🙈New Chapter 11 Bankruptcy - Fred's Inc.🙈

Fred’s Inc.

September 9, 2019

Dallas-based Fred’s Inc. and seven affiliated debtors have filed a long-awaited bankruptcy in the District of Delaware with the intent to unwind the business. The debtors are — or, we should say, were — discount retailers with full service pharmacies, focusing on fixed income families in small and medium-sized towns.

The bankruptcy papers — from a law firm largely known for litigation (a curious fact here until you consider that Alden Global Capital LLC is a large shareholder) — are remarkably sparse. No lengthy back story about the company and how “iconic” it is. Just, “it was founded in 1947, sold a lot of sh*t to people who have no other alternative and now we’re kaput.” No discussion of the interim, say, 70+ years. Not a mention in the First Day Declaration of the failed Walgreens/Rite-Aid transaction that would have given Fred’s a larger pharmacy footprint. Nothing about Alden’s stewardship. Nada. Not a word, outside of the motion to assume the liquidation consultant agreement, about the state of retail (and in that motion, only: “The Debtors faced significant headwinds given the continued decline of the brick-and-mortar retail industry.”). Given the case trajectory — an orderly liquidation — we suppose there’s really no need to spruce things up. There’s nothing really left to sell here.* All in, it’s, dare we say, actually kind of refreshing: finally we have a debtor dispensing with the hyperbole.

The debtors started 2018 with 557 locations. After four rounds of robust closures — 263 between April and June and another 178 between July and August — the debtors have approximately 125 locations remaining. Considering that those stores are now closing too and given that the average square footage per store was 14,684, the end result will be ~8mm of square footage unleashed on the commercial real estate market. We suspect that these small and medium-sized towns will have some empty storefronts for quite some time.

The debtors have a commitment from their pre-petition lenders for a $35mm DIP credit facility (which includes a rollup of pre-petition debt).

*The Debtors previously sold 179 of their pharmacy stores to a Walgreens Boots Alliance Inc. ($WBA) subsidiary for $177 million in fiscal Q4 ‘18 and 38 more to a CVS Health Corp. ($CVS) subsidiary for ~$15 million in August.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: $15.1mm RCF (+ $8.8mm LOCs), $20.9mm (Cardinal Health Inc., secured by pharmacy assets), $1.4mm in other secured debt.

  • Professionals:

    • Legal: Kasowitz Benson Torres LLP (Adam Shiff, Robert Novick, Matthew Stein, Shai Schmidt) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Matthew Harvey, Joseph Barsalona)

    • Board of Directors: Heath B. Freeman, Timothy A. Barton, Dana Goldsmith Needleman, Steven B. Rossi, and Thomas E. Zacharias

    • Special Legal: Akin Gump Strauss Hauer & Feld LLP

    • Financial Advisor: Berkeley Research Group LLC (Mark Renzi)

    • Investment Banker: PJ Solomon

    • Liquidator: SB360 Capital Partners LLC

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

  • Other Parties in Interest:

    • DIP Lender ($35mm): Regions Bank

      • Legal: Parker Hudson Rainer & Dobbs LLP (Eric Anderson, Bryan Bates) & Richards Layton & Finger PA (John Knight)

    • DIP Lender: Bank of America

      • Legal: Choate Hall & Stewart (John Ventola)

    • Large Shareholder: Alden Global Capital LLC

Update: 9/9/19 #19

⛽️New Chapter 11 Filing - Weatherford International Plc⛽️

Weatherford International Plc

July 1, 2019

There hasn’t been a MASSIVE bankruptcy filing in a while. Windstream Holdings Inc. filed back in late February and while there’s been plenty of chapter 11 activity since, there hasn’t been anything quite as large in the last several months. There is now. Enter Weatherford International Plc.

Late on Friday, Weatherford, an Irish public limited company, filed an 8-K with the SEC with a proposed plan of reorganization and disclosure statement; it and several affiliated debtors intend to file prepackaged chapter 11 cases in the Southern District of Texas on Monday, July 1.* The timing is appropriate: nothing screams “Independence!” like a massive chapter 11 bankruptcy filing that has the effect of eliminating six billion tyrannical dollars from the balance sheet. YEE HAW. G-D BLESS AMERICA.

Here is a snapshot of Weatherford’s pre and post-bankruptcy capital structure:**

Screen Shot 2019-06-29 at 5.15.48 AM.png

And all of the action is at the pre-petition notes level of the cap stack.*** The holders of the $7.4b of pre-petition notes**** will walk away with 99% of the equity in the reorganized company (subject to various means of dilution) — a 63% recovery based on the offered valuation of the company. They will also receive up to $1.25b of new tranche b senior unsecured convertible notes and the right to participate in new tranche a senior unsecured notes. Every other class — but for existing equity (which will get wiped out) — will ride through as if this shabang ain’t even happening.

You must be wondering: how in bloody hell does a company rack up over $8b of debt? $8 BILLION!! That’s just oil and gas, darling.

Weatherford is a provider of equipment and services used in the drilling, evaluation, completion, production, and intervention of oil and natural gas wells; it operates in over 80 countries worldwide and has service and sales locations in nearly all of the oil and natural gas producing regions in the world. It operates in a highly commoditized industry and so the company dedicates millions each year to research and development in an effort to separate itself from the pack and provide value to end users that is unmatched in the market.

Which, by its own admission, it fails to do. All of that R&D notwithstanding, Weatherford nevertheless provide a commoditized product in a tough macro environment. And while all of that debt should have helped position the company to crush less-capitalized competitors, it ultimately proved to be an albatross.

To service this debt, the debtors require stability in the oil and natural gas markets at prices that catalyze E&P companies to drill, baby, drill. An oil field services company like Weatherford can only make money if there are oil operations to service. With oil and natural gas trading at low levels for years…well, you see the issue. Per the company’s 8-K:

The sustained drop in oil and gas prices has impacted companies throughout the oil and gas industry including Weatherford and the majority of its customers. As spending on exploration, development, and production of oil and natural gas has decreased so has demand for Weatherford’s services and products. The decline in spending by oil and gas companies has had a significant effect on the Debtors’ financial health. To illustrate, on a consolidated basis, the Company’s cash flows from operating activities have been negative $304 million, negative $388 million, and negative $242 million in fiscal years 2016, 2017, and 2018, respectively.

While not quite at Uber Inc. ($UBER) levels, this company is practically lighting money on fire.

Relating to the competition:

The oilfield services and equipment industry is saturated with competition from various companies that operate in the same sector and the same regions of the world as Weatherford. The primary competitive factors include safety, performance, price, quality, and breadth of products and services. Weatherford also faces competition from regional suppliers in some of the sectors in which it operates as these suppliers offer limited equipment and services that are specifically tailored to the relevant local market. Some of the Company’s competitors have better financial and technical resources, which allows them to pursue more vigorous marketing and expansion activities. This heavily competitive market has impacted the Company’s ability to maintain its market share and defend or maintain the pricing for its products and services. Heavy competition has also impacted the Company’s ability to negotiate contract terms with its customers and suppliers, which has resulted in the Company accepting suboptimal terms.

The squeeze is on, ladies and gentlemen. As E&P companies look to cut costs in the face of increased pressure from investors to lean out, they are putting companies like Weatherford through the ringer. You bet your a$$ they’re getting “suboptimal terms.”

Compounding matters, of course, is the government:

…operations are also subject to extensive federal, international, state and local laws and regulations relating to environmental production, waste management and cleanup of hazardous materials, and other matters. Compliance with the various requirements imposed by these laws and regulations has also resulted in increased capital expenditures as companies in these sectors have had to make significant investments to ensure compliance.

Well GOSH DARN. If only Weatherford had unfettered ability to pollute the hell out of the countryside and our waters all of that debt could be paid off at par plus. Those gosh darn government hacks.

All of these factors combined to strain the debtors’ liquidity “for an extended period of time.” Accordingly, the company went into cost cutting mode.***** In Q4 ‘17, it eliminated 900 jobs to the tune of $114mm in annualized savings. In 2018, the company — with the assistance of McKinsey Restructuring & Transformation Services — continued with workforce reductions, facility consolidations, and other measures.

Yet, the squeeze continued. Per the company:

Despite implementing these efficient and strategic initiatives, the Company continued to face declining revenue and cash flow, as well as market challenges. Due to the Company’s increasingly tight liquidity, its key vendors began requiring shortened payment terms, including pay on delivery or prepayment for all supplies purchased by the Company. This contributed to additional pressure on liquidity that the Company could not sustain. Additionally, as discussed above, the highly competitive market that the Company operates in posed challenges for the Company in winning new bids, resulting in decreased revenue.

Weatherford was therefore forced to divest assets. YOU KNOW YOU’RE LEVERAGED TO THE HILT WHEN YOU SELL NEARLY $1B OF ASSETS AND IT BARELY MOVES THE NEEDLE. Sale proceeds were coming in just to go back out for debt service. The company had a leverage ratio of OVER 10X EBITDA. THIS IS AN UNMITIGATED F*CKING DISASTER. What’s actually astonishing is that the company notes that it retained Lazard Freres & Co LLC ($LZ) and Latham & Watkins LLP in December ‘18 and April ‘19, respectively. Taking them at their word (and we could have sworn Latham was in there much earlier than April), WHAT THE HELL WERE THEY WAITING FOR$600mm of annual interest payments, pending maturities, untenable leverage relative to competitors, AND squeezing vendors and the company only got its sh*t together in April? They couldn’t possibly have been THAT inept. Ah, who are we kidding? We’re talking about bankruptcy here.

Now, though, the company has a deal****** and so the upshot is that it is well-positioned for a quick trip into bankruptcy. Indeed, it seeks plan confirmation no later than September 15, 2019 — a nice not-as-speedy-as-other-recent-prepacks-but-speedy prepack. To finance the cases, the company will seek approval of up to $750mm DIP revolver and a $1b DIP term loan. And it is optimistic that it will be well-positioned for the future:

Screen Shot 2019-06-29 at 10.53.10 AM.png

We’ll see.

*The company will also push through Bermuda and Irish proceedings.

**JPMorgan Chase Bank NA ($JPM) is the agent on the prepetition term loan, the prepetition revolving credit agreement, and the A&R facility.

***Only three entities out of an organizational structure of 255 or so direct and indirect subsidiaries are on the hook for the prepetition notes, thereby limiting the number of actual debtor entities that will be subsumed by these cases.

****The pre-petition notes consist of 13 — yes, THIRTEEN — different issuances of notes with interest rates ranging from 4.5% to 9.875% and maturities ranging from 2020 through 2042.

*****Well, as it relates to certain peeps, of course. The debtors’ non-debtor affiliates still had money to make a May 2019 payout to participants in the Executive Bonus Plan.

******The ad hoc noteholder committee is represented by Akin Gump Strauss Hauer & Feld LLP and Evercore Group LLC ($EVR).

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

  • Capital Structure:

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Keith Simon, David Hammerman, Annemarie Reilly, Lisa Lansio) & (local) Hunton Andrews Kurth LLP (Timothy Davidson, Ashley Harper)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Lazard Freres & Co LLC

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

  • Other Parties in Interest:

    • Ad Hoc Prepetition Noteholder Committee

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Kate Doorley)

      • Financial Advisor: Evercore Group LLC

    • DIP Agent: Citibank NA

      • Legal: Shearman & Sterling LLP (Frederic Sosnick, Ned Schodek, Sara Coelho, Ian Roberts)

🏥New Chapter 11 Bankruptcy Filing - Insys Therapeutics Inc.🏥

Insys Therapeutics Inc.

June 10, 2019

Within a week of a massive settlement entered into with the United States Department of Justice, Insys Therapeutics Inc. ($INSY) and six affiliates have filed for bankruptcy in the District of Delaware.* The company is a specialty pharmaceutical company that commercializes drugs and drug delivery systems for targeted therapies (read: it manufactures opioids); it has two marked products. These products, if prescribed and used in the right way, aren’t in and of themselves evil (though former management is another story). Subsys is used for cancer patients and is delivered in the (non-invasive) form of an under-the-tongue spray. Syndros is used to treat loss of appetite and anorexia associated with weight loss in people with AIDS as well as nausea and vomiting caused by anti-cancer medicine. Not one to miss out on all the latest fads, the company also apparently has cannabinoid-based formulations in its pipeline. Because, like, to the extent the company wants to pursue a sale, nothing will get investor juices flowing like cannabinoid! Will its marketing get done via Snapchat and its sales conducted via the blockchain? Maybe it ought to package its formulations with fake meat. Lit!!

All in, the company owns 94 worldwide patents and 62 patent applications with expiration dates ranging between 2022 and 2039. In other words, it does have some potentially valuable intellectual property.

The company’s synopsis of why it is now in bankruptcy court reflects the world of opioid producers today:

…the Debtors are facing extensive litigation relating to their SUBSYS® product (“Subsys”), which is a prescription opioid. As of the Petition Date, one or more of the Debtors have been named in approximately one thousand lawsuits, and the Debtors anticipate that additional lawsuits may be commenced in the future. Some of the litigation they are facing is common to all opioid manufacturers, while other claims are based on particular alleged activities of the Debtors’ former executives, many of whom either pleaded guilty to or were convicted after trial of federal criminal activity relating to such activities. The expenses and settlement costs resulting from such litigation have been substantial, consuming large portions of the Debtors’ revenue and liquidity.

At the same time, over the last few years, the Debtors’ revenues from Subsys have been declining rapidly as a result of the increased national scrutiny of prescription of opioids by healthcare professionals, the resulting high-profile political and legal actions taken against manufacturers and distributors of opioids, and the specific news relating to the former executives’ criminal activity. Moreover, although the Debtors have promising products in the pipeline, those products are not yet approved for production, require significant additional investment to bring to market, and are not expected to generate revenue in the near term. As a smaller company than some other opioid manufacturers, with over 90% of its current revenue coming from the sale of opioids, Insys could not withstand the concurrent negative impact of massive litigation costs and significant opioid revenue deterioration. These factors have caused a substantial cash drain on the company to the point where, despite the Debtors’ best efforts, they risk running out of cash in 2019. (emphasis added)

We quoted that bit at length because it captures the risk that all opioid manufacturers face today given what appears to be pervasive sales and prescription practices across the country, subsuming countless companies all seeking sales and profits often in the name of shareholder value. Which is not to say that all companies and company management teams are equal: while the jury is still out in a variety of cases, here, we know that former company management engaged in some shady-a$$ methods to enrich themselves. Per Bloomberg:

In May, Insys founder and former Chief Executive Officer John Kapoor, 75, and four former executives were convicted of engaging in a racketeering conspiracy to bribe doctors to boost off-label prescriptions of Subsys, a fentanyl spray originally intended to treat cancer pain. The executives baited doctors with sham speaker fees, lavish dinners and nightclub outings, and then duped insurers into covering the prescriptions, prosecutors said. Kapoor and the others each face a maximum of 20 years in prison and will be sentenced in September.

A pandemic of addiction in Wyoming, Oklahoma and elsewhere, powered by some corrupt-AF executives and their bottles-and-models loving doctor homies.

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The debtors filed their bankruptcy cases to (i) trigger the automatic stay, a statutorily imposed injunction that will, for the time being, halt ongoing litigation, (ii) pursue a sale of substantially all of their assets, and (iii) implement procedures designed to estimate categories of claims and impose distribution procedures via a plan of reorganization. Moreover, the debtors hope that a court-supervised proceeding in chapter 11 will provide the structure required to enter into additional settlements with other large groups of claimants.

As for current claims, there are lot (including a variety of professional services claims on account of indemnities and otherwise — a lot of lawyers are likely to have write-offs here). But the company has no funded debt and so the proceeds of any sale will, after professionals are paid, go to general unsecured creditors. First and foremost, the DOJ — on account of its allowed general unsecured claim ($243mm, but capped at a $195mm recovery inclusive of a $5mm prepetition payment). The DOJ will have to contend with, on an equal basis, other federal actions/settlements, state actions, municipal actions, and insurance, personal injury, securities and indemnity claimants. It’s a liability lovefest!

To address these liabilities, the debtors need asset value. To that end, the debtors are looking to establish a global sale process for their IP; they’re also looking at clawing back certain indemnification amounts they’ve paid over the years on behalf of their seemingly corrupt-AF former management; finally, they may pursue claims against their insurers for wrongful denial of coverage. All in, the debtors are seeking to maximize their estates for the purposes of broadening the potential pool for distribution to claimants. We’re all for that objective provided it can be done in a cost effective way — a rare accomplishment, these days, in bankruptcy.

*The stock, which had been trading at $1.31/share at market close on Friday, plummeted 51.45% on Monday upon the news of the bankruptcy filing. This prompted The Wall Street Journal’s Charley Grant to quip, “So much for efficient markets.” He continued:

Why the news took anyone by surprise, however, is more of a mystery. After all, Insys had given investors fair warning, just days after a federal jury convicted five former employees of engaging in a racketeering conspiracy to boost opioid sales. The company said in a report filed with the Securities and Exchange Commission that “it may be necessary... to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring.”

In case that hint was too subtle, investors got another one last week, when Insys agreed to settle criminal and civil claims with the Justice Department for $225 million.

He forgot to mention another sign. In March we wrote:

Opioids (Long Professional Retentions)Insys Therapeutics Inc. ($INSY) has JMP Securities pursuing a divestiture of its fentanyl sublinqual spray, Subsys. The company revealed this week that Lazard has now also been hired. Per Reuters, a company spokesperson stated:

“We engaged Lazard thereafter to advise us on our capital planning and strategic alternatives across the business. These are two independent efforts.”

What kind of independent effort? Color us suspicious.

“Color us suspicious” was not-so-subtle code for “this f*cker is going to file for bankruptcy, people.” So, to Mr. Grant’s point, it should have been abundantly clear what was going to happen to any market follower actually paying attention.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: No funded debt.

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Ronit Berkovich, Candace Arthur, Olga Peshko, Brenda Funk, Ramsey Scofield, Peter Isakoff ) & (local) Richards Layton & Finger PA (John Knight, Paul Heath, Amanda Steele, Zachary Schapiro)

    • Board of Directors: John McKenna, Trudy Vanhove, Rohit Vishnoi, Vaseem Mahboob, Andrew Long, Elizabeth Bohlen

    • Financial Advisor: FTI Consulting Inc.

    • Investment Banker: Lazard Freres & Co. LLC (Andrew Yearley)

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

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors (McKesson Corporation, Infirmary Health Hospitals Inc., Louisiana Health Service & Indemnity Co. d/b/a Blue Cross and Blue Shield of Louisiana, LifePoint Health Inc., Deborah Fuller, Julie Kay, James Starling Jr., Angela Mistrulli-Cantone, Lisa Mencucci)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, Mitchell Hurley, Arik Preis) & (local) Bayard PA (Justin Alberto, Erin Fay, Daniel Brogan)

    • MDL Plaintiffs

      • Legal: Brown Rudnick LLP (David Molton, Gerard Cicero, Kenneth Aulet, Chelsea Mullarney, Steven Pohl) & Blank Rome LLP (Stanley Tarr, Victoria Guilfoyle) & Gilbert LLP (Scott Gilbert, Craig Litherland, Kami Quinn, Jenna Hudson)

Update 7/7/19 #244

New Chapter 11 Bankruptcy Filing - Hospital Acquisition LLC

Hospital Acquisition LLC

May 6 & 7, 2019

Texas-based Hospital Acquisition LLC and dozens of other affiliated companies operating in the acute care hospital, behavioral health and out-patient would care space have filed for bankruptcy in the District of Delaware.* The debtors operate 17 facilities in 9 states for a total of 865 beds; their revenue “derives from the provision of patient services and is received through Medicare and Medicaid reimbursements and payments from private payors.

Technically, this is a chapter 22. In 2012, the debtors’ predecessor reeled from the effects of Hurricane Katrina and reduced reimbursement rates and filed for bankruptcy. The case ended in a sale of substantially all assets to the debtors.

So, why is the company in bankruptcy again? Well, to begin with, re-read the final sentence of the first paragraph. That’s why. Per the company:

…internal and external factors have lead the Debtors to an unmanageable level of debt service obligations and an untenable liquidity position. In 2015, Medicare’s establishment of patient criteria to qualify as an LTAC-compliant patient facility led to significant reimbursement rate declines over the course of 2015 and 2016 as changes were implemented. Average reimbursement rates for site neutral patients, representing approximately 57% of 2016 cases, is estimated to drop from $23,000 to $9,000 across the portfolio. When rates declined sharply, the Debtors were unable to adjust. Further, the number of patients that now qualify by Medicare to have services provided in an LTAC setting has declined substantially, resulting in a significant oversupply of LTAC beds in the market.

To offset these uncontrollable trends, the company undertook efforts to convert a new business plan focused around, among other things, closing marginally performing hospitals and diversifying the business into post-acute care “to compete in the evolving value-based health care environment.” To help effectuate this plan, the debtors re-financed its then-existing revolver, entered into its $15mm “priming” term loan, and amended and extended its then-existing term loan facility. After this transaction, the company had total consolidated long-term debt obligations totaling approximately $185mm.

So, more debt + revised business plan + evolving macro healthcare environment = ?? A revenue shortfall, it turns out. Which put the debtors in a precarious position vis-a-vis the covenants baked into the debtors’ debt docs. Whoops. Gotta hate when that happens.

The debtors then engaged Houlihan Lokey to explore strategic alternatives and engaged their lenders. At the time of filing, however, the debtors do not have a stalking horse agreement in place; they do hope, however, to have one in place by mid-July.

*There are also certain non-debtor home health owners and operators in the corporate family that are not, at this time, chapter 11 debtors.

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $23.9mm RCF, $9.4mm LOCs, $15mm “Priming Term Loan” ($7.7mm funded), $136.8mm TL

  • Professionals:

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Scott Alberino, Kevin Eide, Sarah Link Schultz) & (local) Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Jaime Luton Chapman, Joseph Mulvihill, Betsy Feldman)

    • Financial Advisor: Houlihan Lokey Inc. (Geoffrey Coutts)

    • Investment Banker: BRG Capital Advisors LLC

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

  • Other Parties in Interest:

    • Equityholders: Monarch Master Funding Ltd., Twin Haven Special Opportunities Fund IV LP, Blue Mountain Credit Alternatives Master Fund LP, Merrill Lynch Pierce Fenner & Smith Inc., Oakstone Ventures Inc.

    • White Oak Healthcare Finance LLC

      • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & (local) The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

    • Marathon Asset Management

      • Legal: Ropes & Gray LLP (Matthew Roose)

    • Prepetition Term Loan Agents: Seaport Loan Products LLC & Wilmington Trust NA

      • Legal: Shearman & Sterling LLP (Ned Schodek, Jordan Wishnew) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill, D. Ryan Slaugh)

    • Official Committee of Unsecured Creditors

      • Legal: Greenberg Traurig LLP (David Cleary, Nancy Peterman, Dennis Meloro) & (local) Bayard PA (Justin Alberto, Erin Fay, Daniel Brogan)

Updated 5/18

New Chapter 11 Filing - Sungard Availability Services Capital Inc.

Sungard Availability Services Capital Inc.

May 1, 2019

Pennsylvania-based Sungard Availability Services Capital Inc., a provider of “critical production and recovery services to global enterprise companies,” with $977mm of net revenue and $203mm of EBITDA in fiscal 2018 filed a prepackaged chapter 11 plan in the Southern District of New York on Wednesday and, if you blinked, you may have missed its residency in bankruptcy. Indeed, some lost their minds because Kirkland & Ellis LLP was able to shepherd the case in and out of bankruptcy in less than 24 hours — breaking the previous record only recently set in FullBeauty. Yes, people care about these things.*

The upshot of this expeditious bankruptcy case is that (a) the company shed nearly $900mm of debt from its balance sheet (reducing debt down to approximately $400-450mm) and (b) transferred 89% ownership to a variety of debt-for-equity swapping funds such as GSO Capital Partners, Angelo Gordon & Co., and Carlyle Group (who will also receive $300mm in senior secured term loan paper). Major equity holders — Bain Capital Integral Investors LLC, Blackstone Capital Partners IV LP, Blackstone GT Communications Partners LP, KKR Millennium Fund LP, Providence Equity Partners V LP, Silver Lake Partners II LP, TPG Partners IV LP — had their equity wiped out. We had previously highlighted KKR’s investment here in “A Hot-Potato Plan of Reorganization. Short BDC Retail Exposure,” discussing the broader context of BDC lending. This is what the capital structure looks like and will look like:

Source: Disclosure Statement

Source: Disclosure Statement

That balance sheet is the driver behind the bankruptcy filing. Per the company:

This legacy capital structure was created based upon the Company’s historical operating model and performance and is unsustainable under current market conditions. When the capital structure was put in place, the Company benefited from a larger revenue base with substantially higher free cash flow. As business conditions evolved and the Company’s revenue declined, cash flow available to service debt and invest in products and services substantially declined. Consolidated net revenue declined by approximately 18% from approximately $1.2 billion in 2016 to approximately $977 million in 20188 while adjusted EBITDA margins remained within a range of approximately 20% to 22%. Negative net cash flow from 2016 to 2018 was approximately $80 million.

In other words, this is as clear-cut a balance sheet restructuring that you can get. Indeed, general unsecured claims are — as you might expect from a prepackaged plan of reorganization — riding through unimpaired. This consensual restructuring is clearly the right result. Getting it in and out of court so quickly is a bonus.

Yet, lest anyone get too high on their own supply, it’s important to note that, while this is a good result under the circumstances, there is a significant amount of value destruction illustrated by this filing. The term lenders are getting merely an estimated 50-73% recovery while the noteholders are getting 7-14%**. Now, it IS reasonable to expect that the “par guys” blew out of this situation long ago. And it is also reasonable to assume that the current holders of loans and notes got in at a significant discount so “value destruction” really is a matter of timing/pricing. For the avoidance of doubt, however, there’s no question that certain lenders experienced some pain on the path to this filing. Here is the chart representing the company’s notes:

Screen Shot 2019-05-03 at 11.12.24 AM.png

So, while some are surely celebrating, others are surely licking their wounds.

*We don’t really want to be too flip about this. As critics of the bankruptcy process, we’re all for seeing more efficient uses of the bankruptcy court — even if that does mean that fees were run up pre-petition without any oversight whatsoever.

**You always have to take these recovery amounts with a grain of salt. In case the rampant Chapter 22s haven’t already taught you that.

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

  • Capital Structure:

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Jonathan Henes, Emily Geier, Ryan Blaine Bennett, Laura Krucks

    • Board of Directors: Darren Abrahamson, Patrick J. Bartels Jr., Randy Hendricks, John Park, David Treadwell

    • Financial Advisor/CRO: AlixPartners LLP (Eric Koza)

    • Investment Banker: Centerview Partners (Samuel Greene)

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

  • Other Parties in Interest:

    • DIP Agent: JPMorgan Chase Bank NA

    • Secured Lender Group

      • Jones Day (Scott Greenberg, Michael Cohen, Nicholas Morin)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Crossover Group

      • Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Naomi Moss)

      • Financial Advisor: PJT Partners LP

    • Large Equityholders: Bain Capital Integral Investors LLC, Blackstone Capital Partners IV LP, Blackstone GT Communications Partners LP, KKR Millennium Fund LP, Providence Equity Partners V LP, Silver Lake Partners II LP, TPG Partners IV LP

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Jacob Adlerstein)

New Chapter 11 Filing - Hexion Holdings LLC

Hexion Holdings LLC

April 1, 2019

What we appreciate that and, we hope thanks to PETITION, others will eventually come to appreciate, is that there is a lot to learn from the special corporate law, investment banking, advisory, and investing niche labeled “restructuring” and “distressed investing.” Here, Ohio-based Hexion Holdings LLC is a company that probably touches our lives in ways that most people have no knowledge of: it produces resins that “are key ingredients in a wide variety of industrial and consumer goods, where they are often employed as adhesives, as coatings and sealants, and as intermediates for other chemical applications.” These adhesives are used in wind turbines and particle board; their coatings prevent corrosion on bridges and buildings. You can imagine a scenario where, if Washington D.C. can ever get its act together and get an infrastructure bill done, Hexion will have a significant influx of revenue.

Not that revenue is an issue now. It generated $3.8b in 2018, churning out $440mm of EBITDA. And operational performance is on the upswing, having improved 21% YOY. So what’s the problem? In short, the balance sheet is a hot mess.* Per the company:

“…the Debtors face financial difficulties. Prior to the anticipated restructuring, the Debtors are over nine times levered relative to their 2018 adjusted EBITDA and face annual debt service in excess of $300 million. In addition, over $2 billion of the Debtors’ prepetition funded debt obligations mature in 2020. The resulting liquidity and refinancing pressures have created an unsustainable drag on the Debtors and, by extension, their Non-Debtor Affiliates, requiring a comprehensive solution.”

This is what that capital structure looks like:

Screen Shot 2019-04-01 at 12.28.48 PM.png
Screen Shot 2019-04-01 at 12.29.02 PM.png

(PETITION Note: if you’re wondering what the eff is a 1.5 lien note, well, welcome to the party pal. These notes are a construct of a frothy high-yield market and constructive readings of credit docs. They were issued in 2017 to discharge maturing notes. The holders thereof enjoy higher priority on collateral than the second lien notes and other junior creditors below, but slot in beneath the first lien notes).

Anyway, to remedy this issue, the company has entered into a support agreement “that enjoys the support of creditors holding a majority of the debt to be restructured, including majorities within every tier of the capital structure.” The agreement would reduce total funded debt by $2b by: (a) giving the first lien noteholders $1.45b in cash (less adequate protection payments reflecting interest on their loans), and 72.5% of new common stock and rights to participate in the rights offering at a significant discount to a total enterprise value of $3.1b; and (b) the 1.5 lien noteholders, the second lien noteholders and the unsecured noteholders 27.5% of the new common stock and rights to participate in the rights offering. The case will be funded by a $700mm DIP credit facility.

*Interestingly, Hexion is a derivative victim of the oil and gas downturn. In 2014, the company was selling resin coated sand to oil and gas businesses to the tune of 8% of sales and 28% of segment EBITDA. By 2016, segment EBITDA dropped by approximately $150mm, a sizable loss that couldn’t be offset by other business units.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: See above.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Andrew Parlan, Hugh Murtagh, Caroline Reckler, Jason Gott, Lisa Lansio, Blake Denton, Andrew Sorkin, Christopher Harris) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele, Brendan Schlauch)

    • Managers: Samuel Feinstein, William Joyce, Robert Kaslow-Ramos, George F. Knight III, Geoffrey Manna, Craig Rogerson, Marvin Schlanger, Lee Stewart

    • Financial Advisor: AlixPartners LLP

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

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

  • Other Parties in Interest:

    • Ad Hoc Group of First Lien Noteholders (Angelo Gordon & Co. LP, Aristeia Capital LLC, Barclays Bank PLC, Beach Point Capital Management LP, Capital Research and Management Company, Citadel Advisors LLC, Contrarian Capital Management LLC, Credit Suisse Securities USA LLC, Davidson Kempner Capital Management LP, DoubleLine Capital LP, Eaton Vance Management, Federated Investment Counseling, GoldenTree Asset Management LP, Graham Capital Management LP, GSO Capital Partners LP, Heyman Enterprise LLC, Hotchkis and Wiley Capital Management LLC, OSK VII LLC, Pacific Investment Management Company LLC, Silver Rock Financial LP, Sound Point Capital Management LP, Tor Asia Credit Master Fund LP, UBS Securities LLC, Whitebox Advisors LLC)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Daniel Fisher, Naomi Moss, Abid Qureshi)

      • Financial Advisor: Evercore Group LLC

    • Ad Hoc Group of Crossover Noteholders (Aegon USA Investment Management LLC, Aurelius Capital Master Ltd., Avenue Capital Management II LP, Avenue Europe International Management, Benefit Street Partners LLC, Cyrus Capital Partners LP, KLS Diversified Asset Management LLC, Loomis Sayles & Company LP, Monarch Alternative Capital LP, New Generation Advisors LLC, P. Schoenfeld Asset Management LP)

      • Legal: Milbank LLP (Samuel Khalil, Matthew Brod)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Ad Hoc Group of 1.5 Lien Noteholders

      • Legal: Jones Day (Sidney Levinson, Jeremy Evans)

    • Pre-petition RCF Agent & Post-petition DIP Agent ($350mm): JPMorgan Chase Bank NA

      • Legal: Simpson Thacher & Bartlett LLP

    • Trustee under the First Lien Notes: U.S. Bank NA

      • Legal: Kelley Drye & Warren LLP (James Carr, Kristin Elliott) & (local) Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

    • Trustee of 1.5 Lien Notes: Wilmington Savings Fund Society FSB

      • Legal: Arnold & Porter Kaye Scholer LLP

    • Trustee of Borden Indentures: The Bank of New York Mellon

    • Sponsor: Apollo

    • Official Committee of Unsecured Creditors: Pension Benefit Guaranty Corporation; Agrium US, Inc.; The Bank of New York Mellon; Mitsubishi Gas Chemical America; PVS Chloralkali, Inc.; Southern Chemical Corporation; Wilmington Trust; Wilmington Savings Fund Society; and Blue Cube Operations LLC

      • Legal: Kramer Levin Naftalis & Frankel LLP (Kenneth Eckstein, Douglas Mannal, Rachael Ringer) & (local) Bayard PA (Scott Cousins, Erin Fay, Gregory Flasser)

      • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated:

👢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 - 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 - 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 - Egalet Corporation

Egalet Corporation

October 30, 2018

Pennsylvania-based publicly-traded specialty pharma company, Egalet Corporation ($EGLT), filed for chapter 11 bankruptcy in the District of Delaware — the latest in a mini-trend of specialty pharma companies to work their way into bankruptcy court (i.e., Orexigen Therapeutics Inc., Bind Therapeutics, Concordia).

The company intends to use the bankruptcy process to effectuate an acquisition of the assets of Iroko Pharmaceuticals Inc., a privately-held specialty pharma company focused on pain management therapies. The company and Iroko will enter into an asset purchase agreement in connection with and as part of a plan of reorganization, and Iroko will obtain 49% of the outstanding stock of the reorganized Egalet and $45mm of new senior secured notes. The acquisition will fortify the reorganized Egalet’s product-candidate lineup which already includes one anti-inflammatory nasal spray and one oral oxycodone formulation. This proposal is also supported by various holders of the company’s debt in the form of a restructuring support agreement.

But why is this company bankrupt in the first place? First, $128.6mm of debt taken on to fund (i) the development of commercial operations relating to the company’s approved products and (ii) R&D costs relating to product candidates. Also:

For the years ended December 31, 2017, 2016 and 2015, the Debtors reported net losses of approximately $69.4 million, $90.6 million and $57.9 million, respectively. These losses were a result of the Debtors’ continued investments in their commercialization capabilities, the Debtors’ research and development activities, the Debtors’ increasing debt service obligations and general difficulties in increasing the revenue generated from the Debtors’ marketed products, including challenges specific to the abuse-deterrent market such as shifting legislative and social responses to the opioid epidemic.

On account of all of this, the company got a Nasdaq delisting which triggered a “fundamental change” under the company’s converts which required the company to buy back its converts. Of course, the company didn’t have the ability to do so under its credit docs. Ruh roh. Enter restructuring professionals here.

The reorganized debtors will continue to operate under the Egalet name and will be positioned, post-acquisition, to market six commercial products. The company intends to use cash collateral to finance the cases and be out of bankruptcy within 95 days.

Among the companies largest shareholders are Highbridge Capital Management LLC, Broadfin Capital LLC, Deerfield Management Company LP, and Franklin Advisors Inc.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $128.6mm debt (see below)

  • Company Professionals:

    • Legal: Dechert LLP (Michael Sage, Brian Greer, Stephen Wolpert, Alaina Heine) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Sean Greecher)

    • Financial Advisor: Berkeley Research Group LLC

    • Investment Banker: Piper Jaffray & Co.

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

  • Other Parties in Interest:

    • Ad Hoc Secured Noteholder Committee

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Jacob Adlerstein, Adam Denhoff, Michael Turkel, Miriam Levi) & (local) Cozen O’Connor (Mark Felger, Simon Fraser)

    • Ad hoc committee of holders of the 5.50% Convertible Notes due 2020 and 6.50% Convertible Notes due 2024

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Byun, Erik Preis, Stephen Kuhn, Erica McGrady) & (local) Ashby & Geddes PA (Karen Skomorucha Owens)

    • Iroko Pharmaceuticals LLC

      • Legal: Baker & McKenzie LLP (Debra Dandeneau, Frank Grese III) & (local) Whiteford Taylor & Preston LLC (L. Katherine Good, Aaron Stulman)

Source: First Day Declaration

Source: First Day Declaration

New Chapter 15 Bankruptcy Filing - Noble Group Limited

Noble Group Limited

October 17, 2018

Noble Group Limited, an over-levered global commodity trader that deals in oil, nat gas, coal and metals, filed for chapter 15 protection in order to hinder U.S.-based creditors from obstructing the company’s proposed schemes of arrangement filed in the UK last week. The schemes seek to de-lever the company and recapitalize it with a combination of new debt and equity as well as a corporate reorganization that includes a transfer of assets to a new Bermudan holdco. The company hopes to effectuate the schemes by late November and has a restructuring support agreement in place with its creditors in order to do so.

  • Jurisdiction: S.D. of New York

  • Capital Structure: $2.29b RCF, 3.625% ‘18 senior notes, 6.75% ‘20 senior notes, 8.75% ‘22 senior notes

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Marc Kieselstein, Adam Paul, Catherine Jun, Gerardo Mijares-Shafai)

  • Other Parties in Interest:

    • Ad Hoc Group of Lenders

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

New Chapter 11 Bankruptcy Filing - NRG REMA LLC

NRG REMA LLC

October 16, 2018

NRG REMA LLC, an indirect subsidiary of bankruptcy veteran GenOn Energy Inc., has filed for bankruptcy to effectuate a prepackaged plan of reorganization supported by “REMA, the independent directors of GenOn (who are advised by independent advisors), the independent directors of REMA (who are advised by independent advisors), more than 90% of holders of those certain Series C Pass-Through Trust Certificates due 2026, Public Service Enterprise Group and the steering committee of GenOn noteholders.”

We don’t really have much to add so we’ll leave it at that.

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

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, David Seligman, Steven Serajeddini, W. Benjamin Winter, AnnElyse Scarlett Gibbons) & (local) Zack A Clement PLLC

    • Legal to Governance Committee of BOD: Akin Gump Strauss Hauer & Feld LLP

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Rothschild

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

  • Other Parties in Interest:

    • Lease Indenture Trustees and Pass Through Trustee

      • Legal: Hogan Lovells US LLP (Robert Ripin, Alex Sher)

    • Consenting PTC Holders

      • Legal: Paul Weiss Rifkind Garrison & Wharton LLP (Andrew Rosenberg, Elizabeth McColm, Alexander Woolverton)

New Chapter 11 Filing - Mission Coal Company LLC

Mission Coal Company LLC

October 14, 2018

For a recap, please see here.

  • Jurisdiction: N.D. of Alabama (Judge Mitchell)

  • Capital Structure: See below

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brad Weiland, Melissa Koss, Travis Bayer, Anne Gilbert Wallace, Francis Petrie, Ciara Foster, Michael Esser) & (local) Christian & Small LLP (Daniel Sparks, Bill Bensinger)

    • CRO/Financial Advisor: Zolfo Cooper LLC (Kevin Nystrom)

    • Investment Banker: Jefferies LLC

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

  • Other Parties in Interest:

    • First Lien Lenders and DIP Lenders

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Martin Brimmage, Lisa Beckerman, Lacy Lawrence, Allison Miller, Erik Preis, Jason Rubin) & (local) Burr & Forman LLP (Michael Leo Hall, D. Christopher Carson, Heather Jamison)

      • Financial Advisor: Houlihan Lokey Capital

    • United Mine Workers of America

      • Legal: Rumberger Kirk & Caldwell PC (R. Scott Williams, Frederick Darrell Clarke III, Robert Adams)

    • The United Mine Workers of America 1974 Pension Plan and the United Mine Workers of America 1993 Benefit Plan

      • Legal: Morgan Lewis & Bockius LLP (Rachel Mauceri, John Goodchild III) & (local) Quinn Connor Weaver Davies & Rouco LLP (Glen Connor, George Davies)

Source: First Day Declaration

Source: First Day Declaration

🚗New Chapter 11 Bankruptcy Filing - ATD Corporation🚗

ATD Corporation

10/4/18

Recap: Please see here.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: See below.

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Chad Husnick, Spencer Winters, Joshua Greenblatt, Jacob Johnston, Mark McKane, Jaimie Fedell, Andre Guiulfo) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Jones, Timothy Cairns, Joseph Mulvihill)

    • Financial Advisor: AlixPartners LLP (James Mesterharm)

    • Investment Banker: Moelis & Co. (Adam Keil)

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

  • Other Parties in Interest:

    • Term Lender Committee

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Aidan Synnott, Jacob Adlerstein, Michael Turkel, David Giller, Oksana Lashko, Eugene Park, Jacqueline Rubin) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Andrew Magaziner)

      • Financial Advisor: Houlihan Lokey

    • DIP Agent and Pre-Petition ABL Agent (Bank of America)

      • Legal: Parker Hudson Rainer & Dobbs LLP (C. Edward Dobbs, Eric W. Anderson, James S. Rankin Jr., Jack C. Basham) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch)

    • DIP FILO Lenders & Consenting Noteholders

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss) & (local) Pepper Hamilton LLP (Evelyn Meltzer, Kenneth Listwak)

      • Financial Advisor: PJT Partners

    • Indenture Trustee: Ankura Trust Company LLC

      • Legal: King & Spalding LLP (Jeffrey Pawlitz, David Zubricki, Jared Zajec) & (local) Chipman Brown Cicero & Cole, LLP (William E. Chipman, Jr., Mark D. Olivere)

    • Michelin North America Inc.

      • Legal: Nelson Mullins Riley & Scarborough LLP (George B. Cauthen, Jody A. Bedenbaugh, Shane Ramsey) & (local) Bayard PA (Justin Alberto, Evan Miller)

    • Cooper Tire & Rubber Company

      • Legal: Jones Day (Timothy Hoffmann) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, D. Ryan Slaugh)

    • Sponsor: Ares Management

      • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Adam Moses)

    • Sponsor: TPG Capital

      • Legal: Weil Gotshal & Manges LLP (Ryan Dahl, Natasha Hwangpo)

Screen Shot 2018-10-05 at 5.21.43 PM.png

New Chapter 11 Filing - Open Road Films LLC

Open Road Films LLC

9/6/18

Rough year for movie production houses. After Relativity Media and The Weinstein Company filed chapter 11 cases earlier this year, Open Road Films LLC now finds itself in bankruptcy court. The company behind Jobs, Nightcrawler and other mostly forgettable films has had a dramatic fall from grace after being acquired by current equityholder TMP Holdings from Regal Entertainment Group and AMC Entertainment merely a year ago. Though contemplated at the time of acquisition, the company was unable to secure funding to, among other things, restructure the company (in the out-of-court sense) and streamline operations. The question is why? Why couldn't the company secure funding? 

The company notes:

Among other things, increased volatility in overall film performance exacerbated investor concerns regarding the probability and predictability of studio financial success, especially outside of the major studios. This overall volatility was exacerbated by the specific underperformance of certain of the Company’s recent motion picture releases, most of which were initiated by prior management. In addition, competitive options for consumers limit interest in theatrical distribution and the traditional film business model, imposing additional pressure on companies like the Debtors, and further fueling investor skepticism.

In other words, blame Reese Witherspoon ("Home Again" flopped), Jodie Foster ("Hotel Artemis" completely bombed) and Netflix ($NFLX). 

With no incoming funding and a resultant inability to obtain a "going concern" qualification, the company defaulted on its loan with Bank of America. BofA, therefore, limited access to certain deposit accounts, all the while vendors were seeking payments. Already this drama is more interesting than "Home Again." 

The company intends to use the chapter 11 process to market and sell its assets; it does not yet have a stalking horse bidder, though FTI reports that 11 parties have submitted indications of interest. 

The top 40 general unsecured creditors list is a who's who of media elites, including "old media" firms like Viacom Inc. (owed $7mm), The Walt Disney Company (owed $5.1mm), NBCUniversal (owed $4.4mm), Turner Broadcasting System (owed $3.5mm). Other top creditors include Google, Facebook, Snap, Twitter, Amazon, Spotify, and Pandora Media. And Latham & Watkins, which appears to be getting hosed on a half million dollar legal bill. 

  • Jurisdiction: D. of Delaware (Judge Silverstein)
  • Capital Structure: $90.75 mm secured debt (Bank of America NA)     
  • Company Professionals:
    • Legal: Klee Tuchin Bogdanoff & Stern LLP (Michael Tuchin, Jonathan Weiss, Sasha Gurvitz, Whitman Holt) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Robert Poppiti Jr., Ian Bambrick)
    • Financial Advisor/CRO: FTI Consulting Inc. (Amir Agam)
    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Lender: Bank of America NA
      • Legal: Paul Hastings LLP (Andrew Tenzer, Shlomo Maza) & (local) Ashby & Geddes PA (William Bowden)
    • Prepetition Creditor: East West Bank
      • Legal: Akin Gump Strauss Hauer & Feld LLP (David Staber) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
    • Prepetition Creditor: Bank Leumi USA
      • Legal: Reed Smith LLP (Marsha Houston, Christopher Rivas, Michael Sherman

New Chapter 22 Filing - Geokinetics Inc.

Geokinetics Inc.

6/25/18

Just when we thought companies had mysteriously figured out how to stay out of bankruptcy court, alas, a filing!

And just when we thought oil and gas-related distress had ridden off into the proverbial Texan sunset, in walks Houston-based geophysical services provider Geokinetics Inc. into the Southern District of Texas with a plan to sell substantially all of its assets to (one-time bankruptcy candidate) SAE Exploration Inc. for $20mm. Looks like the oil and gas downturn still has some appetite for prey. And it must be tasty prey: this is the second time in four years that this company is in bankruptcy. #Scarlet22. Indeed, this company is so good at bankruptcy that, the first time, it emerged from chapter 11 a full year before it even confirmed its plan!! From paragraph 24 of the First Day Declaration:

"On March 10, 2014, GOK and certain affiliated subsidiaries confirmed a prepackaged chapter 11 plan of reorganization in the District of Delaware. Pursuant to the Plan, GOK equitized over $300 million of debt and paid off its revolving credit facility. On May 10, 2013, GOK and certain affiliated subsidiaries emerged from chapter 11."

And we thought Westworld had mind-bending timelines. Whoops. 

The company blames the prolonged downturn and certain discreet "operational difficulties" that resulted in uncollectable receivables for its bankruptcy. Wanting to jump ship as the iceberg approached, Wells Fargo sought to minimize its exposure but the company and its bankers, Moelis, weren't able to find a suitable secured loan facility to refinance its revolving loan. So Moelis toggled to "strategic alternatives" mode which, seemingly, included dumping this turd on unsuspecting public equity investors as the company -- under the guidance of Fried Frank Harris Shriver & Jacobson -- filed a confidential S-1 under the JOBS Act. Sounds a lot like Domo Inc. Or Tintri Inc., for that matter. #HailMary

Obviously the company didn't IPO. Instead, it continued to bleed cash. Ascribe Capital replaced Wells Fargo and funded bridge loans for some time until they were no longer willing to perform triage. The company and its advisors stepped on the gas, lined up the stalking horse bidder, and secured interest in a $15mm DIP credit facility -- from Whitebox Advisors and Highbridge Capital, two funds that are stakeholders in the stalking horse bidder -- and filed for bankruptcy. The proceeds of the DIP will be used, in part, to pay off Ascribe's bridge loans. 

Meanwhile, remember that IPO? It seems the company thought that that was a gigantic waste of time: among the top creditors are Fried Frank Harris Shriver & Jacobson LLP and Moelis & Co. ($MO). Savage. 

  • Jurisdiction: S.D of Texas (Judge Jones)
  • Capital Structure: $15.6mm Term Loan A (Ascribe Capital, Wilmington Trust), $6.8mm RCF (Ascribe Capital, Wilmington Trust)
  • Company Professionals:
    • Legal: Porter & Hedges LLP (John Higgins, Joshua Wolfshohl, Aaron Power)
    • Financial Advisor: FTI Consulting Inc. 
    • Investment Banker: Moelis & Co. 
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Ascribe Investments LLC
      • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin, Bryce Friedman, Randi Lynn Veenstra, Megan Tweed, Sandeep Qusba, Yun Joo Lim) & (local) Haynes and Boone LLP (Charles Beckham Jr., Martha Wyrick)
    • SAExploration Inc.
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Sarah Link Schultz, Eric Seitz)
    • DIP Lenders: Whitebox Advisors LLC, Highbridge Capital Management LLC
      • Legal: Brown Rudnick LLP (Andreas Andromalos, Steven Levine, Jeffrey Jonas, Robert Stark, Kimberly Cohen)

Updated 6/26 6:54 PT

New Chapter 11 Filing - R.E. Gas Development LLC (a/k/a Rex Energy)

R.E. Gas Development LLC

5/18/18

Pennsylvania-based R.E. Gas Development LLC and its affiliates are independent publicly-traded ($REXX) oil and gas companies operating in the Appalachian Basin with a focus on drilling and exploration activity in the Marcellus Shale, Utica Shale and Upper Devonian Shale, mostly throughout Western Pennsylvania. Like most other exploration and production companies that have found their way in bankruptcy court over the last several years, the sudden steep decline in crude oil and nat gas prices that began in 2014 significantly affected the company's liquidity and ability to manage its balance sheet. After all, this company isn't operating in the Permian. Revenues for 2017 were $205.3 million. 

After months and months of foreplay, the company enters bankruptcy court with a restructuring support agreement ("RSA") in tow: it provides for a dual path pursuant to which the company will, in agreement with its secured lenders, pursue a sale of substantially all assets or, in the absence of qualified bids, pursue a plan process pursuant to which the first lien lenders (i.e., Angelo Gordon) will swap (DIP) debt for equity in the reorganized company. The RSA purportedly has the support of 100% of the first lien lenders and 71.8% of the outstanding second lien notes.

To fund the company throughout the dual process, the company seeks a $411 million DIP credit facility, the proceeds of which will be used to (i) roll up $261 million of prepetition loans and (ii) settle the "makewhole provision" under the first lien credit agreement to the tune of $50 million. The makewhole was put into place at the time of the issuance of the first lien loan just short of a year ago.  For the uninitiated, the makewhole entitles the lender to certain economics in the event the lenders are "repaid in whole or in part prior to the maturity date or the outstanding indebtedness under the facility is accelerated for any reason." The economics are calculated "based on the sum of remaining interest payments and certain fees due on all loans for the remainder of the make whole period, which terminates on October 28, 2019." In other words, Angelo Gordon structured this to give themselves the utmost economics in the (highly likely) case of an event of default and eventual bankruptcy. Solid planning on their part -- assuming, in particular, that the assets fetch a purchase price that will clear the first lien debt and makewhole amount. Respect. 

So, lo and behold, there was an event of default called in February for failure to deliver quarterly financial statements (which led to other defaults as well). In April, the lenders, after a short forbearance period, issued a notice of acceleration. Cha ching! Makewhole!!

The DIP credit agreement imposes fairly expedited -- but not wholly unreasonable (relative to other recent cases) -- timing on the company, including closing of any sale or confirmation of a plan 170 days after the filing date. 

  • Jurisdiction: W.D. of Pennsylvania (Judge Deller)
  • Capital Structure: see below.
  • Company Professionals:
    • Legal: Jones Day (Scott Greenberg, Tom Howley, Michael Cohen, Anna Kordas, Rachel Biblo Block) & (local) Buchanan Ingersoll and Rooney PC (James Newell, Timothy Palmer, Tyler Dischinger)
    • Financial Advisor: FTI Consulting Inc. (Albert Conly)
    • Investment Banker: Perella Weinberg Partners (Alexander Tracy)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition First Lien Admin Agent: Angelo Gordon Energy Servicer
      • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin) & (local) Duane Morris LLP
      • Financial Advisor: PJT Partners
    • Informal Group of 1%/8% Senior Secured Second Lien Notes due 2020 of Rex Energy Corporation
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Stamer, Meredith Lahaie, Stephen Kuhn, Kevin Zuzolo) and (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
      • Financial Advisor: Stephens Inc.
    • Wilmington Savings Fund Society FSB
      • Legal: Morrison & Foerster LLP (Jonathan Levine, Daniel Harris) & (local) Reed Smith LLP (Eric Schaffer, Maura McIntyre)
    • BOKF, National Association
      • Legal: Arent Fox LLP (Andrew Silfen, George Angelich, Jordana Renert) & (local) Federic Dorwart, Lawyers PLLC (Samuel Ory)
    • Official Committee of Unsecured Creditors
      • Legal: Brown Rudnick LLP (Robert Stark, Chelsea Mullarney, Sigmund Wissner-Gross, Brian Rice, Steven Pohl, Andrew Carty, Bennett Silverberg, Chelsea Mullarney, Emily Koruda, Justin Cunningham) & (local) Leech Tishman Fuscaldo & Lampl LLC (Patrick Carothers, David Lampl, John Steiner)
      • Financial Advisor: Conway MacKenzie Inc. (John Young Jr.)
Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 Filing - Nine West Holdings Inc.

Nine West Holdings Inc.

April 6, 2018

Nine West Holdings Inc., the well-known footwear retailer, has finally filed for bankruptcy. The company will sell its Nine West and Bandolino brands to Authentic Brands Group and reorganize around its One Jeanswear Group, The Jewelry Group, the Kasper Group, and Anne Klein business segments. The company has a restructuring support agreement in hand to support this dual-process. 

More on the situation here

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

  • Capital Structure: See below.

Source: First Day Declaration

Source: First Day Declaration

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, James Stempel, Joseph Graham, Angela Snell, Anna Rotman, Jamie Aycock, Justin Alphonse Mercurio, Alyssa Russell)

    • Financial Advisor: Alvarez & Marsal North America LLC (Ralph Schipani III, Julie Hertzberg, Holden Bixler, Amy Lee, Richard Niemerg, Theodore Langer, Stuart Loop, Thomas Koch, Michael Dvorak)

      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc, Alexander Lees)

    • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Ari Lefkovits, David Hales, Mike Weitz, Nikhil Angelo, Okan Kender, Abigail Gay, Drew Deaton) & Consensus Advisory Services LLC

    • Authorized Officers: Stefan Kaluzny, Peter Morrow, Harvey Tepner, Alan Miller

    • Legal to the Authorized Officers: Munger Tolles & Olson LLP (Seth Goldman, Kevin Allred, Thomas Walper)

    • Financial Advisor to the Authorized Officers: Berkeley Research Group LLC (Jay Borow)

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

  • Other Parties in Interest:

    • Stalking Horse Bidder/Buyer: Authentic Brands Group

      • Legal: DLA Piper LLP (Richard Chesley, Ann Lawrence, Rachel Ehrlich Albanese)

    • Prepetition ABL and FILO Agent: Wells Fargo NA

      • Legal: Morgan Lewis & Bockius LLP (Matthew Ziegler, Julia Frost-Davies, Amelia Joiner)

    • Administrative Agent for the prepetition secured and unsecured Term Loan Facilities: Morgan Stanley Senior Funding Inc.

    • Indenture Trustee for 3 series of Unsecured Notes: US Bank NA

      • Legal: White & Case LLP (J. Christopher Shore, Philip Abelson) & Seward & Kissel LLP (John Ashmead, Arlene Alves)

    • Ad Hoc Group of Secured Lenders (Farmstead Capital Management LLC, KKR Credit Advisors (US) LLC)

      • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Darren Klein, Adam Shpeen)

      • Financial Advisor: Ducera Partners LLC

    • Ad Hoc Group of Crossover Lenders (Alden Global Capital LLC, Carlson Capital LP, CVC Credit Partners LLC, Silvermine Capital Management LLC, Trimaran Advisors)

      • Legal: King & Spalding LLP (Michael Rupe, Jeffrey Pawlitz, Michael Handler, Bradley Giordano)

      • Financial Advisor: Guggenheim Securities LLC

    • Brigade Capital Management, LP

      • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannel, Rachael Ringer)

      • Financial Advisor: Moelis & Company

    • Ad Hoc Group of 2019 Unsecured Noteholders (Whitebox Advisors LLC, Scoggin Management LP, Old Bellows Partners LP, Wazee Street Opportunities Fund IV)

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

    • Ad Hoc Group of 2034 Unsecured Noteholders

      • Legal: Jones Day

      • Financial Advisor: Houlihan Lokey

    • Administrative Agent for $247.5mm DIP ABL Facility

    • Administrative Agent for $50mm DIP TL Facility

    • Sponsor: Sycamore Partners LP

      • Legal: Proskauer Rose LLP (Mark Thomas, Peter Young, Michael Mervis, Jared Zajac, Chantel Febus, Alyse Stach)

    • KKR Asset Management

      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc)

    • Morgan Stanley & Co. LLC and Morgan Stanley Senior Funding Inc.

      • Legal: Ropes & Gray LLP (Gregg Galardi, Gregg Weiner)

    • Official Committee of Unsecured Creditors (Aurelius Capital Master Ltd., GLAS Trust Company LLC, PBGC, Simon Property Group, Stella International Trading (Macao Commercial Offshore) Ltd., Surefield Limited, U.S. Bank NA)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, David Zensky, Deborah Newman, Arik Preis, Jason Rubin, Anthony Loring, Michael Byun, Patrick Chen)

      • Legal Conflicts Counsel: Kasowitz Benson Torres LLP (David Rosner, Howard Schub)

      • Financial Advisor: Protiviti Inc. (Guy Davis, Suzanne Roski, Heather Williams, John Eldred, Justin Koehler, Brian Taylor, Russell Brooks, Matthew Smith, Blake Parker, Lee Slobodien, Omkar Vale, Lok Lam, Sean Sterling) & Province Inc. (Michael Atkinson, Jason Crockett, Eunice Min, Byron Groth)

      • Investment Banker: Houlihan Lokey Capital Inc. (Saul Burian, Surbhi Gupta, Chris Khoury, Tejas Kullarwar, Matt Ender, Brendan Wu)

Updated 11/3/18 at 6:42 am CT

New Chapter 11 Filing - EV Energy Partners L.P.

EV Energy Partners L.P.

4/2/18

Assuming this filing has adhered to its previously announced Restructuring Support Agreement, this is pretty boring and so we'll just let the company's March press release speak for itself:

"...the Plan, which is subject to confirmation by the Bankruptcy Court, contemplates the equitization of all of the Company’s Senior Notes and the entry into an amended reserve-based lending facility with the Company’s existing lenders. Additionally, the Plan contemplates that suppliers, customers and other holders of general unsecured claims will be paid in full in the ordinary course of business and otherwise be unimpaired. The Company does not plan to reject any of its existing contracts as part of the restructuring."

The noteholders are agreeing to equitize the senior notes in exchange for 95% of the equity in the reorganized company. The upshot of this is that the company will eliminate $343 million of debt and debt-related obligations. 

Because no contracts will be rejected under section 363 of the Bankruptcy Code, all suppliers, service providers, customers, employees, royalty and working interest obligation holders will be paid in full in the ordinary course. Due to the company's Master Limited Partnership structure, however, stock holders will get hit by some "CODI" or "Cancellation of Debt Income" which ought to make for an interest tax filing. To alleviate some of that chafe, the company is offering 5% of the reorganized equity and warrants to the stock holders. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: ~$297 million RBL (funded, JPMorgan Chase Bank NA), ~$356 million 8.0% '19 senior notes (Delaware Trust Company)   
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Joshua Sussberg, Jeremy David Evans, Brad Weiland, Travis Bayer) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones)
    • Financial Advisor: Perella Weinberg Partners LP 
    • Restructuring Advisor: Deloitte & Touche LLP
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Ad Hoc Group of Senior Noteholders
      • Legal: Akin Gump Strauss Hauer & Feld LLP
      • Financial Advisor: Intrepid Partners LLC 
    • RBL Lenders
      • Legal: Simpson Thacher & Bartlett LLP
      • Financial Advisor: RPA Advisors, LLC
    • Consenting Sponsor:
      • EnerVest, Ltd. and EnerVest Operating, L.L.C.

Will Update if Filing Differs from Advertised. 

New Chapter 11 Filing - FirstEnergy Solutions Corp.

FirstEnergy Solutions Corp. 

March 31, 2018

#MAGA!!

FirstEnergy Solutions Corp. ("FES"), the wholly-owned subsidiary of publicly-traded (non-debtor) FirstEnergy Corp. has filed a "freefall" bankruptcy in the Northern District of Ohio. FES is a provider of "unregulated"-yet-regulated energy-related products and services to retail and wholesale customers primarily in Illinois, Maryland, Michigan, New Jersey, Ohio and Pennsylvania. It owns and operates (a) fossil generating facilities (read: coal) in Ohio (three) and Philadelphia (one) through its FirstEnergy Generation subsidiary ("FG") and, (b) 3 nuclear generating facilities (two in Ohio and one in Philadelphia)through its FirstEnergy Nuclear Generation LLC ("NG") subsidiary. 

For those of you who aren't power geeks - and we confess that we are not - this filing gives a pretty solid primer on how United States' power production and distribution works. Or doesn't work - depending on your point of view, we suppose. We summarize some high points here but if you're especially nerdy and want to understand the power industry better, read docket number 55. You can find it via the case name link above. 

A big piece of this bankruptcy filing is the debtors' retail electricity business. Retail sellers of electricity are subject to state-applied "Renewable Portfolio Standards" ("RPS") that requires sellers to obtain a certain percentage or amount of its power supply from renewable energy sources. One way to comply is through the purchase of renewable energy credits ("RECs"). Historically, FES has obtained RECs to comply with the RPS via eight power purchase agreements entered into between 2003-2011 with various wind and solar power producers. But apparently things have changed considerably since then. And FES no longer wants the RECs. 

What's changed? Now FES's actual and projected sales are much lower. Per the company in more detail: 

"The main drivers to the collapse in prices include:
• Lower natural gas prices due to continued improvements in natural gas fracking;
• Excess generating capacity due in part to lower than expected load growth;
• Lower cost of construction for renewable technologies, and/or improved performance (e.g., higher capacity factors); and
• Surplus of RECs."

Also, future market prices and outlook for power and RECs are projected materially lower. RPS mandates are less demanding (#MAGA!!). And the supply of RECs is significantly greater. Said another way: energy disruption. From frackers pushing a rapid expansion in nat gas supplies which, in turn, caused plummeting electricity prices and reduced profits. From regulation and the rise of renewables. From energy efficient electronics. 

Per the company, "While the PPAs made sense to FES at the time they were entered into, a dramatic downturn in the energy market and prices of RECs now renders these contracts extremely burdensome and uneconomic to FES." They're also, according to the debtor, unnecessary: FES is phasing out its retail business and, today, expects to sell less than half of the amount of power this year that it sold in 2013. Consequently, FES seeks to reject those PPAs in bankruptcy.

Which is not the only PPA it seeks to reject. The debtor also seeks to shed its multi-party intercompany PPA pursuant to which it and several other power companies purchase power generated via fossil fuel from the Ohio Valley Electric Corporation ("OVEC"). The debtor alleges that this obligation is priced at above-market rates. And because FES sells very little wholesale power emanating out of the OVEC PPA, it stands to lose approximately $268 million from the deal. Yikes. 

The issue, though, is whether the rejection of the nine PPAs will cause disruption to the continued supply of wholesale electricity or impact the reliability of the transmission grid in the regional transmission organization that governs FES and FG. That generally means YOUR electricity - if you live in the Northeast. Naturally, the debtor argues it won't. The federal government may think otherwise. And this is precisely why the company filed an action seeking a declaratory judgment and injunction against the Federal Energy Regulatory Commission ("FERC") to prevent the feds from hindering -- on the basis of the Federal Power Act -- the company's attempts to reject the PPAs under the federal bankruptcy code. FERC regulates the wholesale power market. It is also why the company has filed a request for assistance from Rick Perry, President Trump's Energy Secretary. This is some real dramatic sh*t folks: a conflict between federal statutes with efforts for executive branch intervention. Someone dial up Daniel Day-Lewis and bring him out of retirement: this could be the next "Lincoln." 

So, in a nutshell: the company filed for bankruptcy because it needs to leverage the bankruptcy code's debtor-friendly provisions to shed some burdensome contracts - including the PPAs. It also needs to address its cost structure, its over-levered balance sheet (in terms of interest payments and near-term maturities), and lease payments under certain sale-leaseback arrangements related to one of its power facilities. Said another way, this is a full-stop restructuring: both operational and financial in nature. There is a "Process Support Agreement" with various parties in interest which reflects a good faith commitment to cooperate on first day motions, implementation of employee retention and severance programs, and establishing a protocol for the disposition of company assets. Sounds great but it doesn't really promise any certainty given the various claims and regulatory issues. Buckle your seat belts. 

Some additional things of note:

  • "Just when I thought I was out, they pull me back in!" (Long Don Corleone). Ironically in the week that Westinghouse Electric Corp. emerged out of its own bankruptcy proceeding, it may now find itself back in bankruptcy court for purposes of adjudicating its $2.36 million trade claim.
  • Coal (#MAGA!!). A first order of business is the debtor is seeking to reject its coal transportation agreements with BNSF Railway Company ((owned by Berkshire Hathaway ($BRK.A)) and Norfolk Southern Railway Company ($NSC). Why? It expects to order 200,000 tons of coal less than the 2.5 million tons of coal minimum requirement delineated in the contract. The debtor claims that rejection of the contract will save it $105.6 million over the next 12 months as it replaces rail with barge transportation. 
  • Commodities. The company also seeks to reject certain uranium supply contracts because (i) it already has enough uranium inventory for the rest of 2018 and 2019, (ii) the spot price for uranium has dropped precipitously since entering into the agreements (from $36 and $48 per pound, respectively, to $22 per pound), and (iii) there is "ample supply of uranium available in the market." 
  • Professional Retentions: Two law firms represent the Ad Hoc Group of Holders of the 6.85% Pass Through Certificates due 2034 because George Davis departed O'Melveny & Myers LLP for Latham & Watkins LLP. 
 
  • Jurisdiction: N.D. of Ohio (Judge Koschik)
  • Capital Structure: $3.8 billion funded debt     
    • FES

      • $700 million secured revolving credit facility, ~$332 million of '21 6.05% unsecured notes; (c) ~$363 million of '39 6.80% unsecured notes; and (d) $150 million revolving credit note with Allegheny Energy Supply Company, LLC under which $102 million is currently outstanding and is due on April 2, 2018. 

    • FG

      • ~$328 million of secured fixed-rate pollution control revenue notes ("PCNs"); ~$677 million of unsecured fixed-rate PCNs

    • NG

      • ~$285 million of secured PCNs; ~$842 million of unsecured PCNs

  • Company Professionals:
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Lisa Beckerman, Brad Kahn, Scott Alberino, Kate Doorley, David Applebaum, Todd Brecher, Sean O'Donnell, Rachel Presa, Brian Carney, Abid Qureshi, Joseph Sorkin, David Zensky) & (local) Brouse McDowell LPA (Marc Merklin, Kate Bradley, Bridget Franklin) & (conflicts) Willkie Farr & Gallagher LLP
    • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Charles Moore)
    • Investment Banker: Lazard Ltd. 
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
    • Special Nuclear Regulatory Counsel: Hogan Lovells US LLP
    • Industry Consultants: ICF International Inc.
    • Special Litigation Counsel: Quinn Emanuel Urquhart & Sullivan LLP
    • Tax Consultant: KPMG US LLP
    • Communications Consultant: Sitrick and Company
  • Other Parties in Interest:
    • Board of Directors of FirstEnergy Corp. 
      • Legal: Squire Patton Boggs (US) LLP (Stephen Lerner, Peter Morrison, Julia Furlong)
    • Wilmington Savings Fund Society FSB
      • Legal: KIlpatrick Townsend & Stockton LLP (Todd Meyers, Michael Langford) & (local) McDonald Hopkins LLC (Michael Kaczka, Scott Opincar, Maria Carr)
    • Indenture Trustee: Bank of New York Mellon Trust Company, N.A.
    • Indenture Trustee to PCNs: UMB Bank, National Association
    • Ad Hoc Group of Holders of the 6.85% Pass Through Certificates due 2034
      • Legal: O'Melveny & Myers LLP & Latham & Watkins LLP
      • Financial Advisor: Guggenheim Partners LLC
    • Ad Hoc Group of Holders of PCNs issued by FG and NG
      • Legal: Kramer Levin Naftalis & Frankel LLP 
      • Financial Advisor: GLC Advisors & Co.
    • Contract Counterparty: BNSF Railway Company
      • Legal: Whitmer & Eherman LLC (Mary Whitmer, James Ehrman, Robert Stefancin)
    • Non-debtor Parent: FirstEnergy Corp.
      • Legal: Jones Day (Heather Lennox, Thomas Wilson)