⚡️New Chapter 11 Bankruptcy Filing - Griddy Energy LLC⚡️

Griddy Energy LLC

Sooooooo this one was predictable. The writing was on the wall a few weeks ago and we noted in “💥Is Texas F*cked?💥,” that Griddy Energy LLC was a likely bankruptcy candidate.* On Sunday, we noted how recent PUCT/ERCOT decisions to extend the deadline “…for electric retailers to dispute the ridonkulous liabilities imposed upon them after the now-infamous Texan storm” — liabilities that already claimed Just Energy Group Inc.($JE) and Brazos Electric Power Cooperative Inc. as victims — might buy time for certain other players in the stack to figure out their futures. By then, however, it was already too late for Griddy. On February 26, 2021, ERCOT forced the mass transition of Giddy’s customers to other electricity providers.

Griddy’s whole business model was passing through wholesale pricing sans mark-up to 29,000 retail end customers in exchange for a monthly fixed fee of $9.99. Through this model, Griddy claims to have saved its customers more than $17mm since 2017. Griddy argues that at no point since its inception was its model targeted as problematic by the PUCT. PUCT, after all, granted Griddy’s license.

That all obviously changed with February’s big storm. Per the debtor:

During the winter storm in Texas in February 2021, Griddy and its customers suffered as a result of (a) inaccurate information from ERCOT about the preparedness of the electricity grid for the 2020-2021 winter season, (b) the decision by the PUCT to order electricity prices be set to $9,000 per megawatt hour (“MWh”), and (c) ERCOT’s decision to hold electricity prices at $9,000 per MWh for 32 hours after firm load shed had stopped. Prior to the PUCT order, the real-time electricity price had reached $9,000 per MWh for a total of only 3 hours since 2015. In contrast, after the PUCT order, the electricity price was set to $9,000 per MWh for 87.5 hours between February 15, 2021 and February 19, 2021.

This obviously creates a whole host of issues when, in turn, you’re only getting $9.99 per customer per month (plus other passthrough expenses) for a total of $289.7k in revenue a month. Prior to the storm, Griddy was solvent. As of the petition date, it has only $1.448mm of pre-petition debt outstanding (due to Macquarie Investments US Inc.). Griddy obviously blames the reversal of that fortune on ERCOT’s missteps and poor planning. Per the debtor:

Prior to the mid-February winter storm event, Griddy was solvent. As discussed above, the failures of ERCOT and resulting actions taken by the PUCT during the winter storm event resulted in Griddy’s loss of all of its customers and forced Griddy to file this case. The winter storm event also left Griddy in an untenable position – engage in aggressive collection actions against customers for exceedingly high prices for wholesale electricity and ancillary services (which is not its preference) and fight baseless lawsuits – or file for bankruptcy and distribute its remaining cash in an orderly manner.

Be that as it may, Griddy now owes a contingent and disputed $29mm nut to ERCOT — its largest general unsecured creditor. Its customers — who generally tend to be on the lower end of the socioeconomic spectrum — have bills far in excess of historical norm and expectation. So now what?

Griddy is basically flicking the bird to ERCOT (🖕):

In the weeks since the winter storm event, Griddy has created a chapter 11 plan whereby (i) Macquarie would compromise a portion of the remaining amount of money owed to it by Griddy for the benefit of Griddy’s other creditors, (ii) Griddy would give former customers with unpaid bills releases in exchange for such customers’ releases of Griddy and certain other parties, (iii) other general unsecured creditors would share pro rata in remaining available cash, and (iv) upon emergence, a plan administrator would take over ownership of Griddy and, in his or her discretion, pursue causes of action, whether against ERCOT for potential preference claims, fraudulent transfers or other claims related to the winter storm event, or otherwise. Griddy has filed its proposed chapter 11 plan, disclosure statement and related motions concurrently herewith. Griddy intends to seek confirmation of its proposed chapter 11 plan on as expedited basis as possible.

“Certain other parties” no doubt includes Macquarie.

All of this seems so strangely … American. Thousands of innocent people sign up for a product that they don’t fully understand most likely thinking that there are systems in place to protect them. Turns out the systems are broken: thousands of innocent people lose electricity for days and ultimately get billed up the wazoo and, naturally, nobody wants to take any responsibility for that. Lawsuits commence. Bankruptcies ripple through the area.** Meanwhile, the lenders do everything in their power to shed any and all liability risk. God bless America.

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*We said we “smell a chapter 7 filing” which, it turns out, was perhaps a bit to flippant. While the spirit of the comment is correct in that there is no future for the company as a going concern, we neglected to consider some of the benefits of a chapter 11 filing including, among other things, the sought-after releases.

**One interesting side note — given that this is a uniquely Texan fact pattern — is that it took this catastrophe to finally hour-up some Texas-based lawyers rather than enrich some Chicago or New York attorneys. Putting aside Just Energy Group Inc. (represented by Kirkland & Ellis LLP), Brazos Electric Power Cooperative Inc. is represented by Norton Rose Fulbright and Griddy is represented by Baker Botts LLP. The lender, Macquarie, is counseled by Haynes and Boone LLP and ERCOT is represented by Munsch Hardt Kopf & Harr P.C. The local folks must seriously be thinking “it’s about time.”

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Date: March 15, 2021

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

Capital Structure: $15mm Borrowing Base Facility ($1.448m outstanding)

Company Professionals:

• Legal: Baker Botts LLP (Robin Spigel, David Eastlake, Chris Newcomb, Jacob Herz)

• Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

• Pre-petition Lender: Macquarie Investments US Inc.

  • Legal: Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

• ERCOT

  • Legal: Munsch Hardt Kopf & Harr P.C. (Kevin Lippman)

⛽️New Chapter 11 Bankruptcy Filing - Rosehill Resources Inc. ($ROSE)⛽️

Rosehill Resources Inc. ($ROSE)

July 27, 2020

Stop us if you’ve heard this before: Rosehill Resources Inc. ($ROSE), a Texas-based independent E&P company focused, via a fellow-debtor operating company, Rosehill Operating Company LLC (“ROC”), on the Permian Basin (and, more specifically, the Delaware Basin), filed for bankruptcy because of the usual suspects that literally every oil and gas company blames. Seriously, it’s like everyone is just copying and pasting Arya Stark’s hitlist at this point: “Vladimir Putin, Mohammad Bin Salman Al Saud, COVID-19, the competition, too much debt, etc. etc.” Never mind: we’ll stop ourselves. We’ve all heard this before. Many. MANY. Times.

Speaking of the debt, here is what the capital structure looks like and this is what will happen to it pursuant to the prepackaged plan of reorganization that’s already on file:

©️PETITION LLC

That should be pretty self-explanatory but there are a few things to highlight:

• The $235mm exit RBL actually represents a decreased borrowing base. The original RCF had a maximum commitment of $500mm with a most recent borrowing base of $340mm. That borrowing base amount created a deficiency/liability the company struggled — when coupled with service obligations related to the RCF, secured notes and preferred stock — to make.

• The DIP will run at 8% PIK which is better than the 10% cash pay under the secured notes.

In terms of operations, Rosehill operates or owns working interests in 133 oil and gas wells of which 128 are producing or are capable of production. And here’s what that production looks like:

Is that interesting? Not particularly. We include only to demonstrate that we’re not the only ones who are capable of highly unfortunate and irritating typographical errors. More interesting is the fact that Rosehill earned $302.3mm in revenue in ‘19 against $239mm of operating expense. Revenue was basically flat from ‘18 whereas the company’s operating expense increased. On the plus side, the company had some favorable hedge agreements in place which, upon monetization, resulted in $87.6mm in proceeds that the company ultimately used to paydown its RCF immediately prior to the filing. Actually, who are we kidding? That’s not particularly interesting either.

Given how boring this bankruptcy is, the last thing we’ll mention — again because we and the entire world of finance seems to be obsessed with the topic — is that the company emanated out of … wait for it … wait for it … a SPAC!! While the company was originally incorporated in 2015 as a SPAC under the name KLR Energy Acquisition Corporation — sponsored by the KLR Group’s Edward Kovalik, Stephen Lee and Reid Rubinstein — the business corporation that ultimately became Rosehill Resources Inc. occurred in April 2017.

The rest, as they say, is now history. Perhaps we should start taking a running tally: new SPAC IPOs vs. old SPACs that have now filed for chapter 11 bankruptcy!

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

• Capital Structure: $226.5mm RCF, $106.1mm second lien secured notes,

• Professionals:

  • Legal: Gibson Dunn & Crutcher LLP (David Feldman, Matthew Kelsey, Dylan Cassidy, Hillary Holmes, Shalla Prichard, Michael Neumeister, Ashtyn Hemendinger) & Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

  • Financial Advisor: Opportune LLP

  • Investment Banker: Jefferies Group LLC (Jeffrey Finger)

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

• Other Parties in Interest:

  • Admin Agent: JPMorgan Chase Bank NA

    • Legal: White & Case LLP (Mark Holmes) & Bracewell LLP (Jason Cohen)

  • Admin Agent to the Secured Note Purchase Agreement: US Bank NA

    • Legal: Shipman & Goodwin LLP (Kimberly Cohen, Robert Borden)

  • Second Lien Noteholders & Series B Preferred Stockholderes & Majority DIP Lenders: EIG Management Company LLC

    • Legal: Kirkland & Ellis LLP (Chad Husnick, Christopher Koenig, Mary Kogut Brawley) & Zack A. Clement PLLC (Zach Clement)

  • Tax Receivable Claimant & Preferred and Common Stockholder: Tema Oil & Gas Company

    • Legal: McDermott Will & Emery LLP (James Kapp III, Brandon White, Nathan Coco, Fred Levenson, Michael Boykins)
      
      
      

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

Vista Proppants and Logistics LLC

June 9, 2020

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

In case we need to review:$XOG - rumored to be a bankruptcy filer. In grace period due to missed interest payment.$CHK - obvious.$BORR - ???$WLL - already in chapter 11 bankruptcy.$VAL - rumored to be a bankruptcy filer. In grace period due to missed interest payment. pic.twitter.com/K0XB1bUJ3R

— 💥PETITION💥 (@petition) June 8, 2020

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

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

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

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

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

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

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

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

Set your alarms.

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

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

• Professionals:

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

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

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

• Other Parties in Interest:

  • Ares Capital Corporation

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

  • Lonestar

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

  • PlainsCapital Bank

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

New Chapter 11 Bankruptcy Filing - Tuesday Morning Corporation ($TUES)

Tuesday Morning Corporation

May 27, 2020

Dallas-based Tuesday Morning Corporation ($TUES) is 80% open now — just in time to start closing 230 of its brick-and-mortar locations (132 in a first phase and 100 more in a follow-up phase) and commence liquidations sales while in bankruptcy. This, in a nutshell, ladies and gentlemen, sums up the plight of retail today.

Home goods retailer Tuesday Morning filed for Chapter 11 bankruptcy protection on Wednesday morning. https://t.co/RDv22dvvxt

— Lauren Thomas (@laurenthomas) May 27, 2020

One of the debtor affiliates is named "Days of the Week Inc." so they're actually covered.

— 💥PETITION💥 (@petition) May 27, 2020

If you tune in to CNBC or Bloomberg, one could be forgiven for thinking that a retailer like TUES might actually do relatively well during shelter-in times. It specializes in upscale home furnishings, textiles and housewares for crying out loud. According to the talking heads, everyone is spending time at home judging the inadequacy of their living accommodations — a process that ought to serve as a real boost to home furnishing specialists ((e.g., Restoration Hardware Inc. ($RH)) and home improvement companies ((e.g., Home Depot Inc. ($HD) and Lowe’s Companies Inc. ($LOW)). Not so much for TUES, apparently: the total lack of online presence and the company’s 100% reliance on in-store sales certainly didn’t help matters. The pandemic and related fallout “…resulted in a near-total cessation of new revenue beginning in March 2020.” Repeat: Near. Total. Cessation. Yikes.

Indeed, the debtors’ website serves a very limited purpose: it has a store locator. One literally cannot transact on the site. That said, there does appear to be pent up demand: the company reports that since re-opening its stores on April 24, comp store sales for the reopened stores have been approximately 10% higher than the same period in fiscal ‘19. Perhaps people DID, in fact, identify a lot of things they wanted to remedy at home! And they’re clamoring for that “treasure hunt” experience, y’all!!

What’s somewhat sad about that is, looking at the debtors’ list of top 40 unsecured trade creditors, nearly every vendor they do business with is US-based. In fact, the debtors source 80% of their inventory from US vendors. These store closures and the attendant loss of volume will cascade through the economy. Sigh.

Anyway, we previously wrote about the company in February upon the company’s Q2 ‘20 earnings report. We noted:

Quick coverage of this Dallas-based off-price retailer because, well, it’s performing like dogsh*t. The company reported Q2 ‘20 numbers last week. They. Were. Not. Good.

Nope. Like, not at all. Here are some highlights:

- A 4.1% decrease in net sales YOY driven primarily by a 3% decrease in comp store sales;

- A 3.7% decrease in the size of the average ticket, offset only somewhat by a 0.7% increase in customer transactions (read: more people buying less stuff — not exactly a testament to inventory quality);

- Declining gross margin (down 1.9%);

- Operating income down $5.2mm for the Q and $6.3mm for the 1H of fiscal ‘20;

- Cash is burning, down $6.5mm from June 2019.

The company blamed this piss poor performance on the shortened holiday calendar (how predictable) and uber-competition within that period that resulted in heavy promotions.

We further noted that the company had 175 leases rolling off in the next 12 months and, therefore, “…this is more a lease story than a bankruptcy story.” Whoops. Our crystal ball didn’t pick up on COVID-19. We further noted:

The company has no maturities prior to 2024 and has significant room under its $180mm revolving credit facility ($91.4mm of availability). Still, this thing needs its performance to turn around or it will be dancing with several other distressed retailers soon enough.

“Soon enough” came quicker than we anticipated.

The problem is that not only did the shut-down completely shut the revenue spigot, it also led the debtors to default, as of March 2020, under their revolving credit facility (“RCF”). The RCF Credit Agreement had a provision prohibiting the debtors from “suspend[ing] the operation of its business in the ordinary course of business.” Ever since, they have been in a state of continued negotiation and forbearance with their RCF enders, JPMorgan Chase Bank NA ($JPM), Wells Fargo Bank NA ($WFC), and Bank of America NA ($BAC).

That negotiation has borne fruit. The debtors obtained a DIP financing commitment of $100mm which will consist of some new money as well as a “gradual” roll-up of pre-petition funded debt ($47.9mm + $8.8mm LOCs). The debtors will pay a 2% upfront fee, a 0.5% unused commitment fee and customary letter of credit fees. “The interest rate under the DIP Documents is, either (at the Debtors’ option), (a) a 3 month LIBO Rate (2.0% floor) + 3.00% per annum or (b) CBFR (2.0% floor) + 2.0% per annum, payable on each applicable Interest Payment Date, in cash, provided that no Interest Period may extend beyond the Maturity Date.”

So what now? The debtors main assets are their inventory, a Dallas distribution center and corporate office, and equipment; they also have upwards of $100mm in net operating losses. There isn’t a lot of debt on balance sheet: this is not an example of a private equity firm coming in and dividending all of the value out of the enterprise. Rather, the crux of this case in the near-term will be, as we noted back in February, about the rejection of hundreds of leases and the stream-lining of the debtors’ footprint to a leaner operation. The crux longer-term, however, will be whether there’s any reason for this business to exist. Will the lenders enter into an exit facility? Will there be a plan of reorganization that will allow the debtors to emerge as reorganized debtors? Will there be a sale of substantially all of the assets? The chapter 11 bankruptcy process will be used to hopefully find answers to these questions.

• Jurisdiction: N.D. of TX (Judge Hale)

• Capital Structure: $47.9mm funded RCF + $8.8mm LOCs

• Professionals:

  • Legal: Haynes and Boone LLP (Ian Peck, Stephen Pezanosky, Jarom Yates)

  • Financial Advisor: AlixPartners LLP (Barry Folse, Ray Adams, Wilmer Cerda, JR Bryant)

  • Investment Banker: Stifel Nicolaus & Co. Inc. & Stifel Nicolaus-Miller Buckfire & Co. LLC (James Doak)

  • Real Estate Advisor: A&G Realty Partners LLC

  • Liquidation Consultant: Great American Group LLC

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

• Other Parties in Interest:

  • DIP Agent: JPMorgan Chase Bank NA

    • Legal: Vinson & Elkins LLP (William Wallander, Bradley Foxman)

  • Official Committee of Unsecured Creditors

    • Legal: Montgomery McCracken Walker & Rhoads LLP (Edward Schnitzer, Gilbert Saydah Jr., David Banker) & Munsch Hardt Kopf & Harr PC (Kevin Lippman, Deborah Parry)
      
      

New Chapter 11 Bankruptcy Filing - J.C. Penney Company Inc. ($JCP)

J.C. Penney Company Inc.

May 15, 2020

Let’s be clear about something right off the bat. Encino Man, Captain America and Austin Powers could all suddenly surface from being entombed in ice for decades and even THEY wouldn’t be surprised that Texas-based J.C. Penney Company Inc. (and 17 affiliates, the “debtors”) filed for chapter 11 bankruptcy.

There are a couple of ways to look at this one.

First, there’s the debtors’ way. Not one to squander a solid opportunity, the debtors dive under “COVID Cover”:

“Before the pandemic, the Company had a substantial liquidity cushion, was improving its operations, and was proactively engaging with creditors to deleverage its capital structure and extend its debt maturities to build a healthier balance sheet. Unfortunately, that progress was wiped out with the onset of COVID-19. And now, the Company is unable to maintain its upward trajectory through its “Plan for Renewal.” Moreover, following the temporary shutdown of its 846 brick-and-mortar stores, the Company is unable to responsibly pay the upcoming debt service on its over-burdened capital structure.”

The debtors note that since Jill Soltau became CEO on October 2, 2018, the debtors have been off to the races with their “Plan for Renewal” strategy. This strategy was focused on getting back to JCP’s fundamentals. It emphasized (a) offering compelling merchandise, (b) delivering an engaging experience, (c) driving traffic online and to stores (including providing buy online, pickup in store or curbside pickup — the latest in retail technology that literally everyone is doing), (d) fueling growth, and (e) developing a results-minded culture. The debtors are quick to point out that all of this smoky verbiage is leading to “meaningful progress” — something they define as “…having just achieved comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half, and successfully meeting or exceeding guidance on all key financial objectives for the 2019 fiscal year.” The debtors further highlight:

The five financial objectives were: (a) Comparable stores sales were expected to be down between 7-8% (stores sales were down 7.7%); (b) adjusted comparable store sales, which excludes the impact of the Company’s exit from major appliances and in-store furniture categories were expected to be down in a range of 5-6% (adjusted comparable store sales down 5.6%); (c) cost of goods sold, as a rate of net sales was expected to decrease 150-200 basis points (decreased approximately 210 basis points over prior year, which resulted in improved gross margin); (d) adjusted EBITDA was $583 million (a 2.6% improvement over prior year); and (e) free cash flow for fiscal year 2019 was $145 million, beating the target of positive.

Not exactly the highest bar in certain respects but, sure, progress nonetheless we suppose. The debtors point out, on multiple occasions, that prior to COVID-19, its “…projections showed sufficient liquidity to maintain operations without any restructuring transaction.” Maintain being the operative word. Everyone knows the company is in the midst of a slow death.

To prolong life, the focus has been on and remains on high-margin goods (which explains the company getting out of low-margin furniture and appliances and a renewed focus on private label), reducing inventory, and developing a new look for JCP’s stores which, interestingly, appears to focus on the “experiential” element that everyone has ballyhooed over the last several years which is now, in a COVID world, somewhat tenuous.

Which gets us to the way the market has looked at this. The numbers paint an ugly picture. Total revenues went from $12.87b in fiscal year ‘18 to $12b in ‘19. Gross margin also declined from 36% to 34%. In the LTM as of 2/1/20 (pre-COVID), revenue was looking like $11.1b. Curious. But, yeah, sure COGs decreased as has SG&A. People still aren’t walking through the doors and buying sh*t though. A fact reflected by the stock price which has done nothing aside from slowly slide downward since new management onboarded:

All of this performance has also obviously called into question the debtors’ ability to grow into its capital structure:

Here’s a more detailed look at the breakdown of unsecured funded debt:

And yet, prior to COVID, the debt stack has more or less held up. Here is the chart for JCP’s ‘23 5.875% $500mm senior secured first lien notes from the date of new management’s start to today:

Here is the chart for JCP’s ‘25 8.624% $400mm second lien notes from the date of new management’s start to today:

And here is our absolute favorite: JCP’s ‘97 7.625% $500mm senior unsecured notes:

The fact that these notes were in the 20s mere months ago is mind-boggling.

We talk a lot about how bankruptcy filings are a way to tell a story. And, here, the debtors, while not trying to hide their stretched balance sheet nor the pains of brick-and-mortar department stores with a 846-store footprint, are certainly trying to spin a positive story about management and the new strategic direction — all while highlighting that there are pockets of value here. For instance, of those 846 stores, 387 of them are owned, including 110 operating on ground leases. The private brand portfolio — acquired over decades — represents 46% of total merchandise sales. The debtors also own six of their 11 distribution centers and warehouses.

With that in mind, prior to COVID, management and their advisors were trying to be proactive about the balance sheet — primarily the term loans and first lien secured notes maturing in 2023. In Q3 ‘19, the debtors engaged with their first lien noteholders, term lenders and second lien noteholders on proposals that would, among other things, address those maturities, promote liquidity, and reduce interest expense. According to the debtors, they came close. A distressed investor was poised to purchase more than $750mm of the term loans and, in connection with a new $360mm FILO facility, launch the first step of a broader process that would have kicked maturities out a few years. In exchange, the debtors would lien up unencumbered collateral (real estate). Enter COVID. The deal went up in smoke.

There’s a new “deal” in its stead. A restructuring support agreement filed along with the bankruptcy papers contemplates a new post-reorg operating company (“New JCP”) and a new REIT which will issue new common stock and new interests, respectively. Beyond that, not much is clear from the filing: the term sheet has a ton of blanks in it:

There’s clearly a lot of work to do here. There’s also the “Market Test” element which entails, among other things, running new financing processes, pursuing potential sale/leaseback transactions, and pursuing a sale of the all or part of the debtors’ assets. If the debtors don’t have a business plan by July 14 and binding commitments for third-party financing by August 15, the debtors are required to immediately cease pursuing a plan and must instead pursue a 363 of all of their assets. Said another way, if the economy continues to decline, consumer spending doesn’t recover, and credit markets tighten up, there’s a very good chance that JCP could liquidate. Remember: retail sales sunk to a record low in April. Is that peak pain? Or will things get worse as the unemployment rate takes root? Will people shop at JC Penney if they even shop at all? There are numerous challenges here.

The debtors will use cash collateral for now and later seek approval of a $900mm DIP credit facility of which $450mm will be new money (L+11.75% continues the trend of expensive retail DIPs). It matures in 180 days, giving the debtors 6 months to get this all done.

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A few more notes as there are definitely clear winners and losers here.

Let’s start with the losers:

1. The Malls. It’s one thing when one department store files for bankruptcy and sheds stores. It’s an entirely different story when several of them go bankrupt at the same time and shed stores. This is going to be a bloodbath. Already, the debtors have a motion on file seeking to reject 20 leases.

2. Nike Inc. ($NKE) & Adidas ($ADDYY). Perhaps they’re covered by 503(b)(9) status or maybe they can slickster their way into critical vendor status (all for which the debtors seek $15.1mm on an interim basis and $49.6mm on a final basis). Regardless, showing up among the top creditors in both the Stage Stores Inc. bankruptcy and now the J.C. Penney bankruptcy makes for a horrible week.

3. The Geniuses Who Invested in JCP Debt that Matures in 2097. As CNBC’s Michael Santoli noted, “This JC Penney issue fell only 77 years short of maturing money-good.”

4. Bill Ackman & Ron Johnson. This.

And here are the winners:

1. The New York Times. Imperfect as it may be, their digitalization efforts allow us all to read and marvel about the life of James Cash Penney, a name that so befitting of a Quentin Tarantino movie that you can easily imagine JC chillin with Jack Dalton on some crazy Hollywood adventure. We read it with sadness as he boasts of the Golden Rule and profit-sharing. Profits alone would be nice, let alone sharing.

2. Kirkland & Ellis LLP. Seriously. These guys are smoking it and have just OWNED retail. In the past eight days alone the firm has filed Stage Stores Inc., Neiman Marcus Group LTD LLC and now JCP. It’s a department store hat trick. Zoom out from retail and add in Ultra Petroleum Corp. and Intelsat SA and these folks are lucky they’re working from home. They can’t afford to waste any billable minutes on a commute at this point.

3. Management. They’re getting what they paid for AND, consequently, they’re getting paid. No doubt Kirkland marched in there months ago and pitched/promised management that they’d secure lucrative pay packages for them if hired and … BOOM! $7.5mm to four members of management!

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

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Christopher Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse, Jake William Gordon) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • OpCo (JC Penney Corporation Inc.) Independent Directors: Alan Carr, Steven Panagos

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman)

  • PropCo (JCP Real Estate Holdings LLC & JC Penney Properties LLC) Independent Directors: William Transier, Heather Summerfield

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP (James Mesterharm, Deb Reiger-Paganis)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Christian Tempke, Michael Weitz)

  • Store Closing Consultant: Gordon Brothers Retail Partners LLC

  • Real Estate Consultants: B. Riley Real Estate LLC & Cushman & Wakefield US Inc.

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

    • Legal: Arnold & Porter Kaye Scholer

  • RCF Agent: Wells Fargo Bank NA

    • Legal: Otterbourg PC & Bracewell LLP (William Wood)

    • Financial Advisor: M-III Partners (Mo Meghli)

  • TL Agent: JPMorgan Chase Bank NA

  • Indenture Trustee: Wilmington Trust NA

  • Ad Hoc Group of Certain Term Loan Lenders & First Lien Noteholders & DIP Lenders (H/2 Capital Partners, Ares Capital Management, Silver Point Capital, KKR, Whitebox Advisors, Sculptor Capital Management, Brigade Capital Management, Apollo, Owl Creek Asset Management LP, Sixth Street Partners)

    • Legal: Milbank LLP (Dennis Dunne, Andrew Leblanc, Thomas Kreller, Brian Kinney) & Porter Hedges LLP

    • Financial Advisor: Houlihan Lokey (Saul Burian)

  • Second Lien Noteholders (GoldenTree Asset Management, Carlson, Contrarian Capital Management LLC, Littlejohn & Co.)

    • Legal: Stroock & Stroock & Lavan LLP (Kris Hansen) & Haynes and Boone LLP (Kelli Norfleet, Charles Beckham)

    • Financial Advisor: Evercore Group LLC (Roopesh Shah)

  • Large equityholder: BlackRock Inc. (13.85%)

New Chapter 11 Bankruptcy Filing - Neiman Marcus Group LTD LLC

Neiman Marcus Group LTD LLC

May 7, 2020

Dallas-based Neiman Marcus Group LTD LLC, Bergdorf Goodman Inc. and 22 other debtors filed for chapter 11 bankruptcy in the Southern District of Texas late this week. If anyone is seeking an explanation as to why that may be outside the obvious pandemic-related narrative, look no farther than this monstrosity:

A quick reality check: that $5b capital structure isn’t attached to an international enterprise with hundreds or thousands of stores. You know, like Forever21. Rather, that horror show backs a 68 store business (43 Neiman Marcus, 2 Bergdorf, 22 Last Call). Ah….gotta love the good ol’ $5b leveraged buyout.

This case is all about “BIG.”

Big capital structure stemming from a big LBO by two big PE funds, Ares Capital Management and CPP Investment Board USRE Inc.

Big brands with big price tags. PETITION Note: top unsecured creditors include Chanel Inc., Gucci America, Dolce and Gabbana USA Inc., Stuart Weitzman Inc., Theory LLC, Christian Louboutin, Yves Saint Laurent America Inc., Burberry USA, and more. There is also a big amount allocated towards critical vendors: $42.5mm. Nobody messes with Gucci, folks. Here’s a live shot of a representative walking out of court confident that they’ll get their money:

Big fees. More on this below.

Big, complicated — and controversial — multi-year re-designation and asset stripping transactions that were part of the debtors’ (and now non-debtors’) elaborate strategy to restructure out-of-court by kicking the can down the road. This is undoubtedly going to stir a big fight in the case. More on this below too.

Big value destruction.

Here is what will happen to the pre-petition capital structure under the proposed term sheet and restructuring support agreement filed along with the chapter 11 papers — a deal that has the support of 78% of the term lenders, 78% of the debentures, 99% of the second lien notes, 70% of the third lien notes, and 100% of the private equity sponsors:

The Asset-Based Revolving Credit Facility and FILO Facility will get out at par. There’ll be a $750mm exit facility. Beyond that? All that red constitutes heaps and heaps of value that’s now essentially an option. It’s a bet that there is a place in the future for brick-and-mortar luxury department stores. Pursuant to the deal, the “Extended Term Loans” will get the lion’s share of equity (87.5%, subject to dilution). The rest of the capital structure will get small slivers of reorganized equity. General unsecured creditors will get “their pro rata share of a cash pool.” The private equity sponsors will get wiped out but for their hoped-for liability releases.

Back to those big fees. The biggest issue for this week was the debtors’ proposed $675mm new money DIP credit facility (that comes in junior to the existing ABL in priority…in other words, no roll-up here). The DIP is essentially 13% paper chock full of fees (including a backstop fee payable in “NewCo equity” at 30% discount to plan value). One disgruntled party, Mudrick Capital Management, a holder of $144mm of the term loan, appears to have beef with Pimco and other DIP backstop parties — saying that the backstop agreement is inappropriate and the DIP fees are outrageous, likening the fee grab to a COVID hoarding mentality — and therefore felt compelled to cross-examine the debtors’ banker as to the reasonableness of it all. If you’ve ever imagined a kid suing other kids for not picking him for their dodgeball team, it would look something like this did.

And so Lazard’s testimony basically boiled down to this:

“Uh, yeah, dude, nobody knows when the economy will fully open up. The company only has $100mm of cash on the petition date. And IT’S NOT OPERATING. That money is enough for maybe 3 weeks of cash burn given that the debtors intend to continue paying rent (unlike most other retailers that have filed for bankruptcy lately). Damn pesky high-end landlords. Anyway, so we’ll burn approximately $300mm between now and when stores are projected to reopen in July/August. No operating cash flow + meaningful cash burn = risky AF lending environment. It’s unprecedented to lend into a situation with a cash burn that, while it pales in comparison to something like Uber, is pretty damn extreme. Look at the J.Crew DIP: it ain’t exactly cheap to lend in this market. There are no unencumbered assets; there certainly isn’t a way to get junior financing. And a priming fight makes no sense here given the impossibility of showing an equity cushion. So stop being an entitled little brat. There’s no obligation on anyone to cut you into the deal. And if you’re going to cry over spilled milk, take up your beef with Pimco and f*ck right off. Alternatively, you can subscribe to your pro rata portion of the DIP and enjoy all of the fees other than the backstop fee.”

The Judge was convinced that the above rationale constituted good business judgment and approved the DIP on an interim basis.

The hearing also foreshadowed another contentious issue in the case: the myTheresa situation. See, the Debtors’ position is the following: “The ‘17 MyTheresa designation as unrestricted subs + the ‘18 distribution of the myTheresa operating companies to non-debtor Neiman Marcus Group Inc. (a/k/a the “asset stripping” transaction) + a ‘19 wholesale amend-and-extend + cost-saving initiatives + comparable same store sales growth for 7 of 10 quarters + “significantly expanded margins” during the holiday period = rocket ship future growth but for the damn pandemic. On the flip side, Marble Ridge Capital LP takes the position that:

…the Debtors’ financial troubles were entirely foreseeable well before recent events. The Company has operated at leverage multiples more than twice its peers since at least 2018 (prior to the fraudulent transfers described herein). And last year’s debt restructuring increased the Company’s already unsustainable annual interest expense by more than $100 million while only reducing the Company’s debt load by $250 million leaving a fraction of adjusted EBITDA for any capital expenditures, principal repayment, taxes or one-time charges. Sadly, the Debtors’ financial distress will come as no surprise to anyone.

This ain’t gonna be pretty. Marble Ridge has already had one suit for fraudulent transfer dismissed with prejudice at the pleading stage. Now there are defamation and other claims AGAINST Marble Ridge outstanding. And subsequent suits in the NY Supreme Court. Have no fear, though, folks. There are independent managers in the mix now to perform an “independent” investigation into these transactions.

The debtors intend to have a plan on file by early June with confirmation in September. Until then, pop your popcorn folks. You can socially distance AND watch these fireworks.

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

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Anup Sathy, Chad Husnick, Matthew Fagen, Austin Klar, Gregory Hesse, Dan Latona, Gavin Campbell, Gary Kavarsky, Mark McKane, Jeffrey Goldfine, Josh Greenblatt, Maya Ben Meir) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • Independent Managers of NMG LTD LLC: Marc Beilinson, Scott Vogel

    • Legal: Willkie Farr & Gallagher LLP (Brian Lennon, Todd Cosenza, Jennifer Hardy, Joseph Davis, Alexander Cheney)

    • Financial Advisor: Alvarez & Marsal LLC (Dennis Stogsdill)

  • Independent Manager of Mariposa Intermediate Holdings LLC: Anthony Horton

    • Legal: Katten Muchin Rosenman LLP

  • Neiman Marcus Inc.

    • Legal: Latham & Watkins LLP (Jeffrey Bjork)

  • Financial Advisor/CRO: Berkeley Research Group LLC (Mark Weinstein, Kyle Richter, Marissa Light)

  • Investment Banker: Lazard Freres & Co. LLC (Tyler Cowan)

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

• Other Parties in Interest:

  • Pre-petition ABL Agent: Deutsche Bank AG New York Branch

    • Legal: White & Case LLP (Scott Greissman, Andrew Zatz, Rashida Adams) & Gray Reed & McGraw LLP (Jason Brookner, Paul Moak, Lydia Webb)

  • FILO Agent: TPG Specialty Lending Inc.

    • Schulte Roth & Zabel LLP (Adam Harris, Abbey Walsh, G. Scott Leonard) & Jones Walker LLP (Joseph Bain)

  • Pre-petition Term Loan Agent: Credit Suisse AG Cayman Islands Branch

    • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Christopher Kelly) & Haynes and Boone LLP (Charles Beckham, Martha Wyrick)

  • Second Lien Note Agent: Ankura Trust Company LLC

  • Third Lien Note Agent: Wilmington Trust NA

  • Unsecured Notes Indenture Trustee: UMB Bank NA

    • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannal, Rachael Ringer)

  • 2028 Debentures Agent: Wilmington Savings Fund Society FSB

  • Ad Hoc Term Loan Lender Group (Davidson Kempner Capital Management LP, Pacific Investment Management Company LLC, Sixth Street Partners LLC)

    • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus) & Vinson & Elkins LLP (Harry Perrin, Kiran Vakamudi, Paul Heath, Matthew Moran, Katherine Drell Grissel)

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Secured Noteholder Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Claudia Tobler, Diane Meyers, Neal Donnelly, Patricia Walsh, Jeffrey Recher) & Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Large Creditor: Chanel Inc.

    • Legal: Sheppard Mullin Richter & Hampton LLP (Justin Bernbrock, Michael Driscoll)

  • Large Creditor: Louis Vuitton USA Inc.

    • Legal: Barack Ferrazzano Kirschbaum & Nagelberg LLP (Nathan Rugg)

  • Large Creditor: Moncler USA Inc.

    • Legal: Morrison Cohen LLP (Joseph Moldovan, David Kozlowski)

  • Marble Ridge Capital LP & Marble Ridge Master Fund LP

    • Legal: Brown Rudnick LLP (Edward Weisfelner, Sigmund Wissner-Gross, Jessica Meyers, Uchechi Egeonuigwe)

  • Mudrick Capital Management LP

    • Legal: Gibson Dunn & Crutcher LLP (Michael Rosenthal, Mitchell Karlan, David Feldman, Keith Martorana, Jonathan Fortney)

  • Sponsor: CPP Investment Board USRE Inc.

    • Legal: Debevoise & Plimpton LLP (Jasmine Ball, Erica Weisgerber) & Pillsbury Winthrop Shaw Pittman LLP (Hugh Ray, William Hotze, Jason Sharp)

  • Sponsor: Ares Capital Management

    • Legal: Milbank LLP (Dennis Dunne, Thomas Kreller)

  • Official Committee of Unsecured Creditors

    • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski) & Cole Schotz PC (Daniel Rosenberg)

    • Financial Advisor: M-III Advisory Partners LP (Mohsin Meghji)

    • Valuation Expert: The Michel-Shaked Group (Israel Shaked)

⛽️New Chapter 11 Bankruptcy Filing - Diamondback Industries Inc.⛽️

Diamondback Industries Inc.

April 21, 2020

Texas-based Diamondback Industries Inc. and two affiliates (the “debtors”) filed for bankruptcy in the Northern District of Texas; they are manufacturers and sellers of disposable setting tools, power charges, and igniters used in the completion of oil and gas wells. Their wares are patent and trademark protected and appear to enjoy use by oil and gas companies engaged in drilling and well services. The debtors have managed to weather the oil and gas downturn over the last several years but the recent perfect storm brought on by the calamitous drop in oil prices + COVID-19 was too much to bear. These factors alone would have been troubling but the debtors also ran into some crippling legal troubles.

On April 3, 2020, the District Court for the Western District of Texas entered a patent judgment against the debtors that instantly dumped a $39.9mm obligation on the debtors in favor of Repeat Precision LLC. Originally, Repeat Precision LLC was the defendant in a patent license agreement dispute pursuant to which the debtors claimed breach of contract, misappropriation of trade secrets and fraudulent inducement. Repeat Precision filed counterclaims for patent infringement and tortious interference. It appears the debtors weren’t prepared for the counter-punches. The judgment was the knockout punch.

And that punch created a domino effect. The judgment triggered an event of default under the debtors’ prepetition credit agreement. This was a double-whammy: just two days before, the debtors failed to make a principal payment and breached various financial covenants under the agreement. The debtors’ lender, UMB Bank NA, did enter into a forbearance agreement with the debtors but the debtors nevertheless determined that chapter 11 cases may afford them a “breathing spell” to get their business together (and perhaps pursue a sale process). The debtors secured a $5mm DIP commitment to fund their cases.

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

• Capital Structure: $20mm funded RCF (UMB Bank NA)

• Professionals:

  • Legal: Haynes and Boone LLP (Ian Peck, David Staab, Matthew Ferris)

  • Financial Advisor/CRO: CR3 Partners LLC (Greg Baracato, Cade Kennedy)

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

• Other Parties in Interest:

  • US Bank NA

    • Legal: Bryan Cave Leighton Paisner LLP (Kyle Hirsch, Tricia Macaluso)

  • Unsecured Creditor: Repeat Precision LLC

    • Legal: Munsch Hardt Kopf & Harr PC (Davor Rukavina, Thomas Berghman)

⛽️New Chapter 11 Filing - Pioneer Energy Services Corp. ($PESX)⛽️

Pioneer Energy Services Corp.

March 1, 2019

San Antonio-based oilfield services provider Pioneer Energy Services Corp. and several affiliates (the “debtors”) filed “straddle” prepackaged chapter 11 bankruptcy cases on Sunday in what amounts to a true balance sheet restructuring. Will this kickoff a new slate of oil and gas related bankruptcy filings? 🤔

The debtors provide well servicing, wireline and coiled tubing services to producers in Texas and the Mid-Continent and Rocky Mountain regions; they also provide contract land drilling services to operators in Texas, Appalachia, and the Rocky Mountain region. International operations in Colombia are not part of the bankruptcy cases. Due to the…shall we say…unpleasant…atmosphere for oil and gas these last few years — which, clearly undermined demand for their services and, obviously, revenue generation — the debtors determined that they couldn’t continue to service their existing capital structure. Alas, bankruptcy.

Hold on: not so fast. We previously wrote in “⛽️Storm Clouds Forming Over Oil & Gas⛽️,” the following:

And so it’s no wonder that, despite a relative dearth of oil and gas bankruptcy filings in 2020 thus far, most people think that (a) the E&P and OFS companies that avoided a bankruptcy in the 2015 downturn are unlikely to avoid it again and (b) many of the E&P and OFS companies that didn’t avoid a bankruptcy in the 2015 downturn are unlikely to avoid the dreaded Scarlet 22….

Sure, Pioneer hasn’t filed for bankruptcy before. But it has been in a constant state of restructuring ever since 2015. Per the debtors:

…in 2015 and 2016, Pioneer reduced its total headcount by over 50%, reduced wage rates for its operations personnel, reduced incentive compensation and eliminated certain employment benefits. In 2016, the Company closed ten field offices to reduce overhead and associated lease payments. At the same time, the Company lowered its capital expenditures by 77% to primarily routine expenditures that were necessary to maintain its equipment and deferred discretionary upgrades and additions (except those that it had previously committed to make during the 2014 market slowdown).

And:

Since the beginning of 2015 through the end of 2018, the Company has liquidated nonstrategic or non-core assets. Specifically, Pioneer has sold thirty-nine (39) non-AC domestic drill rigs, thirty-three (33) older wireline units, seven (7) smaller diameter coiled tubing units and various other drilling and coiled tubing equipment for aggregate net proceeds of over $75 million. As of September 30, 2019, the Company reported another $6.2 million in assets remaining held for sale, including the fair value of buildings and yards for one domestic drilling yard and two closed wireline locations, one domestic SCR drilling rig, two coiled tubing units and spare support equipment.

Annd:

In the first quarter of 2019, the Company continued its cost-reduction initiatives and operational adjustments by expanding the roles and related responsibilities of several of its executive leaders to further leverage their existing talents to the entire organization.

In other words, these guys have been gasping for air for five years.

Relatively speaking, the debtors capital structure isn’t even that intense:

1. $175mm Term Loan (Wilmington Trust NA)

2. $300mm 6.125% ‘22 senior unsecured notes (Wells Fargo Bank NA)

Yet with oil and gas getting smoked the way it has, it was still too much. So what now?

The prepackaged plan would give the term lenders cash (from a rights offering) and $78.125mm in new secured bonds (PETITION Note: we’re betting there are a bunch of CLOs here). The unsecured noteholders will get either all of the equity or 94.25% of the equity depending upon what the interest holders do; they’ll also get rights to participate in the rights offering. If the interest holders vote to accept the plan, they’ll get 5.75% of the equity and rights to participate in the rights offering; if they reject the plan, they’ll get bupkis and the noteholders will get 100% of the equity (subject to dilution). General unsecured claimants will get paid in full. Management will put in money as part of the rights offering and an ad hoc group of the unsecured noteholders (Ascribe Capital, DW Partners LP, Intermarket Corporation, New York Life Investments, Strategic Income Management LLC, and Whitebox Advisors LLC) agreed to backstop substantially all of the rights offering (and will receive an 8% premium for their commitment). The cases will be supported by a $75mm DIP. This thing is pretty buttoned up. Confirmation is expected within 45 days.

The end result? The debtors will emerge with $153mm of debt on balance sheet (the $78.125mm in new secured bonds and a $75mm exit ABL). Time will tell whether or not this remains too much.*

*The risk factors here are particularly interesting because all of them are very real. If the oil patch does suffer, as expected, the debtors’ concentration of business among their top three clients (66% of revenue) could be especially troubling — depending on who those clients are.

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

• Capital Structure: see above.

• Professionals:

  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Elizabeth McColm, Brian Bolin, William Clareman, Eugene Park, Grace Hotz, Sarah Harnett) & Norton Rose Fulbrights US LLP (William Greendyke, Jason Boland, Robert Bruner, Julie Goodrich Harrison)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Lazard Freres & Co. LLC

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

• Other Parties in Interest:

  • DIP Lender ($75mm): PNC Bank NA

    • Legal: Blank Rome LLP (James Grogan, Broocks Wilson)

  • Prepetition Term Loan Agent: Wilmington Trust NA

    • Legal: Covington & Burling LLP

  • Ad Hoc Group of Prepetition Term Loan Lenders

    • Legal: Vinson & Elkins LLP (David Meyer, Paul Heath, Harry Perrin, Steven Zundell, Zachary Paiva)

  • Ad Hoc Group of Unsecured Noteholders: Ascribe Capital, DW Partners LP, Intermarket Corporation, New York Life Investments, Strategic Income Management LLC, Whitebox Advisors LLC)

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Natasha Tsiouris, Erik Jerrard, Xu Pang) & Haynes and Boone LLP (Charles Beckham)

    • Financial Advisor: Houlihan Lokey

🔌New Chapter 11 Bankruptcy Filing - Agera Energy LLC🔌

Agera Energy LLC

October 4, 2019

Agera Energy LLC, a retail electricity and natural gas provider to commercial, industrial and residential customers filed for bankruptcy in the Southern District of New York. The company blames, among other things, mismanagement and poor strategy for the run-up to its financial problems: too many low margin fixed contracts in an environment that calls for variable contracts proved to be an albatross. Nevertheless, in September ‘18, sponsor Eli Global LLC agreed to pursue a turnaround plan including any and all capital infusions that might be necessary.

But then the hammer dropped. New management discovered “material balance sheet issues, which led to a restatement of the Debtors’ financials. Specifically, as of August 31, 2018, there was approximately $39 million of over stated receivables, of which $37 million related to unbilled receivables. As a result of the foregoing discovery, the Debtors suddenly found themselves in breach of the Senior Lien Supply Agreement’s $16 million Tangible Net Worth covenant.” WHOOPS.

Thereafter, the company and its lenders operated pursuant to a series of forbearance agreements while Eli Global LLC made millions of dollars of capital contributions. Until they didn’t. In May, Eli Global indicated that it was no longer in a position to inject capital into the business — and it still had $21mm in commitments from that point forward. Without the capital, the company was unable to satisfy, among other things, renewable portfolio standards it is subject to.* This dominoed into a separate liability for the company of approximately $72mm and a slate of enforcement actions from the Massachusetts Department of Energy Resources, the Rhode Island Public Utilities Commission and the New Hampshire Public Utilities Commission that threatened the debtors’ ability to sell electricity or natural gas in those states. Consequently, the debtors initiated a strategic alternatives review process which, naturally, included a marketing process for the sale of the debtors. The company now has Exelon Generation Company LLC lined up as a stalking horse purchaser (for the debtors’ contracts) for $24.75mm.

*RPS laws require a certain portion of a state’s electricity consumption to be generated from renewable sources, such as wind, solar, biomass, geothermal, or hydroelectric.

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

• Capital Structure: $161.6mm Senior Lien Supply Agreement and Senior Lien ISDA Master Agreement (BP Energy), $35mm Second lien Revolving Credit Facility (Colorado Bankers Life Insurance Company)

• Professionals:

  • Legal: McDermott Will & Emery (Timothy Walsh, Darren Azman, Ravi Vohra, Debra Harrison)

  • Independent Manager: Stephen Gray

  • Financial Advisor: GlassRatner Advisory & Capital Group LLC

  • Investment Banker: Miller Buckfire & Co. LLC & Stifel Nicolaus & Co. Inc.

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

• Other Parties in Interest:

  • DIP Lender: BP Energy Company

    • Legal: Haynes and Boone LLP (Charles Beckham Jr., Kelli Norfleet, Arsalan Muhammad, Kathryn Shurin)

  • Stalking Horse Bidder: Exelon Generation Company, LLC

    • Legal: McGuireWoods LLP (Cecil Martin III)

  • Platinum Partners

    • Legal: Otterbourg PC (Melanie Cyganowski, Eric Weinick)

10/7/19 #42

⛽️New Chapter 11 Bankruptcy Filing - Jones Energy Inc.⛽️

Jones Energy Inc.

April 14, 2019

Austin-based independent oil and natural gas E&P company, Jones Energy Inc., filed a prepackaged chapter 11 bankruptcy to restructure its $1.009b of debt ($450mm senior secured first lien notes and $559mm unsecured notes across two tranches). In case you didn’t realize, oil and gas exploration and production is a capital intensive business.

The company operates primarily in the Anadarko Basin in Oklahoma and Texas. Its territory is the aggregation of acreage accumulated over the years, including the 2009 purchase of Crusader Energy Group Inc. out of bankruptcy for $240.5mm in cash.

We’re not going to belabor the point as to why this company is in bankruptcy: the narrative is no different than most other oil and gas companies that have found their way into bankruptcy court over the last several years. Indeed, this chart about sums things up nicely:

It’s really just a miracle that it didn’t file sooner. Why hadn’t it? Per the company:

…the Debtors consummated a series of liquidity enhancing transactions, including equity raises, debt repurchases, strategic acquisitions, non-core asset sales, and modifications of their operations to reduce their workforce and drilling activities. This included a Company-wide headcount reduction in 2016 resulting in the termination of approximately 30% of the Debtors’ total workforce, as well as halting drilling activity spanning several months during the worst of the historic commodity downturn.

But…well…the debt. As in, there’s too much of it.

And debt service costs were too damn high. In turn, the company’s securities traded too damn low:

Source: Disclosure Statement

What’s more interesting here is the process that unfolded. In February 2018, the company issued $450mm of 9.25% ‘23 senior secured first lien notes. The proceeds were used to repay the company’s senior secured reserve-based facility and eliminate the restrictive covenants contained therein. The company also hoped to use the proceeds to repurchase some of its senior unsecured notes at a meaningful discount to par. In a rare — yet increasingly common — show of unity, however, the company’s unsecured lenders thwarted these efforts by binding together pursuant to a “cooperation agreement” and telling the company to take its pathetic offer and pound sand. (PETITION Note: its amazing what lenders can achieve if they can solve for a collective action problem). This initiated a process that ultimately led to the transaction commemorated in the company’s announces restructuring support agreement.

So what now? The senior secured lenders will equitize their debt and come out with 96% of the common stock in the reorganized entity. Holders of unsecured debt will get 4% equity and warrants (exercisable for up to a 15% ownership stake in the reorganized company), both subject to dilution by equity issued to management under a “Management Incentive Plan.” The company has a commitment for $20mm of exit financing lined up (with the option for replacement financing of up to $150mm).

Hopefully the company will have better luck without the albatross of so much debt hanging over it.

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

• Capital Structure: $450mm 9.25% ‘23 senior secured first lien notes (UMB Bank NA), $559mm 6.75% ‘22 and 9.25% ‘23 unsecured notes (Wells Fargo Bank NA)

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Anthony Grossi, Ana Rotman, Rebecca Blake Chaikin, Mark McKane, Brett Newman, Kevin Chang) & (local) Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz)

  • Independent Directors: Tara Lewis, L. Spencer Wells

  • Financial Advisor: Alvarez & Marsal LLC (Ryan Omohundro)

  • Investment Banker: Evercore Group LLC (Daniel Aronson)

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

• Other Parties in Interest:

  • Ad Hoc Group of First Lien Noteholders

    • Legal: Milbank LLP (Dennis Dunne, Evan Fleck, Michael Price) & (local) Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

    • Financial Advisor: Lazard Freres & Co. LLC

  • Ad Hoc Group of Crossover Holders

    • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Benjamin Schak) & (local) Haynes and Boone LLP (Charlie Beckham, Kelli Norfleet)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Metalmark Capital LLC

    • Legal: Vinson & Elkins LLP (Andrew Geppert, David Meyer, Jessica Peet, Michael Garza)

Updated 4/15/19 2:05 CT

New Chapter Bankruptcy Filing - SAS Healthcare Inc.

SAS Healthcare Inc. 

January 31, 2019

Dallas/Fort Worth-based mental health facilities operator filed for bankruptcy last week in the Northern District of Texas. The more we read about these healthcare bankruptcies, the less and less assured we feel about healthcare generally. Holy sh*t a lot of them have hair on them. 

Here, the debtors operate three mental health treatment facilities — in Arlington, Dallas, and Fort Worth. Therein, the debtors provided — and we mean, "provided" — in-patient and out-patient mental health care to children, adolescents and adults struggling with substance abuse and addiction, mental health disorders and behavioral and psychological disorders. Why the past tense? Because thanks to an investigation by the Tarrant County District Attorney and subsequent indictments, the debtors ceased operations in December 2018. 

The debtors —owned in in equal 1/3 parts by three individuals — has $8.26mm in secured debt (Ciera Bank), a $503k drawn secured revolving line of credit with Ciera Bank, a $4.3mm secured term loan with Southside Bank (exclusive of another $3mm in unpaid principal and interest), a $5.6mm construction loan with Southside Bank (exclusive of another $4.3mm in unpaid principal and accrued interest); a $850k secured loan with Southside, a $400k second lien secured bridge note with REP Perimeter Holdings LLC, and $1.325mm subordinated secured note from the owners. 

Back to those closures. The grand jury investigation led to a lot of negative publicity which, in turn, led to an abrupt end in patient referrals from the two largest referral sources. The end effect? Decimated revenue. The company secured its bridge loan and performed operational triage but the second indictment proved to be a death knell. Without ongoing operations and with all of that debt, the debtors had to file for chapter 11 to trigger the automatic stay and buy itself time to conduct a marketing and sale process to sell their assets to stalking horse purchaser and prepetition lender, REP Perimeter Holdings LLC. 

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

• Company Professionals:

  • Legal: Haynes and Boone LLP (Stephen Pezanosky, Jarom Yates, Matt Ferris)

  • Financial Advisor: Phoenix Management Services LLC (Brian Gleason)

  • Investment Banker: Raymond James & Associates Inc. (Michael Pokrassa)

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

• Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - Senior Care Centers LLC

Senior Care Centers LLC

December 4, 2018

Ok, we take it back. We’ve been saying how healthcare distress was overhyped in the beginning of the year and now a mini-wave of healthcare-related bankruptcy filings has hit dockets across the country. It’s cool: we don’t take it personally.

Here, Senior Care Centers LLC and its bazillion affiliated debtors, filed for bankruptcy in the Northern District of Texas. The debtors are one of the largest skilling nursing services providers in the US, providing care for approximately 9k patients in Texas and Louisiana. They operate 97 skilled nursing facilities, 9 assisted living facilities and 6 hospice facilities. The company notes:

Like much of the healthcare sector, the operators of skilled nursing facilities (“SNFs”) are and have been experiencing significant challenges and financial distress in recent years. The challenges faced by the Debtors are similar to those experienced by other SNF operators and widespread within the skilled nursing industry. The Debtors faced increasing financial pressure in 2017 and 2018 cause by, among other things, declining reimbursement rates, difficulties in collecting accounts receivable, declining census, and occupancy rates, increasing lease obligations, tightening terms with various trade creditors, and a significantly reduced working capital loan facility. All of these factors have combined to negatively impact the Debtors’ operations.

Getting more specific, the company adds:

Since 2017, the Company experienced significant liquidity constraints caused by, among other things: (a) increasing rent and “above-market” leases with various Landlords; (b) declining performance within the current portfolio for a variety of industry-wide developments; (c) tightening terms with various trade creditors; and (d) declining census. The Company has struggled to respond to liquidity issues for several months. In July of 2018, Administrative Agent began establishing Borrowing Base reserves, resulting in reduced availability under the Credit Facility.

The immediate cause for the filing of these Chapter 11 Cases was due to liquidity issues resulting from reduced Borrowing Base availability. This problem was compounded when certain of the Debtors’ landlords issued termination and/or default notices (the “Landlord Notices”).

Certain vendors demanded modification to payment terms, which restricted or eliminated the Company’s trade credit. Moreover, relationships with current and prospective Employees and Patients have been affected by the uncertainty. For example, several recent candidates have rescinded their offers to join the Company and expressed concern regarding the Company’s financial stability.

That story should sound wildly familiar by now.

Of significance, however, is the company’s relationship with Sabra Health Care REIT Inc. ($SBRA), which is one of the major landlords who issued termination/default notices (over which there is some dispute as to whether they were subsequently withdrawn). Sabra owns CCP which is the debtors’ second lien lender. More importantly, Sabra is the landlord on approximately 40 of the debtors’ facilities. The debtors owe Sabra $31.78mm in unpaid rent, common area maintenance charges and taxes.

Interestingly, Sabra’s own commentary about the debtors’ situation probably didn’t help matters much. On its Q3 earnings call on November 6, Sabra said a number of things about the debtors’ inability to pay rent, a potential sale of the debtors, its efforts to obtain financing, and management’s skittishness about any go-forward transaction that would endanger their jobs. On that last point, Sabra indicated that it was discussing go-forward options directly with the debtors’ board as a result. The debtors’ various constituents could obvious see/hear these comments and react accordingly.

But the Sabra commentary also demonstrates how difficult the current environment is for SNFs right now. Some big takeaways from their earnings call:

• It is reducing its exposure to Texas, its largest state, “which also happen to be the one state where there is an oversupply of skilled nursing beds in a number of markets due to new product. And Texas also has one of the weakest Medicaid systems in the country.” (PETITION Note: scour the Googles for other SNFs highly indexed to Texas for future distressed/bankruptcy candidates).

• Skilled operators (read: private equity) are in acquisition mode and, therefore, pricing is high even for product that isn’t of the highest quality. (PETITION Note: “too much money chasing too few deals.” This should, theoretically, bode well for the debtors’ proposed sale, if so). Sabra’s CEO Rick Matros said, “we're not seeing much good skill product and I really believe that that's a function of the skilled operators are buying everything all of us are selling, but they're not putting reasonable assets on the market because everybody sees the light at the end of the tunnel both in terms of the demographic in terms of decreasing supply and in terms of the positive benefits of PDPM reimbursements system that’s going go into effect next October.”

• Smaller SNFs will succumb to bankruptcy. Matros added, “My guess is over the course of the next year particularly with the mom-and-pops, we'll probably see more products come to market as a number of the smaller providers determine that they don't have the wherewithal or the desire to go through the transition that is going to be required to go through to be successful post-PDPM.”

In other words, there should be a healthy amount of M&A and distressed activity in the near future in the SNF space.

Anyway, back to the debtors: they hope to use the automatic stay provided by the filing to transition underperforming facilities to new operators in coordination with its landlords and sell their profitable facilities. They will use cash collateral to fund the cases.

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

• Funded Capital Structure: $33.06mm RCF, $9.53mm HUD RCF, $4.3mm CCP (second lien) Loan   

• Company Professionals:

  • Legal: Polsnielli PC (Jeremy Johnson, Trey Monsour, Stephen Astringer, Nicholas Griebel)

  • Conflicts Legal: Huntons Andrews Kurth LLP

  • CRO & Financial Advisor: Newbridge Management LLC (Kevin O’Halloran) & BDO USA LLP

  • Communications Consultants: Sitrick and Company

  • Claims Agent: Omni Management Group LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Large Creditor: Sabra Health Care Reit, Inc.

  • Sponsor: Silver Star Investments LLC

  • Admin Agent & Lender: CIBC Bank USA

    • Legal: Duane Morris LLP (John Weiss, Rosanne Ciambrone) & (local) Haynes and Boone LLP (Stephen Pezanosky, Matthew Ferris)

⛽️New Chapter 11 Bankruptcy Filing - Fairway Energy LP⛽️

Fairway Energy LP

November 26, 2018

Belligerent week for companies attached to the oil and gas space (see also Waypoint Leasing). Here, Houston-based Fairway Energy LP, which, interestingly (and somewhat oddly), is 28%-owned by the President and Fellows of Harvard College (🤔), is a storage provider for third-party companies engaged in the production, distribution and marketing of crude oil; it is also now in bankruptcy down in the District of Delaware.

Specifically, the company provides undersurface salt cavern storage, storage that has been utilized since the 40s because of its “extremely low risk of leakage through self-sealing under cavern operating pressures.” The company began construction on its 10-million barrel underground storage facility (the “Facility”) in 2015 (rough timing); yet, it has exclusive rights to store in the facility and has otherwise secured the necessary leases to operate in its geographic location. It is also connected to customers via owned and third-party pipeline systems, which enable to the company to take inbound capacity from the (hot) Permian Basin, the Eagle Ford Shale Basin, and Canada/Midcontinent. The pipelines also connect to hubs that connect to “downstream” infrastructure, i.e., refiners, etc.

To get off the ground, the company had a $390mm equity infusion and $80mm in term loans from Riverstone Credit Partners LP. The company has been operating off of credit agreement amendments now for months, however, given operational and market issues that impeded their use of the Facility and hampered liquidity. Per the company:

For the nine (9) months ended September 30, 2018, Fairway had an operating loss of $38,600,000 (before interest, expense, and other income). Fairway’s financial performance has been negatively affected by (i) reduced and delayed demand for its services, (ii) cost overruns on the Facility, (iii) commercial restrictions on accessing the Facility by existing pipeline connections, and (iv) general market conditions that undermine the demand for crude oil storage.

In other words, a perfect storm posing all sorts of headwinds. These winds, it seems, chilled any potential buyer interest in the Facility: pre-petition efforts to find a buyer, including a stalking horse buyer, proved futile. It seems all of the hopeful and flowery language deployed by the company’s professionals in the First Day Declaration about the usefulness of the Facility isn’t a sentiment shared by any prospective purchasers. Was this whole project a solution in search of a problem? Via the bankruptcy sale process, we’ll soon find out. So, will Riverstone (which is also providing a $20mm DIP credit facility) and the writers of the $390mm of equity checks (read: Harvard).

• Jurisdiction: D. of Delaware

• Capital Structure: $94mm debt     

• Company Professionals:

  • Legal: Haynes and Boone LLP (Patrick Hughes, Martha Wyrick, Kelsey Zottnick) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Kenneth Enos, Elizabeth Justison)

  • Financial Advisor: Alvarez & Marsal North America LLC (Gary Barton, Kevin Larin)

  • Investment Banker: Piper Jaffray & Co./Simmons & Company International

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

• Other Parties in Interest:

  • Administrative Agent under Secured Term Loan Credit Agreement & DIP Lender/Agent: Riverstone Credit Partners LP

    • Legal: White & Case LLP (David Turetsky, Andrew Zatz) & (local) Fox Rothschild LLP (Jeffrey Schlerf)

New Chapter 11 Bankruptcy Filing - Cafe Holdings Corp.

Cafe Holdings Corp.

November 15, 2018

Source: Fatz.com

Anyone interested in a game of hot potato?

Cafe Holdings Corp. is a privately-owned chain of fast casual dining restaurants called Fatz Cafe. Fatz Cafe has 38 locations across 5 states and, as you can surely note from the image above, has an abundance of potato options on its menu. And it, in this scenario, is the hot potato.

The company filed for bankruptcy in the District of South Carolina earlier this week — exhibiting yet another sign, as PETITION has discussed at length previously, that casual dining is a really tough space right now. The company, itself, acknowledges:

Over the past several years, casual dining chains have experienced strong headwinds due to a combination of shifting consumer tastes and preferences, growth in labor and commodity costs, increased competition, and unfavorable lease terms. Indeed, a number of national and regional restaurant chains – including Real Mex Restaurants, certain Applebee’s franchisees, Ignite Restaurant Group, Macaroni Grill, Garden Fresh, Bertucci’s, and Logan’s – have buckled under these secular pressures and were forced to restructure their balance sheets and operations through a chapter 11 bankruptcy.

The company blames its unsustainable $30mm capital structure, “industry-wide challenges, trade market changes and challenges, underperforming strategic initiatives, and unsatisfactory business performance.” All of this is despite efforts to run the typical distressed restaurant playbook: install new management, refinance debt, restructure leases, shutter underperforming locations, deploy overhead rationalization, innovate around new product and promotional strategies, update the menu, invest in tech, renegotiate with vendors, etc. PETITION Note: nothing in the standard playbook can do anything about the fact that there are just far too many dining options available to consumers today. Period. The company’s consolidated adjusted network-wide EBITDA for the 12 months ended September 2018 and the fiscal year ended 2017 were approximately ($635,087) and $1.40 million, respectively.

And so the company turned to the next page in the playbook: a marketed sale. Yet, despite outreach to more than 200 parties, including both potential financial and strategic partners, the company didn’t generate any bids. Then comes the hot potato:

Unfortunately, after months of effort and outreach to more than 200 parties, including both potential financial and strategic purchasers, the Company was not able to obtain any bids for the Fatz assets. Moreover, the Company’s then first lien lender, Madison Capital Funding LLC (“Madison”), informed the Company that it did not wish to offer financing or serve as a stalking horse bidder in a chapter 11 sale process, and ultimately sold its debt position to Shrayne Capital, LLC (“Shrayne”). After further diligence, ultimately Shrayne decided it also did not wish to serve as a stalking horse bidder in a chapter 11 sale process and, in turn, sold its position to Atalaya Capital Management, LP and certain of its affiliates (collectively, “Atalaya”), who agreed to provide debtor in possession financing and to serve as a stalking horse bidder in a section 363 sale of substantially all of the Company’s assets.

You have to think that Atalaya Capital Management got that first lien paper at a meaningful discount to face value. Indeed, Shrayne only owned the paper for 5 weeks and then ran for the hills. Atalaya will provide the company with a $3.2mm DIP and, though the company has not filed its bidding procedures or stalking horse asset purchase agreement, presumably credit bid its debt to own the company out of Chapter 11. Now, for the uninitiated, the bankruptcy code permits a creditor to “credit bid” its debt, which is basically, as payment, exchanging a claim for the assets. A creditor can do that to the full extent of the claim, regardless of the the price said creditor paid for that claim. In other words, Atalaya may have paid Shrayne $0.01 for the first lien paper but because the face value of the first lien paper is $9.7mm, Atalaya can, but doesn’t have to, “bid” up to $9.7mm of that claim (like a coupon, in effect) for the company. Alternatively, it can provide the $3.2mm DIP credit facility and just credit bid that amount. There are a number of ways that this can be structured. Suffice it to say that Atalaya will need to infuse the business with capital if it wants it to have a fighting chance but it is under no obligation to cover and pay down the full extent of the debt. Indeed, the junior lenders and the ~63.5% equityholder, Milestone Partners III LP I and II, can effectively kiss their investments goodbye.

Opportunistic players who love feasting on the restaurant space will continue to have an abundance of opportunities like this one.

• Jurisdiction: D. of South Carolina

• Capital Structure: $9.7mm first lien (Atalaya Capital Management), $2mm second lien, $17.5mm mezzanine unsecured loan, $1.9mm unsecured subordinated note

• Company Professionals:

  • Legal: Haynes and Boone LLP (Ian Peck, J. Fraser Murphy, David Staab) and (local) McNair Law Firm PA (Michael Weaver, Robin Stanton, Weyman Carter)

  • Financial Advisor: Loughlin Management Partners & Co.

  • Investment Banker: Duff & Phelps LLC (Vin Batra)

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

• Other Parties in Interest:

Updated 11/17/18

New Chapter 11 Bankruptcy Filing - Republic Metals Refining Corporation

Republic Metals Refining Corporation

Source: Pexels.com

November 2, 2018

Republic Metals Refining Corporation (and affiliates), a Miami-based family-owned refiner of gold and silver, filed for bankruptcy to run an orderly sale process of their assets and operations. Last spring, the debtors discovered “a significant discrepancy” in their inventory accounting that, ultimately, led to summer-time default notices from their various senior lenders. The lenders, however, were mostly kept at bay until the filing because the debtors appeared, on multiple occasions, to be close to a going concern sale.

Close. But no cigar.

In the absence of a pre-petition buyer and/or stalking horse bidder, the debtors will now continue their potential sale process or, alternatively, engage in a process to liquidate. The debtors have an agreement with their senior lenders for the consensual use of cash collateral for a short period to attempt a sale, liquidate, and implement a plan for the wind down of the debtors’ estates.

• Jurisdiction: S.D. of New York

• Capital Structure: $177mm senior debt

• Company Professionals:

  • Legal: Akerman LLP (Susan Balaschak, Andrea Hartley, Katherine Fackler, John Mitchell, Esther McKean)

  • Financial Advisor: Paladin Management Group LLC (Scott Avila)

  • Investment Banker: SSG Capital Advisors LLC

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

• Other Parties in Interest:

  • Senior Lender: ICBC Standard Bank Plc

    • Legal: Haynes and Boone LLP (J. Frasher Murphy, Eli Columbus, Geoffrey Raicht)

  • Senior Lenders: Coöperatieve Rabobank U.A., New York Branch, Brown Brothers Harriman & Co., Bank Hapoalim B.M., Mitsubishi International Corporation, Techemet Metal Trading LLC, Woodforest National Bank, and Bank Leumi USA.

    • Legal: Luskin Stern & Eisler LLP (Richard Stern, Alex Talesnick)

New Chapter 11 Filing - Red Fork (USA) Investments Inc.

Red Fork (USA) Investments Inc. 

8/7/18

Red Fork (USA) Investments Inc., a Texas-headquartered oil and gas exploration and production company focused on five counties in Oklahoma, filed for bankruptcy after capitulating under the weight of its debt and inability to generate enough revenue to cover it. The company is also the subject of a number of legal actions asserting that the company owned and/or operated saltwater disposal wells that "caused or contributed" to certain earthquakes. Given the costs of the latter and the lack of revenue from E&P initiatives, the company commenced its chapter 11 cases. 

• Jurisdiction: W.D. of Texas 
• Capital Structure: $119.5mm debt (Guggenheim Corporate Funding LLC)    
• Company Professionals:
  • Legal: Dykema Gossett PLLC (Deborah Williamson, Patrick Huffstickler, Jesse Moore)
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Independent Board Director: Eugene Davis
• Other Parties in Interest:
  • Prepetition Secured Lenders: Guggenheim Corporate Funding LLC
    • Legal: Haynes and Boone LLP (Charles Beckham Jr., Martha Wyrick, Matthew Ferris)

New Chapter 22 Filing - Geokinetics Inc.

Geokinetics Inc.

6/25/18

Just when we thought companies had mysteriously figured out how to stay out of bankruptcy court, alas, a filing!

And just when we thought oil and gas-related distress had ridden off into the proverbial Texan sunset, in walks Houston-based geophysical services provider Geokinetics Inc. into the Southern District of Texas with a plan to sell substantially all of its assets to (one-time bankruptcy candidate) SAE Exploration Inc. for $20mm. Looks like the oil and gas downturn still has some appetite for prey. And it must be tasty prey: this is the second time in four years that this company is in bankruptcy. #Scarlet22. Indeed, this company is so good at bankruptcy that, the first time, it emerged from chapter 11 a full year before it even confirmed its plan!! From paragraph 24 of the First Day Declaration:

"On March 10, 2014, GOK and certain affiliated subsidiaries confirmed a prepackaged chapter 11 plan of reorganization in the District of Delaware. Pursuant to the Plan, GOK equitized over $300 million of debt and paid off its revolving credit facility. On May 10, 2013, GOK and certain affiliated subsidiaries emerged from chapter 11."

And we thought Westworld had mind-bending timelines. Whoops. 

The company blames the prolonged downturn and certain discreet "operational difficulties" that resulted in uncollectable receivables for its bankruptcy. Wanting to jump ship as the iceberg approached, Wells Fargo sought to minimize its exposure but the company and its bankers, Moelis, weren't able to find a suitable secured loan facility to refinance its revolving loan. So Moelis toggled to "strategic alternatives" mode which, seemingly, included dumping this turd on unsuspecting public equity investors as the company -- under the guidance of Fried Frank Harris Shriver & Jacobson -- filed a confidential S-1 under the JOBS Act. Sounds a lot like Domo Inc. Or Tintri Inc., for that matter. #HailMary

Obviously the company didn't IPO. Instead, it continued to bleed cash. Ascribe Capital replaced Wells Fargo and funded bridge loans for some time until they were no longer willing to perform triage. The company and its advisors stepped on the gas, lined up the stalking horse bidder, and secured interest in a $15mm DIP credit facility -- from Whitebox Advisors and Highbridge Capital, two funds that are stakeholders in the stalking horse bidder -- and filed for bankruptcy. The proceeds of the DIP will be used, in part, to pay off Ascribe's bridge loans. 

Meanwhile, remember that IPO? It seems the company thought that that was a gigantic waste of time: among the top creditors are Fried Frank Harris Shriver & Jacobson LLP and Moelis & Co. ($MO). Savage. 

• Jurisdiction: S.D of Texas (Judge Jones)
• Capital Structure: $15.6mm Term Loan A (Ascribe Capital, Wilmington Trust), $6.8mm RCF (Ascribe Capital, Wilmington Trust)
• Company Professionals:
  • Legal: Porter & Hedges LLP (John Higgins, Joshua Wolfshohl, Aaron Power)
  • Financial Advisor: FTI Consulting Inc. 
  • Investment Banker: Moelis & Co. 
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Ascribe Investments LLC
    • Legal: Simpson Thacher & Bartlett LLP (Michael Torkin, Bryce Friedman, Randi Lynn Veenstra, Megan Tweed, Sandeep Qusba, Yun Joo Lim) & (local) Haynes and Boone LLP (Charles Beckham Jr., Martha Wyrick)
  • SAExploration Inc.
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Sarah Link Schultz, Eric Seitz)
  • DIP Lenders: Whitebox Advisors LLC, Highbridge Capital Management LLC
    • Legal: Brown Rudnick LLP (Andreas Andromalos, Steven Levine, Jeffrey Jonas, Robert Stark, Kimberly Cohen)

Updated 6/26 6:54 PT

New Chapter 11 Filing - iHeartMedia Inc.

iHeartMedia Inc.

3/14/18

iHeartMedia Inc., a leading global media company specializing in radio, outdoor, mobile, social, live media, on-demand entertainment and more, has filed for bankruptcy -- finally succumbing to its $20 billion of debt ($16 billion funded) and $1.4 billion of cash interest in 2017. WOWSERS. The company purports to have "an agreement in principle with the majority of [its] creditors and [its] financial sponsors that reflects widespread support across the capital structure for a comprehensive plan to restructure...$10 billion..." of debt.

The company notes $3.6 billion of revenue and unparalleled monthly reach ((we'll have more to say about this in this Sunday's Members-only newsletter (3/18/18) - this claim deserves an asterisk)). 

Still, as it also notes, the company faces significant headwinds. It states in its First Day Declaration,

"Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending by the Debtors’ customers, which resulted in a corresponding decline in advertising revenues across the Debtors’ business. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry and the entry of on-demand streaming services, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast radio. The Debtors have taken various operational steps to stem the negative effect of these trends; among other initiatives, the Debtors have successfully developed emerging platforms including its industry-leading iHeartRadio digital platform and nationally-recognized iHeartRadio-branded live events that are audio and video streamed and televised nationwide."

The company ought to expect these trends to continue.

Large creditors include Cumulus Media Inc. (~$5.6 million...yikes) and Spotify (~$2 million).  

• Jurisdiction: S.D. of Texas
• Capital Structure:    

• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Brian Wolfe, William Guerrieri, Christopher Marcus, Stephen Hackney, Richard U.S. Howell, Benjamin Rhode, AnnElyse Gibbons) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
  • Financial Advisor to the Company: Moelis & Co. 
    • Legal: Latham & Watkins LLP (Caroline Reckler, Matthew Warren)
  • Restructuring Advisor to the Company: Alvarez & Marsal LLC
  • Legal for the Independent Directors: Munger Tolles & Olson LLP (Kevin Allred, Seth Goldman, Thomas Walper, John Spiegel)
  • Financial Advisor to the Independent Directors: Perella Weinberg Partners LP
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Large Equity Holders: Bain Capital & Thomas H. Lee Partners
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Christopher Lopez, Gabriel Morgan)
  • Potential Buyer: Liberty Media Corporation & Sirius XM Holdings Inc.
    • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Alfredo Perez)
  • Successor Trustee for the 6.875% '18 Senior Notes and 7.25% '27 Senior Notes: Wilmington Savings Fund Society, FSB
    • Legal: White & Case LLP (Thomas Lauria, Jason Zakia, Erin Rosenberg, J. Christopher Shore, Harrison Denman, Michele Meises, Mark Franke, Michael Garza) & Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Ashley Harper)
  • Successor Trustee for the 11.25% '21 Priority Guaranty Notes
    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, Kristin Elliott)
  • Successor Trustee for the 14.00% Senior Notes due 2021
    • Legal: Norton Rose Fulbright (US) LLP (Jason Boland, Christy Rivera, Marian Baldwin Fuerst)
  • Term Loan/PGN Group
    • Legal: Jones Day (Thomas Howley, Bruce Bennett, Joshua Mester)
  • Ad Hoc Group of Term Loan Lenders
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Tyler Nurnberg, Sarah Gryll, Christopher Odell, Hannah Sibiski) 
  • TPG Specialty Lending Inc.
    • Legal: Schulte Roth & Zabel LLP (Adam Harris, David Hillman, James Bentley) & (local) Jones Walker LLP (Joseph Bain, Laura Ashley) 
  • Special Committees of the Board of Clear Channel Outdoor Holdings Inc.
    • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Christopher Koenig, Jennifer Jay Hardy)
  • Ad Hoc Committee of 14% Senior Noteholders of iHeart Communications
    • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matt Williams, Keith Martorana, Matthew Porcelli) & (local) Porter Hedges LLP (John Higgins, Aaron Power, Samuel Spiers)
  • 9.00% Priority Guarantee Notes due 2019 Trustee: Wilmington Trust NA
    • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Fliman, Brian Wells) & (local) Haynes and Boone, LLP (Charles Beckham Jr., Martha Wyrick, Kelsey Zottnick)
  • Citibank N.A.
    • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Locke Lord LLP (Berry Spears)
  • Delaware Trust Company
    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer, Monica Tarazi, Victor Noskov)
  • Official Committee of Unsecured Creditors
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Charles Gibbs, Marty Brimmage)

Updated 3/30/18

New Chapter 11 Bankruptcy - A'GACI LLC

A'GACI LLC

• 1/9/17 Recap: Texas-based fast-fashion retailer of women's apparel and accessories filed for bankruptcy because, well, retail retail retail. Happy New Year, everyone! The company's "target demographic is confident women who are comfortable with their appearance and enjoy showcasing their look." Hmmm. From that description, we would have expected graphics of models that aren't just a size 0 (see below), but we digress. The 76-store company specializes in clearance pricing discounts to ship merchandise quickly and innovate with the trends; it did $136.2mm of gross sales in the fiscal period ended 11/25. 9.4% of that was e-commerce. The company blames its bankruptcy filing on (i) "unsuccessful brick and mortar expansion efforts," (ii) the move to online shopping, (iii) difficulty with merchandising and inventory management, and (iv) weather. On that last point, 24 stores were at least temporarily closed due to hurricanes in '17 (in Texas, Florida and Puerto Rico, with two stores in PR still closed), resulting in a $7.2mm EBITDA hit for the year. The company pursued a number of operational initiatives pre-petition including rent-concession negotiations with landlords. The landlords apparently wouldn't play ball. Now twelve of them will see their leases rejected: the company has already vacated the premises effective 1/8. And a liquidation agent has been hired. In total, "at least 49 underperforming brick and mortar store locations" may be closed.  Contemporaneously with the lease review and liquidation process, the company will attempt a refinancing or sale of the company while enjoying the "breathing spell" afforded by bankruptcy. The company intends to use cash collateral to finance the case.    
• Jurisdiction: W.D. of Texas 
• Capital Structure: $10mm '18 RCF (JPMorgan Chase Bank NA), $4.265mm TL (Bank of America NA)     
• Company Professionals:
  • Legal: Haynes and Boone LLP (Ian Peck, David Staab)
  • Financial Advisor: Berkeley Research Group LLC
  • Investment Banker: SSG Advisors LLC 
  • Real Estate Agent: A&G Realty Partners LLC
  • Liquidation Agent: Gordon Brothers Retail Partners LLC
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:

Source: First Day Declaration

New Chapter 11 Filing - Expro Holdings US Inc.

Expro Holdings US Inc.

• 12/18/17 Recap: Servicer to offshore, deepwater and other "technically challenging environments" filed a prepackaged bankruptcy to eliminate its entire $1.4b of debt (and attendant interest expense) via equity conversion in a balance sheet deleveraging transaction. Why did it file for bankruptcy? Private equity, of course. In 2008, the company turned down an acquisition offer from Halliburton in favor of a competing bid from a private equity group for $3.2b in cash, the largest LBO in the UK in 2008. Ok, so we're only half serious. Naturally, the oil and gas downturn led to a marked decline in demand for Expro's services. Psst: the PE-infused debt. The senior lenders will get the equity in the reorganized company while mezz loan holders and equity holders will get warrants. The company has lined up a $145mm DIP credit facility.
• Jurisdiction: S.D. of Texas
• Capital Structure: $125mm RCF (HSBC Bank USA), $1.261b TL, $18mm Mezz Loan.      
• Company Professionals:
  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Alice Eaton, Sarah Harnett, Alexander Woolverton) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
  • Financial Advisor: Alvarez & Marsal LLC (Julie Hertzberg, Jay Herriman)
  • Investment Banker: Lazard Freres & Co. 
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Mezzanine Facility Agreement Agent: Bank of New York Mellon
  • Credit Agreement Admin Agent: HSBC Bank USA
  • RCF Lenders
    • Legal: Sullivan & Cromwell LLP
  • Ad Hoc Group of First Lien Lenders
    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, James McClammy, Christopher Robertson) & (local) Haynes and Boone LLP (Charles Beckham Jr., Kelli Norfleet, Kelsey Zottnick)
    • Financial Advisor: Rothschild Inc.
  • Ad Hoc Group of Shareholders (Goldman Sachs, HPS Investment Partners LLC, KKR, Candover/Arle, Park Square)
    • Legal: Kirkland & Ellis LLP
    • Financial Advisor: Houlihan Lokey Inc.