New Chapter 11 Bankruptcy Filing - Maremont Corporation

Maremont Corporation

January 22, 2019

Michigan-based Maremont Corporation, a subsidiary of publicly-traded non-debtor automobile component manufacturer Meritor Inc. ($MTOR), has filed for bankruptcy along with three affiliates in the District of Delaware. The company was a manufacturer, distributor and seller of aftermarket auto products — many of which contained asbestos; currently, it has no ongoing operations and its only assets are an intercompany receivable, a rent-producing commercial property with Dollar General as a tenant, a few bank accounts, and some insurance assets. In contrast, the company has significant liabilities — notably asbestos-related liabilities including defense and other costs associated with defending 13k pending personal injury and wrongful death claims.

The company, in consultation with its parent and committees of Future Claimants and current Asbestos Claimants, arrived at a prepackaged plan under section 524(g) of the Bankruptcy Code. The plan envisions a personal injury trust to be funded, in large part, by Meritor (via the repayment of a remaining receivable, a contribution of intercompany payables and a $28mm settlement payment) and a channeling injunction that protects the company (and Meritor) from future suit and liability arising out of the company’s asbestos legacy. Instead, any and all asbestos-related personal injury claims may only be pursued against, and paid from, the personal injury trust.

Meritor, like most of the stock market, got beaten up yesterday. There’s no telling whether the multi-million dollar payout here had anything to do with that.

Source: Yahoo!

Source: Yahoo!


For the uninitiated, this (horrifically boring) bankruptcy filing presents us with a good opportunity to highlight a potential structure (and its limitations) for any imminent Pacific Gas & Electric Company (“PG&E”) chapter 11 bankruptcy filing. PG&E’s issues — as have, by this point, been extensively documented — largely emanate out of (i) some oppressive California state liability laws (inverse-condemnation — definitely), (ii) man-made global warming and resultant mudslides and wildfires (probably), and (iii) at least a glint of negligence (probably). While the company has $18.4b of (mostly unsecured) debt, the catalyst to bankruptcy may be its multi-billion dollar liability from the aforementioned CA-state laws and years of environmental disaster.

Similar to Maremont, PG&E is likely to end up with some kind of plan of reorganization that features a litigation trust (for affected claimants) and a channeling injunction. Except, as John Rapisardi and Daniel Shamah of O’Melveny & Myers point out, there are limitations to that structure. They write:

There is one significant obstacle to any PG&E bankruptcy: the likely inability to discharge liabilities associated with wildfires that have not yet occurred. There have been numerous mass tort bankruptcies in the past that have been resolved through the formation of a litigation trust and channeling injunction, forcing litigants into a single forum where claims are satisfied through trust assets. See, e.g., 11 U.S.C. §524(g) (channeling injunction for asbestos debtors); In re TK Holdings, Doc. No. 2120, Case No. 17-11375 (Bankr D. Del.) (confirmation order with channeling injunction for debtor that manufactured airbags with defective components). But that structure only works for claims based on prior conduct or acts. PG&E, in contrast, faces perennial liability associated with wildfires and inverse condemnation. It may be challenging to discharge the inverse-condemnation liabilities associated with a post-petition wildfire. See 28 U.S.C. §959(a) (debtors-in-possession may be sued “with respect to any of their acts or transactions in carrying on business connected with such property.”).

Prior conduct or acts, huh? A discontinued product that happened to contain asbestos fits that bill. Likewise, a remedied airbag (the TK Holdings referenced above refers to Takata Airbags). Sadly — especially for Californians, there is nothing prior about environmental issues. Those are very much a present and future thing.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Company Professionals:

    • Legal: Sidley Austin LLP (James Conlan, Andrew O’Neill, Alison Ross Stromberg, Blair Warner, Alex Rovira) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)

    • Claims Estimation Advisor: Alvarez & Marsal Disputes and Investigations LLC

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

  • Other Parties in Interest:

    • Future Claimants Representative: James L. Patton Jr.

      • Legal: Young Conaway Stargatt & Taylor LLP

      • Claims Estimation Advisor: Ankura Consulting Group LLC

𝟚𝟚 New Chapter 22 Bankruptcy Filing - Gymboree Group Inc. 𝟚𝟚

Gymboree Group, Inc.

January 16, 2019

Screen Shot 2019-01-19 at 8.27.10 AM.png

So, uh, THAT didn’t age well.

Let’s be clear here: the Gymboree situation is an unmitigated disaster and, in our view, has not — in the wake of all of the news surrounding Sears Holding Corporation ($SHLDQ) and PG&E Corporation ($PCG) — gotten the attention it deserves. That’s where we come in. Let’s hop in the DeLorean.

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  • Jurisdiction: E.D. of Virginia

  • Capital Structure: $79.1mm senior secured ABL (Bank of America NA), $44.5mm LOCs under ABL, $89mm TL

  • Company Professionals:

    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Evan Fleck, Michael Price) & (local) Kutak Rock LLP (Michael Condyles, Peter Barrett, Jeremy Williams, Brian Richardson)

    • Independent Directors: Eugene Davis, Scott Vogel

    • Financial Advisor/CRO: Berkeley Research Group LLC (Steven Coulombe)

    • Investment Banker: Stifel Nicolaus & Co. & Miller Buckfire & Co.

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

  • Other Parties in Interest:

    • Gymboree Canada

      • Legal: Norton Rose Fulbright Canada LLP

      • Proposal Trustee: KPMG Inc.

        • Legal: Osler Hoskin & Harcourt LLP

    • ABL Agent: Bank of America NA

      • Legal: Morgan Lewis & Bockius LLP

    • Prepetition Term Loan Agent (Goldman Sachs Specialty Lending Group Inc.) & Term DIP Agent and Term Lender (Special Situations Investing Group Inc.)

      • Legal: King & Spalding (W. Austin Jowers, Christopher Boies, Michael Handler) & (local) McGuireWoods LLP (Dion Hayes, Douglas Foley, Sarah Boehm)

New Chapter 11 Bankruptcy Filing - Specialty Retail Shops Holding Corp. (Shopko)

Specialty Retail Shops Holding Corp. (Shopko)

January 16, 2019

Sun Capital Partners’-owned, Wisconsin-based, Specialty Retail Shops Holding Corp. (“Shopko”) filed for bankruptcy on January 16, 2019 in the District of Nebraska. Yes, the District of Nebraska. Practitioners in Delaware must really be smarting over that one. That said, this is not the first retail chapter 11 bankruptcy case shepherded by Kirkland & Ellis LLP in Nebraska (see, Gordman’s Stores circa 2017). K&E must love the native Kool-Aid. Others, however, aren’t such big fans: the company’s largest unsecured creditor, McKesson Corporation ($MCK), for instance. McKesson is a supplier of the company’s pharmacies and is a large player in the healthcare business, damn it; they spit on Kool-Aid; and they have already filed a motion seeking a change of venue to the Eastern District of Wisconsin. They claim that venue is manufactured here on the basis of an absentee subsidiary. How dare they? Nobody EVER venue shops. EVER!

Anyway, we’ve gotten ahead of our skis here…

The company operates approximately 367 stores (125 bigbox, 235 hometown, and 10 express stores) in 25 states throughout the United States; it employs…

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  • Jurisdiction: D. of Nebraska

  • Capital Structure: see report.    

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Patrick Nash Jr., Jamie Netznik, Travis Bayer, Steven Serajeddini, Daniel Rudewicz) & (local) McGrath North Mullin & Kratz P.C. LLO (James Niemeier, Michael Eversden, Lauren Goodman)

    • Board of Directors: Russell Steinhorst (CEO), Casey Lanza, Donald Roach, Mohsin Meghji, Steve Winograd

    • Financial Advisor: Berkeley Research Group LLC

    • Investment Banker: Houlihan Lokey Capital Inc. (Stephen Spencer)

    • Liquidation Consultant: Gordon Brothers Retail Partners LLC

      • Legal: Riemer & Braunstein LLP (Steven Fox)

    • Real Estate Consultant: Hilco Real Estate LLC

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

  • Special Committee of the Board of Directors

    • Legal: Willkie Farr & Gallagher LLP

    • Financial Advisor: Ducera Partners LLC

  • Other Parties in Interest:

    • Wells Fargo Bank NA

      • Legal: Otterbourg PC (Chad Simon) & (local) Baird Holm LLP (Brandon Tomjack)

    • Official Committee of Unsecured Creditors (HanesBrands Inc., Readerlink Distribution Services LLC, Home Products International NA, McKesson Corp., Notations Inc., LCN SKO OMAHA (MULTI) LLC, Realty Income Corporation)

💄New Chapter 11 Bankruptcy Filing - Beauty Brands LLC💄

January 6, 2019

A second beauty bankruptcy in three weeks. We previously noted:

On December 19, 2018, a week after Glossier CEO Emily Weiss revealed that the direct-to-consumer beauty brand hit $100mm in sales, Glansaol, a platform company that acquires, integrates and cultivates a portfolio of prestige beauty brands — including a direct-to-consumer brand — filed for bankruptcy in the Southern District of New York.

Now, a Kansas City-based brick-and-mortar beauty retailer with 58 stores in 12 states, Beauty Brands LLC, filed for bankruptcy over the weekend in the District of Delaware. Though we’ve never heard of it, it is no small shop: the company generated $125mm of net sales for fiscal year ended February 3, 2018. 70% of its revenue came from retail products and 30% from salon and spa services. The company had an e-commerce platform that accounted for 6.2% of net sales. It does not own any real property, leasing each of its stores.

In December, the company’s lender, PNC Bank NA, declared a default on the company’s credit facility. Why? Per the Company:

Beauty Brands’ liquidity and financial position has been adversely affected by declining sales and rising costs associated with doing business as a predominantly “brick and mortar” retailer. These factors have adversely impacted the Debtors’ profitability and its liquidity, which in turn has made it increasingly difficult to source replenishment inventory, which in turn contributes to further declines in the Company’s sales.

Well, that certainly paints a nice picture of how trouble can spiral out of control. Compounding matters is the fact that the company decided to expand in the face of a changing brick-and-mortar retail environment…

From 2014 through 2016, Beauty Brands unsuccessfully attempted to reposition its brand identity and store model by opening 11 new format store locations, which required significant capital expenditures, deferral of other investment opportunities, and management’s focus on the new format stores to the detriment of its existing store locations. These new format store locations, which remain operational, have underperformed Beauty Brands’ expectations and contributed to operating losses incurred by the Debtors.

Despite pre-petition efforts to sell the company as a going concern, no buyers were forthcoming. Therefore, the company hired Hilco Merchant Resources LLC to commence a firm-wide liquidation. Nevertheless, the company holds out hope — given some 11th hour interest by two potential buyers — that it can auction approximately 33 of its stores (“Core Stores”). In the meantime, Hilco is pursuing “GOB” sales of the 23 remaining stores (“Closing Stores”)(PETITION Note: the company’s papers say there are 58 stores, and yet only 56 stores are accounted for in the company’s description of Core Stores and Closing Stores, though there is mention of one “Dark Store”). Hilco will also serve as the Stalking Horse Bidder for the Core Stores.

The company will pursue a short post-petition marketing and sale process with an aim towards an early February 2019 sale. The company will use a committed $9mm DIP from pre-petition agent, PNC Bank NA, to fund the process.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: $17.5mm ($6.9mm funded, including fees + interest)

  • Company Professionals:

    • Legal: Ashby & Geddes P.A. (Gregory Taylor, Stacy Newman, Katharina Earle, David Cook)

    • Financial Advisor/CRO: RAS Management Advisors LLC (Timothy Boates)

    • Investment Banker: Lazard Middle Markets LLC (Dermott O’Flanagan)

    • Liquidator: Hilco Merchant Resources LLC

    • Claims Agent: Donlin Recano & Company Inc.

  • Other Parties in Interest:

    • DIP Agent: PNC Bank NA

💄New Chapter 11 Bankruptcy Filing - Glansaol Holdings Inc.💄

December 19, 2018

A week after Glossier CEO Emily Weiss revealed that the direct-to-consumer beauty brand hit $100mm in sales, Glansaol, a platform company that acquires, integrates and cultivates a portfolio of prestige beauty brands — including a direct-to-consumer brand — filed for bankruptcy in the Southern District of New York. The company owns a trio of three main brands: (a) Laura Geller, a distributor of female beauty and personal care products sold primarily on QVC and wholesale, (b) Julep, a wholesale distributor of high-end nail polish, skincare and cosmetic products with a direct-to-consumer and “subscription box” model, and (c) Clark’s Botanicals, a skincare retailer, which sells primarily via e-commerce (including Amazon) and QVC.

The company indicated that “a general shift away from brick-and-mortar shopping, evolving consumer demographics, and changing trends” precipitated its bankruptcy filing. More specifically, profit drivers, historically, have been broadcast shopping networks and wholesale distribution. But both QVC and large retailers have cut back orders significantly amidst a broader industry shakeout. Compounding matters is the fact that the company’s top two customers account for over 60% of total receivables. As we always say, customer concentration is NEVER a good thing.

Moreover, the company added:

…the Debtors have been unable to replace key revenue generators due to: (a) the increasingly competitive industry landscape coinciding with the downturn in the brick and mortar retail sector; (b) the decline in broadcast shopping network sales; and (c) the downturn of the Company’s single-brand subscription business, which faces competition from new entrants that offer subscriptions covering a variety of brands.

Hmmm. Insert Birchbox here? Perhaps Glansaol ought to have entered into a partnership with Walgreens! 🤔

What happens when you can’t move product? You build up inventory. Which, for a variety of reasons, is no bueno. Per the company:

…the decline in sales has saddled the Debtors with a significant oversupply of inventory, which has forced the Debtors to sell goods at steep markdowns and destroy certain products, further tightening margins and draining liquidity. Oversupply of inventory, coupled with higher returns and chargebacks described below, has also significantly increased the Debtors’ costs for warehouses and other third-party logistics providers.

Interestingly, the company aggregated the three brands in the first place because of perceived supply chain synergies. Per the company:

The strategy was put into practice in late 2016 and early 2017 when the Debtors acquired a trio of rising prestige beauty companies ― Laura Geller, Julep, and Clark’s Botanicals. The combination was designed to realize the benefit of natural synergies without any cannibalization. The brands share relatively similar supply chains where it was thought efficiencies could be realized, but they featured different price points and consumer profiles. For example, while Laura Geller appeals to consumers over the age of 35 and is primarily sold through wholesale retailers and broadcast shopping networks, Julep caters to a younger generation through its online business and experience-driven nail salons.

We love synergies. They always seem to be good in theory and nonexistent in practice. To point:

the Debtors were never able to achieve significant cost savings related to shared services among their brands. Upon the Debtors’ acquisitions of Laura Geller, Julep and Clark’s in 2016, the plan was to ultimately consolidate shared services, including supply chain, senior management, administrative support, human resources, information technology support, accounting, finance and legal services. The brands, however, were never fully integrated. Instead, the Company is saddled with a substantial legacy investment in a new ERP system, which was put into place ahead of cross-organizational efficiency initiatives and right-sizing functionality. Accordingly, the costs savings attributed to synergies, which had been a pillar of the Debtors’ original business model, were never realized.

Which is why we generally tend to be skeptical whenever we hear about cost savings and synergies as a basis for M&A (cough, Refinitiv).

Given all of the above, the company has been engaged in a marketing process since roughly February 2018 running, in the interim, based on its credit facility and equity infusions. Now, though, the company has a stalking horse bidder in tow in the form of AS Beauty LLC, which has agreed to purchase the company’s brands and related capital assets for approximately $16.2mm. The company’s prepetition lender, SunTrust Bank, has agreed to provide a $15mm DIP credit facility which, along with cash collateral, will fund the cases.

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

  • Capital Structure: $7.2mm RCF (SunTrust Bank)

  • Company Professionals:

    • Legal: Willkie Farr & Gallagher LLP (Brian Lennon, Daniel Forman, Andrew Mordkoff)

    • Financial Advisor: Emerald Capital Advisors (John Madden)

    • Claims Agent: Omni Management Group Inc. (click on the case name above for free docket access)

  • Other Parties in Interest:

    • Prepetition Secured & DIP Lender: SunTrust Bank (Legal: Parker Hudson Rainer & Dobbs LLP — Rufus Dorsey, Eric Anderson, James Gadsden

    • Stalking Horse Purchaser: AS Beauty LLC (Legal: Sills Cummis & Gross PC — Michael Goldsmith, George Hirsch)

    • Private Equity Sponsor: Warburg Pincus Private Equity XII Funds

📽New Chapter 11 Bankruptcy Filing - Frank Theatres Bayonne/South Cove LLC📽

Frank Theatres Bayonne/South Cove LLC

Just in time for a sh*tty holiday movie season with subpar fare like “Vice” and “Aquaman” hitting theaters, Frank Theatres Bayonne/South Cove LLC and 23 affiliated companies filed for bankruptcy in the District of New Jersey. Under brand names Frank Theatres, CineBowl & Grille and Revolutions, the company owns and operates 9 pure play movie theaters, 3 family entertainment complexes (i.e., bowling, arcade, etc.), and 3 combination — movie theater AND family entertainment — locations. Despite a robust year for Hollywood on the heals of highly successful-cum-intellectually-retarding movies like Avengers:Infinity War and Venom, the company’s revenues and resultant losses over the past three years paint a clear picture as to why this company is in bankruptcy court. From 2016 through 2018, revenues have declined from approximately $65mm to $56mm to $40mm, respectively. Losses, in turn, come in at $10.2mm, $11.3mm and $9.7mm. These are brutal numbers.

Of course, part of the issue here is that, in certain cases, this chain knew nothing of first run screenings of the aforementioned hits. Per the company, the expansion beyond the core theater business into the broader entertainment space proved disastrous, marked by poor locations, unprofitable leases, cost overruns, delayed openings, and ineffective management. Consequently, the company started deploying theater revenue like an ATM to service the flailing entertainment business. Except, there was one giant problem with all of this:

While operating cash and third-party loans were being used to support the liquidity need caused by the over-budget, past-deadline, and unprofitable new locations, the remainder of the existing locations also steadily declined in general admissions and total revenues as preventative maintenance, standard course refreshes, and local marketing initiatives were reduced or abandoned altogether. In addition, landlords and critical vendors were not paid or were materially aged beyond their standard payment terms. These poor management decisions were made in most cases without the knowledge or consent of the Debtors’ capital providers.

Whoops.

In some instances, the Company was evicted, locked out of its theater locations, and/or box office studios refused to allow the theaters to exhibit key first run movies which further exacerbated the decline in financial performance.

Like we said: they knew nothing of first run screenings. Not that you’d want to see them at these theaters anyway:

Under Debtors’ prior management (pre-September 2017), the physical state of many locations was severely neglected. Much needed capital improvements were not made into maintenance or upgrades of many locations. As a result, over time, the locations became dirty and in disrepair, which ultimately deterred business and resulted in a decrease in revenue.

Now if that doesn’t sound like an oh-so-lovely-holiday-moviegoing experience we don’t know what does. Usually a rabies shot isn’t a prerequisite to seeing a new flick.

Given all of this (and alleged mismanagement which is now the subject of ongoing litigation), the company was ill-suited to compete (deep voice) in a world where the industry shifted to the “premium” movie-going experience. After all, why go to the movies at all if you can just sit at home and watch Sandra Bullock evade zombies on Netflix. The only reason is, thanks to 4DX and the like, to feel that punch to the face from Dwayne Johnson or the wind in your hair when Tom Cruise races down the streets of London on a motorcycle. Except, this company didn’t have any of that new razzle dazzle. They did have the prices though:

While the condition of the Company’s locations deteriorated, the movie theater industry in general trended toward an enhanced movie going experience, including luxury recliners and a more “premium” experience. At the same time, the Debtors’ ticket and concession prices continued to rise in line with, or over, the industry average (which further discouraged customers).

And so now bankruptcy. The company has a restructuring support agreement that includes participation from both its first lien and second lien lenders. The former, Elm Park Capital Management LLC, will have $20mm of their debt reinstated (which may included up to $5mm in DIP financing). The latter, Seacoast Capital Partners III LP, will reinstate $2.5mm to be paid with 25% of net cash proceeds from the sale/monetization of the reorganized assets (once Elm Park has received $20mm on account of their claims). The balance of secured debt will convert into equity. General unsecured creditors are likely to donut.

The company intends to emerge from bankruptcy with only the most profitable locations intact.

  • Jurisdiction: D. of New Jersey (Judge Meisel)

  • Capital Structure: $31mm first lien debt (Elm Park Capital Management LLC), $8mm second lien debt (Seacoast Capital Partners III LP)

  • Company Professionals:

    • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Joseph DiPasquale, Michael Papandrea, Eric Chafetz)

    • Financial Advisor: Moss Adams LLP & Paragon Entertainment Holdings LLC

    • Claims Agent: Prime Clerk LLC

  • Other Parties in Interest:

    • First Lien & DIP Lender: Elm Park Capital Management

      • Legal: Neligan LLP — Patrick Neligan Jr., John Gaither

    • Second Lien Lender: Seacost Capital Partners III LP

      • Legal: Dorsey & Whitney LLP — Larry Makel, Eric Lopez Schnabel

    • Benefit Street Partners LLC

      • Legal: Moore & VanAllen — Alan Pope

New Chapter 11 Bankruptcy Filing - Synergy Pharmaceuticals Inc.

December 12, 2018

On November 11 and then, in a more fulsome manner in November 18’s “😬Biopharma is in Pain😬,” we noted that Synergy Pharmaceuticals Inc. ($SGYP) “appears to be on the brink of bankruptcy.” Looks like we were right on. This morning (12/12/18) at 4:37am (PETITION Note: remember that if you think that being a biglaw attorney is glamorous), the company and an affiliate filed for bankruptcy in the Southern District of New York.

Synergy is a biopharmaceutical company that develops and commercializes gastrointestinal therapies; its primary speciality revolves around uroguanylin, “a naturally occurring and ednogenous human GI peptide, for the treatment of GI diseases and disorders” Geez…bankers and lawyers have nothing on scientists when it comes to the vernacular. The company has one commercial product (TRULANCE) and one product in development. The company owns 33 patents.

We previously noted:

The company has a $200mm 9.5% ‘25 secured term loan with CRG (~$100mm funded plus PIK interest) that has been amended a bazillion times to account for the fact that its revenues suck, its market cap sucks, and that its on the verge of tripping, or has tripped, numerous covenants including, a “minimum market capitalization” covenant and a “minimum revenue covenant.” In its most recent 10-Q, the company noted:

To date the Company has been unable to further amend the agreement with respect to the financial and revenue covenants. The Company is continuing discussions with CRG and has received a temporary waiver on the minimum market cap covenant through November 12, 2018. The Company is currently pursuing alternatives that better align with its business, but there is no assurance that Synergy can secure CRG’s consent or otherwise achieve a transaction to refinance or otherwise repay CRG on commercially reasonable terms, in which case we could default under the term loan agreement. If CRG does not grant a further waiver beyond November 12, 2018 the Company will likely be in default of the minimum market cap covenant.

In its bankruptcy filing, however, the company takes a decidedly less aggressive posture vis-a-vis CRG (which makes sense…CRG is, after all, its proposed DIP lender) when explaining the factors leading to the commencement of its chapter 11 cases. While the company does highlight lack of access to capital markets (which, at least as far as we read it, is an implicit jab at CRG, the company primarily blames TRULANCE’s slow sales growth, market access, competitive landscape and a smaller-than-anticipated total addressable market for its travails.

For its part, Centerview Partners has been engaged in a less than ideal sellside process here. According to the company’s papers, Centerview has been trying to sell the company since 2015. Now, unless there is some crazy element to this engagement, most bankers are compensated on the basis of success fees. They want to a large purchase price and a short marketing process to get the best of both worlds: a huge payday via limited bandwidth constraints. That does not appear to be the case here. 3 years!

Still, they located a buyer. Bausch Health Companies (“BHC”) has agreed to be the stalking horse purchaser of the company’s assets. BHC would get substantially all of the company’s assets — including its IP, certain customer and vendor contracts, A/R, and goodwill. In exchange, they would pay approximately $185mm in cash (minus certain deductions and adjustments) and $15mm in severance obligations.

CRG is the company’s proposed DIP lender with a $155mm facility, of which $45mm represents new money.

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

  • Capital Structure: $110mm 9.5% ‘25 secured term loan, $19mm 7.5% ‘19 senior convertible notes (Wells Fargo NA)

  • Company Professionals:

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Ron Meisler, Lisa Laukitis, Christopher Dressel, Jennifer Madden, Christine Okike) & (special counsel) Sheppard Mullin Richter & Hampton LLP

    • Financial Advisor: FTI Consulting Inc. (Michael Katzenstein, Sean Gumbs)

    • Investment Banker: Centerview Partners Holdings LP (Samuel Greene, Josh Thornton, Ercument Tokat)

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

  • Other Parties in Interest:

    • Prepetition Agent & DIP Lender: CRG Servicing LLC

      • Legal: Venable LLP (Jeffrey Sabin, Lawrence Cooke)

    • Stalking Horse Bidder: Bausch Health Companies Inc.

      • Legal: Wachtell Lipton Rosen & Katz (Richard Mason, Michael Benn)

    • Ad Hoc Committee of Equity Holders

      • Legal: Cole Schotz PC (Ryan Jareck, Irving Walker, Norman Pernick, Mark Tsukerman)

    • Official Committee of Unsecured Creditors (Highbridge Capital Management, 1992 MSF International Ltd., 1992 Tactical Credit Master Fund LP)

      • Legal: Latham & Watkins LLP (Richard Levy, Jeffrey Mispagel, Matthew Warren, Blake Denton)

      • Financial Advisor: Alvarez & Marsal LLP (Mark Greenberg)

      • Investment Bank: Jefferies LLC (Leon Szlezinger)

New Chapter 11 Bankruptcy Filing - Parker Drilling Inc.

Parker Drilling Inc.

12/12/18

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

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

We added:

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

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

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

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

We continued:

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

This is the company’s capital structure:

Screen Shot 2018-12-12 at 8.28.57 PM.png

And so we concluded:

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

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

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

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

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

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

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

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

  • Company Professionals:

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

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

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

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

  • Other Parties in Interest:

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

      • Legal: Akin Gump Strauss Hauer & Feld LLP

      • Financial Advisor: Houlihan Lokey Capital Inc.

New Chapter 11 Bankruptcy Filing - Bakken Resources Inc.

Bakken Resources Inc.

December 7, 2018

Publicly-traded oil and gas company, Bakken Resources Inc. ($BKKN), filed for bankruptcy on Friday in the District of Nevada. The company focuses its activities in the Williston Basin in western North Dakota with a focus on acquiring mineral leases and non-operating oil mineral interests and then leasing their acreage to ten oil drilling operators.

Without getting into the weeds here, it seems pretty clear from the bankruptcy papers that the company required a little more focus on its royalty income payments: it suffers from all kinds of reconciliation issues with its partner operators as well as its “overriding royalty” holder, Holms Energy. It’s also getting sued up the wazoo. So, that’s a bit of a drain. As well as a hindrance to the company in terms of raising capital — $8-10mm of which is desperately needed to acquire new producing mineral rights. The company has no secured debt and less than a million of unsecured debt which begs a super serious question: how the hell did it hire Lowenstein Sandler LLP and AlixPartners LLP? Where’s THAT money coming from?

The company notes:

The commencement of this Chapter 11 Case is the product of a confluence of factors that continue to erode the Company’s liquidity and substantially impede the Company’s ability to raise necessary capital. The Company’s cash position deteriorated significantly in 2018 due to a precipitous drop in oil prices and continued litigation expenses. Since October 2018, oil prices have fallen by 28% which has drastically impacted the Company’s net royalty revenues, as has a decline in production from the Company’s current wells. The Company’s monthly net royalty revenues are projected to decline from $ 142,000 in April 2018 to approximately $ 70,000 in April 2019. This decline combined with legal expenses of approximately $ 2,300,000 to date in 2018 has forced the Company to consume more than $ 2 million in cash this year. The Company projects that it will exhaust an additional $ 1.3 million through June 2019 absent a bankruptcy filing.

Remember: the President of the United States WANTS low oil prices. But we digress.

AlixPartners is charged with selling the company as a going concern, raising capital, or selling discrete assets or operations. Which, we’d be remiss not to note, isn’t Alix’s typical kind of retention. We just hope they disclosed any and all potential conflicts.

  • Jurisdiction: D. of Nevada (Judge Beesley)   

  • Company Professionals:

    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Gabriel Olivera) & (local) Brownstein Hyatt Farber Schreck LLP (Samuel Schwartz, Connor Shea)

    • Financial Advisor: AlixPartners LLP (Richard Robbins)

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

New Chapter 11 Bankruptcy Filing - USA Gymnastics

USA Gymnastics

December 5, 2018

Man this year has been filled with sleaze-based bankruptcy filings: we’re old enough to remember when The Weinstein Company may have taken the prize for filth. Now, this.

Earlier this week, on December 5th, USA Gymnastics (“USAG”) filed for bankruptcy in the Southern District of Indiana. The bankruptcy filing reminds us that in a coverage universe of companies that file for bankruptcy because of (i) various operational reasons (e.g., declining revenues due to supply chain interruptions, poor inventory management, sky high SG&A, etc.) and (ii) balance sheet reasons (e.g., too much debt, interest expense, and covenant compliance obligations), there are good ol’ fashion litigation-induced bankruptcy filings.

USAG is a 501(c)(3) Indianapolis-based not-for-profit with a focus on six athletic disciplines: women’s gymnastis, men’s gymnastics, trampoline and tumbling, rhythmic gymnastics, acrobatic gymnastics, and group gymnastics. Think of it like a platform (no pun intended): the USAG brings coaches, judges and competitors together for education and competitions throughout the United States. Indeed, the USAG sanctions approximately 4k competitions and has more than 200k members.

In 1988, the USAG formed a separate (non-debtor) entity, The National Gymnastics Foundation, to further the Olympic sport of gymnastics. Thereafter, the United States Olympic Committee (“USOC”) and the Fédération Internationale de Gymnastique designated the USAG as the “national governing body for the sport of gymnastics in the United States.” That designation is now at risk. Why? Enter sleaze here…

Per the Company:

As a result of the misconduct of Larry Nassar, a former volunteer physician to USAG, USAG has been named as a defendant in approximately 100 lawsuits brought by survivors of Nassar’s abuse. USAG’s first priority is to ensure that these survivors are treated fairly and respectfully. The survivors’ claims, in the aggregate, may exceed the available resources of USAG. USAG submits that this Court is the best forum in which to implement appropriate procedures to equitably determine the rights to and allocate recoveries to survivors who have asserted claims against USAG. USAG remains committed to its mission of supporting athletes, and will continue to take specific and concrete steps to promote athlete safety and prevent future abuse.

Nassar was a volunteer medical provider who later faced accusations of sexual misconduct; Nassar ultimately pled guilty to sexual assault and other crimes and will spend his life in prison.

USAG has no secured debt and virtually no unsecured debt — other than the contingent liabilities arising out of the aforementioned lawsuits/claims. Hundreds of individuals have asserted claims in various states against USAG. USAG estimates the potential impact of these suits to be between $75-$150mm. On the asset side of the balance sheet, the company has an operating lease, $6.5mm of cash/equivalents/investments and its insurance policies. And that last piece is where the rubber meets the road. Per the Company:

USAG has insurance coverage encompassing numerous policies covering approximately 30 years, which I expect will provide substantial coverage for the amounts asserted in the various lawsuits and claims. Nevertheless, I understand that the applicable insurance proceeds may be insufficient to cover allowed claims of survivors against USAG. For this reason, USAG filed this chapter 11 case to establish an orderly procedure for the allocation of its insurance proceeds.

The company intends to use the “breathing spell” afforded by Bankruptcy Code section 362’s “automatic stay” (read: an injunction, basically) to (i) establish a process by which insurance proceeds may be doled out to claimants and (ii) assure the USOC and athletes that the USAG is positioned to be the national governing body for gymnastics going forward.

Our two cents? They should definitely consider a rebranding exercise.

  • Jurisdiction: S.D. of Indiana (Judge Moberly)

  • Capital Structure: $mm debt     

  • Company Professionals:

    • Legal: Jenner & Block (Melissa Root, Catherine Steege, Dean Panos)

    • Claims Agent: Omni Management Group Inc. (*click on company name above for free docket access)

New Chapter 11 Bankruptcy Filing - Senior Care Centers LLC

Senior Care Centers LLC

December 4, 2018

Ok, we take it back. We’ve been saying how healthcare distress was overhyped in the beginning of the year and now a mini-wave of healthcare-related bankruptcy filings has hit dockets across the country. It’s cool: we don’t take it personally.

Here, Senior Care Centers LLC and its bazillion affiliated debtors, filed for bankruptcy in the Northern District of Texas. The debtors are one of the largest skilling nursing services providers in the US, providing care for approximately 9k patients in Texas and Louisiana. They operate 97 skilled nursing facilities, 9 assisted living facilities and 6 hospice facilities. The company notes:

Like much of the healthcare sector, the operators of skilled nursing facilities (“SNFs”) are and have been experiencing significant challenges and financial distress in recent years. The challenges faced by the Debtors are similar to those experienced by other SNF operators and widespread within the skilled nursing industry. The Debtors faced increasing financial pressure in 2017 and 2018 cause by, among other things, declining reimbursement rates, difficulties in collecting accounts receivable, declining census, and occupancy rates, increasing lease obligations, tightening terms with various trade creditors, and a significantly reduced working capital loan facility. All of these factors have combined to negatively impact the Debtors’ operations.

Getting more specific, the company adds:

Since 2017, the Company experienced significant liquidity constraints caused by, among other things: (a) increasing rent and “above-market” leases with various Landlords; (b) declining performance within the current portfolio for a variety of industry-wide developments; (c) tightening terms with various trade creditors; and (d) declining census. The Company has struggled to respond to liquidity issues for several months. In July of 2018, Administrative Agent began establishing Borrowing Base reserves, resulting in reduced availability under the Credit Facility.

The immediate cause for the filing of these Chapter 11 Cases was due to liquidity issues resulting from reduced Borrowing Base availability. This problem was compounded when certain of the Debtors’ landlords issued termination and/or default notices (the “Landlord Notices”).

Certain vendors demanded modification to payment terms, which restricted or eliminated the Company’s trade credit. Moreover, relationships with current and prospective Employees and Patients have been affected by the uncertainty. For example, several recent candidates have rescinded their offers to join the Company and expressed concern regarding the Company’s financial stability.

That story should sound wildly familiar by now.

Of significance, however, is the company’s relationship with Sabra Health Care REIT Inc. ($SBRA), which is one of the major landlords who issued termination/default notices (over which there is some dispute as to whether they were subsequently withdrawn). Sabra owns CCP which is the debtors’ second lien lender. More importantly, Sabra is the landlord on approximately 40 of the debtors’ facilities. The debtors owe Sabra $31.78mm in unpaid rent, common area maintenance charges and taxes.

Interestingly, Sabra’s own commentary about the debtors’ situation probably didn’t help matters much. On its Q3 earnings call on November 6, Sabra said a number of things about the debtors’ inability to pay rent, a potential sale of the debtors, its efforts to obtain financing, and management’s skittishness about any go-forward transaction that would endanger their jobs. On that last point, Sabra indicated that it was discussing go-forward options directly with the debtors’ board as a result. The debtors’ various constituents could obvious see/hear these comments and react accordingly.

But the Sabra commentary also demonstrates how difficult the current environment is for SNFs right now. Some big takeaways from their earnings call:

  • It is reducing its exposure to Texas, its largest state, “which also happen to be the one state where there is an oversupply of skilled nursing beds in a number of markets due to new product. And Texas also has one of the weakest Medicaid systems in the country.” (PETITION Note: scour the Googles for other SNFs highly indexed to Texas for future distressed/bankruptcy candidates).

  • Skilled operators (read: private equity) are in acquisition mode and, therefore, pricing is high even for product that isn’t of the highest quality. (PETITION Note: “too much money chasing too few deals.” This should, theoretically, bode well for the debtors’ proposed sale, if so). Sabra’s CEO Rick Matros said, “we're not seeing much good skill product and I really believe that that's a function of the skilled operators are buying everything all of us are selling, but they're not putting reasonable assets on the market because everybody sees the light at the end of the tunnel both in terms of the demographic in terms of decreasing supply and in terms of the positive benefits of PDPM reimbursements system that’s going go into effect next October.

  • Smaller SNFs will succumb to bankruptcy. Matros added, “My guess is over the course of the next year particularly with the mom-and-pops, we'll probably see more products come to market as a number of the smaller providers determine that they don't have the wherewithal or the desire to go through the transition that is going to be required to go through to be successful post-PDPM.

In other words, there should be a healthy amount of M&A and distressed activity in the near future in the SNF space.

Anyway, back to the debtors: they hope to use the automatic stay provided by the filing to transition underperforming facilities to new operators in coordination with its landlords and sell their profitable facilities. They will use cash collateral to fund the cases.

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

  • Funded Capital Structure: $33.06mm RCF, $9.53mm HUD RCF, $4.3mm CCP (second lien) Loan   

  • Company Professionals:

    • Legal: Polsnielli PC (Jeremy Johnson, Trey Monsour, Stephen Astringer, Nicholas Griebel)

    • Conflicts Legal: Huntons Andrews Kurth LLP

    • CRO & Financial Advisor: Newbridge Management LLC (Kevin O’Halloran) & BDO USA LLP

    • Communications Consultants: Sitrick and Company

    • Claims Agent: Omni Management Group LLC (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Large Creditor: Sabra Health Care Reit, Inc.

    • Sponsor: Silver Star Investments LLC

    • Admin Agent & Lender: CIBC Bank USA

      • Legal: Duane Morris LLP (John Weiss, Rosanne Ciambrone) & (local) Haynes and Boone LLP (Stephen Pezanosky, Matthew Ferris)

🖥New Chapter 11 Bankruptcy Filing - Collective Inc. (Visto)🖥

Collective Inc. (Visto)

November 29, 2018

Adtech isn’t exactly known for its sexiness. SaaS (software-as-a-service), on the other hand, has been on fire lately. “Recurring revenue” is everyone’s jam these days (yes, even ours) and SaaS products are the key drivers of recurring revenue. This would explain some of the REDONKULOUS multiples that we’ve been seeing of late in the SaaS space. Just last week SAP purchased Qualtrics, a Utah-based provider of experience management software, for $8b, or 23x TTM revenue. That’s no typo: 23x!

Source:  tomtunguz.com

Of course, none of these companies, to our knowledge, was an adtech company. So, what is the market for a SaaS adtech company? Collective Inc. a/k/a Visto is about to find out.

Collective Inc. is a SaaS company that…

“…allows brands, advertising agencies, and advertisers to purchase and place advertising and monitor and evaluate data with respect thereto. Collective also offers managed services to media and publisher clients, where Collective employees provide proposals to clients, and then implement and monitor advertising campaigns for those clients.

It was once a high-flying startup that grew to $174mm in revenues in 2013 and was on the verge of an IPO. But…

within the next twelve months and before any IPO went to market, Collective began experiencing a downturn in its traditional managed service business due to a significant decrease in buys from large advertising agency holding companies who were beginning to build their own internal advertising trading desks to buy digital ads themselves instead of using companies like Collective to buy it for them. As a result, the IPO was pulled.

Consequently, Collective pivoted to SaaS; it is now finding that transition to be costly and ineffective; its net loss in 2017 was $15.7mm; and, so, it needs a lifeline. Collective is lucky that the secured lender and agent on its $26mm credit facility ($17.285mm funded), National Electric Benefit Fund (“NEBF”) and RCP Advisors 2 LLC, respectively, are patient. They have been largely forgiving as Collective runs a sale process that has largely been a failure.

Now, though, the company has filed for chapter 11 to effectuate a 363 sale that will convey its assets to a prospective buyer “free and clear” of prior liens and encumbrances. Zeta Global Holdings Corp. emerged as a stalking horse purchaser and the proposed purchase price is an all-(Zeta)-stock transaction worth approximately $15mm. NEBF will fund the case via a $4mm DIP.

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

  • Capital Structure: $26mm debt (National Electric Benefit Fund)

  • Company Professionals:

    • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Nancy Manzer, Benjamin Loveland)

    • Investment Banker: Oaklins DeSilva & Phillips LLC

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

  • Other Parties in Interest:

    • Lender: National Electric Benefit Fund

      • Legal: Troutman Sanders LLP (Brett Goodman, W. Peter Beardsley)

    • Official Committee of Unsecured Creditors

      • Legal: Cullen and Dykman LLP (Michelle McMahon, Nicole Stefanelli)

Updated 1/11/19

Copy of New Chapter 11 Filing - Waypoint Leasing Holdings Ltd.

Waypoint Leasing Holdings Ltd.

November 25, 2018

“Get to the Choppa!” - Arnold Schwarzenegger

It has been a tough couple of years for companies in the helicopter business (see, e.g., Erickson Aircrane and CHG Group, not to mention PHI Inc. and Bristow Group, both of which restructuring professionals continue to watch and salivate over). So tough, in fact, that even Thanksgiving weekend wasn’t sacrosanct and even some big name sponsors couldn’t keep this thing out of court. Over the weekend, helicopter leasing company, Waypoint Leasing Holdings Ltd., “facing imminent liquidity constraints and potential defaults under their secured loan facilities,” filed for bankruptcy with a goal of…

…TO READ THE REST OF THIS SUMMARY — WHICH INCLUDES DISCUSSION OF THE COMPANY’S CAPITAL STRUCTURE AND A ROSTER OF THE PLAYERS AND PROFESSIONALS INVOLVED IN THE MATTER — YOU MUST BE A MEMBER. BECOME ONE HERE.

⛽️New Chapter 11 Bankruptcy Filing - Fairway Energy LP⛽️

Fairway Energy LP

November 26, 2018

Belligerent week for companies attached to the oil and gas space (see also Waypoint Leasing). Here, Houston-based Fairway Energy LP, which, interestingly (and somewhat oddly), is 28%-owned by the President and Fellows of Harvard College (🤔), is a storage provider for third-party companies engaged in the production, distribution and marketing of crude oil; it is also now in bankruptcy down in the District of Delaware.

Specifically, the company provides undersurface salt cavern storage, storage that has been utilized since the 40s because of its “extremely low risk of leakage through self-sealing under cavern operating pressures.” The company began construction on its 10-million barrel underground storage facility (the “Facility”) in 2015 (rough timing); yet, it has exclusive rights to store in the facility and has otherwise secured the necessary leases to operate in its geographic location. It is also connected to customers via owned and third-party pipeline systems, which enable to the company to take inbound capacity from the (hot) Permian Basin, the Eagle Ford Shale Basin, and Canada/Midcontinent. The pipelines also connect to hubs that connect to “downstream” infrastructure, i.e., refiners, etc.

To get off the ground, the company had a $390mm equity infusion and $80mm in term loans from Riverstone Credit Partners LP. The company has been operating off of credit agreement amendments now for months, however, given operational and market issues that impeded their use of the Facility and hampered liquidity. Per the company:

For the nine (9) months ended September 30, 2018, Fairway had an operating loss of $38,600,000 (before interest, expense, and other income). Fairway’s financial performance has been negatively affected by (i) reduced and delayed demand for its services, (ii) cost overruns on the Facility, (iii) commercial restrictions on accessing the Facility by existing pipeline connections, and (iv) general market conditions that undermine the demand for crude oil storage.

In other words, a perfect storm posing all sorts of headwinds. These winds, it seems, chilled any potential buyer interest in the Facility: pre-petition efforts to find a buyer, including a stalking horse buyer, proved futile. It seems all of the hopeful and flowery language deployed by the company’s professionals in the First Day Declaration about the usefulness of the Facility isn’t a sentiment shared by any prospective purchasers. Was this whole project a solution in search of a problem? Via the bankruptcy sale process, we’ll soon find out. So, will Riverstone (which is also providing a $20mm DIP credit facility) and the writers of the $390mm of equity checks (read: Harvard).

  • Jurisdiction: D. of Delaware

  • Capital Structure: $94mm debt     

  • Company Professionals:

    • Legal: Haynes and Boone LLP (Patrick Hughes, Martha Wyrick, Kelsey Zottnick) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Kenneth Enos, Elizabeth Justison)

    • Financial Advisor: Alvarez & Marsal North America LLC (Gary Barton, Kevin Larin)

    • Investment Banker: Piper Jaffray & Co./Simmons & Company International

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

  • Other Parties in Interest:

    • Administrative Agent under Secured Term Loan Credit Agreement & DIP Lender/Agent: Riverstone Credit Partners LP

      • Legal: White & Case LLP (David Turetsky, Andrew Zatz) & (local) Fox Rothschild LLP (Jeffrey Schlerf)

Waypoint Leasing Holdings Ltd.

Waypoint Leasing Holdings Ltd.

November 25, 2018

“Get to the Choppa!” - Arnold Schwarzenegger

It has been a tough couple of years for companies in the helicopter business (see, e.g., Erickson Aircrane and CHG Group, not to mention PHI Inc. and Bristow Group, both of which restructuring professionals continue to watch and salivate over). So tough, in fact, that even Thanksgiving weekend wasn’t sacrosanct and even some big name sponsors couldn’t keep this thing out of court. Over the weekend, helicopter leasing company, Waypoint Leasing Holdings Ltd., “facing imminent liquidity constraints and potential defaults under their secured loan facilities,” filed for bankruptcy with a goal of imminently selecting a bidder for the sale of substantially all of its assets (or equity) through a 363 sale or via a chapter 11 plan of reorganization. The company leases helicopters to providers in the emergency medical, search and rescue, and utility sectors but the majority of its lessees are in the offshore oil and gas industry. In other words, the oil and gas downturn of a few years ago continues to rear its ugly head. Imagine what will happen if oil prices dip back down into the low $50s. Oh. Wait.

Tellingly, the company notes the following relating to the oil and gas downturn:

The cyclical downturn in the oil and gas industry beginning in 2014 led to a significant decline in offshore oil exploration, cost reduction measures for production operations, and a substantially decreased demand for offshore drilling services by upstream, exploration and production companies (“E&P Companies”). Although the price of crude oil had slowly begun to rebound, the effects of this protracted downturn are still evident. The severe reductions in capital spending and cost-cutting measures implemented by the offshore oil and gas industry during the downturn have resulted, in turn, in decreased demand for helicopter services from the Debtors’ primary customer base, the oil and gas helicopter operators (the Debtors’ lessees).

Due to this negative impact on the helicopter service industry, helicopter operators have employed their own cost-cutting measures, including reducing their fleet size, engaging in fewer lease extensions or renewals, demanding rental reductions, and, in some cases, filing for reorganization under the Bankruptcy Code.

Indeed, on that last point, the company’s largest customer, CHC Group Ltd., was a May ‘16 bankruptcy participant (and Weil Gotshal & Manges LLP was counsel there too…Waypoint 0, CHC Group 0, Weil 2). CHC ended up rejecting 15 of 44 aircraft leases (and renegotiating the rest), dinging company revenues to the tune of $45mm. The company has also incurred millions of dollars of “unexpected transition and maintenance costs on account of the rejected CHC aircraft.”

Compounding matters is the fact that “[t]he oil and gas industry downturn has created an oversupply of available helicopters in the market, which has significantly impacted the Debtors’ utilization and yields.” Fleet utilization is approximately 78%, as compared to 94-100% from 2013-15. Brutal.

As a result, the company has been engaged in restructuring negotiations with its relevant lenders since the beginning of the summer. These negotiations are complicated by the fact that the company has multiple credit facilities with varying collateral packages. Now, though, the company, as we noted above, hopes to sell itself — a challenge given the oversupply of helicopters — in an effort to maximize value. Oddly, the company filed without having a DIP in hand (nor, it seems, consent to use cash collateral) and, we surmise, a first day hearing has not yet been scheduled as a consequence.

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

  • Capital Structure: $1.1b debt

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Robert Lemons, Kelly DiBlasi, Matthew Goren)

    • Financial Advisor: FTI Consulting Inc. (Robert Del Genio)

    • Investment Banker: Houlihan Lokey Inc.

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

  • Other Parties in Interest:

    • Administrative Agent under ‘13 and ‘17 credit agreement: SunTrust Bank

      • Legal: Alston & Bird LLP (John Weiss, William Hao, David Wender)

    • Administrative Agent under ‘14 credit agreement and ‘15 Note Purchase Agreement: Wells Fargo Bank, National Association

      • Legal: Mayer Brown LLP (Frederick Hyman, Christine Walsh)

    • Agent under Euro Term Loan Facility Agreement: Airbus Helicopters Financial Services Limited

    • Administrative Agent under ‘14 credit agreement: BNP Paribas

    • Administrative Agent under ‘15 credit agreement: Bank of Utah

      • Legal: Norton Rose Fulbright US LLP (Howard Beltzer, James Copeland)

    • Administrative Agent under ‘16 credit agreement: Lombard North Central PLC

    • Administrative Agent under August ‘17 credit agreement: Sumitomo Mitsui Banking Corporation, Brussels Branch

    • Steering Committee of WAC Lenders

      • Legal: Milbank Tweed Hadley & McCloy LLP

      • Financial Advisor: Alvarez & Marsal LLC

    • Sponsors: MSD Capital, L.P., Quantum Strategic Partners Ltd., and Cartesian Capital Group LLC

Updated 11/26/18 at 4:03 CT

New Chapter 11 Bankruptcy Filing - LBI Media Inc.

LBI Media Inc.

November 21, 2018

Happy Thanksgiving y’all!! LBI Media Inc. and several affiliates FINALLY filed for bankruptcy today in the District of Delaware after years of questions about its financial health. The company is a privately held minority-owned Spanish-language broadcaster that owns or licenses 27 Spanish-language television and radio stations in the largest US markets; it services the largest media markets in the nation, including Los Angeles, New York City, Chicago, Miami, Houston and Dallas. It is also a victim of disruption.

The company notes that it has “faced the market pressures that have broadly affected U.S. television and radio broadcasters, including the 2008 recession and the diversion of advertising spend by companies to digital media.” Insert Facebook Inc. ($FB) here. That’s not all, though, of course: the company is also hampered by “a substantial debt load and corresponding interest expense obligations” which has stunted LBI’s financial performance, ability to invest and grow, and liquidity.

To address this situation, the company obtained an investment from its now-DIP lender, HPS Investment Partners, in April 2018 for a new first lien credit facility. This provided the company with much needed liquidity and, in turn, briefly extended the company’s runway out of bankruptcy court. The “make-whole” provision attached to the facility, however, became the subject of much controversy and an ad hoc group of second lien noteholders sued in New York state court for an injunction to hinder the transaction. Ultimately, the state court denied the noteholders.

But…but…the noteholders persisted. And this, apparently, left a bitter taste in the mouth’s of company management (and its counsel). Junior Noteholders, meet bus. 🚌🚌 The company notes:

Following the closing of the transaction, LBI sought to continue its growth efforts. However, such efforts were weakened by the Junior Noteholder Group, which continued to litigate against the Company, its founder and CEO, and HPS, the Company’s sole senior lender. The Junior Noteholder Group commenced multiple lawsuits, and threatened several more, distracting management from operations. These actions and threats not only hindered the Debtors’ efforts to improve their operations, but certain actions, including seeking to enjoin the first lien financing, risked pushing LBI into a precipitous freefall bankruptcy.

When coupled with the Debtors’ tightening liquidity (which was exacerbated by the expense of the Junior Noteholder Group litigation), the Junior Noteholder Group’s actions made it substantially more difficult for LBI to achieve the growth it had hoped for, and the Company determined that a comprehensive reorganization may be necessary.

Thereafter, settlement talks with the Junior Noteholders proved unsuccessful and, now, therefore, the company marches into bankruptcy court with a Restructuring Support Agreement (“RSA”) in hand with HPS whereby, subject to a “fiduciary out,” HPS will serve as (prearranged but hardly set in stone) Plan sponsor and swap its $233mm first lien senior secured notes for a majority equity interest in the company. The Plan — which at the time of this writing isn’t on the docket yet — reportedly provides for recoveries for other “supporting” constituencies. What’s that we hear? IT’S A (DEATH) TRAP!?!

(PETITION NOTE: for the uninitiated, a “death trap plan” is an inartful term for when the Debtor proposes and the senior lenders allows a recovery to trickle down the “priority waterfall” to junior lenders but only on account of said junior lenders’ support of, or vote for, the proposed Plan. In essence, its consideration for dispensing with “holdup value.” A “fiduciary out” gives the Debtor flexibility to, despite the RSA, agree to an alternative transaction that bests the HPS transaction without penalty or the need to pay a “break-up fee.”).

The plan provides the company with 75-day period to run a marketing process. While the company will market the company to potential strategic and financial investors, it is also making overtures to the Junior Noteholders to take out HPS’ claim(s) (without needing to satisfy the make-whole) and become the Plan sponsor such that it could walk away with 100% equity in the company.

All of which is to say: don’t let the terms “RSA” and “Plan” fool you. This is far from a consensual case being presented to the Bankruptcy Court Judge wrapped up in a shiny bow. The Junior Noteholders have been fighting the company and HPS for months: there is no reason to suspect that that will stop now merely because the company is a chapter 11 debtor.

  • Jurisdiction: D. of Delaware (Judge Lane)

  • Capital Structure: $233mm 10% ‘23 senior secured notes, $262mm 11.5/13.5 ‘20 PIK toggle second priority secured notes, $27.95mm 11% ‘22 PIK unsecured Intermediate senior Holdco notes (TMI Trust Company), $8.46mm 11% ‘17 unsecured Holdco notes (U.S. Bank NA)    

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Garrett Fail, David J. Cohen) & (local) Richards Layton & Finger PA (Daniel DeFranceschi)

    • Board of Directors: Jose Liberman, Lenard Liberman, Winter Horton, Rockard Delgadillo, Peter Connoy, Neal Goldman

    • Financial Advisor: Alvarez & Marsal North America LLC

    • Investment Banker: Guggenheim Securities LLC

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

  • Other Parties in Interest:

    • Prepetition First Lien & DIP Lender: HPS Investment Partners LLC ($38mm)

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Jeffrey Safferstein, Sarah Harnett) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary)

    • First Lien Trustee: Wilmington Savings Fund Society FSB

      • Legal: Morrison & Foerster (Jonathan Levine) & (local) Ashby & Geddes PA (William Bowden)

    • Collateral Trustee for First Lien Notes: Credit Suisse AG

      • Legal: Locke Lorde LLP (Juliane Dziobak)

    • Ad Hoc Group of (Junior) Second Lien Noteholders

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

    • Ad Hoc Group of Holdco Noteholders

      • Legal: Landis Rath & Cobb LLP (Matthew McGuire)

Updated 11/21/18 at 8:27 CT

💒New Chapter 11 Bankruptcy Filing - David's Bridal💒

David’s Bridal

November 19, 2018

We’ve previously written about PA-based David’s Bridal Inc. here and here and here: this bankruptcy has been a long time coming. But only recently has it come to light that there might be a consensual deal attached to any potential bankruptcy filing and, per the reports, that does appear to be the case. The company (and certain affiliates) filed for bankruptcy in the District of Delaware with a prepackaged plan of reorganization. If this flows through as planned (with a hoped for “Effective Date” of January 14), this will be a positive result that leaves trade vendors and employees paid in full and brides-to-be with their gowns without disruption. Thank G-d. In a day with rage all over the place, the last thing we need is more stress out there. And with 311 stores and 9,260 employees and given the general retail environment, consensual deals cannot be taken for granted.

While there is an underlying current of retail malaise here, this is primarily a balance sheet story. Why? Well…c’mon now…you know the answer: PRIVATE EQUITY!! In 2012, affiliates of Clayton, Dubilier & Rice, LLC (“CD&R”) purchased the company from another private equity firm, Leonard Green & Partners, L.P., which had previously purchased the company from Federated Department Stores Inc. Leonard Green 1. CD&R 0. Per the Company:

The Debtors’ current capital structure was put into place on or about October 11, 2012 as part of CD&R’s acquisition of David’s Bridal and certain of its affiliates. As of the Petition Date, the Company’s debt obligations include (i) approximately $25.7 million in drawn commitments under the Prepetition ABL Agreement; (ii) an estimated $481.2 million in outstanding principal obligations under the Prepetition Term Loan Agreement; and (iii) an estimated $270.0 million in outstanding principal obligations under the Unsecured Notes.

And here they are: in bankruptcy court due to too much debt and upcoming maturities. Bravo CD&R. The company also notes:

Despite the significant headwinds facing the brick-and-mortar retail industry, over the past several years, the Debtors have experienced steady financial performance and only modest loss of market share. The vast majority of David’s Bridal stores generate positive EBITDA, and the Debtors have historically generated stable operating cash flows. The most significant factor leading to the commencement of these chapter 11 cases is the amount of debt on the Debtors’ balance sheet, most of which will mature with the next 12 months.

David’s Bridal reported adjusted EBITDA of approximately $83.0 million for the fiscal year ended December 31, 2017 and of approximately $77.7 million for the first nine months of 2018. In fact, the vast majority of the stores in their fleet reportedly have profitable 4-wall EBITDA. So…uh…maybe we were…gulp…wrong…and maybe millennials actually do want wedding dresses…? 😳😳

Significantly, this IS a retail bankruptcy but this is NOT an “Amazon Effect” story. In fact, David’s Bridal MAKES money off of Amazon Inc. ($AMZN) and others, through an “affiliate relationship” pursuant to which David’s Bridal earns revenue by referring traffic to Amazon (and other sites like Men’s Wearhouse, Macy’s, Shutterfly, Marriott and Carnival).

The upshot of all of this is that the company claims it will dramatically cut the $777mm of funded debt. The company notes:

The restructuring contemplates a substantial deleveraging that will reduce the Debtors’ funded indebtedness from approximately $777 million to approximately $343 million (based upon currently anticipated borrowings on under an exit ABL facility at the Effective Date, which are subject to change).

Here’s how:

  • The prepetition ABL lenders will roll their prepetition facility into a $125mm ABL DIP credit facility;

  • The prepetition term lenders will provide a $60mm term loan DIP credit facility and swap their $481mm term loan for (i) the “vast majority” (75.5%) of the reorganized company’s common stock, (ii) a new “takeback” exit term loan of around $240-260mm and (iii) rights to participate in a $40-60mm priority exit term loan facility that takes out the DIP term loan and obtain (15%) additional stock;

  • The prepetition holders of unsecured notes will get the remaining (8.75%) common stock and warrants to capture potential upside; and

  • CD&R will get themselves a big-a$$ tax writeoff (if this hasn’t been written down already), presumably some angry limited partners, and some legal releases for playing ball in the consensual deal (including by waiving approximately $1mm of accrued management fees and expense reimbursements).

Now, we’re having a hard time figuring out how a $125mm exit ABL facility, $40-60mm in exit priority term loans, and $240-260mm in takeback paper equates to “$343 million” but, well, we guess lawyers draft these declarations, plans and disclosure statements and they ought to be given a reasonable mathematical margin of error. Plus, to be fair, they’re only talking about “funded” indebtedness and so the ABL likely won’t be tapped — as it wasn’t prepetition — to the full extent of availability. Still, they are understating the extent of the post-emergence balance sheet to some degree.

Finally, CD&R is a holder of unsecured notes. Which, per the third bulletpoint above, means that, despite effectively crushing this company with a burdensome amount of debt and driving this sucker into bankruptcy, they will continue to own a piece of the reorganized David’s Bridal going forward. Your wedding, powered by private equity.

As we say over and over again: G-d bankruptcy is beautiful.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: $125mm ABL ($25.7mm funded - Bank of America NA), $481mm TL (Bank of America NA), $270mm ‘20 7.75% senior unsecured notes (Wilmington Trust NA)

  • Company Professionals:

    • Legal: Debevoise & Plimpton LLP (M. Natasha Labovitz, Nick Kaluk III, Daniel Stroik, Craig Bruens) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Jaime Luton Chapman, Tara Pakrouh)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Evercore Group LLC (Stephen Goldstein)

      • Legal: DLA Piper LLP (Richard Chesley, Jamila Willis, Maris Kandestin)

    • Independent Auditors: KPMG LLP

    • Claims Agent: Donlin Recano & Company (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Prepetition ABL & DIP ABL Agent: Bank of America NA

      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Christopher Carter, Glenn Siegel) & (local) Richards Layton & Finger PA (Mark Collins, Brett Haywood)

    • DIP TL Agent: Cantor Fitzgerald Securities

    • Ad Hoc Term Lender Group (AlbaCore Capital LLP, Courage Credit Opportunities Onshore Fund III LP, Courage Credit Opportunities Fund IV LP, Eaton Vance Management, Deutsche Bank AG Cayman Islands Branch, HG Vora Special Opportunities Master Fund Ltd., Rimrock Capital Management LLC, Neuberger Berman Alternative Funds, Sound Point Capital Management, Whitebox Advisors LLC,

      • Legal: Jones Day (Scott Greenberg, Michael J. Cohen, Nicholas Morin) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)

      • Financial Advisor: Greenhill & Co., Inc.

    • Crossover Lender: Oaktree Capital Management LP (within its Strategic Credit, High Yield and Loan Strategies)

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, John Weber) & (local) Cozen O’Connor PC

      • Financial Advisor: Moelis & Co.

    • Supporting Unsecured Noteholder: Solace Capital Partners LP

      • Legal: Fried Frank Harris Shriver & Jacobson LLP (Brad Scheler, Peter Siroka) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)

      • Financial Advisor: FTI Consulting Inc.

    • Financial Sponsor & Supporting Unsecured Noteholder: Clayton Dubilier & Rice Fund VIII L.P.

    • Supporting Sponsor: Leonard Green & Partners L.P.

      • Legal: Cole Schotz P.C. (Norman Pernick, Kate Stickles)

New Chapter 11 Bankruptcy Filing - Cafe Holdings Corp.

Cafe Holdings Corp.

November 15, 2018

Source: Fatz.com

Source: Fatz.com

Anyone interested in a game of hot potato?

Cafe Holdings Corp. is a privately-owned chain of fast casual dining restaurants called Fatz Cafe. Fatz Cafe has 38 locations across 5 states and, as you can surely note from the image above, has an abundance of potato options on its menu. And it, in this scenario, is the hot potato.

The company filed for bankruptcy in the District of South Carolina earlier this week — exhibiting yet another sign, as PETITION has discussed at length previously, that casual dining is a really tough space right now. The company, itself, acknowledges:

Over the past several years, casual dining chains have experienced strong headwinds due to a combination of shifting consumer tastes and preferences, growth in labor and commodity costs, increased competition, and unfavorable lease terms. Indeed, a number of national and regional restaurant chains – including Real Mex Restaurants, certain Applebee’s franchisees, Ignite Restaurant Group, Macaroni Grill, Garden Fresh, Bertucci’s, and Logan’s – have buckled under these secular pressures and were forced to restructure their balance sheets and operations through a chapter 11 bankruptcy.

The company blames its unsustainable $30mm capital structure, “industry-wide challenges, trade market changes and challenges, underperforming strategic initiatives, and unsatisfactory business performance.” All of this is despite efforts to run the typical distressed restaurant playbook: install new management, refinance debt, restructure leases, shutter underperforming locations, deploy overhead rationalization, innovate around new product and promotional strategies, update the menu, invest in tech, renegotiate with vendors, etc. PETITION Note: nothing in the standard playbook can do anything about the fact that there are just far too many dining options available to consumers today. Period. The company’s consolidated adjusted network-wide EBITDA for the 12 months ended September 2018 and the fiscal year ended 2017 were approximately ($635,087) and $1.40 million, respectively.

And so the company turned to the next page in the playbook: a marketed sale. Yet, despite outreach to more than 200 parties, including both potential financial and strategic partners, the company didn’t generate any bids. Then comes the hot potato:

Unfortunately, after months of effort and outreach to more than 200 parties, including both potential financial and strategic purchasers, the Company was not able to obtain any bids for the Fatz assets. Moreover, the Company’s then first lien lender, Madison Capital Funding LLC (“Madison”), informed the Company that it did not wish to offer financing or serve as a stalking horse bidder in a chapter 11 sale process, and ultimately sold its debt position to Shrayne Capital, LLC (“Shrayne”). After further diligence, ultimately Shrayne decided it also did not wish to serve as a stalking horse bidder in a chapter 11 sale process and, in turn, sold its position to Atalaya Capital Management, LP and certain of its affiliates (collectively, “Atalaya”), who agreed to provide debtor in possession financing and to serve as a stalking horse bidder in a section 363 sale of substantially all of the Company’s assets.

You have to think that Atalaya Capital Management got that first lien paper at a meaningful discount to face value. Indeed, Shrayne only owned the paper for 5 weeks and then ran for the hills. Atalaya will provide the company with a $3.2mm DIP and, though the company has not filed its bidding procedures or stalking horse asset purchase agreement, presumably credit bid its debt to own the company out of Chapter 11. Now, for the uninitiated, the bankruptcy code permits a creditor to “credit bid” its debt, which is basically, as payment, exchanging a claim for the assets. A creditor can do that to the full extent of the claim, regardless of the the price said creditor paid for that claim. In other words, Atalaya may have paid Shrayne $0.01 for the first lien paper but because the face value of the first lien paper is $9.7mm, Atalaya can, but doesn’t have to, “bid” up to $9.7mm of that claim (like a coupon, in effect) for the company. Alternatively, it can provide the $3.2mm DIP credit facility and just credit bid that amount. There are a number of ways that this can be structured. Suffice it to say that Atalaya will need to infuse the business with capital if it wants it to have a fighting chance but it is under no obligation to cover and pay down the full extent of the debt. Indeed, the junior lenders and the ~63.5% equityholder, Milestone Partners III LP I and II, can effectively kiss their investments goodbye.

Opportunistic players who love feasting on the restaurant space will continue to have an abundance of opportunities like this one.

  • Jurisdiction: D. of South Carolina

  • Capital Structure: $9.7mm first lien (Atalaya Capital Management), $2mm second lien, $17.5mm mezzanine unsecured loan, $1.9mm unsecured subordinated note

  • Company Professionals:

    • Legal: Haynes and Boone LLP (Ian Peck, J. Fraser Murphy, David Staab) and (local) McNair Law Firm PA (Michael Weaver, Robin Stanton, Weyman Carter)

    • Financial Advisor: Loughlin Management Partners & Co.

    • Investment Banker: Duff & Phelps LLC (Vin Batra)

    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)

  • Other Parties in Interest:

Updated 11/17/18

New Chapter 11 Bankruptcy Filing - Advanced Sports Enterprises Inc.

Advanced Sports Enterprises Inc.

November 16, 2018

Another day, another retailer in bankruptcy court.

Advanced Sports Enterprises Inc. and several affiliated companies filed for bankruptcy on Friday in the District of North Carolina. The debtors are designers, manufacturers and wholesale sellers of bicycles and related equipment. The debtors utilize both online (www.performancebike.com) and brick-and-mortar channels (104 retail stores across 20 states) to sell their bikes.

The debtors blame their capital structure and the seasonal nature of their business for their fall into bankruptcy. Due to lack of liquidity, it sounds as if the debtors engaged in an operational restructuring that included stretching payables to suppliers and creditors. As you might imagine, once payments are delayed, suppliers and creditors get kind of pissed off and start imposing more aggressive payment terms. In other words, they’re not too keen on being creditors. When that happens, a company pushing the envelope is caught in a vicious cycle. Indeed, here, the debtors say that they are on pace to run out of money in January 2019.

So, the debtors intend to market their business to an array of potential purchasers: private equity funds, family offices, strategic parties, and liquidators. While that process plays out, they will close 40 stores. They seek approval of a $45mm DIP credit facility from their prepetition senior secured lender, Wells Fargo Bank NA, to fund the cases.

  • Jurisdiction: D. of North Carolina

  • Capital Structure: $37.9mm first lien credit facility (Wells Fargo NA). $7.375mm term loan (Advanced Holdings Co., Ltd.). Otherwise, see below.

  • Company Professionals:

    • Legal: Flaster/Greenberg P.C. (William Burnett, Richard Dressel, Harry Giacometti, Douglas Stanger, Damien Nicholas Tancredi) & (local) Northern Blue LLP (John Northen, Vicki Parrott, John Paul H. Cournoyer)

    • Financial Advisor: Clear Thinking Group LLC (Joseph Marchese)

    • Investment Banker: D.A. Davidson & Co. (Michael Smith)

    • Liquidator: Gordon Brothers Retail Partners LLC

    • Real Estate Consultant: A&G Realty Partners LLC

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

  • Other Parties in Interest:

    • Senior Secured Lender: Wells Fargo Bank NA

      • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox) & (local) Williams Mullen (Holmes Harden)

    • Unsecured Creditors Committee: none appointed due to lack of creditors.

Screen Shot 2018-11-16 at 1.35.41 PM.png
Source: First Day Declaration.

Source: First Day Declaration.

New Chapter 11 Bankruptcy Filing - All American Oil & Gas Inc.

All American Oil & Gas Inc.

November 12, 2018

San Antonio-based independent oil company All American Oil & Gas Inc. (“AAOG”) and its two affiliated companies, Western Power & Steam Inc. (“WPS”) and Kern River Holding Inc. (“KRH”) filed for bankruptcy earlier this week in the Western District of Texas. WPS is a power company that sells power to the likes of Pacific Gas & Electric — a company that, as we’ve previously noted, is having problems of its own (which only appear to be getting worse) — and provides electricity and steam to KRH to aid KRH’s efforts to extract oil.

The enterprise is reportedly cash flow positive, with approximately $25mm in EBITDA in 217 and higher EBITDA projected for 2018. So what gives?

The debtors accuse their successor lender, Kern Cal Oil 7 LLC (“KCO7”), which acquired the company’s secured debt from Alliance-Bernstein, of “not act[ing] as a typical lender,” instead “implement[ing] a predatory ‘loan to own’ strategy.” The debtors note:

Unlike many E&P cases, this bankruptcy filing is not the result of the Company’s poor operational performance, illiquidity, debt maturities or lack of underlying value. Rather, it was precipitated by KCO7’s efforts to exploit its rights under the Credit Agreements to obtain the Debtors’ assets ‘on the cheap,’ and thereby to destroy tens of millions in equity value.

In a dramatic twist, Kern Cal Oil 7 LLC is, according to the debtors, run by two former investment bankers “who were fired allegedly for cause from AAOG’s and KRH’s former investment banker and financial advisor Cappello Capital Corporation” and have an SEC claim filed against them for “breach of fiduciary duty, misappropriation of confidential information, and fraud, among other allegations.” Salacious.

In October, Kern Oil 7 LLC, under the auspices of attending a constructive meeting relating to potential M&A involving Kern Oil and the debtors, issued a notice of default on the basis of insufficient hedging, a move the debtors claim “was a transparent attempt to intimidate AAOG into handing over the Company to KCO7 for little or no value to its shareholders.” Suffice it to say that there is other dramatic stuff here including the debtors’ inability to put hedges in place, purportedly due to the notice of default, incomplete documentation relating to the change from Alliance-Bernstein to KCO7, and more. KCO7 notified the debtors that default interest now applied and on November 8, the debtors had a scheduled interest payment to make which, given these circumstances, the debtors opted not to make. In turn, the debtors filed for bankruptcy to “protect its going concern enterprise value and to restructure its secured debt.”

To fund their cases, the debtors seek authority to use their pre-petition lenders’ (read: KCO7) cash collateral. That ought to be a fun first day hearing.

  • Jurisdiction: W.D. of Texas (Judge King)

  • Capital Structure: $80.1mm ‘19 first lien debt (plus $789k in accrued/unpaid interest)(Kern Cal Oil 7 LLC), $50mm ‘20 second lien debt (plus $10.6mm PIK and $440k accrued/unpaid interest)(Kern Cal Oil 7 LLC)

  • Company Professionals:

    • Legal: Hogan Lovells US LLP (Richard Wynne, Bennett Spiegel, Erin Brady, Christopher Bryant, John Beck, Sean Feener) & (local) Dykema Gossett PLLC (Deborah Williamson, Patrick Huffstickler, Danielle Rushing)

    • Investment Banker: Houlihan Lokey

    • Claims Agent: BMC Group Inc. (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Kern Oil 7 LLC

      • Legal: O’Melveny & Myers LLP (Stephen Warren)