💥We are SO back baby💥
WW finally files; a Village Roadshow Entertainment Group USA Inc. update
We’re old enough to remember … uh … last week.
You know, like, when Mondelez International Inc. ($MDLZ) CEO Dirk Van de Put complained about a sharp decline in consumer confidence in Q1 followed by an additional 11% ⬇️ in April; when McDonald’s Corp. President Ian Borden noted that US comp sales fell 2.6%, “…largely reflecting broad-based consumer challenges, particularly amongst the lower- and middle-income cohorts” and Wendy’s Co. ($WEN) Director Dennis Geiger highlighted that he “…saw broad-based pressure in the quarter. I would say the pressure was more acute with those households under $75,000, and we did see industry traffic with those households pull back by high single digits, low double digits, especially in the month of March,” and continued, “In the U.S., overall QSR industry traffic from the low-income consumer cohort was down nearly double digits versus the prior-year quarter. Unlike a few months ago, QSR traffic from middle-income consumers fell nearly as much, a clear indication that the economic pressure on traffic has broadened." And when Hyatt Hotels ($H) CEO Mark Hoplamazian declared, “We are seeing softer booking trends for near-term leisure and business transient bookings in the United States, which have been down in the high single digits versus last year over the last few weeks with the greatest impact in our upscale brands” while Hilton Worldwide ($HLT) CEO Christopher Nassetta said “Weaker trends have continued into the second quarter, with short-term bookings roughly flat year-over-year. We believe travelers are largely in a wait-and-see mode as the rapidly changing macro environment continues to unfold." Most disconcerting? People may be giving up on f*cking, 😳. Here was Match Group Inc. ($MTCH) CEO Spencer Rascoff, “And so over the past few weeks, we've just started to see some early signs of weakening Tinder [a la carte] trends among younger users in particular.”*
But then …
… and Johnny and everyone else on the planet got busy (i) ignoring the fine print (it’s only a 90-day suspension, the US is still at 30% vis-a-vis China and China at 10% vis-a-vis the US, sector specific tariffs on things like steel, aluminum and cars remain, and the current trade-weighted US tariff rate is, depending upon who you ask, anywhere between 14-17.8%, nearly at Smoot Hawley levels) and (ii) f*cking the “buy” button tied to their respective brokerage accounts. Like, seriously, what a difference a couple of days make. The S&P 500 Index went up 0.72% yesterday, May 13, 2025, erasing its YTD loss and cementing a 3.8% gain since “Liberation Day” and an 18% gain from the lows reached on April 8, 2025.
For its part, the leveraged finance markets tightened meaningfully since Liberation Day. High yield spreads are back at March levels, down over 350 bps. The yield is down near 7.6%.
In other words, risk on, baby!
The fickle folks over at the vampire squid Goldman Sachs Group Inc. ($GS), perhaps giddy from a 6.5% jump in their stock, promptly lowered their estimate of the probability of a US recession in the next 12 months from 45% to merely, 🙄, 35%. JP Morgan Chase & Co. ($JPM) was decidedly less committal; it reduced its outlook to “below 50%,” lol. Meanwhile, Polymarket has it at here:
What about those two big signals that had people concerned: (i) the strength of the dollar and (ii) treasury yields?
As to the former, the US dollar is stronger than it was a few weeks ago but it’s still not fully recovered from “Liberation Day.” Per Axios:
“The ICE U.S. dollar index closed on April 2 at 103.8, and it then fell to a low of 98.2 on April 21, a significant decline of 5.4%. Since then, it has recovered most of those losses and now stands at 101.8, just 1.9% below its level on "Liberation Day." The fact the dollar has weakened rather than strengthened, as normally happens upon the introduction of tariffs, still means the market is bearish on the U.S. economy. They're just not quite as bearish as they were three weeks ago.”
🤔
CPI data came in yesterday and … like, whatever. Does the data even mean anything? Short answer: no, not really. Not when the global economy has been tossed around like a rag doll. CPI rose 2.3% in the 12 months ended in April, the lowest annual pace since Feb ‘21. Core CPI was at a 2.1% annual rate. But these figures don’t bake in the effects of tariffs. Next month’s figure will be telling; the month after that even more so.
Which gets us to the latter:
Said another way, if the bond market expects inflation to remain elevated — whether from tariffs or a new tax-cut-infused budget, etc. — the Fed may take this as a sign that inflation isn’t under control or the economy is still running hot. In that scenario, it may be in no rush to cut rates.
Indeed, the probability of the Fed Funds Rate remaining static come June actually went up since we last published on Sunday.
And here is July:
That 61.4% probability of rates remaining steady in July reflects a 40% increase over just a week ago.
If this comes to pass, this “higher for longer” environment should drive some incremental increase in bankruptcy activity.
*H/t The Transcript.
💥New Chapter 11 Bankruptcy Filing - WW International, Inc.💥
Speaking of bankruptcy activity …
On May 5, 2025, NYC-based WW International, Inc. ($WW) aka Weight Watchers and seven affiliates (collectively, the “debtors” and together with their non-debtor affiliates, the “company”) filed much-anticipated (prepackaged) chapter 11 bankruptcy cases in the District of Delaware (Judge Goldblatt). The bankruptcy was a loooooooong time coming, and we’ve already weighed y’all down with heavy coverage going as far back as March ‘23 and continuing here, here, here, here, here, and here until our last refresh in November ‘24:
But even without those pieces, c’mon, y’all already know this company — it’s the OG of shedding pounds, and at some point, no less than five members of your family, all 40+ years old, tried it.
Heck, if you take CFO Felicia DellaFortuna at her word, this is “the global leader in science-backed weight management.” But, LOL, in ‘25, we be like …
… on that claim because, while the company’s subscriber count plummeted another 12.2% to ~3.3mm at the end of FY24 (~1.1mm down from ‘20’s 4.4mm high) and share prices bottomed out …
… other, seemingly-pretty-sciency folks over at Novo Nordisk A/S ($NVO) and Eli Lilly ($LLY) were leading the charge in getting the populace hooked on GLP-1s.
One of those patients? Former debtor board member, Oprah, who unnecessarily shouted out she was on ‘em in December ‘23 before “stepping down” from the board in March ‘24. And the list of celebs on the GLP-1 train these days is only gettin’ longer.
But miracle drugs aren’t the company’s only problem. It also has to compete with free and low-cost … Instagrammers, TikTokers, and YouTubers in the “behavior change and community support” marketplace. Sadly, the company is serious on that. These people are filming themselves with iPhones and the “global leader” didn’t think of paying off a few to produce good, entertaining content for its members.
In any event, drugs are relatively cheap, health content is basically free, and the all-in damage has been substantial. FY24 revenue dropped 11.6% YoY from $889.6mm to $785.9mm and, the company left ‘24 with a $345.7mm net loss, which ain’t great when your petition date cap stack looks like this:
With the caveat that the revolver wasn’t so bad at the start of ‘25. The debtors, clearly seeing the writing on the wall, fully drew down on it in January to “to provide financial flexibility as the Company headed into restructuring discussions” and, more honestly, hold the lenders’ cash hostage.
But the hostage strategy worked, and the debtors have a sure-fire, 1.5-month plan to get financially shredded in BK:* a restructuring support agreement (the “RSA”) supported by holders of ~79% of the prepetition credit facility debt and 74% of the senior secured notes (the “ad hoc group”).**
Because this is the company’s first trip through 11, it’s a tried-and-true balance sheet (aka BS) restructuring that will extinguish that debt ☝️ (and $50mm in annual interest expense) in exchange for $465mm in takeback debt (in the form of loans and notes) and reorg equity.*** $38mm worth of GUCs will pass through unimpaired, and uniquely, existing equity stands to get something too. To provide a little context, here’s Simpson Thacher & Bartlett LLP’s Elisha Graff, on behalf of the debtors, at the May 8, 2025 first day hearing:
“Your Honor may have noticed that the PJT valuation … shows an enterprise valuation ranging from $500mm to $900mm at the top end, with a midpoint of $700mm, thus demonstrating that existing equity is out of the money by about $900mm. Despite that, the first lien claimants agreed to essentially reallocate 9% of equity, a significant portion, to existing equity holders in order to facilitate a smooth chapter 11 process and a very orderly and quick restructuring, which ultimately, we believe your Honor, will benefit all stakeholders.”
That “smooth chapter 11 process”? It means unequivocally, absolutely zero f*ckery and firmly sticking to the RSA’s milestones.**** Back to Mr. Graff:
“To be clear this recovery is conditioned, as your Honor might expect, on the debtors’ ability to comply with the case milestones contained in the restructuring support agreement. And if the debtors are unable, for any reason, to comply with those milestones then the recovery to existing equity holders is subject to revocation.”
Given the circumstances — funded debt “taking one for the team” — Judge Horan found the first-day hearing “exceptionally easy” and scheduled the second-day for June 4, 2025 at 10am ET. That will be followed by a combined approval hearing on the disclosure statement and plan on June 17, 2025 at 2pm ET,***** which’ll give the debtors just shy of a week to get to the RSA-mandated, equity-tip-giving June 23, 2025 effective date.
The debtors are represented by Simpson Thacher & Bartlett LLP (Elisha Graff, Mose Fink, Rachael Foust, Zachary Weiner, Shin Hoo Lee, Alan Turner) and Young Conaway Stargatt & Taylor, LLP (Edmon Morton, Sean Beach, Shella Borovinskaya, Carol Thompson, Roger Sharp) as legal counsel, Alvarez & Marsal LLC as financial advisor, and PJT Partners LP ($PJT) as investment banker. The ad hoc group is represented by Gibson, Dunn & Crutcher LLP (Scott Greenberg, Matthew Williams, Jason Goldstein, Tommy Scheffer, Josh Michael Berland, Benjamin Spock, Kevin Liang, Adeola Adeyosoye, Lauren Hernandez) and Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns) as legal counsel and Houlihan Lokey Capital, Inc. ($HLI) as financial advisor. Bank of America, N.A. ($BAC), as agent under the prepetition credit agreement, is represented by Morgan Lewis & Bockius LLP (Jennifer Feldshur, David Shim, Jody Barillare) as legal counsel. The Bank of New York Mellon ($BK), as secured notes trustee, is represented by Reed Smith LLP (Luke Sizemore, Jared Roach, Cameron Capp) as legal counsel.******
*”Financially” being very much intentional. The business is still busted — like, who is using their services? — so there’s a strong possibility we’ll see y’all in a year or two for the sale or liquidation.
**The ad hoc group’s 2019 statement features 45 different holders and includes classic, repeat players like Sound Point Capital Management LP, LCM Asset Management LLC, Blue Owl Liquid Credit Advisors LLC, and Angelo, Gordon & Co., LP.
***The debtors will issue the takeback debt in the form of new term loans and new notes with the new term loans carrying an SOFR+6.8% interest rate and the new notes carrying a 10.25% interest rate. Both the new term loans and new notes mature in five years following the effective date and is also redeemable at 100% for the first $200mm and 102% for any amount in excess of $200mm. The redemption price falls to 101% by the second anniversary of the effective date and 100% from the third anniversary.
****Equity’s recovery is structured as a straight-up gift, so it isn’t voting on the plan.
*****The debtors are also playing it “conservative” through opt-in third party releases to hopefully avoid any confirmation drama.
******The current budget reflects $20.8mm in projected professional fees over the course of the cases.
⚡Update: Village Roadshow Entertainment Group USA Inc.⚡
Y’all remember, in our first day coverage, when we sneak-previewed Warner Bros. Entertainment Inc.’s ($WBD) (“WB”) beef in the bankruptcy cases of Village Roadshow Entertainment Group USA Inc. (together with 33 affiliates, the “debtors”) …
No? No worries, here’s the skinny.
The debtors are producers and financiers of big blockbuster flicks like The Great Gatsby and the original Matrix trilogy, with a good chunk of their library arising through a partnership with WB. The two jived harmoniously under co-production and co-financing and agreements until the disaster that was The Matrix Resurrections showed up on HBO Max. And by “disaster,” we don’t strictly mean the movie (although no disagreement from us there); we mean that, without getting the debtors’ say-so, WB opted to simultaneously release the movie in theaters and on streaming platforms; a move that the debtors argued violated their deal, so they pulled out a Matrix move of their own.
In February ‘22, the debtors filed suit, but the court ended up kicking the spat to arbitration, which led to a ruling that, uh, reflected a glitch in the debtors’ matrix. The ruling was that the debtors screwed up by failing to fund under their co-financing agreement. Whoops!
As that arbitration played out, the debtors got ready to dodge an inevitable damages bullet by moving derivative assets (sequels, prequels, etc. rights flowing from successful OG films) out of WB’s obligor boxes into newly-created SPVs funded by prepetition noteholders Ontario Teachers’ Pension Plan Board and Falcon Investment Advisors LLC, who also happen to be in the equity ranks too. The price for those transfers? Less than the cost of a movie ticket these days: a totally-not-sus 9 bucks.
Before the BK, those same prepetition noteholders also extended a $5.8mm bridge to the SPVs and funded the debtors’ DIP, which, in addition to $7mm in new money, proposed rolling up the bridge across all debtors — something we in the biz (😎) call “cross-collateralization.”
In any event, you could understand why WB wouldn’t be chill with any of that, and it put on a show at the March 18, 2025 first-day hearing to clue Judge Horan in. But the roll-up was a second-day issue, and fraudulent transfers take even longer to resolve, so a trailer for the finale was all we got.
That changed on April 7, 2025 when WB fired off its DIP objection, and g-ddamn, y’all, do we love how quickly counsel O’Melveny & Myers LLP (Steve Warren, Matt Kline, Scott Drake, Emma Jones) got right to the point. Here are a couple select excerpts from the first two paragraphs:
“[T]he Debtors’ proposed DIP financing jeopardizes Warner Bros.’ structural superiority and instead seeks to improve the position of the Debtor’s prepetition noteholders who are also equity holders (such noteholders/equity holders, the “Prepetition Noteholders”) by giving them liens and super-priority claims in the Library Assets for both their prepetition notes (such notes, the “Prepetition Notes”) and post-petition new money claims.
The Debtors also informed the Court at the first day hearing that the Library Debtors transferred the Derivative Rights associated with 90 motion-pictures that Warner Bros. and Village co-financed from the Library Debtors to newly created entities and that ‘questions about that transaction have been, and likely, will be raised.’ … To be clear, the Library Debtors fraudulently transferred these Derivative Rights to new shell entities for a total consideration of nine dollars ($1 per transfer) and the new shell entities then immediately pledged the Derivative Rights to the Prepetition Noteholders. These gratuitous transfers violated Warner Bros.’ contracts and applicable law. They were made just months after Warner Bros. obtained a liability determination against the Library Debtors in the Matrix Arbitration. The putative transfer documents were signed by one of the Debtors’ officer [sic] who was very active in the Matrix Arbitration and well aware of the results.”
All killer, no filler.
On April 21, 2025, the debtors filed their reply, and while we’ll give them credit for the – uh, hard to pick an adjective here … let’s go with novel, yeah, that works – novel opening …
… you don’t need to be taken to the Oracle to tell you the substance: the DIP was heavily-negotiated, the funding critical, and without DIP lender support the debtors would be in chapter 7 or crashing into 11.* *YAWN*
Sadly, no sequel is better than the original, and the 🍿we had ready to go was largely a waste. After eleven days of delay, and a one-hour postponement on the day of, the second-day went forward on April 22, 2025, and the debtors had rolled over on settled all major objections before it started,** which, with respect to WB, included pulling back on the roll-up and establishing a reserve, pending further court order on distributions, for amounts owing to it and other GUCs at WB’s boxes.***
But remember, we said it was only “largely a waste.” The sliver where we were glad we had that hot, buttery goodness on hand? The debtors’ bidding procedures, which the court heard the same day. If you recall from our initial coverage, the debtors filed bankruptcy with a $365mm stalking horse bid in hand from Content Partners LLC (“Content”). Between the filing and the hearing, Alcon Media Group, LLC (“Alcon”) — producer of The Blind Side and Blade Runner 2049 — one-upped Content a couple of times, which ended in a break-up-fee-free $417.5mm bid, a $52.5mm improvement.**** So the debtors switched horses and modified the bidding procedures to approve Alcon’s bid as the stalking horse (and kick out deadlines on account of the delay). Hey, that’s show-biz, baby.
Obviously, Content ain’t content with that outcome. So it had Latham & Watkins LLP’s David Hammerman lecture the court, without objecting, for 5 or 6 minutes about all the value it provided to the estates in the months leading up to the petition date. Which was fine, not great — about a 52 average tomatometer — and definitely not certified fresh (credit: Rotten Tomatoes).***** Frankly, we’d have been just as entertained if Content had saved us the 0.1 and got its upcoming attraction, a substantial contribution application, on file because we could see where the plot was going and, of course, the official committee of unsecured creditors, represented by Pachulski Stang Ziehl & Jones LLP (Brad Sandler, Peter Keane, Robert Feinstein, Shirley Cho), briefly hinted at its own project in development: an objection.
But that’s all for another day, and with the second-day out of the way, the debtors turn their attention to the sale process’ new dates: a May 16, 2025 bid deadline and June 10, 2025 sale hearing. We’ll keep a box of Sno-Caps on standby.
*The debtors’ value derives from IP rights, which would continue to exist and be valuable in chapter 7. Go check out, we dunno, Akorn’s chapter 7 for an example.
**The DIP settlement also included the typical official committee of unsecured creditor stuff (e.g., an increased investigation budget, soft marshalling, upped budget).
***Separately, on May 12, 2025, WB filed a motion for relief from the automatic stay to liquidate its arbitration damages award.
****Even though there’s no break-up fee, the bid still includes an expense reimbursement; here, it’s for up to $2mm.
*****There’s probably a lesson to be learned here about leaving a non-court approved stalking horse bid hanging around the docket for a month, 🤔.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.
📤 Notice📤
Adam Brenneman (Partner) joined Milbank LLP from Cleary Gottlieb Steen & Hamilton LLP.
Brandon Mohamad (Associate) joined Ropes & Gray LLP from Sheppard Mullin.
Laura Marcero (Partner) joined Meru LLC from Huron Consulting Group.
Raymond Li (Managing Director) joined Meru LLC from AlixPartners LLP.
Thomas McCabe (Senior Managing Director) joined B.Riley Financial from Glen Ridge Advisory Group.
🍾Congratulations to…🍾
Konstantin Malyshkin on his promotion to Vice President at Houlihan Lokey.
With WW, are the RCF providers getting absolutely smoked? The RCF was just drawn down a few months ago, and now they are getting back around 30c on the dollar, with a big chunk of that equity in a structural declining biz with a subscale pill mill attached?