💥New Chapter 11 Bankruptcy Filing - MLN US Holdco LLC💥
LME deal doesn't prevent a filing. But a prepack means little mess in court.
On March 9 and 10, 2025, Searchlight Capital Partners L.P. (“Searchlight”)-owned Mitel Networks, Inc. (“Mitel”) and 15 affiliates (collectively, together with Mitel, the “debtors,” and together with their non-debtor affiliates, the “company”) filed prepackaged chapter 11 bankruptcy cases in the Southern District of Texas (Judge Lopez).*
You may recall these guys scored a New Year’s Eve win in the New York Supreme Court's First Appellate Division, which upheld this beast of a liability management transaction (the “LME”).
We noted it in passing here and covered the complaint here, so we’ll try not to retread old ground. All said, 👏 congrats on that “victory”! 👏
Truthfully, if it wasn’t for this name circling around the bankruptcy bin for years now, we would have zero clue whatsoever who they are and what they do. CFO Janice Yetter, however, seems to assume brand recognition in her first day declaration. After all, the company is a “global,” “leading,” and “award-winning” — the holy trifecta! — provider of on-site, cloud, and hybrid video, telephony, and messaging services and, of course, related subscriptions, which it doles out to customers in 146 countries. In ‘24, the business generated ~$907mm in revenue, across 3 lines: (i) “unified communications” (“UC”) products and subscriptions, (ii) consulting and professional services, and (iii) good ol’ fashioned physical phones and accessories.**
And thanks to that LME, it has a gnarly prepetition cap stack:
Holy heck, they one-upped Robertshaw’s absolute monstrosity! Five of those nine tranches — the gray boxes — resulted from the LME, and the two ABL loans are the product of an even more recent BTG Pactual U.S. Private Investments L.P (“BTG”)-provided loan in May ‘24. In other words, of all that debt, only those depressing legacy loans at the bottom existed before the October ‘22 LME.
The company blames the usual suspects for its downfall, including COVID, which “reduc[ed] the need for certain of the Company’s communications products and services that were primarily developed for an in-office environment,” supply chains, constrained manufacturing, and inflation …
… before pivoting to former “strategic”*** and COVID-cuffing-partner RingCentral, Inc. (“RingCentral”). Those two cozied up in the fall of ‘21 following that☝️ reduced demand, and the intention had been to provide a path for the company’s customers to upgrade from on-site infrastructure to RingCentral’s sleek, sexy, and modern cloud-based communications platforms — an obvious move when everyone’s working remotely. Pour one out for that setup.
The partnership, however, wasn’t meant to be. True to COVID-couple-form, they started bickering about when and if incremental payments would become owing to the company, which the company alleges led to a liquidity crunch and necessitated the LME.
Speaking of which, that was a roaring success by any measure: it bought a bit more than … a year, during which the company acquired fellow UC-business Unify, Inc. from the French-based Atos group in early October ‘23, broadening the company’s EMEA reach.
But by early ‘24, it was back to the drawing board to explore more “strategic alternatives and potential liquidity-enhancing transactions” with the aid of independent director Julian Nemirovsky, Paul, Weiss, Rifkind, Wharton & Garrison LLP (Paul Basta, John Weber, Sean Mitchell, Leslie Liberman), PJT Partners LP ($PJT) (Michael Schlappig), and FTI Consulting, Inc. ($FCN) (“FTI”)(!!!). Fellas, we asked you to give us a heads-up!
That led to the aforementioned May ‘24 ABLs, and in June ‘24, the company broke it off with RingCentral, which netted the company a cool $30mm of incremental liquidity and got it out from under RingCentral’s exclusivity provisions. After a Brat Summer, the company found a new beau in the form of Zoom Communications, Inc. ($ZM)(“Zoom”), and they agreed to, more or less, bundle the company’s single-interface communications platform with Zoom. After all those deals closed, the debtors brought on Andrew Kidd as a second independent director for good measure in October ‘24. How’d that all work out?
We give you, verbatim, Ms. Yetter:
“[E]ach of the ABL Facility Transaction, the 2024 RingCentral Transaction, and the Zoom Transaction was value accretive—enabling the Company to service its debt in the near term and best position the Company’s business for the future by expanding its market reach in telecommunications, specifically in the hybrid communications segment. Notwithstanding these initiatives, by November 2024, the Company determined that it would not be able to pursue a refinancing of its existing funded indebtedness and would not be able to service its existing interest expense beyond the first quarter of 2025.”Value accretive indeed! Honestly, the chutzpah it takes to put those two sentences back-to-back — that was only two months after the Zoom deal signed! Did future debt service just sneak up on you?!
Starting in November ‘24, the company engaged with an ad hoc group of senior lenders (i.e., the new money and uptiered loans from ‘22)(the “ad hoc group”). A month later, in December ‘24, it skipped out on a junior loan interest payment and entered into a forbearance agreement with the ad hoc group, which, through extensions, brought everyone to the petition date.
During that time, the company, the ad hoc group, those litigious junior lenders, BTG, as well as “certain” holders of priority lien loans, got into a room together and (quite impressively) negotiated a fully-buttoned-up restructuring support agreement (“RSA”), which has the support of 100% of the ABL loans, 72.1% of the priority lien claims, and “over” 81.1% of the non-priority lien term loan deficiency claims (i.e., the 2L, 3L, and legacy term loans) (the “non-priority lien claims”). You, uh, don’t see that in every LME-turned-bankruptcy. It culminates in a chapter 11 plan, which the debtors began soliciting right before the petition date. Here’s what the RSA and plan entail:****
📍DIP Financing. A headline $131mm DIP term loan, composed of (i) $69mm (all available on interim) in new money, inclusive of a 3% PIK upfront fee and a 12% PIK backstop fee, and (ii) an interim-approved $62mm roll-up of the prepetition priority lien term loans.
The DIP carries a cash-pay interest rate of SOFR + 8% or ABR + 7%.
📍Exit Financing. A fully-backstopped new money $20mm term loan (the “tranche A-1 TL”) and $120mm term loan (the “tranche A-2 TL”), the latter of which is (i) a conversion of the $69mm (😎) in DIP new money term loans and (ii) ~$51mm in incremental new money term loans, inclusive of fees. What do we call the exit fees? Hmm, let’s go with “robust”:
The lenders that backstop the tranche A-1 TLs will receive a 10% backstop fee paid in reorg equity, subject to dilution by any post-effective date management incentive plan (the “MIP”),
The lenders that backstop the new money tranche A-2 TLs will receive a 15% backstop fee paid in additional tranche A-2 TLs (~$6.7mm), and
The lenders that actually fund the tranche A-2 TLs – regardless of backstop status – will receive a fee equal to 30.4% of the reorg equity, subject to dilution by the MIP.
📍Equitization of DIP Roll-Up Claims. DIP roll-up term loans will receive 44.6% of the reorg equity under the plan, subject to dilution by the MIP.
📍Equitization of Priority Lien Claims and Non-Priority Lien Claims. Subject to a literal ton of dilution by the DIP equitization, those backstop and funding fees ☝️, and, of course, the MIP, priority lien claims and non-priority lien claims will be equitized and receive 66.7% and 33.3%, respectively, of the reorg equity.
📍Reinstatement of ABL Loans; Treatment of GUCs and Existing Equity. The plan reinstates the ABL loans and waives change of control rights triggered by the restructuring. Similarly, GUCs are passing through the bankruptcy unimpaired. Last and definitely least, existing equity is also getting reinstated. LOL, JK, you saw they’re equitizing part of the DIP, right? Searchlight’s equity is toast.
📍LME Settlement. To settle the ongoing LME litigation and drama, the debtors will pay $1.25mm in cash and issue $3.75mm in incremental tranche A-2 TLs to consenting junior lenders, which’ll help make up for the fees they paid to their counsel, Selendy Gay PLLC (Jennifer Selendy, Kelley Cornish, and David Coon). Guess they read that NYE opinion like the rest of us.
📍Milestones. It’s a prepack, so what do you think? These guys are getting in, and they are getting out. Here are the big milestones: no later than (i) April 18, 2025, the court must enter the final DIP order, (ii) April 23, 2025, the court must enter the confirmation order, and (iii) May 23, 2025, the plan must go effective. All in, that’s 75 days from filing to exit.
Quite the package. It shouldn’t surprise you that the first day hearing was about as quiet as it gets – it took the court a little over an hour to approve all relief, including conditional approval of the debtors’ disclosure statement (“DS”). Folks will mosey on down to Houston for a second day hearing on April 4, 2025 and a combined hearing on April 17, 2025.
The debtors are represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP (Paul Basta, John Weber, Sean Mitchell, Leslie Liberman, Shafaq Hasan, Martin Salvucci, Luxiang Wang, Dolan Bortner, Douglas Keeton, Andrew Ehrlich, Paul Paterson) and Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson, James Keefe, Jack Eiband) as US legal counsel, Goodmans LLP, as Canadian legal counsel, FTI (Paul Stroup, Heath Gray, McKay Jacobson, Paul Egloff, Graham Doll, James Goodyear, Kyle Dans) as financial advisor, PJT (Michael Schlappig) as investment banker. The ad hoc group is represented by Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen, Elliot Moskowitz, Michael Pera, Katharine Somers) and Kane Russell Coleman Logan P.C. (Mark Taylor) as legal counsel and Perella Weinberg Partners LP ($PWP) as financial advisor. Searchlight is represented by Latham & Watkins LLP (Christopher Harris, George Klidonas). The junior lenders are represented by Selendy Gay PLLC (Jennifer Selendy, Kelley Cornish, and David Coon). BTG is represented by Riemer Braunstein LLP (Donald Rothman, Lyle Stein) and Frost Brown Todd LLP (Rebecca Matthews, Joy Kleisinger). Wilmington Savings Fund Society, FSB ($WSFS), as the 1L, 2L, and 3L priority lien term loan administrative agent, is represented by ArentFox Schiff LLP (Brett Goodman, Jeffrey Gleit, Matthew Bentley). Ankura Trust Company, LLC, as the junior loan admin agent, is represented by Cadwalader, Wickersham & Taft LLP (Douglas Mintz, Thomas Curtin, Raymond Navaro). Acquiom Agency Services LLC and Seaport Loan Products LLC, as co-DIP agents, are represented by McDermott Will & Emery LLP (Jonathan Levine, Lucas Barrett).
*Canuck entity, Mitel Networks Corporation, also filed a proceeding under Part IV of the Companies’ Creditors Arrangement Act in the Superior Court of Justice (Commercial List) in Toronto.
**Communications products and subscriptions generated ~$426mm (43% of all revenue), consulting and professional services generated $276mm (28%), and hardware generated $205mm (20%).
***Lots of “strategy” over there at Mitel. A whopping 21 variations of the word show up in Ms. Yetter’s declaration.
****There’s also an opt-out release, so cue up a US trustee objection again.
Company Professionals:
Legal: Paul, Weiss, Rifkind, Wharton & Garrison LLP (Paul Basta, John Weber, Sean Mitchell, Leslie Liberman, Shafaq Hasan, Martin Salvucci, Luxiang Wang, Dolan Bortner, Douglas Keeton, Andrew Ehrlich, Paul Paterson) and Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson, James Keefe, Jack Eiband)
Financial Advisor: FTI Consulting, Inc. (Paul Stroup, Heath Gray, McKay Jacobson, Paul Egloff, Graham Doll, James Goodyear, Kyle Dans)
Investment Banker: PJT Partners LP (Michael Schlappig)
Independent Directors: Julian Nemirovsky and Andrew Kidd
Claims Agent: Stretto (Click here for free docket access)
Other Parties in Interest:
Ad Hoc Group of Senior Lenders
Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen, Elliot Moskowitz, Michael Pera, Katharine Somers) and Kane Russell Coleman Logan P.C. (Mark Taylor)
Financial Advisor: Perella Weinberg Partners LP
Sponsor: Searchlight Capital Partners L.P.
Legal: Latham & Watkins LLP (Christopher Harris and George Klidonas)
1L, 2L, and 3L Priority Lien Administrative Agent: Wilmington Savings Fund Society, FSB
Legal: ArentFox Schiff LLP (Brett Goodman, Jeffrey Gleit, Matthew Bentley)
Junior Lenders
Legal: Selendy Gay PLLC (Jennifer Selendy, Kelley Cornish, and David Coon)
Administrative Agent to Junior Lenders: Ankura Trust Company, LLC
Legal: Cadwalader, Wickersham & Taft LLP (Douglas Mintz, Thomas Curtin, Raymond Navaro)
ABL Lender: BTG Pactual U.S. Private Investments L.P.
Legal: Riemer Braunstein LLP (Donald Rothman, Lyle Stein, Lon Singer) and Frost Brown Todd LLP (Rebecca Matthews, Joy Kleisinger)
DIP Agent: Acquiom Agency Services LLC and Seaport Loan Products LLC
Legal: McDermott Will & Emery LLP (Jonathan Levine, Lucas Barrett)