New Chapter 11 Bankruptcy Filing - Golden Eagle Entertainment $ENT

Golden Eagle Entertainment

July 22, 2020

Suffice it to say, high correlation to the airline and cruiseline industries is a credit negative these days. A few months ago Speedcast — a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses — discovered this the hard way and free fell into bankruptcy court. There’s still no resolution of that case. Similarly, Global Eagle Entertainment Inc. ($ENT), a business that generates revenue by (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other “away-from-home” nontheatrical markets, and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets, couldn’t avoid trouble once COVID-19 shutdown its core end users. No monthly recurring revenue model can save a company when its clients are effectively closed for business AND there’s $855.6mm of funded debt to service. Not to state the obvious.

Things may get worse before they get better. The company’s largest customer is Southwest Airlines Co. ($LUV) (21% of overall revenue) and it has a pretty bearish take on …

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  • Jurisdiction: D. of Delaware (Judge Dorsey)

  • Capital Structure: $85mm RCF, $503.3mm TL, $188.7mm second lien notes, $82.5mm unsecured convertible notes.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Madeleine Parish, Ted Dillman, Helena Tseregounis, Nicholas Messana, Eric Leon) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond, Betsy Feldman)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Greenhill & Co. Inc.

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

  • Other Parties in Interest:

    • Prepetition First Lien Admin Agent & DIP Agent: Citibank NA

      • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius)

    • Ad Hoc DIP & First Lien Lender Group: Apollo Global Management, L.P., Eaton Vance Management, Arbour Lane Capital Management, Sound Point Capital Management, Carlyle Investment Management LLC, Mudrick Capital Management, BlackRock Financial Management, Inc.

      • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Michael Cohen, Jason Goldstein) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

    • Second Lien Agent: Cortland Capital Market Services LLC

    • Second Lien Noteholders: Searchlight Capital Partners LP

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Michael Turkel, Irene Blumberg, Elizabeth Sacksteder) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

    • Southwest Airlines Inc.

      • Legal: Vinson & Elkins LLP (William Wallander, Paul Heath, Robert Kimball, Matthew Struble) & Saul Ewing Arnstein & Lehr LLP (Lucian Murley)

    • AT&T Corp.

      • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Brett Turlington)

    • Terry Steiner International

      • Legal: Loeb & Loeb LLP (Daniel Besikof, Geneva Shi)

    • Telesat International Limited

      • Legal: Hodgson Russ LLP (Garry Graber)

    • Nantahala Capital Management LLC

      • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

⛽️New Chapter 11 Bankruptcy Filing - Unit Corporation ($UNT)⛽️

Unit Corporation

May 22, 2020

Oklahoma is where a lot of the action is at. Unit Corporation ($UNT) is a publicly-traded Tulsa-based holding company that, through three operating segments, offers (i) oil and gas exploration and production, (ii) contract drilling and (iii) midstream services. Like every other oil and gas company under the sun, this one has too much funded debt. $789mm to be exact, split between a $139mm RBL facility and $650mm in ‘21 subordinated unsecured notes. And like every other oil and gas company under the sun, it cannot sustain its capital structure. For months now, the debtors have been the bankruptcy equivalent of deadbeats — bouncing from one standstill agreement to the next so as not to get hit with a meaningful on-schedule redetermination liability that they wouldn’t be able to satisfy (PETITION Note: this is particularly relevant because they had already been hit by a “wildcard” or “off-schedule” redetermination in January, knocking their borrowing base down $75mm. Instant liability! Yay!!). On brand, the debtors likewise couldn’t afford their semi-annual May 15 interest payment.

Why the bankruptcy now? Well, you’ve seen this movie many times already in the last month or so. You’ve got a starring role for Vladimir Putin. And a starring role for MBS. And you’ve got a few plagues for added drama: first, plummeting commodity prices and then a global pandemic. These factors negatively impacted liquidity and sparked a number of strategic processes including (a) the sale of 50% ownership in Superior Pipeline Company to SP Investor Holdings LLC for $300mm in spring of 2018 and (b) an attempted up-tier exchange of the subordinated notes into newly issued 10% senior secured notes and 7% junior notes. The debtors, however, were unable to successfully obtain the requisite number of tenders. Not only would the exchange have extended the debtors’ maturity profile and eliminated short-and-medium term refi risk, it would have removed the danger that the debtors would trigger a springing maturity in their RBL. Oh well.

Luckily the debtors got themselves an agreement with 70% of the subordinated noteholders and the RBL lenders on the terms of a consensual financial restructuring transaction — like, as the shotclock was about to go off (read: when the standstill agreement expired on May 22, the filing date). The deal includes, among other things, (i) a $36mm new money DIP credit facility, (ii) a debt-for-equity swap by the noteholders for equity in each of reorganized Unit Corp and the upstream and contact drilling opcos, (iii) a new $180mm exit facility from the RBL lenders in exchange for a 5% exit fee paid in post-reorg equity in reorganized Unit Corp. (PETITION Note: apparently the RBL lenders have no interest in owning equity in contact drilling services), and (iv) payment in full in cash or reorganized equity to general unsecured claimants depending upon which entity they have a claim against. Notably, equityholders who do not opt out of releases will receive out-of-the-money warrants exercisable for an aggregate of 12.5% of the interests in the reorganized Unit Corp entity.

We’d be remiss if we didn’t highlight one other aspect of these cases. As is all the rage these days, management got away with an amended incentive structure on the eve of bankruptcy that enriched them all to the tune of $900k. Sweeeeeet. Meanwhile, they spent a good chunk of November ‘19 through April ‘20 sh*tcanning their employees and promising them 4 weeks of severance for every year of service up to 104 weeks. While this is admittedly a pretty rich severance plan, it appears that the restructuring support agreement memorializing the above-referenced transaction proposes to renege on this policy and instead provide merely four to 13 weeks severance to employees. You’ve gotta love these oil and gas execs: they’re wildly proficient at destroying value but still manage to always siphon some off for themselves. It’s awesome.

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

  • Capital Structure: $139mm RBL facility (BOKF NA), $650mm in ‘21 subordinated unsecured notes (Wilmington Trust NA)

  • Professionals:

    • Legal: Vinson & Elkins LLP (Harry Perrin, Paul Heath, Matthew Pyeatt, David Meyer, Lauren Kanzer, Zachary Paiva, Emily Tomlinson)

    • Financial Advisor: Opportune LLP (Gary Pittman)

    • Investment Banker: Evercore Group LLC (Bo Yi)

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

  • Other Parties in Interest:

    • RBL Agent: BOKF NA

      • Legal: Frederic Dorwart Lawyers PLLC (Samuel Ory) & Bracewell LLP (William A. Trey Wood III)

      • Financial Advisor: Huron Consulting Group Inc.

    • Ad Hoc Group

      • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Lauren Tauro)

      • Financial Advisor: Greenhill & Co. Inc.

💊 New Chapter 11 Bankruptcy Filing - Akorn Inc. ($AKRX) 💊

Akorn Inc.

May 20, 2020

Akorn Inc. ($AKRX), a specialty pharmaceutical company based in Illinois that develops, manufactures and markets generic and branded prescription pharmaceuticals, finally filed for chapter 11 bankruptcy.

Why “finally?” Well, back in January 2019 the company, in conjunction with an announcement of new executive and board appointments, noted that restructuring professionals (Cravath Swaine & Moore LLP, PJT Partners LP and AlixPartners LLP)* were assisting with the formulation of a business plan and discussions with stakeholders. In December 2019, the publicly-traded company acknowledged in an SEC filing that bankruptcy was on the table, sending the stock into a 33% freefall. Subsequently, in February 2020, the company announced in connection with its Q4 and annual earnings that it had reached an agreement with its lenders to execute a sale of the business “potentially using Chapter 11 protection.” A sale, however, could not generate sufficient value to cover the outstanding funded indebtedness under the company’s term loan credit agreement. Shortly thereafter in March, the company defaulted under said agreement and the company and its lenders pivoted to discussions about a credit bid with an ad hoc group of term lenders serving as stalking horse purchaser of the assets in chapter 11. Alas, here we are. The company and 16 affiliates (the “debtors”) “FINALLY” find themselves in court with recently inked asset purchase and restructuring support agreements in tow. The debtors will use the bankruptcy process to further their sale process and market test bids against the term lenders’ proposed $1.05b credit bid; they hope to have an auction in the beginning of August with a mid/late-August sale hearing.

The sale process, however, is not where the excitement is here.

We are now in an age — post COVID-19 — where M&A deals falling apart is becoming commonplace news and debates about force majeure and “material adverse effect” rage on in the news and, eventually, in the courts. In that respect, Akorn was ahead of the curve.

In April 2017, Akorn and Fresenius Kabi AG ($FSNUY), a massive German healthcare company, announced a proposed merger with Akorn shareholders set up to receive $34/share — a sizable premium to the then prevailing stock price in the high-20s. (PETITION Note: for purposes of comparison, the stock was trading at $1.26/share on the aforementioned announcement of annual earnings). Akorn shareholders approved the merger but then the business began to suffer. Per the debtors:

…Akorn began to experience a steep and sustained drop-off in financial performance drive by a variety of factors, including, among other things: consolidation of buyer power leading to price reductions; the FDA’s expedition of its review and approval process for generic drugs, leading to increased competition and resultant additional price and volume erosion; and legislative attempts to reduce drug prices.

Almost exactly a year later — after all kinds of shady-a$$ sh*t including anonymous letters alleging data integrity and regulatory deficiencies at Akron facilities and sustained poor financial performance — Fresenius was like “we out.” Lawsuits ensued with Akorn seeking to enforce the merger and Fresenius parrying with “material adverse effect” defenses. The Delaware Chancery Court agreed with Fresenius.

This is America so lawsuits beget lawsuits and Fresenius’ announcement that the merger was at risk spawned (i) federal class action litigation against Akron and certain of its present and former directors and officers and (ii) federal and state law derivative litigation. Akorn ultimately settled the class action litigation but four groups of hedge funds opted out and continue to pursue claims against Akorn. Meanwhile, Akorn lost its appeal of the Delaware Chancery Court decision and a decision on Fresenius’ claims for damages remain reserved. Fresenius has at least a $74mm claim.

This litigation overhang — coupled with the debtors’ $861.7mm in term loans (emanating out of strategic acquisitions in 2014) — is what drives this bankruptcy. The debtors believe that, upon resolution of these issues, it is well-positioned to thrive. They had $682mm revenue in ‘19 and $124mm of adjusted EBITDA. In Q1 ‘20, the company achieved adjusted EBITDA of $59mm (PETITION Note: “adjusted” being an operative word here). Large wholesale distributors like AmerisourceBergen Corporation ($ABC), Cardinal Health Inc. ($CAH), and McKesson Corporation ($MCK) are large customers. The U.S. healthcare system is shifting towards generics and big brand-name pharmaceuticals are rolling off-patent and “driving generic opportunities.” Pre-petition efforts to find a buyer who shares the debtors’ optimism, however, proved unfruitful.

Armed with a $30mm DIP commitment from certain of the term lenders in the ad hoc group, the debtors will swiftly determine whether the prospect of owning these assets “free and clear” will generate any higher or better offers.

*Kirkland & Ellis LLP, in its quest for 32,892,239% restructuring market share, ultimately displaced Cravath.

  • Jurisdiction: D. of Delaware (Judge Owens)

  • Capital Structure: $861.7mm ‘21 Term Loans (Wilmington Savings Fund Society FSB)

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Patrick Nash, Nicole Greenblatt, Gregory Pesce, Christopher Hayes) & Richards Layton & Finger PA (Paul Heath, Amanda Steele, Zachary Shapiro, Brett Haywood)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: PJT Partners LP (Mark Buschmann)

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

  • Other Parties in Interest:

    • Term Loan & DIP Agent ($30mm): Wilmington Savings Fund Society FSB

      • Legal: Wilmer Cutler Pickering Hale and Dorr LLP

    • Ad Hoc Group of Term Lenders

      • Legal: Gibson Dunn & Crutcher (Scott Greenberg, Steven Domanowski, Jeremy Evans, Michael J. Cohen) & Young Conaway Stargatt & Taylor LLP (Robert Brady)

      • Financial Advisor: Greenhill & Co. LLC (Neil Augustine)

    • Large equityholders: Blackrock Inc., The Vanguard Group, Akorn Holdings LP, Stonehill Capital Management LLC

🥾New Chapter 15 Bankruptcy Filing & CCAA - The Aldo Group Inc.🥾

The Aldo Group Inc.

May 7, 2020

Retail pain doesn’t respect borders. Canada-based The Aldo Group Inc. and eight (8) affiliated companies (collectively, the “Debtors”) filed petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under chapter 15 of the United States Bankruptcy Code in support of a CCAA filing in Canada.

Aldo is a shoe retailer with stores in more than 100 countries. The Group notes roughly 3,000 points of sale with 700 directly owned stores and the remainder as franchises. There are 289 stores in Canada and 429 in the US.

In terms of funded debt, the Aldo Canada has CDN$140mm outstanding. Of that amount, Aldo US is an obligor on a CDN$100mm piece. Both entities are also co-borrowers on a CDN$300mm unsecured syndicated loan. Both the Aldo Canada and Aldo US have significant outstanding amounts to trade creditors including landlords who haven’t been paid for April or May.

Operating performance has been dogsh*t long before COVID hit the scene. Per the debtors:

Over the past few years, the Aldo Corporate Group has declined in profitability and regularly reported losses. For instance, for the twelve month period ending February 1, 2020, Aldo Canada posted a net loss from operations of approximately CDN$74,800,000 and Aldo U.S. posted a net loss of approximately USD$52,800,000. Taking into consideration yearend write-offs of amounts due from subsidiaries and affiliated and write-offs of future tax benefits that were recorded as an asset, Aldo Canada posted a net loss of approximately CDN$170,300,000 and Aldo U.S. posted a net loss of approximately USD$97,300,000.

Pre-COVID, the debtors were attempting an operational restructuring designed to de-emphasize brick-and-mortar stores and prop up e-commerce, wholesale and franchise channels. You know, like, the old playbook. They were also seeking to refinance the credit facility with an ABL. The “transformation” was allegedly on track when the pandemic struck precipitating an immediate liquidity crunch. Hence, the filing.

The debtors will use the filing to evaluate its store profitability, shed leases and contracts and restructure the unsecured loans both in Canada and the US.

It seems pretty safe to say that a good number of those US stores will join the retail garbage bin much to the chagrin of landlords.

  • Jurisdiction: D. of Delaware (Judge Owens)

  • Capital Structure: see above.

  • Professionals:

    • Legal: Hogan Lovells US LLP (Peter Ivanick, Lynn Holbert, Alex Sher, Baraka Nasari) & Morris Nichols Arsht & Tunnell LLP (Eric Schwartz, Matthew Harvey, Paige Topper)

    • Canadian Monitor: Ernst & Young Inc.

    • Investment Banker: Greenhill & Co. Canada Ltd.

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

  • Other Parties in Interest:

    • Largest Unsecured Creditor: Bank of Montreal

      • Legal: Chapman and Cutler LLP (Stephen Tetro, Aaron Krieger) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

⚓️New Chapter 11 Bankruptcy Filing - American Commercial Lines Inc.⚓️

American Commercial Lines Inc.

February 7, 2020

Indiana-based American Commercials Lines Inc. and ten affiliates (the “debtors”), large liquid and dry cargo shippers with an active fleet of approximately 3,500 barges, filed a prepackaged bankruptcy case in the Southern District of Texas to (i) effectuate a comprehensive restructuring of $1.48b of debt ($536mm RCF and $949mm term loan) and (ii) inject the debtors with much-needed new capital via a rights offering. Now, we know what you’re thinking: the debtors are just the latest victims of the oil and gas crash. While oil and gas do make up some small portion of the debtors’ revenues (10%), this is incorrect. Other factors complicated the debtors’ efforts to service their bulk of debt (see what we did there?). Hold on to your butts, people.

The company notes:

Beginning in early 2016, the inland barge industry entered a period of challenging conditions that have resulted in reduced earnings. These challenges were brought on by a variety of international trade, macroeconomic, industry capacity, and environmental factors. The industry has experienced a prolonged period of declining freight rates, grain volume volatility related to international competition and tariffs on U.S.-grown soybeans, and excessive operating costs incurred as a result of extreme flooding conditions. Freight rates during 2016 and 2017 were under continued downward pressure from reduced shipping demand for metals, grain, refined products, petrochemicals, chemicals and crude oil. These declines resulted in part from pressure on the U.S. steel industry linked to dumping of foreign steel into U.S. markets, increased international competition in grain exports, and the decline in North American crude oil production in response to an oversupply of global crude oil.

Wow. So much to unpack there. It’s as if the debtors’ diversified revenue streams all fell smack dab in the middle of each and every declining sector of the US economy. Reduced steel shipments due to Chinese dumping ✅. Distress in agriculture leading to less volume ✅. Oil and gas carnage ✅.

Compounding matters was increased barge supply (read: competition) due to an increase in coal shipments. That’s right, folks. We’re back to coal. Less coal production = redeployed ships looking for replacement cargo = more competition in the liquid and dry cargo space = decreased freight rates.

The debtors got a temporary reprieve in late 2017 when the Trump administration imposed steel tariffs. A short-lived recovery in steel prices combined with a temporary recovery in oil prices and, due to the above issues, a slowdown in barge construction, helped rates recover a tad.

It didn’t last. In mid-2018, China imposed tariffs on US-grown soybeans. Agricultural products constitute 36% of the debtors’ revenues. Combined with flooding that disrupted farming and navigable waterways, the debtors experienced approximately $86mm in increased operating costs. So, yeah, no bueno. As the debtors note with no intended irony, all of these factors amount to a “perfect storm” heightened mostly by an unsustainable and unserviceable debt load.

A few things to highlight here in terms of the process and trajectory of the cases:

  • This serves as yet another example where the pre-petition lenders used the debtors’ need for additional time to fund a short-term bridge and, in exchange, lock down a full rollup of the pre-petition debt into a $640mm DIP credit facility. The term lenders will also provide a $50mm DIP to fund the administration of the cases.

  • The term lenders are equitizing their $949mm term loan, getting 100% 7.5% “take back preferred equity” and “new common equity” in return. Their estimated recovery is 38%. Post-reorg, the major owners of the debtors, therefore, will be Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

  • The company will get a $150mm of new money via a backstopped rights offering supported by certain holders of term loan claims. This new money infusion (in exchange for 10% junior preferred equity to that noted above and provided subject to a 7% backstop premium) will presumably give the debtors some additional runway should the market forces noted above persist.


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

  • Capital Structure: $536mm RCF and $949mm term loan

  • Professionals:

    • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Parker Milender) & Porter Hedges LLP (John Higgins, Eric English) & Seward & Kissel LLP

    • Post-Reorg Independent Director: Scott Vogel

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Greenhill & Co. Inc.

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

  • Other Parties in Interest:

    • Prepetition ABL & DIP ABL Agent: Wells Fargo Bank NA

      • Legal: K&L Gates LLP (David Weitman, Christopher Brown)

    • Preptition Term Loan Agent: Cortland Capital Market Services LLP

    • Ad Hoc Group of Term Lenders: Contrarian Capital Management LLC, Finepoint Capital LP, and Invesco Ltd.

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Erik Jerrard) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

      • Financial Advisor: Evercore Group LLC

    • Large Equityholder: Platinum Equity

New Chapter 11 Bankruptcy Filing -- Fusion Connect Inc.

June 3, 2019

We previously wrote about Fusion Connect Inc. ($FSNN), providers of “Unified Communications-as-a-Service” and “Infrastructure-as-a-Service” in “⛈A Dark "Cloud" on the Horizon⛈.” Therein we marveled at how special Fusion must be…to fail SO SPECTACULARLY in today’s cloud here, cloud there, cloud everywhere, everyone’s gaga for cloud environment. Cloud is SO captivating that it wasn’t until the company filed a piss poor 8-K back in April that a B. Riley FBR ($RILY) analyst FINALLY had an epiphany and declared that the company’s stock ought to be downgraded from “buy” to “neutral” (huh?!?) with a price target of $0.75 — down from $9.75/share. This is despite the fact that the stock hadn’t traded anywhere in the vicinity of $9.75/share in ages — nowhere even close, actually — but whatevs. Clearly, his head was in the cloud(s). This, ladies and gentlemen, demonstrates, in a nutshell, the utter worthlessness of equity analyst reports.🖕

But this isn’t a story about shoddy analyst research. That would be wholly unoriginal. This is a story about synergies and burdensome debt. Because, like, that’s so super original that you won’t read of it again until…well…you scroll below to the next bit of content about FTD!! 🙄

Boiled down to its simplest form, this company is the product of an acquisition strategy (and reverse merger) gone wrong. Like, in a majormajor way. Per the company:

The Company pursued the Birch Merger with a vision of leveraging its existing processes and structures to create synergies between Fusion’s and Birch’s joined customer bases, combine network infrastructure assets to improve operational efficiencies, and ultimately drive material growth in Fusion’s and Birch’s combined annual revenue. In connection with the Birch Merger and MegaPath Merger, the Company incurred $680 million in secured debt(emphasis added)

That reverse merger closed at the end of Q2, 2018. Yet…

Unfortunately, due to underperformance compared to business projections, the Company found itself with limited liquidity and at risk of default under its debt documents by early 2019.

Wait, what? Limited liquidity and risk of default by “early 2019”?!? Who the f*ck diligenced and underwrote this transaction?!? This sitch is so bad, that the company literally didn’t have enough liquidity to make a recent $6.7mm amort payment under the first lien credit agreement and a $300k interest payment on its unsecured debt. This is the company’s pre-petition capital structure:

  • $20mm super senior L+10% June 2019 debt

  • $43.3mm Tranche A Term Loans L+6.0% May 2022 debt

  • $490.9mm Tranche B Term Loans L+8.5% May 2023 debt

  • $39mm Revolving Loans L+6.0% May 2022 debt

  • $85mm Second Lien L+10.5% November 2023 debt

  • $13.3mm Unsecured Debt

Back in April we summed up the situation as follows:

The company’s recent SEC reports constitute a perfect storm of bad news. On April 2, the company filed a Form 8-K indicating that (i) a recently-acquired company had material accounting deficiencies that will affect its financials and, therefore, certain of the company’s prior filings “can no longer be relied upon,” (ii) it won’t be able to file its 10-K, (iii) it failed to make a $7mm interest payment on its Tranche A and Tranche B term loan borrowings due on April 1, 2019, and (iv) due to the accounting errors, the company has tripped various covenants under the first lien credit agreement — including its fixed charge coverage ratio and its total net leverage ratio.

Again, who diligenced the reverse merger?!? 😡

So here we are. In bankruptcy. To what end?

The company is seeking a dual-path restructuring that is all the rage these days: everyone loves to promote optionality that will potentially result in greater value to the estate. In the first instance, the company proposes, as a form of “stalking horse,” a “reorganization transaction” backed by a restructuring support agreement with certain of its lenders. This transaction would slash $300mm of the company’s $665mm of debt and result in the company’s first lien lenders owning the company. That is, unless a buyer emerges out of the woodwork with a compelling purchase price. To promote this possibility, the company is filing a bid procedures motion with the bankruptcy court with the hope of an eventual auction taking place. If a buyer surfaces with mucho dinero, the company will toggle over to a sale pursuant to a plan of reorganization. This would obviously be the optimal scenario. Absent that (and maybe even with that), we’ve got a jaw-dropping example of value destruction. “Fail fast,” many in tech say. These cloud bros listened!! Nothing like deep-sixing yourself with a misguided poorly-diligenced acquisition. Bravo!!

The company has secured a commitment for a fully-backstopped $59.5mm DIP that subsumes the $20mm in super senior pre-petition bridge financing recently provided by the first lien lenders. Is this DIP commitment good for general unsecured creditors? Is any of this generally good for unsecured creditors? Probably not.

Major creditors include a who’s who of telecommunications companies, including AT&T Inc. ($T) (first Donald Trump and now THIS…rough week for AT&T), Verizon Communications Inc. ($VZ)XO Communications (owned by VZ), Frontier Communications Corp. ($FTR)(which has its own issues to contend with as it sells assets to sure up its own balance sheet), CenturyLink Inc. ($CTL)Level 3 Communications ($LVLT)Time Warner Inc. ($TWX), and….wait for it…bankrupt Windstream Communications ($WINMQ). Because the hits just keep on coming for Windstream….

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

  • Capital Structure: see above.

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Sunny Singh, Natasha Hwangpo)

    • Board of Directors: Matthew Rosen, Holcombe Green Jr., Marvin Rosen, Holcombe Green III, Michael Del Guidice, Lewis Dickey Jr., Rafe de la Gueronniere, Neil Goldman)

    • Financial Advisor: FTI Consulting Inc. (Mark Katzenstein)

    • Investment Banker: PJT Partners (Brent Herlihy, John Singh)

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

  • Other Parties in Interest:

    • Ad Hoc First Lien Lender Group

      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen)

      • Financial Advisor: Greenhill & Co. Inc.

    • DIP Lender: Credit Suisse Loan Funding LLC

    • DIP Agent, Prepetition Super Senior Agent & Prepetition First Lien Agent: Wilmington Trust NA

      • Legal: Arnold & Porter Kaye Scholer (Michael Messersmith, Sarah Grylll, Alan Glantz)

    • Prepetition Second Lien Successor Agent: GLAS America LLC & GLAS USA LLC

    • Ad Hoc Group of Tranche A Term Loan/Revolving Lenders

      • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Soogy Lee, Edward Linden)

    • Second Lien Lenders

      • Legal: Proskauer Rose LLP (Charles Dale, Jon English)

    • Large Unsecured Creditor: AT&T

      • Legal: Norton Rose Fulbright US LLP (David Rosenzweig, Francisco Vazquez)

Updated 6/4/19 at 5:42am


New Chapter 11 Bankruptcy Filing - F+W Media Inc.

F+W Media Inc.

March 10, 2019

WAAAAAAY back in September 2018, we highlighted in our Members’-only piece, “Online Education & ‘Community’ (Long Helen Mirren),” that esteemed author and professor Clayton Christensen was bullish about the growth of online education and bearish about colleges and universities in the US. We also wrote that Masterclass, a SF-based online education platform that gives students “access” to lessons from the likes of Helen Mirren(acting), Malcolm Gladwell (writing) and Ken Burns (documentary film making) had just raised $80mm in Series D financing, bringing its total fundraising to $160mm. Online education is growing, we noted, comporting nicely with Christensen’s thesis.

But we didn’t stop there. We counter-punched by noting the following:

Yet, not all online educational tools are killing it. Take F+W Media Inc., for instance. F+W is a New York-based private equity owned content and e-commerce company; it publishes magazines, books, digital products like e-books and e-magazines, produces online video, offers online education, and operates a variety of e-commerce channels that support the various subject matters it specializes in, e.g., arts & crafts, antiques & collectibles, and writing. Writer’s Digest is perhaps its best known product. Aspiring writers can go there for online and other resources to learn how to write.

For the last several years F+W has endeavored to shift from its legacy print business to a more digital operation; it is also beginning to show cracks. Back in January, the company’s CEO, COO and CTO left the company. A media and publishing team from FTI Consulting Inc. ($FTI) is (or at least was) embedded with new management. The company has been selling non-core assets (most recently World Tea Media). Its $125mm 6.5% first lien term loan due June 2019 was recently bid at 63 cents on the dollar (with a yield-to-worst of 74.8% — yields are inversely proportional to price), demonstrating, to put it simply, a market view that the company may not be able to pay the loan (or refinance the loan at or below the current economics) when it comes due.

Unlike MasterClass and Udacity and others, F+W didn’t start as an all-digital enterprise. The shift from a legacy print media business to a digital business is a time-consuming and costly one. Old management got that process started; new management will need to see it through, managing the company’s debt in the process. If the capital markets become less favorable and/or the business doesn’t show that the turnaround can result in meaningful revenue, the company could be F(+W)’d(emphasis added)

Nailed it.

On March 10, 2019, F+W Media Inc., a multi-media company owning and operating print and digital media platforms, filed for chapter 11 bankruptcy in the District of Delaware along with several affiliated entities. We previously highlighted Writer’s Digest, but the company’s most successful revenue streams are its “Crafts Community” ($32.5mm of revenue in 2018) and “Artist’s Network” ($.8.7mm of revenue in 2018); it also has a book publishing business that generated $22mm in 2018. In terms of “master classes,” the bankruptcy papers provide an intimate look into just how truly difficult it is to transform a legacy print business into a digital multi-media business.

The numbers are brutal. The company notes that:

“In the years since 2015 alone, the Company’s subscribers have decreased from approximately 33.4 million to 21.5 million and the Company’s advertising revenue has decreased from $20.7 million to $13.7 million.”

This, ladies and gentlemen, reflects in concrete numbers, what many in media these days have been highlighting about the ad-based media model. The company continues:

Over the past decade, the market for subscription print periodicals of all kinds, including those published by the Company, has been in decline as an increasing amount of content has become available electronically at little or no cost to readers. In an attempt to combat this decline, the Company began looking for new sources of revenue growth and market space for its enthusiast brands. On or around 2008, the Company decided to shift its focus to e-commerce upon the belief that its enthusiast customers would purchase items from the Company related to their passions besides periodicals, such as craft and writing supplies. With its large library of niche information for its hobbyist customers, the Company believed it was well-positioned to make this transition.

What’s interesting is that, rather than monetize their “Communities” directly, the company sought to pursue an expensive merchandising strategy that required a significant amount of upfront investment. The company writes:

In connection with this new approach, the Company took on various additional obligations across its distribution channel, including purchasing the merchandise it would sell online, storing merchandise in leased warehouses, marketing merchandise on websites, fulfilling orders, and responding to customer service inquiries. Unfortunately, these additional obligations came at a tremendous cost to the Company, both in terms of monetary loss and the deterioration of customer relationships.

In other words, rather than compete as a media company that would serve (and monetize) its various niche audiences, the company apparently sought to use its media as a marketing arm for physical products — in essence, competing with the likes of Amazon Inc. ($AMZN)Walmart Inc. ($WMT) and other specialty hobbyist retailers. As if that wasn’t challenging enough, the company’s execution apparently sucked sh*t:

As a consequence of this shift in strategic approach, the Company was required to enter into various technology contracts which increased capital expenditures by 385% in 2017 alone. And, because the Company had ventured into fields in which it lacked expertise, it soon realized that the technology used on the Company’s websites was unnecessary or flawed, resulting in customer service issues that significantly damaged the Company’s reputation and relationship with its customers. By example, in 2018 in the crafts business alone, the Company spent approximately $6 million on its efforts to sell craft ecommerce and generated only $3 million in revenue.

Last we checked, spending $2 to make $1 isn’t good business. Well, unless you’re Uber or Lyft, we suppose. But those are transformative visionary companies (or so the narrative goes). Here? We’re talking about arts and crafts. 🙈

As if that cash burn wasn’t bad enough, in 2013 the company entered into a $135mm secured credit facility ($125mm TL; $10mm RCF) to fund its operations. By 2017, the company owed $99mm in debt and was in default of certain covenants (remember those?) under the facility. Luckily, it had some forgiving lenders. And by “forgiving,” we mean lenders who were willing to equitize the loan, reduce the company’s indebtedness by $100mm and issue a new amended and restated credit facility of $35mm (as well as provide a new $15mm tranche) — all in exchange for a mere 97% of the company’s equity (and some nice fees, we imagine). Savage!

As if the spend $2 to make $1 thing wasn’t enough to exhibit that management wasn’t, uh, “managing” so well, there’s this:

The Company utilized its improved liquidity position as a result of the Restructuring to continue its efforts to evolve from a legacy print business to an e-commerce business. However, largely as a result of mismanagement, the Company exhausted the entire $15 million of the new funding it received in the six (6) months following the Restructuring. In those six (6) months, the Company’s management dramatically increased spending on technology contracts, merchandise to store in warehouses, and staffing while the Company was faltering and revenue was declining. The Company’s decision to focus on e-commerce and deemphasize print and digital publishing accelerated the decline of the Company’s publishing business, and the resources spent on technology hurt the Company’s viability because the technology was flawed and customers often had issues with the websites.

What happened next? Well, management paid themselves millions upon millions of dollars in bonuses! Ok, no, just kidding but ask yourself: would you have really been surprised if that were so?? Instead, apparently the board of directors awoke from a long slumber and decided to FINALLY sh*tcan the management team. The board brought in a new CEO and hired FTI Consulting Inc. ($FTI) to help right the ship. They quickly discovered that the e-commerce channel was sinking the business (PETITION Note: this is precisely why many small startup businesses build their e-commerce platforms on top of the likes of Shopify Inc. ($SHOP) — to avoid precisely the e-commerce startup costs and issues F+W experienced here.).

Here is where you insert the standard operational restructuring playbook. Someone built out a 13-week cash flow model and it showed that the company was bleeding cash. Therefore, people got fired and certain discreet assets got sold. The lenders, of course, took some of those sale proceeds to setoff some of their debt. The company then refreshed the 13-week cash flow model and…lo and behold…it was still effed! Why? It still carried product inventory and had to pay for storage, it was paying for more lease space than it needed, and its migration of e-commerce to partnerships with third party vendors, while profitable, didn’t have meaningful enough margin (particularly after factoring in marketing expenses). So:

Realizing that periodic asset sales are not a long-term operational solution, the Company’s board requested alternative strategies for 2019, ranging from a full liquidation to selling a significant portion of the Company’s assets to help stabilize operations. Ultimately, the Company determined that the only viable alternative, which would allow it to survive while providing relief from its obligations, was to pursue a sale transaction within the context of a chapter 11 filing.

Greenhill & Co. Inc. ($GHL) is advising the company with respect to a sale of the book publishing business. FTI is handling the sale of the company’s Communities business. The company hopes both processes are consummated by the end of May and middle of June, respectively. The company secured an $8mm DIP credit facility to fund the cases.

And that DIP ended up being the source of some controversy at the First Day hearing. Yesterday morning, Judge Gross reportedly rebuked the lenders for seeking a 20% closing fee on the $8mm DIP; he suggested 10%. Per The Wall Street Journal:

Judge Gross said he didn’t want to play “chicken” with the lenders, but that he didn’t believe they should use the bankruptcy financing to recoup what they were owed before the chapter 11 filing.

Wow. Finally some activist push-back on excessive bankruptcy fees! Better late than never.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure:

  • Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Kenneth Enos, Elizabeth Justison, Allison Mielke, Jared Kochenash)

    • Financial Advisor: FTI Consulting Inc. (Michael Healy)

    • Investment Banker: Greenhill & Co.

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

  • Other Parties in Interest:

    • Prepetition & Postpetition DIP Agent ($8mm): Fortress Credit Co. LLC)

      • Legal: Halperin Battaglia Benzija LLP (Alan Halperin, Walter Benzija, Julie Goldberg) & (local) Bielili & Klauder LLC (David Klauder)

    • DIP Lenders: Drawbridge Special Opportunities Fund LP, New F&W Media M Holdings Corp LLC, PBB Investments III LLC, CION Investment Corporation, Ellington Management Group, or affiliates thereof to be determined.

    • Official Committee of Unsecured Creditors (LSC Communications US, Inc. and Palm Coast Data LLC)

      • Legal: Arent Fox LLP (Robert Hirsh, Jordana Renert) & (local) Morris James LLP (Eric Monzo, Brya Keilson)

      • Financial Advisor: B. Riley FBR (Adam Rosen)

Updated 4/23

😷New Chapter 11 Bankruptcy Filing - Trident Holding Company LLC😷

Trident Holding Company LLC

February 10, 2019

It looks like all of those 2018 predictions about healthcare-related distress were off by a year. We’re merely in mid-February and already there has been a full slate of healthcare bankruptcy filings. Here, Trident Holding Company LLC, a Maryland-based provider of bedside diagnostic and other services (i.e., x-ray, ultrasound, cardiac monitoring) filed for bankruptcy in the Southern District of New York. What’s interesting about the filing is that it is particularly light on detail: it includes the standard description of the capital structure and recent efforts to restructure, but there is a dearth of information about the history of the company and its financial performance. There is, however, a restructuring support agreement with the company’s priority first lien lenders.

Here’s a quick look at the company’s capital structure which is a large factor driving the company into bankruptcy:

Source: First Day Declaration

Source: First Day Declaration

As you can see, the company has a considerable amount of debt. The above-reflected “Priority First Lien Facility” is a fairly recent development, having been put in place as recently as April 2018. That facility, provided by Silver Point, includes a $27.1mm prepayment fee triggered upon the filing of the bankruptcy case. That’s certain to be a point of interest to an Official Committee of Unsecured Creditors. It also contributed to an onerous amount of debt service. Per the company:

In the midst of market and competitive challenges, Trident has significant debt service obligations. Over the course of 2018, Trident paid approximately $26,185,667.75 in cash interest on the Secured Credit Facilities. On January 31, 2019, the Company missed an interest payment of $9,187,477.07 on the Secured Credit Facilities, resulting in an Event of Default on February 8, 2019 after the cure period expired.

But, wait. There’s more. The recent uptick in distressed healthcare activity is beginning to aggregate and create a trickle-down bankruptcies-creating-bankruptcies effect:

Moreover, a number of recent customer bankruptcies – including those of Senior Care Centers, LLC, 4 West Holdings, Inc., and Promise Healthcare Group, LLC – have exacerbated the Company’s liquidity shortfall by limiting the collectability of amounts owed from these entities. A number of other customers who have not yet filed bankruptcy cases are generally not paying the Debtors within contractual terms due to their own liquidity problems. As a result of these collection difficulties and challenges with the new billing system in the Sparks Glencoe billing center, the Debtors recorded $27.8 million of extraordinary bad debt expense in 2018 and $12.7 million in 2017.

Ouch. Not to state the obvious, but if the start of 2019 is any indication, this is only going to get worse. The company estimates a net operating cash loss of $9.1mm in the first 30 days of the case.

Given the company’s struggles and burdensome capital structure, the company has been engaging its lenders for well over a year. In the end, however, it couldn’t work out an out-of-court resolution. Instead, the company filed its bankruptcy with a “restructuring support agreement” with Silver Point which, on account of its priority first lien holdings, is positioned well to drive this bus. And by “drive this bus,” we mean jam the junior creditors. Per the RSA, Silver Point will provide a $50mm DIP and drive the company hard towards a business plan and plan of reorganization. Indeed, the business plan is due within 36 days and a disclosure statement is due within a week thereafter. Meanwhile, the RSA as currently contemplated, gives Silver Point $105mm of take-back term loan paper and 100% of the equity of the company (subject to dilution). The first lien holders have a nice blank in the RSA next to their recovery amount and that recovery is predicated upon…wait for it…

…a “death trap.” That is, if they accept the plan they’ll currently get “ [●]%” but if they reject the plan they’ll get a big fat donut. Likewise, the second lien holders. General unsecured claimants would get a pro rata interest in a whopping $100k. Or the equivalent of what Skadden will bill in roughly, call it, 3 days of work??

The business plan, meanwhile, ought to be interesting. By all appearances, the company is in the midst of a massive strategic pivot. In addition to undertaking a barrage of operational fixes “…such as optimized pricing, measures to improve revenue cycle management by increasing collection rates, rationalizing certain services, reducing labor costs, better managing vendor spend, and reducing insurance costs,” the company intends to focus on its core business and exit unprofitable markets. While it retreats in certain respects, it also intends to expand in others: for instance, the company intends to “expand home health services to respond to the shifting of patients from [skilled nursing facilities] into home care.” Per the company:

Toward this end, Trident conducted successful home health care pilot programs in 2018 in two markets to optimize its Care at Home business model with radiology technicians dedicated to servicing home health patients. Trident hopes to expand this business model to an additional seven markets in 2019.

Like we said, a pivot. Which begs the question “why?” In addition to the debt, the company noted several other factors that drove it into bankruptcy. Chief among them? The rise of home health care. More from the company:

Trident has suffered ripple effects from the distress faced by skilled nursing facilities (“SNF”), which are its primary direct customers. SNF occupancy rates have declined to a multi-year low as a result of structural and reimbursement changes not yet offset by demographic trends. These structural changes include, among other things, patient migration to home health care. The decline in SNF occupancy rates has led to reduced demand for Trident’s services. At the same time, Trident has only had limited success reducing costs in response to lower volumes, as volume declines are driven by lower utilization per facility rather than a reduction in the number of facilities served.

This is a trend worth continued watching. Who else — like Trident — will be affected by this?

Large general unsecured creditors of the business include Grosvenor Capital Management, Jones Day (to the tune of $2.3mm…yikes), Konica Minolta Healthcare Americas Inc., McKesson ($MCK)(again!!…rough couple of weeks at McKesson), Quest Diagnostics Inc. ($DGX), Cardinal Health Inc. ($CAH) and others. They must be really jacked up about that pro rata $100k!!

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

  • Capital Structure: see above.

  • Professionals:

    • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Jason Kestecher, James Mazza Jr., Justin Winerman)

    • Independent Director: Alexander D. Greene

    • Financial Advisor: Ankura Consulting (Russell Perry, Ben Jones)

    • Investment Banker: PJT Partners LP (Mark Buschmann, Josh Abramson, Willie Evarts, Meera Satiani, Elsa Zhang)

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

  • Other Professionals:

    • Priority First Lien Admin Agent: SPCP Group LLC/Silver Point Finance LLC

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Robert Britton, Lewis Clayton, Aidan Synnott, Christman Rice, Michael Turkel)

      • Financial Advisor: Houlihan Lokey LP

    • First Lien Agent: Cortland Capital Market Services LLC

      • Legal: White & Case LLP (Thomas Lauria, Erin Rosenberg, Jason Zakia, Harrison Denman, John Ramirez)

    • Ad Hoc Group of First Lien Lenders

      • Legal: Kirkland & Ellis LLP (Patrick Nash)

      • Financial Advisor: Greenhill & Co. Inc.

    • Second Lien Agent: Ares Capital Corporation

    • Ad Hoc Group of Second Lien Lenders

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

    • Large Creditor: McKesson Medical-Surgical Inc.

      • Legal: Buchalter P.C. (Jeffrey Garfinkle)

    • Large Creditor: Quest Diagnostics

      • Legal: Morris James LLP (Brett Fallon)

    • Equity Sponsor: Revelstoke Capital Partners

      • Legal: Winston & Strawn LLP (Carey Schreiber, Carrie Hardman)

    • Equity Sponsor: Welltower Inc.

      • Legal: Sidley Austin LLP (Andrew Propps, Bojan Guzina)

    • Official Committee of Unsecured Creditors

      • Legal: Kilpatrick Townsend & Stockton LLP (David Posner, Gianfranco Finizio, Kelly Moynihan)

      • Financial Advisor: AlixPartners LLP (David MacGreevey)



New Chapter 11 Filing - Goodman Networks Inc.

Goodman Networks Inc.

  • 3/13/17 Recap: Frisco Texas-based minority-business-enterprise (MBE) and wireless network and satellite television systems servicer filed a prepackaged chapter 11 case to de-lever its balance sheet by $212.5mm. This is a story, in many respects, about a concentrated revenue base and too much debt. 83% of the company's revenue is attributable to AT&T and "substantial completion of AT&T's 4G network build-out has diminished the associated demand for Goodman's services." Consequently, the company wasn't generating enough revenue to sustain its capital structure. Now, holders of the secured debt will receive cash, $112.5mm of new debt, PIK preferred stock and common stock. To preserve the MBE status, current equity will get PIK preferred stock and 50.1% of the common stock. Query whether that level of retained equity is a lesson to those who invested in this MBE structure. 
  • Jurisdiction: S.D. of Texas
  • Capital Structure: $25mm RCF (MidCap Financial Trust), $325mm '18 12.125 % secured notes (Wells Fargo)
  • Company Professionals: 
    • Legal: Kirkland & Ellis LLP (Patrick Nash, Joshua Sussberg, Joseph Graham, Laura Krucks, Alexander Cross) & (local) Haynes & Boone LLP (Stephen Pezanosky, Kelli Norfleet)
    • Financial Advisor: FTI Consulting (John Debus)
    • Investment Banker: June Creek Interests (Andy Jent)
    • Claims Agent: KCC (*click on company name for docket)
  • Other Parties in Interest:
    • Ad Hoc Committee of Second Lien Bondholders (Alden Global, AllianceBernstein Global LP, J.P. Morgan Investment Management Inc., J.P Morgan Chase Bank N.A., Phoenix Investment Advisor LLC, Principal Global Investors LLC, Invesco Senior Secured Management Inc., Sound Point Capital Management LP)
      • Legal: Akin Gump (Michael Stamer, Charles Gibbs, Meredith Lahaie, Sara Brauner)
      • Financial: Greenhill & Co. Inc.
  • Wells Fargo
    • Legal: Reed Smith LLP (Eric Schaffer, Lloyd Lim, Maura Nuno)
  • AT&T Corp.
    • Legal: Sidley Austin LLP (Brian Lohan)

Updated 3/28/17