⛽️New Chapter 11 Filing - Legacy Reserves Inc.⛽️

Even at 95 years old, you can’t get one past Charlie Munger. #Legend.

The Permian Basin in West Texas is where it’s at in the world of oil and gas exploration and production. Per Wikipedia:

As of 2018, the Permian Basin has produced more than 33 billion barrels of oil, along with 118 trillion cubic feet of natural gas. This production accounts for 20% of US crude oil production and 7% of US dry natural gas production. While the production was thought to have peaked in the early 1970s, new technologies for oil extraction, such as hydraulic fracturing and horizontal drilling have increased production dramatically. Estimates from the Energy Information Administration have predicted that proven reserves in the Permian Basin still hold 5 billion barrels of oil and approximately 19 trillion cubic feet of natural gas.

oil gushing.gif

And it may be even more prolific than originally thought. Norwegian research firm Rystad Energy recently issued a report indicating that Permian projected output was already above 4.5mm barrels a day in May with volumes exceeding 5mm barrels in June. This staggering level of production is pushing total U.S. oil production to approximately 12.5mm barrels per day in May. That means the Permian now accounts for 36% of US crude oil production — a significant increase over 2018. Normalized across 365 days, that would be a 1.64 billion barrel run rate. This is despite (a) rigs coming offline in the Permian and (b) natural gas flaring and venting reaching all-time highs in Q1 ‘19 due to a lack of pipelines. Come again? That’s right. The Permian is producing in quantities larger than pipelines can accommodate. Per Reuters:

Producers burned or vented 661 million cubic feet per day (mmcfd) in the Permian Basin of West Texas and eastern New Mexico, the field that has driven the U.S. to record oil production, according to a new report from Rystad Energy.

The Permian’s first-quarter flaring and venting level more than doubles the production of the U.S. Gulf of Mexico’s most productive gas facility, Royal Dutch Shell’s Mars-Ursa complex, which produces about 260 to 270 mmcfd of gas.

The Permian isn’t alone in this, however. The Bakken shale field in North Dakota is also flaring at a high level. More from Reuters:

Together, the two oil fields on a yearly basis are burning and venting more than the gas demand in countries that include Hungary, Israel, Azerbaijan, Colombia and Romania, according to the report.

All of which brings us to Legacy Reserves Inc. ($LGCY). Despite the midstream challenges, one could be forgiven for thinking that any operators engaged in E&P in the Permian might be insulated from commodity price declines and other macro headwinds. That position, however, would be wrong.

Legacy is a publicly-traded energy company engaged in the acquisition, development, production of oil and nat gas properties; its primary operations are in the Permian Basin (its largest operating region, historically), East Texas, and in the Rocky Mountain and Mid-Continent regions. While some of these basins may produce gobs of oil and gas, acquisition and production is nevertheless a HIGHLY capital intensive endeavor. And, here, like with many other E&P companies that have recently made their way into the bankruptcy bin, “significant capital” translates to “significant debt.”

Per the Company:

Like similar companies in this industry, the Company’s oil and natural gas operations, including their exploration, drilling, and production operations, are capital-intensive activities that require access to significant amounts of capital.  An oil price environment that has not recovered from the downturn seen in mid-2014 and the Company’s limited access to new capital have adversely affected the Company’s business. The Company further had liquidity constraints through borrowing base redeterminations under the Prepetition RBL Credit Agreement, as well as an inability to refinance or extend the maturity of the Prepetition RBL Credit Agreement beyond May 31, 2019.

This is the company’s capital structure:

Legacy Cap Stack.png

The company made two acquisitions in mid-2015 costing over $540mm. These acquisitions proved to be ill-timed given the longer-than-expected downturn in oil and gas. Per the Company:

In hindsight, despite the GP Board’s and management’s favorable view of the potential future opportunities afforded by these acquisitions and the high-caliber employees hired by the Company in connection therewith, these two acquisitions consumed disproportionately large amounts of the Company’s liquidity during a difficult industry period.

WHOOPS. It’s a good thing there were no public investors in this thing who were in it for the high yield and favorable tax treatment.*

Yet, the company was able to avoid a prior bankruptcy when various other E&P companies were falling like flies. Why was that? Insert the “drillco” structure here: the company entered into a development agreement with private equity firm TPG Special Situations Partners to drill, baby, drill (as opposed to acquire). What’s a drillco structure? Quite simply, the PE firm provided capital in return for a wellbore interest in the wells that it capitalized. Once TPG clears a specified IRR in relation to any specific well, any remaining proceeds revert to the operator. This structure — along with efforts to delever through out of court exchanges of debt — provided the company with much-needed runway during a rough macro patch.

It didn’t last, however. Liquidity continued to be a pervasive problem and it became abundantly clear that the company required a holistic solution to its balance sheet. That’s what this filing will achieve: this chapter 11 case is a financial restructuring backed by a Restructuring Support Agreement agreed to by nearly the entirety of the capital structure — down through the unsecured notes. Per the Company:

The Global RSA contemplates $256.3 million in backstopped equity commitments, $500.0 million in committed exit financing from the existing RBL Lenders, the equitization of approximately $815.8 million of prepetition debt, and payment in full of the Debtors’ general unsecured creditors.

Said another way, the Permian holds far too much promise for parties in interest to walk away from it without maintaining optionality for the future.

*Investors got burned multiple times along the way here. How did management do? Here is one view (view thread: it’s precious):

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

  • Capital Structure: See above.

  • Professionals:

    • Legal: Sidley Austin LLP (Duston McFaul, Charles Persons, Michael Fishel, Maegan Quejada, James Conlan, Bojan Guzina, Andrew O’Neill, Allison Ross Stromberg)

    • Financial Advisor: Alvarez & Marsal LLC (Seth Bullock, Mark Rajcevich)

    • Investment Banker: Perella Weinberg Partners (Kevin Cofsky)

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

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors (Wilmington Trust NA, Dalton Investments LLC, Paul Drueke, John Dinkel, Nicholas Mumford)

    • GSO Capital Partners LP

      • Legal: Latham & Watkins LLP (George Davis, Adam Goldberg, Christopher Harris, Zachary Proulx, Brett Neve, Julian Bulaon) & (local) Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

    • DIP Lender: Wells Fargo Bank NA

      • Legal: Orrick LLP (Raniero D’Aversa, Laura Metzger)

    • Prepetition Term Agent: Cortland Capital Market Services LLC

      • Legal: Arnold & Porter Kaye Scholer LLP (Gerardo Mijares-Shafai, Seth Kleinman)

    • Indenture Trustee: Wilmington Trust NA

      • Legal: Pryor Cashman (Seth Lieberman, Patrick Sibley, Andrew Richmond)

    • Ad Hoc Group of Senior Noteholders (Canyon Capital Advisors LLC, DoubleLine Income Solutions Fund, J.H. Lane Partners Master Fund LP, JCG 2016 Holdings LP, The John C. Goff 2010 Family Trust, John C. Goff SEP-IRA, Cuerno Largo Partners LP, MGA insurance Company Inc., Pingora Partners LLC)

      • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Stephen Piraino, Michael Pera) & (local) Rapp & Krock PC (Henry Flores)

Updated 7/7/19 #188

⛽️New Chapter 11 Bankruptcy Filing - White Star Petroleum Holdings LLC⛽️

White Star Petroleum Holdings LLC

May 28, 2019

Hey look. It’s Tuesday. It must be time for another oil and gas bankruptcy filing! White Star Petroleum Holdings LLC is the latest oil and gas company to make an oh-so-2015-like appearance in bankruptcy court. No need to knock your skull or check your watch: yes, it is very much 2019.*

The company, formerly known as American Energy — Woodford LLC, was originally formed in 2013 by American Energy Partners LP, a shared services platform founded by Aubrey McClendon, the eccentric wildcatter who plowed his life (literally) and billions of dollars of cash into the exploration and production business. In 2014, The Energy & Minerals Group LP (“EMG”) and other investors cut an equity check and, in this case, it didn’t take Mr. McClendon as long as usual to fail: by 2016, the company and its businesses were separated from American Energy to become White Star, a standalone company independent of the American Energy platform. Of course, in typical McClendon fashion, the company sprayed and prayed for a while prior to the transition, gobbling up Mississippian Lime and Woodford Shale assets along the way.

Which is not to say that, post separation/transition, the company just sat on its hands. In 2016 and thereafter, the company extended its shopping spree. First it acquired additional Mississippian Lime and Woodford Shale assets from Devon Production Company LP for approximately $200mm (funded in part by equity from ESG and borrowings under the company’s revolving credit facility). Then it acquired Lighthouse Oil and Gas LP (which was 49.4% minority owned by EMG, but whatevs) through a combination of equity and more borrowings under the credit facility. Finally, the company expanded its portfolio into the Sooner Trend Anadarko Canadian Kingfisher area with borrowings under its credit facility. If you’ve been paying attention, yes, E&P is a capital intensive business: there’s a reason why so many of these companies are levered up the wazoo.

What did that capital buy? “As of December 31, 2018, the Debtors had proved reserves of approximately 84.4 million barrels of oil equivalent (“boe”) across approximately 315,000 net leasehold acres….” But, to be sure, this is a company that focuses its exploration and production on “unconventional” resource plays. Said another way, it is a horizontal driller and hydraulic fracker: its assets tend to produce in high volume for two or so years and then tail off considerably requiring capital to acquire and develop a steady stream of new wells. Of course, an investment in new wells only works if the commodity environment permits it to. With oil and gas trading where it has been trading, well…suffice it to say…the environment is proving unaccommodating. Per the company:

“Despite controlling significant leasehold and mineral acreage in the MidContinent region, due to the declines in commodity prices in the fourth quarter of 2018 and the Debtors’ financial condition, the Debtors ceased drilling new wells in April 2019 and have not resumed such activities as of the Petition Date.”

Consequently, the company suffered a net loss of $114mm in 2018 after losing $14mm in 2017; it has negative working capital of $61mm as of 12/31/18 and $70mm as of the petition date. This sucker is burning cash.

The company’s capital structure looks as follows:

Source: First Day Declaration

Source: First Day Declaration

The current capital structure is the result of clear triage undertaken by the company in the midst of a severe commodity downturn. WE CANNOT EMPHASIZE THIS ENOUGH: nearly every oil and gas exploration and production company under the sun was forced into some sort of balance sheet transaction around the 2015 time period — many in-court, others out-of-court in an attempt to stave off bankruptcy. Here, notably, the $10.3mm of unsecured notes represent the remnants of a distressed exchange that took place in 2015 whereby approximately $340mm of unsecured notes (with a 9% cash-pay interest coupon) were exchanged for approximately $348mm 12% second lien notes. Thereafter, in late 2015 and extending through August 2016, the company entered into a series of cash and equity transactions that took out the second lien notes in a cash-draining attempt to strengthen the balance sheet and extend liquidity (by way of reduced interest expense)**. The company was effectively playing whack-a-mole.

Alas, the company is in bankruptcy. That happens when your primary sources of capital are large equity checks, borrowings under a credit facility, and proceeds from producing oil and gas properties in a rough price environment. Of course, not all oil and gas properties are created equal either. This company happens to frack in challenging territory. Per the company:

Independent oil and gas companies, such as the Debtors, with Mississippian Lime-weighted assets in the Mid-Continent region have been particularly hard-hit by volatile market conditions in recent years and the majority of the Debtors’ peers in the region have filed for chapter 11 since 2015. This is in large part due to operational challenges unique to the region, including complex geological characteristics. One of these challenges is the Mississippian Lime’s relatively high ratio of “saltwater” to produced oil and gas. During the normal production of oil and gas, saltwater mixed with hydrocarbon byproducts comes to the surface, and its separation and disposal increases production costs. Low production volumes and higher than expected production costs, together with allegations that increased saltwater injection by the operators in the area caused increased seismic activity, resulted in many operators reducing activity and many capital providers discounting asset values in the region.

Recognizing the dire nature of the situation, the company’s RBL lenders effectuated a debilitating borrowing base redetermination that created a deficiency payment that the company simply couldn’t manage. This triggered a “potential” Event of Default under the facility. Thereafter, the company entered into an amendment with the RBL lenders with the hope of securing some capital to refinance the RBL. Spoiler alert: the company couldn’t get it done. The amendment also dictated that the company attempt to secure a buyer so as to repay the debt. To chapter 11 filing is meant to aid that marketing and sale process.*** To aid this process, the company has a commitment from MUFG Union Bank NA, its prepetition RBL Agent, for a DIP credit facility of $28.5mm as well as the use of cash collateral.

*We’d be remiss if we didn’t highlight that in the “AlixPartners 14th Annual Turnaround & Restructuring Experts Survey” released in February 2019, oil and gas was listed as the second most likely sector to face distress, with 36% of respondents predicting it would be a hot and heavy sector (up from 31% the in 2018).

**The company also refinanced its RBL, sold midstream and non-strategic properties and adjusted midstream pipeline commitments.

***Some trigger happy creditors beat the company to the punch here. On May 24, five “purported” creditors filed an involuntary bankruptcy petition against the company in the Western District of Oklahoma. Considering Baker Hughes Oilfield Operations Inc. ($GE) is among the top 5 largest creditors, we can’t say we’re that surprised.

  • Jurisdiction: D. of Delaware (Judge )

  • Capital Structure: see above.

  • Professionals:

    • Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, Alexa Kranzley) & (local) Morris Nichols Arsht & Tunnel LLP (Derek Abbott, Gregory Werkheiser, Tamara Mann, Joseph Barsalona)

    • Independent Director: Patrick Bartels Jr.

    • Financial Advisor: Alvarez & Marsal LLC (Ed Mosley)

    • Investment Banker: Guggenheim Securities LLC

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

  • Other Parties in Interest:

    • RBL Agent: MUFG Union Bank NA

      • Legal: Winston & Strawn LLP (Justin Rawlins)

    • TL Agent: EnLink Oklahoma Processing LP

    • Indenture Trustee: Wilmington Trust NA

😷New Chapter 11 Filing - Astria Health😷

Astria Health

May 6, 2019

Astria Health, a large non-profit healthcare system based in Eastern Washington, has filed for bankruptcy along with a dozen or so affiliates. The company blames its chapter 11 filing on regulatory approval processes that stunted expansion plans, poor collections on accounts receivable, and charitable care that, despite best efforts, hadn’t been offset by charitable contributions. All of these issues have squashed cash flow and triggered issues with the debtors’ secured debt, part of which is uber-expensive. The debtors intend to use their DIP credit facility to take out their expensive “high cost of capital” MidCap Financial Trust-provided (and other) debt; they also hope to use the “breathing spell” provided by the automatic stay to remedy their collections problems and march towards a plan of reorganization within 150 days.

  • Jurisdiction: E.D. of Washington (Judge Kurtz)

  • Capital Structure: $72mm secured debt

  • Professionals:

    • Legal: Dentons US LLP (Samuel Maziel) & (local) Bush Kornfeld LLP (James Day)

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

  • Other Parties in Interest:

    • DIP Lender: JMB Financial Advisors

      • Legal: Arent Fox LLP (Robert Hirsh, Jordana Renert) & (local) Southwell & O’Rourke (Kevin O’Rourke)

🎥New Chapter 11 Bankruptcy Filing - Fuse LLC (a/k/a Fuse Media)🎥

Fuse LLC

April 22, 2019

California-based Fuse LLC, a multicultural media company composed principally of the cable networks Fuse and FM, filed a prepackaged chapter 11 along with 8 affiliated debtors in the District of Delaware to effectuate a swap of $242mm of outstanding secured debt for $45mm in term loans (accruing at a STRONG 12% interest and maturing in five years), new membership interests in the reorganized company and interests in a litigation trust. General unsecured creditors will recover nothing despite being owed approximately $10mm to $25mm.

The company is well known to millions of US homes: approximately 61mm homes get Fuse, an independent cable network that targets young multicultural Americans and Latinos. FM’s music-centric content reached approximately 40.5mm homes “at its peak.” The company has three principal revenue streams: (a) affiliate fees; (b) advertising; and (c) sponsored events; it generated $114.7mm in net revenue for the fiscal year ended 12/31/18 and “had projected affiliate fees of approximately $495 million through 2020.

Why is it in bankruptcy? In a word, disruption. Disruption of content suppliers (here, Fuse) and content distributors (the traditional pay-tv companies). Compounding the rapid changes in the media marketplace is the company’s over-levered balance sheet, an albatross that hindered the company’s ability to innovate in an age of “peak TV” characterized by endless original and innovative content.

The company illustrates all of this nicely:

“…the overall pay-TV industry is in a period of substantial transformation as the result of the introduction into the marketplace in recent years of high quality and relatively inexpensive and consumer friendly content alternatives (e.g., Netflix, Hulu and others). The ongoing marketplace changes have resulted in, and will continue to cause, a material decline in pay-tv subscribers and related affiliate fee revenue as a result of a declining number of new subscribers, "cord-cutting" (the cancellation of an existing pay-tv subscription), and "cord-shaving" (the downgrading of a pay-tv subscription from a higher priced package to a lower priced package). Each quarter the Company receives less revenue from its traditional pay-tv distribution partners as the result of the decline in subscribers receiving the Company's networks. And new sources of revenue for the Company, although developing and in progress, have not grown sufficiently to offset revenue declines in the legacy business. As a result of these trends, the refinancing of the Company's debt was not viable.”

Said another way, on a macro level, Netflix Inc. ($NFLX), Amazon Inc’s ($AMZN) Prime service, Hulu ($DIS) and various other OTT services have taken a huge chunk out of conventional bundlers and now victims are shaking from the tree. On a more micro level, the company is subject to distribution agreements with pay-TV operators. The majority of agreements were guaranteed through 2020, representing contracted revenue estimated at approximately $495mm through 2020. But the company’s debt, however, prevented it from investing in programming, marketing and original content at the same pace as its rivals. Consequently, Comcast and Verizon Fios ($VZ)— which represent significant percentages of the debtors’ subscriber base and, in turn, revenue — stopped distributing Fuse at the end of 2018. Compounding matters, DirecTV recently notified the company that it, too, intended to terminate its distribution agreement with the debtors — which is now subject to litigation in California. Talk about a hat trick!!

The company intends to use cash collateral to finance its cases. If successful, the company will emerge from bankruptcy with a substantially reduced balance sheet, having cut its debt by approximately 80%. After de-levering, the company believes it…

“… will be better able to effectively support its core linear networks business, as well as pursue growth areas, such as virtual multichannel video programming distribution (e.g., YouTube TV and Hulu Live), advertising supported distribution (AVOD), and complementary areas such as live events and music festivals. The Company also will be well-positioned post-emergence to explore strategic transactions that can accelerate greater growth in new areas for stakeholders.”

We suspect Fuse won’t be the last content supplier to shake out from this evolution in the media space.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: $242mm 10.375% Senior Secured Notes due 2019

  • Company Professionals:

    • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski, Ira Kharasch, Maxim Litvak, James O’Neill)

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

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

  • Other Parties in Interest:

    • Supporting Noteholders

      • Legal: Fried Frank Harris Shriver & Jacobson LLP (Brad Scheler, Peter Siroka, Emil Buchman, Andrew Minear) & (local) Richards Layton & Finger PA (Michael Merchant)

New Chapter 11 Bankruptcy Filing - Achaogen Inc.

Achaogen Inc.

April 15, 2019

Biopharma is where it’s at!!

San Francisco-based Achaogen Inc. ($AKAO) is the latest in a slate of biopharma debtors who have found their way into bankruptcy court — here, the District of Delaware. Achaogen is focused on “the development and commercialization of innovative antibiotic treatments against multi-drug resistant gram-negative infections.” To date, its operations have been centered around the discovery, development and commercialization of products, making it as far as clinical trials in certain instances. As if inspired by the fact that its filing came on the heels of the much-anticipated Game of Thrones (final) Season 8 premiere, the company colorfully notes its primary purpose:

Achaogen designed its lead product, ZEMDRI® (plazomicin), to fight what the Center for Disease Control (“CDC”) calls a “nightmare bacteria” and has listed as the highest category threat of “urgent.” ZEMDRI can be used to treat patients who have limited or no alternative treatment options from infections with these nightmare bacteria. Even with its current financial situation, Achaogen continues to commercialize ZEMDRI, in part because Achaogen believes that ZEMDRI can save lives for patients who may literally have no alternative.

Nightmare bacteria!! Sheesh that’s chilling.

Even more chilling is the company’s discussion of gram-negative bacteria — found “everywhere, in virtually all environments on Earth that support life.” These bacteria are becoming increasingly resistant to common antibiotics. Achaogen calls this “a global crisis…we take for granted.” The company’s core (patented) product, ZEMDRI, is designed to “retain its effectiveness in killing these more resistant bacteria.” While ZEMDRI received FDA approval for IV-treatment of patients with complicated urinary tract infections in July 2018, the FDA rejected ZEMDRI for treatment of patients with bloodstream infections, citing a lack of substantial evidence of effectiveness.

What does the company have going for it? Again, as of July 2018, it has a commercially viable product in the United States. It also has global commercialization rights. And patent protect in the US through approximately 2031 or 2032. It sells to either specialty distributors or physician-owned infusion centers. It has agreements with Hovione Limited and Pfizer for the manufacturing of its product. Finally, it has another product in development, C-Scape, which is an oral antibiotic for treatment of patients suffering from urinary tract infections caused by a particular bacteria.

So, what’s the issue? As PETITION readers have come to learn, the development and manufacture of biopharma products is a time and capital intensive process. Indeed, the company has an accumulated deficit of $559.4mm as of December 31, 2018. This bit is especially puzzling given the company’s position that the world confronts a “global crisis”:

In the past year, there has been a dramatic downturn in the availability of financing from both the debt and equity markets for companies in the anti-infective field, based in part on the withdrawal from the space by certain large pharmaceutical companies. For example, Novartis recently announced that it is shutting down its antibacterial and antiviral research, which was followed by similar moves from Eli Lilly, Bristol-Myers Squibb and AstraZeneca.3 Allergan has also recently announced its intention to divest its anti-infective business, consisting of three commercialized products. This “big pharma flight” from antiinfective research, development and commercialization has created significant challenges for early-stage biotech companies seeking to develop and commercialize novel and much needed drugs in this sector, as opportunities for partnerships, joint R&D relationships, and merger/acquisition transactions have diminished. This sector-wide trend has negatively affected not just Achaogen but many of its competitors. Achaogen, however, has been especially impacted because it has reached the point in its life cycle where it needs substantial capital infusion to drive commercialization of its recently FDA approved drug, ZEMDRI.

Look: we don’t take everything debtors say as gospel. After all, first day pleadings are an opportunity to frame the story and set the tone of a case. But if the company is right about what it’s saying and nobody appears to give two sh*ts, well, color us a wee bit concerned. Why isn’t anybody talking about this?

Anyway, in February 2018, the company entered into a loan and security agreement with Silicon Valley Bank for $50mm. The original agreement provided SVB with a security interest in virtually all of the company’s assets — including proceeds of intellectual property — but not a security interest in the IP itself. $15mm remains outstanding under the loan. In November 2018, the company retained Evercore Group LLP to run a strategic sale process but no viable purchaser emerged. It’s not worth saving the world unless you can make some dinero, we suppose.

After engaging in various liquidity maximization efforts (including job cuts), fundraising initiatives (including an insufficient equity raise), and licensing discussions with entities abroad, the company ultimately decided that nothing would generate enough liquidity for the company to avoid chapter 11. The company notes, “although Achaogen’s out-of-court sale process did not yield any acceptable bids, many parties had expressed interest in bidding at any potential 363 auction sale, where it could pursue the Assets free and clear of existing liabilities.” The company, therefore, filed for chapter 11 to pursue a new sale process; it has no stalking horse bidder teed up. To market its assets, the company has replaced Evercore with Cassel Salpeter & Co. LLC.

In support of the bankruptcy case, SVB committed to provide the company with a $25mm DIP credit facility of which $10mm is new money and $15mm is a roll-up of the aforementioned pre-petition debt. In exchange, SVB now gets a security interest in the company’s IP.

The company’s unsecured debt is comprised of lease obligations, minimum purchase requirements under its manufacturing contract, a success fee tied to the company’s FDA approval, and $18.7mm of trade debt. New Enterprise Associates Inc., a reputed Silicon Valley venture capital firm, is the company’s largest equity holder with approximately 10.76% of the company’s shares. Prior to its 2014 IPO, the company had raised $152.1mm starting with its Series A round in August 2004: it IPO’d at a valuation of $200.4mm, having issued 6.9mm shares at $12/share to the public. It’s equity is likely worth f*ck all. Well, not exactly: we suppose this isn’t ENTIRELY “f*ck all”:

Screen Shot 2019-04-15 at 2.48.04 PM.png

But it’s pretty darn close. Now the issue is what price the IP will fetch in a bankruptcy sale process. It will have to be tens of millions of dollars for NEA to have any sort of recovery.

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $15mm secured debt (Silicon Valley Bank)

  • Professionals:

    • Legal: Hogan Lovells US LLP (Erin Brady, Richard Wynne, Christopher Bryant, John Beck) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Matthew Talmo, Paige Topper)

    • Financial Advisor: Meru LLC

    • Investment Banker: Cassel Salpeter & Co., LLC

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

  • Other Professionals:

    • Prepetition & DIP Lender ($25mm): Silicon Valley Bank

      • Legal: Morrison & Foerster LLP ( Alexander Rheaume, Todd Goren, Benjamin Butterfield, David Ephraim) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

    • Official Committee of Unsecured Creditors (Hovione Limited, EsteveQuimica SA, Solar Capital Ltd.,. Crystal BioScience, World Courier)

⛽️New Chapter 11 Filing - Southcross Energy Partners LP⛽️

Southcross Energy Partners LP

April 1, 2019

We’ve been noting — in “⛽️Is Oil & Gas Distress Back?⛽️“ (March 6) and “Oil and Gas Continues to Crack (Long Houston-Based Hotels)“ (March 24) that oil and gas was about to rear its ugly head right back into bankruptcy court. Almost on cue, Vanguard Natural Resources Inc. filed for bankruptcy in Texas on the last day of Q1 and, here, Southcross Energy Partners LP kicked off Q2.

Dallas-based Southcross Energy Partners LP is a publicly-traded company ($SXEE) that provides midstream services to nat gas producers/customers, including nat gas gathering, processing, treatment and compression and access to natural gas liquid (“NGL”) fractionation and transportation services; it also purchases and sells nat gas and NGL; its primary assets and operations are located in the Eagle Ford shale region of South Texas, though it also operates in Mississippi (sourcing power plants via its pipelines) and Alabama. It and its debtor affiliates generated $154.8mm in revenues in the three months ended 09/30/18, an 11% YOY decrease.

Why are the debtors in bankruptcy? Because natural gas prices collapsed in 2015 and have yet to really meaningfully recover — though they are up from the $1.49 low of March 4, 2016. As we write this, nat gas prices at $2.70. These prices, combined with too much leverage (particularly in comparison to competitors that flushed their debt through bankruptcy) and facility shutdowns, created strong headwinds the company simply couldn’t surmount. It now seeks to use the bankruptcy process to gain access to much needed capital and sell to a buyer to maximize value. The company does not appear to have a stalking horse bidder lined up.

The debtors have a commitment for $137.5mm of new-money post-petition financing to fund its cases. Use of proceeds? With the agreement of its secured parties, the debtors seek to pay all trade creditors in the ordinary course of business. If approved by the court, this would mean that the debtors will likely avoid having to contend with an official committee of unsecured creditors and that only the secured creditors and holders of unsecured sponsor notes would have lingering pre-petition claims — a strong power move by the debtors.

  • Jurisdiction: D. of Delaware (Judge Walrath)

  • Capital Structure: $81.1mm funded ‘19 RCF (Wells Fargo Bank NA), $430.875mm ‘21 TL (Wilmington Trust NA), $17.4mm unsecured sponsor notes (Wells Fargo NA)

  • Professionals:

    • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Darren Klein, Steven Szanzer, Benjamin Schak) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Joseph Barsalona II, Eric Moats)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Evercore Group LLC

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

  • Other Parties in Interest:

    • Prepetition RCF & Unsecured Agent: Wells Fargo Bank NA

      • Legal: Vinson & Elkins LLP (William Wallander, Brad Foxman, Matt Pyeatt) & (local) Womble Bond Dickinson US LLP (Ericka Johnson)

    • Prepetition TL & DIP Agent ($255mm): Wilmington Trust NA

      • Legal: Arnold & Porter Kaye Scholer LLP (Seth Kleinman, Alan Glantz)

    • Post-Petition Lenders and Ad Hoc Group

      • Legal: Willkie Farr & Gallagher LLP (Joseph Minias, Paul Shalhoub, Leonard Klingbaum, Debra McElligott) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)

    • Southcross Holdings LP

      • Legal: Debevoise & Plimpton LLP (Natasha Labovitz)

    • Stalking Horse Bidder:

Updated 9:39 CT

New Chapter 11 Bankruptcy Filing - Air Force Village West Inc. (d/b/a Altavita Village)

Air Force Village West Inc. (d/b/a Altavita Village)

March 10, 2019

Another day, another continuing care retirement community in bankruptcy. Here, Air Force Village West Inc. (d/b/a Altavita Village), a California non-profit corporation with 361 residents filed for bankruptcy in the Central District of California. We’ve covered how CCRCs operate in some recent bankruptcy filings (e.g., 😷New Chapter 11 Bankruptcy Filing - Mayflower Communities Inc. (d/b/a The Barrington of Carmel)😷 and 😷New Chapter 11 Bankruptcy Filing - SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador)😷) and so we don’t necessarily see the point in repeating the business basics here. Suffice it to say: the CCRC business model requires some modifications. “The company has been operating at a loss and cannot pay its liabilities as they mature.” No sh*t.

Naturally, debt is part of the issue. The company owes $66mm in alleged secured indebtedness to its prepetition lenders; it has been in payment default since March 2017. The lenders subsequently sued for the appointment of a receiver and succeeded. After the receiver was in place, the receiver, the debtor and the lenders pursued a two-year sale process with two bankers (failed) and, then later, Cushman & Wakefield (“C&W”). C&W was able to locate a stalking horse bidder, Westmont Development LP, an affiliate of Westmont Living Inc., for a 363 sale of the debtor’s assets while in bankruptcy. In light of the fact that the company already pursued a robust sale process, it seeks to consummate the sale transaction by June 2019.

  • Jurisdiction: C.D. of California (Judge )

  • Professionals:

    • Legal: Dentons US LLP (Samuel Maziel, Tania Moyron, Gary Marsh, Bryan Bates)

    • Investment Banker: Cushman & Wakefield US Inc.

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

  • Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - Windstream Holdings Inc.

Windstream Holdings Inc.

February 25, 2019

See here for our write-up on Winstream Holdings Inc.

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

  • Capital Structure: see below.

  • Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Stephen Hessler, Ross Kwasteniet, Marc Kieselstein, Brad Weiland, Cristine Pirro Schwarzman, John Luze, Neda Davanipour)

    • Legal (Board of Directors): Norton Rose Fulbright US LLP (Louis Strubeck Jr., James Copeland, Kristian Gluck)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: PJT Partners LP

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

  • Other Parties in Interest:

    • DIP Lender ($500mm TL, $500mm RCF): Citigroup Global Markets Inc.

    • Prepetition 10.5% and 9% Notes Indenture Trustee: Wilmington Trust NA

      • Legal: Reed Smith LLP (Jason Angelo)

    • Prepetition TL and RCF Agent: JPMorgan Chase Bank NA

      • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Nicholas Baker, Jamie Fell)

    • Ad Hoc Group of Second Lien Noteholders

      • Legal: Milbank LLP

      • Financial Advisor: Houlihan Lokey Capital

    • Ad Hoc Group of First Lien Term Lenders

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Andrew Rosenberg, Samuel Lovett, Michael Rudnick)

      • Financial Advisor: Evercore

    • Midwest Noteholders

      • Legal: Shearman & Sterling LLP

    • Uniti Group Inc.

      • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Eli Vonnegut, James Millerman)

      • Financial Advisor: Rothschild & Co.

    • Large Unsecured Creditor: AT&T Corp.

      • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan, Ginger Clements, Peta Gordon) & AT&T (James Grudus)

    • Large Unsecured Creditor: Verizon Communications Inc.

      • Legal: Stinson Leonard Street LLP (Darrell Clark, Tracey Ohm)

    • Official Committee of Unsecured Creditors (AT&T Services Inc., Pension Benefit Guaranty Corporation, Communication Workers of America, AFL-CIO CLC, VeloCloud Networks Inc., Crown Castle Fiber, LEC Services Inc., UMB Bank)

      • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Brett Miller, Todd Goren, Jennifer Marines, Erica Richards)

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🚗New Chapter 11 Bankruptcy Filing - Total Finance Investment Inc.🚗

Total Finance Investment Inc.

February 13, 2019

We’ve been asking about distress in the automotive industry since our inception and most recently noted in “🚗The Auto Sector is Quietly Restructuring🚗 that activity is picking up in the space. Admittedly, this case isn’t exactly what we had in mind. Nevertheless, earlier this week, Total Finance Investment Inc. and Car Outlet Holding Inc. (and affiliated debtors) filed for bankruptcy in the Northern District of Illinois; the debtors are an integrated chain of buy-here pay-here used vehicle dealerships in Illinois and Wisconsin.

What does “buy-here pay-here” mean? The debtors sold used vehicles, provided financing, AND operated an insurance broker to assist customers with procurement of automobile insurance coverage from third-party insurance providers. They “specifically catered to the fast-growing and underserved population of “unbanked” and “underbanked” Hispanic consumers in Northern Illinois and Milwaukee, which historically made up approximately 70% of the Debtors’ customer base.” There’s just one problem with all of this? Competition is BRUTAL. Per the company:

In recent years, BHPH dealerships have been subject to increasing industry-wide pressures that have negatively impacted their operating results, driving a number of the Debtors’ BHPH competitors out of business. The used vehicle dealership market is highly fragmented and fiercely competitive—with approximately 1,800 used car dealerships in Illinois alone—and the Debtors historically competed with other large used car dealerships like CarMax and DriveTime, as well as other BHPH operations. The fragmented nature of the industry and relatively low barriers to entry have led to steep competition between dealerships, putting significant downward pressure on the margins BHPH dealerships earn on vehicle sales. Further, as a result of a protracted period of increased capital availability, indirect auto lenders such as banks, credit unions, and finance companies have in recent years moved to originate subprime auto loans and offer attractive financing terms to customers with lower than average credit scores, putting pressure on BHPH operators’ market share among their traditional customer base.

Because, like, why not? Nothing has ever gone wrong when there has been excessive competition fiercely pursuing the subprime market. 🙈Ironically, the day before this filing, The Washington Post reported that 7mm Americans have, to the surprise of economists, stopped paying their auto loans. Whooooops. Per the WP:

The data show that most of the borrowers whose auto loans have recently moved into delinquency are people younger than 30 years old and people with low credit scores. Eight percent of borrowers with credit scores below 620 — otherwise known as subprime — went from good standing to delinquent on their auto loans in the fourth quarter of 2018.

No. Bueno. Anyway, back to the debtors. Read this part and tell us you don’t suffer PTSD circa-2008:

…capital markets became increasingly accessible for indirect auto lenders, many of which began to originate subprime loans and offer attractive financing terms to borrowers that historically had been overwhelmingly BHPH customers. The Debtors’ prior management team responded to the change in market conditions by providing larger loans with longer terms, accepting smaller down payments, and accepting transactions with increasingly negative equity in order to increase sales volume. The shift to offering riskier loans to subprime customers ultimately led to the Debtors experiencing historically high delinquency rates and losses beginning in the second half of 2015.

But wait. There’s more:

In addition to increased competition in the auto lending industry, the Debtors have also incurred significant expenses to ensure compliance with new regulations enacted by the Consumer Financial Protection Bureau. Furthermore, the political climate following the 2016 presidential election has had a negative impact on the spending habits of the Debtors’ traditional customer base in a manner that negatively impacted the Debtors’ operating results.

The debtors, therefore, suffered a consolidated pre-tax loss of approximately $29.9mm. MAGA!!!

The company has been trying to improve cash flows and operating results for years. One major initiative included, as far back as 2016, tightening underwriting standards to reduce consumer finance portfolio losses. We sure hope that there are others who took similar steps given the Washington Post report. But we digress.

Back in 2017, the debtors also received an $84mm equity infusion from Marubeni Corporation. Nevertheless, the debtors continued to hemorrhage to the point of compromising compliance with certain financial covenants under their senior secured debt facility with BMO Harris Bank NA. Thereafter, the company entered into a series of forbearance agreements with BMO as it attempted to figure out either a refinancing or an asset sale. In the end, the debtors obtained a restructuring support agreement and filed for bankruptcy to liquidate the used auto business and transfer its auto loan servicing business to a third-party servicer (PETITION Note: earlier this week, The Wall Street Journal reported that the mortgage servicing business is en fuego — notwithstanding the Ditech Holding Corporation bankruptcy (see here). We wonder: what sort of demand is there for subprime auto loan servicing businesses?). BMO Harris will fund the estates with a $4mm DIP credit facility.

So we’re left with this question: is this chapter 11 filing the canary in the coal mine for subprime auto lenders?

  • Jurisdiction: N.D. of Illinois (Judge Doyle)

  • Capital Structure: see below.

  • Professionals:

    • Legal: Sidley Austin LLP (Bojan Guzina, William Evanoff, Jackson Garvey)

    • Conflicts Legal: Togut Segal & Segal LLP

    • Financial Advisor: Portage Point Partners LLC

    • Interim Management: Development Specialists Inc.

    • Investment Banker: Keefe Bruyette & Woods and Miller Buckfire & Co. LLC

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

  • Other Professionals:

    • Prepetition Lender: BMO Harris Bank NA

      • Legal: Chapman and Cutler LLP (David Audley, Mia D’Andrea)

Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 Bankruptcy Filing - Novum Pharma LLC

Novum Pharma LLC

February 3, 2019

Another day, another pharma company that has filed for bankruptcy. Curious, too: we don’t recall seeing any restructuring professionals predicting that pharma would be the hot restructuring industry of choice. But we digress.

Here, Chicago-based Novum Pharma LLC, a special pharmaceutical company which owns and manufactures a portfolio of topical dermatology products, filed for bankruptcy in the District of Delaware. The company’s bankruptcy papers are interesting in that they provide a solid overview of the distribution channel for pharma products from the manufacturer to the end user. Disgruntled with all of the players taking a piece of revenues along the way, Novum Pharma attempted to disrupt the status quo by deployment of an alternative business model. Clearly it didn’t achieve the result it had hoped for.

Per the company, here’s how the “traditional” distribution channel typically works:

Source: PETITION LLC

Source: PETITION LLC

As you can see, the PBMs have a significant amount of leverage on account of their ability to determine which pharmaceuticals will be covered by insurance and which won’t. As a result, the company attempted its alternative. This model was predicated upon the concepts of “enhanced patient access” and “hassle free” access. It doesn’t appear that the company achieved that. Here’s how it would work:

Once the healthcare professional writes a script, the patient could get their prescription through one of three ways:

  1. Via a nationwide network of specialty pharmacies like Cardinal Health 105 Inc., a specialty pharmacy division of Cardinal Health Inc., that the company sells its products to and that have agreed to comply with the company’s guidelines;

  2. If 105 Inc. or the other specialty pharmacies cannot fill the prescription because a PBM denied coverage or otherwise, the pharmacy could transfer the prescription to a “consignment hub,” which is a specialty pharmacy that stocks the Debtor’s products on a consignment or bailment basis and will fill a prescription for a nominal fee (paid by the Debtor); or

  3. If a patient seeks to fill the prescription at a pharmacy that doesn’t participate in the company’s network and the PBM denies coverage, the patient will receive the drug for free.

As you might imagine, prescribing physicians are encouraged to provide patients with a hotline number where, no doubt, patients, are encouraged to go route #1. Why? Because the company earns revenue from the specialty pharmacies (read: from Cardinal Health). But, per the company:

In contrast, when a prescription is filled by a pharmacy, the Debtor expends funds to facilitate the transaction. In particular, when a healthcare plan covers some or all of the cost of a Dermatology Product prescription, the Debtor, through its Co-Pay Vendors, pays the amount that is not covered by the healthcare plan. Alternatively, when a healthcare plan rejects a Dermatology Product prescription, the Debtor facilitates the transfer of that prescription to one of its consignment hubs so that the prescription can be filled and mailed to the patient, at no cost to the patient.

Anyone else see the problem with all of this?!? Don’t know about you, but the added friction of calling a hotline and finding some random specialty pharmacy rather than going to the neighborhood CVS is far from “hassle free.”

All of these gymnastics created a company with $19.4mm in assets, the lion’s share of which is its intellectual property. In addition, there are some consulting and sales support contracts and A/R. On the liability side of the balance sheet, the company has $15.2mm due and owing on a secured basis to lender RGP Pharmacap LLC (at a prime plus 9.75% or 14% interest rate, payable in monthly principal installments), and $2.8mm in lease obligations that are secured, in part, by a $500k letter of credit issued by The Huntington National Bank.

Per the company, among the factors that precipitated the company’s bankruptcy were…

…among other things, (i) manufacturing hurdles leading to production delays and product “stock-outs”; (ii) a dispute with Cardinal and CVS regarding the price at which the Dermatology Products can be returned to the Debtor; (iii) managed care actions leading to increased prescription rejection rates for the Dermatology Products; and (iv) market dilution and decreased total prescriptions due to unauthorized generic alternatives being introduced into the market.

In response, the company implemented cost-cutting measures like outsourcing its “back office” function, downsizing its sales force and entering into a more cost-effective lease. But these measures didn’t address the fundamental business challenges confronting the company. The company continued:

The Debtor’s historically low prescription approval rates, compounded by (i) the Debtor’s persistent manufacturing issues which directly damaged the Debtor’s business because the Debtor’s sales force was unable to distribute sample products during a critical product growth period and HCPs were forced to prescribe alternative medications, (ii) the Debtor’s working capital shortages stemming in part from the Cardinal/CVS product return dispute and (iii) generic drug competition (which the Debtor believes is unlawful), led the Debtor to the inevitable conclusion that its business was no longer sustainable and that a restructuring and refinancing of the business would be necessary.

The chapter 11 filing is meant to preserve the company’s assets and provide it with a forum through which to conduct a bankruptcy sale process of the dermatology products to maximize value for the company’s creditors. Based on the various disputes the company has with Cardinal/CVS, there may be some litigation here for an as-of-yet-unformed Creditors’ Committee to pursue as well.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: $15.2mm of secured debt, $2.8mm in lease obligations

  • Company Professionals:

    • Legal: Cole Schotz PA (David Hurst, Patrick Reilley, Jacob Frumkin)

    • Independent Director: Thomas J. Allison

    • Financial Advisor: CR3 Partners LLC (Thomas O’Donoghue, Layne Deutscher, Cynthia Chan)

    • Investment Banker: Teneo Capital (Chris Boguslaski)

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

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors

      • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy) & (local) Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Richard Beck, Sally Veghte)

      • Financial Advisors: Goldin Associates LLC (Gary Polkowitz)

Updated 3/9/19

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

Waypoint Leasing Holdings Ltd.

November 25, 2018

“Get to the Choppa!” - Arnold Schwarzenegger

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

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

New Chapter 11 Bankruptcy Filing - Advanced Sports Enterprises Inc.

Advanced Sports Enterprises Inc.

November 16, 2018

Another day, another retailer in bankruptcy court.

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

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

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

  • Jurisdiction: D. of North Carolina

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

  • Company Professionals:

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

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

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

    • Liquidator: Gordon Brothers Retail Partners LLC

    • Real Estate Consultant: A&G Realty Partners LLC

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

  • Other Parties in Interest:

    • Senior Secured Lender: Wells Fargo Bank NA

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

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

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Source: First Day Declaration.

Source: First Day Declaration.

New Chapter 11 Bankruptcy Filing - Egalet Corporation

Egalet Corporation

October 30, 2018

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

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

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

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

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

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

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

  • Jurisdiction: D. of Delaware

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

  • Company Professionals:

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

    • Financial Advisor: Berkeley Research Group LLC

    • Investment Banker: Piper Jaffray & Co.

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

  • Other Parties in Interest:

    • Ad Hoc Secured Noteholder Committee

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

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

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

    • Iroko Pharmaceuticals LLC

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

Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 Bankruptcy Filing - Welded Construction L.P.

Welded Construction L.P.

October 22, 2018

Amidst concerns of nationwide pipeline shortages and, strangely, corresponding fears over too much pipeline capacity, it seems even more strange that a pipeline construction company would file for bankruptcy. Alas, on Monday, Welded Construction L.P., a Perrysburg Ohio-based pipeline construction contractor filed for bankruptcy in the district of Delaware despite slightly more than $1b in consolidated gross revenue in the twelve months ended 9/30/18.

We have to hand the company and its professionals some credit: they appear to be paying attention to what PETITION has been saying about the need for more efficiency in the restructuring profession as this case features one of the shortest First Day Declarations we’ve seen in recent memory. They cut right to it. No surplus. Which seems only right: surplus is definitely not something a pipeline construction contractor wants.

Sadly, that is apparently what it appears to have. Just not surplus liquidity, unfortunately. Rather they are alleged by some of their clients to have a surplus of cost overruns. And by alleged we don’t mean threatening emails or letters. We mean litigation. And then litigation has cooled the market for Welded and fed into liquidity issues.

The company is currently working on five pipeline construction projects for its various customers, a list that includes the likes of Sunoco (as affiliates of Energy Transfer Partners LP or “ETP”), Consumers Energy Company, and Williams Companies. The latter, upon completion of Welded’s construction work, is alleged to have withheld $23.5mm from a payment owed to the company and filed a lawsuit against the company alleging breach of contract. According to the company, this “created acute liquidity issues for the Debtors and concerns in the market about their viability as a going concern.” When there is a ton of pipeline construction business to be won, this timing couldn’t possibly be any worse.

Compounding matters is the fact that the company has sizable potential surety bond obligations to its insurers. The insurers, in turn, were granted security interests in the company’s assets but…uh…maybe didn’t perfect them? Whoops. Popping popcorn for this inevitable fight. There is no secured debt here other than some potential equipment financing.

Bored yet? Yeah, us too. But there is a lesson here about managing litigation risk. The lawsuit by Williams spooked other potential customers and enhanced the company’s already pressing liquidity concerns. The company states:

The Debtors vigorously dispute the allegations contained in the Williams Complaint. Since the filing of the Williams Complaint, the Debtors have engaged in dialogue with Williams and its other Customers in an attempt to consensually resolve the dispute and avert the need for the filing of these chapter 11 cases. However, the filing of the Williams Complaint was quickly made public to the market and Customers became increasingly concerned about how the payment of receivables would be utilized by the Debtors. In particular, Customers sought assurance that any new payables would be solely deployed toward expenses related to their particular Projects. As such, these discussions were unsuccessful, depriving the Debtors of the necessary liquidity to sustain their business operations outside of chapter 11 and absent negotiated arrangements with their Customers….

Subsequently, and just a few days ago, ETP sent a letter to the company purporting to terminate the company’s engagement on the ETP project. Crikey! The dominoes are falling.

That last bit of the above quote is key here. Armed with a $20mm DIP credit facility, the company intends to use the “breathing spell” afforded by the chapter 11 automatic stay to:

…negotiate arrangements to finalize the Debtors’ ongoing Projects with [customers], all with the overarching goal of maximizing the value of the Debtors’ estates for the benefit of the Debtors’ creditors and other stakeholders.

Sounds like the next few weeks are going to be riddled with intense negotiations. Sure sounds like the company’s survival depends upon it.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: No secured debt. $240mm of accrued liabilities.

  • Company Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Sean Beach, Justin Rucki, Tara Pakrouh, Betsy Feldman)

    • Financial Advisor: Zolfo Cooper LLC (Frank Pometti)

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

  • Other Parties in Interest:

    • North American Pipeline Equipment Company, LLC, Bechtel Oil, Gas & Chemicals, Inc., and Ohio Welded Company LLC

      • Legal: Gibson Dunn & Crutcher LLP (Michael Rosenthal, Matthew Kelsey, J. Eric Wise, Daniel Denny, Jason Friedman) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, Katharina Earle)

    • Berkshire Hathaway Specialty Insurance Company

      • Legal: Chiesa Shahinian & Giantomasi PC (Scott Zuber, Jonathan Bondy) & (local) Burr & Forman LLP (Richard Robinson, J. Cory Falgowski)

New Chapter 11 Filing - Herb Philipson's Army and Navy Stores Inc.

Herb Philipson’s Army and Navy Stores Inc.

October 8, 2018

Herb Philipson’s Army and Navy Stores Inc., a New York-based outdoor apparel and sporting goods retailer since 1951, filed for bankruptcy in the Northern District of New York.

The company carries various brands like Carhartt, Columbia Sportswear, Levi, lee, Under Armour, Dickies, Timberland and The North Face in its stores (most of which are now the company’s largest unsecured creditors) and also serves as the exclusive retailer for the Utica Comets Hockey Team and the new Utica City Football Club. The company has 9 locations, none of which are in or on company-owned structures or real property. The company had revenues of $43.5mm and $39.8mm in 2016 and 2017, respectively. Through nine months of 2018, the company experienced a dramatic decline in business with revenues of just $15.6mm.

What caused such a stark decline in business? The company notes:

“The decline of the Debtor’s business is directly attributable to a confluence of operational and liquidity factors. Starting in 2015, the Company began to suffer from decreased sales — largely attributable to HP’s inventory mix failing to appeal to the tastes of the market and the rise of e-commerce, which allowed the Debtor’s customers to purchase from on-line retailers the same or similar good being offered by the Company.”

Moreover, the company lost access to its line of credit, necessitating sales of new inventory to finance operations and leaving the company unable to order fresh inventory in Q1 2018.

What followed is a textbook tale of a small brick-and-mortar business trying to make it in a world dominated by upstart DTC brands, Amazon, and bigbox retail. Renegotiations of leases. Headcount reductions. An intensified focus on inventory selection and management. A scramble for new credit which, here, new ownership was able to lock down.

Clearly, however, the terms of the new credit line were either too onerous or too unrealistic as, unfortunately for the company, the new credit facility merely helped expedite the company’s spiral into bankruptcy court. Indeed, roughly a month after entering into the new lending facility, the lender, Second Avenue Capital, notified the company that it was in default under the facility. The relief afforded the company by the cash infusion was, clearly, short-lived.

Consequently, the company filed for bankruptcy so that the “automatic stay” protections of the Bankruptcy Code (section 362) could be leveraged to prevent Second Avenue Capital from exercising its rights and remedies under the credit facility and provide the company with a “breathing spell” within which to attend to “properly restructure and reorganize its affairs and propose a chapter 11 plan that would provide…creditors with meaningful recoveries.”

October 12, 2018 Update:

As is often the case in bankruptcy, there are two sides to every story. In this case, the company’s secured lender, Second Avenue Capital, argues that the company “demonstrated a shocking inability to accurately project the operating performance of the business” leading to “material deviations” to the underwriting-dependent budget. Second Avenue argues, among other things, that (i) the debtor missed its own sales projections by 33.1%, (ii) comparable store sales are projected in the company’s latest budget to be negative 30% and 37% (vs. the underwritten projected positive 5% and 10%) for the months of November and December 2018; and (iii) the company has already missed its own inventory projection by approximately 17.9%. In other words, Second Avenue — while objecting to the company’s motion to use cash collateral — is asserting that they are undercollateralized and that the company is providing inadequate adequate protection.

Notably, Second Avenue doesn’t expressly say that the company was fraudulent in providing the budget upon which Second Avenue underwrote the loan; it does say, however, that “[a]s a consequence of the Debtor’s financial performance…and not any nefarious conduct by the Lender…the Debtor was in substantial and material default” under the credit agreement. Not exactly mincing words. Which only means one of three things: (1) the company was wildly inept in putting together its projections/budget; (2) the company was hopelessly optimistic and otherworldly unrealistic about its projections/budget; (3) the macro conditions for a small brick-and-mortar retailer in today’s day are coming at owners so fast and so furious that projections and budgets, more than usual, are anyone’s guess. We’ll leave it to a court to decide but it sure looks like there may be a contested fight here with the fate of the company in the balance.*

*The first day hearing was scheduled for October 15 but no orders have hit the docket.

  • Jurisdiction: N.D. of New York (Judge Davis)

  • Capital Structure: $2.05mm of secured debt (Second Avenue Capital), $1.5mm secured promissory notes

  • Company Professionals:

    • Legal: Griffin Hamersky LLP (Scott Griffin, Michael Hamersky, Sophia Hepheastou) & Cullen and Dykman LLP (Maureen Bass)

    • Financial Advisor & Investment Banker: Scouler Kirchhein LLC

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

  • Other Parties in Interest:

    • Senior Secured Lender: Second Avenue Capital LLC

      • Legal: Riemer & Braunstein LLP (Steven Fox)

🚗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)

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New Chapter 11 Filing - Product Quest Manufacturing LLC

Product Quest Manufacturing LLC

9/7/18

Product Quest Manufacturing LLC, a contract manufacturer of sunscreens and other sun care products, OTC drugs, prescription drugs, topical animal health products and cosmetics has filed for bankruptcy in the Middle District of North Carolina. At one point, the company produced $125mm worth of units per year, servicing the likes of drug store retailers (e.g., Walgreens, Rite Aid), big box retailers like Walmart and Target, and discount retailers like Dollar General. With an impressive customer list like that, what could've gone wrong?

The company provides a shockingly blunt reason:

These chapter 11 cases have been caused by ineffective senior leadership, employee turnover, extensive product quality issues and the subsequent recall of many products manufactured in the Daytona Facility due to stability and contamination issues and regulatory compliance issues affecting the Daytona Facility and the Kannapolis Facility.

Wowsers. You don't typically see such a harsh and to-the-point statement like that. But, the company apparently "suffered from operational cost overruns, ineffective production standards and poor pricing practices leading to significant margin erosion." Consequently, the senior lenders called a default and replaced the company's board of managers. It also received a Form 483 notice from the Food and Drug Administration regarding potential FDA violations that include, among other things, "potential cross contamination of human health and animal health products." And we were wondering why we recently started moo'ing. Now we know: it must've been the OTC treatments we purchased at CVS. This is f*cked up. And, accordingly and (apparently) appropriately, the company CEO got binned as a result. 

An investigation by King & Spalding revealed that there were, in fact, quality control issues. A little microbial contamination here. A little compliance deficiency there. Some out of specification products here. A little Staphylococcus aureus here and a little Pseudomonas aeruginosa there. The company implemented quarantines and initiated product recalls (including a CVS nasal spray product). The company also ceased operations at its two facilities. Jokes aside, we hope that no one was severely hurt. Luckily these issues were discovered before things became worse. 

The company will seek to sell its assets in chapter 11. 

  • Jurisdiction: M.D. of North Carolina
  • Capital Structure: $153.6mm secured debt (Madison Capital Funding LLC)    
  • Company Professionals:
    • Legal: Northern Blue LLP (John Northern, Vicki Parrott, John Paul H. Cournoyer)
    • Financial Advisor/CRO: Conway MacKenzie Inc. (Joe Geraghty) 
    • Board of Directors Legal: King & Spalding LLP
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Financial Sponsor: Kainos Capital LLC
    • Prepetition Secured Lender: Bank of America NA

😷New Chapter 11 Filing - Verity Health System of California Inc.😷 

Verity Health System of California Inc. 

8/31/18

Verity Health System of California Inc. ("VHS"), a California nonprofit public benefit corporation that operates six acute care hospitals, filed for bankruptcy today. The system suffered from decades of operating losses and too much debt. Unfortunately, it also appears to have suffered from a lack of vision, admittedly maintaining the status quo in the face of robust headwinds. 

In 2015, BlueMountain Capital Management LLC purchased the system for $100mm while also arranging for $160mm in loans (subject to a variety of conditions imposed by the California Attorney General). The health system, however, did not turn around. In 2017, NantWorks LLC acquired a controlling stake in the system's management company, Integrity, from BlueMountain and loaned the company an additional $148mm. Did this do the trick?

Of course not. We wouldn't be writing about it if it did. 

Per the company:

Despite the infusion of capital and new management, it became apparent that the problems facing the Verity Health System were too large to solve without a formal court supervised restructuring. Thus, despite VHS’ great efforts to revitalize its Hospitals and improvements in performance and cash flow, the legacy burden of more than a billion dollars of bond debt and unfunded pension liabilities, an inability to renegotiate collective bargaining agreements or payor contracts, the continuing need for significant capital expenditures for seismic obligations and aging infrastructure, and the general headwinds facing the hospital industry, make success impossible. Losses continue to amount to approximately $175 million annually on a cash flow basis.

Indeed, the company cites the following factors for its fall into bankruptcy: (i) below-market Medicare reimbursement rates (~20-43% below market), (ii) an approximate 5% increase in labor rates annually, (iii) underfunded pension plans and ongoing pension funding requirements in the millions of dollars, (iv) the need for tens of millions of dollars in IT investment, (v) millions of dollars of expenditures required under the conditions imposed by the California state AG and (vi) needed medical equipment expenditures. 

Accordingly, to confront its debt and preserve the value of the system as a going concern, the system filed for bankruptcy to pursue a sale to new ownership/leadership. 

  • Jurisdiction: C.D. of California 
  • Capital Structure: $461.4mm of secured debt     
  • Company Professionals:
    • Legal: Dentons US LLP (Samuel Maizel, John Moe II, Tania Moyron)
    • Financial Advisor: Berkeley Research Group LLC
    • Investment Banker: Cain Brothers
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:

🌮New Chapter 11 Filing - RM Holdco LLC (Real Mex)🌮

In April's piece entitled "🍟Casual Dining is a Hot Mess🍟" and then in a follow-up in July creatively and originally entitled "🍟Casual Dining Continues to = a Hot Mess🍟" we noted that...well...casual dining is a hot mess. As of today…A. Spicy. Hot. Mess. Actually.

Late last night, RM Holdco LLC, the owner of a portfolio of 69 company-operated and 11 franchised restaurants and contemporary taquerías including Chevy's Fresh Mex, Siniqual, El Torito Grill, Las Brisas and Alcapulco filed for bankruptcy to effectuate a "363 sale" of substantially all of its assets to an affiliate of one of its pre-petition equityholders, Z Capital Partners LLC for $46.75mm. Interestingly, this filing also marks the third — that’s right, THIRD — chapter 22 filing in the last week following Home Heritage Group Inc. and Brookstone Inc. This is how we previously described a “Chapter 22”:

For the uninitiated, Chapter 22 in bankruptcy doesn’t actually exist. It is a somewhat snarky term to describe companies that have round-tripped back into chapter 11 after a previous stint in bankruptcy court.

Real Mex previously filed for bankruptcy in October 2011 and sold to Z Capital and Tennenbaum Capital Partners LLC in March 2012. At the time of that previous chapter 11 filing, the company operated approximately 128 restaurants.

This time, the signs of an imminent bankruptcy filing were out there shining for all to see as the company has been sending smoke signals for months. Back in May, Bloombergreported that the company hired Piper Jaffray to pursue a sale — including one that could be consummated in bankruptcy. Thereafter, in June, the company filed a WARN Notice with the Department of Labor indicating that it intends to close its Times Square location and lay off 134 employees. Perhaps the signs were in place even earlier when the company hired the former CFO of Wet Seal, a retailer that, itself, found its way into bankruptcy court twice.

The company highlights various macro factors as reasons for this chapter 11 filing:

For the past six (6) years, the Debtors have struggled with certain industry-wide and company-specific pressures that have negatively impacted their operations. Trends in the greater restaurant industry, including increases to minimum wage and commodity costs, have created substantial pressure on the entire sector, as evidenced by the numerous brands that have filed for bankruptcy in recent years, including Ignite Restaurant Group (Brick House and Joe’s Crab Shack), Macaroni Grill, Garden Fresh, Bertucci’s, Crumbs, Cosi, and Buffets.

And:

In addition, increased competition, especially in the form of available, quality Mexican fast casual options, has had a significant impact on traffic in the Debtors’ restaurants.

For anyone keeping track of the “What Caused Bankruptcy” standings, this would be Amazon Inc. ($AMZN) 282,499,209 and (now) Chipotle Inc. ($CMG) 1.

Compounding matters here is (i) the company’s $200+ million in debt, (ii) an expensive workers’ compensation program, (iii) long-term lease burden (it leases all of its locations, the majority if which are in California), (iv) an expensive-yet-unconsummated-growth-strategy (the company attempted but failed to pursue expensive M&A processes with bankrupted Garden Fresh Restaurant Intermediate Holdings, among others), and (v) poor risk management procedures. On the latter point, it seems the company was a wee bit cavalier about not-at-all-serious matters like alcohol awareness, sexual harassment and food handling safety; therefore, it “experienced higher-than-normal litigation and enforcement-related expenses.” Yikes.

Now, back in October 2016 — in the context of Garden Fresh’s chapter 11 filing — we asked “Are Progressives Bankrupting Restaurants?” Therein we highlighted the following:

…Morberg's explanation for the bankruptcy went a step farther. He noted that cash flow pressures also came from increased workers' compensation costs, annual rent increases, minimum wage increases in the markets they serve, and higher health benefit costs -- a damning assessment of popular progressive initiatives making the rounds this campaign season. And certainly not a minor statement to make in a sworn declaration.  

It's unlikely that this is the last restaurant bankruptcy in the near term. Will the next one also delineate progressive policies as a root cause? It seems likely.

Points for PETITION’s bullseye?

Notably, here, the company also underscores that employee costs were a significant contributor to its liquidity constraints. It states:

While struggling with the specific issues discussed above, the Debtors have also suffered from rising employee wage costs, which are particularly high in California, where the vast majority of the Debtors’ restaurants are located. In an attempt to minimize these costs, the Debtors have implemented a scheduling program that has reduced employee hours and has optimized both front-of-house and back-of-house staffing.

Welcome to the party, Mr. Unintended Consequences.

The company seeks to use the bankruptcy process to effectuate the afore-mentioned sale to Z Capital. While the purchase price is a mere fraction of the debt on balance sheet, Z Capital’s proposed stalking horse asset purchase agreement also provides that it will “offer employment to all Company employees at purchased restaurants who are employed at the closing, and may offer employment to other Company employees as well.” In other words, this may be one of those instances where the funds lose on their investments but the (remaining) employees come out relatively okay. Z Capital and Tennenbaum are also providing the company with a $5.5mm DIP credit facility to finance operations during course of the cases.

  • Jurisdiction: D. of Delaware (Judge [ ])

  • Capital Structure: $41.7mm first lien credit facility (Wells Fargo Bank NA), $195.1mm second lien credit facility (Wells Fargo Bank NA), $17.53mm in secured reimbursement obligation loans (from Letters of Credit), $53.62mm unsecured subordinated convertible debt (Z Capital = large holder)    

  • Company Professionals:

    • Legal: Sidley Austin LLP (Vijay Sekhon, Christina Craige, Ariella Thal Simonds) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Elizabeth Justison, Andrew Magaziner, Edmon Morton, Michael Nestor)

    • Financial Advisor: Alvarez & Marsal LLC (Jonathan Tibus)

    • Investment Banker: Piper Jaffray & Co. (Jean Hosty, Terri Stratton, Michael Sutter) 

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

  • Other Parties in Interest:

    • Stalking Horse Bidder & DIP Lender: Z Capital Group LLC (Legal: Cleary Gottlieb Steen & Hamilton LLP & (local) Morris Nichols Arsht & Tunnell LLP)

    • DIP Lender: Tennenbaum Capital Partners (Legal: Schulte Roth & Zabel LLP & (local) Landis Rath & Cobb LLP)

    • DIP Agent: Wells Fargo Bank NA (Thompson & Hine LLP)

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)