New Chapter 11 Bankruptcy Filing - Golden Eagle Entertainment $ENT

Golden Eagle Entertainment

July 22, 2020

Suffice it to say, high correlation to the airline and cruiseline industries is a credit negative these days. A few months ago Speedcast — 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 — discovered this the hard way and free fell into bankruptcy court. There’s still no resolution of that case. Similarly, Global Eagle Entertainment Inc. ($ENT), a business that generates revenue by (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other “away-from-home” nontheatrical markets, and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets, couldn’t avoid trouble once COVID-19 shutdown its core end users. No monthly recurring revenue model can save a company when its clients are effectively closed for business AND there’s $855.6mm of funded debt to service. Not to state the obvious.

Things may get worse before they get better. The company’s largest customer is Southwest Airlines Co. ($LUV) (21% of overall revenue) and it has a pretty bearish take on …

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• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $85mm RCF, $503.3mm TL, $188.7mm second lien notes, $82.5mm unsecured convertible notes.

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Madeleine Parish, Ted Dillman, Helena Tseregounis, Nicholas Messana, Eric Leon) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond, Betsy Feldman)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Greenhill & Co. Inc.

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

• Other Parties in Interest:

  • Prepetition First Lien Admin Agent & DIP Agent: Citibank NA

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius)

  • Ad Hoc DIP & First Lien Lender Group: Apollo Global Management, L.P., Eaton Vance Management, Arbour Lane Capital Management, Sound Point Capital Management, Carlyle Investment Management LLC, Mudrick Capital Management, BlackRock Financial Management, Inc.

    • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Michael Cohen, Jason Goldstein) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

  • Second Lien Agent: Cortland Capital Market Services LLC

  • Second Lien Noteholders: Searchlight Capital Partners LP

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Michael Turkel, Irene Blumberg, Elizabeth Sacksteder) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Southwest Airlines Inc.

    • Legal: Vinson & Elkins LLP (William Wallander, Paul Heath, Robert Kimball, Matthew Struble) & Saul Ewing Arnstein & Lehr LLP (Lucian Murley)

  • AT&T Corp.

    • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Brett Turlington)

  • Terry Steiner International

    • Legal: Loeb & Loeb LLP (Daniel Besikof, Geneva Shi)

  • Telesat International Limited

    • Legal: Hodgson Russ LLP (Garry Graber)

  • Nantahala Capital Management LLC

    • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

New Chapter 11 Bankruptcy Filing - API Americas Inc. (f/k/a AP Foils Inc.)

API Americas Inc.

February 2, 2020

Kansas-based (like, real Kansas-based, as in not in Missouri) API Americas Inc. and its affiliate API (USA) Holdings Limited filed for bankruptcy in the District of Delaware.* API Americas is a manufacturer of foils, laminates, and holographic materials. Among other customers, API Americas provides (i) packaging to companies in the premium drinks, confectionery, tobacco, perfume, personal care, cosmetics, and healthcare sectors and (ii) laminated paper and board products to end users focused on fine spirits, tobacco, confectionary and beauty brands. It has facilities in both Kansas and Indiana.

The debtors appear to be victims of disruption.** They note:

The Debtors have suffered from operating losses over the last couple of years, arising out of three main factors. First, the Debtors have experienced a significant drop in demand for their products, due to unfavorable market dynamics and a shift toward more environmentally sustainable products. In large part, the drop in demand is due to tobacco customers shifting to lower cost, alternative packaging and a substantial portion of the US market moving from merchant to captive.

Given the recent push towards ESG, we suspect we’ll see more debtors note “a shift towards more environmentally sustainable”-everything as a significant headwind. Interestingly, the debtors also note that operating losses are also the result of competitive pressure stemming from overcapacity in the industry. In other words, the demand side is decreasing while the supply-side seems robust. What other companies will follow the debtors into bankruptcy as a result? 🤔

We’ve been commenting here at PETITION that the consumer has been carrying the US economy for months now as certain major manufacturing and services indices have, in contrast to increasing consumer confidence and spending numbers,*** been reflecting negative warning signs about the state of the economy.**** Interestingly, the debtors highlight:

…the manufacturing sector in general has faced economic headwinds in recent months. On January 10, 2020, the New York Times reported that the Institute of Supply Management’s manufacturing index for December 2019 reflected the fastest rate of contraction since June 2009.

We repeat: what other companies will follow the debtors into bankruptcy as a result? 🤔

The debtors have $44.4mm outstanding under its ‘17 $700mm revolving credit facility with PNC Bank NA. With the consent of PNC, they’ll use cash collateral to fund the cases.

So what now? Well, it’s a bit unclear. The papers give no indication of a trajectory for the cases but an attempted sale looks likely. That said, it doesn’t appear like a banker had been engaged at the time of filing.

*Ultimate parent API Group Limited entered administration proceedings in the UK on 1/31/20.

**The debtors cite other specific reasons for its financial distress including poor integration/consolidation of facilities and capex required after the acquisition of one of its plants. These issues cost the debtors $11mm over since 2016.

***Recent consumer confidence numbers continue to be positive.

Source: The Daily Shot

**** Of course, different surveys generally reflect mixed messaging on this front. For instance, the Fed manufacturing index showed some positive signs.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $44.4mm RCF (PNC Bank NA)

• Professionals:

  • Legal: Eversheds Sutherland US LLP (Edward Christian, Mark Sherrill) & Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Monique DiSabatino)

  • Financial Advisor: Ernst & Young LLP (Briana Richards, Jon Henrich)

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

• Other Parties in Interest:

  • Prepetition Lender: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon, Stanley Tarr, Mark Rabinowitz)

📜New Chapter 11 Bankruptcy Filing - SFP Franchise Corp. (aka Papyrus)📜

SFP Franchise Corp.

January 23, 2010

Just last week someone from the PETITION team needed to get a card commemorating a family occasion and checked out the Papyrus store in Grand Central Station. It was jam-packed. She then went on to spent $7.99 on a frikken card — something that, it seems, was just $2.99 a few years ago. We suppose there’s a $4 premium for cards that look hand-created yet are mass-produced. Whatever. Anyway, inflation notwithstanding, Tennessee-based SFP Franchise Corp. and its affiliate Schurman Fine Papers filed for bankruptcy this week. Sure, sure, they sell $7.99 cards but at the time of filing, the debtors were down to their last $32k. 😬

This is NOT a story about disruption in the way some might expect. No, electronic cards that literally NOBODY ON THE PLANET OPENS did not destroy this business. At least significantly enough for the company to acknowledge it as a factor. People still dig physical acknowledgements. Instead, this is a story about over-expansion, poor timing, bad deals and over-reliance on one counterparty. In this case, American Greetings Corporation.

The debtors started in 1950 as a greeting card and stationary wholesaler. They expanded into franchise, retail and online over time and the expansion brought on some pain in 2008-2009 (shortly after the company re-purchased franchises). At that time, the debtors engaged with American Greetings as a strategic partner. The debtors sold American Greetings their wholesale business and brand and related trademarks. In turn, the debtors acquired the retail business previously operated by American Greetings — both in the US and Canada (PETITION Note: if you’re thinking, “I thought that brand and trademarks are really the only thing of value for retailers today, well, you’re not wrong.”). Score one for American Greetings here: it dumped its brick-and-mortar retail on the debtors right before the retail sh*tstorm hit. 👍

The deal is special in retrospect. American Greetings agreed to (i) supply the debtors product for an initial term of 7 years, and (ii) provide a royalty-free license of the trademarks for 10 years. In exchange, the debtors agreed to (i) provide fee-generating marketing services for 7 years and (ii) collect and provide point-of-sale data to American Greetings for an initial term of 7 years (for a fee). In essence, the debtors didn’t own or control the product and didn’t own or control the intellectual property. Said another way, this business was dead in 2009: the debtors just didn’t know it yet.

Well, it’s now 2020 and the debtors are, in fact, officially dead. American Greetings pulled the plug in December when it notified the debtors that it was terminating the agreements (citing default under the agreements). Instantaneously, the debtors lost access to product which, in turn, affected revenues.

All 254 stores in the US (178) and Canada (76) will close. 1,100 people are going to need to find new jobs. Trade creditors owed approximately $8mm are essentially screwed. And there will now be more empty boxes in malls. The ramifications of a liquidating retailer cannot be overstated.

The debtors will seek permission to use cash collateral to conduct, with the assistance of Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC, an orderly liquidation under chapter 11.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $6.675mm RCF (Wells Fargo Bank NA), $10mm LOC (PNC Bank NA), $38.7mm subordinated debt (AG, Carlton Cards Limited, Papyrus-Recycled Greetings Canada Ltd.)

• Professionals:

  • Legal: Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Nicolas Jenner)

  • Financial Advisor/CRO: Mackinac Partners LLC (Craig Boucher)

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC & Hilco Merchant Resources LLC

    • Legal: Greenberg Traurig LLP (Jeffrey Wolf, Dennis Meloro)

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

• Other Parties in Interest:

  • Prepetition Agent: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox, Anthony Stumbo, Paul Bekker) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Subordinated Creditor: American Greetings Corporation

    • Legal: Baker & Hostetler LLP (Michael VanNiel, Adam Fletcher) & Saul Ewing Arnstein & Lehr LLP (John Demmy)

😷New Chapter 11 Filing - Center City Healthcare LLC (d/b/a Hahnemann University Hospital)😷

Center City Healthcare LLC

June 30, 2019

We take a break from our regularly scheduled oil and gas distress to bring you some regularly scheduled healthcare distress. That’s right: more healthcare distress. Here, Philadelphia Academic Health System LLC and 12 affiliated debtors — including two major hospitals in Philadelphia, St. Christopher’s Hospital for Children (“STC”) and Hahnemann University Hospital (“HUH”) and related physician practices — have filed for bankruptcy in Pennsyl…strike that…in the District of Delaware.* Gotta love venue!

This bankruptcy case likely marks the end of HUH, an academic medical center that (a) is the primary teaching hospital for Drexel University and (b) has been providing healthcare services since 1848.

According to the debtors, their troubles can be traced back to an August 2017 acquisition — consummated in January 2018 — of the assets (i.e., operating entities, non-debtor entities owning the real estate upon which the hospital operate, and certain receivables) from Tenet Business Services Corporation. The debtors’ primary source of funding for the acquisition was a pre-petition credit facility from Midcap Funding IV Trust.

Immediately after the sale, the debtors realized that they bought a lemon. Per the debtors:

Disputes arose between the Debtors and Tenet with regards to, among other things, the “Net Working Capital Adjustment” provided for under the parties’ Asset Sale Agreement, most notably, for overstated amounts of accounts receivable totaling approximately $21 million. The Debtors also learned that approximately $5 million of amounts received by Tenet at closing in order for it to pay certain accounts payable was never in fact paid. These issues resulted in a significant liquidity shortfall that adversely affected the Debtors’ operations almost immediately after closing of the Acquisition.

The parties are now in litigation with Tenet asserting counterclaims. Gotta hate when that happens. And that’s not the end of it:

Disputes also arose between the parties regarding the financial condition of the Debtors’ businesses, wherein the Debtors asserted that they were led to believe during due diligence process for the Acquisition that the business, as a whole, was essentially breaking even through November 2017 on an EBITDA basis. In fact, the business lost more than $6 million during its first full operational month in February 2018, and continues to experience substantial losses. The Debtors and their affiliates have asserted indemnity and fraud claims against Tenet on these grounds, which Tenet disputes.

Basically this is a hot mess. Coupled with (i) disputes with Drexel, (ii) delays in, and reduction of, payments of supplemental payments from the Commonwealth of Pennsylvania, (iii) decreased patient volumes in 2018, (iv) increased losses by certain of the physician groups, (v) material declines in outpatient procedures and surgeries; and (vi) reductions in average daily census, partly due to a reduction in average length of stay and reduced direct admissions, HUH encountered a maelstrom of negative operational issues to the tune of a pre-tax 2018 loss of approximately $69mm. STC is profitable; it, however, is dragged down by the rest of the enterprise. All in, the debtors pre-tax losses in 2018 exceeded $85mm and have not abated in 2019. Due to this piss poor financial performance, the debtors defaulted on their MidCap credit facility.

The debtors intend to use the chapter 11 process to pursue an orderly wind down of HUH while, contemporaneously, pursuing a sale of STC and the related physician practices. No stalking horse bidder is currently lined up. The debtors do, however, have a commitment from Midcap for $65mm of DIP financing, of which it appears less than $7mm will be new money.

Now is an occasion for Philly to, once again, show how tough it can be.

*SCH, HUH and their corporate parent, Philadelphia Academic Health System LLC, are all DE LLCs.

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: $38.6mm RCF & $20mm TL (Midcap Funding IV Trust)

• Professionals:

  • Legal: Saul Ewing Arnstein & Lehr LLP (Monique Bair DiSabatino, Mark Minuti, Jeffrey Hampton, Adam Isenberg, Aaron Applebaum, Jeremiah Vandermark) & Klehr Harrison Harvey Branzburg LLP

  • Financial Advisor/CRO: EisnerAmper LLP (Allen Wilen)

  • Investment Banker: SSG Advisors LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Lender ($65mm): MidCap Funding IV Trust

  • Tenet Business Services Corp.

    • Legal: Kirkland & Ellis LLP (Gregory Pesce) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones)

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

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: See below.

• Company Professionals:

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

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Guggenheim Securities LLC (Durc Savini)

  • Liquidator: Gordon Brothers Group LLC

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

  • Real Estate Advisors: A&G Realty Partners

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

• Other Parties in Interest:

  • Barclays Bank PLC

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

  • Citizens Bank NA

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

  • Steinhoff International Holdings N.V

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

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

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

New Chapter 11 Filing - Apex Xpress, Inc.

Apex Xpress, Inc.

2/16/18

Provider of copy equipment installation, flatbed services, white glove delivery services, warehousing and transportation services filed for bankruptcy. The company filed for bankruptcy on account of increased competition in its various service spaces and a protracted litigation over the company's proposed withdrawal from a multiemployer pension fund. 

• Jurisdiction: D. of New Jersey (Judge Meisel)
• Capital Structure: $145,000 secured debt (Freedom Bank of New Jersey)     
• Company Professionals:
  • Legal: Saul Ewing Arnstein & Lehr (Dipesh Patel, Sharon Levine, Melissa Martinez)
  • Financial Advisor: Argus Management Corporation (Joseph Baum, Steve Norowitz)
  • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)