wazee Street Capital Management, Western Asset Management Company LLC, WhiteStar Asset Management, ZAIS Group LLC

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Jason Rubin, Marty Brimmage Jr., Lacy Lawrence)

  • Indenture Trustee: Wilmington Trust NA

    • Legal: Reed Smith LLP (Kurt Gwynne, Jason Angelo)

  • Ad Hoc Group of ‘22 8% Senior Noteholders (Longfellow Investment Management Co. LLC, Prudential Financial Inc., Resource Credit Income Fund, Westchester Capital Management)

    • Legal: King & Spalding LLP (Matthew Warren, Lindsey Henrikson, Michael Rupe)

    • Financial Advisor: Ducera Partners LLC

  • Official Committee of Unsecured Creditors: Wilmington Trust NA, The Coca-Cola Company, National Retail Properties, Performance Food Group, Washington Prime Group, NCR Corporation, Index Promotions

    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel & Womble Bond Dickinson LLP (Matthew Ward)

7/17/20 Dkt. 352.

💪 New Chapter 11 Bankruptcy Filing - 24 Hour Fitness Inc. 💪

24 Hour Fitness Inc.

June 15, 2020

California-based 24 Hour Fitness Inc. (along with ten affiliates, the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware after it became apparent that it’s hard to sustain a fitness business when, as a practical matter, you’re really 0 Hour Fitness Inc. When you have 3.4mm customers across 445 (leased) locations across the United States, it’s awfully hard for a business that typically does $1.5b in revenue and $191 in adjusted EBITDA to make money when a pandemic rips through the nation and shuts down business entirely. This, ladies and gentlemen, like the few airlines who have filed for bankruptcy to date, is as pure-play a COVID-19 story as they come these days.

Now, that’s to not to suggest that everything was copacetic prior to the quarantine. The business had some pimples on it. The debtors’ CRO cites the selling/operating model’s negative impact on financial performance. But the biggest and scariest pimples are the debtors’ balance sheet and lease portfolio. The former includes $1.4b of funded debt; the latter, 445 locations leased across the country, of which 135 have already been deemed unnecessary and are the subject of a first day executory contract rejection motion (PETITION Note: the debtors denote this as “a first wave.”). When revenues stop coming into the coffers, these tremendous amounts become quite an overhang and a liquidity drain.

The filing, among other things, helps solve for the liquidity issue. The debtors have obtained a commitment for a $250mm new-money senior secured DIP facility from an ad hoc group of lenders. While there is no restructuring support agreement in place here, the ad hoc group is comprised of 63.3% of the aggregate principal amount outstanding under the prepetition credit facility and approximately 73.9% of the face amount of the $500mm in senior unsecured notes. In other words, there’s a solid amount of support here but not enough yet to command the senior class of debt.

Luckily, the debtors gave themselves a form of pre-DIP. Wait. Huh? What are we referring to?

…the Debtors were obliged to close all of their fitness clubs nationwide on March 16, 2020, in response to this national emergency. As a result, the Debtors were no longer able to generate new sources of revenue (by winning new members) and, on or about April 15, 2020, the Debtors suspended billing on account of monthly membership dues.fn

In the footnote, the debtors note:

To date, litigation has been commenced in connection with the Debtors’ monthly billing on a post-March 16 basis, notwithstanding, among other things, the Debtors’ rights under their various membership agreements. The Debtors reserve all rights, claims, and defenses in this regard.

Uh, apparently, 0 Hour Fitness Inc. = 30 Days of Payment Inc. We’ll see whether this short-term liquidity grab created long term customer retention issues.*

You charged your members for time that you did not provide to them. Terrible policy, by a terrible gym. Glad I cancelled my membership and I’m sure many other have/will as well.

— RobertTheAnalyst (@AnalystRobert) June 11, 2020

wow... bruh y'all charged people during mid march and april. 😒 Yeah I'm canceling my shit as well, and build my own home gym.

— TheHo3 (@xFoodStamp) June 11, 2020

Moreover, the fact that they apparently laid off thousands of employees via conference call probably won’t amount to a whole lot of goodwill. Just sayin’.

24 Hour Fitness just fired a lot of us thru a prerecorded phone call. They were silent for months and only gave us 1 week of pay while the gyms were closed. They couldnt tell us why we got fired and why others didnt. They are one of the most unprofessional companies. Fuck 24.

— chino (@edmillest) June 10, 2020

Now it’s wait and see. The debtors have reopened approximately 20 locations in Texas and hope to have the majority of their other non-rejected clubs open by the end of June. We’ll see if the uptick in COVID cases in certain states throws a wrench in that plan. To combat any COVID-related perception risk, the debtors are instituting some new measures:

…the Debtors have taken an innovative approach to the reopening of their clubs, instituting market-leading strategies to keep their members and employees safe, including an app-based reservation system to ensure that their clubs remain in compliance with applicable social distancing guidelines, a touchless check-in system to limit members’ and employees’ contact with surfaces, and cleaning schedules that ensure that entire clubs are sanitized every hour. (emphasis added)

Gosh. We see sh*t like this — the airlines are also making similar statements about newly implemented cleanliness standards — and it really makes us wonder: what the bloody hell were these cesspools doing pre-COVID?!?!? Clearly not enough.

And, yet, otherwise, we have some sympathy for these businesses. This is a brand new paradigm. The debtors indicate that they’re implementing a reservation-based system where people are locked into an hour-max workout after which the gym will be closed for 30 minutes for a “deep clean.” That is not exactly a seamless and frictionless user experience. Moreover, what kind of chemicals are going to be dumped all over the facility every 60 minutes? These are tough issues.

As far as social distancing:

…the Debtors are utilizing space in their clubs in creative ways in order to continue to offer members a range of amenities and services. For example, the Debtors are utilizing their basketball courts to hold group exercise classes, including by relocating stationary bike equipment to continue to offer indoor cycling classes, so that members and equipment can be properly spaced to comply with social distancing guidelines.

Source: First Day Declaration

No offense but does THIS really worth going to the gym for? You can use apps for a fraction of the cost and do this at home…mask-less.

So what now?

The DIP financing will buy the debtors some time to evaluate new trends. Will those people who paid for a month when the gym was closed come back? Will the news about employee treatment effect the “brand”? Will all of those people who bought home gyms or learned to run need to go to a gym? The re-opening notwithstanding, all of these questions will directly impact valuation. Indeed, how do you value this business with so many massive question marks? Well, luckily, we have the debt to get a sense of what that answer might be. And considering that, at the time of this writing, the term loan is bid in the high 20s and the unsecured notes are bid around 3 — that’s right, 3 — it’s pretty clear who is getting (generally) wiped out in this scenario and where the market thinks the value breaks.

*Honestly, this was a dirty move but from the debtors’ perspective, it also totally makes sense.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $95.2mm ‘23 RCF, $835.1mm ‘25 Term Loan, $500mm 8% ‘22 unsecured notes (Wells Fargo Bank NA)

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Ryan Preston Dahl, Kevin Bostel, Kyle Satterfield, Ramsey Scofield, Jackson Que Alldredge, Jacob Mezei, Alexander Cohen, Sarah Schnorrenberg) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Peter Keane)

  • Directors: Marc Beilinson, Stephen Hare, Roland Smith

  • Financial Advisor/CRO: FTI Consulting Inc. (Daniel Hugo)

  • Investment Banker: Lazard Freres & Co. LLC (Tyler Cowan)

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

  • Ad Hoc Group

    • Legal: O’Melveny & Myers LLP (John Rapisardi, Adam Rogoff, Daniel Shamah, Diana Perez, Adam Haberkorn) & Richards Layton & Finger PA (Mark Collins, Michael Merchant, David Queroli)

  • Prepetition Agent: Morgan Stanley Senior Funding Inc.

    • Legal: Latham & Watkins LLP (Alfred Xue)

  • DIP Agent: Wilmington Trust

    • Legal: Covington & Burling (Ronald Hewitt)

  • Senior Notes Indenture Trustee: Wells Fargo Bank NA

    • Legal: Reed Smith LLP (Eric Schaffer, Luke Sizemore, Mark Eckard)

  • Large equityholders: AEA, Fitness Capital Partners LP, 2411967 Ontario Limited

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

Frontier Communications Inc.

April 14, 2020

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

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

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

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

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

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

😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬

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

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

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

— JV (@AyyouEm) November 5, 2019

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

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

What else is the RSA about?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

______

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

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

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

Here it was a few months later:

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

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

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

---

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

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

• Professionals:

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

  • Directors: Kevin Beebe, Paul Keglevic, Mohsin Meghji

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

  • Investment Banker: Evercore Group LLC (Roopesh Shah)

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

• Other Parties in Interest:

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

  • Unsecured Notes Indenture Trustee: Bank of New York Mellon

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

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

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

  • Credit Agreement Administrative Agent: JPMorgan Chase Bank NA

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

  • DIP Agent: Goldman Sachs Bank USA

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

  • Ad Hoc First Lien Committee

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

    • Financial Advisor: PJT Partners LP

  • Second lien Ad Hoc Group

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

  • Ad Hoc Senior Notes Group

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

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Committee of Frontier Noteholders

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

    • Financial Advisor: Houlihan Lokey Inc.

  • Ad Hoc Group of Subsidiary Debtholders

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

  • Official Committee of Unsecured Creditors

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

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

    • Investment Banker: UBS Securities LLC (Elizabeth LaPuma)

🏆New Chapter 11 Bankruptcy Filing - ON Marine Services Company LLC🏆

ON Marine Services Company LLC

January 2, 2020

Pittsburgh-based ON Marine Services Company LLC gets the prize: it marks the first sizable chapter 11 bankruptcy case of 2020. This probably wasn’t the “victory” that Pittsburgh residents wanted after the Steelers crapped out at the end of the regular NFL season. Its reward? A plan of liquidation.

Let’s be clear: by “sizable,” we are not referring to operations, employees, or some other definitive metric. Rather, we’re referring to approximately 6,000 asbestos-related personal injury claimants and, by extension, the massive continent liabilities that comes with them. 😬

The debtor dates back to 1929 and has a legacy in manufacturing and selling products used exclusively in steelmaking. The products — called insulated “hot tops” — were single-use products into which molten steel was poured. While that might seem fairly innocuous, “[b]y the mid-1940s, certain of the … “hot top” products contained asbestos as an intentionally included ingredient.” This ceased to be the case after 1978.

The company previously filed for bankruptcy in 2004 which, we guess(?), means this is a Chapter 22. Like, maybe? (We really need a set statute of limitations for using that term). For whatever reason, the company did not address its asbestos-related liabilities in the prior bankruptcy and has subsequently enjoyed a jolly good time of defending cases for the past 14 years. Over 182,000 claims have been asserted against the company: we suppose someone deserves some sort of endurance award because, as noted above, only 6,000 remain on the books. Clearly, though, folks have had enough of this sh*t.

Interestingly, there’s a commentary here about the US tort system. While the 182,000 claims tout horrific injuries, e.g., mesothelioma, lung cancer, esophageal or colon cancer, the debtor highlights that 95% of the claims asserted against it have been dismissed without payment. Nevertheless, a decade+ of defending claims has depleted the debtor of critical insurance/reserves to fund defense and indemnity costs. “[T]he Debtor has reached the point at which its traditional method of dealing with Asbestos Claims is no longer economically feasible.” Said another way, this zombie is finally being put out of its misery.

The debtor filed for bankruptcy with an insurance settlement in hand. The proceeds from that settlement with fund the bankruptcy case and feed a liquidating trust that will be available to claimants as cases proceed.

• Jurisdiction: W.D. of Pennsylvania (Judge Bohm)

• Professionals:

  • Legal: Reed Smith LLP (Paul Singer, Andrew Muha, Luke Sizemore)

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

New Chapter 11 Bankruptcy Filing - Windstream Holdings Inc.

Windstream Holdings Inc.

February 25, 2019

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

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

• Capital Structure: see below.

• Professionals:

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

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

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest:

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

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

    • Legal: Reed Smith LLP (Jason Angelo)

  • Prepetition TL and RCF Agent: JPMorgan Chase Bank NA

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

  • Ad Hoc Group of Second Lien Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Houlihan Lokey Capital

  • Ad Hoc Group of First Lien Term Lenders

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

    • Financial Advisor: Evercore

  • Midwest Noteholders

    • Legal: Shearman & Sterling LLP

  • Uniti Group Inc.

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

    • Financial Advisor: Rothschild & Co.

  • Large Unsecured Creditor: AT&T Corp.

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

  • Large Unsecured Creditor: Verizon Communications Inc.

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

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

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

New Chapter 11 Bankruptcy Filing - Petroquest Energy Inc.

Petroquest Energy Inc.

November 6, 2018

Petroquest Energy Inc. ($PQUE), an independent energy company engaged in the exploration, development, acquisition and production of oil and gas reserves in Texas and Louisiana, managed to stave off bankruptcy back during the oil and gas downturn. How? Well, this is how:

Source: First Day Declaration

Bankruptcy, however, caught up to it anyway.

The company filed for bankruptcy in the Southern District of Texas with a restructuring support agreement in tow. The terms of the RSA reflect that (i) the prepetition term lenders will be paid in full with an exit facility, (ii) the holders of second lien notes will have an option to participate in the exit facility (which will be fully backstopped by certain consenting creditors), and (iii) the prepetition second lien noteholders will receive 100% equity in the reorganized PetroQuest, a backstop fee in connection with provision of the exit facility, and $80mm of new second lien PIK notes. All of which is to say that the company will meaningfully de-lever its balance sheet. Meanwhile, general unsecured creditors will get $400k and all equityholders will, shockingly, get wiped.

More to come…

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

• Capital Structure: $50mm Term Loan, $9.4mm second lien debt, $275mm second lien PIK debt (Wilmington Trust NA)     

• Company Professionals:

  • Legal: Porter Hedges LLP (John Higgins, Joshua Wolfshohl, M. Shane Johnson)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Seaport Global Securities

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

• Other Parties in Interest:

  • Second Lien Agent: Wilmington Trust NA

    • Legal: Reed Smith LLP (Kurt Gwynne)

New Chapter 11 Filing - Open Road Films LLC

Open Road Films LLC

9/6/18

Rough year for movie production houses. After Relativity Media and The Weinstein Company filed chapter 11 cases earlier this year, Open Road Films LLC now finds itself in bankruptcy court. The company behind Jobs, Nightcrawler and other mostly forgettable films has had a dramatic fall from grace after being acquired by current equityholder TMP Holdings from Regal Entertainment Group and AMC Entertainment merely a year ago. Though contemplated at the time of acquisition, the company was unable to secure funding to, among other things, restructure the company (in the out-of-court sense) and streamline operations. The question is why? Why couldn't the company secure funding? 

The company notes:

Among other things, increased volatility in overall film performance exacerbated investor concerns regarding the probability and predictability of studio financial success, especially outside of the major studios. This overall volatility was exacerbated by the specific underperformance of certain of the Company’s recent motion picture releases, most of which were initiated by prior management. In addition, competitive options for consumers limit interest in theatrical distribution and the traditional film business model, imposing additional pressure on companies like the Debtors, and further fueling investor skepticism.

In other words, blame Reese Witherspoon ("Home Again" flopped), Jodie Foster ("Hotel Artemis" completely bombed) and Netflix ($NFLX). 

With no incoming funding and a resultant inability to obtain a "going concern" qualification, the company defaulted on its loan with Bank of America. BofA, therefore, limited access to certain deposit accounts, all the while vendors were seeking payments. Already this drama is more interesting than "Home Again." 

The company intends to use the chapter 11 process to market and sell its assets; it does not yet have a stalking horse bidder, though FTI reports that 11 parties have submitted indications of interest. 

The top 40 general unsecured creditors list is a who's who of media elites, including "old media" firms like Viacom Inc. (owed $7mm), The Walt Disney Company (owed $5.1mm), NBCUniversal (owed $4.4mm), Turner Broadcasting System (owed $3.5mm). Other top creditors include Google, Facebook, Snap, Twitter, Amazon, Spotify, and Pandora Media. And Latham & Watkins, which appears to be getting hosed on a half million dollar legal bill. 

• Jurisdiction: D. of Delaware (Judge Silverstein)
• Capital Structure: $90.75 mm secured debt (Bank of America NA)     
• Company Professionals:
  • Legal: Klee Tuchin Bogdanoff & Stern LLP (Michael Tuchin, Jonathan Weiss, Sasha Gurvitz, Whitman Holt) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Robert Poppiti Jr., Ian Bambrick)
  • Financial Advisor/CRO: FTI Consulting Inc. (Amir Agam)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Lender: Bank of America NA
    • Legal: Paul Hastings LLP (Andrew Tenzer, Shlomo Maza) & (local) Ashby & Geddes PA (William Bowden)
  • Prepetition Creditor: East West Bank
    • Legal: Akin Gump Strauss Hauer & Feld LLP (David Staber) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
  • Prepetition Creditor: Bank Leumi USA
    • Legal: Reed Smith LLP (Marsha Houston, Christopher Rivas, Michael Sherman

New Chapter 11 Filing - Neighbors Legacy Holdings Inc.

Neighbors Legacy Holdings Inc.

7/12/18

Look! Some healthcare distress. 

Neighbors Legacy Holdings Inc., an operator of 22 freestanding emergency centers throughout the state of Texas filed for bankruptcy on July 12, 2018. The company blames its filing on "financial difficulties caused in large part by increased competition, less favorable insurance payor conditions, declining revenues, and disproportionate overhead costs as compared to their operational income." In other words, its owners did too much too fast, taking on too much debt to expand too rapidly in a space that requires significant upfront capital investment in exchange for a 12-18 month lag in cash flow generation. Initiate death spiral. 

The company's financial numbers look brutal. Per the First Day Declaration:

"...the Debtors’ consolidated EBITDA dropped from $49 million in 2015, to $45 million in 2016, to $10.3 million in 2017. This drop has been caused, in part, by the increased competition in the industry, which has led to lower patient volumes per Emergency Center. For the Emergency Centers opened prior to 2016, the average claims per day fell from approximately 13 in the first quarter of 2017 to approximately 10 currently. For Emergency Centers opened during 2016, there continues to be, on average, fewer than 10 claims per day. This marked reduction in patient volume led to a strain at previously profitable locations and underperformance at new locations."

The company, therefore, has been engaged in a game of whack-a-mole, trying to plug leakages in the enterprise in order to survive. The company had to close several unprofitable locations and abandon planned (but never opened) locations. It also took down SG&A, all the while alienating relationships with critical parties like landlords, vendors and doctors. You know, like, critical cogs in a medical service machine. 

On the bright side, the company does have a stalking horse bidder in tow. Altus Health Systems OPCO LLC and Altus Health System Realty LLC are the staking horse bidder for Houston assets. The company will utilize the "breathing spell" provided by the filing to conduct an auction and attempt to maximize the value of the assets in a competitive process. 

• Jurisdiction: S.D. of Texas (Judge Isgur)
• Capital Structure: $30mm RCF & $120mm term loan (KeyBank National Association)
• Company Professionals:
  • Legal: Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)
  • CRO/Financial Advisor: CohnReznick LLP (Chad Sandler)
  • Investment Banker: Houlihan Lokey Inc. 
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Lender: KeyBank National Association
    • Legal: Reed Smith LLP (Lloyd Kim, Matthew Tashman)

New Chapter 11 Filing - R.E. Gas Development LLC (a/k/a Rex Energy)

R.E. Gas Development LLC

5/18/18

Pennsylvania-based R.E. Gas Development LLC and its affiliates are independent publicly-traded ($REXX) oil and gas companies operating in the Appalachian Basin with a focus on drilling and exploration activity in the Marcellus Shale, Utica Shale and Upper Devonian Shale, mostly throughout Western Pennsylvania. Like most other exploration and production companies that have found their way in bankruptcy court over the last several years, the sudden steep decline in crude oil and nat gas prices that began in 2014 significantly affected the company's liquidity and ability to manage its balance sheet. After all, this company isn't operating in the Permian. Revenues for 2017 were $205.3 million. 

After months and months of foreplay, the company enters bankruptcy court with a restructuring support agreement ("RSA") in tow: it provides for a dual path pursuant to which the company will, in agreement with its secured lenders, pursue a sale of substantially all assets or, in the absence of qualified bids, pursue a plan process pursuant to which the first lien lenders (i.e., Angelo Gordon) will swap (DIP) debt for equity in the reorganized company. The RSA purportedly has the support of 100% of the first lien lenders and 71.8% of the outstanding second lien notes.

To fund the company throughout the dual process, the company seeks a $411 million DIP credit facility, the proceeds of which will be used to (i) roll up $261 million of prepetition loans and (ii) settle the "makewhole provision" under the first lien credit agreement to the tune of $50 million. The makewhole was put into place at the time of the issuance of the first lien loan just short of a year ago.  For the uninitiated, the makewhole entitles the lender to certain economics in the event the lenders are "repaid in whole or in part prior to the maturity date or the outstanding indebtedness under the facility is accelerated for any reason." The economics are calculated "based on the sum of remaining interest payments and certain fees due on all loans for the remainder of the make whole period, which terminates on October 28, 2019." In other words, Angelo Gordon structured this to give themselves the utmost economics in the (highly likely) case of an event of default and eventual bankruptcy. Solid planning on their part -- assuming, in particular, that the assets fetch a purchase price that will clear the first lien debt and makewhole amount. Respect. 

So, lo and behold, there was an event of default called in February for failure to deliver quarterly financial statements (which led to other defaults as well). In April, the lenders, after a short forbearance period, issued a notice of acceleration. Cha ching! Makewhole!!

The DIP credit agreement imposes fairly expedited -- but not wholly unreasonable (relative to other recent cases) -- timing on the company, including closing of any sale or confirmation of a plan 170 days after the filing date. 

• Jurisdiction: W.D. of Pennsylvania (Judge Deller)
• Capital Structure: see below.
• Company Professionals:
  • Legal: Jones Day (Scott Greenberg, Tom Howley, Michael Cohen, Anna Kordas, Rachel Biblo Block) & (local) Buchanan Ingersoll and Rooney PC (James Newell, Timothy Palmer, Tyler Dischinger)
  • Financial Advisor: FTI Consulting Inc. (Albert Conly)
  • Investment Banker: Perella Weinberg Partners (Alexander Tracy)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition First Lien Admin Agent: Angelo Gordon Energy Servicer
    • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin) & (local) Duane Morris LLP
    • Financial Advisor: PJT Partners
  • Informal Group of 1%/8% Senior Secured Second Lien Notes due 2020 of Rex Energy Corporation
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Stephen Kuhn, Kevin Zuzolo) and (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
    • Financial Advisor: Stephens Inc.
  • Wilmington Savings Fund Society FSB
    • Legal: Morrison & Foerster LLP (Jonathan Levine, Daniel Harris) & (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
  • BOKF, National Association
    • Legal: Arent Fox LLP (Andrew Silfen, George Angelich, Jordana Renert) & (local) Federic Dorwart, Lawyers PLLC (Samuel Ory)
  • Official Committee of Unsecured Creditors
    • Legal: Brown Rudnick LLP (Robert Stark, Chelsea Mullarney, Sigmund Wissner-Gross, Brian Rice, Steven Pohl, Andrew Carty, Bennett Silverberg, Chelsea Mullarney, Emily Koruda, Justin Cunningham) & (local) Leech Tishman Fuscaldo & Lampl LLC (Patrick Carothers, David Lampl, John Steiner)
    • Financial Advisor: Conway MacKenzie Inc. (John Young Jr.)

Source: First Day Declaration

New Chapter 11 Filing - Philadelphia Energy Solutions LLC

Philadelphia Energy Solutions LLC

• 1/21/18 Recap: Operator of refining complex with combined distilling capacity of 335,000 barrels/day of crude oil - representing roughly 28% of the east coast's refining capacity - and located roughly 2.5 miles from downtown Philadelphia filed a prepackaged bankruptcy in Delaware for the purposes of effectuating a sale. The company blames (i) regulatory compliance costs that specifically penalize independent merchant refiners (related, specifically, to the Clean Air Act), (ii) adverse macroeconomic trends in energy, and (iii) adverse government policy decisions for its chapter 11 filing. The goal of the prepackaged filing is to allow for an infusion of $260mm in new capital, a $35mm reduction of interest expense, and to kick maturities out to 2022. We're a little late to the game here with our summary so we'll say something that we haven't seen anyone else say about this just yet: that is, that this never would be able to file in Delaware if Elizabeth Warren has her way and the new bankruptcy reform bill is passed. Just sayin. 
• Jurisdiction: D. of Delaware 
• Capital Structure: See chart below.
• Company Professionals: 
  • Legal: Kirkland & Ellis LLP (Edward Sassower, Matthew Fagen, Patrick Venter, Allyson Smith, Michael Slade, Richard Howell, Ciara Foster, Whitney Becker, Steven Serajeddini) & (local ) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Peter Keane)
  • Financial Advisor: Alvarez & Marsal LLC 
  • Investment Banker: PJT Partners LP
  • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Commitment Parties
    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Aryeh Ethan Falk, Jonah Peppiatt) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming)
  • PNC National Association
    • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Reed Smith LLP (Kurt Gwynne, Emily Devan)
  • Sponsors
    • Carlyle Group & Sunoco Inc. (a subsidiary of Energy Transfer Partners LP)

New Chapter 11 Bankruptcy - Appvion Inc.

Appvion Inc.

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

Updated 10/26/17

New Chapter 11 Filing - Wordsworth Academy

Wordsworth Academy

• 6/30/17 Recap: Loyal PETITION readers know that we love lending snarky editorial color to chapter 11 filings. But sometimes things go beyond the pale and just aren't funny. This is one of them. This entity is a Pennsylvania non-profit corporation that provides education, behavioral health and welfare services to nearly 5,000 children who have emotional, behavioral and academic challenges. Why did it file? The company claims it needs an operational restructuring but there is a critical overhang here: a resident of one of the facilities died while being restrained. On top of that, there were other "allegations of other serious problems" at the same facility where the death occurred. There is an ongoing wrongful death suit against the company. Litigation appears to have pushed this company into bankruptcy, plain and simple. Tragic, sad, and definitely not amusing.
• Jurisdiction: E.D. of Pennsylvania
• Capital Structure: $4.7mm debt (M&T Bank)    
• Company Professionals:
  • Legal: Dilworth Paxson LLP (Lawrence McMichael, Peter Hughes, Anne Aaronson)
  • Financial Advisor: Getzler Henrich & Associates LLC (William H. Henrich)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Secured Lender: M&T Bank 
    • Legal: Reed Smith LLP (Peter Clark II, Jennifer Knox)

Updated 7/11/17

New Chapter 11 Filing - True Religion Apparel Inc.

True Religion Apparel Inc.

• 7/5/17 Recap: Another private equity backed retailer files for bankruptcy. Here, the "brand that is globally recognized for innovative, trendsetting denim jeans and apparel" has a fast-tracked prepackaged deal with its lenders and private equity sponsor to shed approximately 72% of its debt and continue its operational restructuring (read: more store closures). The Manhattan Beach California 128-store retailer (down after closing 30 stores worldwide) blamed a (i) "a macro consumer shift away from brick-and-mortar to online retail channels," (ii) a decline in the premium denim market segment in the fashion industry and corresponding rise of athleisure, (iii) fast fashion, (iv) the rise in competitive discounting to make up for lost foot traffic and sales, and (v) an over-levered balance sheet. We believe that the decline is primarily attributable to cheesy AF bedazzled and bejeweled jeans with heinous a$$-designs and stitching that no one other than the cast of the Jersey Shore would want to be caught dead in. Its initial claim-to-fame is its "iconic and trademarked" horsesh*t symbol...we mean, "iconic and trademarked horseshoe symbol." Seriously, how is True Religion ONLY #15 on this list of "50 Men's Fashion Trends That Never Should Have Happened"? We're truly asking. Anyway, the de-levered and operationally stream-lined company hopes to restructure around a business plan predicated upon a global e-commerce expansion, increased licensing, deployment of pop-up outlet stores, an expansion of its "Last Stitch" line, and other shenanigans in an attempt to keep this ugly brand from filing for Chapter 22 after the holiday season. On an aside, the pop-up strategy is interesting: the company notes that the outlet concept has been profitable, primarily because they are based on short-term 18-month-or-less leases with "little downside" for the company. Yikes, landlords. The company further noted that the conversion of True Religion locations to "Last Stitch" branded locations has been successful. Curious. Doesn't this signal that the True Religion brand is, uh, kinda worth f*ck all and the company's success is dependent upon shying away from it? Hmmm. 
• Jurisdiction: D. of Delaware (Sontchi)
• Capital Structure: $60mm ABL (Deutsche Bank AG New York Branch), $400mm first lien TL (Delaware Trust Company, as successor to Deutsche Bank AG New York Branch), $85mm second lien TL (Wilmington Trust National Association, as successor to Deutsche Bank AG New York Branch)
• Company Professionals:
  • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, James O'Neill)
  • Financial Advisor: Maeva Group LLC (Harry Wilson)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Sponsor: Towerbrook Capital Partners LP
    • Legal: Wachtell Lipton Rosen & Katz LLP (Joshua Feltman, Emil Kleinhaus) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Daniel Butz)
  • Ad Hoc Group of Lenders (Apex Credit Partners LLC, Farmstead Capital Management LLC, Goldman Sachs Asset Management LP, Investcorp Credit Management US LLP, Palmer Square Capital Management LLC, Southpaw Asset Management LP, Waddell & Reed Investment Management Company and Ivy Investment Management Company, 
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Allison Miller, Jason Rubin, Yochun Katie Lee) & (local) Ashby & Geddes PA (Karen Skomorucha Owens, Stacy Newman)
    • Financial Advisor: Moelis & Company LLP
    • DIP Lender: Citizens Bank NA 
      • Legal: Morgan Lewis & Bockius LLP (Robert A.J. Barry, Julia Frost-Davies, Christopher Carter) & (local) Reed Smith LLP (Kurt Gwynne, Emily Devan)
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Max Schlan, Lauren Reichardt) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz, Sally Veghte)
      • Financial Advisor: Province Inc. (Peter Kravitz)

Updated 8/8/17

New Chapter 11 Filing - rue21 Inc.

rue21 Inc.

• 5/15/17 Recap: Pennsylvania-based specialty fashion retailer (owned by private equity shop Apax Partners LP) with 1184 brick-and-mortar locations (pre recent closing initiative) in various strip centers, regional malls and outlet centers filed for bankruptcy to (i) further revamp its e-commerce strategy, (ii) improve the in-store experience, (iii) right-size the store footprint and lease portfolio, (iv) de-lever its capital structure, and (v) effectuate a long-term business plan under its relatively new management. The numbers here are interesting: the company had a negative EBITDA swing of approximately $51mm from 2015 to 2016 - despite rising sales. The company's girls' division got decimated due to "an evolution of customer tastes." Wow! Who knew that teenage girls have fickle fashion tastes? These merchandising issues combined with (a) supply chain issues (heightened - in a self-fulfilling kind of way - by all of the rumors surrounding the company's bankruptcy), (b) "the shift away from brick-and-mortar retail sales to online channels," AND (c) a "not as robust" e-commerce presence relative to competitors, to put the company in a tough spot. A digression: we have previously noted David Simon's comments on the Simon Properties Group (SPG) earnings call from 4/27/17 that SPG is NOT experiencing a decline in traffic - though he offered absolutely ZERO data to back that up. According to SPG's own website, there are currently 90 rue21 locations in SPG properties (which translates to nearly 8%): we're curious to see whether any of these 90 locations will be featured in store closing motions coming soon to a bankruptcy court near you; indeed, in the first instance, it appears that some already are). The company is proposing a deal whereby the Term Lenders will effectively own the majority of the company post-bankruptcy after rolling-up a $100 DIP credit facility (applied in addition to $50mm of new money to be rolled into an exit facility). They've been so kind so as to give general unsecured creditors (read: the little guys) a 4% equity kiss - but only if they vote to accept the plan. Otherwise, the "death trap" door opens and general unsecured creditors end up with nada. We're sure a creditors' committee will have something to say about that. 
• Jurisdiction: W.D. of Pennsylvania
• Capital Structure: $150mm RCF ($78mm funded)(Bank of America), $521mm '20 TLB (Wilmington Savings Fund Society as successor to JPMorgan Chase Bank NA), $239mm '21 9% unsecured bonds (Wells Fargo Bank NA).    
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jonathan Henes, Nicole Greenblatt, Robert Britton, George Klidonas) & (local counsel) Reed Smith LLP (Eric Schaffer, Jared Roach)
  • Financial Advisor: Berkeley Research Group LLC (Stephen Coulombe, Kyle Richter, Patrick Farley)
  • Investment Banker: Rothschild Inc. (Neil Augustine, Jonathan Brownstein)
  • Real Estate Advisor: A&G Realty Partners LLC
  • Liquidator: Gordon Brothers Retail Partners LLC
    • Legal: Greenberg Traurig LLP (Nancy Peterman)
  • Claims Agent: KCC (*click on company name for access to the free docket)
• Other Parties in Interest:
  • ABL Agent and DIP ABL Agent: Bank of America
    • Legal: Morgan Lewis & Bockius LLP (Matthew Furlong, Marc Ledue, Julia Frost-Davis) & (local) Buchanan Ingersoll & Rooney PC (James Newell, Timothy Palmer, Kelly Neal)
  • TL Agent and DIP TL Agent: Wilmington Savings Fund Society FSB and Term Lender Group (Bayside Capital LLC, Benefit Street Partners LLC, Bennett Management Corporation, Citadel Advisors LLC, Eaton Vance Management, JPMorgan Chase Bank NA, Octagon Credit Investors LLC, Southpaw Credit Opportunity Master Fund LP, Stonehill Capital Management LLC, Voya Investment Management)
    • Legal: Jones Day LLP (Scott Greenberg, Michael J. Cohen, Jeffrey Bresch, Genna Ghaul)
    • Financial Advisor: PJT Partners
  • Indenture Trustee: Wells Fargo Bank NA
    • Legal: Milbank Tweed Hadley & McCloy LLP (Gerard Uzzi, Robert Nussbaum, Eric Stodola)
  • Sponsor: Apax Partners LP
    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Nicholas Baker, Jonathan Endean) & Duane Morris LLP (Joel Walker, Kenneth Argentieri)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Michael Klein, Lauren Reichardt) & Fox Rothschild LLP (John Gotaskie Jr.)
    • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated 7/12/17