😎Notice of Appearance: Michael Eisenband😎
Plus: Ascend Performance Materials Holdings Inc. Files
This week we welcome an appearance by Michael Eisenband, Global Segment Leader of Corporate Finance & Restructuring and a member of the Executive Committee at FTI Consulting Inc. ($FCN)(“FTI”).
PETITION: Michael, thanks for doing this — and by “this” we mean a slightly different NOA format than we usually do. We’re gonna ask you just one BIG question which, having consumed your writing for FTI over the years and knowing how thoughtful you are, we know you’ll be able to take in many different directions.
But as a preface, let’s get the “sack dance” over with.
Back in early March, we wrote about FTI’s last earnings report (4Q’24) …
… indicating that ‘25 might be, at least as far as RX is concerned, off to a rough start. Indeed, we noted that FTI had only been involved in two company-side matters as of then (Ligado and Jervois). Based on public data at the time, that wasn’t per se wrong, but it was inaccurate in the sense that it left out several creditors’ committee engagements — Liberated Brands, Jackson Hospital, Zips Car Wash, and Nikola — which we’ll blame on Johnny’s thrice-weekly benders (and you have our word he’s been punished appropriately). And then, within a few days of that piece coming out, both Cutera and Mitel filed chapter 11 cases and FTI was in the mix for each on the company-side (which we had a good time making fun of ourselves about). So things have actually been decently busy on FTI’s end. Mea culpa, 🙏 (at least until the next earnings come out).
That said, we’d be remiss if we didn’t acknowledge the nature of the aforementioned deals — smaller and faster — like pretty much all of the BK deals that have filed thus far in ‘25.
Given on one hand, (i) the rise of liability management exercises, (ii) the protracted debt maturity wall (with the heaviest amounts due in ‘27, ‘28 and ‘29), (iii) the fact that cases have recently pushed down to the middle-to-lower market, (iv) the emphasis on speedier, more “prearranged” or “prepackaged” cases if they do file with a plan trajectory or structured dismissals or conversions in the sale context, (v) the availability of and seemingly increasing willingness among participants to partake in bankruptcy alternatives, and (vi) the overall cost of the bankruptcy process versus, on the other hand (a) the potential for higher interest rates for longer, (b) some real policy uncertainty from, among other things, tariffs, (c) an inevitable wave of technological innovation and disruption, and (d) the undeniable code-based benefits of bankruptcy, what is, from your distinguished vantage point, the current “state of the RX industry” and FTI’s role in it going forward?
Michael: Thanks, PETITION, especially for changing the format of NOA. I was already struggling to recall a life-changing business book I’ve read that would impress your erudite audience.
I’ve been in this business long enough to know not to look at the leaderboard too often; just keep your head down and focus on the next shot. For some stretch in late 2024, we might have looked like Rory McIlroy on the verge of squandering a seemingly safe lead in the final round of this year’s Masters. But like Rory, we put the missed shots behind us and didn’t waver in our efforts, knowing that eventually the shots would find the green and our putts would drop. Restructuring can be a streaky business for large advisors. Sometimes you get on a roll and other times you keep finding the bunker, no matter how constant the effort is. Maybe we hit a soft patch for a bit, but we’ve turned it around in the last few months. There is an element of randomness in terms of filings and advisory mandates from quarter to quarter, but over a longer stretch of time the cream rises to the top.
We are more bullish now on the prospects for the restructuring profession in 2025 thanks to recent economic policy overtures and actions set in motion by another avid golfer. And nobody is giving him a mulligan on this one. I think after the 2024 election, financial markets were confident that his inner circle — mostly Wall Street veterans— would find a way to restrain some of his impulses, at least as far as business and economic decisions were concerned. And then suddenly there was a collective realization by financial markets after Liberation Day that perhaps this was a bad assumption.
Markets also seem to fall for every head fake that comes from the President and key cabinet members. That has led to collateral damage in financial markets that will be difficult to quickly undo even if he eventually decides to backtrack on tariffs mostly or entirely — which is highly doubtful anyway. Business purchasing and investment decisions are being delayed, consumers are turning cautious or fearful, and large companies globally are realizing there is no consistency or predictability behind economic policy decisions. These reactions are hardening with each passing week, though the visible effects of this creeping paralysis have barely begun. Moreover, any about-face at this point would only reinforce the impression of unpredictability and undisciplined decision-making — which is hardly what markets crave right now. Fed Chair Powell’s job seems safe today, but who knows about next week or next month — and his eventual replacement in 2026 certainly will be “more flexible” about monetary policy decisions, so credit markets shouldn’t take much comfort from Powell’s apparent job security now.
Leveraged credit markets got very little new issuance done in April following a banger in 4Q24 and healthy issuance volume in 1Q25. Sentiment in leveraged credit markets can change that quickly. Treasury note yields have moved nearly 40 bps higher since the market selloff began, a counterintuitive reaction reflecting fading confidence in economic policy decisions and higher return demands for even the safest US-based assets. Who wants to step boldly into this abyss? Lastly, even if there is a grand vision here that eventually is achievable to any degree, the painful part will come first during a transition period of unknown duration, and too many consumers and businesses aren’t prepared for that sacrifice. No matter how this plays out specifically, the horse isn’t going back in the barn even if it starts raining.
As for all the developments you point out that are working against the restructuring business in recent years, let’s stop beating around the bush and say the quiet part out loud— the restructuring business has changed in some profound ways since COVID-19, often to the detriment of the profession. As you mention, it hasn’t been one big thing but the collective impact of several things that have conspired to tamp down restructuring activity and duration. DIP financing often is just sufficient to a get a debtor to a quick sale transaction or implement a pre-negotiated reorg plan. LMEs and other distressed exchanges continue to push out formal restructuring events, though that can’t continue indefinitely.
S&P reported that 42% of rated default events in 1Q25 were re-defaulters. Nobody should be surprised by that or expect that trend to subside as we gird for an economic rough patch. But nobody is talking about a tidal wave. It’s also true that bankruptcy filings have been smaller on average and case lengths have been shorter, so the large total number of annual filings in 2023-2024 was somewhat misleading, though it was good enough. Previous big default cycles, with default rates near 10% or more that were experienced a few times this century, seem like ancient history in the context of today’s restructuring market. Our analysis of financial advisory mandates since 2022 confirms that annual FA mandate totals are down compared to 2017-2019 even though there have been more filings in recent years. All of this speaks to the changes you have noted.
Some will insist these are positive developments given the prohibitively large cost of many protracted Chapter 11 cases. Perhaps, but more complex cases seem rushed through the Chapter 11 process, and it’s not clear if that produces optimal results or just faster results. It’s hard to look at large repeat cases like Party City and Jo-Ann Stores and claim the process is working as intended. No matter, this is the reality of the times, a self-directed effort by parties-in-interest to get through the bankruptcy process posthaste. I’m not sure there is any going back, and financial advisors will have to decide how to navigate this changing terrain. There could be an eventual shakeout or consolidation among smaller-to-mid-sized advisory shops if these trends persist. What the restructuring market doesn’t need is any more “boutique” advisory shops. Arguably there are too many already.
I’m proud of my team at FTI. We are the most diverse financial advisor in the market, and in recent years we’ve stepped up our ability to advise any major party to a restructuring event, including lenders or ad hoc groups of creditors, with professionals specifically dedicated to serving these constituencies and having deep working relationships with them. Our increasing work with lender groups to stressed and distressed companies often is undisclosed, and this tends to understate our involvement in such deal activity. Our intention is to position ourselves to have multiple opportunities to find our way into a bankruptcy case or workout. We have seen a notable uptick in business wins and inbound inquiries in recent weeks — some of it directly tariff-related but much of it not. Overall, I’m certainly more upbeat about the prospects for the restructuring market in 2025 and next year than I was on Inauguration Day.
PETITION: Thanks Michael.
💥New Chapter 11 Bankruptcy Filing - Ascend Performance Materials Holdings Inc.💥
Speaking of deals that have FTI Consulting, Inc. ($FCN) (“FTI”) involved ….
On April 21, 2025, Houston-based Ascend Performance Materials Holdings Inc. (“Ascend”) and 10 affiliates (collectively, with Ascend, the “debtors” and together with their non-debtor affiliates, the “company”) filed chapter 11 bankruptcy cases in the Southern District of Texas (Judge Lopez). The company makes nylon, a specific type of it actually – nylon 6,6 or “PA66” and “chemical intermediates and downstreams thereof.”* PA66 is used in applications that require impact-, heat-, abrasion-, and chemical-resistance, and you can find the company’s products in dang near everything on the market, from heating and cooling systems, automotives, air bags, electronics, and batteries to industrial cleaners, carpet, toothbrushes, and even athletic apparel. Specifically, this type of stuff:
In fact, they have quite a hold on that market, with PA66 being used in ~50% of Lululemon Athletica Inc.’s ($LULU) “Nulu” yoga pants and sports bras. Here’s a breakdown of the company’s revenue from its various nylon precursors and products.**
Since ‘20, those products have contributed to average annual revenues of $2.7b, and the company cooks up its synthetics at 11 manufacturing facilities spread across North America, Europe, and Asia.
Honestly, for nerds, including certain folks at PETITION, this is a pretty cool and interesting company. It’s not that often you find a debtor making chemicals and compounds used in so many, diverse industries …
… so you might be wondering what went wrong.
Starting in mid-’22, the company started facing headwinds from the standard stuff: “global economic malaise, reduced demand, and increased competition out of China.” Per the debtors, the manufacturing industry, in particular, has been slow to recover to pre-pandemic levels of production, which, in turn, has reduced demand for the company’s products and caused the price of PA66 to drop about 45% from its COVID-peak. On top of that, China has been cranking its output to 11 over the past 6 years, growing its intermediates production capacity 93% and its downstream production capacity 64%, and “[s]everal of these new Chinese entrants have also adopted aggressive pricing strategies to gain market share, including selling chemical intermediates and downstream products at a cash loss (or pursuant to subsidies from the Chinese government),”*** which forced the company to choose between cutting its own prices or losing customers. Altogether and combined with its own long-term “take or pay” supply contracts, the company experienced liquidity strains and eroded margins and had to sell its own products at a loss. The effects have been devastating: since ‘22, gross profits have compressed nearly 4% and EBITDA plummeted ~56%.****
To combat its circumstances, the company began proactively implementing “cost rationalization measures” toward the end of ‘22, including reducing headcount by 25%, shrinking its footprint, executing $250mm of sale-leasebacks, and factoring foreign A/R. Notwithstanding those efforts though, cash collections kept falling. By Q424, “the Company’s liquidity crisis became increasingly severe,” so it took the next logical step and started deferring vendor payments, which peaked at $110mm in late February ‘25. And vendors, naturally, were pissed and responded by imposing tighter payment terms (including cash in advance) or “deferring” the supply of goods and services altogether.
Against that backdrop and with debt maturities approaching in ‘26 (discussed 👇), the company hired Kirkland & Ellis LLP (“K&E”) (Chris Marcus, Derek Hunter, Orla O’Callaghan, Nikki Gavey, Oliver Pare, Megan Feeney) and PJT Partners, Inc. ($PJT) (Matthew O’Connell) in late January 2025 to explore refinancing and restructuring options. Concurrently, the company brought on Todd Arden and Charles Piper to serve as independent directors on Ascend’s board. A week after that, on February 7, 2025, FTI (Robert Del Genio) rounded out the restructuring-firm-trio to assist in work streams, provide a CRO, and manage liquidity (and, obvi, prep for bankruptcy).
Around the same time, the company and its advisors also opened up a dialogue with an ad hoc group of term loan lenders (the “ad hoc group”),***** represented by perennial-fave Gibson, Dunn & Crutcher LLP (Scott Greenberg, Jason Goldstein, AnnElyse Scarlett Gains, Tommy Scheffer) and Evercore, Inc. (Sagar Vaidya, Kevin Miri, Itai Almogy), “regarding a potential bridge financing facility and a value-maximizing path forward” and to avoid a plant shutdown. Those convos continued for a month or so until March 7, 2025, when the company and the ad hoc group agreed on a $40mm super-senior term loan facility, which could be later upsized by another $60mm. On the same day, the company appointed Michael Wartell to Ascend’s board and created a special committee composed of him, Mr. Arden, and Mr. Piper (collectively, the “disinterested directors”).
Recall that $60mm upsizing potential? A couple weeks later, it turned out – whoops! – that wasn’t enough. Instead, the ad hoc group ended up kicking in an additional $80mm between March 25 and April 1, 2025 to float the company to a filing, which resulted in this prepetition capital structure:
In any event, here we are in chapter 11, and the company has “the support of its key stakeholders to implement a value-maximizing restructuring transaction which will deleverage the Company’s balance sheet and enable Ascend to emerge from chapter 11 stronger than ever, with a leaner balance sheet and more competitive business.” What’s that “value-maximizing restructuring transaction” going to look like? Good question because there ain’t a restructuring support agreement providing a specific form (or at least one hasn’t been mentioned). But there is a DIP. Two actually.
The first is a $500mm DIP revolver, composed of all commitments under the prepetition ABL facility and features an interim creeping roll-up of the prepetition ABL and a final roll-up of all remaining amounts. It permits borrowings in multiple currencies, but for USD SOFR loans, interest is at Term SOFR, plus a “credit support adjustment” of 0.1%,****** plus 3.5%, payable in cash, and the facility carries a 0.25% unused line fee.
The second is a headline $400mm fully-backstopped DIP term loan facility, composed of $250mm in new money loans ($150mm interim) and an interim roll-up of the bridge facility in full (which no one batted an eye at during the first-day hearing). For SOFR loans, its interest rate is Term SOFR, plus a credit support adjustment of 0.11448%,******* plus 10% (8.5% PIK, the rest cash). There is a backstop fee of 10% and a closing fee of 0.75%, each PIK on the new money piece and due and payable on entry of the interim order. And while that may look like a lot of funding, the debtors are going to need it because they have about $206.9mm ($125.1mm interim) in prepetition vendor claims they need (or maybe want) to pay during the bankruptcy.
To ensure the cases stay on track to an exit – whatever it ends up being – the DIPs have the following case milestones:
The court held a first-day hearing on April 22, 2025, during which MasTec Power Corporation ($MTZ) (“MasTec”) got up to talk about some now-stayed litigation with the debtors relating to a construction agreement, without objecting to a single thing. Long-story short, MasTec and the debtors have some beef relating to a letter of credit the debtors drew in the week leading up to the filing, which MasTech thinks wasn’t proper, and while that’s being sorted, the Southern District of Texas’s district court is going to hold onto the cash for them (which is about $13.3mm). The court also scheduled a second-day hearing for May 21, 2025, where we’ll hopefully get a little more insight into the exit.
The debtors are represented by K&E and Bracewell LLP (Jason Cohen, Jonathan Lozano) as US legal counsel, Morgan, Lewis & Bockius UK LLP as UK legal counsel, Loyens & Loeff N.V. as Dutch legal counsel, FTI as financial advisor and CRO, PJT as investment banker, and Deloitte LLP as tax advisor. The disinterested directors are represented by Katten Muchin Rosenman LLP as legal counsel. The ad hoc group is represented by Gibson, Dunn & Crutcher LLP and Howley Law PLLC (Tom Howley, Eric Terry) as legal counsel and Evercore, Inc. as financial advisor. Wilmington Savings Fund Society, FSB ($WSFS), as DIP and prepetition term loan agent, is represented by ArentFox Schiff LLP (Jeffrey Gleit, Brett Goodman, Matthew Bentley). Wells Fargo Capital Finance, LLC ($WFC), as DIP and prepetition ABL agent, is represented by Greenberg Traurig, LLP (Julia Frost-Davies, Leo Muchnik, T. Charlie Liu, Shari Heyen, David Eastlake) as US legal counsel, Mayer Brown International as UK legal counsel, and Carl Marks Advisory Group LLC as financial advisor. SK Titan Holdings LLC, the company’s sponsor, is represented by Latham & Watkins LLP (David Hammerman, Jonathan Gordon) as legal counsel. MasTec is represented by Quinn Emanuel Urquhart & Sullivan, LLP (Patricia Tomasco, Victor Noskov, Bennett Murphy, Elinor Sutton) as legal counsel.
*For some reason, the debtors really want you to know that nylon was the first synthetic fiber, invented by E.I. du Pont de Nemours & Company (aka DuPont) way back in 1938. They also want you to know that rayon had been invented before that, but it was only a semisynthetic because it derives from cellulose (wood pulp for the unscienced). Synthetic fibers come from “simpler compounds like oil and coal,” which was probably preferred in ‘38 but is obviously a less green process. But don’t worry, the company also has sustainable products and, per K&E’s Chris Marcus, has “reduced their own emissions by 75% since 2018” – no doubt with the help of reduced demand.
**The HCN in the chart is hydrogen cyanide, which smells like almonds but, unlike almonds, will poison the sh*t out of and kill you. Because it’s so toxic and not easily transportable either, the company would typically dispose of it on site, presumably by mixing it with other, neutralizing reagents. But the debtors even found a way to turn a lethal toxin into a non-murder-based business, creating a “guest program” with 9 strategic partners to utilize their facilities and specifically the HCN. In ‘24, the program generated ~$85mm in revenue and ~$167mm in cost recovery for the company.
***Take the debtors’ China rhetoric with a grain of salt because the US plastics industry also receives substantial government subsidies.
****The company also experienced one-time setbacks in the form of (i) a fire at its Pensacola facility, (ii) freezing January ‘25 temperatures in Texas, which necessitated the temporary shutdown of a facility due to an inability to process toxic chemicals at those temps, and (iii) the closure of the Wilson Lock in September ‘24 due to the discovery of cracking in the lock’s gates. To date, the lock is still closed, which has been a logistical nightmare for the company because it’s the only waterway to and from its Decatur, AL facility. What used to be a 2-week barge trip is now a 30-day trucking excursion, at an increased cost of $4mm through the first two quarters of the company’s FY25.
*****Per docket 61 and based on their bridge loan holdings, the ad hoc group initially consisted of (i) Apex Credit Partners, (ii) ArrowMark Partners, (iii) Bank of America N.A., (iv) Blue Owl, (v) Elmwood Asset Management, (vi) Invesco, (vii) MJX Asset Management, (viii) Nuveen Asset Management, (ix) Signal Peak Capital Management, (x) Silver Point Capital, (xi) Sound Point Capital Management, (xii) Sycamore Tree Capital Partners, (xiii) UBS Asset Management, (xiv) Voya Investment Management, (xv) Western Alliance Bank. At some point, Saranac (which owns no bridge loans) likely joined the group, followed by, per docket 69, Strategic Value Partners (same).
******Kudos to K&E for not hiding the ball on that adjustment in the DIP motion.
*******Nevermind, give us our kudos back.
📚Updated List of Resources!📚
We have recently updated our compiled list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. We’ve added:
No More Tears: The Dark Secrets of Johnson & Johnson by Gardiner Harris.
How Not to Invest by Barry Ritholtz.
We also did some research on talked-about books covering the topic of trade and these are some books that came highly recommended (caveat: we have not read them so caveat emptor!):
Why Politicians Lie About Trade by Dmitry Grozoubinski.
Trade Wars are Class Wars by Michael Klein and Michael Pettis.
Misadventures of the Most Favored Nations by Paul Blustein.
Kicking Away the Ladder: Development Strategy in Historical Perspective by Ha-Joon Chang.
No Trade is Free by Robert Lighthizer.
📤 Notice📤
Jeremy VanEtten (Principal) joined SC&H from Gavin Solmonese.
Jim Trankina (Senior Managing Director) joined Development Specialists Inc. from AlixPartners.
Josh Brody (Partner) joined Cleary Gottlieb Steen & Hamilton LLP from Gibson Dunn & Crutcher LLP.
Margaret Alden (Associate) joined Ropes & Gray LLP from Sidley Austin LLP.
Stan Mastil (Principal) joined SC&H from Gavin Solmonese.
🍾Congratulations to…🍾
Aaron Applebaum on his promotion to Partner at DLA Piper LLP.