🏠New Chapter 11 Bankruptcy Filing - Stearns Holdings LLC🏠

Stearns Holdings LLC

July 9, 2019

Hallelujah! Something is going on out in the world aside from the #retailapocalypse and distressed oil and gas. Here, Blackstone Capital Partners-owned Stearns Holdings LLC and six affiliated debtors (the “debtors”) have filed for bankruptcy in the Southern District of New York because of…drumroll please…rising interest rates. That’s right: the FED has claimed a victim. Stephen Moore and Judy Shelton must be smirking their faces off.

The debtors are a private mortgage company in the business of originating residential mortgages; it is the 20th largest mortgage lender in the US, operating in 50 states. We’ll delve more deeply into the business model down below but, for now, suffice it to say that the debtors generate revenue by producing mortgages and then selling them to government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. There are a ton of steps that have to happen between origination and sale and, suffice it further to say, that requires a f*ck ton of debt to get done. That said, on a basic level, to originate loans, the debtors require favorable interest rates which, in turn, lower the cost of residential home purchases, and increases market demand and sales activity for homes.

Except, there’s been an itsy bitsy teeny weeny problem. Interest rates have been going up. Per the debtors:

The mortgage origination business is significantly impacted by interest rate trends. In mid-2016, the 10-year Treasury was 1.60%. Following the U.S. presidential election, it rose to a range of 2.30% to 2.45% and maintained that range throughout 2017. The 10-year Treasury rate increased to over 3.0% for most of 2018. The rise in rates during this time period reduced the overall size of the mortgage market, increasing competition and significantly reducing market revenues.

Said another way: mortgage rates are pegged off the 10-year treasury rate and rising rates chilled the housing market. With buyers running for the hills, originators can’t pump supply. Hence, diminished revenues. And diminished revenues are particularly problematic when you have high-interest debt with an impending maturity.

This is where the business model really comes into play. Here’s a diagram illustrating how this all works:

Source: First Day Declaration, PETITION

Source: First Day Declaration, PETITION

The warehouse lenders got nervous when, over the course of 2017/18, mortgage volumes declined while, at the same time, the debtors were obligated to pay down the senior secured notes; they, rightfully, grew concerned that the debtors wouldn’t have the liquidity available to repurchase the originated mortgages within the 30 day window. Consequently, the debtors engaged PIMCO in discussions about the pending maturity of the notes. Over a period of several months, however, those discussions proved unproductive.

The warehouse lenders grew skittish. Per the debtors:

Warehouse lenders began reducing advance rates, increasing required collateral accounts and increasing liquidity covenants, further contracting available working capital necessary to operate the business. Eventually, two of the warehouse lenders advised the Debtors that they were prepared to wind down their respective warehouse facilities unless the Debtors and PIMCO agreed in principle to a deleveraging transaction by June 7, 2019. That did not happen. As a result, one warehouse lender terminated its facility effective June 28, 2019 and a second advised that it will no longer allow new advances effective July 15, 2019. The Debtors feared that these actions would trigger other warehouse lenders to take similar actions, significantly impacting the Debtors’ ability to fund loans and restricting liquidity, thereby jeopardizing the Debtors’ ability to operate their franchise as a going concern.

On the precipice of disaster, the debtors offered the keys to PIMCO in exchange for forgiveness of the debt. PIMCO rebuffed them. Subsequently, Blackstone made PIMCO a cents-on-the-dollar cash-out offer on the basis that the offer would exceed liquidation value of the enterprise and PIMCO again declined. At this point there’s a lot of he said, she said about what was offered and reneged upon to the point that it ought to suffice merely to say that the debtors, Blackstone and PIMCO probably aren’t all sharing a Hamptons house together this summer.

So, where did they end up?

The debtors have filed a plan of reorganization with Blackstone as plan sponsor. Blackstone agreed to inject $60mm of new equity into the business — all of which, notably, is earmarked to cash out the notes in their entirety (clearly at at discount — read: below par — for PIMCO and the other noteholders). The debtors also propose to subject Blackstone’s offer to a 30-day competitive bidding process, provided that (a) bids are in cash (credit bids will not be allowed) and (b) all obligations to the GSEs and other investors are honored.

To fund the cases the debtors have obtained a commitment from Blackstone for $35mm in DIP financing. They also sourced proposals from warehouse lenders prepetition and have obtained commitments for $1.5b in warehouse financing from Barclays Bank PLC and Nomura Corporate Funding Americas LLC (guaranteed, on a limited basis, by Blackstone). In other words, Blackstone is ALL IN here: with the DIP financing, the limited guarantee and the equity check, they are placing a stake in the ground when it comes to mortgage origination.

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

  • Capital Structure: $184mm 9.375% ‘20 senior secured notes (Wilmington Trust Association NA)

  • Professionals:

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Jay Goffman, Mark McDermott, Shana Elberg, Evan Hill, Edward Mahaney-Walter)

    • Financial Advisor: Alvarez & Marsal LLC (Robert Campagna)

    • Investment Banker: PJT Partners LP (Jamie O’Connell)

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

    • Board of Directors: David Schneider, William Cary, Glenn Stearns, Nadim El Gabbani, Chinh Chu, Jason Roswig, Chris Mitchell

  • Other Parties in Interest:

    • Indenture Trustee: Wilmington Trust Association NA

      • Legal: Alston & Bird LLP (Jason Solomon)

    • Major Noteholder: Pacific Investment Management Company LLC

      • Legal: Hogan Lovells US LLP (Bennett Spiegel, Stacey Rosenberg)

    • Blackstone Capital Partners VI-NQ/NF LP

      • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Jamie Fell)

    • Barclays Bank PC

      • Legal: Hunton Andrews Kurth LLP (Peter Partee Sr., Brian Clarke)

    • Nomura Corporate Funding Americas LLC

      • Legal: Milbank LLP (Mark Shinderman, Lauren Doyle) & Alston & Bird LLP (Karen Gelernt)

    • Fannie Mae

      • Legal: O’Melveny & Myers LLP (Stephen Warren)

    • Freddie Mac

      • Legal: McKool Smith PC (Paul Moak)

7/9/19 #30

⛽️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):

😬

  • 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 -- Fusion Connect Inc.

June 3, 2019

We previously wrote about Fusion Connect Inc. ($FSNN), providers of “Unified Communications-as-a-Service” and “Infrastructure-as-a-Service” in “⛈A Dark "Cloud" on the Horizon⛈.” Therein we marveled at how special Fusion must be…to fail SO SPECTACULARLY in today’s cloud here, cloud there, cloud everywhere, everyone’s gaga for cloud environment. Cloud is SO captivating that it wasn’t until the company filed a piss poor 8-K back in April that a B. Riley FBR ($RILY) analyst FINALLY had an epiphany and declared that the company’s stock ought to be downgraded from “buy” to “neutral” (huh?!?) with a price target of $0.75 — down from $9.75/share. This is despite the fact that the stock hadn’t traded anywhere in the vicinity of $9.75/share in ages — nowhere even close, actually — but whatevs. Clearly, his head was in the cloud(s). This, ladies and gentlemen, demonstrates, in a nutshell, the utter worthlessness of equity analyst reports.🖕

But this isn’t a story about shoddy analyst research. That would be wholly unoriginal. This is a story about synergies and burdensome debt. Because, like, that’s so super original that you won’t read of it again until…well…you scroll below to the next bit of content about FTD!! 🙄

Boiled down to its simplest form, this company is the product of an acquisition strategy (and reverse merger) gone wrong. Like, in a majormajor way. Per the company:

The Company pursued the Birch Merger with a vision of leveraging its existing processes and structures to create synergies between Fusion’s and Birch’s joined customer bases, combine network infrastructure assets to improve operational efficiencies, and ultimately drive material growth in Fusion’s and Birch’s combined annual revenue. In connection with the Birch Merger and MegaPath Merger, the Company incurred $680 million in secured debt(emphasis added)

That reverse merger closed at the end of Q2, 2018. Yet…

Unfortunately, due to underperformance compared to business projections, the Company found itself with limited liquidity and at risk of default under its debt documents by early 2019.

Wait, what? Limited liquidity and risk of default by “early 2019”?!? Who the f*ck diligenced and underwrote this transaction?!? This sitch is so bad, that the company literally didn’t have enough liquidity to make a recent $6.7mm amort payment under the first lien credit agreement and a $300k interest payment on its unsecured debt. This is the company’s pre-petition capital structure:

  • $20mm super senior L+10% June 2019 debt

  • $43.3mm Tranche A Term Loans L+6.0% May 2022 debt

  • $490.9mm Tranche B Term Loans L+8.5% May 2023 debt

  • $39mm Revolving Loans L+6.0% May 2022 debt

  • $85mm Second Lien L+10.5% November 2023 debt

  • $13.3mm Unsecured Debt

Back in April we summed up the situation as follows:

The company’s recent SEC reports constitute a perfect storm of bad news. On April 2, the company filed a Form 8-K indicating that (i) a recently-acquired company had material accounting deficiencies that will affect its financials and, therefore, certain of the company’s prior filings “can no longer be relied upon,” (ii) it won’t be able to file its 10-K, (iii) it failed to make a $7mm interest payment on its Tranche A and Tranche B term loan borrowings due on April 1, 2019, and (iv) due to the accounting errors, the company has tripped various covenants under the first lien credit agreement — including its fixed charge coverage ratio and its total net leverage ratio.

Again, who diligenced the reverse merger?!? 😡

So here we are. In bankruptcy. To what end?

The company is seeking a dual-path restructuring that is all the rage these days: everyone loves to promote optionality that will potentially result in greater value to the estate. In the first instance, the company proposes, as a form of “stalking horse,” a “reorganization transaction” backed by a restructuring support agreement with certain of its lenders. This transaction would slash $300mm of the company’s $665mm of debt and result in the company’s first lien lenders owning the company. That is, unless a buyer emerges out of the woodwork with a compelling purchase price. To promote this possibility, the company is filing a bid procedures motion with the bankruptcy court with the hope of an eventual auction taking place. If a buyer surfaces with mucho dinero, the company will toggle over to a sale pursuant to a plan of reorganization. This would obviously be the optimal scenario. Absent that (and maybe even with that), we’ve got a jaw-dropping example of value destruction. “Fail fast,” many in tech say. These cloud bros listened!! Nothing like deep-sixing yourself with a misguided poorly-diligenced acquisition. Bravo!!

The company has secured a commitment for a fully-backstopped $59.5mm DIP that subsumes the $20mm in super senior pre-petition bridge financing recently provided by the first lien lenders. Is this DIP commitment good for general unsecured creditors? Is any of this generally good for unsecured creditors? Probably not.

Major creditors include a who’s who of telecommunications companies, including AT&T Inc. ($T) (first Donald Trump and now THIS…rough week for AT&T), Verizon Communications Inc. ($VZ)XO Communications (owned by VZ), Frontier Communications Corp. ($FTR)(which has its own issues to contend with as it sells assets to sure up its own balance sheet), CenturyLink Inc. ($CTL)Level 3 Communications ($LVLT)Time Warner Inc. ($TWX), and….wait for it…bankrupt Windstream Communications ($WINMQ). Because the hits just keep on coming for Windstream….

machete.gif

Jurisdiction: S.D. of New York (Judge Bernstein)

  • Capital Structure: see above.

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Sunny Singh, Natasha Hwangpo)

    • Board of Directors: Matthew Rosen, Holcombe Green Jr., Marvin Rosen, Holcombe Green III, Michael Del Guidice, Lewis Dickey Jr., Rafe de la Gueronniere, Neil Goldman)

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

    • Investment Banker: PJT Partners (Brent Herlihy, John Singh)

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

  • Other Parties in Interest:

    • Ad Hoc First Lien Lender Group

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen)

      • Financial Advisor: Greenhill & Co. Inc.

    • DIP Lender: Credit Suisse Loan Funding LLC

    • DIP Agent, Prepetition Super Senior Agent & Prepetition First Lien Agent: Wilmington Trust NA

      • Legal: Arnold & Porter Kaye Scholer (Michael Messersmith, Sarah Grylll, Alan Glantz)

    • Prepetition Second Lien Successor Agent: GLAS America LLC & GLAS USA LLC

    • Ad Hoc Group of Tranche A Term Loan/Revolving Lenders

      • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Soogy Lee, Edward Linden)

    • Second Lien Lenders

      • Legal: Proskauer Rose LLP (Charles Dale, Jon English)

    • Large Unsecured Creditor: AT&T

      • Legal: Norton Rose Fulbright US LLP (David Rosenzweig, Francisco Vazquez)

Updated 6/4/19 at 5:42am


⛽️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 Bankruptcy Filing - Bristow Group Inc.🚁

Bristow Group Inc.

May 11, 2019

Nothing like being late to the party. Following in the footsteps of fellow helicopter transportation companies Erickson Inc., CHC Group, Waypoint Leasing* and PHI Inc., Bristow Group Inc. ($BRS) and its eight affiliated debtors are the latest in the space to find their way into bankruptcy court. The company enters bankruptcy with a restructuring support agreement and a $75mm DIP financing commitment with and from its senior secured noteholders.

While each of the aforementioned companies is in the helicopter transportation space, they don’t all do exactly the same business. PHI, for instance, has a fairly large — and some might say, attractive — medical services business. Bristow, on the other hand, provides industrial aviation and charter services primarily to offshore energy companies in Europe, Africa, the Americas and the Asian Pacific; it also provides search and rescue services for governmental agencies, in addition to the oil and gas industry. Like the other companies, though: it is not immune to (a) the oil and gas downturn and (b) an over-levered balance sheet.

At the time of this writing, the debtors’ chapter 11 filing wasn’t complete and so details are scant. What we do know, however, is that the company does have a restructuring support agreement executed with “the overwhelming majority” of senior secured noteholders and a $75mm DIP commitment.

*Waypoint Leasing is listed as the 14th largest creditor, owed nearly $104k. Sheesh. These businesses can’t catch a break.

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

  • Capital Structure:

  • Professionals:

    • Legal: Baker Botts LLP (James Prince, Omar Alaniz, Ian Roberts, Kevin Chiu, Emanuel Grillo, Chris Newcomb)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • ABL Facility Agent: Barclays Bank PLC

    • 2019 Term Loan Agent: Ankura Trust Company LLC

    • Indenture Trustee for the 8.75% ‘23 Senior Secured Notes: U.S. Bank NA

    • Indenture Trustee for the 6.25% ‘22 Senior Notes and 4.5% ‘23 Convertible Senior Notes: Wilmington Trust NA

    • Ad Hoc Group of Secured Notes and Term Lenders (Blackrock Financial Management Inc., DW Partners LP, Highbridge Capital Management LLC, Oak Hill Advisors LP, Whitebox Advisors LLC)

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Natasha Tsiouris) & (local) Haynes and Boone LLP (Charles Beckham, Kelli Norfleet, Martha Wyrick)

    • Ad Hoc Group fo Unsecured Noteholders

      • Legal: Kramer Levin Naftalis & Frankel LLP

New Chapter 11 Bankruptcy Filing - Hospital Acquisition LLC

Hospital Acquisition LLC

May 6 & 7, 2019

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

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

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

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

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Shannon)

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

  • Professionals:

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

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

    • Investment Banker: BRG Capital Advisors LLC

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

  • Other Parties in Interest:

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

    • White Oak Healthcare Finance LLC

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

    • Marathon Asset Management

      • Legal: Ropes & Gray LLP (Matthew Roose)

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

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

    • Official Committee of Unsecured Creditors

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

Updated 5/18

New Chapter 11 Filing - Hexion Holdings LLC

Hexion Holdings LLC

April 1, 2019

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

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

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

This is what that capital structure looks like:

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: See above.

  • Professionals:

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

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

    • Financial Advisor: AlixPartners LLP

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

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

  • Other Parties in Interest:

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

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

      • Financial Advisor: Evercore Group LLC

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

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

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Ad Hoc Group of 1.5 Lien Noteholders

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

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

      • Legal: Simpson Thacher & Bartlett LLP

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

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

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

      • Legal: Arnold & Porter Kaye Scholer LLP

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

    • Sponsor: Apollo

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

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

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

Updated:

New Chapter 11 Bankruptcy 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)

Screen Shot 2019-02-25 at 9.04.55 PM.png

New Chapter 11 Bankruptcy Filing - FULLBEAUTY Brands Holdings Corp.

FULLBEAUTY Brands Holdings Corp.

February 3, 2019

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


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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

  • Capital Structure: $mm debt     

  • Company Professionals:

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

    • Independent Director: Mohsin Meghji

    • Financial Advisor: AlixPartners LLC

    • Investment Banker: PJT Partners LP (Jamie Baird)

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

  • Other Parties in Interest:

    • Financial Sponsor (69.6%): Apax Partners LLP

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

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

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

    • ABL Agent & FILO Agent: JPMorgan Chase Bank NA

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

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

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

    • Ad Hoc Group of First Lien Term Loan Lenders

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

      • Financial Advisor: Ducera Partners

    • Ad Hoc Group of Second Lien Term Loan Lenders

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

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

Updated 2/4/19 at 7:03 CT

New Chapter 11 Bankruptcy Filing - Petroquest Energy Inc.

Petroquest Energy Inc.

November 6, 2018

Petroquest Energy Inc. ($PQUE), an independent energy company engaged in the exploration, development, acquisition and production of oil and gas reserves in Texas and Louisiana, managed to stave off bankruptcy back during the oil and gas downturn. How? Well, this is how:

Source: First Day Declaration

Source: First Day Declaration

Bankruptcy, however, caught up to it anyway.

The company filed for bankruptcy in the Southern District of Texas with a restructuring support agreement in tow. The terms of the RSA reflect that (i) the prepetition term lenders will be paid in full with an exit facility, (ii) the holders of second lien notes will have an option to participate in the exit facility (which will be fully backstopped by certain consenting creditors), and (iii) the prepetition second lien noteholders will receive 100% equity in the reorganized PetroQuest, a backstop fee in connection with provision of the exit facility, and $80mm of new second lien PIK notes. All of which is to say that the company will meaningfully de-lever its balance sheet. Meanwhile, general unsecured creditors will get $400k and all equityholders will, shockingly, get wiped.

More to come…

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

  • Capital Structure: $50mm Term Loan, $9.4mm second lien debt, $275mm second lien PIK debt (Wilmington Trust NA)     

  • Company Professionals:

    • Legal: Porter Hedges LLP (John Higgins, Joshua Wolfshohl, M. Shane Johnson)

    • Financial Advisor: FTI Consulting Inc.

    • Investment Banker: Seaport Global Securities

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

  • Other Parties in Interest:

    • Second Lien Agent: Wilmington Trust NA

      • Legal: Reed Smith LLP (Kurt Gwynne)

New Chapter 11 Bankruptcy Filing - FR Dixie Holdings Corp.

FR Dixie Holdings Corp.

November 2, 2018

Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.

For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.

The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:

Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.

Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $19.6mm revolver, $267.4mm TL (Wilmington Trust NA), $8mm unsecured loans    

  • Company Professionals:

    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, David Baruch) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach, Elizabeth Justison, Tara Pakrouh)

    • Financial Advisor: BDO USA LLP

    • Investment Banker: PJT Partners LP (Peter Laurinaitis, Joseph Fallon)

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

  • Other Parties in Interest:

    • Ad Hoc Group of Prepetition Secured Lenders

      • Legal: Davis Polk & Wardwell LLP & (local) Morris Nichols Arsht & Tunnell LLP

      • Financial Advisor: Ankura Consulting Group

Updated 11/2 7:45am CT

New Chapter 11 Bankruptcy Filing - Gastar Exploration Inc.

Gastar Exploration Inc.

October 31, 2018

The fallout from the oil and gas downturn appears to have a long tail.

Gastar Exploration Inc. ($GST), an oil and natural gas exploration and production company focused on shale resource plays in Oklahoma filed a prepackaged bankruptcy in the Southern District of Texas.

For anyone looking for a short primer on what exactly transpired in oil and gas country upon the 2014 downturn in commodity prices is in luck: the company provides a succinct explanation in its bankruptcy filings. It notes:

The market difficulties faced by the Debtors are consistent with those faced industry-wide. Oil and gas companies and others have been challenged by low natural gas prices for years. Since January 2014, natural gas prices fell from a peak of $5.39 per MMBtu in January 2014 to $1.73 per MMBtu by March 2016, and remain at approximately $3.17 per MMBtu. The price of crude oil has similarly plummeted from a high of $107.26 per barrel in June 2014 to a low of $29.64 per barrel in January 2016. Crude oil prices remain at approximately $67 per barrel. Additionally, NYMEX futures curves for both natural gas and crude oil are backward dated, indicating an expectation among real-money traders in the derivatives market that these commodity prices are expected to decline over the next several years.

These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues are generated from the sale of unrefined oil and gas. Over 160 oil and gas companies have filed for chapter 11 since the beginning of 2015. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings.

The Debtors were not immune to these macro-economic forces.

With hundreds of millions of dollars of debt, the company managed to avoid a bankruptcy filing during that time. This is primarily due to a 2017 refinancing transaction that it consummated with Ares Management LLC pursuant to which the company took on new first lien term loans, new second lien converts, and obtained a $50mm equity investment from Ares. The capital structure, at the petition date, is comprised of these term loans and converts. The company intended the new financing to help it weather the downturn and bridge it to a more favorable operational performance and capital markets environment. Alas, it’s in bankruptcy. So, we guess we know how those intentions played out in reality. Indeed, the company experienced significant operational challenges that resulted in a decreased in well production performance — a result that came to pass only after the company incurred the costs of production. Sheesh.

Now the company seeks, in partnership with Ares, to push through a speedy chapter 11 bankruptcy that would have the effect of deleveraging the balance sheet by approximately $300mm, handing all of the equity to Ares (on account of their second lien notes claims), and wiping out the preferred and common equity — which would only be entitled to warrants in reorganized Gastar if they don’t object to the restructuring or seek the appointment of an official committee of equity security holders. Which in the case of both common equityholders (Fir Tree Capital Management LP & York Capital Management Global Advisors LLC) and preferred equityholders…uh…is exactly what they’re doing. Clearly those warrants weren’t much of a carrot. And Judge Isgur happens to have previously demonstrated a soft spot in his heart for equity committees. See, e.g., Energy XXI.

Prior to the first day hearing, Fir Tree and York (by attorneys Quinn Emanuel - a sign of seriousness) filed an emergency motion seeking the appointment of an equity committee alleging, among other things, that the company’s plan is a pure Ares jam fest. They seek an investigation of Ares’ actions (including the refinancing transaction), citing the Energy XXI case, and noting in the process that with unsecured creditors riding through the plan, there is no viable adversary to the debtor other than the zeroed-out equity. Which makes this a private equity vs. hedge fund hootenanny!

Subsequently, an ad hoc committee of preferred stockholders filed a motion joining the arguments of Fir Tree and York, noting, however, that as a preferred equity they’re liquidation preference trumps the interest of the common stockholders. They, too, want an investigation into Ares’ involvement in these cases.

A hearing is scheduled for later this week.

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

  • Capital Structure: see below (+$13.3mm in hedging obligations).     

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (Ross Kwasteniet, Anna Rotman, John Luze, Ciara Foster, Brett Newman) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

    • Financial Advisor: Dacarba LLC

    • Investment Banker: Perella Weinberg Partners LP (Kevin Cofsky)

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

  • Other Parties in Interest:

    • Financial Sponsor: Ares Management LLC

      • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Robert Liubicic, Haig Maghakian)

    • Minority Shareholders: Fir Tree Capital Management LP & York Capital Management Global Advisors LLC

      • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Emily Smith, K. John Shaffer, Benjamin Finestone, Kate Scherling)

    • Ad Hoc Committee of Preferred Stock Holders (Aedes LLC)

      • Legal: Hunton Andrews Kurth LLP (Paul Silverstein, David Zdunkewicz, Brian Clarke, Timothy Tad Davidson II)

    • DIP Agent & TL Agent: Wilmington Trust NA

      • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, Brian Lohan, Seth Kleinman)

Source: First Day Declaration

Source: First Day Declaration

New Chapter 22 Filing - Geokinetics Inc.

Geokinetics Inc.

6/25/18

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

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

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

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

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

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

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

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

Updated 6/26 6:54 PT

New Chapter 11 Filing - Gibson Brands Inc.

Gibson Brands Inc.

5/1/18

After months of speculation (which we have covered here and elsewhere), the famed Nashville-based guitar manufacturer has finally filed for Chapter 11. We're old enough to remember this:

Late Tuesday, GIbson Brands CEO Henry Juszkiewicz denied all of the reports and indicated via press release that a plan was underway to salvage the brand.

What Mr. Juszkiewicz didn't say was that "a plan" actually meant a "plan of reorganization." Which is okay: nobody believed him anyway. 

And here's why: in the company's First Day Declaration, the company proudly boasts,

The Debtors' strength, rooted in their iconic Gibson, Epiphone, KRK, and other brands that have shaped the music industry for over 100 years, have been the brands of choice for countless musicians and recording artists, including some of the most legendary guitarists in history such as Muddy Waters, BB King, Elvis Presley, Pete Townsend, Keith Richards, Duane Allman, Elvis Costello, Lenny Kravitz, Slash, Dave Grohl, Joe Bonamassa, and Brad Paisley, among others. 

Anyone else see an issue with this lineup? Legends, sure, but not exactly a group of artists you see listed on Coachella posters. Even in a publicly-available document, this company doesn't know how to market itself to the masses. Case and point, after Guitar Center got its out-of-court deal done last week, we wrote the following:

Gibson may want to embrace the present. But we digress. 

Unbeknownst to many, however, Gibson is more than just its legendary guitars. No doubt, guitars are a big part of its business. According to the company's First Day Declaration (which, for the record, is one of the more jumbled incoherent narratives we've seen in a First Day Declaration in some time), 

Gibson has the top market share in premium electric guitars, selling over 170,000 guitars annually in over eighty (80) countries worldwide and selling over 40% of all electric guitars priced above $2,000.

But the company also expanded to include a "Professional Audio" segment, its musical instrument and pro-audio segment ("MI," which is positive cash flow), and a "Gibson Innovations" business ("GI"), which stems from a 2014 leveraged transaction. The latter business has been a drag on the overall enterprise ever since the transaction eventually leading to breaches of certain financial covenants under the company's senior secured bank debt financing agreements. The company was forced to pay down the debt to the tune of $60 million since the Fall of 2017, a cash drain which severely accentuated liquidity issues within that business. It came to this brutal reality: 

...the GI Business became trapped in a vicious cycle in which it lacked the liquidity to buy inventory and drive sales while at the same time it lacked the liquidity to rationalize its workforce to match its diminished operations.

That's rough. Even rougher is that on April 30, 2018, the GI business initiated formal liquidation proceedings under the laws of at least 8 different countries. Looks like Mr. Juszkiewicz' previous expansion "plan" was an utter disaster. 

⚡️Warning: Geeky stuff to follow ⚡️:

Now, the company is left with restructuring around the EBITDA- positive MI business with the hope of maximizing recovery for stakeholders. The holders of 69% of the principal amount of notes (PETITION NOTE: for the uninitiated, this satisfies the 2/3 in amount requirement of the bankruptcy code; unknown whether they satisfy the second prong of 1/2 in number) have entered into a Restructuring Support Agreement which would effectively equitize the notes and transfer ownership of MI to the noteholders. The company has also entered into a $135 DIP credit facility backstopped by an ad hoc group of noteholders to finance the company's trip through bankruptcy (the mechanic of which effectively rolls up some of the prepetition debt into the postpetition facility, giving the noteholders higher distribution priority). 

The RSA envisions a transaction whereby the company will exit bankruptcy with an untapped asset-backed lending facility and enough exit financing to pay off the DIP facility. So, the noteholders will collect some nice fees for about 9 months. The lenders under the DIP facility will have the option to cover the DIP monies into equity in the reorganized company at a 20% discount to the plan's valuation. 

⚡️Geeky Stuff Over. Now Back to Regularly Scheduled Snark ⚡️:

Naturally, current management has somehow convinced the new owners, i.e., the funds converting their notes into equity, that they're so invaluable that they should receive millions in "transition"-based compensation and warrants for upside preservation. Makes total sense. David Berryman, who runs Epiphone, will get a one year employment agreement paying $3.35 million, 5 year-warrants, and health benefits; Mr. Juszciewicz will get a one year "consulting agreement" paying $2.1 million, 5 year-warrants and health benefits (plus other profit-sharing incentives). It sure pays to run a company into bankruptcy these days. Naturally, they'll also get releases from any liability. Because, you know, bankruptcy!!

One final note: Thomas Lauria and White & Case LLP are listed as the 22nd highest creditor. Popping popcorn. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $17.5 million ABL (Bank of America NA)/ $77.4 million Term Loan (GSO Capital Solutions Fund II AIV-I LP), $375 million '18 8.875% senior secured notes (Wilmington Trust NA), $60 million ITLA loan (GI Business only)
  • Company Professionals:
    • Legal: Goodwin Proctor LLP (Michael H. Goldstein, Gregory W. Fox, Barry Z. Bazian) & (local) Pepper Hamilton LLP (David Stratton, David Fournier, Michael Custer, Marcy McLaughlin)
    • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Brian Fox) 
    • Investment Banker: Jefferies LLC (Jeffrey Finger)
    • Independent Directors: Alan Carr & Sol Picciotto
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent: Cortland Capital Market Services LLC
      • Legal: Arnold & Porter Kaye Scholer (D. Tyler Nurnberg, Steven Fruchter, Sarah Gryll) & (local) Young Conaway (same four names as below)
    • Prepetition ABL Agent: Bank of America NA
      • Legal: Winston & Strawn LLP (Jason Bennett, Christina Wheaton)
    • Indenture Trustee: Wilmington Trust NA
      • Legal: Shipman & Goodwin LLP (Marie Hofsdal, Patrick Sibley, Seth Lieberman, Eric Monzo)
    • Ad Hoc Group of Noteholders
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Robert Britton, Adam Denhoff, Kellie Cairns) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Betsy Feldman)
    • Ad Hoc Minority Noteholders Committee (Lord Abbett & Co. LLC, Wilks Brothers LLC)
      • Legal: Brown Rudnick LLP (Robert Stark, Steven Levine, Brian Rice) & (local) Ashby & Geddes PA (William Bowden)
    • Equity Holder: GSO Capital Partners LP
      • Legal: White & Case LLP (J. Christopher Shore, Andrew Zatz, Richard Kebrdle) & (local) Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Margaret Manning)

Updated 5/2 5:12 pm CT

New Chapter 11 Filing - VER Technologies Holdco LLC

VER Technologies Holdco LLC

4/4/18

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

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

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

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

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

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

Updated 5/19/18

New Chapter 11 - Remington Outdoor Company

Remington Outdoor Company

3/25/18

Remington Outdoor Company, a gun manufacturer, has finally filed for bankruptcy - a day after Americans took to the streets to #MarchforourLives. Ah, bankruptcy irony. The company's operations are truly national in scope; it has manufacturing facilities in New York and Alabama and a primary ammunition plant in Arkansas. Its "principal customers are various mass market retail chains (e.g., Wal-Mart and Dick's Sporting Goods) and specialty retail stores (e.g., Bass Pro Shops and Cabela's) and wholesale distributors (e.g., Sports South)." Guns! #MAGA!!

Why did the company have to file for bankruptcy? We refer you to our mock "First Day Declaration" from February here. Much of it continues to apply. Indeed, our mockery of the change in tone from President Obama to President Trump was spot on: post Trump's election, the company's inventory supply far exceeded demand. The (fictional) threat of the government going house-to-house to collect guns is a major stimulant to demand, apparently. Here is the change in financial performance,

"At the conclusion of 2017, the Debtors had realized approximately $603.4 million in sales and an adjusted EBITDA of $33.6 million. In comparison, in 2015 and 2016, the Debtors had achieved approximately $808.9 million and $865.1 million in sales and $64 million and $119.8 million in adjusted EBITDA, respectively."

Thanks Trump. 

We'd be remiss, however, if we didn't also note that NOWHERE in the company's bankruptcy filings does it mention the backlash against guns or the company's involvement in shootings...namely, the one that occurred in Las Vegas. 

The company, therefore, negotiated with its various lenders and arrived at a restructuring support agreement. The agreement provides for debtor-in-possession credit ($193mm asset-backed DIP + $100mm term loan DIP + $45mm DIP, the latter of which is a roll-up of a bridge loan provided by lenders prior to the filing). Upon the effective date of a plan of reorganization, the third lien lenders and term lenders will own the reorganized company. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $225mm ABL (Bank of America, $114.5mm funded), $550.5mm term loan (Ankura Trust Company LLC), $226mm 7.875% Senior Secured Notes due 2020 (Wilmington Trust NA), $12.5mm secured Huntsville Note     
  • Company Professionals:
    • Legal: Milbank Tweed Hadley & McCloy LLP (Gregory Bray, Tyson Lomazow, Thomas Kreller, Haig Maghakian) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)
    • Financial Advisor: Alvarez & Marsal LLC (Joseph Sciametta)
    • Investment Banker: Lazard (Ari Lefkovits)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP ABL Agent ($193mm): Bank of America NA (DIP ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank, Branch Banking and Trust Company, Synovus Bank, Fifth Third Bank, Deutsche Bank AG New York Branch)
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, Jason Liberi, Cameron Fee)
    • Admin Agent to the DIP TL: Ankura Trust Company LLC
      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Michele McGreal, Dylan Consla) & (local) Richards Layton & Finger LLP (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Ad Hoc Group of TL Lenders 
      • Legal: O'Melveny & Myers LLP (John Rapisardi, Andrew Parlen, Joseph Zujkowski, Amalia Sax-Bolder) & (local) Richards Layton & Finger LLP (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Third Lien Noteholders
      • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland, Joseph Minias, Debra McElligott) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Allison Mielke)
    • Wells Fargo Bank NA
      • Legal: Otterbourg PC (Andrew Kramer)
    • Cerberus Operations and Advisory Company, LLC
      • Legal: Schulte Roth & Zabel LLP (David Hillman)
    • Reorganized Board of Directors (Anthony Acitelli, Chris Brady, George W. Wurtz III, G.M. McCarroll, Gene Davis, Ron Coburn, Ken D'Arcy)
  • Official Committee of Unsecured Creditors
    • Legal: Fox Rothschild LLP (Michael Menkowitz, Paul Labov, Jason Manfrey, Jesse Harris, Seth Niederman)

Updated: 4/27/18

New Chapter 11 Filing - iHeartMedia Inc.

iHeartMedia Inc.

3/14/18

iHeartMedia Inc., a leading global media company specializing in radio, outdoor, mobile, social, live media, on-demand entertainment and more, has filed for bankruptcy -- finally succumbing to its $20 billion of debt ($16 billion funded) and $1.4 billion of cash interest in 2017. WOWSERS. The company purports to have "an agreement in principle with the majority of [its] creditors and [its] financial sponsors that reflects widespread support across the capital structure for a comprehensive plan to restructure...$10 billion..." of debt.

The company notes $3.6 billion of revenue and unparalleled monthly reach ((we'll have more to say about this in this Sunday's Members-only newsletter (3/18/18) - this claim deserves an asterisk)). 

Still, as it also notes, the company faces significant headwinds. It states in its First Day Declaration,

"Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending by the Debtors’ customers, which resulted in a corresponding decline in advertising revenues across the Debtors’ business. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry and the entry of on-demand streaming services, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast radio. The Debtors have taken various operational steps to stem the negative effect of these trends; among other initiatives, the Debtors have successfully developed emerging platforms including its industry-leading iHeartRadio digital platform and nationally-recognized iHeartRadio-branded live events that are audio and video streamed and televised nationwide."

The company ought to expect these trends to continue.

Large creditors include Cumulus Media Inc. (~$5.6 million...yikes) and Spotify (~$2 million).  

  • Jurisdiction: S.D. of Texas
  • Capital Structure:    
Screen Shot 2018-03-15 at 2.28.26 PM.png

 

  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Brian Wolfe, William Guerrieri, Christopher Marcus, Stephen Hackney, Richard U.S. Howell, Benjamin Rhode, AnnElyse Gibbons) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
    • Financial Advisor to the Company: Moelis & Co. 
      • Legal: Latham & Watkins LLP (Caroline Reckler, Matthew Warren)
    • Restructuring Advisor to the Company: Alvarez & Marsal LLC
    • Legal for the Independent Directors: Munger Tolles & Olson LLP (Kevin Allred, Seth Goldman, Thomas Walper, John Spiegel)
    • Financial Advisor to the Independent Directors: Perella Weinberg Partners LP
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Large Equity Holders: Bain Capital & Thomas H. Lee Partners
      • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Christopher Lopez, Gabriel Morgan)
    • Potential Buyer: Liberty Media Corporation & Sirius XM Holdings Inc.
      • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Alfredo Perez)
    • Successor Trustee for the 6.875% '18 Senior Notes and 7.25% '27 Senior Notes: Wilmington Savings Fund Society, FSB
      • Legal: White & Case LLP (Thomas Lauria, Jason Zakia, Erin Rosenberg, J. Christopher Shore, Harrison Denman, Michele Meises, Mark Franke, Michael Garza) & Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Ashley Harper)
    • Successor Trustee for the 11.25% '21 Priority Guaranty Notes
      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, Kristin Elliott)
    • Successor Trustee for the 14.00% Senior Notes due 2021
      • Legal: Norton Rose Fulbright (US) LLP (Jason Boland, Christy Rivera, Marian Baldwin Fuerst)
    • Term Loan/PGN Group
      • Legal: Jones Day (Thomas Howley, Bruce Bennett, Joshua Mester)
    • Ad Hoc Group of Term Loan Lenders
      • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Tyler Nurnberg, Sarah Gryll, Christopher Odell, Hannah Sibiski) 
    • TPG Specialty Lending Inc.
      • Legal: Schulte Roth & Zabel LLP (Adam Harris, David Hillman, James Bentley) & (local) Jones Walker LLP (Joseph Bain, Laura Ashley) 
    • Special Committees of the Board of Clear Channel Outdoor Holdings Inc.
      • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Christopher Koenig, Jennifer Jay Hardy)
    • Ad Hoc Committee of 14% Senior Noteholders of iHeart Communications
      • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matt Williams, Keith Martorana, Matthew Porcelli) & (local) Porter Hedges LLP (John Higgins, Aaron Power, Samuel Spiers)
    • 9.00% Priority Guarantee Notes due 2019 Trustee: Wilmington Trust NA
      • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Fliman, Brian Wells) & (local) Haynes and Boone, LLP (Charles Beckham Jr., Martha Wyrick, Kelsey Zottnick)
    • Citibank N.A.
      • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Locke Lord LLP (Berry Spears)
    • Delaware Trust Company
      • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer, Monica Tarazi, Victor Noskov)
    • Official Committee of Unsecured Creditors
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Charles Gibbs, Marty Brimmage)

Updated 3/30/18

New Chapter 11 Bankruptcy - Cobalt International Energy Inc. ($CIE)

Cobalt International Energy Inc.

  • 12/13/17 Recap: Houston-based publicly-traded ($CIE) deepwater exploration and production company operating in the U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa has filed for bankruptcy. The company blames "a failed sale of Cobalt’s Angolan assets and the related litigation, the prolonged downturn in the exploration and production industry, and nearly $3.0 billion of funded indebtedness" for its filing. The company seeks a sale in bankruptcy. Other than the failed 2016 Angolan transaction, this story is pretty similar to other E&P bankruptcies we've seen in the past. Upshot: offshore exploration is expensive and with oil in the high 50s (a relatively high number), the economics aren't there to support the capital structure. 
  • Jurisdiction: S.D. of Texas (Judge Isgur)
  • Capital Structure: $500mm '21 first lien notes (Wilmington Trust NA), $934.7mm '23 second lien notes (Wilmington Trust NA), $619.2mm '19 2.625% unsecured notes (Wells Fargo Bank NA), 3.125% $786.9mm '24 unsecured notes (Wells Fargo Bank NA)
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Marc Kieselstein, Chad Husnick, Brad Weiland, Laura Krucks, Gabor Balassa, Stacy Pepper) & (local) Zach A. Clement PLLC (Zach Clement)
    • Investment Banker: Houlihan Lokey Capital
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Ad Hoc Group of First Lien Notes
      • Legal: Weil Gotshal & Manges LLP (Matt Barr)
    • Ad Hoc Group of Second Lien Notes
      • Legal: Akin Gump Strauss Hauer & Feld LLP (James Savin)
    • First Lien Indenture
      • Legal: Wilmer Cutler Pickering Hale & Dorr LLP (Andrew Goldman)
    • Significant Equityholders: First Reserve GP XI Inc., The Carlyle Group, Riverstone Holdings LLC, Paulson & Co., Hotchkis and Wiley Capital Management LLC

New Chapter 11 Bankruptcy - Velocity Pooling Vehicle LLC

Velocity Pooling Vehicle LLC

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

Updated 11/17/17 6:11 CT

New Chapter 11 Filing - Pacific Drilling S.A.

Pacific Drilling S.A.

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

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