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.

    • 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)

    • Highbridge Capital Management, 1992 MSF International Ltd., 1992 Tactical Credit Master Fund LP

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

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)

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)

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…

…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 - 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)

New Chapter 11 Bankruptcy Filing - Petroquest Energy Inc.

Petroquest Energy Inc.

November 6, 2018

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

 Source: First Day Declaration

Source: First Day Declaration

Bankruptcy, however, caught up to it anyway.

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

More to come…

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

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

  • Company Professionals:

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

    • Financial Advisor: FTI Consulting Inc.

    • Investment Banker: Seaport Global Securities

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

  • Other Parties in Interest:

    • Second Lien Agent: Wilmington Trust NA

      • Legal: Reed Smith LLP (Kurt Gwynne)

New Chapter 11 Bankruptcy Filing - Aegean Marine Petroleum Network Inc.

Aegean Marine Petroleum Network Inc.

November 6, 2018

On Sunday, November 4, 2018, we wrote the following in our “Fast Forward” segment:

Aegean Marine Petroleum Network Inc. ($ANW) is now subject to a fraud probe by international auditors. This thing will be in a bankruptcy court near you before too long.

We didn’t expect that prediction to come to fruition so quickly!

Admittedly, Aegean, one of the world’s largest independent marine fuel logistics companies with 57 owned and chartered vessels, has been a slow moving train towards bankruptcy for some time. The recent revelation of fraud — yes, fraud — is just the cherry on top. (PETITION Note: in frothy times come desperate shenanigans. This won’t be the last bankruptcy filed in the near-term that, in part, will have an element of fraud in the story.) And, alas, earlier, Aegean Marine Petroleum Network Inc. and 74 affiliated debtors filed for bankruptcy in the Southern District of New York. The more immediate trigger? The maturity of its 4% convertible unsecured notes.

Aegean blames an over-saturated market, limitations imposed by its lenders under the credit facilities, and…wait for it…the fraud…as reasons for its bankruptcy filing. Wait. Why are we describing the debtors’ ails in words when they’ve provided us with some crafty graphics to illustrate, in part, the “perfect storm of circumstances” that have plagued them:

 Source: First Day Declaration

Source: First Day Declaration

Aegean intends to use the bankruptcy process to address its capital structure (namely the maturity), stabilize operations and sell to Mercuria Energy Group Limited, a private company that, back in August, became the sole lender under both the debtors’ US and Global credit facilities. Mercuria also provided a DIP proposal that consists of a $160mm US credit facility, a $300mm global credit facility, and a $72mm term loan that the debtors deemed better than a proposed facility from an ad hoc group of unsecured convertible noteholders. The question will be to what degree a more robust and competitive sale process emerges now that this thing is finally in bankruptcy court.

  • Jurisdiction: S.D.N.Y. (Judge Wiles)

  • Capital Structure: $131.7mm US credit facility (ABN AMRO Bank NV), $249.6mm global credit facility (ABN AMRO Bank NV), $206.6mm aggregated across ten secured term loans, $172.5mm 4.25% convertible unsecured notes due 2021 (U.S. Bank NA), $94.55mm 4.00% convertible unsecured notes due 2018 (Deutsche Bank Trust Company Americas)  

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Jonathan Henes, Marc Kieselstein, Ross Kwasteniet, Cristine Pirro Schwarzman, Adam Paul, Benjamin Winger, Christopher Hayes, Bryan Uelk)

    • Independent Directors: Donald Moore, Raymond Bartoszek, Tyler Baron)

    • Audit Committee of the Board of Directors

      • Legal: Arnold & Porter Kaye Scholer LLP (Tyler Nurnberg)

    • Financial Advisor: EY Turnaround Management Services LLC (Andrew Hede)

    • Investment Banker: Moelis & Company LLC (Zul Jamal)

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

  • Other Parties in Interest:

    • Prepetition Agent: ABN AMRO Capital USA LLC

      • Legal: Willkie Farr & Gallagher LLP (Ana Alfonso)

    • Prepetition Agent: Aegean Baltic Bank SA

      • Legal: White & Case LLP (Scott Greissman, Elizabeth Feld, Mark Franke)

    • Indenture Trustee for the 4% ‘18 Convertible Senior Notes

      • Legal: Ropes & Gray LLP (Mark Somerstein, Patricia Chen)

    • Largest Equity Holder/Stalking Horse Buyer: Mercuria Energy Group Limited

      • Legal: Norton Rose Fulbright US LLP (Marc Ashley, Robert Kirby)

    • Official Committee of Unsecured Creditors (Deutsche Bank Trust Company Americas, U.S. Bank National Association, American Express Travel Related Services Company Inc.)

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

      • Financial Advisor: AlixPartners LLP

 Source: First Day Declaration

Source: First Day Declaration

Updated 11/17/18

New Chapter 11 Bankruptcy Filing - Taco Bueno Restaurants, Inc.

Taco Bueno Restaurants, Inc.

November 6, 2018

Damn you Chipotle Mexican Grill Inc. ($CMG).

It’s been a rough several months for Mexican restaurants. Over the summer, Tennenbaum Capital and Z Capital-owned RM Holdco LLC (Real Mex) filed for bankruptcy in the District of Delaware and pursued a sale of its business. Now, Texas-based, TPG-owned Taco Bueno Restaurants, Inc., a Tex-Mex quick service restaurant (“QSR”) with 140 owned and 29 franchised locations, has filed a prepackaged bankruptcy that will convey ownership to Taco Supremo LLC, an affiliate of Sun Holdings Inc., which bought-out the debtors’ initial lenders in October. Taco Supremo subsequently signed a restructuring support agreement memorializing its intent to effectuate a debt-for-equity swap and provide the debtors with a DIP credit facility.

So, why is all of this necessary? The company noted:

…while Taco Bueno possesses a traditional brand with a loyal customer base and the potential for future growth under the leadership of its new management team, Taco Bueno’s existing capital structure is unsustainable and its financial performance fell significantly due to, among other things, historical mismatches between price and product value, a lack of product innovation, and deferred maintenance capital investment. In addition, competition in the Mexican food industry – including the rise in popularity of tacos at both QSRs and other types of restaurants – increased substantially in recent years, causing certain Taco Bueno stores to experience stagnant or reduced customer traffic and sales. Moreover, while Taco Bueno recently launched a process to close underperforming stores to better focus on core markets and high-value stores, Taco Bueno continues to suffer from a number of underperforming restaurants. Accordingly, Taco Bueno needs to continue to restructure its lease footprint and renegotiate existing leases to optimize profitability.

Even the “Buenoheads” — yes, that’s actually a thing, apparently — couldn’t save this thing from bankruptcy. The debtors’ EBITDA fell to approximately $17.2 million in 2017 with a projected EBITDA of approximately $5.9 million for 2018, compared to approximately $33 million in 2016 EBITDA and approximately $31 million in 2015 EBITDA. Of course, the $130mm of debt doesn’t help either.

Consequently, to salvage liquidity and allow its bankers to conduct a process, the debtors closed 20 locations in the last year (and are in the midst of negotiations with Spirit Realty Capital Inc. ($SRC), U.S Realty Capital, and Kamin Realty Co., the landlords of over 50% of the debtors’ leases). The management team has turned over and the company attempted a prepetition sale process. That process culminated in the above-noted RSA-based transaction that will attempt to flush the company in and out of bankruptcy court by the middle of December.

  • Jurisdiction: N.D. of Texas

  • Capital Structure: $130.9mm debt     

  • Company Professionals:

    • Legal: Vinson & Elkins (David Meyer, Jessica Peet, Paul Heath, Garrick Smith, Matthew Pyeatt, Andrew Geppert)

    • CRO/Financial Advisor: Berkeley Research Group LLC (Haywood Miller)

    • Investment Banker: Houlihan Lokey Capital Inc. (Adam Dunayer)

    • Real Estate Advisor: Jones Lang LaSalle Americas Inc.

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

  • Other Parties in Interest:

    • Initial Lender: Bank of America NA

    • Sponsor: TPG Growth III Management LLC

😷New Chapter 11 Bankruptcy Filing - Promise Healthcare Group LLC😷

Promise Healthcare Group LLC

November 5, 2018

Most professionals predicted at the start of 2018 that healthcare would be an active industry for restructuring activity. Instead, there’s only been a few cases here and there — nothing to really stand out from the crowd in terms of volume. And, so just when we’re on the verge of declaring that prediction utterly and emphatically wrong, here is Promise Healthcare Group LLC and its affiliated debtors — another short-term and long-term acute care and nursing facility operator in bankruptcy court (with DLA Piper and FTI Consulting in tow, a seemingly regular occurrence these days in sizable healthcare matters).

Why is another large acute care operator in bankruptcy? The debtors blame the usual deplorables, i.e., reimbursement rate declines, capital-intensive and ultimately-abandoned new business projects, underperforming facilities, and an “unsustainable balance sheet.” Consequently, it undertook performance improvement measures, including the closure of two facilities and the sh*tcanning of 147 full-time equivalent employees. This, collectively, freed up a total of $13.5mm but vendors had begun squeezing the company in such a way that this amount, alone, wasn’t enough to cash flow to sustain the debtors.

The debtors intend to (i) sell non-core assets and real estate to payoff certain secured creditors (including one in Silver Lake, Los Angeles, to the L.A. Downtown Medical Center for $84.15mm) and (ii) otherwise market and sell substantially all of the rest of their assets or, if an equity sponsor emerges, restructure. They intend to do this within six months (anyone want to take the under?). The company has a $85mm DIP commitment ($20mm new money) to fund the process.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $61.6mm Revolver, $15mm TL debt, $200mm intercompany debt (two loans)

  • Company Professionals:

    • Legal: Waller Lansden Dortch & Davis LLP (John Tishler, Katie Stenberg, Blake Roth, Tyler Layne) & (local) DLA Piper LLP (Stuart Brown, Kaitlin MacKenzie Edelman)

    • CRO/Financial Advisor: FTI Consulting Inc. (Andrew Hinkelman, Jennifer Byrne, Chris Goff)

    • Investment Banker: Houlihan Lokey Capital Inc. (Andrew Turnbull) and MTS Health Partners LP (Jay Shiland)

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

  • Other Parties in Interest:

    • Prepetition Administrative Agent: Wells Fargo Bank NA

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

    • Healthcare Services Group Inc.

      • Legal: Stevens & Lee P.C. (Joseph Huston Jr., Evan Coren, Robert Lapowsky)

    • Official Committee of Unsecured Creditors (HEB Ababa, Ronaldoe Guiterrez and Yolanda Penney, Cardinal Health, Wound Care Management LLC d/b/a MEDCENTRIS, Freedom Medical Inc., Morrison Management Specialists Inc., Efficient Management Resources Systems Inc., Surgical Program Development)

      • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy, Rachel Brennan) & (local) Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Bradford Sandler, Colin Robinson)

Updated 11/16/18 4:20 CT

New Chapter 11 Bankruptcy Filing - PGHC Holdings Inc.

PGHC Holdings Inc.

November 5, 2018

On Sunday night, the New England Patriots took down the Green Bay Packers but the official pizza of the team took an “L.” Indeed, New England local news reported that dozens of area Papa Gino’s locations had abruptly shut down. Now we know why. And, it turns out, the dozens were really 95 stores all in. Which, we’d be remiss not to note, affects 1,100 employees who are now out of jobs.

On Monday morning, PGHC Holdings Inc., the parent company of 141 company-owned and 37 franchisee-and-licensee-owned New England restaurant chains Papa Gino’s Pizzeria and D’Angelo Grilled Sandwiches, filed for bankruptcy to effectuate a sale to WC Purchaser LLC, an affiliate of Wynnchurch Capital. Wynnchurch will provide a DIP credit facility to fund the case.

We, here, at PETITION have highlighted disruption in the casual dining space ad nauseum. The debtors, in their filings, confirmed a lot of what we’ve been saying. They noted:

Consumer preferences have shifted from in-restaurant dining to delivery and carryout ordering, which require fewer overall restaurants and smaller restaurant size to service the same geographic area. As a result of these shifting consumer preferences, the Debtors’ existing footprint is too large — in terms of both number and size of restaurants. In addition, minimum wage increases across many of the Debtors’ markets combined with higher employee benefit costs associated with health plans have also pressured the Debtors’ cash flows. The Debtors also have faced increased competition and associated price pressure from national chains that have increased their footprint in the Debtors’ core New England markets. In addition to these and other operational factors, the Debtors have a substantial debt load that, as noted above, they have been unable to service and are in default under.

Consequently, the debtors have let leases expire, engaged in (mostly unsuccessful) negotiations with landlords on lease forgiveness, changed internal IT systems, emphasized digital media marketing and formulated a smaller more efficient restaurant concept. Nevertheless, these efforts didn’t generate enough revenue and profitability to enable the debtors to handle their debt burden.

Wynnchurch will provide the company with a $13.8mm DIP facility, permit the use of cash collateral, and credit bid the debt it took over to the tune of $20mm. In other words, this is effectively a “loan-to-own” play. Bravo!

  • Jurisdiction: D. of Delaware

  • Capital Structure: $6.9mm Revolver A, $1.5mm Revolver B, $18.4mm Term Loan A (WC Financeco A LLC, as assignee), $34.2mm second lien debt (WC Financeco B LLC, as assignee), $27.9mm unsecured mezz debt (Hartford Life Insurance Company), $11.9mm unsecured mezz debt (Brookside Mezzanine Fund)

  • Company Professionals:

    • Legal: Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Matthew Harvey, Eric Moats)

    • Financial Advisor: CR3 Partners LLC

    • Investment Banker: North Point Advisors LLC

    • Real Estate Advisor: Hilco Real Estate LLC

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

  • Other Parties in Interest:

    • Mezz Debt Lenders

      • Legal: Choate Hall & Stewart LLP (Douglas Gooding)

New Chapter 11 Bankruptcy Filing - Republic Metals Refining Corporation

 Source: Pexels.com

Source: Pexels.com

November 2, 2018

Republic Metals Refining Corporation (and affiliates), a Miami-based family-owned refiner of gold and silver, filed for bankruptcy to run an orderly sale process of their assets and operations. Last spring, the debtors discovered “a significant discrepancy” in their inventory accounting that, ultimately, led to summer-time default notices from their various senior lenders. The lenders, however, were mostly kept at bay until the filing because the debtors appeared, on multiple occasions, to be close to a going concern sale.

Close. But no cigar.

In the absence of a pre-petition buyer and/or stalking horse bidder, the debtors will now continue their potential sale process or, alternatively, engage in a process to liquidate. The debtors have an agreement with their senior lenders for the consensual use of cash collateral for a short period to attempt a sale, liquidate, and implement a plan for the wind down of the debtors’ estates.

  • Jurisdiction: S.D. of New York

  • Capital Structure: $177mm senior debt

  • Company Professionals:

    • Legal: Akerman LLP (Susan Balaschak, Andrea Hartley, Katherine Fackler, John Mitchell, Esther McKean)

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

    • Investment Banker: SSG Capital Advisors LLC

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

  • Other Parties in Interest:

    • Senior Lender: ICBC Standard Bank Plc

      • Legal: Haynes and Boone LLP (J. Frasher Murphy, Eli Columbus, Geoffrey Raicht)

    • Senior Lenders: Coöperatieve Rabobank U.A., New York Branch, Brown Brothers Harriman & Co., Bank Hapoalim B.M., Mitsubishi International Corporation, Techemet Metal Trading LLC, Woodforest National Bank, and Bank Leumi USA.

      • Legal: Luskin Stern & Eisler LLP (Richard Stern, Alex Talesnick)

New Chapter 11 Bankruptcy Filing - FR Dixie Holdings Corp.

FR Dixie Holdings Corp.

November 2, 2018

Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.

For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.

The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:

Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.

Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $19.6mm revolver, $267.4mm TL (Wilmington Trust NA), $8mm unsecured loans    

  • Company Professionals:

    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, David Baruch) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach, Elizabeth Justison, Tara Pakrouh)

    • Financial Advisor: BDO USA LLP

    • Investment Banker: PJT Partners LP (Peter Laurinaitis, Joseph Fallon)

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

  • Other Parties in Interest:

    • Ad Hoc Group of Prepetition Secured Lenders

      • Legal: Davis Polk & Wardwell LLP & (local) Morris Nichols Arsht & Tunnell LLP

      • Financial Advisor: Ankura Consulting Group

Updated 11/2 7:45am CT