New Chapter 11 Bankruptcy Filing -- FTD Companies Inc.

FTD Companies Inc.

June 3, 2019

After the issuance of Illinois-based FTD Companies Inc’s ($FTD) most recent 10-K, everyone and their mother — well, other than maybe United Parcel Service Inc. ($UPS)* — knew that FTD was headed towards a bankruptcy court near you. It arrived.

The company is a floral and gifting company operating primarily within the United States and Canada; it (and its affiliated debtors) specializes in providing floral, specialty foods, gift and related products to consumers (direct-to-consumer), retail florists and other retail locations. The company basks in the glory of its “iconic” “Mercury Man” logo, which it alleges is “one of the most recognized logos in the world.” Seriously? Hyperbole much?🙄

Maybe…not? This, for any sort of history nerd, is actually pretty interesting:

Originally called "Florists' Telegraph Delivery Association," FTD was the world's first flowers-by-wire service and has been a leader in the floral and gifting industry for over a century. The Debtors' story began in 1910 when thirteen American retail florists agreed to exchange orders for out-of-town deliveries by telegraph, thereby eliminating prohibitively lengthy transit times that made sending flowers to friends and relatives in distant locations almost impossible. The idea revolutionized the industry, and soon independent florists all over America were telegraphing and telephoning orders to each other using the FTD network. In 1914, FTD adopted the Roman messenger god as its logo and, in 1929, copyrighted the Mercury Man® logo as the official trademark for FTD.

This company is only slightly younger than Sears (1893). And so this bankruptcy filing is a bigger deal than meets the eye. This company revolutionized flower delivery, regularly innovating and expanding its reach over its decades in business. In 1923, FTD expanded to Britain. In 1946, FTD, FTD Britain and a European clearinghouse established what is now known as Interflora to sell flowers-by-wire around the world. In 1979, the company launched an electronic system to link florists together; and in 1994, it launched its first e-commerce site. In other words, this company always tackled the “innovator’s dilemma” head on, pivoting regularly over time to seize opportunities whenever and wherever they emerged. For quite some time, this was, at least for some time, an impressive operation — seemingly always one step ahead of disruption. WE ALL LIKELY TAKE FOR GRANTED JUST HOW EASY IT IS TO DELIVER FLOWERS THESE DAYS. These guys helped make it all possible. If ever a debtor was in need of a hype man, this company is it. A read of the bankruptcy papers barely gives you a sense for the history and legacy of this company.

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Interestingly, for much of its history, the company was actually a not-for-profit. That’s right: a not-for-profit. Per the company:

For the majority of its existence, FTD operated as a not-for-profit organization run by its member florists. With the florists as its core, the Debtors' legacy business provided a powerful mix of a "local," authentic, and bespoke product, broad geographic range, and a commitment to exacting standards of quality and service. Moreover, the Debtors historically were devoted to creating an optimal product for their florist network, including through investment in innovation and technology and marketing the FTD brand and the floral industry overall. As a result, florists sought out FTD membership, and the FTD brand had (and still has) significant caché in the industry.

Amazing!

So what the hell happened? Well, the blood-sucking capitalists arrived knocking. Now-defunct Perry Capital acquired FTD in 1994 (the same year that the company established its web presence) and converted the company into a for-profit corporation. In 2000, the company IPO’d and in 2008, United Online (now owned by B.Riley Financial $RILY), merged with the company in a $800mm transaction consummated just prior to the financial crisis. Then, in 2013, FTD spun off from United Online, once again becoming a publicly-traded company on the NASDAQ exchange.

Throughout the company’s evolution, it pursued a strategy of dominating the floral market via strategic acquisitions (and, in the process, drew antitrust scrutiny a handful of times). In 2006, it acquired Interflora and in 2014, it acquired Provide Commerce LLC (ProFlowers) in a $430mm cash and equity transaction. The purchase was predicated upon uniting FTD’s B2B “Florist” business (read: FTD-to-retail-florists) and B2C (read: FTD-direct-to-consumer) businesses with Provide Commerce’s B2C model in such a way that would (i) offer customers greater choice, (ii) provide the company with expanded geographic and demographic reach, and (iii) promote cross-selling possibilities. Per the company:

…FTD anticipated that the Provide Acquisition would generate significant cost synergies through efficiencies in combined operations.

Ah, synergies. Is there anything more romantic than the thought of ever-elusive synergies?

The company incurred $120-200mm of debt to finance the transaction.** You know where this is headed. If not, well, please allow the company to spell it out for you:

Though the Provide Business Units have increased the Debtors' revenue (the Provide Business Units currently contribute more than 50% of the Debtors' total revenue) … certain shifts in the market, technological changes, and improvident strategic outcomes in connection with the implementation of the Provide Acquisition combined to (a) frustrate expectations regarding the earnings of the combined entity and (b) impair the Debtors' ability to refinance near-term maturities, which has driven the Debtors' need to commence these chapter 11 cases.

That sure escalated quickly. 😬

Let’s take a moment here, however, to appreciate what the company attempted to do. In the spirit of its long-time legacy of getting out ahead of disruption, the company identified a competitor that was quickly disrupting the floral business. Per the company:

ProFlowers had entered the floral industry as a disruptor by reimagining floral delivery to consumers. Unlike the Debtors' "asset-light" B2B business model, ProFlowers took ownership of the floral inventory and fulfilled orders directly through a company-operated supply chain. By sourcing finished bouquets directly from farms, limiting product selection, pricing strategically into the consumer demand curve, and leveraging analytically-driven direct response marketing to generate large volumes at peak periods (i.e., Valentine's Day and Mother's Day), ProFlowers appealed to a broad market of consumers who wanted an efficient order process coupled with lower cost purchases.

There’s more:

In addition to these potential opportunities, FTD also viewed the Provide Acquisition as the means to strategically position itself for success within a changing industry. At the time of the Provide Acquisition, the disruptive impact of ProFlowers was perceived as a threat to traditional business models within the floral industry (and to the Florist Member Network specifically). FTD was concerned that, if it failed to adapt and embrace shifting industry paradigms, competitors would take advantage and acquire ProFlowers to FTD's detriment. Accordingly, FTD effected the Provide Acquisition.

We clown on companies all of the time for failing to heed the signs of disruption. But, that’s not actually the case here. This company was, seemingly, on its game. Where it failed, however, was with the post-acquisition integration. It’s awfully hard to realize synergies when businesses effectively run as independent entities. Per the company:

In particular, a number of key post-acquisition targets, such as (a) floral brand alignment, (b) necessary technological investments in the combined business (e.g., the consolidation of technology/ecommerce platforms), and (c) the integration of marketing and business teams, have lagged. As a result, both the Provide Commerce and the Debtors' legacy brands suffered from internal friction and suboptimal structures within the Debtors' enterprise.

And while the company failed to integrate Provide Commerce, the industry never stopped evolving. Competitors didn’t just take the acquisition as a sign that they ought to fold up their tents and relinquish the flower industry to FTD. F*ck no. To the contrary, this is where…wait for it…AMAZON INC. ($AMZN) ENTERS THE PICTURE:***

While the Debtors struggled to unify their businesses and implement the Provide Acquisition, the floral industry – and consumer expectations – continued to evolve. Following the example set by ProFlowers, other companies began to deliver farm-sourced fresh bouquets directly to customers, increasing competition in the B2C space. In addition, the expanding influence of e-commerce platforms like Amazon transformed customer expectations, particularly with respect to ease of experience and the fast, free delivery of goods. Given the perishable and delicate nature of the product, delivery and service fees were standard in the floral industry. As e-commerce companies trained consumers to expect free or nominal cost delivery, floral service fees became anathema to many customers.

Well, Amazon AND venture capital-backed floral startups (i.e., The Bouqs Company - $43mm of VC funding) that could absorb losses in the name of customer acquisition.

The company also blames a significant number of trends that we’ve covered here in PETITION for its demise. Like, for instance, increased shipping and online marketing costs (long Facebook Inc. ($FB)), low barriers to entry for other DTC businesses (long Shopify Inc. ($SHOP)), and “the growing presence of grocers and mass merchants providing low-cost floral products and chocolate-dipped strawberries during peak holidays” (long Target Inc., ($T)Walmart Inc. ($WMT)Trader Joe’s, etc.).

Collectively, market pressures contributed to declining sales and decreased order volumes, impairing the B2C businesses' ability to leverage and capitalize on scale.

In other words, (a) chocolate-dipped strawberries have no f*cking moat whatsoever and (b) as with all other things retail, this is a perfect storm story that is best explained by factors beyond just the f*cking “Amazon Effect” (the most obvious one being: a ton of debt).

Consequently, the company has been mired in a year-plus-long process of triage; it tried to cap-ex its way out of problems, but that didn’t work; it brought in new leadership but…well…you see how that turned out; it attempted to “reinvent” its user experience to combat its techie VC-backed upstart competitors with no results; and, it sought to optimize efficiencies. None of this could stem the tide of underperformance, bolster liquidity, and, ultimately, prevent debt covenant issues. The company currently has $149.4mm of secured indebtedness on its balance sheet (comprised of a $57.4mm term loan and $92mm under a revolving credit facility). The company reports approximately $72.4mm of unsecured debt owed to providers of goods and services.

In a strange fit of irony, it was the most romantic holiday of the calendar year that spelled doom for FTD. The company’s Valentine’s Day 2018 was pathetic: aggregate consumer order volume declined 5% and, even when people did use FTD, the average order size fell by 3%.

Valentine’s Day 2019 was no better. The company materially underperformed projections again. In addition to constraining liquidity further, this had the added effect of cooling any interest prospective buyers might have in the company pre-bankruptcy.

So, where are we now?

The crown jewel of the company is the company’s B2B retail business. This segment generated $150.3mm in revenue and $42.7mm in operating income in 2018. Operating margin is approximately 30%. The B2C business (including FTD.com), on the other hand, lost $4.6mm in ‘18 (on $727.9mm of revenue) and had -1% operating margin in 2018. (PETITION Note: while these numbers are in many respects abysmal, its fun to think that if they belonged, sans debt, to one of those VC-backed upstarts, they’s probably be WAY GOOD ENOUGH for the company to IPO in today’s environment…flowers-as-a-service anyone?). Clearly, there is nothing “iconic” about this brand outside of the floral network/community.

Anywho, the company is selling the company for parts. On Mary 31, the company effectuated a sale of Interflora for $59.5mm. On June 2, the company entered into an asset purchase agreement with Nexus Capital Management LP for the purchase of certain FTD assets and the ProFlowers business for $95mm. It also entered into non-binding letters of intent to sell other assets, including Shari’s Berries to Farids & Co. LLC (which is owned by the founder of Edible Arrangements LLC, the gnarliest company we’ve ever encountered when it comes to gifts.).

All of which is to say, R.I.P. FTD. We’ll be sure to send flowers. From Bouqs.

*Why are we picking on UPS? It is listed as the largest unsecured creditor to the tune of $23.2mm. Surely they’ll be clamoring for “critical vendor” status given the core function they provide to FTD’s business.

**At one point the papers say, $120mm, at another $200mm.

***We didn’t actually realize this but, yes, of course you can buy fresh flowers on Amazon.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure:

    • Secured Indebtedness:

      • $92mm Revolver

      • $57.4mm Term Loan

    • Unsecured Indebtedness

      • $72.4mm of Various Trade Claims

  • Professionals:

    • Legal: Jones Day (Heather Lennox, Brad Erens, Thomas Wilson, Caitlin Cahow) & (local) Richards Layton & Finger PA (Daniel DeFranceshi, Paul Heath, Brett Haywood, Megan Kinney)

    • Financial Advisor/CRO: AlixPartners LLP (Alan Holtz, Scott Tandberg, Jason Muscovich, Job Chan, Bassaam Fawad, J.C. Chang)

    • Investment Banker: Moelis & Company & Piper Jaffray Companies

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

  • Other Parties in Interest:


😷New Chapter 11 Bankruptcy Filing - Aegerion Pharmaceuticals Inc.😷

Aegerion Pharmaceuticals Inc.

May 20, 2019

We were right and we were wrong. Back in November 2018, in “😬Biopharma is in Pain😬 ,” we snidely wrote, “Do Pills Count as ‘Healthcare’? Short Biopharma” riffing on the common trope that healthcare was a hot spot for restructuring activity.* No, we argued: the activity is really in publicly-traded biopharma companies with little to no sales, too much debt (and usually busted convertible notes) and attractive intellectual property. We went on to predict that Synergy Pharmaceuticals Inc. ($SGYP) and Aegerion Pharmaceuticals Inc. (a subsidiary of Novelion Therapeutics Inc. ($NVLN)) would both file for bankruptcy. Ding ding!!! We were right.** The former filed back in December and, now, the latter is also in bankruptcy court. Of course, with respect to the latter, we also wrote, “[c]ome February — if not sooner — it may be in bankruptcy court.” But let’s not split hairs.***

The company manufactures two approved therapies, JUXTAPID and MYALEPT, that treat rare diseases. On Sunday, we’ll discuss the future of these therapies and what the company seeks to achieve with this restructuring.

*To be fair, the healthcare space has, indeed, picked up in activity since then.

**For what it’s worth, we also predicted that Orchids Paper Products Company ($TIS) would be in bankruptcy soon, writing “This company doesn’t produce enough toilet paper to wipe away this sh*tfest. See you in bankruptcy court.” Three for three: this is precisely why — wait for the shameless plug — you should become a PETITION Member today.

***Maturity of the bridge loan was initially February 15, 2019 but the debtors had a right to extend, which they did.

  • Jurisdiction: Southern District of New York (Judge )

  • Capital Structure: $36.1mm 8% PIK ‘19 secured Novelion Intercompany Loan, $73.8mm Bridge Loan (Highbridge Capital Management LLC and Athyrium Capital Management LP), $304mm 2% unsecured convertible notes (The Bank of New York Mellon Trust Company NA)

  • Professionals:

    • Legal: Willkie Farr & Gallagher LLP (Paul Shalhoub, Andrew Mordkoff)

    • Financial Advisor/CRO: AlixPartners LLP (John Castellano)

    • Investment Banker: Moelis & Co. (Barak Klein)

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

  • Other Parties in Interest:

    • DIP Agent: Cantor Fitzgerald Securities

    • Ad Hoc Group of Convertible Noteholders

      • Legal: Latham & Watkins LLP & King & Spalding LLP

      • Financial Advisor: Ducera Partners LLC

    • Novelion

      • Legal: Goodwin Proctor LLP & Norton Rose Fulbright Canada LLP

      • Financial Advisor: Evercore

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 Filing - CTI Foods LLC

CTI Foods LLC

March 10, 2019

CTI Foods LLC, a large independent provider of “custom food solutions” to major hamburger, sandwich and Mexican restaurant chains…wait, stop. “Custom food solutions"? Seriously? Does everything need to be made to sound technological these days? Homies produce hamburgers, cooked sausage patties, grilled chicken, shredded beef and chicken, fajita meat, ham, Philly steak, dry sausage, beans, soups, macaroni & cheese, chili, sauces, and other sheet pan and retail meals through seven production facilities; they service QSRs and fast casual restaurants, including four of the top six hamburger restaurant chains, four of the top six sandwich chains, and “the top Mexican restaurant chain.” Queremos Taco Bell?!? Anyway, that’s basically it: let’s not over-complicate matters.

In any event, lenders must love custom food solutions because they’ve offered a solution of their own…to the company’s balance sheet. The company filed a prepackaged bankruptcy in the District of Delaware with substantial numbers of holders of first lien and second lien term loans hopping on board in support of the plan of reorganization (though not enough second lien term lenders to establish a fully consensual plan by bankruptcy thresholds). The filing is predicated upon accomplishing the results set forth in this handy-dandy chart:

Source: First Day Declaration

Source: First Day Declaration

Pursuant to the plan, the first lien term lenders will receive some take-back paper and equity in the reorganized company, the second lenders will either equitize or cancel all $140mm of second lien term loan claims and existing equity will get wiped out. Trade creditors will ride through unimpaired. The company has secured a $155mm DIP commitment, the proceeds of which will be used, in part, to take out the ABL, and provide liquidity to fund the cases. Remaining funds will roll into an exit facility for the company to use post-emergence from bankruptcy. Just one thing: the chart shows a $50mm exit ABL and yet the company’s papers note a new $110mm exit ABL. Insert confusion here. 🤔

Confusion aside, this is a real business: the debtors apparently generated $1.2b of revenue in 2018 (and $29mm of EBITDA). Unfortunately, the private equity bros realized that back in 2013 when Thomas H. Lee Partners and Goldman Sachs & Co. acquired it from Littlejohn & Co. LLC. Per the company, the “current capital structure is the result of organic growth coupled with…strategic acquisitions….” So, uh, the capital structure didn’t fund the sponsor-to-sponsor purchase? Or is that “organic growth?” We suspect the former because, well, private equity, right? Debt is their jam. Oh, and the intercreditor agreement dated June 28, 2013 — mere months after the transaction — reflects that the debt was in place then rather than subsequently added to finance “organic growth.”* This is why PE firms pay firms like Weil the big bucks: first-class subterfuge. But…busted!

A quick aside, buried in paragraph 55 of the First Day Declaration is a cursory statement about the Restructuring Committee’s investigation into the company PE overlords. The company states:

On November 20, 2018, the Restructuring Committee separately retained Katten Muchin Rosenman LLP (“Katten”) as independent counsel. Specifically, the Restructuring Committee, with the assistance of Katten, conducted a thorough investigation into whether any potentially material claims or causes of action existed against directors, officers, or existing equity holders of the Debtors, including Goldman Sachs and T.H. Lee. Katten made extensive diligence requests to the Debtors, reviewed materials provided in response, interviewed several potential witnesses, and prepared a report for the Restructuring Committee evaluating the strengths and weaknesses of any such potential claims or causes of action. Ultimately, based on that investigation and the report prepared in connection therewith, the Restructuring Committee determined it was unlikely that any such meritorious claims or causes of action exist that ought to be pursued.

It’s a good thing trade is riding through: there likely won’t be an official committee of unsecured creditors to test this conclusion.

So, aside from the company-crushing transaction-induced debt placed on the company by its private equity overlords, why is the company in bankruptcy? Here’s where you really need to read between the lines: above we noted that the company “service[s] QSRs and fast casual restaurants, including four of the top six hamburger restaurant chains, four of the top six sandwich chains, and ‘the top Mexican restaurant chain.’” “Service” is the key word. We don’t see the word “exclusively” preceding it. Here’s the company:

CTI’s recent profitability decline is attributable in part to an increase in the number of protein processors in competitive segments of the food manufacturing and foodservice industries, which led to losses in customer shares and a decrease in new business for the Company. Simultaneously … the Company’s costs have increased over time. The combination of increased competition and increased costs resulted in lower volumes and narrower profit margins. (emphasis added)

Costs increased for a number of reasons — integration of new facilities, etc. — but the most disturbing one is food quality control. Per the company:

The Company’s profitability also suffered from food quality incidents in 2017 and 2018. Although the Company quickly identified and remedied the issues, those occurrences led to a loss of customer sales and to the incurrence of significant costs in remedying the situation and ensuring the integrity of products manufactured on a go-forward basis. These costs, albeit temporary, have collectively had a material impact on the Company’s recent profitability levels.

Yikes. That’s no bueno.

Now, there is some good news here. First, the company appears to have improved EBITDA in Q4 ‘18. Second, this plan is mostly consensual. And, third, the prepackaged nature of this plan will help the company accomplish their restructuring in a speedy six weeks, as planned. Food safety depends on it.

*$25mm of the principal amount of first lien term loans outstanding is attributable to a 2016 acquisition. To be fair.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: see above.     

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Ronit Berkovich, Lauren Tauro, Clifford Carlson, David Li, Michael Godbe) & (local) Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Jaime Luton Chapman, Shane Reil)

    • Legal to Restructuring Committee: Katten Muchin Rosenman LLP

    • Financial Advisor/CRO: AlixPartners LLP (Kent Percy)

    • Investment Banker: Centerview Partners LLC (Karn Chopra)

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

  • Other Parties in Interest:

    • Prepetition Credit Agreement Agent: Wells Fargo Bank NA

      • Legal: Otterbourg PC (Andrew Kramer) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Ad Hoc Group of Term Lenders & DIP Term Agent ($155mm): Cortland Capital Market Services LLC

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Michelle McGreal, Stephen Piraino) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller, Matthew Harvey)

    • ABL DIP & Exit Agent ($235mm): Barclays Bank PC

      • Legal: Sherman & Sterling LLP (Joel Moss, Jordan Wishnew) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

New Chapter 11 Bankruptcy Filing - Aceto Corporation

Aceto Corporation

February 19, 2019

In November in “🎬🎥Moviepass Falters; Market Chuckles🎬🎥,” we highlighted how Aceto Corporation ($ACET) had announced that it was pursuing strategic alternatives on the heels of obtaining a waiver of covenant non-compliance. It appears that its pursuit was (somewhat) fruitful.

Yesterday the company filed for bankruptcy in the District of New Jersey with intent to sell its chemicals business assets to New Mountain Capital for $338mm in cash, plus the assumption of certain liabilities (subject to adjustments). It also intends to sell another subsidiary, Rising Pharmaceuticals, while in bankruptcy and prior to the end of its fiscal year on June 30, 2019.

The company’s pre-petition capital structure consists of:

  • an $85mm 9.5%-11.5% secured revolving loan (Wells Fargo Bank NA);

  • a $120mm 11.5% secured term loan (as part of the same A/R Credit Agreement as the above); and

  • $143.75mm of 2% convertible senior notes due 2020 (Citibank NA).

Carry the one, add the two: that’s a total of $348.75mm of debt. Which means that the purchase price of the chemicals business doesn’t even cover the company’s debt. Here’s to hoping the Rising Pharmaceuticals business fetches a good price. To be fair, the company did end its fiscal 2018 with $103.9mm of cash.

Pre-petition lenders led by pre-petition agent, Wells Fargo Bank NA, have committed to providing the company with a $60mm DIP credit facility.

  • Jurisdiction: D. of New Jersey (Judge )

  • Capital Structure: see above.

  • Professionals:

    • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Michael Etkin, Paul Kizel, Jeffrey Cohen, Philip Gross)

    • Financial Advisor/CFO: AlixPartners LLP (Rebecca Roof)

    • Investment Banker: PJT Partners LP

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

  • Other Parties in Interest:

    • DIP Agent and Pre-petition Agent: Wells Fargo Bank NA

      • Legal: McGuireWoods LLP (Kenneth Noble)

😷New Chapter 11 Bankruptcy Filing - Trident Holding Company LLC😷

Trident Holding Company LLC

February 10, 2019

It looks like all of those 2018 predictions about healthcare-related distress were off by a year. We’re merely in mid-February and already there has been a full slate of healthcare bankruptcy filings. Here, Trident Holding Company LLC, a Maryland-based provider of bedside diagnostic and other services (i.e., x-ray, ultrasound, cardiac monitoring) filed for bankruptcy in the Southern District of New York. What’s interesting about the filing is that it is particularly light on detail: it includes the standard description of the capital structure and recent efforts to restructure, but there is a dearth of information about the history of the company and its financial performance. There is, however, a restructuring support agreement with the company’s priority first lien lenders.

Here’s a quick look at the company’s capital structure which is a large factor driving the company into bankruptcy:

Source: First Day Declaration

Source: First Day Declaration

As you can see, the company has a considerable amount of debt. The above-reflected “Priority First Lien Facility” is a fairly recent development, having been put in place as recently as April 2018. That facility, provided by Silver Point, includes a $27.1mm prepayment fee triggered upon the filing of the bankruptcy case. That’s certain to be a point of interest to an Official Committee of Unsecured Creditors. It also contributed to an onerous amount of debt service. Per the company:

In the midst of market and competitive challenges, Trident has significant debt service obligations. Over the course of 2018, Trident paid approximately $26,185,667.75 in cash interest on the Secured Credit Facilities. On January 31, 2019, the Company missed an interest payment of $9,187,477.07 on the Secured Credit Facilities, resulting in an Event of Default on February 8, 2019 after the cure period expired.

But, wait. There’s more. The recent uptick in distressed healthcare activity is beginning to aggregate and create a trickle-down bankruptcies-creating-bankruptcies effect:

Moreover, a number of recent customer bankruptcies – including those of Senior Care Centers, LLC, 4 West Holdings, Inc., and Promise Healthcare Group, LLC – have exacerbated the Company’s liquidity shortfall by limiting the collectability of amounts owed from these entities. A number of other customers who have not yet filed bankruptcy cases are generally not paying the Debtors within contractual terms due to their own liquidity problems. As a result of these collection difficulties and challenges with the new billing system in the Sparks Glencoe billing center, the Debtors recorded $27.8 million of extraordinary bad debt expense in 2018 and $12.7 million in 2017.

Ouch. Not to state the obvious, but if the start of 2019 is any indication, this is only going to get worse. The company estimates a net operating cash loss of $9.1mm in the first 30 days of the case.

Given the company’s struggles and burdensome capital structure, the company has been engaging its lenders for well over a year. In the end, however, it couldn’t work out an out-of-court resolution. Instead, the company filed its bankruptcy with a “restructuring support agreement” with Silver Point which, on account of its priority first lien holdings, is positioned well to drive this bus. And by “drive this bus,” we mean jam the junior creditors. Per the RSA, Silver Point will provide a $50mm DIP and drive the company hard towards a business plan and plan of reorganization. Indeed, the business plan is due within 36 days and a disclosure statement is due within a week thereafter. Meanwhile, the RSA as currently contemplated, gives Silver Point $105mm of take-back term loan paper and 100% of the equity of the company (subject to dilution). The first lien holders have a nice blank in the RSA next to their recovery amount and that recovery is predicated upon…wait for it…

…a “death trap.” That is, if they accept the plan they’ll currently get “ [●]%” but if they reject the plan they’ll get a big fat donut. Likewise, the second lien holders. General unsecured claimants would get a pro rata interest in a whopping $100k. Or the equivalent of what Skadden will bill in roughly, call it, 3 days of work??

The business plan, meanwhile, ought to be interesting. By all appearances, the company is in the midst of a massive strategic pivot. In addition to undertaking a barrage of operational fixes “…such as optimized pricing, measures to improve revenue cycle management by increasing collection rates, rationalizing certain services, reducing labor costs, better managing vendor spend, and reducing insurance costs,” the company intends to focus on its core business and exit unprofitable markets. While it retreats in certain respects, it also intends to expand in others: for instance, the company intends to “expand home health services to respond to the shifting of patients from [skilled nursing facilities] into home care.” Per the company:

Toward this end, Trident conducted successful home health care pilot programs in 2018 in two markets to optimize its Care at Home business model with radiology technicians dedicated to servicing home health patients. Trident hopes to expand this business model to an additional seven markets in 2019.

Like we said, a pivot. Which begs the question “why?” In addition to the debt, the company noted several other factors that drove it into bankruptcy. Chief among them? The rise of home health care. More from the company:

Trident has suffered ripple effects from the distress faced by skilled nursing facilities (“SNF”), which are its primary direct customers. SNF occupancy rates have declined to a multi-year low as a result of structural and reimbursement changes not yet offset by demographic trends. These structural changes include, among other things, patient migration to home health care. The decline in SNF occupancy rates has led to reduced demand for Trident’s services. At the same time, Trident has only had limited success reducing costs in response to lower volumes, as volume declines are driven by lower utilization per facility rather than a reduction in the number of facilities served.

This is a trend worth continued watching. Who else — like Trident — will be affected by this?

Large general unsecured creditors of the business include Grosvenor Capital Management, Jones Day (to the tune of $2.3mm…yikes), Konica Minolta Healthcare Americas Inc., McKesson ($MCK)(again!!…rough couple of weeks at McKesson), Quest Diagnostics Inc. ($DGX), Cardinal Health Inc. ($CAH) and others. They must be really jacked up about that pro rata $100k!!

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

  • Capital Structure: see above.

  • Professionals:

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Jason Kestecher, James Mazza Jr., Justin Winerman)

    • Independent Director: Alexander D. Greene

    • Financial Advisor: Ankura Consulting (Russell Perry, Ben Jones)

    • Investment Banker: PJT Partners LP (Mark Buschmann, Josh Abramson, Willie Evarts, Meera Satiani, Elsa Zhang)

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

  • Other Professionals:

    • Priority First Lien Admin Agent: SPCP Group LLC/Silver Point Finance LLC

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Robert Britton, Lewis Clayton, Aidan Synnott, Christman Rice, Michael Turkel)

      • Financial Advisor: Houlihan Lokey LP

    • First Lien Agent: Cortland Capital Market Services LLC

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

    • Ad Hoc Group of First Lien Lenders

      • Legal: Kirkland & Ellis LLP (Patrick Nash)

      • Financial Advisor: Greenhill & Co. Inc.

    • Second Lien Agent: Ares Capital Corporation

    • Ad Hoc Group of Second Lien Lenders

      • Legal: Latham & Watkins (Richard Levy, James Ktsanes)

    • Large Creditor: McKesson Medical-Surgical Inc.

      • Legal: Buchalter P.C. (Jeffrey Garfinkle)

    • Large Creditor: Quest Diagnostics

      • Legal: Morris James LLP (Brett Fallon)

    • Equity Sponsor: Revelstoke Capital Partners

      • Legal: Winston & Strawn LLP (Carey Schreiber, Carrie Hardman)

    • Equity Sponsor: Welltower Inc.

      • Legal: Sidley Austin LLP (Andrew Propps, Bojan Guzina)

    • Official Committee of Unsecured Creditors

      • Legal: Kilpatrick Townsend & Stockton LLP (David Posner, Gianfranco Finizio, Kelly Moynihan)

      • Financial Advisor: AlixPartners LLP (David MacGreevey)



New Chapter 11 Bankruptcy Filing - FULLBEAUTY Brands Holdings Corp.

FULLBEAUTY Brands Holdings Corp.

February 3, 2019

We’re going to regurgitate our report about FULLBEAUTY Brands Holdings Corp. from January 6th after the company publicly posted its proposed plan of reorganization and disclosure statement and issued a press release about its proposed restructuring. What follows is what we wrote then:


FULLBEAUTY Brands Inc., an Apax Partners’ disaster…uh, “investment”…will, despite earlier reports of an out-of-court resolution to the contrary, be filing for bankruptcy after all in what appears to be either a late January or an early February filing after the company completes its prepackaged solicitation of creditors. Back in May in “Plus-Size Beauty is a Plus-Size Sh*tfest (Short Apax Partners’ Fashion Sense),” we wrote:

Here’s some free advice to our friends at Apax Partners: hire some millennials. And some women. When you have 23 partners worldwide and only 1 of them is a woman (in Tel Aviv, of all places), it’s no wonder that certain women’s apparel investments are going sideways. Fresh off of the bankruptcies of Answers.com and rue21, another recent leveraged buyout by the private equity firm is looking a bit bloated: NY-based FullBeauty Brands, a plus-size direct-to-consumer e-commerce and catalogue play with a portfolio of six brands (Woman Within, Roamans, Jessica London, Brylane Home, BC Outlet, Swimsuits for All, and Eilos).

Wait. Hold up. Direct-to-consumer? Check. E-commerce? Check. Isn’t that, like, all the rage right now? Yes, unless you’re levered to the hilt and have a relatively scant social media presence. Check and check.

Per a press release on Thursday, the company has an agreement with nearly all of its first-lien-last out lenders, first lien lenders, second lien lenders and equity sponsors on a deleveraging transaction that will shed $900mm of debt from the company’s balance sheet. It also has a commitment for $30mm in new liquidity in the form of a new money term loan with existing lenders. Per Bloomberg:

About 87.5 percent of the common reorganized equity would go to first-lien lenders, 10 percent to second liens, and 2.5 percent to the sponsor, according to people with knowledge of the plan who weren’t authorized to speak publicly.

Which, in English, means that Oaktree Capital Group LLCGoldman Sachs Group Inc., and Voya Financial Inc. will end up owning this retailer. Your plus-sized clothing, powered by hedge funds. Apax and Charlesbank Capital, the other PE sponsor, stand to maintain 2.5% of the equity which, from our vantage point, appears rather generous (PETITION Note: there must be a decent amount of cross-holdings between the first lien and second lien debt for that to be the case). Here is the difference in capital structure:

Screen Shot 2019-02-04 at 7.06.26 PM.png

What’s the story here? Simply put, it’s just another retail with far too much leverage in this retail environment.

Screen Shot 2019-02-04 at 7.06.56 PM.png

Of course, there’s the obligatory product strategy, inventory control, and e-commerce excuses as well. Not to mention…wait for it…Amazon Inc ($AMZN)!

“In addition to these operational hurdles, FullBeauty has also faced competition from online retail giant Amazon, Inc. and retail chains, including Walmart Inc. and Kohl’s Corporation, that have recently entered the plus-size clothing space.”

Kirkland & Ellis LLPPJT Partners ($PJT) and AlixPartners represent the company.


We give bankruptcy professionals grief all of the time for what often appears to be fee extraction in various cases. In our view, there have been some pretty egregious examples of inefficiency in the system and, considering a number of our readers are management teams of distressed companies, we feel it’s imperative that we cure for a blatant information dislocation and help educate the masses. This, though, appears to be an extraordinary case. In the other direction.

The company’s professionals here propose to confirm the company’s plan of reorganization at the first day hearing of the case. As Bloomberg noted on Monday, this would “set a new record for emerging from court protection in under 24 hours.” Bloomberg reports:

The previous record for the fastest Chapter 11 process is held by Blue Bird Body Co., which exited bankruptcy in 2006 in less than two days. Fullbeauty and its advisers aim to beat that mark.

“We structured this deal as if bankruptcy never happened for our trade creditors, vendors and employees to avoid further disruption to the company,” attorney Jon Henes at Kirkland & Ellis, the company’s legal counsel, said in an interview. “In this situation, every day in court is another day of costs without any corresponding benefit.”

In fact, this case would be so quick that, as you read this (on Wednesday), Judge Drain may have already given the plan his blessing. This makes Roust Corporation Inc. (6 days) and Southcross Holdings (13 days) look like child’s play. For that reason — and that reason alone — we’ll forgive the company’s professionals for their blatant victory lap: it’s curious that Bloomberg had a completed interview ready to go at 9:26am on the morning of the company’s bankruptcy filing. Clearly Kirkland & Ellis LLP, PJT Partners LP ($PJT) and Houlihan Lokey Capital ($HL) want to milk this extraordinary result for all it’s worth. We can’t really blame them, truthfully. That is, unless and/or until the company violates the “Two Year Rule” a la Charlotte Russe.

Anyway, why so quick? Well, because they can: the entire capital structure is on board with the proposed plan and trade will ride through unimpaired and paid. All contracts will be assumed. There are no brick-and-mortar stores to deal with: this is a web and catalogue-based business. Like we said, this case is extraordinary. Per the Company:

It is in the best interest of the estates that the Debtors remain in bankruptcy for as short a time-period as possible. If FullBeauty is forced to remain in chapter 11 longer than necessary, it may be required to seek debtor in possession financing, which would cost the Debtors unnecessary bank fees and professional expenses. In addition, although January has been relatively smooth in terms of vendor outreach, FullBeauty expects that trade could contract very quickly if the company remains in chapter 11 longer than necessary—particularly because many vendors are in foreign jurisdictions and they do not understand the nuances of prepackaged cases versus longer prearranged or traditional chapter 11 cases. Every day that FullBeauty remains in chapter 11 results in cash spent that could go to developing the business.

Indeed, for once, it appears that the best interests of the debtor company were, indeed, heeded.*

*Which is not to say that we believe the out-of-court bills will be light.

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

  • Capital Structure: $mm debt     

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (Jonathan Henes, Emily Geier, George Klidonas, Rebecca Blake Chaikin, Nicole Greenblatt)

    • Independent Director: Mohsin Meghji

    • Financial Advisor: AlixPartners LLC

    • Investment Banker: PJT Partners LP (Jamie Baird)

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

  • Other Parties in Interest:

    • Financial Sponsor (69.6%): Apax Partners LLP

      • Legal: Simpson Thatcher & Bartlett LLP (Elisha Graff, Nicholas Baker)

    • Financial Sponsor (26.4%): Charlesbank Capital Partners LLC

      • Legal: Goodwin Proctor LLP (William Weintraub, Joseph Bernardi Jr.)

    • ABL Agent & FILO Agent: JPMorgan Chase Bank NA

      • Legal: Davis Polk & Wardwell LLP (Darren Klein, Aryeh Falk)

    • First Lien Agent & Second Lien Agent: Wilmington Trust NA

      • Legal: Shipman & Goodman LLP (Nathan Plotkin, Eric Goldstein, Marie Pollio)

    • Ad Hoc Group of First Lien Term Loan Lenders

      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Gerard Uzzi, Nelly Almeida)

      • Financial Advisor: Ducera Partners

    • Ad Hoc Group of Second Lien Term Loan Lenders

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Elizabeth McColm, Christopher Hopkins)

      • Financial Advisor: Houlihan Lokey Capital Inc. (Saul Burian)

Updated 2/4/19 at 7:03 CT

New Chapter 11 Bankruptcy Filing - Bakken Resources Inc.

Bakken Resources Inc.

December 7, 2018

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

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

The company notes:

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

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

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

  • Jurisdiction: D. of Nevada (Judge Beesley)   

  • Company Professionals:

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

    • Financial Advisor: AlixPartners LLP (Richard Robbins)

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

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: See below.

  • Company Professionals:

    • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Guggenheim Securities LLC (Durc Savini)

    • Liquidator: Gordon Brothers Group LLC

      • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

    • Real Estate Advisors: A&G Realty Partners

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

  • Other Parties in Interest:

    • Barclays Bank PLC

      • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Citizens Bank NA

      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Steinhoff International Holdings N.V

      • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

    • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

      • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

Screen Shot 2018-10-06 at 9.11.23 PM.png

🚗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 - Home Heritage Group Inc. 

Home Heritage Group Inc.

7/29/18

Recap: You can read it here.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: $83.4mm RCF (PNC Bank) & $167.4mm TL (KPS Special Situations Fund III)

  • Company Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Kenneth Enos, Jamie Luton Chapman, Ashley Jacobs, Shane Reil)

    • Financial Advisor: AlixPartners LLC (Robert Albergotti)

    • Investment Banker: Houlihan Lokey

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

  • Other Parties in Interest:

    • DIP Lender: PNC Bank NA

      • Legal: Blank Rome LLP (Regina Stango Kelbon, Stanley Tarr, Michael Graziano, Christopher Manion)

    • Sponsor: KPS Capital Partners

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Safterstein, Jacob Adlerstein, Sarah Harnett & Eugene Park) & (local) Cozen O’Connor LLP (Mark Felger)

New Chapter 11 Filing - VER Technologies Holdco LLC

VER Technologies Holdco LLC

4/4/18

VER Technologies, a Los Angeles-based provider of for-rent production equipment and engineering support for live and taped television, cinema, live events and broadcast media has filed for chapter 11 bankruptcy in the District of Delaware. We hadn't heard of these guys before and we're guessing that, unless you live in Los Feliz or Silverlake, you haven't either. Suffice it to say that they're they guys behind the guy, so to speak. Recent broadcast work included the 2018 Super Bowl broadcast (eat it Brady); they also serve over 350 live music customers per year including the Biebs and the band-formerly-known-as-Coldplay-now-called-the-Chainsmokers. 

In some respects, this is a story about attempted avoidance of disruption leading to disruption. The company initially specialized in rentals with no equipment customization but, with time, opted to expand its product and service offerings to include customization. This endeavor, however, proved capital intensive to the point where the company exceeded $270 million on its prepetition asset-backed lending facility. This triggered cash sweeps to the company's bank which proved to further constrain liquidity. This sparked a need for an operational and balance sheet restructuring to maximize cash and get the company to the point of a potential transaction.

In other respects, this is another leveraged buy-out that saddled the target company with a wee bit too much debt. Moreover, the company seems to have undertaken a number of ill-advised or ill-executed operational initiatives that, ultimately, undercut revenue. It happens. 

Now the company -- supported by a restructuring support agreement with its lenders (including funds managed by GSO Capital Partners) -- hopes to facilitate a pre-negotiated merger with an entity controlled by Production Resource Group LLCl ("PRG"). PRG is a Jordan Company-owned provider of entertainment and event technology solutions. Naturally, the term lenders will also own a portion of the reorganized company. Per the term sheet, PRG will get 72% preferred and 80% common; the term lenders will get the delta. The reorganized company will still have a meaningful amount of debt on its balance sheet with a proposed new (unquantified) first lien term loan and a $435 million new second lien term loan. 

The company has secured a proposed $364.7 million DIP credit facility ($300mm ABL, $64.7mm Term Loan, of which $50mm is new money) to support its time in bankruptcy. The company seeks to be in and out of bankruptcy court in approximately 115 days. 

  • Jurisdiction: D. of Delaware (Judge Gross)
  • Capital Structure: $296.3mm ABL Facility (Bank of America NA), $424.2mm term loan (GSO Capital Partners LP/Wilmington Trust NA), $14mm FILO loan, $18.75mm New FTF Inc. Note, $7.5mm Catterton Notes.  
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Ryan Blaine Bennett, Christine Pirro, Jamie Netznik) & (local) Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Morton Branzburg)
    • Financial Advisor/CRO: AlixPartners LLC (Lawrence Young, Stephen Spitzer, Bradley Hunter, Christopher Blacker, James Guyton, Brad Hall)
    • Investment Banker: PJT Partners LP (Nick Leone)
    • Strategic Communications: Joele Frank
    • Independent Director: Eugene Davis
      • Legal: Kramer Levin Naftalis Frankel LLP (Philip Bentley)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition ABL Agent and DIP ABL Agent:
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Shana Elberg, Christopher Dressel, Anthony Clark, Robert Weber, Cameron Fee)
      • Financial Advisor: Perella Weinberg Partners
    • DIP Term Loan Agent: Wilmington Trust NA
      • Legal: Alston & Bird LLP (Jason Solomon)
    • Supporting Term Loan Lenders: GSO Capital Partners, ABR Reinsurance Ltd., Consumer Program Administrators Inc., Irving LLC
      • Legal: Morgan Lewis & Bockius LLP (Frederick Eisenbeigler, Andrew Gallo, Christopher Carter) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, Joseph Barsalona)
    • 12% Subordinated Noteholder:
      • Legal: King & Spalding LLP (Jeffrey Pawlitz, Michael Handler)
    • Indenture Trustee FTF Note:
      • Legal: Robins Kaplan LLP (Howard Weg, Michael Delaney)
    • Production Resource Group LLC
      • Legal: Greenberg Traurig LLP (Todd Bowen) & Morrison Cohen LLP (Joseph Moldovan, Robert Dakis)
    • Wells Fargo NA
      • Legal: Otterbourg PC (Andrew Kramer)
    • Official Committee of Unsecured Creditors
      • Legal: SulmeyerKupetz PC (Alan Tippie, Mark Horoupian, Victor Sahn, David Kupetz) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman, Kevin Hroblak)
      • Financial Advisor: Province Inc. (Carol Cabello) 

Updated 5/19/18

New Chapter 11 Filing - HCR Manorcare Inc.

HCR Manorcare

3/4/18 Recap: Ohio-based Carlyle-backed long-term care provider of 450 (i) skilled nursing and impatient rehab facilities, memory care facilities and assisted living facilities (the "Long-Term Care Business"), (ii) hospice and home health care agencies, and (iii) outpatient rehab clinics filed a prepackaged bankruptcy after months of back-and-forth with its REIT-parent and Master Lease counterparty, Quality Care Properties Inc. ($QCP). The bankruptcy will effectuate a transaction pursuant to which QCP will shed its REIT status and take on 100% of the stock in the reorganized HCR. 

Interestingly, retailers aren't the only businesses capitulating under the weight of their rent. Here, the revenues generated by the Long-Term Care Business weren't generating sufficient revenues to cover ordinary course operating expenses and monthly rent obligations to QCP. By way of illustration, 

"For the twelve months ended December 31, 2017, the Company had revenues of approximately $3.741 billion, 82% of which derived from the Long-Term Care Business, and reported a consolidated pre-tax loss from continuing operations of approximately $267.9 million. As of December 31, 2017, the Company had approximately $4.264 billion in total assets and approximately $7.118 billion in total liabilities, debt and financing obligations...."

Rough. In 2016, HCR paid approximately $442mm ($37mm a month) in minimum rent to QCP. In 2017, after extensive negotiations, the amount dipped to $290mm ($24mm a month). With amounts that staggering, no wonder the company struggled. 

The relationship between QCP and HCR emanates out of a 2011 sale-leaseback transaction. After said transaction, QCP became an independent publicly traded company. Significantly,

"At the time of the 2011 Transaction, the business environment in the post-acute/skilled nursing sector was favorable due to a number of factors, including an aging population, expected increases in aggregate skilled nursing expenditures, and supply constraints in the skilled nursing sector due to substantial barriers to entry. The parties negotiated the amount of rent payable under the MLSA against this background."

But, as we consistently point out here at PETITION, projections don't always pan out as planned. Indeed, after the consummation of the 2011 transaction, 

"...the operating environment for post-acute/skilled nursing facility operators has become significantly more challenging. Unfavorable trends for operators of skilled nursing facilities include (a) a shift away from a traditional fee-for-service model toward new managed-care models, which base reimbursement on patient outcome measures; (b) increased penetration of Medicare Advantage plans, which has reduced reimbursement rates, average length of stay and average daily census; (c) increased competition from alternative healthcare services such as home health agencies, life care at home, community-based service programs, senior housing, retirement communities and convalescent centers; and (d) reductions in reimbursement rates from government payors."

Obviously this is a bit of a problem when your have a month rent nut of $37mm. 

  • Jurisdiction: D. of Delaware (Judge Gross)
  • Capital Structure: $400mm '18 9.5% TL debt (RD Credit LLC), $150mm '19 9.5% RCF, $445mm guaranty obligations under the Master Lease.
  • Company Professionals:
    • Legal: Sidley & Austin LLP (Larry Nyhan, Dennis M. Twomey, William A. Evanoff, Allison Ross Stromberg, Matthew E. Linder) & (local) Young Conaway Stargatt & Taylor LLP (Robert S. Brady, Edmon L. Morton, Justin H. Rucki, Ian J. Bambrick, Tara Pakrouh)
    • Financial Advisor/CRO: AlixPartners LLC (John Castellano)
    • Investment Banker: Moelis & Co.
    • Independent Directors: Sherman Edmiston, Kevin Collins
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest: TBD. 

Updated 3/5/18

New Chapter 11 Filing - The Bon-Ton Stores Inc.

The Bon-Ton Stores Inc.

  • 2/4/18 Recap: See here
  • Jurisdiction: D. of Delaware (Judge Walrath)
    • Capital Structure: $339mm Tranche A RCF (Bank of America), $150 Tranche A-1 Term Loan, $350mm second lien notes (Wells Fargo Bank NA)     
  • Company Professionals:
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Kelley Cornish, Elizabeth McColm, Claudia Tobler, Alexander Woolverton, Michael Colarossi, Diane Meyers, Moses Silverman) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Elizabeth Justison)
    • Financial Advisor: AlixPartners LLC (Holly Etlin, Carrianne Basler, Jim Guglielmo, John Creighton, Ben Chesters, Jamie Strohl, Mitch Chubinsky, Thomas Cole, Daniel Law) 
    • Investment Banker: PJT Partners LP (Steven Zelin, James Baird, Jon Walter, Vinit Kothary, Sartag Aujla)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Intellectual Property Disposition Consultant: Hilco IP Services (David Peress)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Joiner) & Richards Layton & Finger PA (Mark Collins, Joseph Barsalona)
    • Second Lien Noteholders: Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; Cetus Capital LLC; Contrarian Capital Management LLC; and Wolverine Asset Management, LLC
      • Legal: Jones Day (Bruce Bennett, Joshua Mester, Sidney Levinson, Genna Ghaul, Charles Whittman-Todd) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Robert Feinstein, Bradford Sandler)
      • Financial Advisor: Zolfo Cooper LLC (David MacGreevey)
    • Prospective Buyer: DW Partners LP
      • Legal: DLA Piper LLP (Stuart Brown, R. Craig Martin, Jason Angelo, Richard Chesley, John Lyons, Oksana Rosaluk)

Updated 4/10/18

New Chapter 11 Bankruptcy - Charming Charlie Holdings Inc.

Charming Charlie Holdings Inc.

  • 12/11/17 Recap: A mere two weeks before Christmas, another retailer falls into bankruptcy, capping a 2017 retail bloodbath. Here, the Houston-based specialty retailer focused on colorful fashion jewelry, handbags, apparel, gifts, and beauty products follows a long line of retailers into bankruptcy court. In doing so, it demonstrates that the "treasure hunt" experienced often touted as a plus for discount retailers like T.J. Maxx ($TJX), doesn't always hold; it also shows that the difficulties apparent in women's specialty retail are demography-agnostic (here, the core audience is women ages 35-55 - in contrast to, say, rue21). The company blames (i) "adverse macro-trends" and (ii) operational shortfalls, e.g., merchandising miscalculations, lack of inventory, an overly broad vendor base), for its underperformance and reduced sales. EBITDA declined 75% "in the last several fiscal years." 75-effing-percent! With a limited amount of money available under its revolving credit facility and even less cash on hand, "Charming Charlie is out of cash to responsibly operate its business." Ouch. Rough timing. Only subject to a restructuring would lenders support the company; accordingly, the company has entered into a restructuring support agreement with 80% of the term lenders which includes a $20mm new-money cash infusion via a DIP credit facility (the facility includes, in total, a $35mm ABL and a $60mm TL...so yes, a proposed roll-up of $75mm of prepetition debt into a DIP). The company has also commenced the closure of 100 of its 370 stores, a meaningful reduction in its brick-and-mortar footprint (PETITION NOTE: the usual array of landlords, i.e., General Growth Properties ($GGP), have made a notice of appearance). Note the carefully crafted language the company deploys in its initial filing, "The Debtors anticipate 276 go-forward locations following the first round of store closures." Key words, "FIRST ROUND." In other words, the ~100 stores the company notes that it is closing (and that it seeks to retain Hilco for) may just be the beginning. While the company leaves the door open for a sale, the current agreement contemplates the equitization of the term loan (with added equity weight to those providing DIP financing) and a post-emergence debt load of $85mm. 
  • Some other takeaways:
    • (1) the fashion industry has suffered a 15% downturn in fashion jewelry sales (and the company experienced a disproportionate 22% decline itself),
    • (2) vendors and factorers continue to be aggressive with constrictive trade terms and protect their turf (similar here to Toys R Us),
    • (3) Kirkland & Ellis LLP appears to effectively deploy its network to populate Boards of Directors (here, one of the independents appointed to the Board in July 2017 has ties to Gymboree and Toys R Us, two Kirkland clients),
    • (4) Guggenheim's efforts to sell this hot mess were unsuccessful pre-petition (query whether they'll have better luck post-petition...we doubt it),
    • (5) recall the words "first round" when you consider that even landlords for locations that remain open will be squeezed as the company seeks "to amend lease terms to reduce occupancy costs and obtain rent abatements for the first quarter of 2018," 
    • (6) this restructuring will lead to some supply chain pain as the company streamlines the vendor base down to 80 from 175, and
    • (7) its hard out there for a pimp (in this case: Charlie Chanaratsopon "vacated" his role as CEO and an interim CEO has taken the helm). 
  • Jurisdiction: D. of Delaware (Judge Sontchi)
  • Capital Structure: $22mm '20 ABL (Bank of America NA), $132mm '19 TL (Wilmington Savings Trust)  
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Joshua Sussberg, Christopher Greco, Aparna Yemamandra, Rebecca Blake Chaikin, Michael Esser, Anna Rotman) & (local) Klehr Harrison Harvey Branzburg LLP (Dominic Pacitti, Michael Yurkewicz, Morton Branzburg)
    • Financial Advisor: AlixPartners LLC
    • Investment Banker: Guggenheim Securities LLC (Stuart Erickson)
    • Liquidation Agent: HIlco Merchant Resources LLC (Ian Fredericks)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP ABL Agent/Prepetition ABL Agent: Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Robert Barry, Julia Frost-Davies, Amelia Joiner) & (local) Richards Layton & Finger PC (Mark Collins, David Queroli)
    • Ad Hoc Group of Term Loan Lenders
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Saferstein, Adam Denhoff, Sharad Thaper) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Shane Reil)

12/13/17

New Chapter 11 Bankruptcy - Velocity Pooling Vehicle LLC

Velocity Pooling Vehicle LLC

  • 11/15/17 Summary: A few weeks ago we questioned whether the restructuring industry ought to be focusing more on the automotive space, asking whether the bankruptcy of GST Autoleather Inc. was the canary in the coal mine. Now, here, Velocity Pooling Vehicle LLC (d/b/a Motorsport Aftermarket), an Indianapolis-based motorcycle aftermarket parts seller has filed for bankruptcy to address its balance sheet in the face of declining trends in the motorcycle market. The company has announced a consensual restructuring pursuant to which it will equitize its debt; it intends to fast-track the case and emerge from bankruptcy in Q1 '18. The company has secured a $135mm DIP credit facility. Term lenders Monomoy Capital Partners, BlueMountain Capital and Contrarian Partners are coming out with the equity in the company. More to come.
  • Jurisdiction: D. of Delaware (Judge Carey)
  • Capital Structure: $295mm '21 TL (Wilmington Trust NA), $85mm '22 second lien TL     
  • Company Professionals:
    • Legal: Proskauer Rose LLP (Jeff Marwil, Paul Possinger, Christopher Hayes, Jeramy Webb) & (local) Cole Schotz P.C. (Norman Pernick)
    • Financial Advisor: AlixPartners LLP
    • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access once link appears)
  • Other Parties in Interest:
    • Administrative Agent: Wells Fargo Bank, NA
      • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim) & (local) Richards Layton & Finger PA (John Knight, Brett Haywood)
    • Ad Hoc Group
      • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Ginsberg, Matthew Garofalo) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)

Updated 11/17/17 6:11 CT

New Chapter 11 Filing - Pacific Drilling S.A.

Pacific Drilling S.A.

  • 11/12/17 Recap: Another offshore driller finds its way into bankruptcy and, boy!, does its filing attempt to paint one rosy optimistic picture of its particular "competitive strength[]" in the offshore drilling space. But, first, let's take a step back: here, Pacific Drilling ($PACDF), an offshore drilling company formed in 2011 under Luxembourg law, filed bankruptcy in the Southern District of New York after over a year - and we mean YEAR - of speculation that this would end up where it now is. After all, when oil prices are where they are and you provide global ultra-deepwater drilling and complex well construction services to the oil and natural gas industry with high-specification drillships generally stationed in the Gulf of Mexico, the Federal Republic of Nigeria and the Islamic Republic of Mauritania, well, we'd venture an educated guess that the math simply ain't gonna add up. Certainly not at "day rates" averaging an estimated $155k. And so the company has three drillships contracted currently: two on short term agreements and, luckily, one at a well-above market contractual dayrate through September 2019. The others sit "smart-stacked." Choice quote, "My view in light of over 20 years in the industry is that recovery in the market for drilling contracts is a question of “when” not “if”. Pacific Drilling continues to have advantages over competitors with older fleets, as high-specification drilling units are generally better suited to meet the requirements of customers for drilling in deepwater, complex geological formations with challenging well profiles or remote locations. Furthermore, the uniformity and mobility of the Company’s fleet allow a Smart Stacking strategy that will continue to yield cost savings and flexibility if the downturn is prolonged." Clearly those advantages weren't so clear as to form consensus around the negotiating table with the various parties in interest as there is no restructuring support agreement in place here. Nothing like a good old-fashioned free fall into bankruptcy court, an increasingly-rare occurrence these days. 
  • Jurisdiction: S.D. of New York
  • Capital Structure: $3.188b total debt. Ship Group A Debt: $475mm RCF (Citibank NA), $750mm '20 5.375% Notes (Deutsche Bank Trust Company Americas), $718mm Term Loan B Credit Facility (Citibank NA). Ship Group B Debt (SSCF): $492.5mm 3.75% commercial tranche and $492.5mm (Wilmington Trust NA), combined post-amort equaliing $661.5mm outstanding. Ship Group C Debt: $438.4mm '17 7.25% senior secured notes (Deutsche Bank Trust Company Americas)
  • Company Professionals:
    • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, John Hardiman, Noam Weiss) & Togut Segal & Segal LLP (Albert Togut, Frank Oswald, Scott Ratner)
    • Financial Advisor: Evercore Partners International LLP 
    • Investment Banker: AlixPartners LLP (James Mesterharm)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • RCF Agent: Citibank NA
      • Legal: Shearman & Sterling LLP (Fredric Sosnick)
      • Financial Advisor: PJT Partners LP
    • Ad Hoc Group of RCF Lenders
      • Legal: White & Case LLP
    • SSCF Agent: Wilmington Trust NA
      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Tyson Lomazow, Matthew Brod)
      • Financial Advisor: Moelis & Company LLC
    • Ad Hoc Group of Ship Group C Debt, 2020 Notes and Term Loan B
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Elizabeth McColm, Christopher Hopkins)
      • Financial Advisor: Houlihan Lokey
    • 2017 and 2020 Notes Indenture Trustee(s): Deutsche Bank Trust Company Americas
      • Legal: Moses & Singer LLP
    • Large Equityholder: Quantum Pacific (Gibraltar) Limited
      • egal: Skadden Arps Slate Meagher & Flom LLP (Jay Goffman, George Howard)

Updated 11/15/17 at 5:09 pm CT

New Chapter 11 Bankruptcy - Appvion Inc.

Appvion Inc.

  • 10/2/17 Recap: The 100+-year old Appleton Wisconsin-based manufacturer of specialty coated paper has filed for bankruptcy. The company operates in two segments, the thermal paper segment and the carbonless paper segment. The thermal paper segment, on the surface, seems like it would be the most susceptible segment to technological disruption. It is used in four principal end markets: 1) point-of-sale for retail receipts and coupons (PETITION Note: you could understand why this would seemingly be in decline with Square and other P.O.S. stations now emailing receipts - not to mention more and more retail being done online); 2) label products for shipping, warehousing, medical and clean-room supplies (PETITION Query: perhaps the shipping labels offsets the paper receipts?); 3) tags and tickets for airline/baggage applications, events and transportation tickets, lottery and gaming applications (PETITION Note: one of us bought a baseball a scannable paperless ticket the other day from Stubhub...hmmm); and 4) printer, calculator and chart paper for engineering, industrial and medical diagnostic charts. The thermal paper segment is 60% of the company's net sales and has enjoyed annual average growth rates between 1-3%. Somewhat shockingly. PETITION Note: We would have liked to have seen those four sub-segments separated out. Meanwhile, the carbonless paper segment accounts for the other 40% of net sales; it produces coated paper products for design and print applications. The paper is used in a variety of end markets including government, retail, financial, insurance and manufacturing. This segment has been in structural decline since 1994, down approximately 7-11% annually due to the rise of new technologies in digital laser, inkjet and thermal printers. Oh, and electronic communications: the company just throws that in their bankruptcy papers like it's an afterthought. In other words, government and corporations are relying more on email than on the printed page which, duh, obviously impacts this segment. The company owns there manufacturing plants and leases three warehouses; it also has 915 union employees - owed $112.6mm in obligations - who probably ought to get ready to get bent (they are represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the “USW”). The company blames the chapter 11 filing on negative industry trends, an unsustainable degree of balance sheet leverage, inability to adequately address near-term maturities and rapidly deteriorating liquidity. Liquidity became even more of an issue after the company issued a "going concern" warning and received an S&P credit downgrade - two things that obviously made suppliers skittish and resulted in demands for disadvantageous trade terms. Recognizing decreased liquidity, the company appears to have taken as much cost out of the business as it can which, from the looks of the company's papers, may be artificially inflating the numbers on the thermal side in the face of technological innovation. PETITION Note: the assumptions the bankers concoct for this side of the business ought to be watched very carefully. Somewhat surprisingly, despite a full slate of advisors and months of lead-up to the filing, this is a classic free-fall into bankruptcy: there doesn't appear to be any restructuring support agreement with the lenders whatsoever. There is, however, a proposed $325.2mm DIP credit facility which would include $85mm of new money and a $240.2mm rollup of pre-petition money (in other words, the full amount of pre-petition TL & RCF monies outstanding, ex-interest). Nothing like being senior in the cap stack. Final PETITION Note: anyone think this will be the last paper-related bankruptcy in, say, the next 12 months? This is starting to look like 2007 all over again...
  • Jurisdiction: D. of Delaware
  • Capital Structure: $335mm first lien TL & $100 RCF ($240.8mm outstanding included accrued/unpaid interest), $250mm '20 9% second lien senior notes, $24mm A/R securitization, $6mm Industrial Development Bonds, $500k TL with the State of Ohio
  • Company Professionals:
    • Legal: DLA Piper (US) LLP (Richard Chesley, Stuart Brown, Jamila Willis, Kaitlin Edelman)
    • Financial Advisor/CRO: AlixPartners LLP (Alan Holtz, Pilar Tarry, Nathan Kramer)
    • Investment Banker: Guggenheim Securities LLC (Ronen Bojmel)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Strategic Communications Consultant: Finsbury LLC
  • Other Parties in Interest:
    • DIP Admin Agent: Wilmington Trust, NA
      • Legal: Covington & Burling LLP (Ronald Hewitt) & (local) Pepper Hamilton LLP (David Fournier)
    • DIP Lenders
      • Legal: O'Melveny & Myers LLP (George Davis, Daniel Shamah, Matthew Kremer, Jennifer Taylor) & (local) Richards Layton & Finger P.A. (Mark Collins, Michael Merchant, Brett Haywood)
    • Prepetition Credit Agreement Admin Agent: Jefferies Finance LLC
      • Legal: Jones Day (Scott Greenberg, Brad Erens) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns)
    • Key Bank National Association
      • Legal: Reed Smith LLP (Peter Clark II, Jennifer Knox, Emily Devan)
    • Fifth Third Bank
      • Legal: Vedder Price PC (Michael Eidelman, Michael Edelman) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill, D. Ryan Slaugh)
    • Ad Hoc Committee of Holders of the 9% '20 Second Lien Senior Secured Notes (ADK Capital LLC, ALJ Capital Management LLC, Archer Capital Management LP, Armory Advisors LLC, Barings LLC, Mackenzie Investments, MAK Capital One LLC, Nomura Corporate Research and Assset Management, Riva Ridge Master Fund Ltd., Rotation Capital Management LP, Scott's Cove Management LLC)
      • Legal: Stroock Stroock & Lavan LLP (Jayme Goldstein, Samantha Martin) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)
    • Second Lien Senior Secured Notes Indenture Trustee: US Bank NA
      • Legal: Foley & Lardner LLP (Richard Bernard, Derek Wright, Mark Prager)
    • Official Committee of Unsecured Creditors
      • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Jeffrey Prol, Wojciech Jung) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz, Morton Branzburg, Sally Veghte)

Updated 10/26/17

New Chapter 11 Filing - Prospector Offshore Drilling S.a r.l.

Prospector Offshore Drilling S.a r.l.

  • 7/20/17 Recap: So that was fast. Like lightening fast. Like if you blinked you may have missed it. Just two days ago Paragon Offshore emerged from bankruptcy and one of the debtors, Paragon Offshore plc, continues down the road of administration. But now it's effectively in bankruptcy again because of feasibility. No, no, just kidding on that. That would be TOO crazy. The issue here pertains to sale leaseback agreements with third-party lessors affiliated with SinoEnergy Capital Management Ltd. and related forbearance agreements that were entered into pre-bankruptcy to keep certain subsidiary entities out of the prior proceeding. Those subsidiaries are debtors here. The debtors intend to use the "breathing spell" provided by the bankruptcy automatic stay to negotiate a resolution to the disputes under the agreements with the third-party lessors. 
  • Jurisdiction: D. of Delaware
  • Company Professionals:
    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Stephen Youngman, Christopher Lopez, Jessica Liou, Alfredo Perez, Clifford Carlson, Patrick Thompson) & (local) Richards Layton & Finger PA (Mark Collins, Amanda Steele)
    • Financial Advisor: AlixPartners LLP
    • Investment Banker: Lazard Freres & Co. LLC
    • Claims Agent: KCC (*click on company name above for free docket access)

Updated 8/8/17