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 22 Filing - Relativity Fashion Inc.

Relativity Fashion Inc.

5/3/18

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

More to come...

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

New Chapter 11 Bankruptcy & CCAA - Toys "R" Us Inc.

Toys "R" Us Inc.

  • 9/19/17 Recap: So. Much. To. Unpack. Here. We've previously discussed the run-up to this massive chapter 11 bankruptcy filing here and here. Still, suffice it to say that, unlike many of the other retailers that have predictably filed for bankruptcy thus far in 2017, this one was different. This one seemingly came out of nowhere - particularly given the proximity to the holiday shopping season. Before we note what this case is, lets briefly cover what it isn't and clear the noise that is pervasive on the likes of Twitter: this is NOT "RIP" Toys "R" Us. We don't get overly sentimental usually but the papers filed with the bankruptcy court were well-written and touching: this is a store, a brand, that means a lot to a lot of people. And it's not going anywhere (the company will have its challenges to assure people that this is the case). This is a financial restructuring not a liquidation: the company simply hasn't been able to evolve while paying $400mm in annual interest expense on over $5b of private equity infused debt. Plain and simple. Yes, there are other challenges (blah blah blah, Amazon), but with that debt overhang, it appears the company hasn't been able to confront them (PETITION side note: an ill-conceived deal with Amazon 18 years ago is mind-blowing when viewed from the perspective of Amazon's long game). With this filing, the company is signaling that the time for short term band-aids to address its capital structure is over. Now, "[t]he time for change, and reinvestment in operations, has come." Decisive. Management isn't messing around anymore. With a reduction in debt, the company will be unshackled and able to focus on "general upkeep and the condition of...stores, [its] inability to provide expedited shipping options, and [its] lack of a subscription-based delivery service." Indeed, the company intends to use a $3.1b debtor-in-possession credit facility to begin investing in modernization immediately.
  • Interesting Facts:
    • Toy Manufacturers: Mattel ($MAT)(approx $136mm), Hasbro ($HAB) (approx $59mm) & Lego (approx $31.5mm) are among the top general unsecured creditors of the company. Mattel and Hasbro's stock traded down quite a bit yesterday on the rampant news of this filing. Query whether any of the $325mm of requested critical vendor money will apply to these companies.
    • The Power of the Media (read: NOT "fake news"): This CNBC piece helped push the company into bankruptcy. Bankruptcy professionals were retained in July (or earlier in the case of Lazard) to pursue capital structure solutions. In August the company engaged with some of its lenders. But then "...a news story published on September 6, 2017, reporting that the Debtors were considering a chapter 11 filing, started a dangerous game of dominos: within a week of its publication, nearly 40 percent of the Company’s domestic and international product vendors refused to ship product without cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Further, many of the credit insurers and factoring parties that support critical Toys “R” Us vendors withdrew support. Given the Company’s historic average of 60-day trade terms, payment of cash on delivery would require the Debtors to immediately obtain a significant amount—over $1.0 billion—of new liquidity." 
    • Revenue. The company generates 40% of its annual revenue during the holiday season.
    • Footprint. The company has approximately 1,697 stores and 257 licensed stores in 38 countries, plus additional e-commerce sites in various countries. The company has been shedding burdensome above-market leases and combining its Babies and Toys shops under one roof; it intends to continue its review of its real estate portfolio. Read: there WILL be store closures.
    • Eff the Competition. Toys has some choice words for its competition embedded in its bankruptcy papers; it accuses Walmart ($WMT) and Target ($TGT)(the "big box retailers") of slashing prices on toys and using toys as a loss leader to get bodies in doors; it further notes that "retailers such as Amazon are not concerned with making a profit at this juncture, rendering their pricing model impossible to compete with..." ($AMZN). Yikes. 
    • Experiential Retail. The company intends to invest in the "shopping experience" which will include (i) interactive spaces with rooms to use for parties, (ii) live product demonstrations put on by trained employees, and (iii) the freedom for employees to remove product from boxes to let kids play with the latest toys. And...wait for it...AUGMENTED REALITY. Boom. Toysrus.ar and Toysrus.ai here we come. 
  • Jurisdiction: E.D. of Virginia (Judge Phillips)
  • Capital Structure: see below     
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (Jamie Sprayragen, Anup Sathy, Edward Sassower, Chad Husnick, Joshua Sussberg, Robert Britton, Emily Geier) & (local) Kutak Rock LLP (Michael A. Condyles, 
      Peter J. Barrett, Jeremy S. Williams) & (Canadian counsel) Goodmans LLP
    • Legal to the Independent Board of Directors: Munger, Tolles & Olson LLP
    • Financial Advisor: Alvarez & Marsal North America LLC (Jeffrey Stegenga, Jonathan Goulding, Tom Behnke, Cari Turner, Jim Grover, Arjun Lal, Doug Lewandowski, Bobby Hoernschemeyer, Scott Safron, Kara Harmon, Nick Cherry, Adam Fialkowski)
    • Investment Banker: Lazard Freres & Co., LLC (David Kurtz)
    • Real Estate Consultant: A&G Realty Partners LLC (Andrew Graiser)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Communications Consultant: Joele Frank Wilkinson Brimmer Katcher
  • Other Parties in Interest:
  • ABL/FILO DIP Admin Agent: JPMorgan Chase Bank NA
    • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Brian Resnick, Eli Vonnegut, Veerle Roovers) & (local) Hunton & Williams LLP (Tyler Brown, Henry (Toby) Long III, Justin Paget)
  • DIP Admin Agent (Toys DE Inc). NexBank SSB & Ad Hoc Group of B-4 Lenders (Angelo Gordon & Co LP; Franklin Mutual Advisors LLC, HPS Investment Partners LLC, Marathon Asset Management LP, Redwood Capital Management LLC, Roystone Capital Management LP, and Solus Alternative Asset Management LP)
    • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus, Neil Chatani) & (local) McGuireWoods LLP (Dion Hayes, Sarah Bohm, Douglas Foley)
  • Ad Hoc Group of Taj Noteholders.
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Samuel Lovett, Kellie Cairns) & (local) Whiteford Taylor & Preston LLP (Christopher Jones, Jennifer Wuebker)
  • Steering Committee of B-2 and B-3 Lenders (American Money Management, Columbia Threadneedle Investments, Ellington Management Group LLC, First Trust Advisors L.P., MJX Asset Management LLC, Pacific Coast Bankers Bank, Par-Four Investment Management LLC, Sound Point Capital Management, Taconic Capital Advisors LP).
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, D. Tyler Nurnberg, Sarah Gryll, Rosa Evergreen)
  • 12% ’21 Senior Secured Notes Indenture Trustee: Wilmington Trust, National Association.
    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) ThompsonMcMullan PC (David Ruby, William Prince IV)
  • Bank of America NA
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, George Howard) & (local) Troutman Sanders LLP (Jonathan Hauser)
    • Private Equity Sponsors: Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. L.P. ($KKR), and Vornado Realty Trust ($VNO)
  • Large Creditor: Mattel Inc.
    • Legal: Jones Day (Richard Wynne, Erin Brady, Aaron Gober-Sims) & (local) Michael Wilson PLC (Michael Wilson)
  • Large Creditor: LEGO Systems Inc.
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Kelly DiBlasi) & (local) Walcott Rivers Gates (Cullen Speckhart)
  • Large Creditor: American Greetings Corporation.
    • Legal: Baker & Hosteler LLP (Benjamin Irwin, Eric Goodman)
  • Creditor: River Birch Capital
    • Legal: Andrews Kurth & Kenyon LLP (Paul Silverstein)
  • Creditor: Owl Creek Asset Management
    • Legal: Stroock Stroock & Lavan LLP (Samantha Martin)
  • TRU Trust 2016-TOYS, Commercial Mortgage Pass-Through Certificates, Series 2016-TOYS acting through Wells Fargo Bank NA
    • Legal: Dechert LLP (Allan Brilliant, Brian Greer, Stephen Wolpert, Humzah Soofi) & (local) Troutman Sanders LLP (Jonathan Hauser)
  • Trustee: Tru Taj DIP Notes (Wilmington Savings Fund Society FSB)
    • Legal: Porter Hedges LLP (Eric English) & (local) Spotts Fain PC (James Donaldson)
  • Committee of Unsecured Creditors (Mattel Inc., Evenflo Company Inc., Simon Property Group, Euler Hermes North America Insurance Co., Veritiv Operating Company, Huffy Corporation, KIMCO Realty, The Bank of New York Mellon, LEGO Systems Inc.)
First Day Declaration

First Day Declaration

First Day Declaration

First Day Declaration

Updated 10/5/17 11:40 am

New Chapter 11 Filing - EB Holdings II Inc. (Eco-Bat)

EB Holdings II Inc.

  • 5/18/17 Recap: When you fail to repay nearly 1.8 billion Euro on a (PIK) note, you risk getting yo' a$$ involuntaried into bankruptcy court. Which is exactly the game of chicken that EB Holdings II Inc., the parent to lead recycling behemoth Eco-Bat, played with some irritated and aggressive hedge funds like GoldenTree Asset Management and Fortress Investment Group (see list below). The company, though, is of the view that this is all just a charade to avoid discovery in a state court trial to come. Apparently, there have been a variety of lawsuits and countersuits since Summer 2016 including some sexy allegations that sound a whole lot like fraud. So, the PIK lenders filed the involuntary petition to ensure that the company acts as a fiduciary to its creditors and get the benefit of court oversight over a principal they think is shady AF. 
  • Jurisdiction: D. of Nevada
  • Capital Structure: 1.8b EUR PIK debt (GLAS USA LLC)    
  • Company Professionals:
    • Legal: Garman Turner Gordon (Gregory Garman, Talitha Kozlowski, Gabrielle Hamm)
  • Other Parties in Interest:
    • Ad Hoc PIK Lender Group (GoldenTree Asset Management LP, Alcentra Limited, Fortress Investment Group/Mount Kellett Capital Management, HIG Capital International Advisors LLP/Bayside Capital, Sound Point Capital Management LP, Varde Partners Europe LImited)
      • Legal: Kirkland & Ellis LLP (James Sprayragen, Paul Basta, David Zott, William Guerrieri) & (local) Fox Rothschild LLP (Brett Axelrod)
    • GLAS USA LLC
      • Legal: Wilmer Cutler Pickering Hale & Dorr LLP (Andrew Goldman, Michael Guipoone, Benjamin Loveland, Charles Platt)

Updated 5/19/17

New Chapter 11 Filing - Goodman Networks Inc.

Goodman Networks Inc.

  • 3/13/17 Recap: Frisco Texas-based minority-business-enterprise (MBE) and wireless network and satellite television systems servicer filed a prepackaged chapter 11 case to de-lever its balance sheet by $212.5mm. This is a story, in many respects, about a concentrated revenue base and too much debt. 83% of the company's revenue is attributable to AT&T and "substantial completion of AT&T's 4G network build-out has diminished the associated demand for Goodman's services." Consequently, the company wasn't generating enough revenue to sustain its capital structure. Now, holders of the secured debt will receive cash, $112.5mm of new debt, PIK preferred stock and common stock. To preserve the MBE status, current equity will get PIK preferred stock and 50.1% of the common stock. Query whether that level of retained equity is a lesson to those who invested in this MBE structure. 
  • Jurisdiction: S.D. of Texas
  • Capital Structure: $25mm RCF (MidCap Financial Trust), $325mm '18 12.125 % secured notes (Wells Fargo)
  • Company Professionals: 
    • Legal: Kirkland & Ellis LLP (Patrick Nash, Joshua Sussberg, Joseph Graham, Laura Krucks, Alexander Cross) & (local) Haynes & Boone LLP (Stephen Pezanosky, Kelli Norfleet)
    • Financial Advisor: FTI Consulting (John Debus)
    • Investment Banker: June Creek Interests (Andy Jent)
    • Claims Agent: KCC (*click on company name for docket)
  • Other Parties in Interest:
    • Ad Hoc Committee of Second Lien Bondholders (Alden Global, AllianceBernstein Global LP, J.P. Morgan Investment Management Inc., J.P Morgan Chase Bank N.A., Phoenix Investment Advisor LLC, Principal Global Investors LLC, Invesco Senior Secured Management Inc., Sound Point Capital Management LP)
      • Legal: Akin Gump (Michael Stamer, Charles Gibbs, Meredith Lahaie, Sara Brauner)
      • Financial: Greenhill & Co. Inc.
  • Wells Fargo
    • Legal: Reed Smith LLP (Eric Schaffer, Lloyd Lim, Maura Nuno)
  • AT&T Corp.
    • Legal: Sidley Austin LLP (Brian Lohan)

Updated 3/28/17