🚘 New Chapter 11 Bankruptcy Filing - Advantage Holdco Inc. (a/k/a Advantage Rent-a-Car) 🚘

Advantage Holdco Inc.

May 26, 2020

Florida-based Advantage Holdco Inc. (along with six affiliates, the “debtors”) is the second car rental business to file for chapter 11 bankruptcy in the last week. The debtors list at least $500mm in liabilities against $100mm-$500mm in assets. Rut roh. They also noted that “[a]fter any administrative expenses are paid, no funds will be available to unsecured creditors.” RUT ROH.

Get ready for the “private equity bros destroyed car rental” argument: Catalyst Capital Group Inc., a Toronto-based private equity firm, owns, through affiliates, 100% of the debtors’ equity after purchasing assets (from The Hertz Corporation as luck would have it) out of the 2014 Simply Wheelz LLC d/b/a Advantage Rent-a-Car bankruptcy and merging it with a subsequent acquisition of E-Z Rent-a-Car in 2015. As powerful as private equity firms tend to be, however, they, despite what some might think, didn’t conspire to shutdown the global economy. By extension, they didn’t have any hand in the pandemic stopping nearly all air travel — affecting, in turn, businesses like Advantage that depend on customers coming in and out of airports (much like Hertz). Nor did they have any control over people deciding not to go visit Las Vegas, Nevada — perhaps one of the gnarliest cities in the world — where Advantage also happens to have certain hotel partnerships it leverages to rent cars to people who want to say…blow sh*t up in the desert. Shocking we know! PE doesn’t control G-d.

Unlike Hertz, Advantage tends to target the leisure-discount segment of the rental car sector. Similar to Hertz, though, it generates predominantly all of its revenue from vehicle rentals (from airports mostly), ancillary products like insurance and navigation services and the wholesale disposition of automobiles previously used in the rental fleet. Sound familiar? Only so much room for creativity in this business model, broheims.

In 2019, the debtors did ~$271.5mm in revenue with $165.1mm attributable to rental and $106.4mm to the other stuff we previously noted. Which just goes to show how much of a money maker that bullsh*t insurance you always debate is.

There’s more bankruptcy Inception at play here: The Hertz Corporation ($HTZ) once owned this company but divested it to avoid antitrust scrutiny. Earlier this week, HTZ filed for bankruptcy. Not it is also involved in this bankruptcy; it is the debtors’ 11th largest general unsecured creditor. Whoops.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $30.2mm unsecured loan (Aberdeen Standard Investments Inc.)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Norman Pernick, Patrick Reilley, J. Kate Stickles)

  • Financial Advisor: Mackinac Partners (Matthew Pascucci)

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

• Other Parties in Interest:

🔋New Chapter 11 Bankruptcy Filing - Exide Holdings Inc.🔋

Exide Holdings Inc.

May 19, 2020

Georgia-based Exide Holdings Inc. and four affiliates (the “debtors”), among the world’s largest producers and recyclers of lead-acid batteries used in cars, boats, golf carts and more, filed for chapter 11 bankruptcy in the District of Delaware earlier this week. The filing sparked an entire industry to ask “is it a Chapter 22 or a Chapter 33?” The answer, depending upon your look-back period, is the latter. The fairer answer is probably the former and even that was 7 years ago with emergence 5 years ago (PETITION Note: the Exide Creditors’ Liquidating Trust had to make a notice of appearance in these new cases so, there’s that). Going back nearly two decades seems to be an impossible standard to hold any business to but 5-7 years seems much fairer.

Since we’re discussing labels, here’s another one: failure. Per the debtors:

Notwithstanding the Company’s efforts to implement its business plan following its emergence from the 2013 Chapter 11 Case and the support of its new owners and lenders, the Company continued to face liquidity, performance, and operational challenges that were more persistent and widespread than anticipated. Coupled with adverse industry and market factors as well as substantial environmental costs, these challenges have resulted in reduced liquidity.

Sooooo…that sucks. We admit it: we were hoping that this was a disruption story. That Elon Musk and the increasingly large cohort of lithium-ion battery using OEMs pushing out electric vehicles were putting the lead-acid battery manufacturers out to pasture. But that is not a state reason for this chapter 3…uh…chapter 2…uh, whatever the f*ck this is. Rather, the debtors state that their post-emergence liquidity issues stem from (a) mounting environmental remediation costs and litigation, (b) rising production costs (PETITION Note: because the debtors shut two recycling facilities, they are now subject to pricing pressures from outside manufacturers rather than just using their own recycled inputs), (c) operational inefficiencies caused by legacy mixed-use facilities, and (d), of course…wait for it…COVID-19. Duck for COVID-cover folks! The debtors say that the pandemic’s impact on demand for product is the cherry on top.

The debtors’ capital structure doesn’t help. Look at this beaut:

With that much funded debt, the debtors’ leverage ratio stands at 9.2x. Debt service averages approximately $26.8mm/year.

So, confronted with all of these factors, the debtors have been engaged in a marketing process since 2018. The continued deterioration of the business, however, ultimately led to a restructuring path and now the debtors intend to use the bankruptcy process to effectuate a sale of (i) the entire business or (ii) the Americas business and/or (iii) the sale of its Europe/Rest-of-World business or (iv) a liquidation (PETITION Note: the debtors fall into chapter 11 largely separated into four main business groups). The Ad Hoc Group has submitted a binding credit bid for the Europe/ROW business group which will serve as a stalking horse bid; they have also committed $15mm in DIP financing to service certain non-debtor affiliates in Europe with an additional $25mm DIP commitment for the administration of the cases coming from Blue Torch Capital LP. The debtors hope to go “effective” by the end of August: this means that everyone has a lot of work to do to try and and locate a buyer for the rest of the debtors’ businesses in the interim.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure:

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Jacqueline Marcus, Sunny Singh, Samuel Mendez, Alyssa Kutner, Jason Hufendick) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro, Brendan Schlauch)

  • Independent Directors: Alan Carr, William Transier, Harvey Tepner, Mark Barberio

  • Financial Advisor/CRO: Ankura Consulting (Roy Messing)

  • Investment Banker: Houlihan Lokey Capital Inc.

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

• Other Parties in Interest:

  • Prepetition ABL Agent: Bank of America NA

    • Legal: Otterbourg PC (Daniel Fiorillo, David Morse, Jonathan Helfat)

  • Indenture Trustee

    • Legal: Arent Fox LLP (Andrew Silfen, Jordana Renert)

  • DIP Agent ($40mm): Blue Torch Capital LP

    • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matthew Bouslog, Michael Farag) & Cole Schotz PC (Norman Pernick, Patrick Reilley)

  • Ad Hoc Group

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alice Belisle Eaton, Robert Britton, Eugene Park, Claudia Tobler, Jacqueline Rubin, Douglas Keeton, David Weiss, David Giller) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Ian Bambrick)

  • Large equityholders: Mackay Shields LLC, AllianceBernstein LLP, D.E. Shaw Galvanic Portfolios LLC, Neuberger Berman Group LLC

  • Exide Creditors’ Liquidating Trust

    • Legal: Kelley Drye & Warren LLP (Dane Kane, Konstantinos Katsionis)

🚗 New Chapter 11 Bankruptcy Filing - Techniplas LLC 🚗

Techniplas LLC

May 6, 2020

Wisconsin-based Techniplas LLC and seven affiliates (the “debtors”), producers and manufacturers of plastic components used primarily in the automotive and transportation industries, filed for bankruptcy in the District of Delaware. “The Company produces, among other things, automotive products, such as fluid and air management components, decorative and personalization products, and structural components, as well as nonautomotive products, such as power utility and electrical components and water filtration products.” After cobbling together acquisitions over the course of the decade, the debtors’ business is now global in scale and its main customers are the leading OEMs in the US, Europe and Asia; it had net sales of $475mm and a net loss of $21mm in fiscal ‘19.

A bit more about the business. The debtors’ primary operating unit, “Techniplas Core,” acts “…as a manufacturer of technically complex, niche products across a wide range of applications and end markets, including the automotive and truck, industrial, and commercial markets.” This is roughly 83% of the business. In addition, the debtors have “Techniplas Prime,” which, aside from sounding like a Transformer that may or may not have it out for the human race, acts as a matchmaker between excess manufacturing capacity and customers in need of manufacturing. Per the debtors:

Serving as a nexus between customers, including OEMs, and other manufacturing companies, Techniplas Prime acts as an extension of Techniplas Core by delivering to customers the manufacturing capabilities of its Prime Partners. This makes Techniplas Prime asset-light and creates a “win-win” scenario for customers and Prime Partners.

Interestingly, this business segment was once dubbed “The Airbnb of Auto Manufacturing,” a moniker that makes almost zero sense and completely misunderstands the Airbnb model but, yeah sure, cheap “by-association” points, homies! Per Forbes:

[Founder George] Votis saw Techniplas Prime as an e-manufacturing platform from which customers could order parts electronically according to their own specifications, and have them built by local factories with unused capacity.

Except it’s not a platform. Like, at all. Airbnb is a digital two-sided platform that brings hosts and travelers together and seemlessly connects them. Techniplas Prime…well…

…well…page not found. Airbnb may be struggling in this COVID environment but we can assure you that you’re not EVER getting a 404 when going to their site. Platform…pssssfft. The Forbes article later contradicts itself saying:

…they focused on 3-D printing and advanced manufacturing technology companies that had spare capacity available for contract operations, for which Techniplas Prime is essentially the broker.

Right. Being a broker is different than being a platform y’all. But we digress.

The debtors have a simple capital structure consisting of a $17.59mm ABL, $175mm in 10% ‘20 notes, and a $6.77mm interim financing agreement for total funded debt around $200mm. The debtors, primarily due to this capital structure, began pursuing strategic alternatives in early 2017. Both an attempted sale process and debt refinancing failed. Thereafter, the debtors explored in 2018 a term loan refinancing of the preptition notes and/or a public equity listing in London. Those, too, failed. For this, the debtors blame a downturn in the automotive market and uncertainty from Brexit (PETITION Note: we’ve been foreshadowing that declining production capacity by the major OEMs was going to rattle through the supply chain so nobody should be surprised by this revelation).

In mid-’19, an attempted sale to a strategic buyer, private equity firm The Jordan Company, kicked off but that, despite some forward-moving progress involving a note purchase agreement and an unexercised call option for 100% of the membership interests in the debtors, ultimately fell through due to the inability to refi out the pre-petition notes. Subsequent attempts — now involving ad hoc group of noteholders and Jordan — also came close but ultimately failed due to deteriorating operating performance that pre-dated OOVID. COVID merely exacerbated things. Per the debtors:

Many customers suspended or drastically reduced production, resulting in a swift drop in demand for the Debtors’ products. Additionally, many of the locations where the Company had offices and manufacturing plants worldwide issued lockdown orders and permitted only essential business to remain open in an effort to control the outbreak and protect the health and safety of the public.

All of this was too much to handle: Jordan peaced out. Liquidity increasingly became an issue and so the debtors obtained a $6.7mm super senior priority bridge financing from the ad hoc group. Indeed, the ad hoc group is stepping up big here: in addition to providing the liquidity the debtors needed to get in chapter 11, they’ve agreed to provide a DIP ($20-25mm new money with a $100mm roll-up) and serve as stalking horse bidder — offering $105mm to purchase the debtors’ international operations and three remaining US-based manufacturing facilities. The debtors hope to close the sale within 44 days of the petition date.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: See above.

• Professionals:

  • Legal: White & Case LLP (David Turetsky, Andrew Zatz, Fan He, Robbie Boone Jr., John Ramirez, Sam Lawand, Thomas MacWright) & Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Johnna Darby, Daniel Thompson)

  • Financial Advisor/CRO: FTI Consulting Inc. (Peter Smidt, Andrew Hinkelman)

  • Investment Banker: Miller Buckfire & Co. LLC (Richard Klein)

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Techniplas Acquisition Co. LLC

  • Pre-Petition ABL & DIP ABL Agent: Bank of America NA

    • Legal: Sidley Austin LLP (Dennis Twomey, Elliot Bromagen) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, David Queroli)

  • DIP Term Agent: Wilmington Savings Fund Society FSB

    • Legal: Cole Schotz PC (Daniel Geoghan, J. Kate Stickles, Patrick Reilley)

  • Indenture Trustee: US Bank NA

    • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

  • Ad Hoc Noteholder Group ‘20 10% Senior Secured Notes

    • Legal: Arnold & Porter Kaye Scholer LLP (Jonathan Levine, Brian Lohan, Jeffrey Fuisz, Gerardo Mijares-Shafai)

👖New Chapter 11 Bankruptcy Filing - True Religion Apparel Inc.👖

True Religion Apparel Inc.

4/14/20

TMI: we’ve had a hard enough time getting Johnny to even wear pants at all over the last few weeks let alone put on jeans. That one Zoom call where he spilled coffee on himself and jumped out of his chair emblazoned an image in our minds that we’ll need some real therapy to get over. We had to take out an enterprise Headspace account as a result. But enough about us.

To the topic at hand: True Religion Apparel Inc. Here’s the good news: True Religion and its four affiliates (the “debtors”) legged it out long enough to avoid PETITION’s dreaded Two-Year Rule violation. Any retailer that can stave off a chapter 22 bankruptcy filing for as long as True Religion did (30 months) has, in fact, achieved a “successful” restructuring in our book. That said, the brand is nevertheless back in bankruptcy court. If that logic strikes you as perverse well, yes, we admit it: the bar for bankrupted retailers is, in fact, that low.

Interestingly and somewhat counter-intuitively, there has been a dearth of retail restructuring activity during the COVID-19 strike. We went through some explanation for that here and the theme was subsequently picked up and expanded upon by the MSM: there were countless articles about how busy restructuring professionals are and yet very few filings (though there has been a lot of activity this week). Why? It’s hard for retailers to conduct GOB sales when stores aren’t open. DIP financing is harder to come by. Buyers are few and far between. Everyone is having trouble underwriting deals when it’s so difficult to gauge if and when things will return to “normal.”

True Religion couldn’t afford to wait. It has 87 retail stores. They’re closed. It’s wholesale business — dependent, of course, on other open brick-and-mortar shops — is also closed. This was an immediate 80% hit to revenue.* The company — which had posted a $50mm net loss for the TTM ended 2/1/20 (read: it was already pretty effed) — suddenly found itself facing an accelerated liquidity crisis. Stretching payables, stretching rent, furloughing employees. All of those measures were VERY short-term band-aids. A bankruptcy filing became absolutely necessary to gain access to much needed liquidity. This filing is about a DIP credit facility folks. Without it, they’d be looking at Chapter 7 liquidation. Per the debtors:

The Debtors must have access to the DIP Facilities to continue to pay essential expenses—including employee benefits, trust fund taxes and other critical operating expenditures—while they use the breathing spell provided by the Bankruptcy Code to wait out the effects of the COVID-19 pandemic and attempt to pursue a value-maximizing transaction for all stakeholders.

Critical operating expenditures? Yup, e-commerce maintenance and fulfillment, wholesale and restructuring expenses baby. The plan is to “mothball” the business and hope for a tiered reopening of stores “at the conclusion fo the COVID-19 pandemic.” In the meantime, the debtors intend to pull a Modell’s/Pier 1 and get relief from having to pay rent. This as pure of a “breathing spell” as you can get.

Back to the financing. The debtors have approximately $139mm of funded debt split between a $28.5mm asset-backed term loan (inclusive of LOCs) and a $110.5mm first lien term loan. The debtors also had access to a $28.5mm revolver subject to a “borrowing base,” as usual, but that facility wasn’t tapped. We’re guessing Crystal Financial ratcheted up reserves and didn’t leave much opportunity for drawing that money outside of a filing.

In March 2020 the debtors sought, in earnest, new financing, talking to their existing lenders and third-party lenders. They also considered the possibility of tapping funds via the recently-enacted CARES Act. They note:

In addition to the Debtors’ efforts in the private marketplace, the Debtors and their Restructuring Advisors evaluated the availability of government appropriations through the CARES Act. After careful consideration, the Debtors determined that they were not eligible for government funding, or to the extent that there was a possibility that they would be eligible, they would not be able to wait the time necessary to find out whether a loan would be available under the CARES Act. The Debtors are hopeful that future stimulus packages will target companies such as the Debtors – i.e. mid-market companies with 1000 employees that are currently in chapter 11, but that could utilize government financing when emerging from chapter 11.

New third-party financing didn’t come to fruition. Among other reasons, lenders cited “the timing, complexity and overall challenges in the retail industry in light of COVID-19.” It’s hard out there for an underwriter. Ultimately, the debtors settled on financing offered by some of its first lien term lenders.

Now, we don’t normally get too deep into DIP details but given the difficulty financing retailers today, we thought the structure merited discussion. Here’s what the debtors negotiated:

• A $29mm senior secured super-priority asset-based revolver (rollup);

• A $59.89mm senior secured super-priority delayed-draw term loan credit facility of which $8.4mm is new money, a bit over $3mm is for LOCs, and the rest constitutes a rollup of pre-petition debt.

Major equityholder and pre-petition lender Farmstead Capital Management LLC is a big player in the term loan. The DIP is subject to a “strict” 13-week budget based on a four-month case with an eye towards either a section 363 sale or a reorganization by mid-May. Seems ambitious. For obvious reasons. But Farmstead ain’t suffering no fools. Per the debtors:

…the Debtors’ lenders are unwilling to fund a contentious chapter 11 case and they have made this clear to the Debtors over the course of the negotiations. Any material delay or significant litigation during these cases will result in the Debtors’ default of its covenants and send the Debtors spiraling into a fire-sale liquidation.

Given that Farmstead is taking half of its DIP fee paid-in-kind, they may be looking to own this sucker on the backend via a credit bid. Hats off to those guys.

*The papers are not entirely clear but they appear to indicate that e-commerce “accounts for less than 26% of sales” out of $209mm or ~$54mm. Given layoffs across the country, we have to think that e-commerce fell off a cliff in February and March too. Said another way, there’s no way it could’ve generated enough revenue to keep the business afloat. Also, JP Morgan ($JPM) included the following chart in its earnings deck this week:

**We’d be remiss if we didn’t note the financial performance here. Again, the debtors highlighted a $50mm net loss in the fiscal year that just closed on February 1, 2020. Here are the financial projections that True Religion filed as part of its disclosure statement during its first chapter 11 filing:

That’s a savage miss.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $28.5mm Asset-Backed Term Loan (Crystal Financial LLC), $110.5mm First Lien TL (Delaware Trust Company)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Seth Van Aalten, Michael Trentin, Kate Stickles, Patrick Reilley, Taylre Janak) & Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Kevin Eide)

  • Board of Directors: Eugene Davis, Lisa Gavales, Stephen Perrella, Robert McHugh

  • Financial Advisor: Province Inc. (Michael Atkinson)

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Pre-petition ABL & DIP ABL Agent: Crystal Financial LLC

    • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Pre-petition TL & DIP TL Lenders

    • Legal: Proskauer Rose LLP (Brian Rosen, Lucy Kweskin) & Young Conaway Stargatt & Taylor LLP (Jaime Luton Chapman)

  • Major equityholders: Farmstead Capital Management LLC, Waddell & Reed, Towerbrook Capital Partners, Apex Credit Partners LLC, Credit Suisse, Goldman Sachs Asset Management

⚾️New Chapter 11 Bankruptcy Filing - Modell's Sporting Goods Inc.

Modell's Sporting Goods Inc.

March 11, 2020

There’s nothing particularly new or interesting about another liquidating retailer — especially when it’s just another in a long line of companies in its business segment to file for chapter 11 bankruptcy. Sorry to be callous: we get that Modell’s Sporting Goods Inc. is a family-owned establishment with 134 stores and thousands of employees. We get that people aren’t shopping at brick-and-mortar locations, that Walmart Inc. ($WMT), Target Inc. ($TGT), Amazon Inc. ($AMZN), and, in this category, Dick’s Sporting Goods Inc. ($DKS) are crushing the competition, and that there’s a “decline in sports team participation among youth and teens.” Here’s the number of tackle football participants over the age of six years old in the United States:

This trend in football, however, is not pervasive. Participation in high school baseball, for instance, is on the rise. Most other major high school sports are pretty static, soccer being an exception as that, too, is increasing in popularity. So, sure, okay. We’ll just take the company’s word for it.

But the company doesn’t just blame the youths for its demise; it blames global warming (“warm winter weather in the Northeastern states, which negatively affected the sales of cold-weather goods and items and overall store traffic…”), the crappy-a$$ New York Knicks and disappointing Philadelphia Eagles (“lower than anticipated sales of licensed goods in the fourth quarter of 2019 based on local professional team performance”), and inventory disruption from creditors who’ve gotten sick and tired of getting regularly screwed over by administratively insolvent retailers.

It doesn’t really blame its model. For instance, it doesn’t have any private label apparel. Nor does it own any of its real estate. It is completely beholden to its vendors and foot traffic at strip malls and shopping malls. It leases everything. Apparel merchandise expenses were roughly $225mm/year and rental expenses totaled approximately $95mm/year, constituting approximately 46% and 19% of gross sales ($490mm), respectively. In addition, it has unionized employees. The company is on the hook (jointly with a non-debtor entity) for a pension plan underfunded by $25.8mm.

Of course the company also has debt. It has a unitranche revolving credit facility and term loan with JPMorgan Chase Bank NA and Wells Fargo Bank NA, respectively. As of the petition date, the company owes approximately $39mm under the facility. But as operating performance deteriorated, JPM and WFC became skittish and increased discretionary reserves by $18mm — the nail in the coffin as the company no longer had sufficient liquidity to continue to operate (PETITION Note: Wells Fargo has been particularly savage when it comes to aggressively increasing reserves on its retail clients. We’ve seen this movie before with Pier 1 Imports Inc. and Destination Maternity Inc.). This, despite the company started stretching its vendors and landlords. Rent for February and March went unpaid. The company projects $100mm in general unsecured claims, ex-lease breakage claims.

While the business suffered, multiple attempts to achieve an out-of-court restructuring and/or a sale to a strategic buyer failed. The company will now undertake a coordinated wind down to maximize recoveries for stakeholders. Absent some White Knight swooping in here at the 13th hour, pour one out for Modell’s Sporting Goods Inc.

• Jurisdiction: D. of New Jersey (Judge Papalia)

• Capital Structure: $29.5mm RCF (JPMorgan Chase Bank NA), $9.225mm Term Loan (Wells Fargo Bank NA)

• Professionals:

  • Legal: Cole Schotz PC (Michael Sirota, David Bass, Felice Yudkin)

  • Financial Advisor: Berkeley Research Group LLC (Robert Duffy)

  • Investment Banker: RBC Capital Markets

  • Real Estate Advisor: A&G Realty Partners LLC

  • Liquidation Consultant: Tiger Capital Group LLC

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

• Other Parties in Interest:

  • JPMorgan Chase Bank NA

    • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Norris McLaughlin PA (Morris Bauer, Allison Arotsky)

  • Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Steven Fox)

  • Local 1102 RWDSU UFCW, Local 1102 Retirement Trust, and Local 1102 Health and Benefit Fund

    • Legal: Rothman Rocco Laruffa LLP (Matt Rocco) & Lowenstein Sandler LLP (Kenneth Rosen)
      

😷New Chapter 11 Bankruptcy Filing - Hygea Holdings Corp.😷

Hygea Holdings Corp.

February 19, 2020

Florida-based Hygea Holdings Corp. and 32 affiliates (the “debtors”) filed for bankruptcy because…whoa boy…human capital businesses are tough. Hygea is a rollup of physician practices with a primary care physician focus; it also has a management services platform. This is basically WeWork for physicians or Substack for writers: Hygea handles the management activities in such a way that frees physicians up to do what they want to do. Which is be physicians.

The problem is that the debtors expanded too aggressively, acquiring physician practices with minimal net profit. But synergies, right? Not exactly. The debtors’ model didn’t pan out after failing to integrate the underperforming acquisitions. Poor integration fundamentally counteracts the entire point of a rollup, but whatevs. Growth!!

If only things were quite so positive. Per the debtors:

Consequently, the Debtors have been burdened with supporting a number of losing operations, that even with performance improvements will never be profitable. The operating losses of those practices, along with the associated acquisition costs, have caused a substantial drain on the Debtors’ liquidity.

This presents a problem when you have over $120mm of debt. Hence bankruptcy. The company hopes to use the bankruptcy process to solicit a buyer.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $121mm secured debt (Bridging Income Fund LP)

• Professionals:

  • Legal: Cole Schotz PC (Michael Sirota, Felice Yudkin, Jacob Frumkin, Michael Trentin, J. Kate Stickles, Katherine Devanney, Stuart Komrower)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: 4Front Capital Partners Inc.

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

• Other Parties in Interest:

New Chapter 11 Bankruptcy & CCAA Filing - Pier 1 Imports Inc. ($PIR)

Pier 1 Imports Inc.

February 17, 2020

Fort Worth, Texas-based Pier 1 Imports Inc. and seven affiliates (the “debtors”) have fulfilled their obvious destiny and finally fallen into bankruptcy court in the Eastern District of Virginia. Contemporaneously, the debtors filed a CCAA proceeding in Canada to effectuate the closure of all Canadian operations. Color us pessimistic but we’re not feeling so great about the debtors’ go-forward chances in the US either.

We’ve covered the debtors ad nauseum in previous editions of PETITION. Here — supported by an ode to “Anchorman” — we described the debtors’ recent HORRIFIC financial performance and noted how a bankruptcy would be sure to confuse a peanut gallery accustomed to spouting regular (and sometimes inaccurate) hot takes about how private equity is killing retail.* We wrote:

The reaction to this surely-imminent bankruptcy (and, if we had a casino near us, liquidation) is going to be interesting. It is sure to flummox the “Private Equity is Killing Retail” camp because, well, it’s not PE-backed. Similarly it’ll confuse the “You Shouldn’t Put So Much Debt on Retail” cohort because, well, there really isn’t that much debt on the company’s balance sheet. Chuckling in the corner will be “The US is Over-Stored” team … And “The Millennials Aren’t Buying Homes and Furnishing Them With Chinese-Made Tchotchkes” gang (thanks a ton, Marie Kondo) … And the “Management Has Blown Chunks, The Assortment Sucks” bunch … And, finally, “The Amazon Effect” squad….

Over the weekend, The New York Times ran a piece from Austan Goolsbee, an economics professor at the University of Chicago’s Booth School of Business, that — no disrespect to the professor — says many of the same things PETITION has been saying for a LONG LONG time. That is, “The Amazon Effect” is overstated. He argues that “three major economic forces have had an even bigger impact on brick-and-mortar retail than the internet has”: (1) big box stores, (2) income inequality, and (3) the preference shift away from goods towards services. It’s fair to say that these three forces affected the debtors in a big big way.**

Who’s actually surprised #Pier1 is closing when they charge like $100 for a decorative pillow? $60 for a vanilla candle that’s also at Walmart for $5? PASS. People still shopping at a Pier 1 clearly haven’t heard of Home Goods or TJ Maxx

— Nicole (@Choley2007) February 17, 2020

Surely, e-commerce has a lot to do with it too. As one PETITION advisor said about the debtors’ wares yesterday:

“You can just order that sh*t online. You don’t need to try it on.”

It’s a fair point.

Another fair point that Mr. Goolsbee omits from his analysis is the role of management. It’s safe to say that the US is suffering from an epidemic of retail ineptitude.

Also management sucks

— TheHappySoul Goddess (@Yahiness11) February 17, 2020

And like the coronavirus, it keeps spreading from one retailer to the next.***

This has to be one of the most under-covered aspects of the #retailapocalypse: just a revolving door of execs moving from one troubled retailer to the next and everyone hoping and praying that that person can suddenly conjure up an answer. $ASNA $FRANhttps://t.co/5lmoMJFEAE

— 💥PETITION💥 (@petition) February 14, 2020

But we digress.

The business has clearly suffered:

From fiscal years 2014 to 2018, the company’s net income dropped from $108 million to about $11.6 million and in fiscal year 2019 Pier 1 experienced a $198.8 million loss.

So, what’s the upshot here? The debtors announced a plan support agreement and intend to use the chapter 11 bankruptcy process to (a) continue to shutter the previously announced ~450 stores (read: get ready for a lot of lease rejections) and (b) pursue a sale pursuant to a chapter 11 plan of reorganization of what remains of the debtors’ business. Frankly, this was masterful messaging: the announcement relating to a plan support agreement and potential plan of…wait for it…”reorganization”(!) head-faked the entire market into thinking this thing might actually be salvageable. That’s where the fine print comes in.

The debtors have dubbed this an “all weather” chapter 11 plan because it provides for either a sale or the equitization of the term loan at the term lenders’ election. This begs the question: will Pathlight Capital LP want to own this thing?🤔 This bit was eye-catching:

“To be clear, the term loan lenders have made no decision at this point, but instead support the process as outlined in the plan support agreement.”

Yeah, we bet they do. Qualified bids will be due on or before March 23 and the lenders have until March 27 to make their election. Which way will the winds blow?

Note that “the process” isn’t currently supported by a stalking horse purchaser. 🤔

Note further that the debtors are required under the DIP to distribute informational packages and solicitations for sale of the debtors’ assets on a liquidation basis to liquidators by March 9.🤔 🤔

It seems reasonably clear from the Pier 1 bankruptcy papers that none of the Debtors, the professionals nor the lenders expect this turd to actually find a buyer outside of the liquidator type.

— 💥PETITION💥 (@petition) February 18, 2020

It looks like we’ll know the answer very soon.

To finance the cases, the debtors obtained a committed for a $256mm DIP credit facility. The facility includes a $200mm revolving loan commitment and a $15mm first in last out term loan, each provided 50/50 by Bank of America N.A. and Wells Fargo National Association, and a $41.2mm term loan from Pathlight. This was the pre-petition capital structure:

The DIP effectively just rolls up much of the pre-petition debt. There is no new money. The messaging here, then, is also critical: the DIP facility ought to provide customers, vendors and employees comfort that there is access to liquidity if needed. Cash collateral usage, however, is the main driver here: the debtors believe that operating cash flow will suffice to handle working capital needs and bankruptcy expenses.

To summarize, we have another distressed retailer that is scratching and clawing to live. They’ve taken all of the usual steps to extend runway: cost cuts, footprint minimalization, new management. Bankruptcy is a last-ditch effort to survive: the debtors take pains to try and convince some prospective buyer that there is life left in the debtors’ brick-and-mortar business:

The remaining go-forward stores achieved superior sales and customer metrics in the last twelve months compared to the closing stores, including approximately 15% greater sales per square foot on average.

And if that doesn’t do it, there’s the argument that there’s an e-commerce play here. The debtors similarly go to great lengths to state OVER AND OVER AGAIN that e-commerce represents 27% of total sales. They’re practically screaming, “Look at me, look at me! We can be interesting to you [Insert Authentic Brands Group here]!”

Pathlight is sure as hell hoping someone bites.

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*Kirkland & Ellis…uh…we mean, the “debtors” appear to agree, stating, in reference to private equity, that “[t]oo many pundits have sought to point in too many wrong directions,” citing pieces in RetailDive and The Wall Street Journal. THAT ladies and gentlemen, is client advocacy!

**It’s also fair to say that Professor Goolsbee does his readers a disservice by neglecting the overall picture which, no doubt, also includes over-expansion, too much retail per capita, private equity and over-levered balance sheets. These cowboys are closing 400+ stores for a reason.

Of course, long time PETITION readers know that we’ve been arguing for a LOOOOONG time that the “perfect storm” hitting retail is a confluence of factors that cannot just be lazily summarized as “private equity” or “The Amazon Effect.” It’s good to see that the folks at Kirkland & Ellis agree:

In the face of the longest bull run in U.S. history (close to 3,000 days and counting), a myriad of factors have collectively changed the ways in which consumers and retailers interact—creating for retailers what is tantamount to a perfect storm—and directly contributing to the struggles retailers face in a shifting marketplace.5

Then it’s as if they lifted this footnote straight out of previous PETITION briefings:

***Not to cast aspersions, but the resume of the current PIR CEO is…uh…interesting: prior experience includes FullBeauty Brands, HHGregg, and Marsh Supermarkets. Any of those names sound familiar to bankruptcy professionals?

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• Jurisdiction: E.D. of Virginia (Judge Huennekens)

• Capital Structure: $140mm RCF + $47.3mm LOC, $189mm Term Loan (Wilmington Savings Fund Society FSB), $9.9mm industrial revenue bonds

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Emily Geier, AnnElyse Scarlett Gains, Joshua Altman) & Kutak Rock LLP (Michael Condyles, Peter Barrett, Jeremy Williams, Brian Richardson)

  • Canadian Legal: Osler Hoskin & Harcourt LLP

  • Independent Directors: Steven Panagos & Pamela Corrie

  • Financial Advisor: AlixPartners LLP (Holly Etlin)

  • Investment Banker: Guggenheim Securities LLC (Durc Savini)

  • Real Estate Advisor: A&G Realty Partners LLC

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC

    • Legal: Riemer & Braunstein LLP (Steven Fox, Anthony Stumbo)

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

• Other Parties in Interest:

  • DIP ABL Agent: Bank of America NA

    • Legal: Morgan, Lewis & Bockius LLP, Hunton Andrews Kurth LLP, and Norton Rose Fulbright Canada LLP

  • DIP ABL Term Agent: Pathlight Capital LP

    • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) and Troutman Sanders LLP (Andrew Buxbaum)

  • Ad Hoc Term Lender Group: Eaton Vance Management, Insight North America LLC, Marathon Asset Management LP, MJX Asset Management LLC, Whitebox Advisors LLC, ZAIS Group LLP

    • Legal: Brown Rudnick LLP (Robert Startk, Uchechi Egeonuigwe, Steven Pohl, Sharon Dwoskin) & Whiteford Taylor & Preston LLP (Christopher Jones, Vernon Inge, Corey Booker)

    • Financial Advisor: FTI Consulting Inc.

  • Large Equityholders: Charles Schwab Investment Management, Dimensional Fund Advisors LLP

  • Official Committee of Unsecured Creditors: Bhati & Company, Synergy Home Furnishings LLC, United Parcel Services Inc., Brixmor Operating Partnership LP, Brookfield Property REIT Inc.

    • Legal: Foley & Lardner LLP (Erika Morabito, Brittany Nelson, Timothy Mohan) & Cole Schotz PC (Seth Van Aalten)

    • Financial Advisor: Province Inc. (Paul Huygens, Sanjuro Kietlinski, Walter Bowser, Paul Navid, Shane Payne, Courtney Clement)

💩New Chapter 11 Filing - uBiome Inc.💩

uBiome Inc.

September 4, 2019

Back in our July 4th weekend edition, we wrote the following:

#BustedTech. One year you’re on the Forbes’ 2018 Next Billion-Dollar Startups list and the next year you’re getting raided by the FBI. This is the story of uBiome, a SF-based microbiome startup. Per Forbes:

The new interim CEO of troubled microbiome startup uBiome, Curtis Solsvig, is a longtime turnaround and restructuring expert at financial advisory firm Goldin Associates and the former chief restructuring officer of failed drone startup Lily Robotics.

One man’s billion-dollar valuation is another man’s clean-up job. 

And, now, another man’s bankruptcy.

Annnd another man’s sacrifice:

The Debtor filed this Chapter 11 Case to provide an innovative business with a fresh start under new management, and to preserve approximately 100 jobs through a court-supervised sale process that is intended to maximize the value of the Debtor’s assets for the benefit of all stakeholders.

…certain business practices formulated and implemented by the Debtor’s original founders have resulted in cessation of certain aspects of the Debtor’s business, investigations by certain federal and state investigatory bodies (the “Investigations”), loss of revenue and significant potential contingent liabilities.

Godspeed founders. You just got napalmed. AGAIN.

And as they should. The debtor has been in triage for some time now.

The company empowers consumers to access analysis of their DNA/microbiomes via the use of at-home kits. Said another way, people poop in an $89.99 “explorer kit” and the company analyzes the sample through (a) a proprietary gene sequencing process and (b) a cloud-based database of microbiomes to determine what’s what in the customer’s GI system — a much less invasive discovery methodology than the gut-wrenching (pun intended) colonoscopy. The consumer receives results that provide suggestions for diet, weight control, gut inflammation, sleep disorders and non-dietary supplements. Frankly, this all sounds rather bada$$.

The company also had a clinical business. Doctors could prescribe the tests and bill the customers’ insurance. Similarly, the company launched a clinical product geared towards the analysis of vaginal swabs (i.e., STDs, HPV, gyno disorders). Together these clinical products were called “SmartX.”

Suffice it to say, this idea was big. The company’s founders leveraged the open-source results from the Human Microbiome Project (launched by the National Institutes of Health) and built something that could really make a lot of people’s lives easier. The venture capitalists saw the opportunity, and the tech media celebrated the company’s rapid capital raises and increasing valuation: $1.5mm seed in ‘14, $4.5mm in August ‘14 (led by a16z), $15.5mm Series B in October ‘16, and $83mm Series C in September ‘18. (PETITION Note: the company now says it raised $17mm in ‘16 and $59mm in ‘18, exclusive of $36.4mm of mostly-now-converted convertible notes, which means that the media appears to have been fed, or reported, wrong numbers).* Valuation? Approx $600mm.

Armed with gobs of money, the company established some valuable IP (including over 45 patents and your poop data, no joke) and commercial assets (its certified labs). On the other side of the ledger, there is $5.83mm of outstanding secured debt and $3.5mm of unsecured debt, ex-contingent liabilities including…wait for it…”[p]otential fines for civil and criminal penalties resulting from the Investigation….” Ruh roh.

The Founders implemented certain business strategies with respect to the SmartX products that were highly problematic, contained significant operational (but not scientific) flaws and, in some instances, were of questionable legality. These issues included improper insurance provider billing practices, improper use of a telemedicine physician network (known as the External Clinical Care Network), overly aggressive and potentially misleading marketing tactics, manipulation of customer upgrade testing, and improper use of customer inducements. Moreover, certain information presented to potential investors during the three rounds of capital raise my have been incorrect and/or misleading. Although uBiome believes the science and technology behind uBiome’s business model in this developing area is sound, these issues – among others – have resulted in significant legal exposure for the Debtor.

Score one for VC due diligence! The USA for the ND of California, the FBI, the DOJ and the SEC are all up in the company poop now. This investigation, much like the opioid crisis, also calls into question the ethical practices of doctors. Because we really ought not trust anybody these days.

Anyway, the company has since taken measures to right the ship. The board suspended and then sh*tcanned the founders and recruited new independents. They’ve verified that the company suffered from bad business practices rather than bad science or lab practices (Elizabeth Holmes, holla at us!!). And they’ve hired bankers to market the company’s assets (no stalking horse bidder at filing, though). The company received a commitment from early investor 8VC for a $13.83mm DIP of which $8mm in new money; it will take slightly more than 60 days to see if a buyer emerges. One selling point according to the company: it plans for its Explorer Kits to be in CVS Health Corp. ($CVS)! That’d be great if CVS planned for that too. Womp womp.

Anyway, the way bankruptcy is going these days chapter 11 probably ought to be renamed chapter 363.

*There are many reasons why d-bag startup founders hype their own raises. First, it promotes an aura of success which can help acquire new customers. Second, they love the adulation (see Elizabeth Holmes). Third, it helps with recruiting. And, fourth, the VCs must like it and use it for subsequent fundraising (given that they never correct the record).

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $5.83mm credit facility (Silicon Valley Bank)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Joseph Barry, Andrew Magaziner, Joseph Mulvihill, Jordan Sazant)

  • Board of Directors: Kimberly Scotti, L. Spencer Wells, D.J. (Jan) Baker

  • Financial Advisor/CRO: Goldin Associates LLC (Curtis

  • Investment Banker: GLC Advisors & Co LLC

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

• Other Parties in Interest:

  • DIP Agent: Silicon Valley Bank

    • Legal: Morrison & Foerster LLP (Alexander Rheaume, Todd Goren, Benjamin Butterfield) & Ashby & Geddes PA (Gregory Taylor, Katharina Earle)

  • DIP Participants: 8VC Fund I LP, 8VC Entrepreneurs Fund I LP

    • Legal: Gibson Dunn & Crutcher LLP (Matthew Williams, Eric Wise, Jason Zachary Goldstein) & Cole Schotz PC (Norman Pernick, Patrick Reilley)

⛽️New Chapter 22 Filing - Hilltop Energy LLC⛽️

Hilltop Energy LLC

May 16, 2019

Hilltop Energy LLC, a Dallas-based E&P company with assets in Texas, has filed for bankruptcy in the District of Delaware, its second bankruptcy in four years. The company also filed its wholly-owned subsidiary, Hilltop Asset LLC (together, the “Debtors”).

The company’s predecessor, Cubic Energy Inc., filed for bankruptcy in late 2015, confirmed a prepackaged plan of reorganization in February 2016 and never emerged from bankruptcy (due to an ongoing adversary proceeding involving the chapter 11 debtors’ CEO and prior operator). Nevertheless, pursuant to the confirmed plan, secured noteholders swapped their notes for membership interests in the reorganized Cubic Energy and 14% first priority senior secured takeback paper due 2021. This is how these chapter 22 Debtors came to be owned by Anchorage Capital Group LLC and Corbin Opportunity Fund LP. General unsecured creditors and equity otherwise got wiped out.

This is the company’s capital structure:

• $5mm Superpriority Notes + $30mm 14% First Priority Senior Secured Notes

• $$18.5mm Superpriority PIK Notes + First Priority PIK Notes

Why is the company in bankruptcy? Let’s break this down into its component parts:

The Company has been cash flow negative every year since its formation following the chapter 11 cases of Cubic and its affiliates, as the revenue generated by producing wells is not sufficient to cover operating expenses and "workover" expenses, which is maintenance capex to keep the wells flowing.

Ugh. Here we go again. Flashback to the finding in this Delaware order from February 2016:

“The valuation analysis contained in the Disclosure Statement (x) is reasonable, persuasive, credible, and accurate as of the date such analysis or evidence was prepared, presented, or proffered, (y) utilizes reasonable and appropriate methodologies and assumptions and (z) has not been controverted by other evidence.”

Source: Cubic Energy Disclosure Statement

Ok, sure. The court finding may have been right — “as of the date.” But the assumptions proved to be dramatically askew. Take, for instance, the workover expense line-item. The company indicates an aggregate $600k hit there. What does the company have to say about this now?

Although production declines are expected in the oil and gas industry, the Debtors have faced several unanticipated challenges since emerging from the Cubic Chapter 11 Cases. Since emergence, over 20% of the Debtors’ producing gas wells have stopped producing due to downhole operational and/or technical issues. During this same time period, the Debtors also invested in production uplift projects—including an estimated $4 million on workover and/or recompletion projects for three wells—but the efforts to increase production from those wells were unsuccessful. The effects of these production problems on the Debtors’ revenue have been compounded by the weak natural gas market over the past few years.

That’s quite a miss. But it’s not the only one. Significantly, the company also notes:

The Debtors’ gross production has declined from approximately 10.5 million cubic feet per day ("mmcfd"), in March 2016 to roughly 5.0 mmcfd as of the date hereof. (emphasis added)

That is what it is but it begs the question: out of whose a$$ did the company pull the assumptions behind the company’s chapter 11 projections? Per the Disclosure Statement:

Daily Production of natural gas is forecast based upon anticipated January 2016 daily production of 15,500 mcf per day and calculated on a 1% month-over-month decline curve on existing drilled and producing wells.

So, uh, we’re not math experts, but a 1% decline month-over-month doesn’t get you to 10.5 mcf per day A MERE TWO MONTHS LATER. Which begs the question: were the projections actually accurate and credible “as of the date”? This certainly seems to indicate otherwise.

Consequently, the Debtors saw an impending maturity and were like, “oh sh*t”:

Although the Debtors have been able to service their debt obligations (primarily by paying interest in the form of additional notes), over time, the yield of the Debtors' producing oil and gas wells has been and may continue to be in constant decline.

This is top notch spin. Yeah, sure, we suppose issuing PIK debt is a form of debt “service” but c’mon. Really??

Consequently, the Debtors anticipate that they will generate less revenue and cash flow and, ultimately, be unable to satisfy their debt obligations before or at maturity.

Which is in 2021. So, here we are again: cue up the CHAPTER 22!!

The prepackaged plan will give 100% of the membership interests in the reorganized debtors and $1.47mm of cash to its senior secured noteholder, eliminating the $53mm of debt. The Debtors’ prepetition operator, Rivershore, will get 55% of the equity in the Hilltop Asset.

And we’re all left to wonder whether this is just a chapter 33 waiting in the wings. According to the new projections, that’s entirely up to Rivershore’s willingness to make an equity contribution in 2021:

Source: Chapter 22 Disclosure Statement

• Jurisdiction: D of Delaware (Judge Sontchi)

• Capital Structure: $5mm superpriority senior secured notes, $30mm first priority senior secured notes, PIK notes (Wilmington Trust Company NA).

• Professionals:

  • Legal: Cole Schotz PC (Norman Pernick, J. Kate Stickles, Katherine Monica Devanney)

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

• Other Parties in Interest:

  • Senior Secured Noteholder: J.P. Morgan Securities LLC and Lender: Chase Lincoln First Commercial Corporation

    • Legal: Landis Rath & Cobb LLP (Adam Landis, Richard Cobb, Holly Smith)

  • Company Operator: Rivershore Operating LLC

    • Legal: Gray Reed & McGraw LLP (Jason Brookner, Ryan Sears)
      
      
      

New Chapter 11 Bankruptcy Filing - Novum Pharma LLC

Novum Pharma LLC

February 3, 2019

Another day, another pharma company that has filed for bankruptcy. Curious, too: we don’t recall seeing any restructuring professionals predicting that pharma would be the hot restructuring industry of choice. But we digress.

Here, Chicago-based Novum Pharma LLC, a special pharmaceutical company which owns and manufactures a portfolio of topical dermatology products, filed for bankruptcy in the District of Delaware. The company’s bankruptcy papers are interesting in that they provide a solid overview of the distribution channel for pharma products from the manufacturer to the end user. Disgruntled with all of the players taking a piece of revenues along the way, Novum Pharma attempted to disrupt the status quo by deployment of an alternative business model. Clearly it didn’t achieve the result it had hoped for.

Per the company, here’s how the “traditional” distribution channel typically works:

Source: PETITION LLC

As you can see, the PBMs have a significant amount of leverage on account of their ability to determine which pharmaceuticals will be covered by insurance and which won’t. As a result, the company attempted its alternative. This model was predicated upon the concepts of “enhanced patient access” and “hassle free” access. It doesn’t appear that the company achieved that. Here’s how it would work:

Once the healthcare professional writes a script, the patient could get their prescription through one of three ways:

1. Via a nationwide network of specialty pharmacies like Cardinal Health 105 Inc., a specialty pharmacy division of Cardinal Health Inc., that the company sells its products to and that have agreed to comply with the company’s guidelines;

2. If 105 Inc. or the other specialty pharmacies cannot fill the prescription because a PBM denied coverage or otherwise, the pharmacy could transfer the prescription to a “consignment hub,” which is a specialty pharmacy that stocks the Debtor’s products on a consignment or bailment basis and will fill a prescription for a nominal fee (paid by the Debtor); or

3. If a patient seeks to fill the prescription at a pharmacy that doesn’t participate in the company’s network and the PBM denies coverage, the patient will receive the drug for free.

As you might imagine, prescribing physicians are encouraged to provide patients with a hotline number where, no doubt, patients, are encouraged to go route #1. Why? Because the company earns revenue from the specialty pharmacies (read: from Cardinal Health). But, per the company:

In contrast, when a prescription is filled by a pharmacy, the Debtor expends funds to facilitate the transaction. In particular, when a healthcare plan covers some or all of the cost of a Dermatology Product prescription, the Debtor, through its Co-Pay Vendors, pays the amount that is not covered by the healthcare plan. Alternatively, when a healthcare plan rejects a Dermatology Product prescription, the Debtor facilitates the transfer of that prescription to one of its consignment hubs so that the prescription can be filled and mailed to the patient, at no cost to the patient.

Anyone else see the problem with all of this?!? Don’t know about you, but the added friction of calling a hotline and finding some random specialty pharmacy rather than going to the neighborhood CVS is far from “hassle free.”

All of these gymnastics created a company with $19.4mm in assets, the lion’s share of which is its intellectual property. In addition, there are some consulting and sales support contracts and A/R. On the liability side of the balance sheet, the company has $15.2mm due and owing on a secured basis to lender RGP Pharmacap LLC (at a prime plus 9.75% or 14% interest rate, payable in monthly principal installments), and $2.8mm in lease obligations that are secured, in part, by a $500k letter of credit issued by The Huntington National Bank.

Per the company, among the factors that precipitated the company’s bankruptcy were…

…among other things, (i) manufacturing hurdles leading to production delays and product “stock-outs”; (ii) a dispute with Cardinal and CVS regarding the price at which the Dermatology Products can be returned to the Debtor; (iii) managed care actions leading to increased prescription rejection rates for the Dermatology Products; and (iv) market dilution and decreased total prescriptions due to unauthorized generic alternatives being introduced into the market.

In response, the company implemented cost-cutting measures like outsourcing its “back office” function, downsizing its sales force and entering into a more cost-effective lease. But these measures didn’t address the fundamental business challenges confronting the company. The company continued:

The Debtor’s historically low prescription approval rates, compounded by (i) the Debtor’s persistent manufacturing issues which directly damaged the Debtor’s business because the Debtor’s sales force was unable to distribute sample products during a critical product growth period and HCPs were forced to prescribe alternative medications, (ii) the Debtor’s working capital shortages stemming in part from the Cardinal/CVS product return dispute and (iii) generic drug competition (which the Debtor believes is unlawful), led the Debtor to the inevitable conclusion that its business was no longer sustainable and that a restructuring and refinancing of the business would be necessary.

The chapter 11 filing is meant to preserve the company’s assets and provide it with a forum through which to conduct a bankruptcy sale process of the dermatology products to maximize value for the company’s creditors. Based on the various disputes the company has with Cardinal/CVS, there may be some litigation here for an as-of-yet-unformed Creditors’ Committee to pursue as well.

• Jurisdiction: D. of Delaware (Judge Carey)

• Capital Structure: $15.2mm of secured debt, $2.8mm in lease obligations

• Company Professionals:

  • Legal: Cole Schotz PA (David Hurst, Patrick Reilley, Jacob Frumkin)

  • Independent Director: Thomas J. Allison

  • Financial Advisor: CR3 Partners LLC (Thomas O’Donoghue, Layne Deutscher, Cynthia Chan)

  • Investment Banker: Teneo Capital (Chris Boguslaski)

  • Claims Agent: KCC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Official Committee of Unsecured Creditors

    • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy) & (local) Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Richard Beck, Sally Veghte)

    • Financial Advisors: Goldin Associates LLC (Gary Polkowitz)

Updated 3/9/19

New Chapter 11 Bankruptcy Filing - Maremont Corporation

Maremont Corporation

January 22, 2019

Michigan-based Maremont Corporation, a subsidiary of publicly-traded non-debtor automobile component manufacturer Meritor Inc. ($MTOR), has filed for bankruptcy along with three affiliates in the District of Delaware. The company was a manufacturer, distributor and seller of aftermarket auto products — many of which contained asbestos; currently, it has no ongoing operations and its only assets are an intercompany receivable, a rent-producing commercial property with Dollar General as a tenant, a few bank accounts, and some insurance assets. In contrast, the company has significant liabilities — notably asbestos-related liabilities including defense and other costs associated with defending 13k pending personal injury and wrongful death claims.

The company, in consultation with its parent and committees of Future Claimants and current Asbestos Claimants, arrived at a prepackaged plan under section 524(g) of the Bankruptcy Code. The plan envisions a personal injury trust to be funded, in large part, by Meritor (via the repayment of a remaining receivable, a contribution of intercompany payables and a $28mm settlement payment) and a channeling injunction that protects the company (and Meritor) from future suit and liability arising out of the company’s asbestos legacy. Instead, any and all asbestos-related personal injury claims may only be pursued against, and paid from, the personal injury trust.

Meritor, like most of the stock market, got beaten up yesterday. There’s no telling whether the multi-million dollar payout here had anything to do with that.

Source: Yahoo!

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For the uninitiated, this (horrifically boring) bankruptcy filing presents us with a good opportunity to highlight a potential structure (and its limitations) for any imminent Pacific Gas & Electric Company (“PG&E”) chapter 11 bankruptcy filing. PG&E’s issues — as have, by this point, been extensively documented — largely emanate out of (i) some oppressive California state liability laws (inverse-condemnation — definitely), (ii) man-made global warming and resultant mudslides and wildfires (probably), and (iii) at least a glint of negligence (probably). While the company has $18.4b of (mostly unsecured) debt, the catalyst to bankruptcy may be its multi-billion dollar liability from the aforementioned CA-state laws and years of environmental disaster.

Similar to Maremont, PG&E is likely to end up with some kind of plan of reorganization that features a litigation trust (for affected claimants) and a channeling injunction. Except, as John Rapisardi and Daniel Shamah of O’Melveny & Myers point out, there are limitations to that structure. They write:

There is one significant obstacle to any PG&E bankruptcy: the likely inability to discharge liabilities associated with wildfires that have not yet occurred. There have been numerous mass tort bankruptcies in the past that have been resolved through the formation of a litigation trust and channeling injunction, forcing litigants into a single forum where claims are satisfied through trust assets. See, e.g., 11 U.S.C. §524(g) (channeling injunction for asbestos debtors); In re TK Holdings, Doc. No. 2120, Case No. 17-11375 (Bankr D. Del.) (confirmation order with channeling injunction for debtor that manufactured airbags with defective components). But that structure only works for claims based on prior conduct or acts. PG&E, in contrast, faces perennial liability associated with wildfires and inverse condemnation. It may be challenging to discharge the inverse-condemnation liabilities associated with a post-petition wildfire. See 28 U.S.C. §959(a) (debtors-in-possession may be sued “with respect to any of their acts or transactions in carrying on business connected with such property.”).

Prior conduct or acts, huh? A discontinued product that happened to contain asbestos fits that bill. Likewise, a remedied airbag (the TK Holdings referenced above refers to Takata Airbags). Sadly — especially for Californians, there is nothing prior about environmental issues. Those are very much a present and future thing.

• Jurisdiction: D. of Delaware (Judge Carey)

• Company Professionals:

  • Legal: Sidley Austin LLP (James Conlan, Andrew O’Neill, Alison Ross Stromberg, Blair Warner, Alex Rovira) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)

  • Claims Estimation Advisor: Alvarez & Marsal Disputes and Investigations LLC

  • Claims Agent: Donlin Recano (*click on company name above for free docket access)

• Other Parties in Interest:

  • Future Claimants Representative: James L. Patton Jr.

    • Legal: Young Conaway Stargatt & Taylor LLP

    • Claims Estimation Advisor: Ankura Consulting Group LLC

🔥New Chapter 11 Filing - Westmoreland Coal Company🔥

Westmoreland Coal Company

October 9, 2018

In our April piece entitled "🌑Trouble Brews in Coal Country🌑," we noted how Westmoreland Coal Company ($WLB) was headed towards a bankruptcy filing. Subsequently, in May, the company obtained a small round of financing ($90mm) to bridge itself to a chapter 11 bankruptcy filing. Alas, we're upon that filing — a “Chapter 33,” of sorts, for good measure.

And it’s an…interesting…one. The company’s First Day Declaration leads with “What is Coal” and then goes on to mansplain what coal is. It’s beautiful. It’s educational. It’s…odd. Per the Declaration:

Coal is a fossil fuel that forms from the remains of vegetation as long as 400 million years ago. The plants from eons ago captured energy through photosynthesis to create compounds (carbon) in plant tissue. When those plants and trees died, they ultimately sank to the bottom of swamps and formed a dense material called peat, which progressively carbonized under the earth’s pressure and changing temperatures and eventually became a combustible sedimentary and metamorphic rock, which is referred to as coal.

There are at least four ranks of coal, depending on the carbon content: lignite; subbituminous; bituminous; and anthracite. Some estimate that 90 percent of the coal in America is bituminous (i.e., soft) coal, which is primarily used to make electricity through combustion in boilers to make steam that is used to generate power (called steam or thermal coal) and coke for the steel industry (metallurgical or coking coal). The Debtors mine lignite, subbituminous, and bituminous coal.

We are thankful for the explanation. After all, there haven’t been many opportunities over the last decade to explore the intersection of coal and bankruptcy. Oh…wait. Hang on. Right. Ok, sure, there was Peabody Energy. Ah, yeah, and Alpha Natural Resources. And Edison Mission Energy, Patriot Coal (x2), Walter Energy, Arch Coal, Xinergy, Armstrong Energy and James River Coal. To name a few. But we digress.

Anyway, THIS bankruptcy implicates Westmoreland (with affiliates, “WLB”), a thermal coal producer that sells coal to “investment grade power plants under long-term cost-protected contracts, as well as to industrial customers and barbeque charcoal manufacturers.” The company’s mines are located in Montana, North Dakota, Texas, Ohio and New Mexico, of which only 4 of a total of 23 are active. The company’s strategy generally revolves around focusing on coal markets where the company can leverage geographic proximity to power plants, some of which were specifically designed to use the company’s coal. Close proximity also permits the company to avoid onerous transportation costs, which, in turn, provides the company with flexibility to be a low(er) cost provider. There is a bit of an export business as well.

The problem is that “[t]he American coal industry is intensely competitive.” The company adds:

In addition to competition from other coal producers, the Debtors compete with producers of alternative fuels used for electrical power generation, such as nuclear energy, natural gas, hydropower, petroleum, solar, and wind. Costs and other factors such as safety, environmental, and regulatory considerations related to alternative fuels affect the overall demand for coal as a fuel. Political dynamics in the United States and Canada have additionally resulted in a reduction of the market demand for coal-based energy solutions.

Tack on a hefty chunk of debt:

And then mix in that the company is (i) subject to 7 collective bargaining agreements and, (ii) in addition to a multi-employer pension plan, that it also provides defined benefit pension plans to qualified employees — which, naturally, are underfunded by approximately $29mm and carry a termination liability of approximately $77.3mm. But wait, there’s more. The company also has, among other things, approximately (i) $1.3mm in retiree medical obligations, (ii) $18.2mm in federal regulatory Black Lung Act obligations, (iii) $334mm of “other post-employment benefit” obligations and (iv) asset retirement obligations of approximately $474.5mm. Why anyone would want to get into the coal business is beyond us. That all sounds outright depressing.

The company blames the following for its bankruptcy filing: (a) a challenging macro environment (⬇️ production and ⬇️demand); (b) a capital intensive business model; (c) the rise of natural gas as a lower cost alternative to coal (score one for the frackers!); and (d) regulation which, as you can see from the panoply of liabilities noted above, helps create a quite a heavy hitter lineup of economic obligations. Per the company:

When coupled with the external pricing pressure, increased regulation, political opposition to coal in the United States and Canada, and other costs associated with WLB’s businesses, these liabilities have hindered WLB’s ability to operate competitively in the current market environment.

And so the company has filed its chapter 11 bankruptcy with the consent of 76% of its term lenders, 57.9% of its senior secured noteholders and 79.1% of its bridge lenders to pursue a dual-track sale of its core assets to an entity to be formed on behalf of the senior secured noteholders and term lenders, subject to highest or best offers for the core assets at an auction. The sale will be consummated through a plan to, among other things, preserve tax benefits. The company will also continue to market its non-core assets. Likewise, the master limited partnership 94% owned by the company (“WMLP”) is for sale. Notably, with no prospect of a restructuring on the horizon, there is no deal in place with the unions and retirees and WLB may have to proceed on a non-consensual basis.

The company marched in to court with a commitment for a $110mm DIP. It will roll-up the bridge loan and fund the cases while the sale processes progress.

Update: In “Grocery Workers, Miners, and Who Ain’t Getting Paid (Short #MAGA),” we noted how coal miners employed by Westmoreland Coal Company were, due to a recent decision by Judge Jones in the Southern District of Texas, in for a world of hurt. Now the company has officially filed its motion seeking to reject certain collective bargaining agreements and modify certain retiree benefits pursuant to sections 1113 and 1114 of the Bankruptcy Code. #MAGA!!

Update: On January 21, 2019, the company filed a “Notice of Cancellation of Auction and Designation of Successful Bidder” after the company didn’t receive any qualified bids for its core assets other than the original stalking horse bid. The company’s Buckingham Mine, a non-core asset, did, in contrast, receive some interest and the company, therefore, will seek to sell that mine in due time.

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

• Capital Structure: See above.

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Edward Sassower, Stephen Hessler, Michael Slade, Greg Pesce, Anna Rotman, Christopher Koenig, Gerardo Mijares-Shafai, Timothy Bow) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Legal Conflicts Counsel to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Jones Day (Heather Lennox, Timothy Hoffman, Oliver Zeltner)

  • Financial Advisor to Westmoreland Resource Partners LP and the Conflicts Committee of the Board of Directors of Westmoreland Resources GP LLC: Lazard Freres & Co. LLC (Tyler Cowan)

  • Financial Advisor: Alvarez & Marsal North America LLC (Robert Campagna)

  • Investment Banker: Centerview Partners LLC (Marc Puntus)

  • Claims Agent: Donlin Recano & Co. (*click on company name above for free docket access)

• Other Parties in Interest:

  • WMLP Ad Hoc Group

    • Legal: Schulte Roth & Zabel LLP (David Hillman, Kristine Manoukian, Lucy Kweskin, Kelly Knight) & (local) Jones Walker LLP (Joseph Bain, Mark Mintz)

    • Financial Advisor: Houlihan Lokey Capital, Inc.

  • Administrative Agent under Bridge Loan & DIP Agreements: Wilmington Savings Fund Society FSB

    • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Benjamin Loveland) & (local) Okin Adams LLP (Matthew Okin, David Curry Jr.)

  • WMB Ad Hoc Group of Term Lenders

    • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Mayer, Stephen Zide)

  • Official Committee of Unsecured Creditors

    • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Todd Goren, Jennifer Marines, Dimitra Doufekias) & (local) Cole Schotz PC (Michael Warner, Felice Yudkin, Nicholas Brannick, Benjamin Wallen)

  • United States Trustee

    • Legal: Debevoise & Plimpton LLP (M. Natasha Labovitz, Erica Weisgerber) & (local) Zach Clement PLLC

New Chapter 11 Filing - Videology Inc.

Videology Inc. 

5/10/18

In what could amount to a solid case study in #BustedTech and the up/down nature of entrepreneurship, Videology Inc., a Baltimore based software ad-tech company that generated $143.2 million in revenue in fiscal 2017 has filed for bankruptcy.

The company has two principal business lines: (i) legacy media sales, a demand side (advertisers) platform that Videology would leverage to procure ad inventory to sell to advertising agencies (the supply side); and (ii) its long-tail "core use case," which included "long term planning, management, and execution of a company's entire portfolio of advertising campaigns or advertising inventory with complex, overlapping targets, objections...across multiple delivery channels." We're going to pretend we understand what that means; we think it has something to do with assisting ad agencies target ads effectively. What we do understand is that revenue generation for the more lucrative "core use case" segment involved a long sales pipeline that didn't support timely enough revenues to offset the liquidity draining legacy segment. Ruh roh.

But let's take a step back. This company was founded in February 2007. It raised its $15.1 million Series A round of funding in July 2008, securing Valhalla Partners II as a lead investor. It then secured its $16.4 million Series B round in Q4 2009. Comcast Ventures LP was the lead investor. Thereafter it nailed down its $30.4 million Series C round in May 2011 with New Enterprise Associates 12. Finally, in June of 2013, the company closed its $68.2 million Series D round with Catalyst Investors QP III as lead. Lots of funding. No down rounds. Everything seems to be on the right track.

Except it wasn't. The legacy segment was bleeding cash as early as 2012. The company had to tap the venture debt market in July 2017 to refi-out its bank line of credit. It obtained a $40-45 million 8.5% asset-backed credit facility (secured against virtually everything, including IP) with Fast Pay Partners LLC as agent and Tennenbaum Capital Partners LLC ("TCP"), as documentation agent and investment manager. It also obtained a second $20 million 10% asset-backed "UK" credit facility with FPP Sandbox LLC and TCP, which was secured by the same collateral. Both loans came with exit fees, charge 3% default interest and the larger facility has a 3% end-of-term premium attached to it.

At the same time the company took out the venture debt, it issued $17.1 million of convertible notes from board members and existing major investors (elevating them in the cap table) AND raised an additional $4.7 million in a subsequent rights offering to smaller legacy investors. What do you think will happen to that money? We'll come back to that.

In Q3 2017, the company also sought to find a strategic buyer. It didn't. It then started doing what every distressed company does: it stretched payables while it tried to formulate an out-of-court solution -- in the form of a restructuring or a refinancing. Certain vendors became skittish and withheld payments to the company. The resultant cash squeeze precipitated the prepetition lenders issuance of a notice of default. Thanks to a cash control agreement, they then seized control of the main operating accounts and paid down amounts owing with the company's cash and accounts receivable. And, yes, they applied the default interest rate. This is why they say what they say about possession. Savage. Consequently nothing is due under the larger facility; over $11.2 million remains due on the UK facility. 

The company now has a potential buyer, Amobee Inc., and has filed for bankruptcy to effectuate a sale. The company hasn't yet filed papers indicating the sale price but The Wall Street Journal reports that the purchase price may be $45 million -- or 1/3 of '17 revenues. The WSJ also reports that the company has nailed down a $25 million DIP credit facility which will be used to pay down the UK facility and fund the cases. Presumably the sale price will pay off the DIP and the $20 million that remains will be left for unsecured creditor recoveries. Back of the envelope, that will be about a 25% recovery. 

As for the equity holders? In the absence of bumping up by way of the convertible note, they'll be wiped out. That's venture capital for you. The venture debt providers, however, did well. 

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $11.2mm UK Loan Facility (FPP Sandbox LLC and Tennenbaum Capital Partners LLC), $17.1 million convertible promissory note.

• Company Professionals:
  • Legal: Cole Schotz PC (Irving Walker, Patrick Reilley)
  • Financial Advisor: Berkeley Research Group LLC
  • Claims Agent: Omni Management Group (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prospective Buyer: Amobee Inc.
    • Legal: Goodwin Proctor LLP (Gregory Fox, Alessandra Simons) & (local) Womble Bond Dickinson (US) LLP (Matthew Ward, Morgan Patterson)
  • Secured Lenders: FastPay Partners LLC & FPP Sandbox LLC
    • Legal: Buchalter (William Brody, Ariel Berrios) & (local) Richards Layton & Finger PA (John Knight, Christopher De Lillo)
  • DIP Lender: Draper Lending LLC
    • Legal: Arent Fox LLP (Robert Hirsh, Jordana Renert) & (local) Bayard PA (Justin Alberto, Daniel Brogan)

New Chapter 11 Filing - The Bon-Ton Stores Inc.

The Bon-Ton Stores Inc.

• 2/4/18 Recap: See here. 
• Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $339mm Tranche A RCF (Bank of America), $150 Tranche A-1 Term Loan, $350mm second lien notes (Wells Fargo Bank NA)     
• Company Professionals:
  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Kelley Cornish, Elizabeth McColm, Claudia Tobler, Alexander Woolverton, Michael Colarossi, Diane Meyers, Moses Silverman) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Elizabeth Justison)
  • Financial Advisor: AlixPartners LLC (Holly Etlin, Carrianne Basler, Jim Guglielmo, John Creighton, Ben Chesters, Jamie Strohl, Mitch Chubinsky, Thomas Cole, Daniel Law) 
  • Investment Banker: PJT Partners LP (Steven Zelin, James Baird, Jon Walter, Vinit Kothary, Sartag Aujla)
  • Real Estate Advisor: A&G Realty Partners LLC
  • Intellectual Property Disposition Consultant: Hilco IP Services (David Peress)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Bank of America NA
    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Joiner) & Richards Layton & Finger PA (Mark Collins, Joseph Barsalona)
  • Second Lien Noteholders: Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; Cetus Capital LLC; Contrarian Capital Management LLC; and Wolverine Asset Management, LLC
    • Legal: Jones Day (Bruce Bennett, Joshua Mester, Sidney Levinson, Genna Ghaul, Charles Whittman-Todd) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
  • Official Committee of Unsecured Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Robert Feinstein, Bradford Sandler)
    • Financial Advisor: Zolfo Cooper LLC (David MacGreevey)
  • Prospective Buyer: DW Partners LP
    • Legal: DLA Piper LLP (Stuart Brown, R. Craig Martin, Jason Angelo, Richard Chesley, John Lyons, Oksana Rosaluk)

Updated 4/10/18

New Chapter 11 Bankruptcy - PhaseRX Inc. ($PZRX)

PhaseRX Inc.

• 12/11/17 Recap: Seattle-based and once-VC-backed publicly-traded ($PZRX) biopharma company focused on therapeutics developed to treat enzyme deficiencies in the liver via intracellular enzyme replacement therapy (after a pivot from from focusing on the treatment of liver cancer) filed for bankruptcy. The company seeks a sale through bankruptcy. 
• Jurisdiction: D. of Delaware (Judge Sontchi)
• Capital Structure: $500k promissory note (Titan Multi-Strategy Fund Ltd.), $16.2mm 8% convertible notes, $4mm 5% term loan, $5.1mm secured loan (Hercules Capital Inc.)
• Company Professionals:
  • Legal: Polsinelli PC (Christopher Ward, Shanti Katona, Nicholas Griebel)
  • Investment Banker: Cowen & Company 
  • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Large Equityholders/Venture Capital: (Arch Venture Fund VII LP, 5AM Ventures, Savoy Therapeutics Corp., Versant Venture Capital III LP)
  • Hercules Capital Inc. 
    • Legal: Cole Schotz PC (Patrick Reilley, Stuart Komrower)

Updated 12/12/17

New Chapter 11 Filing - M&G USA Corporation

M&G USA Corporation

• 10/24/17 Recap: Disruption via cliche and foreign competition. Here, the plastics maker and indirect subsidiary of petrochemical giant Mossi Ghisolfi Group filed for bankruptcy. The company had begun construction on a vertically-integrated plant in Corpus Christi Texas back in 2013 but then they ran headfirst into the single-most common construction cliche out there: delays and cost overruns. And that was before Hurricane Harvey compounded matters. The plant remains incomplete and, consequently, the company has "severe liquidity constraints" that it intends to address in bankruptcy - specifically, through a significant deleveraging. The company highlighted several other causes for its state of affairs: (i) higher raw material costs due to supply shortages, (ii) a recent wave of competing low-priced imports that flooded the US market (note: the company has outstanding petitions with the US Department of Commerce and the US International Trade Commission alleging that imports of polyethylene terephthalate resin from Brazil, Indonesia, South Korea, Pakistan and Taiwan are being "dumped" in the US market), and (iii) price-compression due to a competitors GOB sale. The company seeks approval of a $100mm DIP credit facility to fund its cases. 
• Jurisdiction: D. of Delaware (Judge Shannon)
• Capital Structure: $1.7b outstanding principal amount of debt (see below)   
• Company Professionals:
  • Legal: Jones Day (Scott Greenberg, Carl Black, Stacey Corr-Irvine, Michael Cohen, Nicholas Morin, Peter Saba, James Sottile IV, Daniel Merrett, Oliver Zeltner) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James O'Neill, Joseph Mulvihill)
  • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Dennis Stogstill)
  • Investment Banker: Rothschild Inc. (Neil Augustine)
  • Board of Directors: Alan Carr, Frederick Brace
  • Claims Agent: Prime Clerk LLC (*click on link above for free docket access)
• Other Parties in Interest:
  • DAK Americas LLC 
    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Christopher Lopez) & (local) Morris Nichols Arsht & Tunnell LLP (Curtis Miller)
  • Equity Holders: Magnate S.a r.l.
    • Legal: Kirkland & Ellis LLP
  • DIP Lender: Banco Inbursa S.A., Institucion De Banca Multiple, Grupo Financiero Inbursa
    • Legal: Cleary Gottlieb Steen & Hamilton LLP
  • Large Unsecured Creditor: Indorama Ventures Montreal LP
    • Legal: Lowenstein Sandler LLP (Paul Kizel, Nicole Fulfree)
  • Official Committee of Unsecured Creditors:
    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Abhilash Raval, Lauren Doyle) & (local) Cole Schotz P.C. (J. Kate Stickles, David Hurst)

Updated 11/19/17

Source: First Day Declaration

New Chapter 11 Filing - Seadrill Ltd.

Seadrill Ltd.

• 9/12/17 Recap: Cash rich offshore oil and gas extraction company with global reach filed a prearranged bankruptcy to effectuate a balance sheet restructuring because...well...it was over-levered AF. The company purports to have a deal with its major creditors with secured creditors kicking the can down the road, and $2.3b worth of unsecured bondholders and other unsecured claims converting into approximately 15% of the post-reorg equity (with participation rights in the new secured notes and equity noted below). The company will get $1.06b of new capital by combination of new secured notes ($860mm) and equity ($200mm). Holders of $NADL stock will get a big fat donut.  
• Jurisdiction: S.D. of Texas (Judge David Jones)
• Capital Structure: A. Lot. Of. Debt. Like $5.7mm of bank debt and $2.3mm of unsecured bonds.

First Day Declaration.

• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jayme Sprayragen, Anup Sathy, Ross Kwasteniet, Adam Paul, Brian Schartz, Anna Rotman, Jeffrey Zeiger, Anthony Grossi, Spencer Winters) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Rachel Biblo Block)
  • Restructuring Advisor: Alvarez & Marsal LLC (Jeffrey Stegenga, Ed Mosley)
  • Financial Advisor: Houlihan Lokey (David Hilty, Gavin Kagan, Dimitar Voukadinov, Drew Talarico, David Wang, Brian Keenan, Varun Desai, Daniel McManus) & Morgan Stanley
  • Claims Agent: Prime Clerk LLC (*click on company name for docket)
• Other Parties in Interest:
  • Conflicts Committee of Board of Directors of North Atlantic Drilling Limited and to the Conflicts Committee of the Board of Directors of Sevan Drilling Limited
    • Legal: Willkie Farr & Gallagher LLP (Jennifer Hardy, Andrew Mordkoff, Derek Osei-Bonsu)
    • Financial Advisor: Baker Tilly Virchow Krause LLP (Susan Seabury)
  • Conflicts Committee of Seadrill Partners LLC
    • Legal: Orrick Herrington & Sutcliffe LLP (Katherine Treistman, Raniero D'Aversa, Laura Metzger, Debra Felder)
  • New Money: Hemen Holding Ltd., Centerbridge Partners LP
    • Legal: Cadwalader Wickersham & Taft LLP (Greg Petrick, Yushan Ng, Nicholas Vislocky) & Fried Frank Harris Shriver & Jacobson LLP (Brad Scheler, Jennifer Rodburg, Andrew Minear) & (local) Dykema Cox Smith (Deborah Williamson, Patrick Huffstickler, Aaron Kaufman)
  • Consenting Lender Group
    • Legal: White & Case LLP (Scott Greissman, Philip Abelson, Andrew Katz) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Joseph Rovira)
  • Aristeia Capital L.L.C., GLG Partners LP, Saba Capital Management LP and Whitebox Advisors LLC
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Ira Dizengoff, David Staber, Abid Qureshi, Sara Brauner)
  • ARCM Master Fund III, Ltd.
    • Legal: Paul, Weiss, Rifkind, Wharton & Garrison, LLP (Elizabeth McColm, Andrew Rosenberg, Catherine Goodall)
  • Indenture Trustee: Deutsche Bank Trust Company Americas
    • Legal: Morgan, Lewis & Bockius LLP (Chad Steward, Glenn Siegel, Crystal Axelrod, Rachel Jaffe Mauceri)
  • Daewoo Shipbuilding & Marine Engineering
    • Legal: Pachulski Stang Ziehl & Jones LLP (Shirley Cho, Bradford Sandler, Steven Golden)
  • Samsung Heavy Industries Co., Ltd.,
    • Legal: Hogan Lovells US LLP (Robin E. Keller, Ronald J. Silverman, Christopher R. Bryant, Michael Shane Johnson) & (local) 
  • Official Committee of Unsecured Creditors (Nordic Trustee AS, Deutsche Bank Trust Company Americas, Computershare Trust Company NA, Daewoo Shipbuilding & Marine Engineering Co. Ltd., Samsung Heavy Industries Co. Ltd., Pentagon Freight Services Inc., Louisiana Machinery Co. LLC)
    • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Moers Mayer, Douglas Mannal, Jennifer Sharret) & (local) Cole Schotz PC (Michael Warner, Benjamin Wallen)

Updated 10/5/17 12:03 pm CT

New Chapter 11 Filing - Takata Corporation

Takata Corporation

• 6/25/17 Recap: The long-awaited chapter 11 (and Japanese Civil Rehabilitation Act) filing of the publicly-traded ($TKJP) airbag manufacturer is finally upon us after the Company endured a massive airbag recall (affecting 124mm automobiles that were deployed with non-desiccated PSAN Inflators, worldwide) and corresponding liability. The Company intends to consummate an agreement in principle with privately-held Key Safety Systems out of Sterling Heights Michigan for a sale of substantially all of the Company's assets for $1.588b. Use of proceeds include satisfying the requirements of a plea agreement with the US Department of Justice, paying administrative costs and expenses of the restructuring (cha-ching Weil, PwC, Lazard & Prime Clerk), and funding unsecured creditor recoveries. The Company has secured a $227mm revolving credit facility from Sumitomo Mitsui Banking Corporation to fund the cases; per its press release, it has also negotiated with its Japanese original equipment manufacturers ("OEMs") for valuable accommodations and liquidity enhancements and continues to negotiate with OEMs elsewhere. Every car manufacturer under the sun is listed as an "undetermined" general unsecured creditor including the likes of Toyota, Ford, Tesla, Fisker, Ferrari, and, of course, the majors. 
• Jurisdiction: D. of Delaware
• Company Professionals:
  • Legal: Weil Gotshal & Manges LLP (Marcia Goldstein, Ronit Berkovich, Matthew Goren, Jessica Diab, Lauren Tauro) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele, Brett Haywood)
  • Financial Advisor: PriceWaterhouseCoopers LLP (Bill Fasel, Stephen Hammond)
  • Investment Banker: Lazard Freres & Co. LLC
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Daimler Trucks North America LLC 
    • Legal: White & Case LLP (Thomas Lauria, Michael Shepard, Richard Graham)
  • General Motors Holdings LLC
    • Legal: O'Melveny & Meyers LLP (George Davis, Daniel Shamah, Andrew Sorkin, Gary Svirsky)
  • General Motors LLC
    • Legal: Honigman Miller Schwartz & Cohn LLP (Joseph Sgroi, Chauncey C. Mayfield II, Scott Kitai)
  • Key Safety Systems Inc.
    • Legal: Skadden Arps Slate Meagher & Flom LLP (Ron Meisler, Felicia Gerber Perlman, Christopher Dressel, Christine Okike, Esther Adzhiashvili)
  • Honda North America Inc.
    • Legal: Sidley Austin LLP (Michael Andolina, Jessica Knowles Boelter) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
  • FCA US LLC
    • Legal: Sullivan & Cromwell LLP (Brian Glueckstein, Andrew Dietderich, Alexa Kranzley)
  • Ford Motor Company
    • Legal: McGuireWoods LLP (Mark Freedlander, Frank Guadagnino, John Thompson) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)
  • Jaguar Land Rover North America LLC
    • Legal: Mayer Brown LLP (Richard Ziegler)
  • Subaru of America Inc.
    • Legal: Kramer Levin Naftalis & Frankel LLP (Adam Rogoff, Anupama Yerramalli, Philip Bentley, David Braun)
  • Toyota Motor Corporation
    • Legal: Frost Brown Todd LLC (Robert Sartin, Patrica Kirkwood Burgess, Ronald Gold) & (local) Landis Rath & Cobb LLP (Adam Landis, Kimberly Brown, Travis Ferguson)
  • BMW Manufacturing Co LLC
    • Legal: Norton Rose Fulbright US LLP (David Rosenzweig, Michael Parker) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)
  • Nissan Motor Corporation
    • Legal: Jones Day (Pedro Jimenez)
  • Mitsubishi Motors North America Inc.
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Daniel Youngblut, Kevin O'Neill)
  • Tesla Inc.
    • Legal: Irell & Manella LLP (Jeffrey Reisner, Michael Strub, Kerri Lyman) & (local) Reed Smith LLP (Kurt Gwynne, Emily Devan)
  • Volkswagen Group of America, Inc.
    • Legal: Davis Polk & Wardwell LLP (Timothy Graulich, Elliott Moskowitz, Darren Klein)
  • Volvo Group North America LLC
    • Legal: Baker Hostetler LLP (Eric Goodman) & (local) Morris Nichols
  • Official Committee of Unsecured Creditors
    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Tyson Lomazow, Abhilash Raval, Bradley Scott Friedman) & (local) Whiteford Taylor & Preston LLP (Christopher Samis, L. Katherine Good, Kevin Shaw)
  • Committee of Unsecured Tort Claimant Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, James Stang)

Updated 7/11/17 6 pm (CT)

New Chapter 11 Filing - Ignite Restaurant Group

Ignite Restaurant Group

• 6/6/17 Recap: Publicly-traded ($IRG) Houston-based owner of 112 Joe's Crab Shack locations and 25 Brick House Tavern + Tap locations filed for bankruptcy because people can't tear their eyes off of whatever mobile device they're towing around long enough to sit at a casual dining spot. "The market for casual dining has been deteriorating for some time." No kidding, dudes. That said, someone clearly still believes in the space as the company has lined up a stalking horse bidder to purchase the company in bankruptcy for $50mm and some assumed liabilities (subject to deductions/increases). That "someone" is KRG Acquisitions Co LLC, an affiliate of Kelly Investment Group. Maybe it's the "'I'm relaxed' restaurant experience" that the buyer finds compelling...? (Serious question: is weed legal in Texas yet?). Anyway, good luck with that. 
• Jurisdiction: S.D. of Texas
• Capital Structure: $30mm RCF & $165mm TL (Credit Suisse AG)     
• Company Professionals:
  • Legal: King & Spalding LLP (Sarah Borders, Jeffrey Dutson, Edward Ripley, Elizabeth Dechant)
  • Financial Advisor: Alvarez & Marsal LLC (John Tibus)
  • Investment Banker: Piper Jaffray & Co. (Richard Shinder, Teri Stratton)
  • Real Estate Advisor: Hilco Real Estate LLC 
  • Claims Agent: Garden City Group LLC (*click on company name above for the free docket)
  • Other Parties in Interest:
    • Credit Suisse AG
      • Legal: Latham & Watkins LLP (Keith Simon, David Hammerman, Hugh Murtagh) & (local) Porter Hedges LLP (John Higgins)
    • KRG Acquisition Co LLC 
      • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim) & (local) Okin Adams LLP (Matthew Okin, Ryan O'Connor)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Bradford Sandler) & (local) Cole Schotz PC (Michael Warner)
    • Potential Buyer: Landry's Inc.
      • Legal: Haynes and Boone LLP (Patrick Hughes, Arsalan Muhammad, Jonathan Pressment, Sarah Jacobson)

Updated 7/17/17 11:23 am CT

New Chapter 11 Filing - Unilife Corporation

Unilife Corporation

• 4/12/17 Recap: Publicly-traded ($UNIS) manufacturer and B2B supplier of injectable drug delivery systems (including wearables) to pharmaceutical and biotechnology customers filed for bankruptcy to attempt a 363 sale of the business. This is kind of like a bad episode of Shark Tank. The Company appears to manufacture pretty innovative drug delivery systems - innovative in that the devices seem to be unobtrusive and, if we understand this correctly, help patients receive treatments without the need for multiple needles. But this is one of those episodes where the Sharks start asking about the numbers and they ain't pretty: the company is post-revenue and has some patents but it is pre-FDA approvals and pre-delivery (of medicine) to end users. Its limited revenue source is through negotiated supply agreements. It has a lot of debt (see below) and an expensive facility lease. It also had - in a very Kevin O'Leary-like fashion - a royalty agreement with its senior secured lender (ROS) which entitled ROS to a 4.52% royalty on the first $50mm of net sales (with ratchets for higher sales). So sharky. Of course, this isn't really that relevant when your incurred net losses are $100.8mm like they were in '16 (but we really enjoyed playing with the analogy). Now, ROS is providing a $7.5mm DIP credit facility to fund the cases for 90 days so that the company can attempt to find a buyer (note: there is no stalking horse bidder). Reminder: this was a PUBLICLY-TRADED company so, surely, there are some angry shareholders somewhere. 
• Jurisdiction: D. of Delaware
• Capital Structure: $70mm secured term loan (ROS Acquisition Offshore LP), $45.7mm senior secured convertible note (Amgen Inc.), $12.1mm mortgage (First National Bank), $1.9mm financing authority loan (Keystone Redevelopment Group LLC/Commonwealth of Pennsylvania Financing Authority)     
• Company Professionals:
  • Legal: Cozen O'Connor (Mark Felger, Keith Kleinman, Eric Scherling, Frederick Schmidt) 
  • Financial Advisor: Protiviti Inc. (Guy Davis)
  • Investment Banker: SSG Capital Advisors LLC (J. Scott Victor)
  • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Lender: ROS Acquisition Offshore LP
    • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Jeffrey Davidson, Henry Kevane, Debra Grassgreen)
  • Senior Secured Convertible Noteholder: Amgen Inc.
    • Legal: Ropes & Gray LLP (James Wilton, Patricia Chen) & (local) Cole Schotz PC (Norman Pernick, Katharina Earle)
  • Large General Unsecured Creditor: Sanofi Winthrop Industrie
    • Legal: DLA Piper (US) LLP (Stuart Brown, Kaitlin Edelman)
  • Official Committee of Unsecured Creditors
    • Legal: Lowenstein Sandler LLP (Michael Etkin, David Banker, Barry Bazian, Gerald Bender) & (local) Schnader Harrison Segal & Lewis LLP (Richard Barkasy)

Updated 7/17/17