🇲🇽New Chapter 22 Bankruptcy Filing - Maxcom USA Telecom Inc.🇲🇽

Maxcom USA Telecom Inc.

August 19, 2019

We’re all for a reprieve from retail and energy distress but, sheesh, couldn’t have been more interesting than this?

Maxcom USA Telecom Inc. is a telecommunications provider deploying “smart-build” approaches to “last mile” connectivity (read: modems, handsets and set-up boxes) for enterprises, residential customers and governmental entities in Mexico — which is really just a fancy way of saying that it provides local and long-distance voice, data, high speed, dedicated internet access and VoIP tech, among other things, to customers.* It purports to be cutting edge and entrepreneurial, claiming “a history of being the first providers in Mexico to introduce new services,” including (a) the first broadband in 2005, (b) the first “triple-play” (cable, voice and broadband) in 2005, and (c) the first paid tv services over copper network using IP…in 2007. That’s where the “history” stops, however, which likely goes a long way — reminder, it’s currently the year 2019 — towards explaining why this f*cker couldn’t generate enough revenue to service its ~$103.4mm in debt.** Innovators!!

And speaking of that debt, it’s primarily the $103.4mm in “Old Notes” due in 2020 that precipitated this prepackaged bankruptcy filing (in the Southern District of New York).***

The Old Notes derive from a prior prepackaged bankruptcy — in 2013 (PETITION Note: not a “Two-Year Rule” violation) — and were exchanged for what were then outstanding 11% senior notes due in 2014. These Old Notes have a “step-up interest rate,” which means that, over time, the interest rate…uh…steps up…as in, increases upward/up-like. The rate currently stands at 8%. Unfortunately, the company doesn’t have revenue step-ups/upwardness/upseedayzee to offset the interest expense increase; rather, the company “…incurred losses of $4.9 million for the three months ended June 30, 2019, as compared to losses of $2.9 million for the three months ended June 30, 2018, and losses of $16 million for the year ended December 31, 2018, compared to losses of $.8 million for the year ended December 31, 2017….” Compounding matters are, among other things, the negative effects of decreased interest income and foreign currency exchange rates (the dollar is too damn strong!).**** The closure of the residential segment also, naturally, affected net revenue.

To make matters worse, the company’s debt actually has limitations (remember those?). Per the company:

In order to expand its network and strengthen its market share, the Debtors require additional capital. But, the Old Notes Indenture prohibits Maxcom Parent from incurring additional indebtedness (other than permitted indebtedness) unless certain leverage coverage ratios are satisfied, and the increased interest burden under the Old Notes seriously constrains the Debtors’ ability to take the actions required under its business plan to strengthen and expand their operations.

The purpose of this bankruptcy filing, therefore, is to effectuate a consent solicitation and exchange offer whereby the Old Notes will be swapped (and extinguished) for new “Senior Notes,” new “Junior PIK Notes” and cash consideration. The cash consideration will be covered by a new equity injection of $15mm. This transaction will bolster the company’s liquidity and shed approximately $36mm of debt from the balance sheet (PETITION Note: carry the one, add the two, that’s roughly $2.88mm in annual interest savings before taking into account the PIK notes, which won’t be cash-pay, obviously).

Prior to the bankruptcy filing, the company obtained the requisite amount of support to jam non-consenting creditors (PETITION Note: in bankruptcy, a debtor needs 2/3 in amount and half in number of a particular class of debt to bind a class. Here, the company nailed down acceptances of the plan from 84.75% of the holders of Old Notes holding 66.73% of principal amount in Old Notes). And there is one large group of non-consenting holders, apparently. Cicerone Advisors LLC, a financial advisor to three holders of the Old Notes, Moneda Asset Management, Megeve Investments and UBS Financial Services, Inc., attempted to engage the company on better terms than that offered under the plan. It did not, however, ultimately provide a proposal; instead, it demanded terms, including confidentiality and an agreement to pay fees and expenses of financial and legal advisors. Here’s the thing, though: they miscalculated their leverage: with only 30% of Old Notes represented, they don’t have a “blocking position” that could thwart the company’s proposal. Absent an additional 4%, these guys are dead in the water.

This should be…should be…a very quick trip through bankruptcy.*****

---

*The company is shutting down its residential segment, which “involves the gradual closure of residential clusters and mass disconnection of residential customers.” Apparently, people don’t need the company’s services anymore. At least not when they’re carrying $1,000 telecommunications systems in their pants pockets? 🤔

The disruption is real. Indeed, the company’s residential segment operates through an outdated copper network that doesn’t comport with the latest in fiber network technology.

**U.S. Bank NA is the indenture trustee under the Old Notes.

***Oh man, the venue on this one is just quaint. There are two debtors, Maxcom Telecomunicaciones, S.A.B. DE C.V., a Mexican entity and Maxcom USA Telecom Inc., which is 100% owned by the former. What does the latter do? According to Exhibit A of the First Day Declaration it does “[Assorted services in the USA].” Hahaha. This sh*t is so suspect that nobody even bothered to remove the brackets. It might as well say, “[Kinda sorta maybe some random sh*t within US borders and down the street from the SDNY for purposes of ginning up venue”]. Is it a guarantor on the notes? “[Yes].” HAHAHA. Like, is it, or not?? The listed highlight? “Recently created.” Damn straight it was. This year. The service address? “c/o United Corporate Services, Inc., Ten Bank Street, Suite 560, White Plains, NY 10606.” Conveniently happens to fall right in Judge Drain’s lap.

We mean, seriously, folks? People AREN’T EVEN TRYING to be slick about manufacturing venue anymore.

Apropos to the point, Duane Morris LLP’s Frederick Hyman highlights the trend of foreign borrowers with little to no assets in the U.S. filing for chapter 11 to take advantage of the automatic stay here, describing the slippery-slope-creating case of TMT Shipping (which established venue by funding professional retainers in the US).

****Interestingly, people have been voicing concerns about the foreign exchange rates and US-dominated debt in emerging markets. It seems those concerns may be warranted:

…from 2013 to date, the value of the Mexican Peso, as compared to the U.S., has decreased by 53%. Because of such devaluation, Maxcom Parent’s repurchase of the $74.3 million in principal amount of the Old Notes did not decrease the amount that Maxcom Parent’s books and records reflect is owed to the holders of the Old Notes given that Maxcom Enterprise’s revenues are mostly in Mexican Pesos. In other words, while the amount that Maxcom Parent owes on account of the Old Notes has decreased in U.S. Dollars, because the majority of Maxcom Enterprise’s revenues are in Mexican Pesos and the Old Notes are denominated in U.S. Dollars, Maxcom Parent’s liability on account of the Old Notes remains roughly the same on its books and records.

Ruh roh. 🙈 We expect to see many more mentions of exchange-related issues going forward. Mark our words.💥

*****Small victories. The dissenting bondholders were able to successfully push the debtors’ timeline by a week or so at the first day hearing.

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

• Capital Structure: $103.4mm old notes

• Professionals:

  • Legal: Paul Hastings LLP (Pedro Jimenez, Irena Goldstein)

  • Financial Advisor: Alvarez & Marsal Mexico

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

• Other Parties in Interest:

  • Indenture Trustee: US Bank NA

    • Legal: Thompson Hine LLP (Jonathan Hawkins, Curtis Tuggle)
      

🙈New Chapter 11 Bankruptcy Filing - Avenue Stores LLC🙈

Avenue Stores LLC

August 16, 2019

Retail, retail, retail.

Brutal. Absolutely B.R.U.T.A.L.

Avenue Stores LLC, a speciality women’s plus-size retailer with approximately 2,000 employees across its NJ-based HQ* and 255 leased stores,** is the latest retailer to find its way into bankruptcy court. On Friday, August 16, Avenue Stores LLC filed for chapter 11 bankruptcy in the District of Delaware. Like Dressbarn, another plus-size apparel retailer that’s in the midst of going the way of the dodo, any future iteration of the Avenue “brand” will likely exist only on the interwebs: the company intends to shutter its brick-and-mortar footprint.

What is Avenue? In addition to a select assortment of national brands, Avenue is a seller of (i) mostly “Avenue” private label apparel, (ii) intimates/swimwear and other wares under the “Loralette” brand and (iii) wide-width shoes under the “Cloudwalkers” brand. The company conducts e-commerce via “Avenue.com” and “Loralette.com.” All of this “IP” is the crux of the bankruptcy. More on this below. 

But, first, a digression: when we featured Versa Capital Management LP’s Gregory Segall in a Notice of Appearance segment back in April, we paid short shrift to the challenges of retail. We hadn’t had an investor make an NOA before and so we focused more broadly on the middle market and investing rather than Versa’s foray into retail and its ownership of Avenue Stores LLC. Nevertheless, with the benefit of 20/20 hindsight, we can now see some foreshadowing baked into Mr. Siegel’s answers — in particular, his focus on Avenue’s e-commerce business and the strategic downsizing of the brick-and-mortar footprint. Like many failed retail enterprises before it, the future — both near and long-term — of Avenue Stores is marked by these categorical distinctions. Store sales are approximately 64% of sales with e-commerce at approximately 36% (notably, he cited 33% at the time of the NOA). 

A brand founded in 1987, Avenue has had an up-and-down history. It was spun off out of Limited Brands Inc. and renamed in 1989; it IPO’d in 1992; it was then taken private in 2007. Shortly thereafter, it struggled and filed for bankruptcy in early 2012 and sold as a going-concern to an acquisition entity, Avenue Stores LLC (under a prior name), for “about $32 million.” The sale closed after all of two months in bankruptcy. The holding company that owns 100% of the membership interests in Avenue Stores LLC, the operating company, is 99%-owned by Versa Capital Management. 

Performance for the business has been bad, though the net loss isn’t off the charts like we’ve seen with other recent debtors in chapter 11 cases (or IPO candidates filing S-1s, for that matter). Indeed, the company had negative EBITDA of $886k for the first five months of 2019 on $75.3mm in sales. Nevertheless, the loss was enough for purposes of the debtors’ capital structure. The debtors are party to an asset-backed loan (“ABL”) memorialized by a credit agreement with PNC Bank NA, a lender that, lately, hasn’t been known for suffering fools. The loan is for $45mm with a $6mm first-in-last-out tranche and has a first lien on most of the debtors’ collateral. 

The thing about ABLs is that availability thereunder is subject to what’s called a “borrowing base.” A borrowing base determines how much availability there is out of the overall credit facility. Said another way, the debtors may not always have access to the full facility and therefore can’t just borrow $45mm willy-nilly; they have to comply with certain periodic tests. For instance, the value of the debtors’ inventory and receivables, among other things, must be at a certain level for availability to remain. If the value doesn’t hold up, the banks can close the spigot. If you’re a business with poor sales, slim margins, diminishing asset quality (i.e., apparel inventory), and high cash burn, you’re generally not in very good shape when it comes to these tests. With specs like those, your liquidity is probably already tight. A tightened borrowing base will merely exacerbate the problem.

Lo and behold, PNC declared the debtors in default on July 22; in turn, they imposed default interest on the debtors and initiated daily cash sweeps of the debtors’ bank accounts. Like we said. Suffer. No. Fools.*** The debtors owe $15.2mm on the facility. 

The debtors also have outstanding a subordinated secured note to the tune of $37.8mm. The note pays interest at 15% but is paid in kind.**** The lender on the note is an affiliate of Versa, and per the terms of the note, Versa had continued, at least through April 2019, to fund the business (and letters of credit for the debtors’ benefit) with millions of dollars of capital. 

If this sounds like a hot mess, well, yeah, sure, kudos. You’re clearly paying attention. It’s a dog eat dog world out there. Per the company:

The Debtors operate in an extremely competitive retail environment, facing competition from other specialty-retail stores, including Lane Bryant, Ashley Stewart, and Torrid, and mass-market retailers such as Walmart and Target, many of which are located in close proximity to Avenue stores. In addition to long-standing, traditional competitors within the plussize segment, there has been a recent influx of many other iconic fashion retail brands expanding their range of size offerings into the plus-size range, as well as a proliferation of new entrants targeting this same plus-size fashion market. Due to increased competition, the Debtors have faced significant pressure to maintain market share, which has directly and negatively affected their profitability.

Not that this is anything new. We all know this by now: competition is fierce (Stitch Fix Inc. ($SFIX), Neiman Marcus, Kohl’s Corporation ($KSS), Macy’s Inc. ($M) and others are now going after it hard), B&M sucks because leases carry higher expenses, store traffic is down, blah blah f*cking blah. The company continues:

…changes in consumer spending habits have necessitated many retailers to increase promotional activities and discounting, leading to thinner profit margins. Onerous brick-and-mortar lease terms and increased operating costs, during a period of downturn in the retail sector and deep discounting, have intensified retail losses.

Interestingly, in the face of surging U.S. retail sales in July,***** the company also notes that “a review of historic customer data indicates that Avenue customers are shopping less frequently than they once were….” They blame this on a “[s]hifts in consumer preferences” and the debtors’ emphasis on “fashion basics.” DING DING DING. No wonder customers are shopping there less frequently. “Basic” is the antithesis of Instagram-based retail these days. Basics can be purchased at any big box retailer; basics are now available via Amazon’s private label. Basics don’t create an influencer and, on the flip side, no influencer will market “basic.” Maybe Avenue could get away with “fashion basics” if it had brand-equity like SUPREME and was perceived as a luxury brand. But far from it. 

Speaking of basic, that pretty much describes the go-forward game plan. We’ll lay it out for you:

• Engage an independent director to explore strategic alternatives;

• Engage professionals (Young Conaway is legal and Berkeley Research Group as restructuring advisor and CRO)******;

• Consider whether there’s going concern value, conclude, like, basically, “nope,” and then hire a consultant******* to solicit bids from liquidators for the B&M piece and an investment banker (Configure Partners) for the IP and e-commerce business; 

• Issue WARN notices, RIF employees, and start shuttering stores (with intent to file a rejection motion on day 1 of the bankruptcy); 

• Select a stalking horse bidder for the B&M assets from the pool of interested liquidators (in this case, Gordon Brothers and Hilco Merchant Resources LLC); 

• Continue to search for a stalking horse bidder for the IP and e-commerce (at filing, there wasn’t one yet); and

• Secure DIP financing (here, $12mm from PNC) to fund the cases while the B&M liquidation transpires and the banker searches under every rock under an extremely compressed timeframe (by 9/24/19) for that e-commerce/IP buyer.******** 

So we’ll know in the next 60 days what the future is for Avenue.

If there is one.

---

*Let’s pour one out for NJ. The state’s larger retailers are having a rough go of things lately, see, e.g., Toys R Us. The 2,000 figure is updated to reflect a recent round of layoffs. 

**The debtors are located primarily in shopping malls and shopping centers, doing business in 35 states. They have a distribution center for brick-and-mortar merchandise in Troy, Ohio, and a third-party warehousing facility located in Dallas, Texas, which handles logistics for e-commerce. The Troy center is the subject of a wholly unoriginal PE-backed sale/leaseback transaction. The debtors sold the center for $11.3mm and subsequently entered into a 15-year lease with the buyer, RD Dayton LLC. We mention this because sale/leaseback transactions have been getting hyper-focus these days as a tactic-of-choice by private equity overlords to extract returns out of portfolio companies’ assets with any actual value: real property. If you’re wondering why there is very little asset value left for unsecured creditors in retail cases, sale/leaseback transactions are often a culprit. Here, it’s especially egregious because Avenue doesn’t own ANY of its stores: the entire footprint is leased.

The debtors recently closed the Ohio center and transitioned its inventory to Texas and the company already filed a motion seeking to reject this lease (Docket 15).

***This is not extraordinary. Banks do this all of the time when debtors default. A liquidity starved company is almost always toast (read: bankrupt) once this happens. 

****PIK interest means that the interest accrues in the form of additional notes and is not subject to scheduled cash payments. 

*****Per Reuters:

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

******Something tells us that the likes of FTI, A&M and AlixPartners are happy to cede the liquidating retailer market to Berkeley Research Group. 

*******This is one of the more ingenious things to come out of the restructuring market in recent years. These liquidator agreements are so unintelligible that they might as well be written in Dothraki. Hence the need for an intermediary to break out the secret decoder ring and figure out what is actually being contracted for. We don’t know: if something is so woefully incoherent that it requires a separate consultant just to interpret it, something tells us that obfuscation is a feature not a bug.

********If none is found, the liquidator will also get these assets as part of the agency agreement. 

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure:

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Andrew Magaziner, Ashley Jacobs, Allison Mielke, Betsy Feldman)

  • Financial Advisor/CRO: Berkeley Research Group (Robert Duffy)

  • Investment Banker: Configure Partners

  • Liquidators: Gordon Brothers and Hilco Merchant Resources LLC

  • Liquidation Consultant: Malfitano Advisors LLC

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

• Other Parties in Interest:

  • Pre-petition & DIP Agent: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon)

  • Subordinated Lender: Versa Capital Management LP

    • Legal: Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire)

🤓New Chapter 11 Bankruptcy Filing - Loot Crate Inc.🤓

Loot Crate Inc.

August 11, 2019

We’re old enough to remember when subscription boxes were all the rage. The e-commerce trend became so explosive that the Washington Post estimated in 2014 that there were anywhere between 400 and 600 different subscription box services out there. We reckon that — given the the arguably-successful-because-it-got-to-an-IPO-but-then-atrocious-public-foray by Blue Apron Inc. ($APRN) — the number today is on the lower end of the range (if not even lower) as many businesses failed to prove out the business model and manage shipping expense.

And so it was only a matter of time before one of them declared bankruptcy.

Earlier this morning, Loot Crate Inc., a Los Angeles-based subscription service which provides monthly boxes of geek- and gaming-related merchandise (“Comic-con in a box,” including toys, clothing, books and comics tied to big pop culture and geek franchises) filed for bankruptcy in the District of Delaware.* According to a press release, the company intends to use the chapter 11 process to effectuate a 363 sale of substantially all of its assets to a newly-formed buyer, Loot Crate Acquisition LLC. The company secured a $10mm DIP credit facility to fund the cases from Money Chest LLC, an investor in the business. The company started in 2012.

Speaking of investors in the business, this one got a $18.5mm round of venture financing from the likes of Upfront Ventures, Sterling.VC (the venture arm of Sterling Equities, the owner of the New York Mets), and Downey Ventures, the venture arm of none other than Iron Man himself, Robert Downey Jr. At one point, this investment appeared to be a smashing success: the company reportedly had over 600k subscribers and more than $100mm in annualized revenue. It delivered to 35 countries. Inc Magazine ranked it #1 on its “Fastest Growing Private Companies” list. Deloitte had it listed first in its 2016 Technology Fast 500 Winners list. Loot Crate must have had one kicka$$ PR person!

But life comes at you fast.

By 2018, the wheels were already coming off. Mark Suster, a well-known and prolific VC from Upfront Ventures, stepped off the board along with two other directors. The company hired Dendera Advisory LLC, a boutique merchant bank, for a capital raise.** As we pointed out in early ‘18, apparently nobody was willing to put a new equity check into this thing, despite all of the accolades. Of course, allegations of sexual harassment don’t exactly help. Ultimately, the company had no choice but to go the debt route: in August 2018, it secured $23mm in new financing from Atalaya Capital Management LP. Per the company announcement:

This financing, led by Atalaya Capital Management LP ("Atalaya") and supported by several new investors (including longstanding commercial partners, NECA and Bioworld Merchandising), will enable Loot Crate to bolster its existing subscription lines and improve the overall customer experience, while also enabling new product launches, growth in new product lines and the establishment of new distribution channels.

Shortly thereafter, it began selling its boxes on Amazon Inc. ($AMZN). When a DTC e-commerce business suddenly starts relying on Amazon for distribution and relinquishes control of the customer relationship, one has to start to wonder. 🤔

And, so, now it is basically being sold for parts. Per the company announcement:

"During the sale process we will have the financial resources to purchase the goods and services necessary to fulfill our Looters' needs and continue the high-quality service and support they have come to expect from the Loot Crate team," Mr. Davis said.

That’s a pretty curious statement considering the Better Business Bureau opened an investigation into the company back in late 2018. Per the BBB website:

According to BBB files, consumers allege not receiving the purchases they paid for. Furthermore consumers allege not being able to get a response with the details of their orders or refunds. On September 4, 2018 the BBB contacted the company in regards to our concerns about the amount and pattern of complaints we have received. On October 30, 2018 the company responded stating "Loot Crate implemented a Shipping Status page to resolve any issues with delays here: http://loot.cr/shippingstatus[.]

In fact, go on Twitter and you’ll see a lot of recent complaints:

Have you ever considered a Loot Crate subscription? (Don’t.) I’m still waiting on my tees for April, May, June, and July. I won’t be renewing my subscription. @lootcrate needs to get it together. pic.twitter.com/BqqScs9jQR

— Randi ☕️📚🌊🌈❤️ (@biblionoceros) August 11, 2019

Which past crates because I've been waiting for a replacement for a crate that never showed up for 2 months and a crate I ordered last October still hasn't shipped yet this company is ridiculous

— Krystle Bogerman (@Krys_theawesome) August 12, 2019

@lootcrate I would love to know where my loot crate is that was supposed to arrive IN MAY. Not making people want to buy more crates when the ones we've already ordered are still MIA after 3 MONTHS

— Oldworldromance (@Oldworldromanc1) August 12, 2019

High quality service, huh? Riiiiiiight. These angry customers are likely to learn the definition of “unsecured creditor.”

@lootcrate So, Chapter 11, huh? I guess that's another way of telling everyone with a late crate or Loot Wear item that they're well and truly screwed?

— Mike Guerrero (@thesporq) August 12, 2019

Good luck getting those refunds, folks. The purchase price obviously won’t clear the $23mm in debt which means that general unsecured creditors (i.e., customers, among other groups) and equity investors will be wiped out.***

Sadly, this is another tale about a once-high-flying startup that apparently got too close to the sun. And, unfortunately, a number of people will lose their jobs as a result.

Seeing all my friends at Loot Crate losing their jobs makes me ill. I’m sending you all love. This company is a shell of what it once was, & it breaks my heart. There were over 20 customer support agents at one time. They ALL cared about customers. All those jobs got outsourced. https://t.co/vxJx7ymumG

— Bookitty (@B00kitty) August 10, 2019

I'm trembling out of anger from the amount of bullshit in this statement..

I feel so goddamn angry that I am scared I'm going to pass out at my desk.https://t.co/BvBr8Ww3Kv

— CΛΠDICE ❤️S YOU! (@CandiceLikesYou) August 12, 2019

Market froth has helped a number of these companies survive. When things do eventually turn, we will, unfortunately, see a lot more companies that once featured prominently in rankings and magazine covers fall by the wayside.

*We previously wrote about Loot Crate here, back in February 2018.

**Dendera, while not a well-known firm in restructuring circles, has been making its presence known in recent chapter 11 filings; it apparently had a role in Eastern Mountain Sports and Energy XXI.

***The full details of the bankruptcy filing aren’t out yet but this seems like a pretty obvious result.

---

⚡️UPDATE: August 18, 2019⚡️

On August 12, we published — and you should revisit — 📦Nerds Lament: Subscription Box Company Goes BK📦, a report on the bankruptcy filing of a company called Loot Crate Inc., an e-commerce subscription service that ships all kinds of nerdy sh*t to dorks who like comics and stuff (PETITION Note: for the record, we’re not making fun of nerds…we’re nerds…we’re just not nerds who subscribe to nerdy e-commerce subscription boxes and collect nerdy lunch boxes, nerdy bobbleheads, nerdy trinkets and super-nerdy action figures…there are levels here, people). While this company is generally a pimple on the U.S. economy’s very large a$$, we think it’s important for our readers — bankruptcy pros, investors, operators, startup/tech enthusiasts — to understand some of the reasons behind its demise: the small to middle market, after all, tends to get short shrift in a sea of bankrupted retailers with a formidable brick-and-mortar footprint or bankrupted oil and gas companies that have shredded public equity and debt value to the chagrin of many an investor. And as if that isn’t justification enough, how can we NOTrevisit this company when there’s THIS summary in its bankruptcy papers:

In short, despite liquidity constraints unlike those I and the Debtors’ other professionals have ever seen, the Debtors have created a path to get through Chapter 11, albeit quickly, to maintain their going concern, reduce the backlog of shipments (and Vantiv’s potential exposure), allow for renewed dealings with valued vendors and licensors, and achieve a result that is the best we could foresee over the last few distressing weeks and months. (emphasis most definitely added).

HAVE. EVER. SEEN. HAHAHAHAHA. Restructuring professionals see a LOT. This is really saying something.

Anyway, to set the mood, let’s start with this choice quote from the company’s filing:

This is a company that has succeeded from ground zero – it is not an “old economy” business, shrinking every year, trying to determine how to remain relevant. Instead, it is the view of the Debtors’ management that once better capitalized and freed from legacy liabilities through the proposed sale of assets in these cases, the Debtors will return to success.

Some might take exception to the use of the word “succeed” here given the company’s current predicament. Just saying. Some might also be forgiven for viewing the conclusions of “Debtors’ management” with a glint of skepticism. Why? Keep reading: we’re about to explain the myriad reasons why this company failed.

First, and this is something that PETITION has focused on considerably over the last several months as digital advertising supply reportedly decreases, prices increase, and more and more DTC brands are seeking targeted eyeballs to sell product. Choice bit here:

By late 2017, the Debtors were having financial issues. The subscription and entertainment market has a healthy and sometimes insatiable appetite for marketing dollars. While the Debtors were very popular with their fan base, the need to continue to spend on marketing was hampering the Debtors’ finances. (emphasis added).

We cannot over-emphasize how critical this is. As more and more B&M retailers underscore their need to leverage social media, influencers, etc., they’ll find it’s not so easy in today’s hyper-competitive DTC environment to generate revenue while avoiding astronomical customer acquisition costs. The upcoming presidential election, meanwhile, might put increased pressure on retailer budgets as Facebook Inc. ($FB), Google Inc. ($GOOGL), and others attempt to limit the number of ads in users’ feeds in the name of “user experience.” Meanwhile, we’ll continue to see both of these behemoths on lists of top 30 creditors: Facebook, for instance, is listed here. Google is one of Avenue Stores LLC’s largest creditors.

All of which is to say that it appears that Loot Crate’s CACs were through the effing roof.

Second, PROGRESSIVES!!! And MAGA!!! The company initially had a distribution system based out of California, “a very high wage stage.” Now the company fulfills “most of their shipments with a third party warehouse and shipper, operating out of Tijuana, Mexico.” We wonder if the facility is wired up with Maxcom tech!?!?

Third, the company blames the Supreme Court’s Wayfair decision (which, for the record, we had highlighted long before the mainstream media) for some of its liquidity problems; it alleges that the decision “require[d] them to accrue sales tax charges for goods sold in the past.” More on taxes below: as a preview, there was seemingly some shady-a$$ sh*t going on here.

Fourth, this company got to experience first hand the dangers of venture debt. Because of the issues noted above, the company ran afoul of its $15mm credit facility with Breakwater Credit Opportunities Fund, an LA-based private investment firm that specializes in direct debt and equity investments in lower middle market companies. The company defaulted on the loan in 2017. This, naturally, gave Breakwater leverage to extract economic concessions from the company and juice their governance rights.

Needing to refinance out Breakwater to avoid Breakwater taking over the board (and presumably tossing the founding management team out the window), the company refinanced the Breakwater loan with a $21mm term loan from Midtown Madison Management LLC, an affiliate of Atalaya Capital Management (MMM also received a now-worthless warrant for 17% of the company’s common stock). Breakwater got out whole, with accrued and unpaid interest, default interest, fees, and repayment of OID provided at the time of default. Savage play by Breakwater. As a condition to the refinancing, the company issued $4.4mm in convertible subordinated notes and warrants to a number of holders, including the proposed DIP lender, the founder’s daddy, and Dendera Advisory LLC (which took notes and warrants in lieu of payment for services rendered in connection with the refinancing). Apparently, only Money Chest LLC, the proposed DIP lender, perfected liens.

The refinancing, while beneficial to Breakwater, did not prove the salvation for the company that it had hoped for. Per the company:

While the August 2018 Financing provided the Debtors with a slight liquidity reprieve, the fees and expenses that had to be repaid to Breakwater made this amount far less than expected, resulting in continued difficulty with vendors after the transaction, resulting in turn in difficulty in filling crates due to missing custom items, causing subscriber chargebacks and cancellations, and then resulting in serious concerns by the Debtors’ credit card processor, and its withholding of funds from the Debtors. All of this caused greater liquidity issues with each passing week and month. In short, the cycle in this unfortunate paragraph never stopped, with each negative event causing other negative events, again and again, and liquidity problems continued into 2019 and until these filing of these Cases. (emphasis added).

Man, these guys give good Declaration. For any business, not just a startup, that paragraph is utterly painful to read.

Let’s break this down: management (1) took an unfavorable deal to refi-out their venture lender and protect their a$$es, (2) quickly realized that, after all was said and done, the company still had severely constrained liquidity, (3) stretched vendors, (4) irritated vendors, resulting in inventory issues, (5) couldn’t ship their product, (6) pissed off customers, (7) sparked credit card chargebacks presumably en masse, and (8) red-flagged their credit card processor to the point that it, too, wanted to run for the hills (more on this below).

Yeah, sure, these guys are totally dependable.

Fifth, the company is prisoner to two large creditors. One, Clear Finance Technology Corporation d/b/a Clearbanc, paid the company’s vendors for the company in exchange for a royalty on billings. Clearly this was meant to provide vendors with comfort given the company’s liquidity shortfall. There will be some litigation to determine whether this arrangement is a financing vs. an ownership agreement and, in turn, whether Clearbanc is, by virtue of Clearbanc’s alleged failure to file a UCC-1 perfecting its interest, an unsecured creditor. The other, Vantiv LLC, is the company’s credit card processor and the company’s patsy for why shipments haven’t timely shipped and customers are pissed off. Per the company:

Vantiv has a contingent claim to the extent the Debtors do not ship goods to their customers for which such customers have already paid via credit card. Such customers could then, depending on their credit card agreements and applicable law, reverse or dispute prior charges, which may then have to be returned to the customers’ credit card issuer (and in turn, the customer) by Vantiv. Due to serious liquidity issues over the past months – including Vantiv’s withholding substantial sums to protect itself against this risk – the Debtors’ have over $20 million in customer orders for which the Debtors have obtained payment, but for which the Debtors have not shipped goods….

Vantiv is holding approximately $1.7 million of collections it made for the Debtors and, as of the Petition Date, continues to reserve 100% of the Debtors’ customer billings thereby guaranteeing a continuation of the vicious cycle that has strangled liquidity.

Right. Credit card processors aren’t typically in the business of losing money and they, generally, understand risk. This is what happens when a business starts to spiral: counter-parties who are more than happy to service your account when you’re, say, a high-flying startup ranked at the top of growth lists and featured in Techcrunch, abandon you like you’ve just fallen into a putrid pile of horse manure. Indeed, Vantiv’s threats to terminate credit card processing precipitated the chapter 11 filing: the company simply couldn’t function as an online business without credit card payment processing.

Sixth, we may be reading into things too much but it sure seems like the company engaged in some accounting shenanigans to help with liquidity — switching revenue recognition methodologies while in the midst of its liquidity issues. It helped…maybe…until it didn’t and when it didn’t, the company got pounded in a big big way with a big big outstanding tax liability. In many respects, the bankruptcy filing saves the debtors in this regard: through a customary tax motion and with DIP proceeds, the debtors seek to pay the approximately $5.87mm in back taxes owed. Death and taxes, baby. Death and taxes. Or, more appropriate here, bankruptcy and taxes. But we digress.

Finally, this bit should be a cautionary tale for startups in the e-commerce subscription business:

Unfortunately, the complexity of the transaction, the uncertainty surrounding eCommerce subscription companies, the amount of the Debtors’ funded, trade, and tax debt, and the recent challenges of the Debtors’ operations due to liquidity shortfalls, made it difficult to entice investors. Breakwater was one of the parties interested, and it spent substantial time and incurred costs in mid-July 2019 doing diligence and working on preliminary deal documents. But its interest waned, and sale discussions ceased. (emphasis added)

Riiiiight. Why would that be? Because, like, nobody has figured out how to make these subscription businesses actually work?!? 🤔

It’s telling when the entity that knows you the best and has been through the ups and downs with you wants no part of you going forward. Godspeed, Loot Crate. May the loot be with you.

---

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $15mm credit facility (Breakwater Credit Opportunities Fund LP)

• Professionals:

  • Legal: Bryan Cave Leighton Paisner LLP (Brian Duedall, Leah Fiorenza McNeill, Andrew Schoulder, Khaled Tarazi) & Robinson & Cole LLP (Jamie Edmonson, Natalie Ramsey, Mark Fink)

  • Independent Directors: Alexandre Zyngier, Osman Khan

  • Financial Advisor/CRO: Portage Point Partners (Stuart Kaufman)

  • Investment Banker: FocalPoint Securities LLC

  • Chief Transformation Officer: Theseus Strategy Group (Mark Palmer)

  • Communications Consultant: Sitrick and Company

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

• Other Parties in Interest:

  • Prepetition Convertible Noteholder & DIP Lender: Money Chest LLC

    • Legal: Bayard PA (Erin Fay)

⛽️New Chapter 22 Bankruptcy Filing - PES Holdings LLC⛽️

PES Holdings LLC

July 21, 2019

Picture the private equity associate. He’s sitting at his desk, twiddling his thumbs, looking for something to do. All is good in the world: the portfolio is humming along, he hasn’t gotten roped into a lose/lose golf tournament with the senior partners in a while, and he just wants to lay low and ride out the summer if he can. Then, suddenly, on one fateful summer day in June, one of his portfolio companies just up -and-decides to randomly explode — or, as the company puts it, suffer a “historic, large-scale, catastrophic accident.” Suddenly he’s mopping the floor with his jaw.

This sudden turn of events is particularly stupefying when you consider that the portfolio company — PES Holdings LLC, aka Philadelphia Energy Solutions — happens to be a 150 year-old oil refining complex that also happens to be (i) the largest on the United States Eastern seaboard (representing approximately 28% of the crude oil refining capacity on the east coast), and (ii) an employer of 950 employees. What are the possible knee-jerk reactions here? Are they:

1. “Oh sh*t, there goes our portfolio for the year!”

2. “F******ck, did our investment literally just go up in smoke?”

3. “Am I going to have a job tomorrow?”

Then there are likely the secondary considerations:

1. “How will the Commonwealth of Pennsylvania and the City of Philadelphia fulfill their energy needs?”

2. “Oh no! Did anyone die??!?”

That’s right: we’re cynical AF. After those two waves of initial thoughts and after a deep breath, we bet these were the next questions:

1. “Do we have to file this thing for ANOTHER bankruptcy now?”

2. “How robust is our insurance coverage? What are our insurance premiums and can we keep paying them to ensure coverage?”

3. “Is this an opportunity? How do we transfer all of the risk and best position ourselves to drive equity value here?”

The latter two considerations — as heartless and lacking in empathy as they may be — are highly realistic. And highly relevant, considering the explosion and attendant fire on June 21 forced the company to shut down its plant. The timing couldn’t have been worse: the explosion took place mere days after the company finalized the implementation of a new intermediation facility. Now, though, all “momentum” is lost: the company is currently inoperable and will require an extensive rebuild: at limited capacity and with massive fixed operational costs, the company would have burned (pun most definitely intended) through $100mm in liquidity within a few weeks. Cue the chapter 22 bankruptcy filing.*

Of course, prior to the filing, the company engaged in dialogue with its insurers:

The Debtors also immediately began a process to engage with their insurers—as it relates to property and business interruption insurance claims for the losses caused by the Girard Point Incident—to advance a dialogue toward an immediate advance and a global resolution that will allow the Debtors to restore their operations. The Debtors have yet to obtain such an advance.

Show us an insurer who is ready and willing to fork over proceeds on a moments notice and we’ll show you a bridge we’re selling.

The Debtors’ goal in the near term remains continuing to preserve the safe operation of the Refining Complex while they seek to recover as quickly as possible on their property and business interruption insurance claims and pursue various transactions to preserve their operations and maximize value.

We’re not talking about peanuts here, folks:

The Debtors have $1.25 billion in property and business interruption insurance coverage to protect against these kinds of losses (in addition to other insurance policies that cover other aspects of the Girard Point Incident). The Debtors are working with the insurers under that program to make the Debtors whole for the physical loss of the refinery and the resulting interruption of the Debtors’ business. These insurance proceeds are the very heart of these chapter 11 cases: the sooner the Debtors can recover, the sooner the business can complete its recovery.

While the company waits for the insurers to cough up some cash, it, obviously, needs to focus on safety issues and fire-related cleanup. To that end, it secured a $100mm DIP commitment from certain of its term loan lenders and continues to engage in discussions with ICBC Standard Bank PLC about a dual-DIP structure that would avail the company of even more liquidity. Ultimately, the company hopes to reorganize as a going concern. The extent to which the insurers play ball will dictate whether that’s possible. Something tells us there are some risk analysts combing through those policies with a fine tooth looking for any and all exemptions that they can pull out of their a$$es.

*According to the company, the first chapter 11 filing: “(i) secured a capital infusion of approximately $260 million; (ii) extended the Debtors’ debt maturities through 2022; (iii) reduced the Debtors’ anticipated debt service obligations by approximately $35 million per year; (iv) provided the Debtors with access to a new intermediation facility; and (v) provided the Debtors with relief from certain regulatory obligations.”

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: see below

• Professionals:

  • Legal: Kirkland & Ellis LLP (Edward Sassower, Steven Serajeddini, Matthew Fagen, Michael Slade, Allyson Smith Weinhouse, Patrick Venter, Nacif Taousse, Whitney Becker) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James O’Neill, Peter Keane)

  • CRO: Stein Advisors LLC (Jeffrey Stein)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest:

🌑New Chapter 11 Bankruptcy Filing - Blackhawk Mining LLC🌑

Blackhawk Mining LLC

July 19, 2019

What are we averaging? Like, one coal bankruptcy a month at this point? MAGA!!

This week Blackhawk Mining LLC filed prepackaged Chapter 11 cases in the District of Delaware, the effect of which will be the elimination of approximately $650mm of debt from the company’s balance sheet. Unlike other recent bankruptcies, i.e., the absolute and utter train wreck that is the Blackjewel LLC bankruptcy, this case actually has financing and employees aren’t getting left out in the lurch. So, coal country can at least take a deep breath. Small victories!

Before we get into the mechanics of how this deleveraging will work, it’s important to note some of the company’s history. Blackhawk represents opportunism at its best. Founded in 2010 as a strategic vehicle to acquire coal reserves, active mining operations and logistical infrastructure located primarily in the Appalachian Basin, the privately-owned coal producer hit the ground running. Initially the company started with Kentucky thermal coal assets (PETITION Note: thermal coal’s end use is the production of electricity; in contrast, metallurgical coal’s prime use is for the production of steel). It then quickly moved to diversify its product offering with a variety of acquisitions. In 2014, it acquired three mining complexes in the bankruptcy of James River Coal Company (which served as the company’s entry into the production of met coal). Thereafter, in 2015, the company purchased six mining complexes in the bankruptcy of Patriot Coal Company (which has since filed for bankruptcy a second time). This acquisition lofted the company into the highest echelon of US-based met coal production (PETITION Note: met coal drives 76% of the company’s $1.09b in revenue today). The company now operates 19 active underground and 6 active surface mines at 10 active mining complexes in West Virginia and Kentucky. The company has 2,800 employees. 

Naturally, this rapid growth begs some obvious questions: what was the thesis behind all of these acquisitions and how the hell were they financed? 

The investments were a play on an improved met coal market. And, to some degree, this play has proven to be right. Per the company: 

“The Company’s strategic growth proved to be a double-edged sword. On one hand, it significantly increased the Company’s position in the metallurgical coal market at a time when asset prices were depressed relative to today’s prices. The Company continues to benefit from this position in the current market. The price of high volatile A metallurgical coal has risen from $75 per ton to an average of $188 per ton over the last two years, providing a significant tailwind for the Company. On the other hand, the pricing environment for metallurgical coal did not improve until late 2016, and the debt attendant to the Company’s acquisition strategy in 2015 placed a strain on the Company’s ability to maintain its then-existing production profile while continuing to reinvest in the business. During this time, to defer expenses, the Company permanently closed over 10 coal mines (with over 5 million tons of productive capacity), idled the Triad complex, and depleted inventories of spare equipment, parts, and components. Furthermore, once the coal markets began to improve, the Company was forced to make elevated capital expenditures and bear unanticipated increases in costs—for example, employment costs rose approximately 25% between 2016 and 2018—to remain competitive. The confluence of these factors eventually made the Company’s financial position untenable.”

Longs and shorts require the same thing: good timing. 

Alas, the answer to the second question also leads us to the very predicament the company finds itself in today. The company has $1.09b in debt split across, among other things, an ABL facility (’22 $85mm, MidCap Financial LLC), a first lien term loan facility (’22 $639mm, Cantor Fitzgerald Securities), a second lien term loan facility (’21 $318mm, Cortland Capital Markets Services LLC), and $16mm legacy unsecured note issued to a “Patriot Trust” as part of the Patriot Coal asset acquisition. More on this Trust below.

But this is not the first time the company moved to address its capital structure. In a bankruptcy-avoiding move in 2017, the company — on the heals of looming amortization and interest payments on its first and second lien debt — negotiated an out-of-court consensual restructuring with its lenders pursuant to which it kicked the can down the road on the amortization payments to its first lien lenders and deferred cash interest payments to its second lien lenders. If you’re asking yourself, why would the lenders agree to these terms, the answer is, as always, driven by money (and some hopes and prayers). For their part, the first lien lenders obtained covenant amendments, juiced interest rates and an increased principal balance owed while the second lien lenders obtained an interest rate increase. Certain first and second lien lenders also got equity units, board seats and additional voting rights. These terms — onerous in their own way — were a roll of the dice that the environment for met coal would continue to improve and the company could grow into its capital structure. Clearly, that hope proved to be misplaced. 

Indeed, this is the quintessential kick-the-can-down-the-road situation. By spring 2019, Blackhawk again faced a $16mm mandatory amortization payment and $20mm in interest payments due under the first lien term loan. 

Now the first lien lenders will swap their debt for 71% of the reorganized equity and a $225mm new term loan and the second lien lenders will get 29% of the new equity. The “will-met-coal-recover-to-such-a-point-where-the-value-of-the-company-extends-beyond-the-debt?” option play for those second lien lenders has expired. The company seeks to have its plan confirmed by the end of August. The cases will be financed by a $235mm DIP of which $50mm is new money and the remainder will rollup $100mm in first lien term loan claims and $85mm in ABL claims (and ultimately convert to a $90mm exit facility). 

Some other quick notes:

• Kirkland & Ellis LLP represents the company after pushing Latham & Watkins LLP out in a move that would make Littlefinger proud. This is becoming an ongoing trend: as previously reported, K&E also gave das boot to Latham in Forever21. A war is brewing folks. 

• The Patriot Trust will get $500k per a settlement baked into the plan. On a $16mm claim. The “Patriot Trust” refers to the liquidating trust that was established in connection with the Patriot Coal Corporation chapter 11 cases, previously filed in the Eastern District of Virginia. Marinate on that for a second: the creditors in that case fought long and hard to have some sort of recovery, won a $16mm claim and now have to settle for $500k. There’s nothing like getting screwed over multiple times in bankruptcy. 

• But then there’s management: the CEO gets a nice cushy settlement that includes a $500k payment, a seat on the reorganized board of managers (and, presumably, whatever fee comes with that), and a one-year consulting contract. He waives his right to severance. If we had to venture a guess, Mr. Potter will soon find his way onto K&E’s list of “independent” directors for service in other distressed situations too. That list seems to be growing like a weed. 

• Knighthead Capital Management LLC and Solus Alternative Asset Management LP are the primary holders of first lien paper and now, therefore, own the company. Your country’s steel production, powered by hedge funds! They will each have representation on the board of managers and the ability to jointly appoint an “independent” director. 

---

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Ross Kwasteniet, Joseph Graham, Stephen Hessler, Christopher Hayes, Derek Hunter, Barack Echols) & (local) Potter Anderson Corroon LLP (Christopher Swamis, L. Katherine Good) 

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Centerview Partners (Marc Puntus)

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

• Other Parties in Interest:

  • Prepetition ABL & DIP ABL Agent: Midcap Funding IV Trust

    • Legal: Hogan Lovells US LLP (Deborah Staudinger)

  • Prepetition & DIP Term Agent: Cantor Fitzgerald Securities

    • Legal: Herrick Feinstein LLP (Eric Stabler, Steven Smith)

  • Second Lien Term Loan Agent: Cortland Capital Market Services LLC

    • Legal: Stroock & Stroock & Lavan LLP (Alex Cota, Gabriel Sasson)

  • Consenting Term Lenders: Knighthead Capital Management LLC, Solus Alternative Asset Management LP, Redwood Capital Management LLC

    • Davis Polk & Wardwell LLP (Brian Resnick, Dylan Consla, Daniel Meyer)

  • Ad Hoc Group of First Lien Lenders

    • Legal: Shearman & Sterling LLP (Fredric Sosnick, Ned Schodek)

⛽️New Chapter 11 Bankruptcy Filing - Shale Support Global Holdings LLC⛽️

Shale Support Global Holdings LLC

July 11, 2019

When privately-owned companies that most people have never heard of file for bankruptcy, it naturally raises the following logical question: with oil and gas once again imploding, how many off-the-run companies are going to wind their way into bankruptcy court? 🤔 We reckon quite a number.

Shale Support Global Holdings LLC, a private Louisiana-based proppant supplier to oilfield servicing companies that, in turn, service E&P companies, filed for bankruptcy in the Southern District of Texas. The company and 7 affiliated debtors (the “Debtors”) have little by way of assets ($3.15mm) and much more by way of debt ($127.8mm). MOR Bison LLC and BBC Holding LLC own 69.24% and 29.67% of the company, respectively.

The company started in 2014 to solve the problem of expensive logistics costs emanating out of the transport of sand to frac sites. The company sought to vertically integrate the ownership of sand mines with, among other things, a drying facility and a transload facility; its mines are in Mississippi. Given what has occurred in oil and gas country since 2014, it seems abundantly clear that the timing here was just a bit off. “How off,” you ask? Per the Debtors:

Demand for frac sand is significantly influenced by the level of well completions by E&P and OFS companies, which depends largely on the current and anticipated profitability of developing oil and natural gas reserves. As such, Shale Support’s business is highly correlated with well completions, which is, in-turn, is dependent on both commodity prices and producers’ ability to deliver oil to the market. Over the past five years, commodity prices have been highly volatile resulting in an unpredictable demand curve and a significant amount of OFS and E&P bankruptcies. Compounding these demand issues, Shale Support operates in a highly-competitive industry that has seen a dramatic increase in supply. This new supply has come from basin-specific regional producers (that have dramatically lower logistic costs) as well as larger, often better-capitalized, competitors. Regional suppliers and Shale Support’s larger competitors are both in a position to exert significant, downward pressure on pricing for proppants.

Said another way, as off as humanly possible. With a supply/demand imbalance in 2H ‘18, the company saw revenue fall over 40% in 2018. 😬 This was in large part due to the fact that, despite falling proppants prices, the Debtors are locked in to fixed cost contracts with railcar transport providers. With this mix plus over $127mm in outstanding debt obligations, liquidity became an issue.

For over a year now, the Debtors have been in a state of perpetual marketing. Piper Jaffrey & Co., the Debtors’ banker, could not, however, locate a buyer. In the midst of discussions with potential strategic and financial buyers, the price of frac sand continued to fall. Per the Debtors:

Unsurprisingly, no party submitted an indicative expression of interest, a non-binding offer or a valuation of Shale Support. The stated justification from these parties centered around market conditions, location of the reserves, quality of sand, availability of buyer cash, and consistent underperformance of business relative to forecasts.

Efforts to refinance the debt were equally unsuccessful given the declining asset value upon which a new loan would be based. Ultimately, the Debtors defaulted under their prepetition term loan agreement and, over the course of multiple months of waivers, negotiated with their lenders with the hope of “building consensus around a de-leveraging transaction.” Spoiler alert: there’s no prepackaged plan on file here nor is there a bid procedures motion accompanied by a stalking horse asset purchase agreement so suffice it to say that whatever consensus there might be is limited to the commitment of a $16.6mm DIP credit facility. And that forces the issue: under the DIP milestones, the Debtors must confirm a plan of reorganization within 98 days. Will the lenders equitize? Given the astounding job the first day papers do of making the assets seem attractive, is there a chance in hell a buyer emerges? Stay tuned.

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

• Capital Structure: $116mm ‘21 10% cash/12% PIK Term Loan (including interest, etc.), $11.6mm ‘21 ABL (Siena)

• Professionals:

  • Legal: Greenberg Traurig LLP (Shari Heyen, Karl Burrer, David Eastlake, Eric Howe)

  • Financial Advisor/CRO: Alvarez & Marsal LLC (Gary Barton)

  • Investment Banker: Piper Jaffray & Co. (Richard Shinder)

  • Claims Agent: Donlin Recano & Company Inc. (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Term Loan & DIP Agent ($16.6mm): BSP Agency LLC (DIP Lenders: Providence Debt Fund III LP, Benefit Street Debt Fund IV LP, and Benefit Street Partners SMA LM LP).

    • Legal: Baker Botts LLP (Emanuel Grillo)

  • Prepetition Revolving Lender: Siena Lending Group LLC

    • Legal: Thompson Coburn LLP (David Warfield, Victor A. Des Laurier)

🌑The Powder River Basin Capitulates. New Chapter 11 Bankruptcy Filing - Blackjewel LLC (Short #MAGA).🌑

For coal country, the macro environment has been largely unforgiving.

Blackjewel LLC and three affiliates are the latest in a long string of coal companies to file for bankruptcy. The debtors mine and process metallurgical, thermal and other specialty and industrial coals; they operate 32 properties and hold over 500 mining permits — “more than any other enterprise in the country.” Their operations are in the Central Appalachian Basin in Virginia, Kentucky and West Virginia and the Powder River Basin in Wyoming; they employee 1,700 people (1,100 in the east and 600 in the west).

The debtors blame the usual macro factors for their descent into bankruptcy court: (i) declining commodity prices, (ii) reduced domestic demand for met and thermal coal, (iii) compliance costs, (iv) the rise of natural gas, (v) the increased adoption of renewables, and (vi) decreased coal-fired power generation. This is a telling stat, per the debtors:

Thermal coal demand in the domestic electric power sector has declined from 935 million tons in 2011 to 636 million tons in 2018 and coal has seen its share of the domestic electricity generation market reduce from 43% in 2011 to 31% in 2017.

On a micro level, the debtors suffered from company-specific issues including (a) the termination of a major contract with Nobel Group, (b) a major roof collapse at a particular mine that shut down production, (c) changes to Kentucky’s workers’ compensation laws that increased insurance rates, (d) poorly timed hedging agreements, and (e) interestingly, bad weather. Yes, that’s right: it isn’t just retailers who blame weather for poor performance. Per the debtors:

Various flooding events across the midwest in 2019 have severely impacted rail shipments from the Debtors’ Western Division mining operations. Starting in March 2019, the Debtor started to experience a material reduction in shipments by rail due to severe damage to the rail lines used to move the Debtors’ coal. The impact from the flooding is ongoing, with an estimated $30 million in lost sales directly attributable to it.

PETITION Note: There’s no way to know whether these “flooding events” are the result of man-made global warming but, if so…well, you know where we’re going with this. Irony to the utmost!

All of these factors — and some recent mine acquisitions from previously bankrupted coal companies — combined to seriously constrain liquidity and, after a little refinancing foreplay, term lender Riverstone Credit Partners decided it wanted out and pulled the plug from discussions. The debtors had no choice but to file for bankruptcy.

We were on a brief July 4-related break at the time of the debtors’ filing but suffice it to say that the filing was a sh*tshow. The company filed with a $20mm DIP commitment from company CEO Jeff A. Hoops Sr. and Clearwater Investment Holdings LLC, at an interest rate of LIBOR + 6% per annum, but that DIP fell apart prior to the debtors’ first day hearing putting the company on the brink of liquidation. Per The Wall Street Journal:

But the company learned before its debut appearance in West Virginia bankruptcy court that his bank froze funds Mr. Hoops believed would provide the necessary credit for the proposed financing, according to Blackjewel lawyer Stephen Lerner.

“It’s frankly a disaster,” Mr. Lerner said during the hearing in the U.S. Bankruptcy Court in Charleston, W.Va.

While this surely sucked for the professionals involved, we especially feel for the 1,700 employees whose lives were altered over night — right on the eve of July 4th. Compounding matters is the fact that, apparently, the debtors cut checks to their employees prior to the filing that are not being accepted or are being dishonored by Commonwealth banks. WHAT. A. SH*TSHOW. 🙈The court held a separate hearing on this subject on Saturday, July 6.

Ultimately, Riverstone jumped in and — oddly enough considering its role in precipitating this whole bankruptcy dance to begin with — offered a lifeline. In what may be the shortest interim DIP financing order we’ve seen ever (3 pages), the bankruptcy court approved a $5mm super-priority senior secured DIP facility ($4.25mm from Riverstone, $750k from United Bank) at LIBOR + 8.5%. The use of proceeds? To ensure security measures are in place at the mines to preserve and protect property and equipment; to pay firefighting personnel needed to extinguish active fires at the mines; to fund a $500k professional fee escrow; and to pay for other essential emergency expenses. We presume the latter would include making sure employees — who, to be clear, were abruptly sent home — get paid. Other conditions of the DIP facility? Mr. Hoops got the heave-ho and FTI’s David Beckman was appointed Chief Restructuring Officer with CEO-esque authority. Savage move by Riverstone but we all know that old adage about money talking.

But why though?

Among other things coming to light, the Hoops-controlled debtors apparently floated cashier’s checks to their 600 Wyoming employees rather than follow typical direct deposit practices. Per the Gillette News Record, the bankruptcy court judge was pissed:

“I know this may be interfering with the holiday plans for some of you, but I’m sure you’d agree it’s minimal (compared) to what these employees are dealing with,” Volk scolded during an emergency hearing he called on the Fourth of July after he began hearing reports of people not being paid.

To make matters worse, in a liquidity exercise to the extreme, the debtors apparently also deducted $1.2mm of employee money from paychecks for 401(k) contributions but those amounts were never deposited into the appropriate accounts.* SHEESH.

The human element of this cannot be overstated. More from the Gillette News Record (which you ought to read — it really puts this bankruptcy filing in perspective):

“I just hope these people can find jobs here and don’t have to leave,” said [Mayor Louise Carter-King], referring to the 2016 bust that saw the city’s population dip by about 2,000 as people left for work elsewhere. “That’s a big concern, but I also realize they’ve got to go where they can get jobs.”

She’s also worried for the small, local businesses and contractors that rely on performing work at the mines, especially those that might have to cut staff or shut their doors because they haven’t been paid by Blackjewel.

“Losing 600, 700 jobs has quite a trickle-down effect,” she said.

Shockingly, Fortune notes that coal mining jobs have actually “held steady under Trump”:

…per the Bureau of Labor Statistics: the number of coal workers rose from 50,500 in Nov. 2016 to 52,900 (preliminary) in May 2019. The rise has largely been attributed to demand from Europe and Asia—though overall demand has been steadily falling with exports down 7.4% in first quarter of 2019 year-over-year.

But in the long term, the trend of falling coal jobs expected to continue as the commodity comes under pressure against cheaper options such as natural gas.

“I can’t overstate the extreme competition between coal and natural gas,”  Hans Daniels, CEO of Doyle Trading Consultants said last year.

Indeed, take a look at the BLS numbers:

This is, despite the fact that, per the Wall Street Journal:

Blackjewel is at least the fifth coal company to file for bankruptcy within the past 12 months and third to file chapter 11 since May. Cloud Peak Energy Inc. and Cambrian Holding Co. filed for chapter 11 protection in the previous two months. Westmoreland Coal Co. and Mission Coal Co. filed for bankruptcy last fall.

Curious.

As for the Powder River Basin, generally? Things aren’t so peachy. Per E&E News, the Blackjewel bankruptcy portends more pain to come:

"To me, it's a real sign there is something fundamentally wrong with the economics of PRB coal," said Clark Williams-Derry, an analyst who tracks the coal industry at the Sightline Institute, which advocates for a transition to clean energy. "The new normal is not stasis. It is contraction and disappointment."

It wasn't always that way. In the 1970s, a newly strengthened Clean Air Act prompted a westward expansion of the U.S. coal industry. The coal found in the Powder River Basin of Montana and Wyoming does not pack as much energy as the varieties buried in Appalachia. But its low sulphur content made it popular with power companies searching for ways to comply with America's new air quality laws.

Today, the Powder River Basin accounts for roughly 40% of U.S. coal output, by far the most of any basin. Yet production there has plunged, falling from 462 million tons in 2011 to 324 million tons last year, according to federal figures.

What is the cause of this decline?

The decline has been driven by stiff competition from natural gas and renewable energy. Wind, in particular, has eroded the Powder River Basin's market in the Great Plains, a major outlet for the basin's coal.

"Wind power has caused a lot of these coal plants to be uneconomical and be shut down," said John Hanou, a coal consultant who produces an annual study on the Powder River Basin. "Then on top of that you have the cheap natural gas from fracking."

The fact that PRB coal’s primary use is electricity had largely insulated it from the coal downturn a few years ago. The bankruptcies of Arch Coal Inc. ($ARCH), Peabody Energy ($BTU) and Alpha Natural Resources largely revolved around over-expansion and too much debt as these companies dove into met coal for purposes of steal production. Electricity-producing coal of the sort produced in the PRB wasn’t as affected. Until now.

The problem: U.S. power companies consumed 687 million tons of coal in 2018, the lowest amount since 1978.

The decline has prompted upheaval in a region that long prided itself on stability. Cloud Peak Energy Inc., which operates three mines in the region, declared bankruptcy in May….

Last month, Arch and Peabody announced plans to form a joint venture, effectively combining their mining operations in the Powder River Basin in an attempt to cut costs. 

President Trump promised to save coal.

In reality, the cancer has spread farther than it had ever before.

Pour one out for the PRB.

*Kentucky officials are reportedly investigating claims of unpaid wages. Meanwhile, an employee filed a class-action complaint alleging that the petition date termination of the Wyoming employees constitutes a Worker Adjustment and Retraining Notification violation.

🏠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

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 Bankruptcy Filing - RUI Holding Corp.🍤

RUI Holding Corp.

July 7, 2019

Back in October 2016, in the context of Sun Capital Partners’-owned Garden Fresh Restaurant Intermediate Holdings bankruptcy filing, we asked, “Are Progressives Bankrupting Restaurants?” We wrote:

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

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

There have been a plethora of restaurant-related bankruptcy filings between then and now and many of them have raised rising costs as an issue. Perhaps none as blatantly, however, than Sun Capital Partners’ portfolio companies: enter RUI Holding Corp and its affiliated debtors, Restaurants Unlimited Inc. and Restaurants Unlimited Texas Inc. (the “Debtors”).

On July 7, 2019, the Sun Capital-owned Debtors filed for bankruptcy in the District of Delaware. The Debtors opened their first restaurant in 1969 and now own and operate 35 restaurants in 6 states under, among 14 others, the trade names “Clinkerdagger,” “Cutters Crabhouse,” “Maggie Bluffs,” and ”Horatio’s.” The Debtors note that each of their restaurants offer “fine dining” and “polished casual dining” “situated in iconic, scenic, high-traffic locations.” Who knew that if you want something to scream “iconic” you ought to name it Clinkerdagger?

As we’ve said time and time again, casual dining is a hot mess. Per the Debtors:

…the Company's revenue for the twelve months ended May 31, 2019, was $176 million, down 1% from the prior year. As of the Petition Date, the Company has approximately $150,000 of cash on hand and lacks access to needed liquidity other than cash flow from operations.

The Debtors have over $37.7mm of secured debt; they also owe trade $7.6mm. There are over 2000 employees, of which 168 are full-time and 50 are salaried at corporate HQ in Seattle Washington.

But enough about that stuff. Back to those damn progressives. Per the Debtors:

Over the past several years, certain changes to wage laws in the Debtors’ primary geographic locations coupled with two expansion decisions that utilized cash flow from operations resulted in increased use of cash flow from operations and borrowings and restricted liquidity. These challenges coupled with additional state-mandates that will result in an additional extraordinary wage hike in FYE 2020 in certain locations before all further wage increases are subject to increases in the CPI and the general national trend away from casual dining, led to the need to commence these chapter 11 cases.

They continue:

Over the past three years, the Company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage as follows: Seattle $9.47 to $16.00 (69%), San Francisco $11.05 to $15.59 (41%), Portland $9.25 to $12.50 (35%). As a large employer in the Seattle metro market, for instance, the Company was one of the first in the market to be forced to institute wage hikes. Currently in Seattle, smaller employers enjoy a statutory advantage of a lesser minimum wage of $1 or more through 2021, which is not available to the Company. The result of these cumulative increases was to increase the Company’s annual wage expenses by an aggregate of $10.6 million through fiscal year end 2019.

For a second we had to do a double-take just to make sure Andy Puzder wasn’t the first day declarant!

Interestingly, despite these seemingly OBVIOUS wage headwinds and the EVEN-MORE-OBVIOUS-CASUAL-DINING-CHALLENGES, these genius operators nevertheless concluded that it was prudent to open two new restaurants in Washington state “in the second half of 2017” — at a cost of $10mm. Sadly, “[s]ince opening, the anticipated foot traffic and projected sales at these locations did not materialize….” Well, hot damn! Who could’ve seen that coming?? Coupled with the wage increases, this was the death knell. PETITION Note: this really sounds like two parents on the verge of divorce deciding a baby would make everything better. Sure, macro headwinds abound but let’s siphon off cash and open up two new restaurants!! GREAT IDEA HEFE!!

The Debtors have therefore been in a perpetual state of marketing since 2016. The Debtors’ investment banker contacted 170 parties but not one entity expressed interested past basic due diligence. Clearly, they didn’t quite like what they saw. PETITION Note: we wonder whether they saw that Sun Capital extracted millions of dollars by way of dividends, leaving a carcass behind?? There’s no mention of this in the bankruptcy papers but….well…inquiring minds want to know.

The purpose of the filing is to provide a breathing spell, gain the Debtors access to liquidity (by way of a $10mm new money DIP financing commitment from their prepetition lender), and pursue a sale of the business. To prevent additional unnecessary cash burn in the meantime, the Debtors closed six unprofitable restaurants: Palomino in Indianapolis, Indiana, and Bellevue, Washington; Prime Rib & Chocolate Cake in Portland, OR; Henry’s Tavern in Plano, Texas; Stanford’s in Walnut Creek, California; and Portland Seafood Co. in Tigard, Oregon. PETITION Note: curiously, only one of these closures was in an “iconic” location that also has the progressive rate increases the Debtors took pains to highlight.

It’s worth revisiting the press release at the time of the 2007 acquisition:

Steve Stoddard, President and CEO, Restaurants Unlimited, Inc., said, “This transaction represents an exciting partnership with a skilled and experienced restauranteur that has the requisite financial resources and deep operating experience to be instrumental in strengthening our brands and building out our footprint in suitable locations.”

Riiiiight. Stoddard’s tenure with Sun Capital lasted all of two years. His successor, Norman Abdallah, lasted a year before being replaced by Scott Smith. Smith lasted a year before being replaced by Chris Harter. Harter lasted four years and was replaced by now-CEO, Jim Eschweiler.

A growing track record of bankruptcy and a revolving door in the C-suite. One might think this may be a cautionary tale to those operators in the market for PE partners.*

*Speaking of geniuses, it’s almost as if Sun Capital Partners thinks that things disappear on the internets. Google “sun capital restaurant unlimited” and you’ll see this:

Source: Google

Click through the first link and this is what you get:

Source: Sun Capital Partners

HAHAHAHAHA. WHOOPS INDEED!

THEY DELETED THAT SH*T FASTER THAN WE COULD SAY “DIVIDEND RECAP.”

---

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $37.7mm (plus $1.7mm of accrued and unpaid interest)(Fortress Credit Co LLC)

• Professionals:

  • Legal: Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Michael Yurkewicz, Sally Veghte)

  • Financial Advisor: Carl Marks Advisory Group LLC (David Bagley)

  • Investment Banker: Configure Partners LLC

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

  • Board of Directors: Stephen Cella, Jonathan Jackson, James Eschweiler

• Other Parties in Interest:

  • PE Sponsor: Sun Capital Partners Inc.

  • Prepetition Agent & DIP Agent ($10mm): Fortress Credit Co LLC

    • Legal: Hunton Andrews Kurth LLP (Tyler Brown, Justin Paget) & Gellert Scali Busenkell & Brown (Michael Busenkell)

    • Financial Advisor: Grant Thornton LLP

  • DIP Lenders: Drawbridge Special Opportunities Fund LP, NXT Capital LLC

    • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim)

Updated 7/7/19

⛽️New Chapter 11 Filing - Weatherford International Plc⛽️

Weatherford International Plc

July 1, 2019

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

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

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

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

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

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

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

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

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

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

Relating to the competition:

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

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

Compounding matters, of course, is the government:

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

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

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

Yet, the squeeze continued. Per the company:

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

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

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

We’ll see.

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

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

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

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

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

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

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

• Capital Structure:

• Professionals:

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

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Lazard Freres & Co LLC

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

• Other Parties in Interest:

  • Ad Hoc Prepetition Noteholder Committee

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

    • Financial Advisor: Evercore Group LLC

  • DIP Agent: Citibank NA

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

🌑New Chapter 11 Bankruptcy Filing - Blackjewel LLC🌑

Blackjewel LLC

July 1, 2019

The macro environment has been largely unforgiving to coal country.

Blackjewel LLC and three affiliates are the latest in a long string of coal companies to file for bankruptcy. The debtors mine and process metallurgical, thermal and other specialty and industrial coals; they operate 32 properties and hold over 500 mining permits — “more than any other enterprise in the country.” Their operations are in the Central Appalachian Basin in Virginia, Kentucky and West Virginia and the Powder River Basin in Wyoming; they employee 1,700 people (1,100 in the east and 600 in the west).

The debtors blame the usual macro factors for their descent into bankruptcy court: (i) declining commodity prices, (ii) reduced domestic demand for met and thermal coal, (iii) compliance costs, (iv) the rise of natural gas, (v) the increased adoption of renewables, and (vi) decreased coal-fired power generation. This is a telling stat, per the debtors:

Thermal coal demand in the domestic electric power sector has declined from 935 million tons in 2011 to 636 million tons in 2018 and coal has seen its share of the domestic electricity generation market reduce from 43% in 2011 to 31% in 2017.

On a micro level, the debtors suffered from company-specific issues including (a) the termination of a major contract with Nobel Group, (b) a major roof collapse at a particular mine that shut down production, (c) changes to Kentucky’s workers’ compensation laws that increased insurance rates, (d) poorly timed hedging agreements, and (e) interestingly, bad weather. Yes, that’s right: it isn’t just retailers who blame weather for poor performance. Per the debtors:

Various flooding events across the midwest in 2019 have severely impacted rail shipments from the Debtors’ Western Division mining operations. Starting in March 2019, the Debtor started to experience a material reduction in shipments by rail due to severe damage to the rail lines used to move the Debtors’ coal. The impact from the flooding is ongoing, with an estimated $30 million in lost sales directly attributable to it.

PETITION Note: There’s no way to know whether these “flooding events” are the result of man-made global warming but, if so…well, you know where we’re going with this. Irony to the utmost!

All of these factors — and some recent mine acquisitions from previously bankrupted coal companies — combined to seriously constrain liquidity and, after a little refinancing foreplay, term lender Riverstone Credit Partners decided it wanted out and pulled the plug from discussions. The debtors had no choice but to file for bankruptcy.

We were on a brief July 4-related break at the time of the debtors’ filing but suffice it to say that the filing was a sh*tshow. The company filed with a $20mm DIP commitment from company CEO Jeff A. Hoops Sr. and Clearwater Investment Holdings LLC, at an interest rate of LIBOR + 6% per annum, but that DIP fell apart prior to the debtors’ first day hearing putting the company on the brink of liquidation. Per The Wall Street Journal:

But the company learned before its debut appearance in West Virginia bankruptcy court that his bank froze funds Mr. Hoops believed would provide the necessary credit for the proposed financing, according to Blackjewel lawyer Stephen Lerner.

“It’s frankly a disaster,” Mr. Lerner said during the hearing in the U.S. Bankruptcy Court in Charleston, W.Va.

While this surely sucked for the professionals involved, we especially feel for the 1,700 employees whose lives were altered over night — right on the eve of July 4th. Compounding matters is the fact that, apparently, the debtors cut checks to their employees prior to the filing that are not being accepted or are being dishonored by Commonwealth banks. WHAT. A. SH*TSHOW. 🙈The court held a separate hearing on this subject on Saturday, July 6.

Ultimately, Riverstone jumped in and — oddly enough considering its role in precipitating this whole bankruptcy dance to begin with — offered a lifeline. In what may be the shortest interim DIP financing order we’ve seen ever (3 pages), the bankruptcy court approved a $5mm super-priority senior secured DIP facility ($4.25mm from Riverstone, $750k from United Bank) at LIBOR + 8.5%. The use of proceeds? To ensure security measures are in place at the mines to preserve and protect property and equipment; to pay firefighting personnel needed to extinguish active fires at the mines; to fund a $500k professional fee escrow; and to pay for other essential emergency expenses. We presume the latter would include making sure employees — who, to be clear, were abruptly sent home — get paid. Other conditions of the DIP facility? Mr. Hoops got the heave-ho and FTI’s David Beckman was appointed Chief Restructuring Officer with CEO-esque authority. Savage move by Riverstone but we all know that old adage about money talking.

But why though?

Among other things coming to light, the Hoops-controlled debtors apparently floated cashier’s checks to their 600 Wyoming employees rather than follow typical direct deposit practices. Per the Gillette News Record, the bankruptcy court judge was pissed:

“I know this may be interfering with the holiday plans for some of you, but I’m sure you’d agree it’s minimal (compared) to what these employees are dealing with,” Volk scolded during an emergency hearing he called on the Fourth of July after he began hearing reports of people not being paid.

To make matters worse, in a liquidity exercise to the extreme, the debtors apparently also deducted $1.2mm of employee money from paychecks for 401(k) contributions but those amounts were never deposited into the appropriate accounts. SHEESH.

The human element of this cannot be overstated. More from the Gillette News Record (which you ought to read — it really puts this bankruptcy filing in perspective):

“I just hope these people can find jobs here and don’t have to leave,” said [Mayor Louise Carter-King], referring to the 2016 bust that saw the city’s population dip by about 2,000 as people left for work elsewhere. “That’s a big concern, but I also realize they’ve got to go where they can get jobs.”

She’s also worried for the small, local businesses and contractors that rely on performing work at the mines, especially those that might have to cut staff or shut their doors because they haven’t been paid by Blackjewel.

“Losing 600, 700 jobs has quite a trickle-down effect,” she said.

Shockingly, Fortune notes that coal mining jobs have actually “held steady under Trump”:

…per the Bureau of Labor Statistics: the number of coal workers rose from 50,500 in Nov. 2016 to 52,900 (preliminary) in May 2019. The rise has largely been attributed to demand from Europe and Asia—though overall demand has been steadily falling with exports down 7.4% in first quarter of 2019 year-over-year.

But in the long term, the trend of falling coal jobs expected to continue as the commodity comes under pressure against cheaper options such as natural gas.

“I can’t overstate the extreme competition between coal and natural gas,”  Hans Daniels, CEO of Doyle Trading Consultants said last year.

Indeed, take a look at the BLS numbers:

This is, despite the fact that, per the Wall Street Journal:

Blackjewel is at least the fifth coal company to file for bankruptcy within the past 12 months and third to file chapter 11 since May. Cloud Peak Energy Inc. and Cambrian Holding Co. filed for chapter 11 protection in the previous two months. Westmoreland Coal Co. and Mission Coal Co. filed for bankruptcy last fall.

This is, despite the fact that, per the Wall Street Journal:

Blackjewel is at least the fifth coal company to file for bankruptcy within the past 12 months and third to file chapter 11 since May. Cloud Peak Energy Inc. and Cambrian Holding Co. filed for chapter 11 protection in the previous two months. Westmoreland Coal Co. and Mission Coal Co. filed for bankruptcy last fall.

Curious.

As for the Powder River Basin, generally? Things aren’t so peachy. Per E&E News, the Blackjewel bankruptcy portends more pain to come:

"To me, it's a real sign there is something fundamentally wrong with the economics of PRB coal," said Clark Williams-Derry, an analyst who tracks the coal industry at the Sightline Institute, which advocates for a transition to clean energy. "The new normal is not stasis. It is contraction and disappointment."

It wasn't always that way. In the 1970s, a newly strengthened Clean Air Act prompted a westward expansion of the U.S. coal industry. The coal found in the Powder River Basin of Montana and Wyoming does not pack as much energy as the varieties buried in Appalachia. But its low sulphur content made it popular with power companies searching for ways to comply with America's new air quality laws.

Today, the Powder River Basin accounts for roughly 40% of U.S. coal output, by far the most of any basin. Yet production there has plunged, falling from 462 million tons in 2011 to 324 million tons last year, according to federal figures.

What is the cause of this decline?

The decline has been driven by stiff competition from natural gas and renewable energy. Wind, in particular, has eroded the Powder River Basin's market in the Great Plains, a major outlet for the basin's coal.

"Wind power has caused a lot of these coal plants to be uneconomical and be shut down," said John Hanou, a coal consultant who produces an annual study on the Powder River Basin. "Then on top of that you have the cheap natural gas from fracking."

The fact that PRB coal’s primary use is electricity had largely insulated it from the coal downturn of a few years ago. The bankruptcies of Arch Coal Inc. ($ARCH), Peabody Energy ($BTU) and Alpha Natural Resources largely revolved around over-expansion and too much debt as these companies dove into met coal for purposes of steal production. Electricity-producing coal of the sort produced in the PRB wasn’t as affected. Until now.

The problem: U.S. power companies consumed 687 million tons of coal in 2018, the lowest amount since 1978.

The decline has prompted upheaval in a region that long prided itself on stability. Cloud Peak Energy Inc., which operates three mines in the region, declared bankruptcy in May….

Last month, Arch and Peabody announced plans to form a joint venture, effectively combining their mining operations in the Powder River Basin in an attempt to cut costs. 

President Trump promised to save coal.

In reality, the cancer has spread farther than it had ever before.

Pour one out for the PRB.

---

• Jurisdiction: S.D. of West Virginia (Judge Folk)

• Capital Structure: $28mm term loan (15% interest)(Riverstone Credit Partners) + $6mm from Jeff A. Hoops Sr. and Lime Rock Partners, ~$6mm RCF and TL (United Bank Inc.), $23.8mm (Caterpillar Financial Services Corporation), $25.5mm Fifth Third Bank Loan, $1.7mm Javelin Commodities Security Agreement, $4.9mm Uniper Security Agreement, $11mm Hoops’ Prepetition unsecured loans

• Professionals:

  • Legal: Squire Patton Boggs (Stephen Lerner, Nava Hazan, Maura McIntyre, Travis McRoberts, Kyle Arendsen) & (local) Supple Law Office PLLC (Joe Supple)

  • Financial Advisor: FTI Consulting Inc. (David Beckman)

  • Investment Banker: Jefferies LLC (Robert White)

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

• Other Parties in Interest:

  • Official Committee of Unsecured Creditors (Walker Machinery Company, Jennmar Corporation of Virginia, CAM Mining LLC, United Central Industrial Supply Company LLC, Kentucky River Properties LLC)

    • Legal: Whiteford Taylor & Preston LLP (Michael Roeschenthaler, Brandy Rapp, Daniel Schimizzi)

Updated 7/7/19 #88

🏠New Chapter 11 Filing - Monitronics International Inc.🏠

Monitronics International inc.

June 30, 2019

We wrote about Monitronics International Inc. in July 2018 in "😬Home Security Company Looks Vulnerable 😬,” noting that “home security is a tough business (short Ascent Capital Group).” And, by “tough” we meant uber-competitive and saturated. It doesn’t help when you’re levered like a boss. We recommend you read the link above to understand the challenges these businesses faced in a better way than that described in the bankruptcy papers.

That said, the debtors’ capital structure is an important element of this story; they carry:

• $181.4mm ‘21 Revolving Credit Facility

• $1.072b ‘22 Term Loan

• $585mm ‘20 9.125% Senior Notes

Leverage + disruption = a recipe for disaster. This prepackaged bankruptcy filing is meant to address the former. Management will be on the clock to figure out the latter. A significantly deleveraged capital structure and a cash infusion will certainly help.

The debtors’ proposed prepackaged plan of reorganization will eliminate approximately $885mm of funded debt by way of equitizing the entirety of the senior notes, and reducing the revolving credit facility (by $50mm) and the amount of term loans (by $250mm). The term lenders will receive $150mm in cash (financed by a rights offering totaling $177mm) and equitize $100mm worth of their loans. The remainder of the term loan amount will be exchanged for take back paper issued by the reorganized debtors.

Source: First Day Declaration ($ in millions)

This is what the capital structure will look like pre and post-transaction:

Source: First Day Declaration ($ in millions)

The senior unsecured notes are fully exchanged for 18% of pre-diluted equity in the reorganized debtors.

The overall structure of the transaction is complex and depends upon some contingencies. This is the summary the debtors provided:

It might as well be gibberish at this point. Once we know whether Ascent toggle occurs we’ll have a better sense of who is contributing what. Moreover, once we the rights offering is consummated, the debtors’ new ownership will be more obvious.

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

• Capital Structure: See above.

• Professionals:

  • Legal: Latham & Watkins LLP (David Hammerman, Annemarie Reilly, Jeremy Mispagel, Liza Burton, Brian Rosen, Christopher Harris, Zachary Proulx) & King & Spalding LLP (Roger Schwartz, Sarah Primrose) & (local) Hunton Andrews Kurth LLP (Timothy Davidson, Ashley Harper)

  • Board of Directors: Jeffery Gardner, William Niles, Marc Beilinson, Sherman Edmiston III

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Moelis & Company LLC

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

• Other Parties in Interest:

  • Ad Hoc Lender Group (Term B-2 Lenders)(Anchorage Capital Group LLC, Boston Management and Research, BlueMountain Capital Management LLC, Eaton Vance Management, FS Global Advisor LLC, Invesco Advisors Inc., KKR Credit Advisors US LLC, Monarch Alternative Capital LP)

    • Legal: Jones Day (Paul Green, Scott Greenberg, Michael Schneidereit, Peter Saba)

    • Financial Advisor: Evecore LLC

  • Ad Hoc Group of Noteholders

    • Legal: Stroock & Stroock & Lavan LLP (Kristohper Hansen, Sayan Bhattacharyya, Jason Pierce) & (local) Haynes and Boone LLP (Kelli Norfleet, Stephen Pezanosky)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • KKR Credit Advisors US LLC

    • Legal: Proskauer Rose LLP (Chris Theodoridis)

  • Administrative Agent under Pre-Petition Credit Agreement: Bank of America NA

    • Legal: Morgan Lewis & Bockius LLP (Amelia Joiner) & ( Local) Winstead PC (Sean Davis)

  • Pre-Petition Agent: Cortland Capital Markets Services LLC

    • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, D. Tyler Nurnberg, Sarah Gryll)

  • Ascent Capital Group

    • Legal: Baker Botts LLP

😷New Chapter 11 Filing - Center City Healthcare LLC (d/b/a Hahnemann University Hospital)😷

Center City Healthcare LLC

June 30, 2019

We take a break from our regularly scheduled oil and gas distress to bring you some regularly scheduled healthcare distress. That’s right: more healthcare distress. Here, Philadelphia Academic Health System LLC and 12 affiliated debtors — including two major hospitals in Philadelphia, St. Christopher’s Hospital for Children (“STC”) and Hahnemann University Hospital (“HUH”) and related physician practices — have filed for bankruptcy in Pennsyl…strike that…in the District of Delaware.* Gotta love venue!

This bankruptcy case likely marks the end of HUH, an academic medical center that (a) is the primary teaching hospital for Drexel University and (b) has been providing healthcare services since 1848.

According to the debtors, their troubles can be traced back to an August 2017 acquisition — consummated in January 2018 — of the assets (i.e., operating entities, non-debtor entities owning the real estate upon which the hospital operate, and certain receivables) from Tenet Business Services Corporation. The debtors’ primary source of funding for the acquisition was a pre-petition credit facility from Midcap Funding IV Trust.

Immediately after the sale, the debtors realized that they bought a lemon. Per the debtors:

Disputes arose between the Debtors and Tenet with regards to, among other things, the “Net Working Capital Adjustment” provided for under the parties’ Asset Sale Agreement, most notably, for overstated amounts of accounts receivable totaling approximately $21 million. The Debtors also learned that approximately $5 million of amounts received by Tenet at closing in order for it to pay certain accounts payable was never in fact paid. These issues resulted in a significant liquidity shortfall that adversely affected the Debtors’ operations almost immediately after closing of the Acquisition.

The parties are now in litigation with Tenet asserting counterclaims. Gotta hate when that happens. And that’s not the end of it:

Disputes also arose between the parties regarding the financial condition of the Debtors’ businesses, wherein the Debtors asserted that they were led to believe during due diligence process for the Acquisition that the business, as a whole, was essentially breaking even through November 2017 on an EBITDA basis. In fact, the business lost more than $6 million during its first full operational month in February 2018, and continues to experience substantial losses. The Debtors and their affiliates have asserted indemnity and fraud claims against Tenet on these grounds, which Tenet disputes.

Basically this is a hot mess. Coupled with (i) disputes with Drexel, (ii) delays in, and reduction of, payments of supplemental payments from the Commonwealth of Pennsylvania, (iii) decreased patient volumes in 2018, (iv) increased losses by certain of the physician groups, (v) material declines in outpatient procedures and surgeries; and (vi) reductions in average daily census, partly due to a reduction in average length of stay and reduced direct admissions, HUH encountered a maelstrom of negative operational issues to the tune of a pre-tax 2018 loss of approximately $69mm. STC is profitable; it, however, is dragged down by the rest of the enterprise. All in, the debtors pre-tax losses in 2018 exceeded $85mm and have not abated in 2019. Due to this piss poor financial performance, the debtors defaulted on their MidCap credit facility.

The debtors intend to use the chapter 11 process to pursue an orderly wind down of HUH while, contemporaneously, pursuing a sale of STC and the related physician practices. No stalking horse bidder is currently lined up. The debtors do, however, have a commitment from Midcap for $65mm of DIP financing, of which it appears less than $7mm will be new money.

Now is an occasion for Philly to, once again, show how tough it can be.

*SCH, HUH and their corporate parent, Philadelphia Academic Health System LLC, are all DE LLCs.

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: $38.6mm RCF & $20mm TL (Midcap Funding IV Trust)

• Professionals:

  • Legal: Saul Ewing Arnstein & Lehr LLP (Monique Bair DiSabatino, Mark Minuti, Jeffrey Hampton, Adam Isenberg, Aaron Applebaum, Jeremiah Vandermark) & Klehr Harrison Harvey Branzburg LLP

  • Financial Advisor/CRO: EisnerAmper LLP (Allen Wilen)

  • Investment Banker: SSG Advisors LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Lender ($65mm): MidCap Funding IV Trust

  • Tenet Business Services Corp.

    • Legal: Kirkland & Ellis LLP (Gregory Pesce) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones)

😷New Chapter 11 Filing - Joerns WoundCo Holdings Inc.😷

Joerns WoundCo Holdings Inc.

June 24, 2019

We scoured far and wide to see whether there might be some businesses that get harmed by the uptick in healthcare distress we’ve witnessed of late. In early June, we took a bit of a stab in the dark (Members’-only access):

There has been notable bankruptcy activity in the healthcare industry this year — from continuing care retirement communities to the acute care space. When end users capitulate and need to streamline operations and cut costs, who gets harmed farther down the chain? It’s a good question: after all, there’s always some trickle down effect.

Our internal search for answers to this question recently brought us to Charlotte-based Joerns Healthcare, a “premier supplier and service provider in post-acute care.” The company sells supportive care beds, transport systems, respiratory care solutions and more.

Among other things, we noted how the company’s term loan maturing in May 2020 “was among one of the worst performing loans in the month of May — quoted in the low 70s, down approximately 15% since April.” We insinuated that a bankruptcy filing may not be too far afield.

We didn’t expect it to be in six weeks later.

On Monday, June 24, 2019, Joerns WoundCo Holdings Inc. and 13 affiliated entities filed a prepackaged bankruptcy in the District of Delaware. Among other reasons provided to explain its capitulation into bankruptcy court is “post acute sector disruption.” Now that’s music to our ears. Per the company:

The Company has been adversely impacted by the challenges faced by the postacute sector, which is a key end market. Post-acute providers have experienced multi-year occupancy rate declines while simultaneously seeing increases in the costs of providing patient care and structural changes in reimbursement instituted by the Centers for Medicare and Medicaid Services not yet offset by countervailing demographic trends. These structural changes include, among other things, higher operational costs driven by increasing regulatory burdens, lower reimbursement rates instituted by Centers for Medicare and Medicaid Services for patients, and patient migration to home health care. The decline in occupancy rates has led to reduced demand for the Company’s products and services, particularly in the rental segment, which is a major component of the Company’s business.

Further, the general post-acute sector disruption has placed many of the Company’s Customers under significant financial pressure, resulting in several bankruptcy filings, increased mergers and acquisition activity to divest under-performing facilities, and proactive cost reduction efforts, as well as fewer equipment purchases. (emphasis added).

Trickle down indeed. The provision of healthcare has simply changed: the debtors served fewer patients not only because of the reduction in the number of facilities served but because patients don’t fill facility beds like they used to. And when they do, the duration is much shorter than years past. The demand side simply wasn’t there* and, yet, the costs associated with the supply side of the business persisted. The debtors were caught between a rock and a hard place. Compounding matters was the company’s balance sheet:

• $272 first lien term loan (+ $3.2mm LOCs)(Ankura Trust Company)

• $80 tranche A second lien notes (US Bank NA)

• $45.5mm tranche B second lien notes

In early June, we noted that one problem with understanding the full extent of Joerns’ trouble was that the company was private. In fact, the debtors had been in default of their covenants under their first and second lien agreements since 2018 and have been operating under a perpetual state of waivers since. In the midst of this, the debtors plunged deeper into default when they breached a financial covenant in March 2019: the debtors’ EBITDA plunged below the $40mm and $36.4mm thresholds required by the first and second lien agreements, respectively. On May 31, 2019, the company skipped a $5.9mm interest payment which, five days later, constituted an event of default.

The debtors then dove headfirst into a proposed sale process. It didn’t work: while dozens of parties signed NDAs and took a peek at marketing materials, none of the parties that the debtors and their banker, Moelis & Co. LLC ($MO), spoke to expressed interest in bidding.

This is where value really comes in to play in a restructuring transaction. And the value calculus for the existing lenders is different than that of outside strategics or sponsors who, seeing a distressed company hobbling, have no incentive to make a generous offer — if they’re even interested in making an offer at all.

The lack of market interest and the declining performance made clear that the value of the company doesn’t clear the first lien debt — making that part of the capital structure the “fulcrum security.” Accordingly, the debtors entered into a restructuring support agreement for a prepackaged plan of reorganization that would confer 95% of the equity in the reorganized debtors to the first lien lenders and the remainder to the second lien lenders (both subject to dilution). Said differently, the debtors’ value dictated that the second lien lenders had limited leverage in negotiations: the best they could achieve was a limited recovery of their positions and play out the option that, on a de-levered basis, the company can optimize their businesses and wade through the storm currently pounding the healthcare space. To aid with that, the lenders all agreed to pay general unsecured claimants in full so as to eliminate any additional unnecessary risk to the business. The debtors private sponsors also support the plan — not surprising given that they will want full exculpation and release provisions. To effectuate the deal, the debtors seek approval of a $40mm new money DIP (in addition to a roll-up portion of certain pre-petition amounts).

In the end, the company will eliminate $320mm of funded debt and have a new exit facility to lean on for post-emergence liquidity. The debtors hope to be out of bankruptcy before the end of summer.

*Even when demand WAS there, the debtors’ customers had liquidity issues of their own, preventing the debtors from collecting accounts receivable and causing bad debt expenses in each of 2016, 2017, 2018 and the first half of 2019.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $272 first lien term loan (+ $3.2mm LOCs)(Ankura Trust Company), $80 tranche A second lien notes, $45.5mm tranche B second lien notes (US Bank NA)

• Professionals:

  • Legal: White & Case LLP (David Turetsky, Philip Abelson, Richard Graham, John Ramirez, Fan He, Elizabeth Feld) & (local) Fox Rothschild LLP (Jeffrey Schlerf, Courtney Emerson, Katelyn Crawford)

  • Board of Directors: Frank Winslow, Anthony Ignaczak, Terrence Daniels, John Mapes, Terry Sutter, Todd Dunn

  • Financial Advisor: Conway MacKenzie Inc.

  • Investment Banker: Moelis & Company

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

• Other Parties in Interest:

  • Large Equityholders: Quad-C Partners VII LP, Aurora Equity Partners III LP

  • First Lien Agent: Ankura Trust Company

    • Legal: King & Spalding LLP

    • Financial Advisor: FTI Consulting Inc.

  • Second Lien Noteholders: PineBridge, Cetus Funds

⛽️New Chapter 11 Filing - HDR Holding Inc. (Schramm Inc.)⛽️

HDR Holding Inc. (Schramm Inc.)

June 24, 2019

It stands to reason that businesses centered upon servicing mining and oil and gas drilling rigs may be suffering a bit in the current — and by “current,” we mean the last five-or-so years — macroeconomic environment. HDR Holding Inc., a Pennsylvania-based company started in 1900(!), along with certain debtor affiliates, produces “a variety of mobile, top-head hydraulic rotary drilling rigs that are mounted on trucks, tracks and trailers.” The company makes money by (i) manufacturing and selling their various rig models to drillers, (ii) selling consumable drill parts that naturally deteriorate over time, and (iii) servicing their equipment. For reasons that are, by now, blatantly obvious to anyone following the distressed world, oil and gas drilling hasn’t exactly been an obscenely profitable endeavor these last few years (or, in the case of certain drilling regions, EVER, really).

And so demand for the debtors’ wares is down. Per the debtors:

Given its strong connections to the oil and gas industry, the Company has faced significant challenges pervasive in the industry over the past three to five years. Numerous oil and gas producers have significantly curtailed, if not entirely ceased, drilling new wells in response to declines in commodity prices that make such projects uneconomical. The result of this trend for the Company has been a reduced demand for both new rigs and for the related consumable drill parts as existing rig assemblies are idled, which has led to the Debtors failing to meet revenue projections and maintain compliance with the covenants under their prepetition credit facilities.

Ah, yes, the debt. The debtors have approximately $20mm in debt spread out across three different term loan facilities. In an attempt to better service this debt, the debtors have pivoted their sales efforts “to a steadier mining sector” (Bitcoin, maybe? We kid, we kid), now sell aftermarket equipment, and have “managed” their workforce and expenses to preserve cash with the hope that oil and gas might cover. Spoiler alert: it hasn’t. Nevertheless, the debtors purport to have increased performance over the last few years. Just not enough to service their capital structure.

Accordingly, over the last eight months, the debtors and their advisors have pursued a sale process with the hope of selling the business as a going concern. No third-party purchaser came forward pre-petition, unfortunately, and so the debtors seek to pursue a sale to their largest pre-petition equityholder…which also happens to be their largest pre-petition lender…AND which also happens to be their proposed DIP lender (GenNx360 Capital Parters LP). The committed DIP is $6mm at 12% and the proposed purchase price is $10.3mm plus a credit bid of the $6mm DIP amount. Pursuant to the terms of the DIP, the debtors seek to have a sale hearing on or about August 19 to have some cushion in advance of the August 28 sale order milestone under the proposed DIP.

We’ll, therefore, have at least one data point by the end of summer to show us how bullish folks are vis-a-vis a recovery in the oil and gas market.

• Jurisdiction: D. of Delaware (Judge Walrath)

• Capital Structure: $5.3mm Term Loan A (Hark Capital I LP), $6.5mm Term Loan B (GenNx360), $6mm Term Loan C (Citizens Bank NA)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Sean Greecher, Pauline Morgan,

  • Investment Banker: FocalPoint Partners LLC (Michael Fixler)

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

• Other Parties in Interest:

  • Largest EquityHolder & Stalking Horse Purchaser: GenNx360 Capital Partners L.P.

  • DIP Lender ($6mm at 12%): Schramm II Inc. (an acquisition vehicle created by GenNx360)

    • Legal: Winston & Strawn LLP (Carey Schreiber) & (local) Robinson+Cole LLP (Jamie Edmonson)

  • Term Loan A Lender: Hark Capital I LP

    • Legal: Perkins Coie LLP (Jordan Kroop) & (local) The Rosner Law Group LLC (Frederick Rosner)

Updated 7/7 #65

⛽️New Chapter 11 Filing - Legacy Reserves Inc.⛽️

Legacy Reserves Inc.

June 18, 2019

CNBC: What is it you like about the Permian Basin?

Munger: It's got a lot of oil in it

— Tara Lachapelle (@taralach) May 6, 2019

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.

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.

Permian Slowdown Continues; U.S. Rig Count Declines by Six: Led once again by declines in the Permian Basin, the U.S. rig count declined by six units in the week ended June 14 to finish at 969, according to the latest data from Baker Hughes... https://t.co/huCTiSD0i2 #NatGas pic.twitter.com/RxHsCiCt5B

— Shale Daily (@shaledaily) June 14, 2019

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:

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):

Time for another round of:

"These incompetent fucks bankrupted an energy company...now how much will they pay themselves for it?"

This week's edition: Legacy Reserves $LGCY

Real ones will remember that $LGCY had a #4 seed in the Worst Midstream / MLP Management Team Bracket

— Mr. Skilling (Parody) (@mr_skilling) May 24, 2019

😬

• 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 - Cambrian Holding Company Inc.🌑

Cambrian Holding Company Inc.

June 16, 2019

Pour one out for the fine folks of eastern Kentucky and western Virginia. They can’t seem to catch a break.

Earlier this week, Cambrian Holding Company Inc. (and its affiliate debtors) joined a long line of coal producers/processors (e.g., Cloud Peak Energy, Westmoreland Coal, Mission Coal) who have recently filed for bankruptcy. The company employees approximately 660 people, none of whom are members of a labor union (in contrast to bigger, more controversial, coal filings, i.e., Westmoreland) and most of whom must be fretting over their futures. They must really be getting tired of all of the post-election “winning” that’s going on in coal country.

The company’s problems appear to start in 2015, at the time the company acquired TECO Coal LLC and assumed $40mm of workers’ compensation and black lung liabilities that TECO had previously self-insured. The company sought to leverage its broader scale to increase production but it failed to raise the working capital it needed to live up to its obligations and sustain production at levels necessary to service the company’s balance sheet. Post-acquisition, the company doubled revenues, but it couldn’t sustain that progress and nevertheless recorded net losses from 2015 through 2018. In turn, the company triggered financial covenant and other defaults under its ABL Revolver and Term Loan.

In other words, the company has been in a state of emergency ever since the acquisition. Almost immediately, the company “undertook various efforts to return to a positive cashflow,” which, as you might expect, meant idling or closing certain mining operations, stretching the usable life of equipment, and laying off employees.* Its efforts proved fruitless. Per the company:

Notwithstanding these efforts, the Debtors have been unable to overcome the pressures placed on their profit margins from steadily declining coal prices (along with burdensome regulations and the accompanying decline in demand for coal), all of which have contributed to the Debtors’ substantial negative cashflow and inability to consummate a value-enhancing transaction.

So, what now? The company, with assistance from Jefferies LLC, will attempt to find a buyer willing to catch a falling knife: the plan is to “commence an expeditious sale and marketing process” of the company’s assets (call us crazy, but shouldn’t it be the other way around?). To fund this process, the company has a DIP commitment from affiliates of pre-petition lenders for $15mm.**

*Interestingly, it was in March 2016 when Hilary Clinton infamously stated, “Because we're going to put a lot of coal miners and coal companies out of business.” At the time, Cambrian was already struggling, laying off people in an attempt to generate positive cashflow. That message really must’ve struck a chord down in coal country. WHOOPS.

**The Term Lenders swiftly objected to the terms of the DIP and the use of cash collateral.

• Jurisdiction: D. of Kentucky (Judge Schaaf)

• Capital Structure: $48mm ABL Revolver (Deutsche Bank AG New York Branch), $78mm Term Loan (Deutsche Bank Trust Company Americas)

• Professionals:

  • Legal: Frost Brown Todd LLC (Ronald Gold, Douglas Lutz, Patrica Burgess)

  • Financial Advisor: FTI Consulting Inc. (Bertrand Troiano)

  • Investment Banker: Jefferies LLC (Leon Szlezinger)

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

• Other Parties in Interest:

  • Term Lenders: Deutsche Bank AG, London Branch, Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC

    • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Christopher Robertson, Elliot Moskowitz) & (local) Bingham Greenbaum Doll LLP (Christopher Madden)

  • DIP & Bridge Lender: Richmond Hill Capital Partners, LP

🔫New Chapter 11 Filing - Sportco Holdings Inc. (United Sporting Companies Inc.)🔫

SportCo Holdings Inc. (United Sporting Companies Inc.)

June 10, 2019

Callback to four previous PETITION pieces:

• Is that a Gun in Your Pocket or….? (Short #MAGA!!);

• New Chapter 11 - Remington Outdoor Company;

• Who is Financing Guns? (Remington Outdoor); and

• New Chapter 11 - AcuSport Corporation.

The first one — which was a tongue-in-cheek mock First Day Declaration we wrote in advance of Remington Outdoor Company’s chapter 11 bankruptcy — is, if we do say so ourselves, AN ABSOLUTE MUST READ. The same basic narrative could apply to the recent chapter 11 bankruptcy filing of Sportco Holdings Inc., a marketer and distributor of products and accessories for hunting, which filed for bankruptcy on Monday, June 10, 2019. Sportco’s customer base consists of 20k independent retailers covering all 50 states. But back to the “MUST READ.” There are some choice bits there:

Murica!! F*#& Yeah!! 

Remington (f/k/a Freedom Group) is "Freedom Built, American Made." Because nothing says freedom like blowing sh*t up. Cue Lynyrd Skynyrd's "Free Bird." Hell, we may even sing it in court now that Toys R Ushas made that a thing. 

Our company traces its current travails to 2007 when Cerberus Capital Management LP bought Remington for $370mm (cash + assumption of debt) and immediately "loaded" the North Carolina-based company with even more debt. As of today, the company has $950mm of said debt on its balance sheet, including a $150mm asset-backed loan due June '19, a $550mm term loan B due April '19, and 7.875% $250mm 3rd lien notes due '20. Suffice it to say, the capital structure is pretty "jammed." Nothing says America like guns...and leverage. 

Indeed, this is true of Sportco too. Sportco “sports” $23mm in prepetition ABL obligations and $249.8mm in the form of a term loan. Not too shabby on the debt side, you gun nuts!

More from our mock-up on Remington:

Shortly after Cerberus purchased the company, Barack Obama became president - a fact, on its own, that many perceived as a real "blowback" to gun ownership. Little did they know. But, then, compounding matters, the Sandy Hook incident occurred and it featured Remington's Bushmaster AR-15-style rifle. Subsequently, speeches were made. Tears were shed. Big pension fund investors like CSTRS got skittish AF. And Cerberus pseudo-committed to selling the company. Many thought that this situation was going to spark "change [you] can believe in," lead to more regulation, and curtail gun sales/ownership. But everyone thought wrong. Tears are no match for lobby dollars. Suckers. 

Instead, firearm background checks have risen for at least a decade - a bullish indication for gun sales. In a sick twist of only-in-America fate, Obama's caustic tone towards gunmakers actually helped sell guns. And that is precisely what Remington needed in order to justify its burdensome capital structure and corresponding interest expense. With Hillary Clinton set to win the the election in 2016, Cerberus' convenient inability to sell was set to pay off. 

But then that "dum dum" "ramrod" Donald Trump was elected and he enthusiastically and publicly declared that he would "never, ever infringe on the right of the people to keep and bear arms."  While that's a great policy as far as we, here, at Remington are concerned, we'd rather him say that to us in private and declare in public that he's going to go door-to-door to confiscate your guns. Boom! Sales through the roof! And money money money money for the PE overlords! Who cares if you can't go see a concert in Las Vegas without fearing for your lives. Yield baby. Daddy needs a new house in Emerald Isle. 

Wait? "How would President Trump say he's going to confiscate guns and nevertheless maintain his base?" you ask. Given that he can basically say ANYTHING and maintain his base, we're not too worried about it. #MAGA!! Plus, wink wink nod nod, North Carolina. We'd all have a "barrel" of laughs over that.  

So now what? Well, "shoot." We could "burst mode" this thing, and liquidate it but what's the fun in that. After all, we still made net revenue of $603.4mm and have gross profit margins of 20.9%. Yeah, sure, those numbers are both down from $865.1mm and 27.4%, respectively, but, heck, all it'll take is a midterm election to reverse those trends baby. 

That was a pretty stellar $260mm revenue decline for Remington. Thanks Trump!! So, how did Sportco fare?

Want to quantify how scared people were that @BarackObama would take away their guns?

Per Sportco's bankruptcy filing:

Average net sales '12-'16: $885.3mm.
Net sales '17: $531.1mm.
Net sales '18: $557mm.

President Trump cost this company $300+mm in annual sales. #MAGA! pic.twitter.com/yBQOTLRFPW

— 💥PETITION💥 (@petition) June 10, 2019

Trump seems to be failing to make America great again for those who sell guns.

But don’t take our word for it. Per Sportco:

In the lead up to the 2016 presidential election, the Debtors anticipated an uptick in firearms sales historically attributable to the election of a Democratic presidential nominee. The Debtors increased their inventory to account for anticipated sales increases. In the aftermath of the unexpected Republican victory, the Debtors realized lower than expected sales figures for the 2017 and 2018 fiscal years, with higher than expected carrying costs due to the Debtors’ increased inventory. These factors contributed to the Debtors tightening liquidity and an industry-wide glut of inventory.

Whoops. Shows them for betting against the stable genius. What are these carrying costs they refer to? No gun sales = too much inventory = storage. Long warehousemen.

Compounding matters, the company’s excess inventory butted with industry-wide excess inventory sparked by “the financial distress of certain market participants.” This pressured margins further as Sportco had to discount product to push sales. This “further eroded…slim margins and contributed to…tightening liquidity.” Per the company:

Many of the Debtors’ vendors and manufacturers suffered heavy losses as a result of the Cabela’s-Bass Pro Shop merger, Dick’s Sporting Good’s pull back from the market, and the recent Gander Mountain and AcuSport bankruptcies. Those losses adversely impacted the terms and conditions on which such vendors and manufacturers were willing to extend credit to the Debtors. With respect to the Gander Mountain and AcuSport bankruptcies, the dumping of excess product into the marketplace pushed prices—and margins— even lower. The resulting tightening of credit terms eroded the Debtors’ sales and further contributed to the Debtors’ tightening liquidity.

The company also blames some usual suspects for its chapter 11 filing. First, weather. Weather ALWAYS gets a bad rap. And, of course, the debt.

Riiiiiight. About that debt. When we previously asked “Who is Financing Guns?,” the answer, in the case of Remington, was Bank of America Inc. ($BAC), Wells Fargo Inc. ($WFC) and Regions Bank Inc. ($RF). Likewise here. Those same three institutions make up the company’s ABL lender roster. We’re old enough to remember when banks paid lip service to wanting to do something about guns.

One other issue was the company’s inability to…wait for it…REALIZE CERTAIN SUPPLY CHAIN SYNERGIES after acquiring certain assets from once-bankrupt competitor AcuSport Corporation. Per the company:

The lower than anticipated increase in customer base following the AcuSport Transaction magnified the adverse effects of the market factors discussed above and resulted in a faster than expected tightening of the Debtors’ liquidity and overall deterioration of the Debtors’ financial condition.

The company then ran into issues with its pre-petition lenders and its vendors and the squeeze was on. Recognizing that time was wearing thin, the company hired Houlihan Lokey Inc. ($HLI) to market the assets. No compelling offers came, however, and the company determined that a chapter 11 filing “to pursue an orderly liquidation…was in the best interest of all stakeholders.”

R.I.P. Sportco.

*****

But not before you get in one last fight.

The glorious thing about first day papers is that they provide debtors with the opportunity to set the tone in the case. The First Day Declaration, in particular, is a narrative. A narrative told to the judge and other parties-in-interest about what was, what is, and what may be. That narrative often explains why certain other requests for relief are necessary: that is, that without them, there will be immediate and irreparable harm to the estate. The biggest one of these is typically a request for authority to tap a committed DIP credit facility and/or cash collateral to fund operations. On the flip side of that request, however, are the company’s lenders. And they often have something to say about that — objections over, say, the use of cash collateral are common.

But you don’t often see an objector re-write the entire frikken narrative and file it prior to the first hearing in the case.

Shortly after the bankruptcy filing, Prospect Capital Corporation (“PCC”), as the second lien term loan agent, unleashed an objection all over the debtors. Per PCC:

Just a few years ago, the Debtors were the largest distributor of firearms in the United States, with reported annual revenue of in excess of $770 million. Contrary to the First Day Declaration filed in these cases, the Debtors’ demise was not due to outside forces such as the “2016 presidential election,” “disruptions in the industry” and “natural disasters. Rather, as a result of dividend recapitalization transactions in 2012 and 2013, the Debtors’ equity owner, Wellspring Capital, “cashed out” in excess of $183 million. After lining their pockets with over $183 million, fiduciaries appointed by Wellspring Capital to be directors and officers of the Debtors grossly mismanaged the business and depleted all reserves necessary to weather the storms and the headwinds the business would face. In a short time, the business went from being the largest firearms distributor in the United States to being liquidated. As a result of years of mismanagement and the failure of the estates’ fiduciaries to preserve value, the Second Lien Lenders will, in all likelihood, recover only a small fraction of their $249.7 million secured loan claim. Years of mismanagement ultimately placed the Debtors in the position where they are in now….

This sh*t just got much more interesting: y’all know we love dividend recapitalizations. Anyway, PCC went on to object to the fact that this is an in-court liquidation when an out-of-court process would be, in their view, cheaper and just as effective; they also object to the debtors’ proposed budget and use of cash collateral. The upshot is that they see very little chance of recovery of their second lien loan and want to maximize value.

Of course, the debtors be like:

The numbers speak for themselves, they replied. They were $X of revenue between 2012 and 2016 and then, after Trump was elected, they’ve been $X-Y%. Plain and simple.

So where does this leave us? After some concessions from the DIP lenders and the debtors, the court approved the debtors requested DIP credit facility on an interim basis. The order preserves PCC’s rights to come back to the court with an argument related to cash collateral after the first lien lenders (read: the banks) are paid off in full (and any intercreditor agreement-imposed limitations on PCC’s ability to fight fall away).

Ultimately, THIS may sum up this situation best:

It’s genuinely difficult to pick the most villainous company in this story. Is it the company selling guns who made a big bet on people’s deepest fears and insecurities and then shit the bed? The private equity company bleeding the gun distributor dry and then running it straight into the ground? Or the other private equity company that is now mad it likely won’t get anything near what it paid out in the original loan to the distributor? Folks...let them fight.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $23.1mm ABL, $249mm term loan (Prospect Capital, Summit Partners)

• Professionals:

  • Legal: McDermott Will & Emery LLP (Timothy Walsh, Darren Azman, Riley Orloff) & (local) Polsinelli PC (Christopher Ward, Brenna Dolphin, Lindsey Suprum)

  • Board of Directors: Bradley Johnson, Alexander Carles, Justin Vorwerk

  • Financial Advisor/CRO: Winter Harbor LLC (Dalton Edgecomb)

  • Investment Banker: Houlihan Lokey Inc.

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

• Other Parties in Interest:

  • DIP Agent: Bank of America NA

    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Carrie Hardman) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele)

  • Agent for Second Lien Lenders: Prospect Capital Corporation

    • Legal: Olshan Frome Wolosky LLP (Adam Friedman, Jonathan Koevary) & (local) Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, John Lucian)

  • Prepetition ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank NA

  • Large equityholders: Wellspring Capital Partners, Summit Partners, Prospect Capital Corporation

  • Official Committee of Unsecured Creditors (Vista Outdoor Sales LLC, Magpul Industries Corporation, American Outdoor Brands Corporation, Garmin USA Inc., Fiocchi of America Inc., FN America LLC, Remington Arms Company LLC)

    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Eric Chafetz, Gabriel Olivera) & (local) Morris James LLP (Eric Monzo)

    • Financial Advisor: Emerald Capital Advisors (John Madden)

Update 7/7/19 #115

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

Insys Therapeutics Inc.

June 10, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What kind of independent effort? Color us suspicious.

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

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: No funded debt.

• Professionals:

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

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

  • Financial Advisor: FTI Consulting Inc.

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

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

• Other Parties in Interest:

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

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

  • MDL Plaintiffs

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

Update 7/7/19 #244

🍤Casual Dining is a Hot Mess. Part VIII. New Chapter 11 Bankruptcy Filing - RUI Holding Corp.🍤

Back in October 2016, in the context of Sun Capital Partners’-owned Garden Fresh Restaurant Intermediate Holdings bankruptcy filing, we asked, “Are Progressives Bankrupting Restaurants?”* We wrote:

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

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

There have been a plethora of restaurant-related bankruptcy filings between then and now and many of them have raised rising costs as an issue. Perhaps none as blatantly, however, than Sun Capital Partners’ portfolio companies: enter RUI Holding Corp and its affiliated debtors, Restaurants Unlimited Inc. and Restaurants Unlimited Texas Inc. (the “Debtors”).**

On July 7, 2019, the Sun Capital-owned Debtors filed for bankruptcy in the District of Delaware. The Debtors opened their first restaurant in 1969 and now own and operate 35 restaurants in 6 states under, among 14 others, the trade names “Clinkerdagger,” “Cutters Crabhouse,” “Maggie Bluffs,” and ”Horatio’s.” The Debtors note that each of their restaurants offer “fine dining” and “polished casual dining” “situated in iconic, scenic, high-traffic locations.” Who knew that if you want something to scream “iconic” you ought to name it Clinkerdagger?

As we’ve said time and time again, casual dining is a hot mess. Per the Debtors:

…the Company's revenue for the twelve months ended May 31, 2019, was $176 million, down 1% from the prior year. As of the Petition Date, the Company has approximately $150,000 of cash on hand and lacks access to needed liquidity other than cash flow from operations.

The Debtors have over $37.7mm of secured debt; they also owe trade $7.6mm. There are over 2000 employees, of which 168 are full-time and 50 are salaried at corporate HQ in Seattle Washington.

But enough about that stuff. Back to those damn progressives. Per the Debtors:

Over the past several years, certain changes to wage laws in the Debtors’ primary geographic locations coupled with two expansion decisions that utilized cash flow from operations resulted in increased use of cash flow from operations and borrowings and restricted liquidity. These challenges coupled with additional state-mandates that will result in an additional extraordinary wage hike in FYE 2020 in certain locations before all further wage increases are subject to increases in the CPI and the general national trend away from casual dining, led to the need to commence these chapter 11 cases.

They continue:

Over the past three years, the Company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage as follows: Seattle $9.47 to $16.00 (69%), San Francisco $11.05 to $15.59 (41%), Portland $9.25 to $12.50 (35%). As a large employer in the Seattle metro market, for instance, the Company was one of the first in the market to be forced to institute wage hikes. Currently in Seattle, smaller employers enjoy a statutory advantage of a lesser minimum wage of $1 or more through 2021, which is not available to the Company. The result of these cumulative increases was to increase the Company’s annual wage expenses by an aggregate of $10.6 million through fiscal year end 2019.

For a second we had to do a double-take just to make sure Andy Puzder wasn’t the first day declarant!

Interestingly, despite these seemingly OBVIOUS wage headwinds and the EVEN-MORE-OBVIOUS-CASUAL-DINING-CHALLENGES, these genius operators nevertheless concluded that it was prudent to open two new restaurants in Washington state “in the second half of 2017” — at a cost of $10mm. Sadly, “[s]ince opening, the anticipated foot traffic and projected sales at these locations did not materialize….” Well, hot damn! Who could’ve seen that coming?? Coupled with the wage increases, this was the death knell. PETITION Note: this really sounds like two parents on the verge of divorce deciding a baby would make everything better. Sure, macro headwinds abound but let’s siphon off cash and open up two new restaurants!! GREAT IDEA HEFE!!

The Debtors have therefore been in a perpetual state of marketing since 2016. The Debtors’ investment banker contacted 170 parties but not one entity expressed interested past basic due diligence. Clearly, they didn’t quite like what they saw. PETITION Note: we wonder whether they saw that Sun Capital extracted millions of dollars by way of dividends, leaving a carcass behind?? There’s no mention of this in the bankruptcy papers but….well…inquiring minds want to know.

The purpose of the filing is to provide a breathing spell, gain the Debtors access to liquidity (by way of a $10mm new money DIP financing commitment from their prepetition lender), and pursue a sale of the business. To prevent additional unnecessary cash burn in the meantime, the Debtors closed six unprofitable restaurants: Palomino in Indianapolis, Indiana, and Bellevue, Washington; Prime Rib & Chocolate Cake in Portland, OR; Henry’s Tavern in Plano, Texas; Stanford’s in Walnut Creek, California; and Portland Seafood Co. in Tigard, Oregon. PETITION Note: curiously, only one of these closures was in an “iconic” location that also has the progressive rate increases the Debtors took pains to highlight.

It’s worth revisiting the press release at the time of the 2007 acquisition:

Steve Stoddard, President and CEO, Restaurants Unlimited, Inc., said, “This transaction represents an exciting partnership with a skilled and experienced restauranteur that has the requisite financial resources and deep operating experience to be instrumental in strengthening our brands and building out our footprint in suitable locations.”

Riiiiight. Stoddard’s tenure with Sun Capital lasted all of two years. His successor, Norman Abdallah, lasted a year before being replaced by Scott Smith. Smith lasted a year before being replaced by Chris Harter. Harter lasted four years and was replaced by now-CEO, Jim Eschweiler.

A growing track record of bankruptcy and a revolving door in the C-suite. One might think this may be a cautionary tale to those operators in the market for PE partners.

******

Speaking of geniuses, it’s almost as if Sun Capital Partners thinks that things disappear on the internets. Google “sun capital restaurant unlimited” and you’ll see this:

Click through the first link and this is what you get:

HAHAHAHAHA. WHOOPS INDEED!

THEY DELETED THAT SH*T FASTER THAN WE COULD SAY “DIVIDEND RECAP.”

*Turns out that Congressional Budget Office is of the view that $15/hour federal minimum wage may, in fact, have widespread repercussions that include significant job losses.

**Sun Capital is having a tough go of things in the restaurant space of late. This week, Restaurant Business reportedthat Boston Market, a Sun portfolio company, closed 45 locations over the past week as part of an operational restructuring. The company blames shifting consumer preferences and rising costs for its issues.