🍿New Chapter 11 Bankruptcy Filing - Cinemex Holdings USA Inc. 🍿

Cinemex Holdings USA Inc.

April 25, 2020

Mexican-owned and Florida-based Cinemex Holdings USA Inc., which owns 41 CMX cinema locations in 12 states filed for bankruptcy in the Southern District of Florida. The company is owned by German Larre, Mexico’s third-richest man. The company blames COVID-19 and the lack of clarity as to when things will return to normal for the need to file. The company previously walked from a planned merger with Star Cinema Grill over coronavirus concerns and is now embroiled in litigation initiated by Star Cinema Grill’s owner, Omar Kahn. It seems pretty apparent that the courts are going to be littered with litigation deriving from COVID-related deal blowups.

• Jurisdiction: S.D. of Florida (Judge Isicoff)

• Capital Structure: $9mm unsecured loan (BBVA, HSBC, Scotiabank, SAB Capital, Banco Santander)

• Professionals:

  • Legal: Quinn Emanuel Urquhart & Sullivan LLP & Bast Amron LLP (Jeffrey Bast)

🤖New Chapter 11 Bankruptcy Filing - BroadVision Inc. ($BVSN) 🤖

BroadVision Inc.

March 30, 2020

California-based BroadVision Inc. ($BVSN) and two affiliates (the “debtors”), developers of enterprise portal applications that (a) “enable companies to unify their e-business infrastructure” and (b) “conduct interactions and transactions with employees, partners, and customers through a personalized self-service model” filed a prepackaged chapter 11 bankruptcy in the District of Delaware over the weekend. Yeah, we have no idea what that means either. Given that the debtors reflect assets of $5.6mm, it seems we’re not alone. From what we can gather, these dudes sell some software that is one part internal business dashboard, one part CRM and B2B and B2C e-commerce, and one part publishing system.

The company has been a value destruction machine for years. In fact, the debtor has an accumulated deficit of approximately $1.3 billion since 2001 — mostly non-cash charges, but still.

The upshot here is that the company intends to effectuate a sale via a prepackaged plan of reorganization which would transfer the assets to a subsidiary (Aurea Software Inc.) of large equityholder ESW Capital LLC. ESW will fund the plan including payments to unsecured creditors, coming out with 100% of the equity interests in the reorganized company for its trouble. At the time of this writing, the more interesting thing is that the plan calls for a $4.375/share recovery for equity plus “their pro rata share of the Debtor’s cash on hand as of the effective date of the Plan (including proceeds from the sale of a block of IP addresse[s] owned by the Debtor).” Why is this interesting? Well, at the time of this writing, here is where the stock is trading:

There are only 5.1mm shares outstanding but if you could get your hands on some of that float, you’re talking a near-instant 10% recovery.* This reminds us of when Perfumania Inc. filed for bankruptcy in the middle of the Texas hurricanes and the market had a delayed reaction to the fact that equity would get paid out at a premium (PETITION Note: this is not investment advice and, more likely than not, by the time you read this on Wednesday, the gap will have closed). But we digress.

The proposed effective date is May 29, 2020 so, again, assuming you could even get your hands on some of the float, you’d have a little bit of risk with a two-month process.

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*There are some caveats. The company notes:

“…the Equity Interest Recovery may be less than $4.375 per share of Debtor Common Stock in the event that (A) the Debtor has more than 5,142,333 shares of Debtor Common Stock outstanding (including all Outstanding Shares, Restricted Stock Awards, Restricted Stock Units and Permitted Stock Options, whether or not vested) or (B) the Debtor lacks sufficient Cash (including Cash-on-Hand and proceeds from the liquidation of the IP Addresses after the Effective Date) to pay all Case-Related Claims and Expenses and repayment of amounts, if any, incurred by the Plan Sponsor in connection with funding such Case-Related Claims and Expenses….”

Two things. First, there’s a 10,000 share delta between the 5,142,333 and the actual number of shares that would be outstanding if the Permitted Stock Options are exercised at $4.70/share. It seems unlikely that these options would be exercised unless cash on hand surprises to the upside (i.e., the IP addresses fetch surprisingly high prices). Second, would you be willing to stake your bet on restructuring professionals keeping administrative expense claims down? If so, more power to you. You’ve got a 10% margin of error.

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• Jurisdiction: (Judge Sontchi)

• Capital Structure: No funded debt.

• Professionals:

  • Legal: DLA Piper LLP (R. Craig Martin, Joshua Morse)

  • Directors: James Dixon, Robert Lee, Francois Stieger

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

• Other Parties in Interest:

  • Purchaser: ESW Capital LLC

    • Legal: Goulston & Storrs PC (Trevor Hoffman) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott)

🏈New Chapter 11 Bankruptcy Filing - The Northwest Company LLC🏈

The Northwest Company LLC

April 19, 2020

It’s one thing to secure the account. It’s another thing to maintain it. If that account is Walmart Inc. ($WMT), you damn sure better make certain that the account is maintained. Enter The Northwest Company LLC. You may have purchased product from The Northwest Company LLC without ever knowing it: it is a manufacturer and seller of branded home textiles with a specialization in throws and blankets; it has multi-year license agreements with global entertainment and lifestyle brands and professionals sports leagues and sells its product through major national retailers (cough, Walmart) and online. If you’ve stopped at Walmart on the way to freezing your a$$ off while tailgating the Bears game, well, you may have picked up some Bears-branded Northwest-made blankets. Ah, sports. Remember those?

Unfortunately, The Northwest Company LLC and an affiliate are now chapter 11 debtors. They’ve been suffering from various issues dating back to 2017.

First, the debtors acquired the sports-branded inventory of Concept One, a leading manufacturer of licensed backpacks and accessories sold primarily through Walmart Inc. ($WMT). Well, someone effed up. The debtors quickly discovered quality control “[c]hallenges with the acquired inventory” shortly after the deal closed. Consequently, the debtors didn’t make as much money from the product as modeled. All the while, the debtors were still on the hook for license payments. Rut roh. Lower than expected inputs + static outputs means that someone’s model got blown to sh*t. To make matters worse, certain product was so shoddy that Walmart reduced and subsequently cancelled the debtors’ participation in its juvenile bedding modular program. The bankruptcy papers don’t say but we have to think, on a volume basis alone, losing the Walmart juvenile bedding account was a major blow.

Enter President Trump. The trade war led to a 25% tariff on bags and backpacks imported from China. “The tariff was in addition to the already high 17.6% duty imposed on that category of goods, and decreased both demand for the goods and the margins on their sale.” Yikes. We wonder who these folks are voting for come November.

The debtors also blame general retail sector woes — as one might expect. Finally, they acknowledge COVID-19, saying it “exacerbated” their financial condition, but note that was “not the reason for the … bankruptcy.” Honestly, that’s somewhat shocking given that the NBA suspended as the playoffs neared and the MLB season never even got off the ground. Most of the major sports leagues are top creditors. The debtors owe $57mm in trade debt.

To finance their cases and pursue a sale, the debtors seek to enter into a post-petition financing agreement with their pre-petition lender, CIT Group, which appears over-secured by 2x.

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

• Capital Structure: $19.1mm pre-petition factoring obligations (CIT Group/Commercial Services Inc.), $10mm promissory note (Ashford Textiles LLC)

• Professionals:

  • Legal: Sills Cummis & Gross P.C. (S. Jason Teele, Gregory Kopacz)

  • Financial Advisor: Clear Thinking Group LLC

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

• Other Parties in Interest:

  • CIT Group/Commercial Services Inc.

⛽️New Chapter 11 Bankruptcy Filing - Yuma Energy Inc.⛽️

Yuma Energy Inc.

April 15, 2020

Houston-based Yuma Energy Inc. and three affiliates, oil and gas producers focused on the Rocky Mountain, Mid-Continent, Gulf Coast and West Texas regions of the US, filed chapter 11 cases in the Northern District of Texas.

There ain’t much new here worth noting given that every oil and gas company is troubled and they all sing the same tune about commodity prices post-2015. But there was one striking admission in Yuma’s bankruptcy papers that is nearly as pervasive as commodity price effects. In the company’s own words, “…the decline in the financial health of the company stemmed not only from dropping commodity prices, but more importantly with a continuing high level of G&A for a company it’s [sic] size….” That’s right: bloated G&A. It’s as prevalent in Texas as oil itself.

This case is a liquidation.

• Jurisdiction: N.D. of Texas (Judge Mullin)

• Professionals:

  • Legal: FisherBroyles LLP (H. Joseph Acosta, Lisa Powell)

  • Financial Advisor: Ankura Consulting Group (Anthony Schnur)

  • Investment Banker: Seaport Gordian Energy LLC

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

• Other Parties in Interest:

🚗New Chapter 11 Bankruptcy Filing - Pace Industries LLC🚗

Pace Industries LLC

April 12, 2020

Arkansas-based Pace Industries LLC and ten affiliates (the “debtors”) — fully-integrated suppliers and manufacturers of aluminum, zinc, and magnesium die cast and finished products in service of several industries (auto, powersports, lawn & garden, lighting & electric, appliances & industrial motors etc.) — filed fully-accepted prepackaged chapter 11 bankruptcy cases in the District of Delaware over the holiday weekend. The plan features one impaired class which voted 100% to equitize pre-petition debt.

A quick digression before we delve into what happened here. COVID-19 provides the ultimate cover for any and all businesses that file for chapter 11 over the next several months. You’re going to see all kinds of companies “clean out the junk” over earnings reports. It will be important, therefore, to parse through company messaging to determine whether they’re just massaging matters or whether, on the other hand, there were fundamental problems confronting the business prior to COVID-19 rearing its ugly head and shutting down the US economy. Where a company discloses that problems existed prior to March, there is absolutely no reason NOT to believe them. So it’s important that the collective we — newsletters writers, journalists, the twitterverse — get things right when talking about the carnage created by COVID-19.

And this case is only partially a COVID-19 story. Given the rush to sensationalize headlines and tweets, this is something we now feel compelled to note with each new bankruptcy filing. While the debtors, like everyone else, have been affected by the virus, it was not the catalyst to the debtors’ filing. The debtors have been seeking new capital sources since the summer of 2018; they initially sought an equity investment but when that couldn’t get done, the debtors shifted towards a sale and marketing process. Any and all initial interest in the debtors’ assets dissipated, however, when the debtors suffered from a poor Q4 ‘19. Interestingly, the disappointing performance was attributable to lower demand in the lighting, BBQ grill and appliance markets. To make matters worse, General Motors Inc’s ($GM) employees went on strike further compressing decreasing automobile production volumes. Moreover, the company self-inflicted some wounds: production inefficiencies relating to new products also hurt performance. Bankruptcy lawyers and advisors were hired in January — long before COVID stormed through and complicated matters further.

The debtors solicited their plan prior to their filing making this a true prepackaged plan. In other words, old school. None of this new solicitation technology; no straddle stuff. The only impaired class, the pre-petition noteholders, voted to accept the plan pursuant to which they would swap $232.1mm in notes for (i) equity in a reorganized LLC (subject to dilution from a management incentive plan AND warrants issued to the debtors’ post-petition DIP term loan lenders) and (ii) take-back term loan paper. This means the new owners will be TCW and Cerberus.

The cases feature a roll-up DIP ABL (which will ultimately be refi’d out through an exit facility) and a post-petition DIP term loan that will be refi’d out via a new term loan exit facility. The aforementioned warrants could amount to 51% of the new post-reorg equity.

This should be a quick case. The DIP terminates in 90 days from the petition date. Given that acceptance was 100% and that general unsecured creditors will be paid in full, this case should, absent other crazy externalities, be in and out of bankruptcy relatively quickly.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $92.1mm ABL, $232.1mm pre-petition notes

• Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Rachel Strickland, Debra Sinclair, Melany Cruz Burgos) & Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Joseph Mulvihill)

  • Financial Advisor/CRO: FTI Consulting Inc. (Patrick Flynn, Johnathan Miller)

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

• Other Parties in Interest:

  • DIP Revolver Agent ($125mm): Bank of Montreal

    • Legal: McGuireWoods LLP (Wade Kennedy, Alexandra Shipley, Brian Swett) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • DIP Term Agent ($50mm): TCW Asset Management Company LLC

    • Legal: Schule Roth & Zabel LLP (Adam Harris, Kelly Knight) & Landis Rath & Cobb LLP (Adam Landis)

👖New Chapter 11 Bankruptcy Filing - True Religion Apparel Inc.👖

True Religion Apparel Inc.

4/14/20

TMI: we’ve had a hard enough time getting Johnny to even wear pants at all over the last few weeks let alone put on jeans. That one Zoom call where he spilled coffee on himself and jumped out of his chair emblazoned an image in our minds that we’ll need some real therapy to get over. We had to take out an enterprise Headspace account as a result. But enough about us.

To the topic at hand: True Religion Apparel Inc. Here’s the good news: True Religion and its four affiliates (the “debtors”) legged it out long enough to avoid PETITION’s dreaded Two-Year Rule violation. Any retailer that can stave off a chapter 22 bankruptcy filing for as long as True Religion did (30 months) has, in fact, achieved a “successful” restructuring in our book. That said, the brand is nevertheless back in bankruptcy court. If that logic strikes you as perverse well, yes, we admit it: the bar for bankrupted retailers is, in fact, that low.

Interestingly and somewhat counter-intuitively, there has been a dearth of retail restructuring activity during the COVID-19 strike. We went through some explanation for that here and the theme was subsequently picked up and expanded upon by the MSM: there were countless articles about how busy restructuring professionals are and yet very few filings (though there has been a lot of activity this week). Why? It’s hard for retailers to conduct GOB sales when stores aren’t open. DIP financing is harder to come by. Buyers are few and far between. Everyone is having trouble underwriting deals when it’s so difficult to gauge if and when things will return to “normal.”

True Religion couldn’t afford to wait. It has 87 retail stores. They’re closed. It’s wholesale business — dependent, of course, on other open brick-and-mortar shops — is also closed. This was an immediate 80% hit to revenue.* The company — which had posted a $50mm net loss for the TTM ended 2/1/20 (read: it was already pretty effed) — suddenly found itself facing an accelerated liquidity crisis. Stretching payables, stretching rent, furloughing employees. All of those measures were VERY short-term band-aids. A bankruptcy filing became absolutely necessary to gain access to much needed liquidity. This filing is about a DIP credit facility folks. Without it, they’d be looking at Chapter 7 liquidation. Per the debtors:

The Debtors must have access to the DIP Facilities to continue to pay essential expenses—including employee benefits, trust fund taxes and other critical operating expenditures—while they use the breathing spell provided by the Bankruptcy Code to wait out the effects of the COVID-19 pandemic and attempt to pursue a value-maximizing transaction for all stakeholders.

Critical operating expenditures? Yup, e-commerce maintenance and fulfillment, wholesale and restructuring expenses baby. The plan is to “mothball” the business and hope for a tiered reopening of stores “at the conclusion fo the COVID-19 pandemic.” In the meantime, the debtors intend to pull a Modell’s/Pier 1 and get relief from having to pay rent. This as pure of a “breathing spell” as you can get.

Back to the financing. The debtors have approximately $139mm of funded debt split between a $28.5mm asset-backed term loan (inclusive of LOCs) and a $110.5mm first lien term loan. The debtors also had access to a $28.5mm revolver subject to a “borrowing base,” as usual, but that facility wasn’t tapped. We’re guessing Crystal Financial ratcheted up reserves and didn’t leave much opportunity for drawing that money outside of a filing.

In March 2020 the debtors sought, in earnest, new financing, talking to their existing lenders and third-party lenders. They also considered the possibility of tapping funds via the recently-enacted CARES Act. They note:

In addition to the Debtors’ efforts in the private marketplace, the Debtors and their Restructuring Advisors evaluated the availability of government appropriations through the CARES Act. After careful consideration, the Debtors determined that they were not eligible for government funding, or to the extent that there was a possibility that they would be eligible, they would not be able to wait the time necessary to find out whether a loan would be available under the CARES Act. The Debtors are hopeful that future stimulus packages will target companies such as the Debtors – i.e. mid-market companies with 1000 employees that are currently in chapter 11, but that could utilize government financing when emerging from chapter 11.

New third-party financing didn’t come to fruition. Among other reasons, lenders cited “the timing, complexity and overall challenges in the retail industry in light of COVID-19.” It’s hard out there for an underwriter. Ultimately, the debtors settled on financing offered by some of its first lien term lenders.

Now, we don’t normally get too deep into DIP details but given the difficulty financing retailers today, we thought the structure merited discussion. Here’s what the debtors negotiated:

• A $29mm senior secured super-priority asset-based revolver (rollup);

• A $59.89mm senior secured super-priority delayed-draw term loan credit facility of which $8.4mm is new money, a bit over $3mm is for LOCs, and the rest constitutes a rollup of pre-petition debt.

Major equityholder and pre-petition lender Farmstead Capital Management LLC is a big player in the term loan. The DIP is subject to a “strict” 13-week budget based on a four-month case with an eye towards either a section 363 sale or a reorganization by mid-May. Seems ambitious. For obvious reasons. But Farmstead ain’t suffering no fools. Per the debtors:

…the Debtors’ lenders are unwilling to fund a contentious chapter 11 case and they have made this clear to the Debtors over the course of the negotiations. Any material delay or significant litigation during these cases will result in the Debtors’ default of its covenants and send the Debtors spiraling into a fire-sale liquidation.

Given that Farmstead is taking half of its DIP fee paid-in-kind, they may be looking to own this sucker on the backend via a credit bid. Hats off to those guys.

*The papers are not entirely clear but they appear to indicate that e-commerce “accounts for less than 26% of sales” out of $209mm or ~$54mm. Given layoffs across the country, we have to think that e-commerce fell off a cliff in February and March too. Said another way, there’s no way it could’ve generated enough revenue to keep the business afloat. Also, JP Morgan ($JPM) included the following chart in its earnings deck this week:

**We’d be remiss if we didn’t note the financial performance here. Again, the debtors highlighted a $50mm net loss in the fiscal year that just closed on February 1, 2020. Here are the financial projections that True Religion filed as part of its disclosure statement during its first chapter 11 filing:

That’s a savage miss.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $28.5mm Asset-Backed Term Loan (Crystal Financial LLC), $110.5mm First Lien TL (Delaware Trust Company)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Seth Van Aalten, Michael Trentin, Kate Stickles, Patrick Reilley, Taylre Janak) & Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Kevin Eide)

  • Board of Directors: Eugene Davis, Lisa Gavales, Stephen Perrella, Robert McHugh

  • Financial Advisor: Province Inc. (Michael Atkinson)

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Pre-petition ABL & DIP ABL Agent: Crystal Financial LLC

    • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Pre-petition TL & DIP TL Lenders

    • Legal: Proskauer Rose LLP (Brian Rosen, Lucy Kweskin) & Young Conaway Stargatt & Taylor LLP (Jaime Luton Chapman)

  • Major equityholders: Farmstead Capital Management LLC, Waddell & Reed, Towerbrook Capital Partners, Apex Credit Partners LLC, Credit Suisse, Goldman Sachs Asset Management

📺 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.

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• 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 - Longview Power LLC⚫️

Longview Power LLC

April 14, 2020

First it was True Religion and now it’s West Virginia-based Longview Power LLC: looks like we’re back to Chapter 22-ville after a long time away. This prepackaged chapter 11 also brings us back to (“clean”) coal country.* #MAGA!! Longview is the owner and operator of coal-filed power generation facility in West Virginia that services the PJM region (P - Pennsylvania, J - Jersey, M - Maryland, among other states). The company generated $28.1mm of EBITDA in 2019 versus $355mm of funded debt. You can do the math on what that means in terms of leverage ratios. 😬

The company attributes the drag on EBITDA to a combination of “…the rapid expansion of natural gas production, the use of natural gas in electric power generation in recent years, and lower energy prices due to a series of unseasonably warm winters has decreased energy price.” Colder winters = higher demand. Damn global warming! The average price per megawatt for electricity sold in the region is less than that of 2018 ($17.65/mwh). Other factors hitting the demand side include proliferation of use of LED light bulbs and solar roofs. Disruption! Given these market challenges, the company turned its attention to its balance sheet with the hope of eliminating interest expense and freeing up liquidity.

Alas, this is a balance sheet restructuring. The capital structure — while arguably not de-levered meaningfully enough after the initial chapter 11 cut $675mm — is at least straight-forward and simple. Longview has a $25mm revolver, $286.5mm term loan B facility and $44.3mm in subordinated notes. The company’s lenders from the 2013 bankruptcy own the equity.

Well, it looks like this will be Groundhog Day for Longview. Certain of the pre-petition term lenders will backstop a $40mm exit term loan and will get 10% of the new common equity with warrants exercisable for 90% of the new common equity provided the lender participates in the exit facility. Another debt for equity swap. Second time’s the charm?

*The company has already built one clean coal facility with an eye towards a second facility. The company also has plans for natural-gas-fired combined cycle plants and solar panel complexes.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $25mm RCF, $286.5mm TL (Deutsche Bank Trust Company), $44.3mm subordinated notes

• Professionals:

  • Legal: Kirkland & Ellis LLP (David Seligman, Joseph Graham, Laura Krucks, Brenton Rogers, Stephen Hackney) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Financial Advisor: 3Cubed Advisory Services LLC

  • Investment Banker: Houlihan Lokey Inc.

  • Claims Agent: Donlin Recano & Co. (*click on the link above for free docket access)

• Other Parties in Interest:

  • Ad Hoc Group of Prepetition Term Lenders

    • Faegre Drinker Biddle & Reath LLP (Kaitlin MacKenzie, James Millar, Laura Appleby, Kyle Kistinger)

New Chapter 11 Bankruptcy Filing - LSC Communications Inc.

LSC Communications Inc.

April 13, 2020

Chicago-based LSC Communications Inc. ($LSC) and 21 affiliated debtors (the “debtors”), a provider of traditional and digital print products, print-related services and office products, filed for bankruptcy in the Southern District of New York. The company is the result of a 2016 spinoff from R.R. Donnelley & Sons and though it subsequently diversified its business into logistics, it still deals with old-school categories like print magazines, catalogs, books, directories, various other print-related services, and office products. In fact, it is one of the largest printers of books in the US. All of which is to say that the debtors were ripe for disruption.

Nothing about this ought to be surprising to people who have been paying attention to the retail and media landscape over the last decade. Nevertheless, it is painful to read:

Although the Company is a market leader in the printing and printing related services industries, the Company’s product and service offerings have been adversely impacted by a number of long-term economic trends. Digital migration has substantially impacted print production volume, in particular with respect to printed magazines as advertising spending continues to move away from print to electronic media. Catalogs have experienced volume reductions as retailers and direct marketers allocate more of their spending to online advertising and marketing campaigns and some traditional retailers and director marketers go out of business in the face of increased competition from online retailers. The Company saw an unprecedented drop in demand for magazines and catalogs in 2019, with the faster pace of decline in demand primarily due to the accelerating movement from printed platforms to digital platforms.

Thanks Facebook Inc. ($FB). Clearly all of the Restoration Hardware Inc. ($RH) catalogues in the world couldn’t offset the shift of advertising away from print media and soften this blow.

And then there’s this:

Demand for printed educational textbooks within the college market has been adversely impacted by electronic substitution and other trends such as textbook rental programs and free open source e-textbooks. The K-12 educational sector has seen an increased focus on e-textbooks and e-learning programs, but there has been inconsistent adoption of these new technologies across school systems. Consumer demand for e-books in trade and mass market has impacted overall print book volume, although e-book adoption rates have stabilized and industry-wide print book volume has been growing in recent years.

Apropos to the brief discussion above about Mary Meeker’s presentation, we’ve got news for these guys: these trends away from printed textbooks are going to gather steam post-COVID. And while we’re happy to see an uptick in physical book production, it’s unclear whether that is a short-term trend or a longer-term rebound. Someone is going to have to get comfortable betting on the latter. More on this in a moment.

As if the secular trends weren’t bad enough, the debtors’ attempt to consolidate with Quad/Graphics Inc. ($QUAD) (synergies!) in late 2018 met with resistance. The DOJ filed a civil antitrust lawsuit seeking to block the proposed merger and ultimately the parties agreed to terminate the merger. While LSC received a reverse termination fee that exceeded the amount of transaction costs, the proposed merger (i) hindered the debtors’ ability to make much-needed operational fixes (i.e., plant consolidation and footprint optimization), (ii) affected new business development efforts and strained existing customer relationships, and (iii) created uncertainty among the employee ranks that, in some respects, sparked attrition.

All of the above led to an internal restructuring. The debtors set their sights on nine plant closures and footprint reductions — primarily in magazines and catalog manufacturing; they also renegotiated a number of unprofitable customer contracts. Bear in mind: all of this was pre-COVID. Matters can only have gotten worse.

What does all of this look like from a financial perspective? The debtors filed their annual report in early March and the numbers don’t lie:

LSC Annual Report 3/2/20

Net sales declined 13% and while there was a corresponding decline in the cost of sales, SG&A remained constant and restructuring costs ballooned.* The magazines/catalogues/logistics segment declined 7.3%. The book segment fell 3.6%. Office products were a rare bright spot up 8.1% (PETITION Note: this is a relatively small portion of the debtors’ business and we’ll see how that plays out going forward given that there may be a huge shift there).

Due to this piss poor operating performance, the debtors tripped their consolidated leverage ratio and minimum interest ratio covenants in their credit agreement. That’s right: you didn’t think this story would be complete without a significantly over-levered balance sheet, did you?

The company has $972mm of total funded indebtedness broken out among a revolver ($249mm + $50.8mm in outstanding letters of credit), a term loan ($221.9mm) and senior secured notes ($450mm at 8.75%). The term loan requires quarterly principal payments of $10.625mm. While the entire capital structure is secured by an “equal first-priority" ranking with respect to the collateral, the revolver has a “first-out” priority and is entitled first to any proceeds from the collateral while the term loan and the senior secured notes enjoy pari passu status. This is where the rubber meets the road: that’s a lot of parties to get to agree on a transaction.

Before it could agree to anything, however, the debtors needed time and therefore entered into a widely reported forbearance in early March. S&P Global Ratings promptly slapped a downgrade on the company saying that it believed a debt restructuring was likely within 90 days. What a genius call!! While all of this was happening, the debtors continued to deteriorate:

During its March discussions with creditors, the Debtors began to see a significant decrease in their available liquidity, driven in part by the long-term industry trends discussed above and made acute by the severe economic impact of the COVID-19 pandemic.

Which begs the question: what is the value of this business? Cleary nobody can agree on that: there is no restructuring support agreement here. Instead, there appears to be an arms-locked resignation that a parallel-path is needed to (i) nail down some DIP financing to shore up liquidity ($100mm at L+6.75%) and buy time, (ii) continue to discuss a balance sheet restructuring, AND (iii) simultaneously market test the business via a strategic marketing process. A lot of people will need to wait and see how this plays out, primarily pensioners owed over $50mm and various trade creditors including the bankruptcy-familiar RR Donnelley & Sons Co. ($RRD), Eastman Kodak Company ($KODK) and Verso Paper Holding LLC.

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

• Capital Structure: $249mm funded RCF (plus $50.8mm LOCs), $221.9mm funded TL (Bank of America NA), $450mm ‘23 8.75% senior secured notes (Wells Fargo Bank NA)

• Professionals:

  • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, Alexa Kranzley, Christian Jensen) & Young Conaway Stargatt & Taylor LLP

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Evercore Group LLC

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

• Other Parties in Interest:

  • DIP Agent ($100mm): Bank of America NA

    • Legal: Moore & Van Allen PLLC (David Eades, Charles R. Rayburn III, Zachary Smith)

  • Ad Hoc Group of Term Lenders: Bardin Hill Investment Partners LP, Eaton Vance Management, HG Vora Capital Management, LLC, Marathon Asset Management, Shenkman Capital Management, Sound Point Capital Management LP, and Summit Partners Credit Advisors, L.P.

    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Sarah Gryll, Lucas Barrett)

  • Ad Hoc Group of Secured Noteholders: Capital Research and Management Company, Manulife Investment Management, Atlas FRM LLC, TD Asset Management Inc.

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Eaton, Claudia Tobler)

  • Official Committee of Unsecured Creditors

    • Legal: Stroock & Stroock & Lavan LLP (Frank Merola, Brett Lawrence, Erez Gilad, Harold Olsen, Gabriel Sasson)

🏈New Chapter 11 Bankruptcy Filing - Alpha Entertainment LLC (XFL) 🏈

Alpha Entertainment LLC

April 13, 2020

“This is the future. And the future moves fast.”

Whoa boy does it move fast.

Connecticut-based Alpha Entertainment LLC — the legal entity behind the XFL — is now a chapter 11 debtor, an unfortunate blemish on the creative and investment record of Vincent K. McMahon (100% Class A equityholder, 75.5% Class B) and the World Wrestling Entertainment Inc. ($WWE)(23.5% Class B equityholder). Was this idea destined to fail?

The debtor paints an unfortunate picture. This thing was doing great, they assert, until that pesky COVID-19 thing had to come in and decimate anything and everything involving crowds. They note:

Prior to the Petition Date, the XFL provided high-energy professional football, reimagined for the 21st century with many innovative elements designed to bring fans closer to the players and the game they love, during the time of year when they wanted more football. The league debuted on February 8, 2020 to immediate acclaim. Nearly 70,000 fans attended the opening weekend’s games, and more than 12 million viewers tuned in on television. Just weeks after the first XFL games were played, however, the worldwide COVID-19 pandemic forced every major American sports league to suspend, if not cancel, their seasons. On March 20, 2020, the XFL canceled the remainder of its inaugural season, costing the nascent league tens of millions of dollars in revenue.

Man, how’s that for sh*tty timing? The post-Week 1 numbers reflect some initial success. Week 2 attendance rose from approximately 70k to 76.2k and Week 3 attendance hit 81.9k. The XFL was actually showing signs of promise until, in late February, attendance took a dive down to 70.2k in Week 4 and to 64.2k in Week 5.* Were people already beginning to hunker down? Given that Seattle and St. Louis proved to be the largest markets and Washington State was the first state in the union to get pummeled by COVID, that seems fairly safe to presume.

Frankly, nobody on the PETITION team has ever watched a minute of XFL football but … to be honest … it sounds like a whole lot of degenerate fun! Quicker games? ✅ In-game access to participants on the field? ✅ Encouraged gambling? ✅ Sounds awesome. What else are we gonna watch in February? Hockey? Please. This actually sounds like it was not, actually, destined to fail. Like a startup it needed time to build a brand and grow. Absent, say, a worldwide once-every-blue-moon pandemic that literally shuts down the world economy, it might have actually made great strides to do so. Alas:

It is estimated that cancellation of the final five weeks of league’s regular season “negated approximately $27 million in fan spending on gameday-related items” such as ticket sales and food, beverage, and merchandise purchases, to say nothing of the revenue from playoff games or the lost opportunities for sponsorship revenue and brand development. With the league shuttered and no games being played (or revenue being generated), the COVID-19 pandemic left the Debtor facing near-term liquidity issues. With the duration of the pandemic uncertain and the Debtor’s operating expenses continuing unabated, the Debtor was left with few viable alternatives outside of chapter 11.

Mr. McMahon provided the company with a $9mm secured bridge loan but, once it became clear that there was no end in sight to the shutdown, he and his advisors concluded that building a bridge without knowing where the end is probably doesn’t make for good business. Per the the chapter 11 filing papers, the bankruptcy, therefore, is intended to find a buyer for the assets — which include all of the teams (this is not a franchise model), equipment and intellectual property. Revenue for the business was $14mm with a net loss of $44mm. Mr. McMahon has committed to provide a $3.5mm DIP credit facility to fund the cases/sale. Given that the debtor has several million of cash on hand, however, Judge Silverstein did not approve the DIP at the debtors’ first day hearing. Likewise, she shelved the debtor’s plan to issue refunds to season ticket holders.

No sale-related pleadings are yet on file. Per the DIP — which, again, was not approved — a sale motion is required to be on file by April 21 and a sale conducted by July 15, 2020. The debtor has already filed motions rejecting all of its player contracts and practice facility and venue use agreements. McMahon, a billionaire, is well-positioned to credit bid his debt here, wipe out all unsecured creditors, and shelve the IP for a time in the future if he wants.

*There is some question as to whether “attendance” is the proper metric given that there were suspicions that the numbers reflect tickets “distributed” rather than tickets “sold” or actual attendance. Whichever way you measure it, the St. Louis BattleHawks “had reportedly sold 45,000 tickets to their next game before the league shut down due to the coronavirus outbreak.”

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $9mm pre-petition secured note (Vince McMahon)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Matthew Lunn, Kenneth Enos, Travis Buchanan, Shane Reil, Matthew Milana)

  • Independent Manager: Drivetrain Advisors LLC (John Brecker)

  • Claims Agent: Donlin Recano & Co. Inc. (*click on the link above for free docket access)

• Other Parties in Interest:

  • Pre-Petition & DIP Lender ($3.5mm): Vince McMahon
    

🎢New Chapter 11 Bankruptcy Filing - TZEW Holdco LLC (a/k/a Apex Parks Group LLC)🎢

Apex Parks Group LLC

April 8, 2020

California-based TZEW Holdco LLC and six affiliates (including Apex Parks Group LLC, the “debtors”) filed for bankruptcy in the District of Delaware. The debtors are Carlyle-owned family entertainment centers located in California, Florida and New Jersey. Here’s what the debtors’ website says about their business prospects:

According to a 2011 International Association of Amusement Parks survey, 25% of Americans surveyed visited an amusement park within the last 12 months, with 43 percent of Americans indicating they plan to visit in the next 12 months. Consumers have a desire to get out of the house for fun, but want their entertainment dollars to represent a good value for the entire family. In America, people visit amusement parks nearly 300 million times each year and generate more than $12 billion in revenue.

Eesh. That’s a tough read these days. 😬😷

The purpose of the filing is to eliminate debt and sell the business to their pre-petition secured lenders. Troubles have been brewing here since 2019: indeed, the debtors have been “perpetually distressed.” Per the debtors:

The Company suffered from a number of challenges leading to these chapter 11 cases, including, among others, increased industry competition and consolidation, heavy operational expenditure requirements, the seasonal nature of the business, general litigation, and irregular management turnover. In the years and months leading up to the Petition Date, the Company initiated multiple go-forward operational initiatives to increase profitability, such as implementing strategic pricing and season pass sales, redesigning food and beverage offerings, optimizing operating calendars, and generally investing in the maintenance and improvement of its locations. Despite these efforts, the Company continued to experience negative cash flows and, ultimately, an unsustainable balance sheet. In the months leading up to the Petition Date, the Company faced rapidly dwindling liquidity and, in order to maintain day-to-day operations, needed to increasingly rely on discretionary disbursements under its prepetition financing agreement.

The Disney Effect!!

Indeed, the debtors blame Disney Inc. ($DIS) and Six Flags Entertainment Corporation ($SIX) for being bigger, better, and deep-pocketed. Well, and having much better IP. Anyone looking for a bullish reason to buy DIS stock — assuming COVID-19 is a short-term issue — can see here, in the words of a competitor, why DIS’ IP strategy over the years has been solid. Per the debtors:

For example, estimates suggest that Universal Studio Orlando's first Harry Potter attraction boosted attendance by 50% over the attraction's first three years. Similarly, Disney has recently constructed Star Wars themed attractions at Walt Disney World it Orlando, Florida and Disneyland in Anaheim, California, as part of a $2 billion investment Disney has made in its theme parks. This industry competition and consolidation by major corporations in recent years has been a key driver in a string of closures of small and middle market theme parks across the country.

The debtors were in the midst of parallel-tracking their marketing process while also talking to their lenders about additional sources of liquidity. COVID-19 didn’t help matters. The debtors shut down their parks and now that people are Amazon Priming their cotton candy, the revenue spigot is off.

As you well know, interest payments are, absent waivers/forbearance from lenders, still due. The debtors owe $79mm to lender, Cerberus Business Finance LLC. An affiliate thereof will serve as stalking horse purchaser of the debtors’ assets with an eye towards the EBITDA-rich June-September period — assuming people are allowed out and are willing to go to amusement parks by then. Cerberus is also providing the DIP. In other words, Cerberus is driving the bus here. The DIP commitment requires a sale hearing no later than May 11, 2020.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $79mm (Cerberus Business Finance LLC)

• Professionals:

  • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns)

  • Independent Directors: Michael Short, Jeffrey Dane

  • Financial Advisor: Paladin Management Group LLC (Scott Avila, Jennifer Mercer)

  • Investment Banker: Imperial Capital

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

• Other Parties in Interest:

  • Administrative Agent: Cerberus Business Finance LLC

    • Legal: KTBS Law LLP (Michael Tuchin, David Fidler, Jonathan Weiss, Sasha Gurvitz) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Robert Poppitti Jr.)

  • Stalking Horse Purchaser: APX Acquisition Company LLC

  • Largest Equityholders: Benefit Street Partners & Edgewater Growth Capital Partners

😷New Chapter 11 Bankruptcy Filing - Quorum Health Corporation😷

Quorum Health Corporation

April 7, 2020

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

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

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

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

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

• Jurisdiction: D. of Delaware (Judge Owens)

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

• Professionals:

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

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

  • Investment Banker: MTS Health Partners LP

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

  • Consenting First Lien Lenders

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

    • Financial Advisor: Houlihan Lokey

  • Consenting Noteholders

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

    • Financial Advisor: Jefferies LLC

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

🛫New Chapter 11 Bankruptcy Filing - 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 - Rudy's Barbershop Holdings LLC💈

Rudy's Barbershop Holdings LLC

April 2, 2020

Just when the entire country is sheltering in place and can no longer go out to get haircuts (reviving videos of 80s fave, the Flowbee), Seattle Washington-based Rudy’s Barbershop Holdings LLC and five affiliates (the “debtors”) have filed for chapter 11 bankruptcy. The business has been hemorrhaging cash for a few years now — losing $2.275mm in ‘18 and $2.142mm in ‘19. COVID-19 was the nail in the coffin. The debtors were forced to close on March 16, eliminating the debtors’ main source of revenue. The majority of the debtors’ employees currently are furloughed, with a small subset who work at the debtors’ Microsoft Inc. ($MSFT) office campus paid through a reimbursement from Microsoft Inc.

Owned by Northwood Ventures LLC, a NY-based private equity and venture capital firm, the debtors are hoping to achieve a going concern sale in bankruptcy to Tacit Capital LLC on an expedited basis. The company has about $4.6mm of funded debt and Tacit has committed to DIP financing. For what it’s worth, we here at PETITION hope that the sale can get done with ease so that this business is saved. Things are rough out there.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Professionals:

  • Legal: Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Desgrossiers, Mark Olivere)

  • Financial Advisor: GlassRatner Advisory & Capital Group LLC (Wayne Weitz, Robert Trenk)

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

• Other Parties in Interest:

  • Sponsors: Northwood Ventures LLC & PCG-Ares Sidecar Investment LP

    • Legal: Joshua T. Klein & Gellert Scali Busenkell & Brown LLC (Michael Busenkell)

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

Whiting Petroleum Corporation

April 1, 2020

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

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

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

• $773.6mm ‘21 5.75% senior unsecured notes

• $408.3mm ‘23 6.25% senior unsecured notes

• $1b ‘26 6.625% senior unsecured notes

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

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

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

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

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

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

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

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

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

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

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

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

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

— EnergyCynic (@EnergyCynic) April 1, 2020

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

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

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

• Capital Structure:

• Professionals:

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

  • CRO: Stein Advisors LLC (Jeffrey Stein)

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

  • Investment Banker: Moelis & Company

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

• Other Parties in Interest:

  • RBL Agent: JPMorgan Chase Bank NA

  • Ad Hoc Committee of Noteholders

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

    • Financial Advisor: PJT Partners LP

  • Creditor: Caliber North Dakota LLC

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

⛽️New Chapter 11 Filing - CARBO Ceramics Inc. ($CRRT)⛽️

CARBO Ceramics Inc.

March 29, 2020

Houston-based CARBO Ceramics Inc. and two affiliates (the “debtors”) are the latest oil and gas servicers to file for chapter 11 bankruptcy; they are manufacturers and sellers of ceramic tech products and services and ceramic proppant for oilfield, industrial and environmental markets. Make no mistake, though: they are indexed heavily to the oil and gas market.

Here’s a paragraph that literally scores of companies ought to just copy and paste (with limited edits) over the next several months as a wave of oil and gas companies crash into the bankruptcy system:

Beginning in late 2014, a severe decline in oil prices and continued decline in natural gas prices led to a significant decline in oil and natural gas drilling activities and capital spending by E&P companies. While modest price recoveries have occurred intermittently since that time, prices have generally remained depressed and recently fell precipitously again to near record low levels. The Company’s financial performance is directly impacted by activity levels in the oil and natural gas industry. A downturn in oil and natural gas prices and sustained headwinds facing the E&P industry have resulted in both reduced demand for the Company’s products and services and reduced prices the Company is able to charge for those products and services. Because drilling activity has been reduced over a protracted period of time, demand for all of the Company’s products and services (proppant, in particular) has been significantly depressed.

They can then follow it up with some astounding business performance figures like:

From 2014 to 2019, the Company’s total revenue for base ceramic media fell from approximately $530 million to approximately $34 million.

BOOM!

Of course, this financial pain will trickle down to others. Like railcar and distribution center lessors, among others.

The debtors have a consensual deal with their pre-petition secured lenders, Wilks Brothers LLC and Equify Financial LLC, to equitize their debt — including maybe the DIP if its not rolled into an exit facility. The deal is interesting because it provides 100% recovery to unsecured creditors of two debtors and a cash payment option to unsecured debtors of the main debtor. The lenders will see a liquidating trust with a whopping $100k so that certain avoidance actions can be pursued. And, finally, there’s a “death trap.” If the unsecured creditors vote to accept the plan, the pre-petition secured creditors will waive their “very significant unsecured deficiency claim.” If not, they’ll flood them into oblivion. Of course, this statement implies that the value of the business is negligible at this point. Reminder: revenue dipped from $530mm to $34mm in 2019. Can’t imagine numbers for 2020 are looking particularly rosy either. Finally, all of the above is subject to a “fiduciary out” — you know, in case, by some miracle, someone else actually wants this business (spoiler alert: nobody will).

Also interesting is the value of the NOLs here which dwarf the funded debt. 🤔

Wilks will fund a $15mm DIP to finance the cases with $5mm needed within the first 14 days of the cases. This, however, is subject to what we’ll call “The COVID-caveat.” Per the company:

The DIP Budget is based on information known to date and is the best estimate of the Debtors’ current expectations. It should be noted that the global outbreak of the COVID-19 virus and the severe disruption and volatility in the market has caused and continues to cause major challenges across all industries and may ultimately result in the Debtors’ falling short of their forecasted receipts.

Interestingly, they note further:

The Company’s New Iberia facility is currently non-operational due to a state-wide shelter-in-place order, but the Company, pursuant to applicable state law, is continuing to pay its employees. While the shelter-in-place order could terminate by April 10, 2020, it is possible that the order will be extended.

While the Company’s other facilities in Alabama and Georgia are still operational, it is possible that these states will also enact shelter-in-place orders in the near term that will force these facilities to go non-operational.

The simultaneous supply and demand shock in the oil market is unprecedented and may cause a substantial strain on or reduction in collections from the Company’s primary customers, many of whom are dependent on oil prices.

None of this is surprising but it’s interesting to see the various x-factors that are now part of the DIP sizing process.

As you all very well know, these are extraordinary times.

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

• Capital Structure: $65mm RCF (Wilks Brothers LLC & Equify Financial LLC)

• Professionals:

  • Legal: Vinson & Elkins LLP (Matthew Moran, Matthew Struble, Garrick Smith, Paul Heath, David Meyer, Michael Garza) & Okin Adams LLP (Matthew Okin, Johnie Maraist)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Perella Weinberg Partners LP (Jakub Mlecsko)

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

• Other Parties in Interest:

  • Prepetition Secured Lender & Major Equityholder: Wilks Brothers LLC & Equify Financial LLC

    • Legal: Norton Rose Fulbright LLP (Greg Wilkes, Francisco Vazquez)

    • Financial Advisor: Ankura Consulting Group LLC

🍣New Chapter 11 Bankruptcy Filing - Dean & Deluca New York Inc.🍣

Dean & Deluca New York Inc.

March 31, 2020

Dean & Deluca New York Inc. hasn’t been in business in New York for well over six months so when this sucker and six affiliates (finally) filed for bankruptcy, our first reaction was, collectively, “No sh*t.” It’s somewhat ironic that it’s making a re-appearance at a time when New Yorkers are (unfortunately) clamoring for food options. But we digress.

The company has no operating retail locations; it has one remaining employee.* This reality is what’s left of a post-acquisition expansion plan gone bad where over $200mm of cash was flushed down the toilet.

For the last several months, the company has apparently been working with its two primary creditors and lenders, Pace Development Corporation and Siam Commercial Bank Public Company Limited (“SCB”), to develop a reorganization plan. No out-of-court option emerged and so now the company is in bankruptcy “to effectuate a restructuring transaction that would preserve the value of the Dean & DeLuca brand, position itself to re-open stores and rehire employees, and provide financial returns and new business opportunities to creditors.” Ummmmmm, okay.

The company received a $750k secured loan from SCB on the eve of bankruptcy. Otherwise, it has no secured debt just $295mm in unsecured debt (but was it debt, really?) and $25mm in trade debt. On the asset side, the company claims its trademark is worth $50mm (hahahahahaha). It also lists “franchise agreements and customer relationships” with a book value of $5mm, $100mm in NOLs (now we’re talking), $700k in accounts receivable and $20mm in property and equipment.

Where’s this thing go from here? Looks like Pace intends to sink more money into this thing and give it another go. G-d bless persistence.

*It still has some branded international franchisees who paid the company $1.5mm in license fees in 2019. COVID may have something to say about that happening in 2020.

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

• Capital Structure: $750k secured debt, $295mm unsecured debt

• Professionals:

  • Legal: Brown Rudnick LLP (Willam Baldiga, Bennett Silverberg, Tristan Axelrod)

  • Financial Advisor: Argus Management Corporation (Joseph Baum, Lawton Bloom)

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

• Other Parties in Interest:

  • Secured Lender: Siam Commercial Bank Public Company Limited

😷New Chapter 11 Bankruptcy Filing - MBH Highland LLC😷

MBH Highland LLC

March 29, 2020

MBH Highland LLC, MBH West Virginia LLC and MBH Health Center LLC (collectively, the “debtors”) filed for chapter 11 bankruptcy in the Middle District of Tennessee.

• Jurisdiction: M.D. of Tennessee (Judge Walker)

• Professionals:

  • Legal: Bass Berry & Sims PLC (Paul Jennings, Gene Humphreys, Glenn Rose)

  • Financial Advisor/CRO: Tortola Advisors LLC (C. Steven Moore)

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

🛰New Chapter 11 Bankruptcy Filing - OneWeb Global Limited🛰

OneWeb Global Limited

March 27, 2020

We have been complaining for months about how bankruptcy was getting boring. There are only so many retail, oil and gas, biopharma or mass tort cases to write about before things start to get really … and we mean REALLY … monotonous. And so a shout out to Softbank’s Masa Son: as always, you’ve supplied some much needed novelty to the mix! Amidst countless stories of one Softbank portfolio company after another getting a new directive, fresh discipline or retraded on deals (cough, WeWork), portfolio company OneWeb Global Limited and eighteen affiliates (the “debtors”) filed for bankruptcy.

As far as Softbank investments go, the debtors are SOOOOOOOO on brand. It is almost literally a “moonshot,” an uber-ambitious project aiming to deploy “the world’s first global satellite communications network to deliver high-throughput, high-speed, low-latency Internet connectivity services, having an ability of channeling 50 megabits per second, with a latency of less than 50 millisecond, and capable of connecting everywhere, to everyone.” Since 2012, the debtors have been developing a low-Earth orbit satellite constellation system and associated ground infrastructure “capable of delivering communication services for use by consumers, businesses, governmental entities, and institutions, including schools, hospitals, and other end-users whether on the ground, in the air, or at sea.” This means they have started mass producing small satellites, acquiring various authorizations and spectrum icenses (i.e., the use of Ku-band and Ka-band radio-frequency spectrum on a global basis) and domestic market access/services authorizations; they have also completed three launches of 70 satellites in the last year. “OneWeb was well on its way to growing its constellation to 648 satellites with the goal of beginning customer service demonstrations in late 2020 and providing full global commercial coverage by late 2021 or early 2022.” Right. Just like Uber Inc. ($UBER) is delivering autonomous cars and WeWork is sustainably spreading its community-first mission across the world. You have to hand it to Masa Son: the man has some vision. Some entrepreneurial spirit. Eventually, though, there has to be money to support the ambition.

Right. So, about the money. The debtors have raised a lot of it — no surprise considering the capital intensive nature of the business. The raises include:

• A $500mm equity raise backed by Airbus Group Inc. Hughes Network Systems LLC, Intelsat Corporation, Qualcomm Incorporated and Virgin Group Ltd.

• A $1.2b equity raise, $1b of which came from Softbank Group Corp. and the other $200mm from existing investors.

• A $408mm note issuance to Softbank as administrative and collateral agent.

• A $1.56b senior note issuance (and corresponding warrant issue) secured by substantially all of the debtors’ assets including share pledges and rights to radiofrequency authorizations. This issuance rolled-up the $408mm note.

In total, the debtors has over $1.73b in funded debt outstanding as of the petition date on top of the $1.7b of equity raised.

And yet it is in bankruptcy first and foremost because of liquidity issues. As a development stage company, it is what the venture capitalists would call “pre-revenue.” Worse than that, development is time-consuming and expensive and the build out of the debtors’ systems “exhausted [their] existing equity and debt financing.” Again, this is Softbank: massive cash burn is part of its playbook. We’ve all seen this movie before. There’s always tons of money until — poof! — suddenly there’s not. Since 2019, the debtors have been seeking investments from existing and new investors but nobody would bite. It seems that investors hesitated to throw good money after bad; it is also safe to presume that, by this point, a certain level of post-WeWork-fiasco Softbank taint burdened the process. Investors are leery of lighting good money on fire after bad.

Toss in COVID-19 and we’ve got ourselves a combustible situation. Per the debtors:

OneWeb had been hopeful to achieve an out of court solution to its deteriorating liquidity position. After several due diligence meetings during the first and second weeks of March 2020, the Company believed that it was going to be able to secure a long-term funding arrangement from existing shareholders. However, on March 12, 2020, as the markets began to feel the impact of COVID-19, OneWeb was notified that its current investors would not commit to a long term solution. On March 16, 2020, OneWeb entered into a term sheet for bridge financing to be consummated by March 26, 2020. On March 21, 2020, the Company was notified that the bridge financing offer was unavailable. Unfortunately, the anticipated funding opportunities OneWeb pursued were significantly and precipitously impacted by the COVID-19 pandemic and the resulting shuttering of the global economy. OneWeb, in an effort to preserve liquidity during these difficult social, political, and economic times, began shutting down nonessential aspects of its business in order to preserve the value of its existing assets.

Consequently, the debtors laid off 90% of their workforce and halted development. With the consensual use of Softbank’s cash collateral, the debtors filed chapter 11 “to provide them with the necessary breathing space to wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets.”

Given the volatility currently in the market, there’s no telling how long they’ll have to wait.

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

• Capital Structure: see above.

• Professionals:

  • Legal: Milbank LLP (Dennis Dunne, William Schumacher, Andrew Leblanc, Tyson Lomazow, Lauren Doyle)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • Softbank

    • Legal: Morrison & Foerster LLP (Gary Lee, Todd Goren)

  • Collateral Agent: GLAS

    • Legal: Arnold & Porter Kaye Scholer (Jonathan Levine)

  • EchoStar Operating LLC and Hughes Network Systems LLC

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

  • Airbus DS Satnet LLC and Airbus Group Proj B.V.

    • Legal: Hogan Lovells US LLP (Ronald Silverman, Christopher Bryant, M. Hampton Foushee, Craig Ulman)
      

⛽️New Chapter 11 Filing - Echo Energy Partners I LLC⛽️

Echo Energy Partners I LLC

March 24, 2020

Soooooo, this is an odd one. On March 24, 2020, Oklahoma City-based Echo Energy Partners I LLC, an independent oil and gas company — primarily natural gas from the Anadarko Basin — filed for bankruptcy in the Southern District of Texas. It was a bare bones filing. For well over a week, the docket sat empty with no real substantive pleadings filed or definitive information coming through about the case. Then, finally, over a week later, the company filed more actual first day motions and its First Day Declaration. Usually the automatic stay doesn’t apply to the debtors’ work but, yeah, sure, more power to them.

Anyway, now we know what’s up. And it’s not particularly original or interesting. The upshot? Apparently nobody wants to finance “gas-heavy, capital intensive, non-operated wells with longer production curves” in a $2.00 per million Btu environment let alone a now-sub-$2.00 per million Btu environment. The debtor, therefore, ran into severe liquidity constraints — a situation compounded by third-party operators like Continental Resources inc. ($CLR) initiating forced forfeitures of the debtor’s working interest in key wells.

What’s the plan now? Well, it ain’t looking good. The debtor has a $8.5mm DIP commitment from its pre-petition lender, Texas Capital Bank ($TCBI), and hopes to use the chapter 11 process to pursue a sale of its business.

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

• Capital Structure: $80mm RCF (Texas Capital Bank) & $165mm notes (HPS Investment Partners LLC)

• Professionals:

  • Legal: Bracewell LLP (William A. Wood III, Jason G Cohen)

  • Manager: John T. Young Jr.

  • Financial Advisor: Opportune LLP (Gregg Laswell)

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