⛽️ New Chapter 11 Bankruptcy Filing - Vista Proppants and Logistics LLC ⛽️

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Vista Proppants and Logistics LLC

June 9, 2020

You wouldn’t know it from the equity price action in oil and gas this week but lest there be any confusion: generally speaking, oil and gas is still very much f*cked.

Privately-held (The Lonestar Prospects Holdings Company LLC and First Reserve) Texas-based Vista Proppants and Logistics LLC (along with its affiliate filers, the “debtors”) is yet another victim of the oil and gas malaise. Its principal business is producing mine-to-wellhead high-quality, fine-grade “Texas Premium White” frac sand for end users in TX and OK. The business includes mining (via debtor subsidiary Lonestar Prospects Management LLC), trucking (via debtor subsidiary MAALT LP, and transloading (via debtor subsidiary MAALT Specialized Bulk LLC). The company operates three mines in Texas, twelve transloading terminals in TX and OK, three trucking facilities in TX, and a fleet of approximately 100 “last-mile” transport vehicles. Spoiler alert: when oil prices break through the floor and everyone cuts back capacity, there ain’t a whole lot of need for frac sand. Toss in a little COVID into the mix — further decimating the oil and gas space — and, well, here we are in bankruptcy court. The debtors have shut down their mining operations and aren’t engaging in any trucking and transloading activity.

As you might expect, even with all of the cost cutting initiatives under the sun, not operating can have an effect on liquidity. And indeed that’s the case here: the debtors ran out of money to service their operations and their $357+mm of debt (Ares Capital Corporation ($ARCC)). The bankruptcy filing avails the debtors of $11mm of DIP financing and provide an opportunity for the debtors to pursue a sale of their assets to Ares or a third-party buyer.

The other thing this bankruptcy filing does is provide the debtors of the same opportunity that previous frac sand provider, Emerge Energy Services, took advantage of in bankruptcy court. That is, the rejection of railcar leases. These fixed cost contracts make no sense for the debtors anymore as they simply don’t have the volumes to transport. Indeed, the debtors have already filed a slate of contract rejection motions.

Along those lines, this isn’t the first frac sand chapter 11 bankruptcy and it likely isn’t the last either.

*For the avoidance of doubt, ARCC placed this sucker on non-accrual previously. Notably, Bloomberg reported on various comments that Ares’ CEO Michael Arougheti said this week at the Morgan Stanley Virtual U.S. Financials Conference:

“There is a little bit of a risk that people are underestimating the level of distress in the small business and consumer landscape absent the government support,” Michael Arougheti, chief executive officer at Ares Management Corp. said. “When you look at the government aid programs, they’ve generally been structured to get us through June and July, and after that is a big question mark.”

Vista seems apropos of that comment. The question is whether Vista is also the canary in the coal mine for BDC investments. Bloomberg also noted:

The firm’s portfolio companies have received capital injections from equity owners to support business, he said. Within its credit holdings, Ares has been able to negotiate stronger covenants and higher loan prices. The firm is “cautiously optimistic” of receiving debt payments in June, he said.

Set your alarms.

  • Jurisdiction: N.D. of Texas (Judge Morris)

  • Capital Structure: $357.5mm Term Loan (Ares Capital Corporation), $21.9mm ABL (PlainsCapital Bank), MAALT Facility

  • Professionals:

    • Legal: Haynes and Boone LLP (Stephen Pezanosky, Ian Peck, David Staab)

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

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

  • Other Parties in Interest:

    • Ares Capital Corporation

      • Legal: Sidley Austin LLP (Dennis Twomey, Charles Persons, Juliana Hoffman)

    • Lonestar

      • Legal: Jackson Walker LLP (Kenneth Stohner Jr., Vienna Anaya)

    • PlainsCapital Bank

      • Legal: Foley & Lardner LLP (Holland O’Neil, Thomas Scannell)

New Chapter 11 Bankruptcy Filing - Centric Brands Inc. ($CTRC)

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Centric Brands Inc.

May 18, 2020

New York-based Centric Brands Inc. ($CTRC)(f/k/a Differential Brands Group Inc., Joe’s Jeans Inc., and Innovo Group Inc.) and 34 affiliates (the “debtors”) filed for chapter 11 bankruptcy earlier this week after COVID-19 ripped through the economy and disrupted retail operations all over the country. You’ve likely never heard of Centric Brands Inc. (unless you happened to have a soft spot for esoteric brand stocks). But there is a very good chance that you’ve purchased one of its licensed products or one of its privately-owned brands. They’re ubiquitous. And they’re ubiquitous because the company’s reach has expanded aggressively over the years.

The company started in 1987, acquired Joe’s Jeans in 2007, acquired Hudson Brand in 2013, merged with Robert Graham in 2015, acquired SWIMS in 2016 and then acquired Global Brands Group Holding Limited in 2018 for $1.2b. The majority of the company’s $1.7b of funded debt emanates out of that last transaction. More on this in a moment.

In addition to the aforementioned private brands, the company designs, produces, merchandises, manages and markets approximately 100 brands pursuant to various licenses. These brands include AllSaints, Calvin Klein, Disney, Jessica Simpson, Kenneth Cole, Tommy Hilfiger and many more. The company sells its licensed and private-brands in one of three categories: kids, accessories, and men’s and women’s apparel. The former two grew from ‘18 to ‘19. The latter…well…not so much. All of the company’s product is made in Asia or Mexico.

For distribution, the company sells wholesale to, among others, bigbox retailers like Walmart Inc. ($WMT) and Target Inc. ($TGT), to department stores like Macy’s Inc. ($M), Kohls Corporation ($KSS) and J.C. Penney Corporation ($JCPQ), to off-price retailers like TJX Companies ($TJX) and Ross Stores ($ROST), and on Amazon Inc. ($AMZN). It also has brick-and-mortar stores for its private label brands Robert Graham (33 stores) and SWIMS (one store) as well as certain licensed brands like BCBG (46 stores), Joe’s Jeans (13), and Herve Leger (one). Finally, the company operates partner shop-in-shops for BCBG with big department stores.

Bankruptcy aficionados are familiar with the BCBG brand. BCBG filed for bankruptcy itself back in March 2017. Marquee Brands LLC later acquired the entire portfolio of brands from BCBG Max Azria Global Holdings — including BCBGMAXAZRIA, BCBGeneration and Herve Leger — for $108mm later that year. Marquee’s licensing partner? Global Brands Group Holding Limited, which, as noted above, is now part of Centric Brands. Through license agreements entered into back in July 2017, Centric has the right to manufacture and distribute certain licensed BCBG product; it also has the right to use certain intellectual property for retail and e-commerce sales.

Back in April, BCBG and the company started getting after it. BCBG was pissed because the company owed it $3mm in royalty payments. After the company continued not to pay, BCBG terminated the agreement. Now the parties have a settlement. The company is rejecting the licensing agreements, agreeing to let BCBG setoff $3mm against its pre-petition claim (which is capped at $20mm and pledged in support of the plan), and agreeing to pay ongoing royalties on the goods to be supplied to wholesale partners. Marquee Brands LLC is taking the licenses back and intends to add BCBG to its e-commerce portfolio.*

Soooooo…what happens to those brick-and-mortar locations we mentioned earlier? The debtors filed a motion already seeking to reject nonresidential real property leases effective as of the petition date. The debtors seek approval to reject seven Robert Graham leases, 42 BCBG leases and one Joe’s Jeans lease. Of those rejected leases 25 are in locations managed by Simon Property Group ($SPG). But, sure, the “A” malls are juuuuuuuust fine folks. Nothing to see here.

Well, except the capital structure. It’s so large it’s kinda hard to miss. The company has:

  • $163.9mm RCF,

  • $20mm ‘20 term loan bridge,

  • $631.9mm ‘23 first lien term loan (HPS Investment Partners, Ares Capital Corporation)

  • $719.8mm second lien term loan (GSO Capital Partners LP and Blackstone Tactical Opportunities Fund),

  • $200.3mm securitization facility, and

  • $28.7mm unsecured convertible notes plus $10mm modified convertible notes.

Luckily the holdings are concentrated among the above-noted funds. Accordingly, HPS, Ares and Blackstone will end up lenders in an exit first lien term loan and own the reorganized equity on the backend of this restructuring. HPS and Ares will own 30% of the equity and Blackstone will own 70% (subject to dilution). Your kids’ favorite licensed casualwear powered by private equity!**

*It is unclear what Marquee Brands LLC will do with the BCBG wholesale business. This article suggests they’ll do something and then goes on to emphasize only the e-commerce approach.

**The case will be powered by a $435mm DIP credit facility of which $275mm will be provided by the revolving lenders (and will rollup the pre-petition facility) and roll into an exit facility. The remaining $160mm will be a DIP term loan provided by Blackstone which will role into the exit first lien term loan with the first lien term lenders. The debtors will also extend its existing Securitization Facility.

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

  • Capital Structure: $163.9mm RCF, $20mm ‘20 term loan bridge, $631.9mm ‘23 first lien term loan, $719.8mm second lien term loan, $200.3mm securitization facility, $28.7mm unsecured convertible notes, $10mm modified convertible notes

  • Professionals:

    • Legal: Ropes & Gray LLP (Gregg Galardi, Christine Pirro Schwarzman, Daniel Egan, Emily Kehoe)

    • Financial Advisor/CRO: Alvarez & Marsal LLC (Joseph Sciametta)

    • Investment Banker: PJT Partners LP (James Baird)

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

  • Other Parties in Interest:

    • Prepetition First Lien Revolver & DIP Agent ($275mm): ACF Finco I LP

      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Laura McCarthy)

    • First Lien Lenders: HPS Investment Partners, Ares Capital Corporation

      • Legal: Latham & Watkins LLP (Richard Levy, James Ktsanes)

    • Preptition Second Lien TL & DIP TL Agent ($160mm): US Bank NA

      • Legal: Nixon Peabody LLP (Catherine Ng)

    • Second Lien Lenders and DIP TL Lenders: GSO Capital Partners LP and Blackstone Tactical Opportunities Fund

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Brad Kahn)

    • Receivables Purchase Agreement Agent

      • Legal: Mayer Brown LLP (Brian Trust)

    • Major equityholders: Cede & Co., GSO Capital Opportunities Fund III LP, GSO CST III Holdco LP, TCP Denim LLC, Tengram Capital Partners Fund II LP, Ares Capital Corporation