🔥New Chapter 22 Bankruptcy Filing - Remington Outdoor Company Inc.🔥

Remington Outdoor Company

July 27, 2020

To read our summary of the case, please go here.


Jurisdiction: N.D. of Alabama (Judge Jessup)

Company Professionals:

  • Legal: O’Melveny & Myers LLP (Nancy Mitchell, Stephen Warren, Karen Rinehart, Diana Perez, Jennifer Taylor) & Burr & Forman LLP (Derek Meek, Hanna Lahr)

  • Post-Reorg Board of Directors: Anthony Acitelli, Alex Zyngier, George Wurtz III, G.M. McCarroll, Ron Coburn, Ken D’Arcy, Gene Davis)

  • Legal to Restructuring Committee: Akin Gump Strauss Hauer & Feld LLP (Sarah Schultz)

  • Financial Advisor: M-III Advisory Partners LP (Colin Adams)

  • Investment Banker: Ducera Partners LLC (Bradley Meyer)

  • Claims Agent: Prime Clerk (*Click on case name above for free docket access)

Other Parties in Interest:

  • Priority Term Loan Lender: Whitebox Advisors LLC

    • Legal: Brown Rudnick LLP (Andreas Andromalos) & Balch & Bingham LLP (Jeremy Retherford)

  • Priority Term Loan Agent: Cantor Fitzgerald Securities

    • Christian & Small LLP (Daniel Sparks, Bill Bensinger)

  • FILO Lender: Franklin Advisors Inc.

    • Legal: Pillsbury Winthrop Shaw Pittman LLP (Joshua Morse, Andrew Alfano) & Christian & Small LLP (Daniel Sparks, Bill Bensinger)

  • FILO Term Loan Agent: Ankura Trust Company

    • Legal: Davis Polk & Wardwell LLP (Donald Bernstein, Joanna McDonald) & Hand Arendall Harrison Sale LLC (Benjamin Goldman)

  • Largest Equityholders (in order): Cede & Co., Schultze Master Fund, Antora Peak Credit Opportunities, BMR Funding LLC, Whitebox Asymmetric Partners LP, Whitebox Multi Strategy Partners LP, JNL Series TR - JNL/PPM America, Rockwall CDO II Ltd., Greenbriar CLO Ltd., SG-Financial LLC, W.R. Stephens Jr. Trust A., Eastland CLO Ltd., JMP Credit Advisors CLO IV Ltd., Stratford CLO Ltd., Westchester CLO Ltd., JMP Credit Advisors CLO III(R) Ltd., Voya CLO 2015-1 Ltd., Voya CLO 2014-4 Ltd., Voya CLO 2014-2 Ltd., Voya CLO 2013-3 Ltd., Voya CLO 2013-1 Ltd., Eastspring Investments US Bank Loan, PPM Grayhawk CLO Ltd., Commonwealth Fixed Interest Fund 17, National Railroad Retirement, Cantor Fitzgerald & Co.

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

True Religion Apparel Inc.

4/14/20

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Screen Shot 2020-04-22 at 4.17.58 PM.png

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

That’s a savage miss.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

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

  • Professionals:

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

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

    • Financial Advisor: Province Inc. (Michael Atkinson)

    • Real Estate Advisor: RCS Real Estate Advisors

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

  • Other Parties in Interest:

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

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

    • Pre-petition TL & DIP TL Lenders

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

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

⚫️New Chapter 11 Bankruptcy Filing - Longview Power LLC⚫️

Longview Power LLC

April 14, 2020

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

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Shannon)

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

  • Professionals:

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

    • Financial Advisor: 3Cubed Advisory Services LLC

    • Investment Banker: Houlihan Lokey Inc.

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

  • Other Parties in Interest:

    • Ad Hoc Group of Prepetition Term Lenders

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

⛽️New Chapter 11 Filing - Arsenal Resources Development LLC⛽️

Screen Shot 2019-11-08 at 2.12.19 PM.png

An “array of resources available for a certain purpose” connotes something positive — an advantage to the party in possession of the resources. Of the arsenal. Bankruptcy sure loves to flip things on their head. We’re looking at you Arsenal Resources Development LLC.

Arsenal Resources Development LLC and 16 affiliated companies filed for bankruptcy in the District of Delaware on Friday. This marked the second prepackaged chapter 11 filing for entities affiliated with the Arsenal enterprise in less than 12 months. In February, Arsenal Energy Holdings LLC, a holding company, filed a 9-day prepackaged bankruptcy to effectuate a debt-for-equity swap of $861mm of subordinated notes. We wrote at the time:

Pursuant to its prepackaged plan of reorganization, the company will convert its subordinated notes to Class A equity. Holders of 95.93% of the notes approved of the plan. The one holdout — the other 4+% — precipitated the need for a chapter 11 filing. Restructuring democracy is a beautiful (and sometimes wasteful) thing.

And:

The company, itself, is about as boring a bankruptcy filer as they come: it is just a holding company with no ops, no employees and, other than a single bank account and its direct and indirect equity interests in certain non-debtor subs, no assets. The equity is privately-held.

More of the action occurred out-of-court upon the recapitalization of the non-debtor operating company. Because of the holdout(s), the company, its noteholders, the opco lenders (Mercuria) and the consenting equityholders agreed to consummate a global transaction in steps: first, the out-of-court recap of the non-debtor opco and then the in-court restructuring of the holdco to squeeze the holdouts. For the uninitiated, a lower voting threshold passes muster in-court than it does out-of-court. Out-of-court, the debtor needed 100% consent. Not so much in BK. (emphasis added).

Critically, the February restructuring did not successfully amend any of the company’s gathering agreements. Trade creditors were unimpaired and unaffected (economically).

With this bankruptcy filing, the operating companies are now in chapter 11. Which makes statements like these…

…technically incorrect. This isn’t a Chapter 22 per se. This isn’t even what we’d dub going forward, a Crapter 22-12 (two bankruptcy filings in 12 months a la Hercules Offshore Inc., another misleadingly-strong-named-failure-of-an-enterprise) or the “Two-Year Rule” violating Crapter 22-24 (two bankruptcy filings in 24 months a la Gymboree).* This is actually David’s Bridal in reverse: an out-of-court restructuring quickly followed in short order by an in-court restructuring. This is, technically, a “reverse Chapter 11.5.” We know…this is getting to be a bit much, but work with us here, folks: when the restructuring process becomes this much of a joke, jokester labels apply.

Founded in 2011, Arsenal is an independent exploration and production company that acquires and develops “unconventional” nat gas resources in the Appalachian Basin; it has 177k acres in the Marcellus Shale. The company is headquartered in Pennsylvania but its primary acreage and horizontal wells exist in West Virginia. The company had $120.1mm of revenue in ‘18 and appears on track to more or less match that in ‘19 ($59.3mm through June’s end, so, okay, maybe “less”).

In its latest Disclosure Statement, the company has the cajones to spitball the following:

“The Company creates value by leveraging its technical expertise and local knowledge to assemble a portfolio of concentrated, high-quality drilling locations, develop its acreage position safely and efficiently and install midstream infrastructure to support its upstream activities.”

Except, all we see here — across two recapitalization transactions in less than 12 months — is value destruction across the enterprise.** To be fair, the natural gas price environment has been far from accommodating over the last year. It is primarily for that reason — and a still too-levered balance sheet — that the company is in bankruptcy. This is telling:

…following the Prior Plan Effective Date, the E&P industry’s declining trend continued through fiscal year 2019, as exhibited by the following chart, depicting a natural gas futures-strip priced on the Prior Plan Effective Date compared against the same strip priced on October 22, 2019. As shown in the chart, since the Prior Plan Effective Date, realized gas prices have been on average 8.1% below futures strip (and the forward looking October 22, 2019 strip is on average 8.6% lower today than February 14, 2019 strip). Indeed, since the Prior Plan Effective Date, through September 30, 2019, 31 E&P companies have filed for chapter 11 protection. This represents a significant increase compared to the 22 E&P companies that filed for chapter 11 during the first 9 months of 2018.

Screen Shot 2019-11-09 at 1.53.37 PM.png

Compounding matters is the balance sheet:

Screen Shot 2019-11-09 at 1.58.43 PM.png

The new plan, which has been agreed upon by all three of the major constituencies party to the capital structure, will:

  • provide the Debtors with access to $90mm in DIP credit from Citibank NA, the debtors’ prepetition RBL Lenders and, upon confirmation and emergence from bankruptcy, a $130mm exit facility;

  • convert the term loan and seller notes into 100% of the equity in the reorganized debtors (subject to dilution) from a $100mm equity infusion from lenders Chambers and Mercuria.

This filing also requires — as a condition to the equity infusion — the implementation of amendments to two of five of the debtors’ gathering agreements and the rejection, assumption or consensual amendment of the remaining three agreements. Why? The debtors note:

“…certain of the Gathering Agreements impose significant minimum volume commitments (“MVCs”) at uneconomic fixed prices, thereby requiring ARE, the debtor party to the agreements, to pay for pipeline access, whether or not it is fully utilizing that capacity.”

Significantly, the debtors have reached agreement with the two gathering agreement counterparties on more realistic obligations in the current nat gas environment. Accordingly, the debtors hope to have this case completed by the end of February.


*Credit for “Crapter 11” belongs to loyal reader, David Guess, a Partner, who, congratulations are in order, recently moved over to Greenberg Traurig in Irvine CA. Cheers David!

**That is, unless we factor in the professionals. Simpson Thacher & Bartlett LLP, Alvarez & Marsal LLC, PJT Partners Inc., and Prime Clerk LLC all get a second bite at the apple. Who says that debtor-work doesn’t have recurring revenue??

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: See Above.

  • Professionals:

    • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin, Kathrine McLendon, Nicholas Baker, William Russell Jr., Edward Linden, Jamie Fell) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Kara Coyle, Ashley Jacobs)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: PJT Partners Inc. (Avi Robbins)

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

  • Other Parties in Interest:

    • Prepetition RBL Agent and DIP Agent: Citibank NA

      • Legal: Paul Hastings LLP (Andrew Tenzer) & Richards Layton & Finger PA (Mark Collins, David Queroli)

      • Financial Advisor: RPA Advisors

    • Gathering Agreement Counterparty: Equitrans Midstream Corporation ($ETRN)

      • Legal: Buchanan Ingersoll & Rooney PC (Mary Caloway, Mark Pfeiffer, TImothy Palmer)

⛽️New Chapter 22 Bankruptcy Filing - PES Holdings LLC⛽️

PES Holdings LLC

July 21, 2019

Picture the private equity associate. He’s sitting at his desk, twiddling his thumbs, looking for something to do. All is good in the world: the portfolio is humming along, he hasn’t gotten roped into a lose/lose golf tournament with the senior partners in a while, and he just wants to lay low and ride out the summer if he can. Then, suddenly, on one fateful summer day in June, one of his portfolio companies just up -and-decides to randomly explode — or, as the company puts it, suffer a “historic, large-scale, catastrophic accident.” Suddenly he’s mopping the floor with his jaw.

This sudden turn of events is particularly stupefying when you consider that the portfolio company — PES Holdings LLC, aka Philadelphia Energy Solutions — happens to be a 150 year-old oil refining complex that also happens to be (i) the largest on the United States Eastern seaboard (representing approximately 28% of the crude oil refining capacity on the east coast), and (ii) an employer of 950 employees. What are the possible knee-jerk reactions here? Are they:

  1. “Oh sh*t, there goes our portfolio for the year!”

  2. “F******ck, did our investment literally just go up in smoke?”

  3. “Am I going to have a job tomorrow?”

Then there are likely the secondary considerations:

  1. “How will the Commonwealth of Pennsylvania and the City of Philadelphia fulfill their energy needs?”

  2. “Oh no! Did anyone die??!?”

That’s right: we’re cynical AF. After those two waves of initial thoughts and after a deep breath, we bet these were the next questions:

  1. “Do we have to file this thing for ANOTHER bankruptcy now?”

  2. “How robust is our insurance coverage? What are our insurance premiums and can we keep paying them to ensure coverage?”

  3. “Is this an opportunity? How do we transfer all of the risk and best position ourselves to drive equity value here?”

The latter two considerations — as heartless and lacking in empathy as they may be — are highly realistic. And highly relevant, considering the explosion and attendant fire on June 21 forced the company to shut down its plant. The timing couldn’t have been worse: the explosion took place mere days after the company finalized the implementation of a new intermediation facility. Now, though, all “momentum” is lost: the company is currently inoperable and will require an extensive rebuild: at limited capacity and with massive fixed operational costs, the company would have burned (pun most definitely intended) through $100mm in liquidity within a few weeks. Cue the chapter 22 bankruptcy filing.*

Of course, prior to the filing, the company engaged in dialogue with its insurers:

The Debtors also immediately began a process to engage with their insurers—as it relates to property and business interruption insurance claims for the losses caused by the Girard Point Incident—to advance a dialogue toward an immediate advance and a global resolution that will allow the Debtors to restore their operations. The Debtors have yet to obtain such an advance.

Show us an insurer who is ready and willing to fork over proceeds on a moments notice and we’ll show you a bridge we’re selling.

The Debtors’ goal in the near term remains continuing to preserve the safe operation of the Refining Complex while they seek to recover as quickly as possible on their property and business interruption insurance claims and pursue various transactions to preserve their operations and maximize value.

We’re not talking about peanuts here, folks:

The Debtors have $1.25 billion in property and business interruption insurance coverage to protect against these kinds of losses (in addition to other insurance policies that cover other aspects of the Girard Point Incident). The Debtors are working with the insurers under that program to make the Debtors whole for the physical loss of the refinery and the resulting interruption of the Debtors’ business. These insurance proceeds are the very heart of these chapter 11 cases: the sooner the Debtors can recover, the sooner the business can complete its recovery.

While the company waits for the insurers to cough up some cash, it, obviously, needs to focus on safety issues and fire-related cleanup. To that end, it secured a $100mm DIP commitment from certain of its term loan lenders and continues to engage in discussions with ICBC Standard Bank PLC about a dual-DIP structure that would avail the company of even more liquidity. Ultimately, the company hopes to reorganize as a going concern. The extent to which the insurers play ball will dictate whether that’s possible. Something tells us there are some risk analysts combing through those policies with a fine tooth looking for any and all exemptions that they can pull out of their a$$es.

*According to the company, the first chapter 11 filing: “(i) secured a capital infusion of approximately $260 million; (ii) extended the Debtors’ debt maturities through 2022; (iii) reduced the Debtors’ anticipated debt service obligations by approximately $35 million per year; (iv) provided the Debtors with access to a new intermediation facility; and (v) provided the Debtors with relief from certain regulatory obligations.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: see below

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Edward Sassower, Steven Serajeddini, Matthew Fagen, Michael Slade, Allyson Smith Weinhouse, Patrick Venter, Nacif Taousse, Whitney Becker) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James O’Neill, Peter Keane)

    • CRO: Stein Advisors LLC (Jeffrey Stein)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: PJT Partners LP

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

  • Other Parties in Interest:

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⛽️New Chapter 22 Filing - Hilltop Energy LLC⛽️

Hilltop Energy LLC

May 16, 2019

Hilltop Energy LLC, a Dallas-based E&P company with assets in Texas, has filed for bankruptcy in the District of Delaware, its second bankruptcy in four years. The company also filed its wholly-owned subsidiary, Hilltop Asset LLC (together, the “Debtors”).

The company’s predecessor, Cubic Energy Inc., filed for bankruptcy in late 2015, confirmed a prepackaged plan of reorganization in February 2016 and never emerged from bankruptcy (due to an ongoing adversary proceeding involving the chapter 11 debtors’ CEO and prior operator). Nevertheless, pursuant to the confirmed plan, secured noteholders swapped their notes for membership interests in the reorganized Cubic Energy and 14% first priority senior secured takeback paper due 2021. This is how these chapter 22 Debtors came to be owned by Anchorage Capital Group LLC and Corbin Opportunity Fund LP. General unsecured creditors and equity otherwise got wiped out.

This is the company’s capital structure:

  • $5mm Superpriority Notes + $30mm 14% First Priority Senior Secured Notes

  • $$18.5mm Superpriority PIK Notes + First Priority PIK Notes

Why is the company in bankruptcy? Let’s break this down into its component parts:

The Company has been cash flow negative every year since its formation following the chapter 11 cases of Cubic and its affiliates, as the revenue generated by producing wells is not sufficient to cover operating expenses and "workover" expenses, which is maintenance capex to keep the wells flowing.

Ugh. Here we go again. Flashback to the finding in this Delaware order from February 2016:

“The valuation analysis contained in the Disclosure Statement (x) is reasonable, persuasive, credible, and accurate as of the date such analysis or evidence was prepared, presented, or proffered, (y) utilizes reasonable and appropriate methodologies and assumptions and (z) has not been controverted by other evidence.”

Source: Cubic Energy Disclosure Statement

Source: Cubic Energy Disclosure Statement

Ok, sure. The court finding may have been right — “as of the date.” But the assumptions proved to be dramatically askew. Take, for instance, the workover expense line-item. The company indicates an aggregate $600k hit there. What does the company have to say about this now?

Although production declines are expected in the oil and gas industry, the Debtors have faced several unanticipated challenges since emerging from the Cubic Chapter 11 Cases. Since emergence, over 20% of the Debtors’ producing gas wells have stopped producing due to downhole operational and/or technical issues. During this same time period, the Debtors also invested in production uplift projects—including an estimated $4 million on workover and/or recompletion projects for three wells—but the efforts to increase production from those wells were unsuccessful. The effects of these production problems on the Debtors’ revenue have been compounded by the weak natural gas market over the past few years.

That’s quite a miss. But it’s not the only one. Significantly, the company also notes:

The Debtors’ gross production has declined from approximately 10.5 million cubic feet per day ("mmcfd"), in March 2016 to roughly 5.0 mmcfd as of the date hereof. (emphasis added)

That is what it is but it begs the question: out of whose a$$ did the company pull the assumptions behind the company’s chapter 11 projections? Per the Disclosure Statement:

Daily Production of natural gas is forecast based upon anticipated January 2016 daily production of 15,500 mcf per day and calculated on a 1% month-over-month decline curve on existing drilled and producing wells.

So, uh, we’re not math experts, but a 1% decline month-over-month doesn’t get you to 10.5 mcf per day A MERE TWO MONTHS LATER. Which begs the question: were the projections actually accurate and credible “as of the date”? This certainly seems to indicate otherwise.

Consequently, the Debtors saw an impending maturity and were like, “oh sh*t”:

Although the Debtors have been able to service their debt obligations (primarily by paying interest in the form of additional notes), over time, the yield of the Debtors' producing oil and gas wells has been and may continue to be in constant decline.

This is top notch spin. Yeah, sure, we suppose issuing PIK debt is a form of debt “service” but c’mon. Really??

Consequently, the Debtors anticipate that they will generate less revenue and cash flow and, ultimately, be unable to satisfy their debt obligations before or at maturity.

Which is in 2021. So, here we are again: cue up the CHAPTER 22!!

The prepackaged plan will give 100% of the membership interests in the reorganized debtors and $1.47mm of cash to its senior secured noteholder, eliminating the $53mm of debt. The Debtors’ prepetition operator, Rivershore, will get 55% of the equity in the Hilltop Asset.

And we’re all left to wonder whether this is just a chapter 33 waiting in the wings. According to the new projections, that’s entirely up to Rivershore’s willingness to make an equity contribution in 2021:

Source: Chapter 22 Disclosure Statement

Source: Chapter 22 Disclosure Statement

  • Jurisdiction: D of Delaware (Judge Sontchi)

  • Capital Structure: $5mm superpriority senior secured notes, $30mm first priority senior secured notes, PIK notes (Wilmington Trust Company NA).

  • Professionals:

    • Legal: Cole Schotz PC (Norman Pernick, J. Kate Stickles, Katherine Monica Devanney)

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

  • Other Parties in Interest:

    • Senior Secured Noteholder: J.P. Morgan Securities LLC and Lender: Chase Lincoln First Commercial Corporation

      • Legal: Landis Rath & Cobb LLP (Adam Landis, Richard Cobb, Holly Smith)

    • Company Operator: Rivershore Operating LLC

      • Legal: Gray Reed & McGraw LLP (Jason Brookner, Ryan Sears)


⛽️New Chapter 11 Filing - Vanguard Natural Resources Inc.⛽️

Vanguard Natural Resources Inc.

March 31, 2019

It’s raining SCARLET 22s! Freefall!! We still STILL have a feasibility problem!!!

Vanguard Natural Resources Inc. ($VNRR) and affiliated debtors find themselves in bankruptcy court again — the second time in nearly exactly two years (its predecessor confirmed a plan of reorganization in July 2017). And they do so in crash and burn fashion: while discussions have been happening over the last several weeks with various constituencies within the company’s capital structure, the company has no deal agreed to — merely the outlines of a restructuring term sheet. This is curious given that, under the company’s proposed DIP credit facility ($130mm, of which $65mm is new money), the company has a mere 30 days from the petition date to file a plan of reorganization and must emerge from chapter 11 within 120 days. Send hopes and prayers to the Kirkland attorneys working on this one over the next few weeks.

The debtors are an oil and natural gas company with production and development activity in the Rocky Mountain, Mid-Continent, Gulf Coast and West Texas regions of the United States; they operate in eight states across nine geologic basins. They are a remnant of the first bankruptcy which saw the predecessor entity shed $850mm of debt and wipe out the existing equity. The current capital structure looks like this:

Screen Shot 2019-04-01 at 1.26.16 PM.png

The second lien noteholders include Fir Tree Capital Management LP and York Capital Management Global Advisors LLC. And the company’s equity holders are:

Source: Chapter 11 Petition

Source: Chapter 11 Petition

This is another pretty cut and dry oil and gas bankruptcy given where oil and natural gas prices are. Many investors who took ownership of distressed E&P companies circa 2015-2017 were playing an option on oil and gas trading levels. That option is clearly out of the money.

Interestingly, that option was underwritten, in part, on the company’s projections. And, so, this statement by the company’s now-CEO was particularly intriguing to us and fits nicely within our recent general theme of inquiring as to whether the industry has a feasibility problem (see Paragon Offshore here, Gymboree here, and Payless here):

I understand that the Vanguard I Plan was predicated on various assumptions that ultimately did not materialize. As discussed further herein, it is my understanding that these may have included certain assumptions about: (a) commodity prices and basin differentials; (b) the pace and volume of divestments and the existence of valuable undeveloped resources to be sold; and (c) the expected returns on a number of capital investments pursued by Vanguard upon emergence—many of which have failed to come to full fruition and have challenged the Debtors’ liquidity over the last 18 months.

Former management, meet a big bad bus. You’ve just been thrown under it.

Under bus.gif

In fact, as if saying it wasn’t enough, the new CEO spared PETITION the trouble of having to dive into the 2017 filings to see just how badly these guys botched their liquidity projections:

Source: First Day Declaration

Source: First Day Declaration

The following compounded matters: (a) mismanagement of the company’s hedge book, (b) borrowing base redeterminations, (c) refi roadshows met with “tepid” interest, (d) a series of asset sales that failed to live up to expectations — both in terms of time to completion and proceeds, and (e) capital investments that “delivered lower economic returns than expected.” It’s almost as if distressed investors who sit on boards of directors and hire their own operators have absolutely no effing clue how to run an oil and gas company. Who knew?

And so the company came dangerously close to tripping a series of covenants. That’s when the company brought in Kirkland & Ellis LLP and Evercore Group LLC and re-engaged Opportune LLP to help the company. The various advisors engaged in a number of processes that would have provided the company with crucial liquidity — including new financing, bank facility amendments and various discreet asset sales. But all prospective parties quickly realized that the assets…well…for lack of a better description…kinda, like, suck.

And so nothing could get done. Well, other than the company obtaining a commitment for $130mm of DIP financing to fund the cases (of which only $65mm is new money). What happens from here will be interesting to watch. Suffice it to say, distressed-investors-cum-oil-and-gas-owners are learning a ROUGH lesson.

And, once again, we have to ask whether company projections ought to get a bit more scrutiny than they have to date.

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

  • Capital Structure: $677.7mm RCF and $123.4mm TL (Citibank NA), $80.7mm second lien notes (Delaware Trust Company)

  • Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Aparna Yenamandra, Richard Howell, Yates French, Kent Hayden, Timothy Bow, James Fedell, Allyson Smith Weinhouse) & (local) Blank Rome LLP (James Grogan, Philip Guffy)

    • Board of Directors: Randall Albert, Patrick Bartels Jr., W. Greg Dunlevy, Joseph Hurliman Jr., Andrew Schultz, R. Robert Sloan, L. Spencer Wells

    • Financial Advisor: Opportune LLP

    • Investment Banker: Evercore Group LLC

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

  • Other Parties in Interest:

    • DIP Agent ($130mm, $65mm New Money): Citibank NA

      • Legal: Latham & Watkins LLP (Mitchell Seider, Annemarie Reilly, Adam Malatesta) & (local) Hunton Andrews Kurth LLP (Timothy Davidson II, Joseph Rovira)

    • Ad Hoc Group of First Lien Lenders

      • Legal: Brown Rudnick LLP (Robert Stark, Steven Pohl, Justin Cunningham, Alexander Fraser) & (local) Quinn Emanuel Urquhart & Sullivan LLP (Patricia Tomasco)

    • Second Lien Ad Hoc Group (Fir Tree Capital Management LP, York Capital Management Global Advisors LLC)

      • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Benjamin Schak) & (local) Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

    • Official Committee of Unsecured Creditors

      • Legal: Locke Lorde LLP (Philip Eisenberg)

      • Restructuring Advisor: Parkman Whaling LLC (Thomas B. Hensley Jr.)

      • Financial Advisor: The Claro Group LLC (Douglas Brickley)

Updated 5/10 at 12:25pm (#48)

👢New Chapter 11 Bankruptcy & CCAA Filing - Payless👢

Payless Holdings LLC

February 18, 2019

Update coming on Wednesday.

  • Jurisdiction: E.D. of Missouri (Judge Surratt-States)

  • Professionals:

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Meredith Lahaie, Kevin Zuzolo, Julie Thompson, Caitlin Griffin, Patrick Chen, Abid Qureshi) & (local) Armstrong Teasdale LLC (Richard Engel Jr., Erin Edelman, John Willard)

    • Legal (Canadian CCAA): Cassels Brock & Blackwell LLP

    • Legal (Independent Managers): Seward & Kissel LLP

    • Board of Directors: Heath Freeman, Martin Wade, R. Joseph Fuchs, Scott Vogel, Patrick Bartels

    • Financial Advisor: Ankura Consulting Group LLC (Stephen Marotta, Adrian Frankum, Swapna Deshpande)

    • Investment Banker: PJ Soloman LP (Derek Pitts)

    • Asset Disposition Advisor: Malfitano Advisors LLC (Joseph Malfitano)

    • Liquidators: Great American Group LLC and Tiger Capital Group LLC

    • Corporate Communications Consultant: Reevemark LLC

    • Real Estate Advisors: A&G Realty Partners

    • CCAA Monitor: FTI Consulting Inc.

    • CCAA Monitor

      • Legal: Bennett Jones

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

  • Other Parties in Interest:

    • Pre-petition ABL Agent: Wells Fargo NA

    • Pre-petition Term Agent: Cortland Products Corp.

New Chapter 11 Bankruptcy Filing - DiTech Holding Corporation

Ditech Holding Corporation

February 11, 2019

Source: PETITION

Source: PETITION

The benefit of building a track record of writing/reporting is that various themes emerge over time that can be built upon. Ben Thompson, the eponymous writer of Stratechery, often comments about how newsletters are a better forum for writing than books because thought processes can evolve, themes can be strung together and built-upon or amended, and the reader isn’t purchasing a finished product, per se, but a relationship with the writer. And that relationship can grow over time. We hope that our PETITION readers feel similarly.

Apropos, we wrote back in “We Have a Feasibility Problem” back in November 2016 that, in the context of the Paragon Offshore bankruptcy case, the bankruptcy profession may be suffering from what we dubbed a “feasibility problem.” We wrote:

We're thankful this week for Judge Sontchi's decision last week in the Paragon Offshore bankruptcy cases. The decision was more than just a victory for the company's term loan lenders: it was a much-needed warning signal to the restructuring industry. 

First, a quick synopsis of the opinion. In short, Judge Sontchi sustained most, but not all, of the term lenders objections on the basis that the Debtors' (i) deployed unrealistic rig utilization and day rate assumptions and (ii) failed to take into consideration macro considerations that would affect the Debtors' eventual ability to refinance debt upon maturity in 2021 (if they didn't run out of cash before then). 

We added:

Putting aside the specifics of this case, the decision is important for another reason: it highlights the importance of feasibility. Now, granted, the term lenders had to object for Sontchi to arrive at his conclusion in Paragon but there is an increasing likelihood of Judges scrutinizing feasibility. This Fox Business piece notes, "Some critics say bankruptcy judges too often focus on hammering out an agreement without paying enough attention to companies' chances of long-term survival." Will this continue?

Maybe we need Judges to be activists and save us from ourselves. Deals are being cut, sure, but are they for the right reasons? Are they cut to ensure the viability of the companies underneath capital structures or to uphold "castles in the air" theory and line the pockets of distressed investors? Hard to say: seemingly, these deals aren't doing them any favors either. Without greater transparency to the markets, it's hard to know.

Here's what we do know. In the last several years, there have been a number of repeat restructurings: American Apparel LLC. Global Geophysical Services LLC. Hercules Offshore Inc. Essar Steel Algoma Inc. Fresh and Easy. A&P. Sbarro LLC. Revel Casino. Catalyst Paper. Perhaps we all -- judges included -- ought to ask ourselves why that might be.

We’ve since continued that line of inquiry.

Three weeks ago in “⚡️Why is Gymboree an Unmitigated Disaster?⚡️” — a piece worth revisiting — we explained that, in the context of plan confirmation, debtors submit financial projections and either proffer written testimony or provide live testimony to the effect that the projections are realistic and that, therefore, the plan is feasible and compliant with Bankruptcy Code section 1129(a)(11). We also highlighted — of course with the benefit of 20/20 hindsight — that, as it turned out in the Gymboree chapter 11 case, those projections were complete and utter dogsh*t. We deconstructed, nearly line-item by line-item, how amiss the company’s actual performance was vis-a-vis the projections and concluded:

In summary, the actual operating performance has made a joke of the company’s financial projections and a mockery of the evidence presented to the bankruptcy court to satisfy feasibility.

Again, we insist that you revisit the piece. We concluded by snarking:

…perhaps we’ve arrived at the point in bankruptcy proceedings where the bankruptcy court, itself, ought to hire professionals to verify or challenge the evidence presented to it. We could see it now: Judge Nebraska hiring Banker EFF&D to serve as her banker to determine whether the feasibility proffer is a total clusterf*ck like the one here. Why has this not happened yet? Don’t even tell us it’s fee sensitivity.

And then the Sears sale hearing happened. In “Sears Sales Process “Ends” With an Anticlimactic Flourish (Long Strong PR),” we wrote the following as just one small part of our fulsome discussion of the Sears sale approval hearing:

But this part was especially interesting:

Drain made clear during the course of the hearing he was well aware of the uncertainty pertaining to Sears' future viability. That uncertainty however, did not appear strong enough to override a deal that would have saved 45,000 jobs.

"Whether it's a company that used to print educational books or used to sell plus-sized clothes, the internet has changed everything – and any projection is more in doubt than a projection you would have had 15 years ago or 10 years ago," said Drain, seemingly referring to the bankruptcies of Houghton Mifflin and Fullbeauty, respectively.

Wait, what?!? Is a bankruptcy judge calling into question the very idea of projections in retail bankruptcy cases? How does that affect a feasibility analysis? Is this Judge Drain acknowledging that “we have a feasibility problem?

What we should have said — given that the commentary in Sears related to an adequate assurance analysis — was “how would that affect a feasibility analysis going forward?” It remains a good question.

This is where we add Ditech Holding Corporation to the discussion. Ditech Holding Corporation and its affiliated debtors (the “Debtors”) filed for bankruptcy in Southern District of New York on February 11, 2019. The case will be heard by Judge James L. Garrity Jr., who, in case you were curious, was the judge the last time this company filed for bankruptcy in November of 2017 (under the name Walter Investment Management Corporation). The Debtors, along with certain non-debtor subsidiaries, act as an independent servicer and originator of mortgage loans and servicer of reverse mortgage loans. Per the Debtors via the First Day Declaration of CFO Gerald Lombardo:

For more than 50 years, the Company has offered a wide array of loans across the credit spectrum for its own portfolio and for GSEs (as defined below), government agencies, third-party securitization trusts, and other credit owners. The Company originates and purchases residential loans through consumer, correspondent and wholesale lending channels that are predominantly sold to GSEs and government entities. The Company also operates two complimentary businesses: (i) asset receivables management and (ii) real estate owned property management and disposition.

Lombardo continues:

In recent years, the Debtors’ business has been impacted by significant operational challenges and industry trends that have severely constrained its liquidity and ability to implement much needed operational initiatives. In an effort to address the burden of its overleveraged capital structure—a remnant of its historical acquisitions—the Company consummated a fully consensual prepackaged chapter 11 plan on February 8, 2018. Given the significant liquidity and operational headwinds facing the Company in 2019, it became clear to the Company’s new senior management team that additional relief was needed.

Curiously, though, the very next sentence states:

Beginning in June 2018, the Company began its formal review of strategic alternatives, including a potential merger or sale of all or substantially all of the assets of the Company.

That’s right. Merely four months post-emergence from bankruptcy, the company was already flittering around grasping at straws. Attempts to consummate an out-of-court transaction with a third-party purchaser failed and, faced with “increased uncertainty in 2019, and an anticipated end-of-first-quarter going-concern qualification from its auditors” in December 2018, the company initiated negotiations with groups of holders of approximately $736.6mm of its debt on an in-court recapitalization. These discussions resulted in a restructuring support agreement (the “RSA”) with an ad hoc group of term lenders which will extinguish $800mm in funded debt, transfer ownership of the company to the term lenders, and leave the company with approximately $400mm of term loan debt (plus an exit facility) upon emergence from bankruptcy. Mind you that, in the first go around, the company reduced its debt by approximately $800mm. All in, the Debtors have managed to destroy a significant amount of value over a short period of time.

This last point cannot be overstated. In the prior restructuring, the company: (i) amended and restated its term loan, eliminating $200mm of principal amounts outstanding in the process, (ii) the senior noteholders received $250mm in 9% second lien PIK toggle take-back paper due 2024 (so optimistic!) and 73% of the equity in the reorganized company, extinguishing nearly $300mm of debt in the process, and (iii) the convertible noteholders received the remainder of the equity in exchange for cancelling their $242.5mm of debt. This chart sums up the proposed restructuring:*

First Day Declaration, Walter Investment Management Chapter 11 Filing.

First Day Declaration, Walter Investment Management Chapter 11 Filing.

Said another way, all of the parties agreed that, based on the valuation of the company, the fulcrum security was at the senior noteholder level, leaving the likes of Canyon Capital Advisors LLC, CQS UK LLP, Deer Park Road Management Company LP, Lion Point Capital LP, Oaktree Capital Management LP, and Omega Advisors Inc. as the post facto owners of the company.

Docket 57, Walter Investment Management Chapter 11 case.

Docket 57, Walter Investment Management Chapter 11 case.

Well…that didn’t last long. The gist of this new chapter 11 filing is that all of the recoveries secured by the senior and convertible noteholders are now officially wiped out to zero (assuming they still hold the paper and haven’t dumped it on some other unsuspecting fool…uh…”investor”). Now the term lenders** own the company — not without taking quite a haircut themselves. For the debtholders, especially the senior and convertible noteholders, that sure isn’t a great way to start off 2019. Hopefully those 2018 bonuses based on paper gains (assuming some of the holders bought in at super-distressed levels) were pretty. It seems we may also have a valuation problem. 😬

In addition to moving forward with the restructuring transaction governed by the RSA, the company will parallel-path a marketing process and will toggle to a sale transaction if there are viable bids prior to plan confirmation. This could take the form of an all-in asset sale, a sale of a portion of the Debtors’ assets, or a sale of the master servicing business because, like, let’s be honest: we can’t imagine the term lenders want to be in the mortgage servicing business. Or…maybe…gulp…they do?? Apparently the area is hot! Meanwhile, the company has secured $1.9b in DIP warehouse financing to refinance the Debtors existing warehouse and servicer advance facilities.

So, how does so much value get destroyed so quickly? What happened here? Per the Debtors:

Notwithstanding the Company’s efforts to implement its business plan, which included further cost reductions, operational enhancements and streamlining of its business, following emergence from the WIMC Chapter 11 Case, the Company continued to face liquidity and performance challenges that were more persistent and widespread than anticipated. Coupled with the industry and market factors, these performance challenges have resulted in less liquidity, making the implementation of key operational enhancements more difficult—resulting in their postponement.

In other words, the business plan was, prima facie, unrealistic to begin with. Ladies and gentlemen, we appear to be experiencing an epidemic of bad business plans in bankruptcy (PETITION Note: we’re SUPER-DUPER-SURE-WITH-A-CHERRY-ON-TOP that Sears’ Transform Holdco will be the exception.)

Still, to be fair to the Debtors, they don’t control the FED. Interest rate increases had a negative impact on the Debtors’ business. Per the Debtors:

The increase in interest rates has also negatively impacted mortgage originators and servicers generally—the Debtors are no exception. As interest rates have risen, less borrowers are refinancing loans in a higher interest rate environment, resulting in lower origination volume for the Company.

Tack on the Debtors’ still-overlevered balance sheet, its burdensome interest and amortization obligations, and tightening rates from lending counterparties and you’ve got a world of hurt. Due to diminishing liquidity and scheduled amortization payments of approximately $110mm in 2019, the company faced risk of a going-concern qualification from auditors, which would have stream-rolled into even more hurt by way of triggered defaults and terminations throughout the the Debtors’ debt and working capital facilities.

While there’s plenty of talk about a dearth of liquidity, the Debtors conveniently offer little by way of real up-to-date detail in their bankruptcy papers — a curious development to say the least. We’re left with a balance sheet snapshot through September 20, 2018. But even that is enough to see how where the Debtors missed. This is the projected balance sheet used in the first bankruptcy:

Source: Walter Investment Management Disclosure Statement

Source: Walter Investment Management Disclosure Statement

And this is the September 30, 2018 balance sheet:

Screen Shot 2019-02-18 at 1.41.02 PM.png

Extrapolating out for the full fiscal year, you can see that, among other things, the cash, equivalents and residential loans are below projections and that payables dramatically exceed plan. Whoops!

Now, let’s be clear: the first filing was a fully consensual deal wrapped up in a bow and presented, in a mere matter of months, to the bankruptcy judge. This is not Paragon Offshore, where there was a vehement confirmation objection. There was no evidence on the record to suggest that the business plan and, by extension, the plan of reorganization, were infeasible. And yet it only took four months for that to be the case.

Which begs another question: how in the world did so many smart people get this so wrong?

*The equity recoveries were later adjusted to reflect the fact that the convertible noteholders voted to accept the plan, giving that class 50% of the new common stock. Ah, the beauty of crossholders (see Lion Point and Deer Park above).

**The consenting noteholders in the Walter transaction were, according to public filings, Carlson Capital LP, TAO Fund LLC, Credit Suisse Asset Management LLC, Marathon Asset Management LP, Nuveen, Symphony Asset Management LLC, Eaton Vance Management.

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

  • Capital Structure: See above.    

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Sunny Singh, Ryan Preston Dahl, Alexander Welch)

    • Financial Advisor: AlixPartners LLP (David Johnston, Clayton Gring, James Nelson)

    • Investment Banker: Houlihan Lokey Capital Inc. (Jeffrey Lewis)

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

  • Other Parties in Interest:

    • Prepetition Term Agent: Credit Suisse AG

      • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Michelle McGreal)

    • Counsel to the Ad Hoc Group of Term Lenders

      • Legal: Kirkland & Ellis LLP (Patrick Nash, Gregory Pesce, John Luze)

      • Financial Advisor: FTI Consulting Inc.

    • 9.0% Second Lien Senior Subordinated PIK Toggle Notes due 2024 Trustee: Wilmington Savings Fund Society, FSB

    • Second Lien Ad Hoc Group

      • Legal: Milbank Tweed Hadley & McCloy LLP (Gregory Bray, Melainie Mansfield)

    • DIP Agent & Lender: Barclays Bank PLC and Barclays Capital Inc.

      • Legal: Skadden Arps Slate Meagher & Flom LLP (Sarah Ward, Mark McDermott, Melissa Tiarks)

    • Nomura Corporate Funding Americas, LLC

      • Legal: Alston & Bird LLP (Karen Gelernt and Ronald Klein) and Jones Day LLP (Ben Rosenblum)

    • Fannie Mae

      • Legal: O’Melveny & Myers LLP (Stephen Warren, Jennifer Taylor and Darren Patrick)

    • Freddie Mac

      • Legal: McKool Smith PC (Paul D. Moak)

New Chapter 22 Filing - Relativity Fashion Inc.

Relativity Fashion Inc.

5/3/18

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

More to come...

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

New Chapter 22 Filing - SEGA Biofuels LLC

SEGA Biofuels LLC

3/11/18

SEGA Biofuels LLC, an industrial wood pellet manufacturer and distributor with a Georgia-based facility filed for bankruptcy to pursue a sale. This is the second bankruptcy in the last 5 years. In this instance, the debtor has been sitting on an idled plant since 2016, having marketed the asset on two separate occasions to no avail. In fact, the bankruptcies of other wood pellet manufacturers in Louisiana and Texas during the company's marketing process didn't help with the marketing. (Notably, Rentech Inc., another wood pellet manufacturer, filed for bankruptcy in December). 

Now, though, the company proposes to sell to Global Infrastructure Partners, an affiliate of the company's pre-petition secured lender and (now) DIP lender, GIP Genesis LLC, for the equivalent of a few dollars and some spitwads. Or, said another way, $4.2mm in the form of a combined credit bid + cash offer, cure amounts and some assumed liabilities. 

Really the only reason why we're even covering this filing is because it reflects the continued decimation of the wood pellet space. 

  • Jurisdiction: S.D. of Georgia
  • Capital Structure: $9.658 mm in 4 term loans (Heritage Bank), $26.6mm debt (GIP Genesis LLC)  
  • Company Professionals:
    • Legal: Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere) & (local) Seyfarth Shaw LLP (John Mills III)
    • Financial Advisor/CRO: CRS Capstone Partners LLC (James Calandra)
    • Claims Agent: Garden City Group LLC (*click on company name above for free docket access)
    • Other Parties in Interest:
      • Buyer: Global Infrastructure Partners
        • Legal: Greenberg Traurig LLP (Matthew Hinker)

New Chapter 11 Bankruptcy - The Walking Company Holdings Inc.

The Walking Company Holdings Inc.

3/8/18 Recap: Another retailer - this time a repeat offender - will be walking into bankruptcy court (see what we did there?). Here, the California-based once-publicly-traded ($WALK) manufacturer of footwear like Birkenstock and ASICS has filed for bankruptcy with a plan on file and an equity sponsor in tow to the tune of $10mm. 

This is a story of staggered disruption. In the first instance, the company expanded via acquisition and grew from 2005-2008 to over 200 stores. To fund the expansion, the company issued $18.5mm of convertible notes and transferred the proceeds of the liquidation of its Big Dog entity to The Walking Company, the use of proceeds including the buildout of omni-channel distribution and vertical integration. But,

As a result of many factors including- among them, challenging negotiations with landlords which did not provide the Debtors with the rent relief they believe they needed, and the state of the national economy, by late 2008 TWC found that nearly 100 of the newer stores it opened during this expansion period were not generating the sales and profits expected.

Moreover, 

...by 2008, Big Dogs' business had collapsed more rapidly than the Debtors had anticipated. Big Dogs was in the business of selling moderately priced, casual apparel through a chain of specialty retail stores (Big Dogs stores) located around the country. The rapid growth of big-box, mass-market retailers during this period put great pricing pressure on retailers of moderately priced, casual apparel, putting many of them out of business.

Walmart ($WMT). Target ($TGT). Just say it broheims. Never understand the reluctance in these filings. Anyway, the upshot of all of this? Once the Great Recession hit, mall traffic fell off a cliff, revenue declines accelerated, landlords proved obstinate, and the company filed for bankruptcy in December 2009. 

In bankruptcy, the company reached accommodations with certain landlords and received a $10mm capital infusion from Kayne Anderson Capital Advisors LP. 

Subsequent to the bankruptcy, the company apparently thrived from 2013 through 2017. It had a better rent structure, it ceased expansion, and it focused on successful brands (e.g., ABEO) and the wholesaling and international licensing thereof. But then the realities of e-commerce struck. Per the company,

During this period, however, the increasing power of Internet retailers made traditional business of retail stores selling products manufactured by others increasingly difficult, and it also had an increasingly negative impact on customer traffic in shopping malls. 

Indeed, Deckers Outdoor Corporation ($DECK)(the manufacturer of UGG footwear) terminated its relationship with the company. The company couldn't replace those lost sales fast enough - through third party or private label sales - and the dominos started to fall. The company sought rent concessions and landlords, for the most part, told it to pound sand. Holiday sales declined. Appraisers reduced the valuation of inventory and, in turn, the company had diminished access to its bank credit line. Cue the Scarlet 22.

The company intends to use the bankruptcy to obtain "substantial rent relief by conforming their lease portfolio to market rents." Notably, two of the initial 5 leases that the company seeks to reject in the first instance are Simon Property Group locations in Dallas and Oklahoma City and one Taubman location. Other creditors appear to be your standard retail slate: Chinese manufacturers, trade vendors (ECCO, Rockport) and other landlords (General Growth Properties is a prominent one with locations listed as 9 of the top 30 creditors). 

The company otherwise has agreement with its large shareholders (including another $10mm equity infusion) and Wells Fargo to provide DIP and exit credit. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $40.3mm RCF & $7.25mm TL (Wells Fargo Bank NA), $11.74mm 8.375% '19 convertible notes    
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey N Pomerantz, Jeffrey W Dulberg, Victoria A Newmark, James E ONeill) 
    • Financial Advisor: Consensus Advisors LLC
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent, DIP Term Agent, Prepetition Senior Agent: Wells Fargo Bank NA
      • Legal: Choate Hall & Stewart LLP (Kevin Simard) & (local) Womble Bond Dickinston (Matthew Ward)
    • Prepetition Subordinated Noteholders (Simon Property Group, Galleria Mall Investors LP)
      • Legal: Irell & Manella LLP (Jeffrey Reisner)

New Chapter 22 Filing - Venoco LLC

Venoco LLC

  • 4/17/17 Recap: Denver-based E&P company that FILED FOR BANKRUPTCY LITERALLY 13 MONTHS AGO and emerged 9 months ago filed for bankruptcy again because of "material operational and regulatory setbacks." The prior bankruptcy eliminated nearly $1b of debt and the restructuring was predicated upon various operational objectives. First, the Plains All American Pipleine line 901 going online. Well, that didn't happen. Second, regulatory approval of "the highly anticipated lease line adjustment." Spoiler alert: that didn't happen either. Third, the extension of the lease term by the Beverly Hills Unified School District of an onshore facility beyond its 12/16 expiration date. Any guesses what happened there? Right, nada. And, fourth, an insurer required that the company post an additional $35mm in collateral to support bonds issued by it. You guessed it: the company didn't have the money for that either which, of course, would have effectively terminated operations altogether. Hence, the bankruptcy filing.
  • Jurisdiction: D. of Delaware     
  • Company Professionals:
    • Legal: Bracewell LLP (Robert Burns, Robin Miles, David Riley, Mark Dendinger, Jason Hutt) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Marcy McLaughlin)
    • Financial Advisor/CRO: Zolfo Cooper LLC (Bret Fernandes)
    • Investment Banker: Seaport Global Securities LLC
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Board of Directors: Mark DePuy, Gene Davis, Daniel Vogel, Jeffrey Bartlett, Chris Bement, Bill Lockyer
  • Other Parties in Interest:
    • Significant Shareholders: Apollo Investment Corporation, MAST Capital Management LLC, Candlewood Special Situations Master Fund Ltd.
    • Exxon Mobil Corporation
      • Legal: Haynes and Boone LLP (Charles Beckham, Kelli Norfleet) & (local) Farnan LLP (Michael Farnan)

Updated 4/22/17 

New Chapter 22 Filing - General Wireless Operations Inc. (f/k/a Radio Shack)

General Wireless Operations Inc.

  • 3/8/17 Recap: We're exasperated. Let's revisit history. In February 2015, Radio Shack filed for bankruptcy. The bankruptcy court confirmed the plan of reorganization in October 2015 and it went effective just five days later. So...six...wait, carry the one...yeah, sixteen months later the successor entity General Wireless Operations is now in bankruptcy looking to shut the lights and/or pass this toad on to another sucker as Standard General pulls the chute. Why did this all happen? Well, because Sprint sucks, apparently ("[w]hile the retail business progressed, the Sprint relationship did not yield the benefits that the Debtors expected"). The arrangement out of bankruptcy was for the reinvented Radio Shack to have co-branded stores with Sprint for the purpose of selling Sprint mobile devices that nobody wants (note: 78+mm Apple iphones were sold last quarter). Sprint was obligated to pay rent for the space it occupied as well as commissions above a certain threshold level of sales ($60mm). Hahahaha...above a threshold level of sales? Yeah, never got there (wait what? erroneous projections? you don't say!).  Absent that cash inflow, the company had insufficient funds to continue to operate as a going concern. Hence, the Scarlet 22.  
  • Jurisdiction: D. of Delaware
  • Capital Structure: $75mm revolver and term loan debt ($25.5mm funded) (Royal Bank of Canada & GACP Finance Co. LLC) & $88mm second lien revolver and term loan debt ($39.7mm funded)(Standard General Master Fund LP, Cortland Capital Market Services LLC, Prisma Capital Partners LP) & $23mm IP term loan (Kensington Technology Holdings LLC)
  • Company Professionals:
    • Legal: Jones Day LLP (Scott Greenberg, Mark Cody) & Pepper Hamilton LLP (David Fournier, Evelyn Meltzer, Michael Custer, Kay Kress)
    • Financial Advisor: Loughlin Management Partners & Company Inc.
    • Liquidation Consultant: Tiger Capital Group LLC
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
  • Other Parties in Interest:
    • Sprint
      • Legal: McGuire Woods LLP (David Swan, James Van Horn) & (local) K&L Gates LLP (Steven Caponi)
    • Kensington Technology Holdings LLC
      • Legal: Honigman Miller Schwartz and Cohn LLP (Joseph Sgroi)
    • GACP Finance Co. LLC
      • Legal: Paul Hastings LLP (Andrew Tenzer, Leslie Plaskon, Michael Comerford) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Justin Rucki, Allison Mielke)
    • Official Committee of Unsecured Creditors
      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz)

Updated 3/21/17

New Chapter 22 Filing - Eastern Outfitters LLC

Eastern Outfitters LLC

  • 2/5/17 Recap: Seems like chapter 22 bankruptcies are the "it" thing now: everyone's doing it. Last year, Versa Capital Management bought the company in the Vestis Group bankruptcy and, now, Sports Direct looks to pick up the pieces in yet ANOTHER sale of the Bob's Stores and Eastern Mountain Sports retail properties. Top creditors include Under Armour and Google which says something about (a) why UA's growth numbers were considerably off last quarter and (b) the cost of Google SEO for companies in this internet age.
  • Jurisdiction: D. of Delaware    
  • Capital Structure: $41mm RCF (PNC Bank), $42mm TL (Sportsdirect) 
  • Company Professionals:
    • Legal: Bracewell LLP (Robert Burns, Jennifer Feldshur, David Riley, Mark Dendinger) & (local) Cole Schotz (Norman Pernick, Marion Quirk, Katharina Earle)
    • Turnaround Advisor: AlixPartners LLC (Spencer Ware, Susan Brown, Afshin Azhari)
    • Replacement Turnaround Advisor: Meru LLC (Nicholas Campbell, Timothy Meighan)
    • Financial Advisor: Lincoln Partners Advisors LLC  (Alexander Stevenson)
    • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
      • Legal: Curtis Mallet-Provost Colt & Mosle LLP (Steven Reisman) & (local) Womble Carlyle Sandridge & Rice LLP (Mark Desgrosseilliers)
    • Asset Disposition Advisor & Consultant: Malfitano Advisors LLC (Joseph Malfitano)
    • Claims Agent: KCC (*click on company name for docket)
  • Other Parties in Interest:
    • Purchaser: SportsDirect.com Retail Ltd.
      • Legal: Greenberg Traurig LLP (Nancy Mitchell, Maria DiConza)
    • First Lien Lender: PNC Bank, NA
      • Legal: Blank Rome LLP  (Regina Kelbon, Gregory Vizza)
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Richelle Kalnit, Sarah Carnes) & (local) Drinker Biddle & Reath LLP (Steven Kortanek, Patrick Johnson, Robert Malone)
      • Financial Advisor: Province Inc. (Paul Huygens, Carol Cabello, Sanjuro Kietlinski, Jin Lai Dong)

Updated 5/31/17

New Chapter 22 Filing - Wet Seal LLC

 

Wet Seal LLC

  • 2/2/17 Recap: Chapter 22 of Versa Capital owned retailer filed to liquidate via joint venture with Hilco Merchant Services and Gordon Brothers. 
  • Jurisdiction: D. of Delaware
  • Capital Structure: $10-50mm debt 
  • Company Professionals:
  • Legal: Young Conaway (Robert Brady, Michael Nestor, Jaime Chapman, Andrew Magaziner) & (special counsel - avoidance actions) ASK LLP (Joseph Steinfeld)
  • Financial Advisor: Berkeley Research Group LLC (Stephen Coulombe)
  • Claims Agent: Donlin Recano (*click on company name for docket)
  • Liquidators: Hilco Merchant Resources (David Peress) and Gordon Brothers Retail Partners LLC
  • Intellectual Property Disposition Consultant: Hilco IP Services LLC
    • Legal: Riemer & Braunstein LLP (Steven Fox)
  • Other Parties in Interest:
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Max Schlan, Lauren Reichardt) & (local) Saul Ewing LLP (Mark Minuti)
      • Financial Advisor: Province Inc. (Stilian Morrison)

 Updated 4/14/17

New (Chapter 22) Filing - American Apparel Inc.

American Apparel Inc.

  • 11/14/16 Recap: Large US-based apparel manufacturer and retailer with 193 total stores files for bankruptcy - months, uh, after emerging from bankruptcy. Company filed with a $30mm DIP proposal from Encina Business Credit LLC. Plan is to sell (for parts) expeditiously to Gilden Activewear SRL for $66mm (IP, remaining wholesale inventory and wholesale POs during restructuring).  
  • Jurisdiction: D. of Delaware
  • Capital Structure: $215mm of funded debt ($90mm DIP-rolled-into-TL-exit + $82mm of additional financing) & $15mm unsecured UK facility (Standard General)    
  • Company Professionals:
    • Legal: Jones Day LLP (Carl Black, Scott Greenberg, Michael J. Cohen, Erin Brady, Stacey Corr-Irvine, Genna Ghaul, Christpher Lovrien) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James O'Neill, Joseph Mulvihill)
    • Financial Advisor: Berkeley Research Group LLC (Mark Weinsten, Joseph D'Ascoli) & FTI Consulting (Andrew Hinkelman, Chuck Goad, Adam Saltzman, Frank Marshall, William Breashears, Zach Contreras)
    • Claims Consultants: Resources Global Professionals (Thora Thoroddsen, Evelyne Anglade, Scott Ashcraft, Luis Barreda, Sharon Dannewitz, Yolanda Hoelscher, Rodney Teruya)
    • Investment Banker: Houlihan Lokey (Saul Burian, Devin Shanahan, Sanaz Memarsadeghi, Ethan Kopp, Alexander Stolarz, Varun Desai)
    • Claims Agent: Prime Clerk (*click on company name for docket)
  • Other Parties in Interest:
    • DIP Lender: Encina Business Credit LLC
      • Legal: Riemer & Braunstein LLP (Steven Fox, Donald Rothman, Lon Singer, Alexander Rheaume) & (local) Ashby & Geddes PA (Gregory Taylor)
    • Agent to Prepetition Secured Lenders: Wilmington Trust
      • Legal: Covington & Burling LLP (R. Alexander Clark, Dianne Coffino) & Pepper Hamilton LLP (David Fournier)
    • Buyer: Gilden Activewear SRL
      • Legal: Sullivan & Cromwell LLP (Michael Torkin, Brian Hamilton, Miaoting Wu) & (local) Womble Carlyle (Matthew Ward)
    • Lead Lenders & Equityholders: Monarch Alternative Capital LP, Coliseum Capital Management LLC, Goldman Sachs Asset Management LP, Pentwater Capital Management LP, Standard General
      • Legal (except Standard General): Milbank Tweed (Gerard Uzzi, Eric Stodola) & (local) Fox Rothschild (Jeffrey Schlerf, L. John Bird)
      • Legal (Standard General): Debevoise & Plimpton LLP (Natasha Labovitz, Shannon Rose Selden, Craig Bruens, Erica Weisgerber) & (local) Young Conaway (Edmon Morton, Joseph Barry)
    • Largest Unsecured Creditors: Standard General, FTI Consulting, Moelis, Garden City Group
    • Unsecured Creditors' Committee:
      • Legal: Cooley LLP (Cathy Hershcopf, Seth Van Aalten, Robert Winning, Sarah Carnes, Michael Klein, Max Schlan) & (local) Bayard PA (Justin Alberto, Evan Miller, Gregory Flasser)
      • Financial Advisor: Emerald Capital Advisors (John Madden, Ryan O'Sullivan, Lawrence Jacobs, Christopher Moffatt, Jack Allen, Christopher Saitta, Daniel Pace, Ryan Feulner)

Updated 3/30/17