🛫New Chapter 11 Bankruptcy Filing - Ravn Air Group Inc.🛫

Ravn Air Group Inc.

April 5, 2020

Ravn Air Group Inc. and seven affiliates (the “debtors”), owners and operators of aircraft providing air transportation and logistics services to passenger, mail, charter and freight markets in Alaska, filed for bankruptcy in the District of Delaware. In addition to individual passengers, the debtors service, primarily through three airlines, the oil and gas industry, the seafood industry, the mining industry and the travel and tourism industries. Substantial shareholders include private equity firms W Capital Partners and J.F. Lehman & Company.

This is a COVID-19 story. The debtors highlight the seasonal nature of their business — high costs in Qs one and four and robust business in Qs two and three. COVID-19 hit Alaska, in earnest, on March 12 when the Governor of Alaska confirmed the first case of coronavirus in Alaska on live television. There was an immediate impact: revenues decreased 80-90% YOY as passengers stopped flying and local communities sought to cease passenger flights into their region. Eight days later, the State of Alaska issued a strong advisory to all Alaskans to stop all non-essential travel. As you can imagine, all of these things coalesced to create a harsh negative cash flow scenario for Ravn.

How harsh? Merely 11 days after the initial case announcement, the debtors announced layoffs. Four days later, they announced a second round. The debtors pivoted to survival mode but all of the cost-saving measures in the world couldn’t overcome the near-total loss of revenue coming in. Efforts to find a financing solution outside of bankruptcy did not materialize. Per the debtors:

Through the month of March, the Debtors engaged in extensive negotiations with the Prepetition Secured Parties regarding the future of the Debtors and their operations, their ability to weather the COVID-19 pandemic with or without assistance (including grants and loans under the CARES Act), and the willingness of the Prepetition Secured Parties to provide bridge financing in light of the foregoing. These negotiations (as well as the discussions with government officials described below) were made all the more difficult because of the inherent uncertainty regarding how long and the extent to which the current COVID-19 operating environment will last, as well as the fact that they were conducted telephonically, rather than inperson, as a result of COVID-19.

Wait. Zoom Video Communications Inc. ($ZM) isn’t the end-all be-all savior it’s been made out to be?!? Go figure.

These debtors now also serve as Exhibit A to the argument that the federal government ought to have acted sooner to pass the Coronavirus Aid, Relief, and Economic Security Act (CARES) and put into place mechanisms for getting that much-needed capital out to the businesses that need it. The debtors add:

Separately, the Debtors also spoke with high-ranking representatives of the State of Alaska and the federal government. Unfortunately, by the end of March 2020, it became clear that any state or federal government financial assistance or other relief was not going to be available before the Debtors ran out of cash and had to suspend operations.

Eesh. Now that’s sh*tty timing. They pushed through an application on April 3, the first day to do so, but liquidity was so low that the debtors couldn’t make payroll. A bankruptcy filing, therefore, became necessary in order to nail down DIP financing to pay employee wages and, through the efforts of a skeleton crew, administer the bankruptcy cases. At the time of the actual filing, even the DIP documentation wasn’t complete.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $90.9mm RCF (BNP Paribas)

• Professionals:

  • Legal: Keller Benvenutti Kim LLP (Tobias Keller, Jane Kim, Thomas Rupp) & Blank Rome LLP (Victoria Guilfoyle, Stanley Tarr, Jose Bibiloni)

  • Financial Advisor: Conway MacKenzie LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Agent: BNP Paribas

    • Legal: Winston & Strawn LLP (David Neier, Carrie Hardman) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Large equityholders: W Capital Partners

New Chapter 11 Bankruptcy Filing - High Ridge Brands Co.

High Ridge Brands Co.

December 18, 2019

Connecticut-based, private-equity-owned (Clayton Dubilier & Rice LLC) High Ridge Brands Co. (“HRB”) filed for bankruptcy in the District of Delaware. High Ridge what? Right, we wouldn’t expect you to know what HRB is but you may very well know several of the brands in its portfolio. Ever visit Nana’s house for the weekend, hop into the shower, and see a boatload of VO5 or White Rain shampoo on the shelf? Zest soap? Or have you ever seen some shadeball do this on the street?

Oh yeah. Nothing says class like Binaca! Anyway, all four of the aforementioned products are in HRB’s brand portfolio. That portfolio also includes the Coast, Firefly, LA Looks, Rave, Reach, Salon Grafix, SGX NYC, Thicker Fuller Hair, and the Zero Frizz brands; the most recent portfolio addition was, in late 2016, Dr. Fresh, which sounds like a Marvel superhero but is an oral-care brand focused on value toothbrushes and the like. This acquisition marked an expansion away from HRB’s historical focus on primarily skin cleaning and hair care products in the “value” segment. HRB describes their business model as follows:

“Given their focus on value price points, the goal of the Debtors’ early strategy was to minimize costs, which they did by concentrating supply and optimizing logistics to leverage unit volumes to create a low cost structure with fully outsourced manufacturing and logistics primarily in the United States. Said differently, the Debtors’ original business plan revolved around low-cost, low-margin, and high-volume product distribution.”

Interestingly, the gangbusters economy has not been so gangbusters for HRB and, by extension here, CD&R’s equity. HRB, therefore, has recently pivoted:

Given that the Company’s hair care and skin cleansing brand portfolio was concentrated in product segments (e.g., bar soap and hair spray) and price points (e.g., opening price points and value) that were shrinking due to shifting consumer preferences and a strong economy that led to a reduction in shelf space allotted to value priced products, the Debtors have focused recently on transformative innovation to drive topline growth in growing segments (e.g., natural products, texturizers, and body wash) at slightly higher price points. The company has also invested in capability and capacity across the organization to elevate the speed it can bring products to market, its customer service, and its performance management. These tactics, in conjunction with their recent acquisitions, have positioned the Debtors well for sustainable, profitable growth.

Now, if that last bit about razzle dazzle change and high prospects seems like a sales pitch to you, well, give yourself a pat on the back because that is precisely the point of this chapter 11 filing. And the first day filing papers reflect this: the First Day Declaration is replete with chest-pounding talk about how great HRB’s asset-light model is, how large the total addressable market is for their products, how diversified and recognizable their brands are, and how deep their customer relationships are. With respect to the latter, HRB touts its key customers: “Walmart, Dollar Tree, Dollar General, Walgreens, Kroger, Family Dollar, 99 Cents Only Stores, CVS, HEB, Wakefern and other blue chip retailers.” UM, WOULD THESE BE THE VERY SAME CUSTOMERS WHO ARE TAKING AWAY HRB’S SHELF SPACE? 🤔😜

Someone will have to buy into all of ⬆️ and disregard HRB’s actual recent performance — performance that has sucked sh*t to the tune of $301.1mm in net sales and a $62.5mm net loss (and $35.5mm of adjusted EBITDA…adjusted for what we wonder?). We would love to see the data room: given increased emphasis on higher quality product at affordable prices, among other factors, we bet the numbers are showing disturbing quarterly declines but that’s just a guess.

HRB highlights the following as events that led to its chapter cases:

• Increased competition in the personal care industry and a shift away from its value brands;

• An inability to account for increasing commodity costs when marketing to value customers;

• A late shift to higher-margin products;

• An education challenge in that HRB will now need to educate the consumer about its newer, higher-margin brands — something that has and will elevate marketing costs; and

• A soap supplier (a) jamming HRB with higher costs and HRB not having replacements at the ready and (b) failing to deliver the supply HRB needed.

Of course, there’s also the capital structure. HRB has over $500mm of debt split between a $50mm revolving credit facility, a $213.4mm term loan, and $261mm of '25 8.875% senior unsecured notes (as well as $28.7mm of trade debt).

Tellingly, HRB wasn’t able to get its lenders on board with a restructuring transaction. Per HRB:

…the Debtors explored (1) a consensual restructuring among the Debtors, the Prepetition First Lien Lenders, and the Noteholders; (2) a plan of reorganization sponsored by the Prepetition First Lien Lenders; (3) a toggle plan with a focus on a sale of the Debtors’ assets with a reorganization backstop; (4) a chapter 11 sale process with the Prepetition First Lien Lenders acting as a stalking horse bidder; and (5) a chapter 11 sale process funded by a debtor-in-possession facility provided by the Prepetition First Lien Lenders or some subset thereof.

The Debtors’ initial goal was to effectuate a consensual restructuring out of court, and the Debtors engaged with both the Prepetition First Lien Lenders and the Ad Hoc Group to explore this possibility prior to commencing the Sale Process … in September of this year. As part of this, the Debtors provided the Ad Hoc Group with a significant amount of due diligence and held a number of meetings with the Ad Hoc Group’s professionals. Although the initial discussions did result in the Ad Hoc Group providing the Debtors with an initial set of potential terms for a restructuring, negotiations ultimately dwindled such that the Debtors decided they needed to pivot to other restructuring alternatives.

Now, it’s hard to say, from the outside looking in, what this all means. Getting this kind of deal done out-of-court was — depending on how concentrated the debt holdings are — probably unrealistic. It sounds like the lenders lacked not only the numbers to get something done but the conviction. There’s no restructuring support agreement here. There’s not even a stalking horse bidder. So, none of that is great.

On the plus side … maybe?… an earlier DIP commitment for $70mm has been decreased to $40mm ($20mm of which is a roll-up of prepetition amounts). HRB claims that this a reflection of the “liquidity position and forecasted liquidity needs over the course of the…cases” which would suggest that liquidity has improved since first discussing DIP financing back in August. Alternatively, it could mean that the DIP lenders are skittish given what appears to be a significant gap in the perception of value. The DIP matures in four months — presumably enough time to allow a sale process to play out through the beginning of February. Now the pressure is on PJT Partners Inc. ($PJT) to deliver a potential buyer.

*****

One final thing to note here: the petition lists HRB’s top 50 creditors and, of that 50, only a handful are trade creditors. Typically you’d see the indenture trustee listed as the top creditor, subsuming the entirety of the outstanding debt issuance outstanding. Here, HRB individually listed each of the noteholders. This could mean that the company has, for the most part, kept its trade current, relegating a very small subset to unpaid status. Indeed, those few creditors listed are owed more than 50% of the outstanding trade debt.

Furthermore, the company filed a critical vendor motion seeking to pay $26.5mm in critical vendor, shipper, 503b9 and foreign vendor claims. That conveniently wouldn’t leave much of an unsecured creditor body outside of the notes.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $50mm RCF & $213.4mm TL (BMO Harris Bank NA), $261mm '25 8.875% senior unsecured notes (Wilmington Trust)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Ian Bambrick, Allison Mielke, Jared Kochenash) & Debevoise & Plimpton LLLP (M. Natasha Labovitz, Nick Kaluk III)

  • Financial Advisor/CRO: Ankura Consulting Group LLC (Benjamin Jones)

  • Investment Banker: PJT Partners LP (John Singh)

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

• Other Parties in Interest:

  • Equity Sponsor: Clayton Dubilier & Rice LLC

  • DIP Administrative Agent & Agent under the Prepetition First Lien Credit Agreement: BMO Harris Bank NA

    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Dov Goodman) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Indenture Trustee for the 8.875% ‘25 Senior Notes: Wilmington Trust NA

    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, Gianfranco Finizio) & Morris James LLP (Eric Monzo, Brya Keilson)

  • Ad Hoc Group of 8.875% ‘25 Senior Noteholders

⛽️New Chapter 11 Filing - HDR Holding Inc. (Schramm Inc.)⛽️

HDR Holding Inc. (Schramm Inc.)

June 24, 2019

It stands to reason that businesses centered upon servicing mining and oil and gas drilling rigs may be suffering a bit in the current — and by “current,” we mean the last five-or-so years — macroeconomic environment. HDR Holding Inc., a Pennsylvania-based company started in 1900(!), along with certain debtor affiliates, produces “a variety of mobile, top-head hydraulic rotary drilling rigs that are mounted on trucks, tracks and trailers.” The company makes money by (i) manufacturing and selling their various rig models to drillers, (ii) selling consumable drill parts that naturally deteriorate over time, and (iii) servicing their equipment. For reasons that are, by now, blatantly obvious to anyone following the distressed world, oil and gas drilling hasn’t exactly been an obscenely profitable endeavor these last few years (or, in the case of certain drilling regions, EVER, really).

And so demand for the debtors’ wares is down. Per the debtors:

Given its strong connections to the oil and gas industry, the Company has faced significant challenges pervasive in the industry over the past three to five years. Numerous oil and gas producers have significantly curtailed, if not entirely ceased, drilling new wells in response to declines in commodity prices that make such projects uneconomical. The result of this trend for the Company has been a reduced demand for both new rigs and for the related consumable drill parts as existing rig assemblies are idled, which has led to the Debtors failing to meet revenue projections and maintain compliance with the covenants under their prepetition credit facilities.

Ah, yes, the debt. The debtors have approximately $20mm in debt spread out across three different term loan facilities. In an attempt to better service this debt, the debtors have pivoted their sales efforts “to a steadier mining sector” (Bitcoin, maybe? We kid, we kid), now sell aftermarket equipment, and have “managed” their workforce and expenses to preserve cash with the hope that oil and gas might cover. Spoiler alert: it hasn’t. Nevertheless, the debtors purport to have increased performance over the last few years. Just not enough to service their capital structure.

Accordingly, over the last eight months, the debtors and their advisors have pursued a sale process with the hope of selling the business as a going concern. No third-party purchaser came forward pre-petition, unfortunately, and so the debtors seek to pursue a sale to their largest pre-petition equityholder…which also happens to be their largest pre-petition lender…AND which also happens to be their proposed DIP lender (GenNx360 Capital Parters LP). The committed DIP is $6mm at 12% and the proposed purchase price is $10.3mm plus a credit bid of the $6mm DIP amount. Pursuant to the terms of the DIP, the debtors seek to have a sale hearing on or about August 19 to have some cushion in advance of the August 28 sale order milestone under the proposed DIP.

We’ll, therefore, have at least one data point by the end of summer to show us how bullish folks are vis-a-vis a recovery in the oil and gas market.

• Jurisdiction: D. of Delaware (Judge Walrath)

• Capital Structure: $5.3mm Term Loan A (Hark Capital I LP), $6.5mm Term Loan B (GenNx360), $6mm Term Loan C (Citizens Bank NA)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Sean Greecher, Pauline Morgan,

  • Investment Banker: FocalPoint Partners LLC (Michael Fixler)

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

• Other Parties in Interest:

  • Largest EquityHolder & Stalking Horse Purchaser: GenNx360 Capital Partners L.P.

  • DIP Lender ($6mm at 12%): Schramm II Inc. (an acquisition vehicle created by GenNx360)

    • Legal: Winston & Strawn LLP (Carey Schreiber) & (local) Robinson+Cole LLP (Jamie Edmonson)

  • Term Loan A Lender: Hark Capital I LP

    • Legal: Perkins Coie LLP (Jordan Kroop) & (local) The Rosner Law Group LLC (Frederick Rosner)

Updated 7/7 #65

🔫New Chapter 11 Filing - Sportco Holdings Inc. (United Sporting Companies Inc.)🔫

SportCo Holdings Inc. (United Sporting Companies Inc.)

June 10, 2019

Callback to four previous PETITION pieces:

• Is that a Gun in Your Pocket or….? (Short #MAGA!!);

• New Chapter 11 - Remington Outdoor Company;

• Who is Financing Guns? (Remington Outdoor); and

• New Chapter 11 - AcuSport Corporation.

The first one — which was a tongue-in-cheek mock First Day Declaration we wrote in advance of Remington Outdoor Company’s chapter 11 bankruptcy — is, if we do say so ourselves, AN ABSOLUTE MUST READ. The same basic narrative could apply to the recent chapter 11 bankruptcy filing of Sportco Holdings Inc., a marketer and distributor of products and accessories for hunting, which filed for bankruptcy on Monday, June 10, 2019. Sportco’s customer base consists of 20k independent retailers covering all 50 states. But back to the “MUST READ.” There are some choice bits there:

Murica!! F*#& Yeah!! 

Remington (f/k/a Freedom Group) is "Freedom Built, American Made." Because nothing says freedom like blowing sh*t up. Cue Lynyrd Skynyrd's "Free Bird." Hell, we may even sing it in court now that Toys R Ushas made that a thing. 

Our company traces its current travails to 2007 when Cerberus Capital Management LP bought Remington for $370mm (cash + assumption of debt) and immediately "loaded" the North Carolina-based company with even more debt. As of today, the company has $950mm of said debt on its balance sheet, including a $150mm asset-backed loan due June '19, a $550mm term loan B due April '19, and 7.875% $250mm 3rd lien notes due '20. Suffice it to say, the capital structure is pretty "jammed." Nothing says America like guns...and leverage. 

Indeed, this is true of Sportco too. Sportco “sports” $23mm in prepetition ABL obligations and $249.8mm in the form of a term loan. Not too shabby on the debt side, you gun nuts!

More from our mock-up on Remington:

Shortly after Cerberus purchased the company, Barack Obama became president - a fact, on its own, that many perceived as a real "blowback" to gun ownership. Little did they know. But, then, compounding matters, the Sandy Hook incident occurred and it featured Remington's Bushmaster AR-15-style rifle. Subsequently, speeches were made. Tears were shed. Big pension fund investors like CSTRS got skittish AF. And Cerberus pseudo-committed to selling the company. Many thought that this situation was going to spark "change [you] can believe in," lead to more regulation, and curtail gun sales/ownership. But everyone thought wrong. Tears are no match for lobby dollars. Suckers. 

Instead, firearm background checks have risen for at least a decade - a bullish indication for gun sales. In a sick twist of only-in-America fate, Obama's caustic tone towards gunmakers actually helped sell guns. And that is precisely what Remington needed in order to justify its burdensome capital structure and corresponding interest expense. With Hillary Clinton set to win the the election in 2016, Cerberus' convenient inability to sell was set to pay off. 

But then that "dum dum" "ramrod" Donald Trump was elected and he enthusiastically and publicly declared that he would "never, ever infringe on the right of the people to keep and bear arms."  While that's a great policy as far as we, here, at Remington are concerned, we'd rather him say that to us in private and declare in public that he's going to go door-to-door to confiscate your guns. Boom! Sales through the roof! And money money money money for the PE overlords! Who cares if you can't go see a concert in Las Vegas without fearing for your lives. Yield baby. Daddy needs a new house in Emerald Isle. 

Wait? "How would President Trump say he's going to confiscate guns and nevertheless maintain his base?" you ask. Given that he can basically say ANYTHING and maintain his base, we're not too worried about it. #MAGA!! Plus, wink wink nod nod, North Carolina. We'd all have a "barrel" of laughs over that.  

So now what? Well, "shoot." We could "burst mode" this thing, and liquidate it but what's the fun in that. After all, we still made net revenue of $603.4mm and have gross profit margins of 20.9%. Yeah, sure, those numbers are both down from $865.1mm and 27.4%, respectively, but, heck, all it'll take is a midterm election to reverse those trends baby. 

That was a pretty stellar $260mm revenue decline for Remington. Thanks Trump!! So, how did Sportco fare?

Want to quantify how scared people were that @BarackObama would take away their guns?

Per Sportco's bankruptcy filing:

Average net sales '12-'16: $885.3mm.
Net sales '17: $531.1mm.
Net sales '18: $557mm.

President Trump cost this company $300+mm in annual sales. #MAGA! pic.twitter.com/yBQOTLRFPW

— 💥PETITION💥 (@petition) June 10, 2019

Trump seems to be failing to make America great again for those who sell guns.

But don’t take our word for it. Per Sportco:

In the lead up to the 2016 presidential election, the Debtors anticipated an uptick in firearms sales historically attributable to the election of a Democratic presidential nominee. The Debtors increased their inventory to account for anticipated sales increases. In the aftermath of the unexpected Republican victory, the Debtors realized lower than expected sales figures for the 2017 and 2018 fiscal years, with higher than expected carrying costs due to the Debtors’ increased inventory. These factors contributed to the Debtors tightening liquidity and an industry-wide glut of inventory.

Whoops. Shows them for betting against the stable genius. What are these carrying costs they refer to? No gun sales = too much inventory = storage. Long warehousemen.

Compounding matters, the company’s excess inventory butted with industry-wide excess inventory sparked by “the financial distress of certain market participants.” This pressured margins further as Sportco had to discount product to push sales. This “further eroded…slim margins and contributed to…tightening liquidity.” Per the company:

Many of the Debtors’ vendors and manufacturers suffered heavy losses as a result of the Cabela’s-Bass Pro Shop merger, Dick’s Sporting Good’s pull back from the market, and the recent Gander Mountain and AcuSport bankruptcies. Those losses adversely impacted the terms and conditions on which such vendors and manufacturers were willing to extend credit to the Debtors. With respect to the Gander Mountain and AcuSport bankruptcies, the dumping of excess product into the marketplace pushed prices—and margins— even lower. The resulting tightening of credit terms eroded the Debtors’ sales and further contributed to the Debtors’ tightening liquidity.

The company also blames some usual suspects for its chapter 11 filing. First, weather. Weather ALWAYS gets a bad rap. And, of course, the debt.

Riiiiiight. About that debt. When we previously asked “Who is Financing Guns?,” the answer, in the case of Remington, was Bank of America Inc. ($BAC), Wells Fargo Inc. ($WFC) and Regions Bank Inc. ($RF). Likewise here. Those same three institutions make up the company’s ABL lender roster. We’re old enough to remember when banks paid lip service to wanting to do something about guns.

One other issue was the company’s inability to…wait for it…REALIZE CERTAIN SUPPLY CHAIN SYNERGIES after acquiring certain assets from once-bankrupt competitor AcuSport Corporation. Per the company:

The lower than anticipated increase in customer base following the AcuSport Transaction magnified the adverse effects of the market factors discussed above and resulted in a faster than expected tightening of the Debtors’ liquidity and overall deterioration of the Debtors’ financial condition.

The company then ran into issues with its pre-petition lenders and its vendors and the squeeze was on. Recognizing that time was wearing thin, the company hired Houlihan Lokey Inc. ($HLI) to market the assets. No compelling offers came, however, and the company determined that a chapter 11 filing “to pursue an orderly liquidation…was in the best interest of all stakeholders.”

R.I.P. Sportco.

*****

But not before you get in one last fight.

The glorious thing about first day papers is that they provide debtors with the opportunity to set the tone in the case. The First Day Declaration, in particular, is a narrative. A narrative told to the judge and other parties-in-interest about what was, what is, and what may be. That narrative often explains why certain other requests for relief are necessary: that is, that without them, there will be immediate and irreparable harm to the estate. The biggest one of these is typically a request for authority to tap a committed DIP credit facility and/or cash collateral to fund operations. On the flip side of that request, however, are the company’s lenders. And they often have something to say about that — objections over, say, the use of cash collateral are common.

But you don’t often see an objector re-write the entire frikken narrative and file it prior to the first hearing in the case.

Shortly after the bankruptcy filing, Prospect Capital Corporation (“PCC”), as the second lien term loan agent, unleashed an objection all over the debtors. Per PCC:

Just a few years ago, the Debtors were the largest distributor of firearms in the United States, with reported annual revenue of in excess of $770 million. Contrary to the First Day Declaration filed in these cases, the Debtors’ demise was not due to outside forces such as the “2016 presidential election,” “disruptions in the industry” and “natural disasters. Rather, as a result of dividend recapitalization transactions in 2012 and 2013, the Debtors’ equity owner, Wellspring Capital, “cashed out” in excess of $183 million. After lining their pockets with over $183 million, fiduciaries appointed by Wellspring Capital to be directors and officers of the Debtors grossly mismanaged the business and depleted all reserves necessary to weather the storms and the headwinds the business would face. In a short time, the business went from being the largest firearms distributor in the United States to being liquidated. As a result of years of mismanagement and the failure of the estates’ fiduciaries to preserve value, the Second Lien Lenders will, in all likelihood, recover only a small fraction of their $249.7 million secured loan claim. Years of mismanagement ultimately placed the Debtors in the position where they are in now….

This sh*t just got much more interesting: y’all know we love dividend recapitalizations. Anyway, PCC went on to object to the fact that this is an in-court liquidation when an out-of-court process would be, in their view, cheaper and just as effective; they also object to the debtors’ proposed budget and use of cash collateral. The upshot is that they see very little chance of recovery of their second lien loan and want to maximize value.

Of course, the debtors be like:

The numbers speak for themselves, they replied. They were $X of revenue between 2012 and 2016 and then, after Trump was elected, they’ve been $X-Y%. Plain and simple.

So where does this leave us? After some concessions from the DIP lenders and the debtors, the court approved the debtors requested DIP credit facility on an interim basis. The order preserves PCC’s rights to come back to the court with an argument related to cash collateral after the first lien lenders (read: the banks) are paid off in full (and any intercreditor agreement-imposed limitations on PCC’s ability to fight fall away).

Ultimately, THIS may sum up this situation best:

It’s genuinely difficult to pick the most villainous company in this story. Is it the company selling guns who made a big bet on people’s deepest fears and insecurities and then shit the bed? The private equity company bleeding the gun distributor dry and then running it straight into the ground? Or the other private equity company that is now mad it likely won’t get anything near what it paid out in the original loan to the distributor? Folks...let them fight.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $23.1mm ABL, $249mm term loan (Prospect Capital, Summit Partners)

• Professionals:

  • Legal: McDermott Will & Emery LLP (Timothy Walsh, Darren Azman, Riley Orloff) & (local) Polsinelli PC (Christopher Ward, Brenna Dolphin, Lindsey Suprum)

  • Board of Directors: Bradley Johnson, Alexander Carles, Justin Vorwerk

  • Financial Advisor/CRO: Winter Harbor LLC (Dalton Edgecomb)

  • Investment Banker: Houlihan Lokey Inc.

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

• Other Parties in Interest:

  • DIP Agent: Bank of America NA

    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Carrie Hardman) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele)

  • Agent for Second Lien Lenders: Prospect Capital Corporation

    • Legal: Olshan Frome Wolosky LLP (Adam Friedman, Jonathan Koevary) & (local) Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, John Lucian)

  • Prepetition ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank NA

  • Large equityholders: Wellspring Capital Partners, Summit Partners, Prospect Capital Corporation

  • Official Committee of Unsecured Creditors (Vista Outdoor Sales LLC, Magpul Industries Corporation, American Outdoor Brands Corporation, Garmin USA Inc., Fiocchi of America Inc., FN America LLC, Remington Arms Company LLC)

    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Eric Chafetz, Gabriel Olivera) & (local) Morris James LLP (Eric Monzo)

    • Financial Advisor: Emerald Capital Advisors (John Madden)

Update 7/7/19 #115

⛽️New Chapter 11 Bankruptcy Filing - White Star Petroleum Holdings LLC⛽️

White Star Petroleum Holdings LLC

May 28, 2019

Hey look. It’s Tuesday. It must be time for another oil and gas bankruptcy filing! White Star Petroleum Holdings LLC is the latest oil and gas company to make an oh-so-2015-like appearance in bankruptcy court. No need to knock your skull or check your watch: yes, it is very much 2019.*

The company, formerly known as American Energy — Woodford LLC, was originally formed in 2013 by American Energy Partners LP, a shared services platform founded by Aubrey McClendon, the eccentric wildcatter who plowed his life (literally) and billions of dollars of cash into the exploration and production business. In 2014, The Energy & Minerals Group LP (“EMG”) and other investors cut an equity check and, in this case, it didn’t take Mr. McClendon as long as usual to fail: by 2016, the company and its businesses were separated from American Energy to become White Star, a standalone company independent of the American Energy platform. Of course, in typical McClendon fashion, the company sprayed and prayed for a while prior to the transition, gobbling up Mississippian Lime and Woodford Shale assets along the way.

Which is not to say that, post separation/transition, the company just sat on its hands. In 2016 and thereafter, the company extended its shopping spree. First it acquired additional Mississippian Lime and Woodford Shale assets from Devon Production Company LP for approximately $200mm (funded in part by equity from ESG and borrowings under the company’s revolving credit facility). Then it acquired Lighthouse Oil and Gas LP (which was 49.4% minority owned by EMG, but whatevs) through a combination of equity and more borrowings under the credit facility. Finally, the company expanded its portfolio into the Sooner Trend Anadarko Canadian Kingfisher area with borrowings under its credit facility. If you’ve been paying attention, yes, E&P is a capital intensive business: there’s a reason why so many of these companies are levered up the wazoo.

What did that capital buy? “As of December 31, 2018, the Debtors had proved reserves of approximately 84.4 million barrels of oil equivalent (“boe”) across approximately 315,000 net leasehold acres….” But, to be sure, this is a company that focuses its exploration and production on “unconventional” resource plays. Said another way, it is a horizontal driller and hydraulic fracker: its assets tend to produce in high volume for two or so years and then tail off considerably requiring capital to acquire and develop a steady stream of new wells. Of course, an investment in new wells only works if the commodity environment permits it to. With oil and gas trading where it has been trading, well…suffice it to say…the environment is proving unaccommodating. Per the company:

“Despite controlling significant leasehold and mineral acreage in the MidContinent region, due to the declines in commodity prices in the fourth quarter of 2018 and the Debtors’ financial condition, the Debtors ceased drilling new wells in April 2019 and have not resumed such activities as of the Petition Date.”

Consequently, the company suffered a net loss of $114mm in 2018 after losing $14mm in 2017; it has negative working capital of $61mm as of 12/31/18 and $70mm as of the petition date. This sucker is burning cash.

The company’s capital structure looks as follows:

Source: First Day Declaration

The current capital structure is the result of clear triage undertaken by the company in the midst of a severe commodity downturn. WE CANNOT EMPHASIZE THIS ENOUGH: nearly every oil and gas exploration and production company under the sun was forced into some sort of balance sheet transaction around the 2015 time period — many in-court, others out-of-court in an attempt to stave off bankruptcy. Here, notably, the $10.3mm of unsecured notes represent the remnants of a distressed exchange that took place in 2015 whereby approximately $340mm of unsecured notes (with a 9% cash-pay interest coupon) were exchanged for approximately $348mm 12% second lien notes. Thereafter, in late 2015 and extending through August 2016, the company entered into a series of cash and equity transactions that took out the second lien notes in a cash-draining attempt to strengthen the balance sheet and extend liquidity (by way of reduced interest expense)**. The company was effectively playing whack-a-mole.

Alas, the company is in bankruptcy. That happens when your primary sources of capital are large equity checks, borrowings under a credit facility, and proceeds from producing oil and gas properties in a rough price environment. Of course, not all oil and gas properties are created equal either. This company happens to frack in challenging territory. Per the company:

Independent oil and gas companies, such as the Debtors, with Mississippian Lime-weighted assets in the Mid-Continent region have been particularly hard-hit by volatile market conditions in recent years and the majority of the Debtors’ peers in the region have filed for chapter 11 since 2015. This is in large part due to operational challenges unique to the region, including complex geological characteristics. One of these challenges is the Mississippian Lime’s relatively high ratio of “saltwater” to produced oil and gas. During the normal production of oil and gas, saltwater mixed with hydrocarbon byproducts comes to the surface, and its separation and disposal increases production costs. Low production volumes and higher than expected production costs, together with allegations that increased saltwater injection by the operators in the area caused increased seismic activity, resulted in many operators reducing activity and many capital providers discounting asset values in the region.

Recognizing the dire nature of the situation, the company’s RBL lenders effectuated a debilitating borrowing base redetermination that created a deficiency payment that the company simply couldn’t manage. This triggered a “potential” Event of Default under the facility. Thereafter, the company entered into an amendment with the RBL lenders with the hope of securing some capital to refinance the RBL. Spoiler alert: the company couldn’t get it done. The amendment also dictated that the company attempt to secure a buyer so as to repay the debt. To chapter 11 filing is meant to aid that marketing and sale process.*** To aid this process, the company has a commitment from MUFG Union Bank NA, its prepetition RBL Agent, for a DIP credit facility of $28.5mm as well as the use of cash collateral.

*We’d be remiss if we didn’t highlight that in the “AlixPartners 14th Annual Turnaround & Restructuring Experts Survey” released in February 2019, oil and gas was listed as the second most likely sector to face distress, with 36% of respondents predicting it would be a hot and heavy sector (up from 31% the in 2018).

**The company also refinanced its RBL, sold midstream and non-strategic properties and adjusted midstream pipeline commitments.

***Some trigger happy creditors beat the company to the punch here. On May 24, five “purported” creditors filed an involuntary bankruptcy petition against the company in the Western District of Oklahoma. Considering Baker Hughes Oilfield Operations Inc. ($GE) is among the top 5 largest creditors, we can’t say we’re that surprised.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: see above.

• Professionals:

  • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, Alexa Kranzley) & (local) Morris Nichols Arsht & Tunnel LLP (Derek Abbott, Gregory Werkheiser, Tamara Mann, Joseph Barsalona)

  • Independent Director: Patrick Bartels Jr.

  • Financial Advisor: Alvarez & Marsal LLC (Ed Mosley)

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • RBL Agent: MUFG Union Bank NA

    • Legal: Winston & Strawn LLP (Justin Rawlins)

  • TL Agent: EnLink Oklahoma Processing LP

  • Indenture Trustee: Wilmington Trust NA
    

🚽New Chapter 11 Bankruptcy Filing - Orchids Paper Products Company🚽

Orchids Paper Products Company

April 1, 2019

We first wrote about Orchids Paper Products Company ($TIS) back in November 2018 in “🚽More Trouble in Paper-Ville (Short A$$-Wipes)🚽.” It is a piece worth revisiting because it sums up the situation rather nicely. We wrote:

Orchids Paper Products Company ($TIS) is a Okahoma-based producer of bulk tissue paper which is later converted into finished products like paper towels, toilet paper and paper napkins; it sells its products for use in the “at home” market under private label to dollar stores, discount retailers and grocery stores. Its largest customers include the likes of Dollar General Corp. ($DG), Walmart Inc. ($WMT) and Family Dollar/Dollar Tree, which, combined, account for over 60% of the company’s sales. Given the rise of the dollar stores and discount retailers and the rise in private label generally, you’d think that this company would be killing it. Spoiler alert: it’s not. In fact, it is, by definition, insolvent.

And:

This company doesn’t produce enough toilet paper to wipe away this sh*tfest. See you in bankruptcy court.

And that’s precisely where they (and affiliates) are now — in the District of Delaware.

And the story hasn’t really changed: the debtors still struggle from operational issues related to their facilities, too much competition (causing margin compression and loss of pricing power), rising input costs, and customer defections. To make matters worse, given the debtors’ deteriorating financial position, raw materials suppliers reduced credit terms given the debtors’ public reporting of its troubles. Consequently, virtually all of the debtors’ financial metrics got smoked. Gross profit? Smoked. Cash flow? Smoked. Net income? Smoooooooked.

Speaking of “smooooooked,” the company twice notes its termination of their investment banker, Guggenheim Securities. Bankers get replaced all of the time: not entirely sure why they felt the need to make such an issue of it here. That said, Guggenheim apparently marketed the company for months without finding a prospective buyer that would clear the debt. The company, therefore, hired Houlihan Lokey ($HL) to market the company. The result? They couldn’t find a buyer that would clear the debt. Nothing like paying a new banker AND presumably paying some sort of tail to your old banker just to end up with your pre-petition secured lender as your stalking horse bidder (and DIP lender)! Sheesh.

As we said, “[t]his company doesn’t produce enough toilet paper to wipe away this sh*tfest.”

• Jurisdiction: (Judge Walrath)

• Capital Structure: $187.3mm RCF/TL (Ankura Trust Company, L.L.C.), $11.1mm New Market Tax Loan

• Professionals:

  • Legal: Polsinelli PC (Christopher Ward, Shanti Katona, Jerry Switzer Jr.)

  • Board of Directors: Steven Berlin, John Guttilla, Douglas Hailey, Elaine MacDonald, Mark Ravich, Jeffrey Schoen

  • Financial Advisor: Deloitte Transactions and Business Analytics LLP (Richard Infantino)

  • Investment Banker: Houlihan Lokey Capital Inc.

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

• Other Parties in Interest:

  • Large Equityholder: BML Investment Partners LP

  • Prepetition RCF Admin Agent: Ankura Trust Company

  • DIP Admin Agent: Black Diamond Commercial Finance LLC

  • DIP Lender: Orchids Investment LLC

    • Legal: Winston & Strawn LLP (Daniel McGuire) & (local) Fox Rothschild LLP (Seth Niederman)

  • Stalking Horse Bidder

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Kimberly Debeers, Ron Meisler)

  • Official Committee of Unsecured Creditors

    • Legal: Lowenstein Sandler LLP (Mary Seymour) & CKR Law (David Banker)

Updated 5/18

😷New Chapter 11 Bankruptcy Filing - Trident Holding Company LLC😷

Trident Holding Company LLC

February 10, 2019

It looks like all of those 2018 predictions about healthcare-related distress were off by a year. We’re merely in mid-February and already there has been a full slate of healthcare bankruptcy filings. Here, Trident Holding Company LLC, a Maryland-based provider of bedside diagnostic and other services (i.e., x-ray, ultrasound, cardiac monitoring) filed for bankruptcy in the Southern District of New York. What’s interesting about the filing is that it is particularly light on detail: it includes the standard description of the capital structure and recent efforts to restructure, but there is a dearth of information about the history of the company and its financial performance. There is, however, a restructuring support agreement with the company’s priority first lien lenders.

Here’s a quick look at the company’s capital structure which is a large factor driving the company into bankruptcy:

Source: First Day Declaration

As you can see, the company has a considerable amount of debt. The above-reflected “Priority First Lien Facility” is a fairly recent development, having been put in place as recently as April 2018. That facility, provided by Silver Point, includes a $27.1mm prepayment fee triggered upon the filing of the bankruptcy case. That’s certain to be a point of interest to an Official Committee of Unsecured Creditors. It also contributed to an onerous amount of debt service. Per the company:

In the midst of market and competitive challenges, Trident has significant debt service obligations. Over the course of 2018, Trident paid approximately $26,185,667.75 in cash interest on the Secured Credit Facilities. On January 31, 2019, the Company missed an interest payment of $9,187,477.07 on the Secured Credit Facilities, resulting in an Event of Default on February 8, 2019 after the cure period expired.

But, wait. There’s more. The recent uptick in distressed healthcare activity is beginning to aggregate and create a trickle-down bankruptcies-creating-bankruptcies effect:

Moreover, a number of recent customer bankruptcies – including those of Senior Care Centers, LLC, 4 West Holdings, Inc., and Promise Healthcare Group, LLC – have exacerbated the Company’s liquidity shortfall by limiting the collectability of amounts owed from these entities. A number of other customers who have not yet filed bankruptcy cases are generally not paying the Debtors within contractual terms due to their own liquidity problems. As a result of these collection difficulties and challenges with the new billing system in the Sparks Glencoe billing center, the Debtors recorded $27.8 million of extraordinary bad debt expense in 2018 and $12.7 million in 2017.

Ouch. Not to state the obvious, but if the start of 2019 is any indication, this is only going to get worse. The company estimates a net operating cash loss of $9.1mm in the first 30 days of the case.

Given the company’s struggles and burdensome capital structure, the company has been engaging its lenders for well over a year. In the end, however, it couldn’t work out an out-of-court resolution. Instead, the company filed its bankruptcy with a “restructuring support agreement” with Silver Point which, on account of its priority first lien holdings, is positioned well to drive this bus. And by “drive this bus,” we mean jam the junior creditors. Per the RSA, Silver Point will provide a $50mm DIP and drive the company hard towards a business plan and plan of reorganization. Indeed, the business plan is due within 36 days and a disclosure statement is due within a week thereafter. Meanwhile, the RSA as currently contemplated, gives Silver Point $105mm of take-back term loan paper and 100% of the equity of the company (subject to dilution). The first lien holders have a nice blank in the RSA next to their recovery amount and that recovery is predicated upon…wait for it…

…a “death trap.” That is, if they accept the plan they’ll currently get “ [●]%” but if they reject the plan they’ll get a big fat donut. Likewise, the second lien holders. General unsecured claimants would get a pro rata interest in a whopping $100k. Or the equivalent of what Skadden will bill in roughly, call it, 3 days of work??

The business plan, meanwhile, ought to be interesting. By all appearances, the company is in the midst of a massive strategic pivot. In addition to undertaking a barrage of operational fixes “…such as optimized pricing, measures to improve revenue cycle management by increasing collection rates, rationalizing certain services, reducing labor costs, better managing vendor spend, and reducing insurance costs,” the company intends to focus on its core business and exit unprofitable markets. While it retreats in certain respects, it also intends to expand in others: for instance, the company intends to “expand home health services to respond to the shifting of patients from [skilled nursing facilities] into home care.” Per the company:

Toward this end, Trident conducted successful home health care pilot programs in 2018 in two markets to optimize its Care at Home business model with radiology technicians dedicated to servicing home health patients. Trident hopes to expand this business model to an additional seven markets in 2019.

Like we said, a pivot. Which begs the question “why?” In addition to the debt, the company noted several other factors that drove it into bankruptcy. Chief among them? The rise of home health care. More from the company:

Trident has suffered ripple effects from the distress faced by skilled nursing facilities (“SNF”), which are its primary direct customers. SNF occupancy rates have declined to a multi-year low as a result of structural and reimbursement changes not yet offset by demographic trends. These structural changes include, among other things, patient migration to home health care. The decline in SNF occupancy rates has led to reduced demand for Trident’s services. At the same time, Trident has only had limited success reducing costs in response to lower volumes, as volume declines are driven by lower utilization per facility rather than a reduction in the number of facilities served.

This is a trend worth continued watching. Who else — like Trident — will be affected by this?

Large general unsecured creditors of the business include Grosvenor Capital Management, Jones Day (to the tune of $2.3mm…yikes), Konica Minolta Healthcare Americas Inc., McKesson ($MCK)(again!!…rough couple of weeks at McKesson), Quest Diagnostics Inc. ($DGX), Cardinal Health Inc. ($CAH) and others. They must be really jacked up about that pro rata $100k!!

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

• Capital Structure: see above.

• Professionals:

  • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Jason Kestecher, James Mazza Jr., Justin Winerman)

  • Independent Director: Alexander D. Greene

  • Financial Advisor: Ankura Consulting (Russell Perry, Ben Jones)

  • Investment Banker: PJT Partners LP (Mark Buschmann, Josh Abramson, Willie Evarts, Meera Satiani, Elsa Zhang)

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

• Other Professionals:

  • Priority First Lien Admin Agent: SPCP Group LLC/Silver Point Finance LLC

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Robert Britton, Lewis Clayton, Aidan Synnott, Christman Rice, Michael Turkel)

    • Financial Advisor: Houlihan Lokey LP

  • First Lien Agent: Cortland Capital Market Services LLC

    • Legal: White & Case LLP (Thomas Lauria, Erin Rosenberg, Jason Zakia, Harrison Denman, John Ramirez)

  • Ad Hoc Group of First Lien Lenders

    • Legal: Kirkland & Ellis LLP (Patrick Nash)

    • Financial Advisor: Greenhill & Co. Inc.

  • Second Lien Agent: Ares Capital Corporation

  • Ad Hoc Group of Second Lien Lenders

    • Legal: Latham & Watkins (Richard Levy, James Ktsanes)

  • Large Creditor: McKesson Medical-Surgical Inc.

    • Legal: Buchalter P.C. (Jeffrey Garfinkle)

  • Large Creditor: Quest Diagnostics

    • Legal: Morris James LLP (Brett Fallon)

  • Equity Sponsor: Revelstoke Capital Partners

    • Legal: Winston & Strawn LLP (Carey Schreiber, Carrie Hardman)

  • Equity Sponsor: Welltower Inc.

    • Legal: Sidley Austin LLP (Andrew Propps, Bojan Guzina)

  • Official Committee of Unsecured Creditors

    • Legal: Kilpatrick Townsend & Stockton LLP (David Posner, Gianfranco Finizio, Kelly Moynihan)

    • Financial Advisor: AlixPartners LLP (David MacGreevey)
      
      
      
      

New Chapter 22 Filing - Relativity Fashion Inc.

Relativity Fashion Inc.

5/3/18

Relativity Media LLC and its affiliates are back in bankruptcy court with a proposed expedited 363 sale to UltraV Holdings LLC, an entity backed by Sound Point Capital Management and RMRM Holdings. Per Deadline Hollywood, RMRM is led by David Robbins, former chairman of Bally Technologies; Lex Miron, a veteran media industry advisor; and Larry Robbins, a seasoned media industry executive. 

More to come...

• Jurisdiction: S.D. of New York
• Capital Structure: $mm debt     
• Company Professionals:
  • Legal: Winston & Strawn LLP (Carey Schreiber)
  • CRO/Financial Advisor: M-III Partners (Colin Adams)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access (once up))
• Other Parties in Interest:
  • Litigation Trust of Previous Chapter 11
    • Legal: Togut Segal & Segal LLP (Frank Oswald, Charles Persons)

New Chapter 11 Filing - Gibson Brands Inc.

Gibson Brands Inc.

5/1/18

After months of speculation (which we have covered here and elsewhere), the famed Nashville-based guitar manufacturer has finally filed for Chapter 11. We're old enough to remember this:

Late Tuesday, GIbson Brands CEO Henry Juszkiewicz denied all of the reports and indicated via press release that a plan was underway to salvage the brand.

What Mr. Juszkiewicz didn't say was that "a plan" actually meant a "plan of reorganization." Which is okay: nobody believed him anyway. 

And here's why: in the company's First Day Declaration, the company proudly boasts,

The Debtors' strength, rooted in their iconic Gibson, Epiphone, KRK, and other brands that have shaped the music industry for over 100 years, have been the brands of choice for countless musicians and recording artists, including some of the most legendary guitarists in history such as Muddy Waters, BB King, Elvis Presley, Pete Townsend, Keith Richards, Duane Allman, Elvis Costello, Lenny Kravitz, Slash, Dave Grohl, Joe Bonamassa, and Brad Paisley, among others. 

Anyone else see an issue with this lineup? Legends, sure, but not exactly a group of artists you see listed on Coachella posters. Even in a publicly-available document, this company doesn't know how to market itself to the masses. Case and point, after Guitar Center got its out-of-court deal done last week, we wrote the following:

Gibson may want to embrace the present. But we digress. 

Unbeknownst to many, however, Gibson is more than just its legendary guitars. No doubt, guitars are a big part of its business. According to the company's First Day Declaration (which, for the record, is one of the more jumbled incoherent narratives we've seen in a First Day Declaration in some time), 

Gibson has the top market share in premium electric guitars, selling over 170,000 guitars annually in over eighty (80) countries worldwide and selling over 40% of all electric guitars priced above $2,000.

But the company also expanded to include a "Professional Audio" segment, its musical instrument and pro-audio segment ("MI," which is positive cash flow), and a "Gibson Innovations" business ("GI"), which stems from a 2014 leveraged transaction. The latter business has been a drag on the overall enterprise ever since the transaction eventually leading to breaches of certain financial covenants under the company's senior secured bank debt financing agreements. The company was forced to pay down the debt to the tune of $60 million since the Fall of 2017, a cash drain which severely accentuated liquidity issues within that business. It came to this brutal reality: 

...the GI Business became trapped in a vicious cycle in which it lacked the liquidity to buy inventory and drive sales while at the same time it lacked the liquidity to rationalize its workforce to match its diminished operations.

That's rough. Even rougher is that on April 30, 2018, the GI business initiated formal liquidation proceedings under the laws of at least 8 different countries. Looks like Mr. Juszkiewicz' previous expansion "plan" was an utter disaster. 

⚡️Warning: Geeky stuff to follow ⚡️:

Now, the company is left with restructuring around the EBITDA- positive MI business with the hope of maximizing recovery for stakeholders. The holders of 69% of the principal amount of notes (PETITION NOTE: for the uninitiated, this satisfies the 2/3 in amount requirement of the bankruptcy code; unknown whether they satisfy the second prong of 1/2 in number) have entered into a Restructuring Support Agreement which would effectively equitize the notes and transfer ownership of MI to the noteholders. The company has also entered into a $135 DIP credit facility backstopped by an ad hoc group of noteholders to finance the company's trip through bankruptcy (the mechanic of which effectively rolls up some of the prepetition debt into the postpetition facility, giving the noteholders higher distribution priority). 

The RSA envisions a transaction whereby the company will exit bankruptcy with an untapped asset-backed lending facility and enough exit financing to pay off the DIP facility. So, the noteholders will collect some nice fees for about 9 months. The lenders under the DIP facility will have the option to cover the DIP monies into equity in the reorganized company at a 20% discount to the plan's valuation. 

⚡️Geeky Stuff Over. Now Back to Regularly Scheduled Snark ⚡️:

Naturally, current management has somehow convinced the new owners, i.e., the funds converting their notes into equity, that they're so invaluable that they should receive millions in "transition"-based compensation and warrants for upside preservation. Makes total sense. David Berryman, who runs Epiphone, will get a one year employment agreement paying $3.35 million, 5 year-warrants, and health benefits; Mr. Juszciewicz will get a one year "consulting agreement" paying $2.1 million, 5 year-warrants and health benefits (plus other profit-sharing incentives). It sure pays to run a company into bankruptcy these days. Naturally, they'll also get releases from any liability. Because, you know, bankruptcy!!

One final note: Thomas Lauria and White & Case LLP are listed as the 22nd highest creditor. Popping popcorn. 

• Jurisdiction: D. of Delaware 
• Capital Structure: $17.5 million ABL (Bank of America NA)/ $77.4 million Term Loan (GSO Capital Solutions Fund II AIV-I LP), $375 million '18 8.875% senior secured notes (Wilmington Trust NA), $60 million ITLA loan (GI Business only)
• Company Professionals:
  • Legal: Goodwin Proctor LLP (Michael H. Goldstein, Gregory W. Fox, Barry Z. Bazian) & (local) Pepper Hamilton LLP (David Stratton, David Fournier, Michael Custer, Marcy McLaughlin)
  • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Brian Fox) 
  • Investment Banker: Jefferies LLC (Jeffrey Finger)
  • Independent Directors: Alan Carr & Sol Picciotto
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Agent: Cortland Capital Market Services LLC
    • Legal: Arnold & Porter Kaye Scholer (D. Tyler Nurnberg, Steven Fruchter, Sarah Gryll) & (local) Young Conaway (same four names as below)
  • Prepetition ABL Agent: Bank of America NA
    • Legal: Winston & Strawn LLP (Jason Bennett, Christina Wheaton)
  • Indenture Trustee: Wilmington Trust NA
    • Legal: Shipman & Goodwin LLP (Marie Hofsdal, Patrick Sibley, Seth Lieberman, Eric Monzo)
  • Ad Hoc Group of Noteholders
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Robert Britton, Adam Denhoff, Kellie Cairns) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Betsy Feldman)
  • Ad Hoc Minority Noteholders Committee (Lord Abbett & Co. LLC, Wilks Brothers LLC)
    • Legal: Brown Rudnick LLP (Robert Stark, Steven Levine, Brian Rice) & (local) Ashby & Geddes PA (William Bowden)
  • Equity Holder: GSO Capital Partners LP
    • Legal: White & Case LLP (J. Christopher Shore, Andrew Zatz, Richard Kebrdle) & (local) Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Margaret Manning)

Updated 5/2 5:12 pm CT

New Chapter 11 Filing - MAC Acquisition LLC (aka Romano's Macaroni Grill)

MAC Acquisition LLC (aka Romano's Macaroni Grill)

• 10/18/17 Recap: Back in 2015, Ignite Restaurant Group offloaded Romano's Macaroni Grill to RedRock Partners LLC in an attempt to bolster its liquidity and avoid bankruptcy. It failed: the company filed for bankruptcy earlier this year (case summary here). Perhaps that had something to do with the fact that the sale was for a measly $8mm, "a price akin to dumping your unwanted junk on Craigslist." Now, Romano's Macaroni Grill has filed for bankruptcy to restructure its balance sheet and further an operational restructuring, including dealing with lessor damage claims arising out of terminated leases (the company closed 37 company-operated locations in 2017; it has 93 company-owned restaurants remaining exclusive of non-debtor franchises). The company blames its chapter 11 filing on (i) the inability to generate sufficient cashflow, sales and margin to cover operating expenses let alone service its debt (TTM EBITDA as of 8/17 was -$12mm), and (ii) increased costs for both commodities and labor. We note that this provision in the company's bankruptcy papers is indicative of a larger trend befalling the casual dining segment: "The Debtors’ operations and financial performance have been adversely affected by a number of economic factors, but perhaps most notably by an overall downturn for the casual dining industry. The preferences of such customers have shifted to cheaper, faster alternatives. On the other end of the spectrum, there is a trend among younger customers to spend their disposable income at non-chain “experience-driven” restaurants, even if slightly more expensive." In other words, this bankruptcy is partly Evan Spiegel (Snapchat, $SNAP) and Kevin Systrom's (Instagram, $FB) fault. The company has a restructuring support agreement with its major stakeholders to pursue a dual-track bankruptcy via a plan of reorganization and a potential sale upon the hiring of an investment banker (heads up: bankers!!). The company has secured a junior $5mm DIP credit facility from Raven Capital Management LLC. P.S. Nothing to see here for the REITS: Simon Property Group has made a notice of appearance in the matter. 
• Jurisdiction: D. of Delaware (Judge Walrath)
• Capital Structure: $12mm RCF (Bank of Colorado), $2.5mm TL (Bank of Colorado), $3.5mm LOC (Bank of Colorado), $5mm Funding Loan 
• Company Professionals:
  • Legal: Gibson Dunn & Crutcher LLP (Jeffrey Krause, Michael Neumeister, Emily Speak, Brittany Schmeltz) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Edmon Morton, Ryan Bartley, Elizabeth Justison)
  • Financial Advisor/Chief Restructuring Officer: Mackinac Partners LLC (Nishant Machado, Pasquale Maturo)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Lender: Raven Capital Management LLC
    • Legal: Winston & Strawn LLP (Justin Rawlins, Carey Schreiber, Eric Sagerman) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)
  • Bank of Colorado
    • Legal: Shaw Fishman Glantz & Towbin LLC (Thomas Horan, Johnna Darby, Brian Shaw) & (local) Markus Williams Young & Zimmermann LLC (James Markus)
  • Official Committee of Unsecured Creditors
    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel) & (local) Bayard PA (Justin Alberto, Gregory Flasser)

Updated 11/8/17

New Chapter 11 Filing - BCBG Max Azaria Global Holdings LLC

BCBG Max Azaria Global Holdings LLC

• 3/1/17 Recap: Fashion powerhouse founded in 1989 filed for bankruptcy yesterday with a plan to optimize optionality: within the next six months, the company will dual track a potential debt-for-equity transaction (its second in 2 years) and a sales process to allow the business to continue as a going concern. This process comes on the heels of an operational restructuring which dramatically decreased the company’s brick-and-mortar footprint, with ~120 of ~550 stores already closed and attendant headcount reductions initiated. This is another sad retail story: macro retail headwinds (read: Amazon and decreased brand loyalty), too much debt, poor wholesale and IP licensing strategies, and too much unjustifiable stateside and global growth. Make no mistake: Amazon is a big story in all of this recent retail bloodshed but these bankruptcies wouldn’t be happening if that story wasn’t compounded by tunnel vision and poor strategy - here, marked, notably, by no recognizable online presence. Now, the restructuring professionals are going to earn their keep, devising a fast-track multi-tier process to try and keep this thing out of the liquidation bin. On an aside, we'd like to point out that, again, Simon Property Group and GGP Limited Partnership have made notices of appearances in this case so anyone who says that the A Mall operators are unharmed by the recent bloodbath in retail is smoking crack. Footnote: neither Twitter nor Sears can catch a break; they are both owed hundreds of thousands of dollars.
• Jurisdiction: S.D. of New York
• Capital Structure: ~$460mm debt. $82mm ABL Facility (Bank of America), $35mm TL Tranche A, $4.2mm TL Tranche A-1, $48.5mm Term Loan Tranche A-2, $0 (undrawn) Term Loan Tranche A-3, $289.4mm Term Loan Tranche B (Guggenheim Corporate Funding LLC).     
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jayme Sprayragen, Christopher Marcus, Joshua Sussberg, Benjamin Rhode, John Luze)
  • Financial Advisor: AlixPartners LLC (Holly Feder Etlin, Deborah Reiger-Paganis)
  • Investment Banker: Jefferies LLC (Jeffrey Finger)
  • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
    • Legal: Malfitano Partners (Joseph Malfitano)
  • Claims Agent: Donlin Recano (*click on company name for docket)
• Other Parties in Interest:
  • Bank of America (as ABL DIP Agent and Prepetition ABL Agent)
    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Christopher Carter, Robert Barry, Matthew Ziegler)
  • Guggenheim Corporate Funding LLC (as TL DIP Agent and Prepetition Tranche B TL Lenders)
    • Legal: Weil (Matthew Barr)
  • Allerton Funding LLC
    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland)
  • Silvereed (Hong Kong) Limited
    • Legal: Kramer Levin Naftalis & Frankel LLP (Robert Schmidt, Jonathan Wagner)
  • Official Committee of Unsecured Creditors (GGP Inc. & Simon Property Group)
    • Legal: Pachulski Stang Ziehl & Jones LLP (Robert Feinstein, Bradford Sandler, Jeffrey Pomerantz, Maria Bove)
    • Financial Advisor: Zolfo Cooper LLC

Updated 3/28/17

New Chapter 11 Filing - United Road Towing Inc.

United Road Towing Inc.

• 2/6/17 Recap: These bada$$ strapping towing lads fought the law and the law won. Meaning: a $5mm judgment was rendered against the Illinois-based company for purportedly charging excessive fees and now the company has less money, mo' problems. The company filed chapter 11 to obtain cover under the automatic stay (and avoid enforcement of the judgment) and sell the company. No stalking horse bidder, however, is in tow (see what we did there?). First lien lender Wells Fargo is providing a $32.25mm DIP to fund the case.  
• Jurisdiction: D. of Delaware
• Capital Structure: $32.3mm first lien credit facility ($13.8mm out - Wells Fargo) & $17mm second lien credit facility ($19.4 claim - Medley Capital)    
• Company Professionals:
  • Legal: Winston & Strawn LLP (Daniel McGuire, Grace D'Arcy, Carrie Hardman) & (local) Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Ryan Bartley, Andrew Magaziner)
  • Financial Advisor: Getzler Henrich & Associates LLC
  • Investment Banker: SSG Advisors LLC
  • Claims Agent: Rust Consulting/Omni Bankruptcy LLC (*click on company name for docket)
• Other Parties in Interest:
  • ABL/DIP Agent: Wells Fargo NA
    • Legal: Riemer & Brownstein LLP (Steven Fox) & (local) Ashby & Geddes (Gregory Taylor)
  • Medley Capital Corporation
    • Legal: Greenberg Traurig LLP (Maria DiConza, Dennis Meloro)
  • Official Committee of Unsecured Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP
    • Financial Advisor: Gavin/Solmonese LLC

Updated 2/16/17