⛽️New Chapter 11 Bankruptcy Filing - Hornbeck Offshore Services Inc. ($HOSS)⛽️

Hornbeck Offshore Services Inc.

May 19, 2020

Hornbeck Offshore Services Inc. and 13 affiliates (the “debtors”), providers of marine transportation services to petroleum exploration and production, oilfield service, offshore construction and US military customers, filed prepackaged chapter 11 bankruptcies in the Southern District of Texas. Judge Isgur and Judge Jones must be thinking “Thank G-d”: for the judges, “prepackaged” is the operative word here and a quickie case amidst some of these melting ice cubes (e.g., J.C. Penney) must be a welcome breath of fresh air.

Hornbeck is one of those companies that people have been watching ever since 2015 — mostly on account of (i) the idea that offshore drilling had become prohibitively expensive in a falling commodity price environment and (ii) thanks to years of capital-intensive vessel construction programs and vessel acquisitions, an over-levered balance sheet. The good news is that, because of those programs/acquisitions, the company is relatively well-positioned with a nimble and younger fleet (76 vessels in total) — a fact that’s surely recognized by the company’s future equity holders. The bad news is that, with this much debt, even Hornbeck couldn’t postpone the inevitable bankruptcy ad infinitum when oil is where it is. Per the company:

Despite the Company’s relative strengths in its core markets, recent industry trends have had a materially adverse impact on the offshore energy industry and on the Company in particular. While the Company is accustomed to, and built for, the cyclical nature of the oilfield services industry, the recent downturn in the industry has lasted nearly six years, much longer than any previous cycles in the deepwater era, and has put pressure on the Company’s ability to repay or refinance its significant debt obligations.

This is what the funded debt looks like:

Despite that ghastly capital structure and the unfriendly market, Hornbeck, unlike other players in the space like Tidewater Inc. and GulfMark Offshore Inc., managed to stay out of bankruptcy. To do so, it pulled every lever in the book:

• Stacking of vessels to right-size the size of the available fleet relative to demand? ✅

• Defer drydocking costs? ✅

• Onshore and offshore personnel pay cuts? ✅

• Selectively taking on assignments, avoiding long-term Ks and insurance risk? ✅

This is all great but of course there’s still that monstrosity of a balance sheet. In tandem with the operational restructuring, the company has been pursuing strategic balance sheet transactions since 2017 — some more successful than others. The most recent attempt of out-of-court exchange offers and consent solicitations was in early February and though it got a super-majority of support from holders of the ‘20 and ‘21 notes, it failed to meet the required 99% threshold to consummate the deal. On March 23, the date of the bottom of the stock market (irrelevant…just a fun fact), the company terminated the offers. After a long road over many years, bankruptcy became more of a reality.

And so here we are. With the amount of support indicated on the offers, this thing set up nicely for a prepackaged plan. Regarding the plan, there’s a whole lot going on there because of the way the exit facilities are contemplated and the fact that there are Jones Act compliance issues but suffice it to say that the plan treats the first lien lenders as the fulcrum security. The second lien lenders will get a tip and the unsecured noteholders essentially walk away with a small equity kiss and warrants. The company will require liquidity on the back end of the chapter 11 and so the plan also contemplates a $100mm rights offering in exchange for 70% of the reorganized equity.

The debtors will fund the cases via a $75mm DIP credit facility which includes $56.25 million funded by certain secured lenders and $18.75 million funded by certain unsecured noteholders.

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

• Capital Structure: $50mm ABL (Wilmington Trust NA), $350mm first lien facility (Wilmington Trust NA), $121.2mm second lien facility (Wilmington Trust NA), $224.3mm ‘20 unsecured notes, $450mm ‘21 unsecured notes

• Professionals:

  • Legal: Kirkland & Ellis LLP (Edward Sassower, Ryan Blaine Bennett, Ameneh Bordi, Debbie Farmer, Emily Flynn, Michael Lemm, Benjamin Rhode) & Jackson Walker LLP (Matthew Cavenaugh, Kristhy Peguero, Jennifer Wertz, Veronica Polnick)

  • Financial Advisor: Portage Point Partners LLC

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • DIP Agent ($75mm): Wilmington Trust NA

  • Counsel to the Consenting Secured Lenders

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Stephanie Massman)

  • Counsel to Consenting Unsecured Notes

    • Legal: Milbank LLP (Gerard Uzzi, Brett Goldblatt, James Ball)

  • Large equityholders: Cyrus Capital Partners LP, Fine Capital Partners LP, William Hurt Hunt Trust Estate

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.

*****

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 - Chinos Holdings Inc. (J.Crew) 👕

Chinos Holdings Inc. (J.Crew)

May 4, 2020

If you’re looking for a snapshot of the pre-trade war and pre-COVID US economy look no farther than J.Crew’s list of top 30 unsecured creditors attached to its chapter 11 bankruptcy petition. On the one hand there is the LONG list of sourcers, manufacturers and other middlemen who form the crux of J.Crew’s sh*tty product line: this includes, among others, 12 Hong Kong-based, three India-based, three South Korea-based, two Taiwan-based, and two Vietnam-based companies. In total, 87% of their product is sourced in Asia (45% from mainland China and 16% from Vietnam). On the other hand, there are the US-based companies. There’s Deloitte Consulting — owed a vicious $22.7mm — the poster child here for the services-dependent US economy. There’s the United Parcel Services Inc. ($UPS)…okay, whatever. You’ve gotta ship product. We get that. And then there’s Wilmington Savings Fund Society FSB, as the debtors’ pre-petition term loan agent, and Eaton Vance Management as a debtholder and litigant. Because nothing says the US-of-f*cking-A like debt and debtholder driven litigation. ‘Merica! F*ck Yeah!!

Chinos Holdings Inc. (aka J.Crew) and seventeen affiliated debtors (the “debtors”) filed for bankruptcy early Monday morning with a prearranged deal that is dramatically different from the deal the debtors (and especially the lenders) thought they had at the tail end of 2019. That’s right: while the debtors have obviously had fundamental issues for years, it was on the brink of a transaction that would have kept it out of court. Call it “The Petsmart Effect.” (PETITION Note: long story but after some savage asset-stripping the Chewy IPO basically dug out Petsmart from underneath its massive debt load; J.Crew’s ‘19 deal intended to do the same by separating out the various businesses from the Chino’s holding company and using Madewell IPO proceeds to fund payments to lenders).

Here is the debtors’ capital structure. It is key to understanding what (i) the 2019 deal was supposed to accomplish and (ii) the ownership of J.Crew will look like going forward:

Late last year, the debtors and their lenders entered into a Transaction Support Agreement (“TSA”) with certain pre-petition lenders and their equity sponsors, TPG Capital LP and Leonard Green & Partners LP, that would have (a) swapped the $1.33b of term loans for $420mm of new term loans + cash and (b) left general unsecured creditors unimpaired (100% recovery of amounts owed). As noted above, the cash needed to make (a) and (b) happen would have come from a much-ballyhooed IPO of Madewell Inc.

Then COVID-19 happened.

Suffice it to say, IPO’ing a brick-and-mortar based retailer — even if there were any kind of IPO window — is a tall order when there’s, like, a pandemic shutting down all brick-and-mortar business. Indeed, the debtors indicate that they expect a $900mm revenue decline due to COVID. That’s the equivalent of taking Madewell — which earned $602m of revenue in ‘19 after $614mm in ‘18 — and blowing it to smithereens. Only then to go back and blow up the remnants a second time for good measure.* Source of funds exit stage left!

Fun facts. In fiscal 2019, Chino's revenues were:

👕J.Crew - $1.7b (67.2%)
👖Madewell - $602m (23.7%)
🏷Wholesale - $230m (9.1%)

Remember: Madewell is the crown jewel here. According to its S-1, it had $614m of revenue in fiscal '18. Its growth was declining pre-COVID.😬 pic.twitter.com/5jpNnJ5zoR

— 💥PETITION💥 (@petition) May 4, 2020

The post-COVID deal is obviously much different. The term lenders aren’t getting a paydown from Madewell proceeds any longer; rather, they are effectively getting Madewell itself by converting their term loan claims and secured note claims into approximately 82% of the reorganized equity. Some other highlights:

• Those term loan holders who are members of the Ad Hoc Committee will backstop a $400mm DIP credit facility (50% minimum commitment) that will convert into $400mm of new term loans post-effective date. The entire plan is premised upon a $1.75b enterprise value which is…uh…interesting. Is it modest considering it represents a $1b haircut off the original take-private enterprise value nine years ago? Or is it ambitious considering the company’s obvious struggles, its limited brand equity, the recession, brick-and-mortar’s continued decline, Madewell’s deceleration, and so forth and so on? Time will tell.

• Syndication of the DIP will be available to holders of term loans and IPCo Notes (more on these below), provided, however, that they are accredited institutional investors.

• The extra juice for putting in for a DIP allocation is that, again, they convert to new term loans and, for their trouble, lenders of the new term loans will get 15% additional reorganized equity plus warrants. So an institution that’s in it to win it and has a full-on crush for Madewell (and the ghost of JCrew-past) will get a substantial chunk of the post-reorg equity (subject to dilution).

Query whether, if asked a mere six months ago, they were interested in owning this enterprise, the term lenders would’ve said ‘yes.’ Call us crazy but we suspect not. 😎

General unsecured creditors’ new deal ain’t so hot in comparison either. They went from being unimpaired to getting a $50mm pool with a 50% cap on claims. That is to say, maybe…maybe…they’ll get 50 cents on the dollar.

That is, unless they’re one of the debtors’ 140 landlords owed, in the aggregate, approximately $23mm in monthly lease obligations.** The debtors propose to treat them differently from other unsecured creditors and give them a “death trap” option: if they accept the TSA’s terms and get access to a $3mm pool or reject and get only $1mm with a 50% cap on claims. We can’t imagine this will sit well. We imagine that the debtors choice of venue selection has something to do with this proposed course of action. 🤔

We’re not going to get into the asset stripping transaction at the heart of the IPCo Note issuance. This has been widely-covered (and litigated) but we suspect it may get a new breath of life here (only to be squashed again, more likely than not). In anticipation thereof, the debtors have appointed special committees to investigate the validity of any claims related to the transaction. They may want to take up any dividends to their sponsors while they’re at it.

Both Neiman and J. Crew are PE-backed and who each tried cute maneuvers with creditor collateral in order to kick the can but were not able to forestall the inevitable ch 11s. https://t.co/9PV6KxgS4A

— Sujeet Indap (@sindap) May 4, 2020

Both might have succeeded with said maneuvers if it weren’t for the pandemic.

— Miriam Gottfried (@miriamgottfried) May 4, 2020

The debtors hope to have this deal wrapped up in a bow within 130 days. We cannot even imagine what the retail landscape will look like that far from now but, suffice it to say, the ratings agencies aren’t exactly painting a calming picture.

.@jcrew's bankruptcy filing lifts the retail loan default rate to 9%, from 7%. "@fitchratings forecasts the loan retail default rate to reach 19% by year end 2020, far exceeding the overall 5%-6% rate."

— Kelsey Butler (@itskelseybutler) May 4, 2020

Per Moody's, distressed retail and apparel names with a Caa1 rating or lower hit 23 as of 4/24, up from 17 in mid-March. "The number will only grow in coming months."

— 💥PETITION💥 (@petition) May 3, 2020

*****

*Curiously, there are some discrepancies here in the numbers. In the first day papers, the debtors indicate that 2018 revenue for Madewell was $529.2mm. With $602mm in ‘19 revenue, one certainly walks away with the picture that Madewell is a source of growth (13.8%) while the J.Crew side of the business continues to decline (-4%). This graph is included in the First Day Declaration:

Source: First Day Declaration

The Madewell S-1, however, indicates that 2018 revenue was $614mm.

With $268mm of the ‘18 revenue coming in the first half, this would imply that second half ‘18 revenue was $346mm. With ‘19 revenue coming in at $602mm and $333mm attributable to 1H, this would indicate that the business is declining rather than growing. In the second half, in particular, revenue for fiscal ‘19 was $269mm, a precipitous dropoff from $333mm in ‘18. Even if you take the full year fiscal year ‘18 numbers from the first day declaration (529.2 - 268) you get $261mm of second half growth in ‘18 compared to the $269mm in ‘19. While this would reflect some growth, it doesn’t exactly move the needle. This is cause for concern.

**To make matters worse for landlords, the debtors are also seeking authority to shirk post-petition rent obligations for 60 days while they evaluate whether to shed their leases. We get that the debtors were nearing a deal that COVID threw into flux, but this bit is puzzling: “Beginning in early April 2020, after several weeks of government mandated store closures and uncertainty as to the duration and resulting impact of the pandemic, the Debtors began to evaluate their lease portfolio to, among other things, quantify and realize the potential for lease savings.” Beginning in early April!?!?

---

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

• Capital Structure: $311mm ABL (Bank of America NA), $1.34b ‘21 term loan (Wilmington Savings Fund Society FSB), $347.6 IPCo Notes (U.S. Bank NA)

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Ryan Preston Dahl, Candace Arthur, Daniel Gwen) & Hunton Andrews Kurth LLP (Tyler Brown, Henry P Long III, Nathan Kramer)

  • JCrew Opco Special Committee: D.J. (Jan) Baker, Chat Leat, Richard Feintuch, Seth Farbman

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Lazard Freres & Co.

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

  • Pre-petition ABL Agent: Bank of America NA

    • Legal: Choate Hall & Stewart LLP (Kevin Simard, G. Mark Edgarton) & McGuireWoods LLP (Douglas Foley, Sarah Boehm)

  • Pre-petition Term Loan & DIP Agent ($400mm): Wilmington Savings Fund Society FSB

    • Legal: Seward & Kissel LLP

  • Ad Hoc Committee

    • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Andrew LeBlanc, Matthew Brod) & Tavenner & Beran PLC (Lynn Tavenner, Paula Beran, David Tabakin)

    • Financial Advisor: PJT Partners Inc.

  • Large common and Series B preferred stock holders: TPG Capital LP (55% and 66.2%) & Leonard Green & Partners LP (20.7% and 24.8%)

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Jacob Adlerstein, Eugene Park, Irene Blumberg) & Whiteford Taylor & Preston LLP (Christopher Jones, Vernon Inge Jr., Corey Booker)

  • Large Series A preferred stock holders: Anchorage Capital Group LLC (25.6%), GSO Capital Partners LP (26.1%), Goldman Sachs & Co. LLC (15.5%)

⛽️New Chapter 11 Bankruptcy Filing - Diamond Offshore Drilling Inc. ($DO)⛽️

Diamond Offshore Drilling Inc.

April 26, 2020

Houston-based Diamond Offshore Drilling Inc. and 14 affiliates (the “debtors”), a contract drilling services provider to the oil and gas industry filed for bankruptcy in the Southern District of Texas. The company has 15 offshore drilling rigs: 11 semi-submersibles and four ultra-deepwater drillships deployed around the world (primarily in the Gulf of Mexico, Australia, Brazil and UK). Offshore drilling was already challenged due to excess supply of rigs — and has been since 2014. Recent events have made matters much much worse.

Thanks MBS. Thanks Putin. Thanks…uh…debilitating pandemic. The left-right combination of the Saudi/OPEC/Russia oil price war and COVID-19 has the entire oil and gas industry wobbling against the ropes. The pre-existing reality for offshore services companies “worsened precipitously” because of all of this. And so many companies will fall. The question is at what count and at what strength will they be able to get back on their feet. Given that this is a free-fall into bankruptcy with no pre-negotiated deal with lenders, it seems that nobody knows the answer. How could they? More on this below.

Unfortunately, the services segment the debtors play in is particularly at risk. “Almost all” of the debtors’ customers have requested some form of concessions on $1.4b of aggregate contract backlog. One customer, Beach Energy Ltd. ($BEPTF), “recently sought to formally terminate its agreement with the Company” (an action that is now the subject of an adversary proceeding filed in the bankruptcy cases). The debtors have been immersed in negotiations with their contract counter-parties to navigate these extraordinary times. It doesn’t help when business is so concentrated. Hess Corporation ($HES) is 30% of annual revenue; Occidental Petroleum Corporation ($OXY) is 21%; and Petrobras ($PBR) is 20%. BP PLC ($BP) and Royal Dutch Shell ($RDS.A) are other big customers.

With the writing on the wall, the debtors smartly drew down on their revolving credit facility — pulling $436mm out from under Wells Fargo Bank NA ($WFC). WFC must’ve loved that. Times like these really give phrases like “relationship banking” entirely new meaning. The debtors also elected to forgo a $14mm interest payment on its 2039 senior notes. Yep, you read that right: the company previously issued senior notes that weren’t set to mature until 2039. Not exactly Argentina but holy f*ck that expresses some real optimism (and froth) in the markets (and that issuance isn’t even the longest dated maturity but let’s not nitpick here)!

Yeah, so about that capital structure. In total, the debtors have $2.4b in funded debt. In addition to their $442mm of drawing under their revolving credit facility, the debtors have:

• $500mm of 5.7% ‘39 senior unsecured notes;

• $250mm of 3.45% ‘23 senior unsecured notes;

• $750mm of 4.875% ‘43 senior unsecured notes; and

• $500mm of 7.785% ‘25 senor unsecured notes.

As we’ve said time and time again: exploration and production is a wildly capital intensive business.

So now what? As we said above, there’s no deal here. The debtors note:

The Debtors determined to commence these Chapter 11 Cases to preserve their valuable contract backlog, and preserve their approximately $434.9 million in unrestricted cash on hand while avoiding annual interest expense of approximately $140.1 million under the Revolving Credit Facility and the Senior Notes, and to stabilize operations while proactively restructuring their balance sheet to successfully compete in the changing global energy markets. The Debtors and their Advisors believe cash on hand provides adequate funding at the outset of these cases. The Debtors are well-positioned to successfully emerge from bankruptcy with a highly marketable fleet, a solid backlog of activity, a strong balance sheet and liquidity position, and a differentiated approach and set of capabilities. Despite the volatile and current uncertain market conditions, the Debtors remain confident in the need for their industry, its importance around the world, and the critical services they provide.

We suspect the debtors will hang out in bankruptcy for a bit. After all, placing a value on how “critical” these services are in the current environment is going to be a challenge (though the relatively simple capital structure makes that calculation significantly easier…assuming the value extends beyond WFC). One thing seems certain: Loews Corporation ($L) is gonna have to write-down the entirety of its investment here.

*****

We’d be remiss if we didn’t highlight that, similar to Whiting Petroleum’s execs, the debtors’ executives here got paid nice bonuses just prior to the bankruptcy filing. PETITION Note: We don’t have data to back this up but there appeared to be a much bigger uproar in Whiting’s case about this than here. Which is not to say that people aren’t angry — totally factually incorrect — but angry:

Because equity-based comp doesn’t exactly serve as “incentive” when the equity is worth bupkis, the debtors paid $3.55mm to employees a week before the filing and intend to file a motion to seek bankruptcy court approval of their go-forward employee programs.

---

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

• Capital Structure: $442mm RCF (inclusive of LOC)(Wells Fargo Bank NA). See above.

• Professionals:

  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Robert Britton, Christopher Hopkins, Shamara James, Alice Nofzinger, Jacqueline Rubin, Andrew Gordon, Jorge Gonzalez-Corona) & Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson, Genevieve Graham)

  • Financial Advisor: Alvarez & Marsal LLC (Nicholas Grossi)

  • Investment Banker: Lazard Freres & Co. LLC

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

• Other Parties in Interest:

  • Prepetition RCF Agent: Wells Fargo Bank NA

    • Legal: Bracewell LLP

    • Financial Advisor: FTI Consulting

  • Indenture Trustee: The Bank of New York Mellon

  • Ad Hoc Group of Senior Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Evercore Group LLC

  • Major Equityholder: Loews Corporation

    • Legal: Sullivan & Cromwell LLP (James Bromley)

  • Official Committee of Unsecured Creditors: The Bank of New York Mellon Trust Company NA, National Oilwell Varco LP, Deep Sea Mooring, Crane Worldwide Logistics LLC, Kiswire Trading Inc., Parker Hannifin Corporation, SafeKick Americas LLC

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Marty Brimmage, Kevin Eide, Patrick Chen, Matthew Breen)

    • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns)

    • Investment Banker: Perella Weinberg Partners LP (Alexander Tracy)

📺 New Chapter 11 Bankruptcy Filing - Frontier Communications Inc. ($FTR) 📺

Frontier Communications Inc.

April 14, 2020

We often highlight how, particularly in the case of oil and gas companies, capital intensive companies end up with a lot of debt and a lot of debt often results in bankruptcy. In the upstream oil and gas space, exploration and production companies need a lot of upfront capital to, among other things, enter into royalty interest agreements with land owners, hire people to map wells, hire people to drill the earth, secure proper equipment, procure the relevant inputs and more. E&P companies literally have to shell out to pull out.

Similarly, telecommunications companies that want to cover a lot of ground require a lot of capital to do so. From 2010 through 2016, Connecticut-based Frontier Communications Inc. ($FTR) closed a series of transactions to expand from a provider of telephone and DSL internet services in mainly rural areas to a large telecommunications provider to both rural and urban markets across 29 states. It took billions of dollars in acquisitions to achieve this. Which, in turn, meant the company took on billions of dollars of debt to finance said acquisitions. $17.5b, to be exact. Due, in large part, to the weight of that heavy debt load, it, and its 28922932892 affiliates (collectively, the “debtors”), are now chapter 11 debtors in the Southern District of New York (White Plains).*

The debtors underwrote the transactions with the expectation that synergistic efficiencies would be borne out and flow to the bottom line. PETITION readers know how we feel about synergies: more often than not, they prove elusive. Well:

Serving the new territories proved more difficult and expensive than the Company anticipated, and integration issues made it more difficult to retain customers. Simultaneously, the Company faced industry headwinds stemming from fierce competition in the telecommunications sector, shifting consumer preferences, and accelerating bandwidth and performance demands, all redefining what infrastructure telecommunications companies need to compete in the industry. These conditions have contributed to the unsustainability of the Company’s outstanding funded debt obligations—which total approximately $17.5 billion as of the Petition Date.

Shocker. Transactions that were meant to be accretive to the overall enterprise ended up — in conjunction with disruptive trends and intense competition — resulting in an astronomical amount of value destruction.

As a result of these macro challenges and integration issues, Frontier has not been able to fully realize the economies of scale expected from the Growth Transactions, as evidenced by a loss of approximately 1.3 million customers, from a high of 5.4 million after the CTF Transaction closed in 2016 to approximately 4.1 million as of January 2020. Frontier’s share price has dropped … reflecting a $8.4 billion decrease in market capitalization.

😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬😬

Consequently, the debtors have been in a state of liability management ever since the end of 2018. Subsequently, they (i) issued new secured notes to refinance a near(er)-term term loan maturity, (ii) amended and extended their revolving credit facility, and (iii) agreed to sell their northwest operations and related assets for $1.352b (the “Pacific Northwest Transaction”). The Pacific Northwest Transaction has since been hurdling through the regulatory approval process and seems poised to close on April 30, 2020.**

While all of these machinations were positive steps, there were still major issues to deal with. The capital structure remained robust. And “up-tier” exchanges of junior debt into more senior debt to push out near-term maturities were, post-Windstream***, deemed too complex, too short-term, and too likely to end up the subject of fierce (and costly) litigation**** As the debtors’ issued third quarter financials that were … well … not good, they announced a full drawn down of their revolver, instantly arming them with hundreds of millions of dollars of liquidity.

$FTR with the clean sweep - Revs, margins, ebitda, FCF, churn, subs, ARPC all worse sequentially. https://t.co/vn49m5PDPP

— JV (@AyyouEm) November 5, 2019

The company needed reconstructive surgery. Band-aids alone wouldn’t be enough to dam the tide. In many respects, the company ought to be commended for opting to address the problem in a wholesale way rather than piecemeal kick, kick, and kick the can down the road — achieving nothing but short-term fixes to the enrichment of really nobody other than its bankers (and Aurelius).

And so now the company is at the restructuring support agreement stage. Seventy-five percent of the holders of unsecured notes have agreed to an equitization transaction — constituting an impaired consenting class for a plan of reorganization to be put on file within 30 days. Said another way, the debtors are taking the position that the value breaks within the unsecured debt. That is, that the value is at least $6.6b making the $10.949b of senior unsecured notes the “fulcrum security.” Unsecured noteholders reportedly include Elliott Management Corp., Apollo Global Management LLC, Franklin Resources Inc., and Capital Group Cos. They would end up the owners of the reorganized company.

What else is the RSA about?

• Secured debt will be repaid in full on the effective date;

• A proposed DIP (more on this below) would roll into an exit facility;

• The unsecured noteholders would, in addition to receiving equity, get $750mm of seniority-TBD take-back paper and $150mm of cash (and board seats);

• General unsecured creditors would ride through and be paid in full; and

• Holders of secured and unsecured subsidiary debt will be reinstated or paid in full.

The debtors also obtained a fully-committed new money DIP of $460mm from Goldman Sachs Bank USA. This has proven controversial. Though the DIP motion was not up for hearing along with other first day relief late last week, the subject proved contentious. The Ad Hoc First Lien Committee objected to the DIP. Coming in hot, they wrote:

Beneath the thin veneer in which these so-called “pre-arranged” cases are packaged, lies multiple infirmities that, if not properly addressed by the Debtors, will ultimately result in the unraveling of these cases. While the Debtors seek to shroud themselves in a restructuring support agreement (the “RSA”) that enjoys broad unsecured creditor support, the truth is that underlying that support is a fragile house of cards that will not withstand scrutiny as these cases unfold. Turning the bankruptcy code on its head, the Debtors attempt through their RSA to pay unsecured bondholders cash as a proxy for their missed prepetition interest payment, postpetition interest to yet other unsecured creditors of various subsidiaries, and complete repayment to prepetition revolver lenders that are attempting, through the proposed debtor-inpossession financing (the “DIP Loan”), to effectively “roll-up” their prepetition exposure through the DIP Loan, all while the Debtors attempt to deprive their first lien secured creditors of contractual entitlements to default interest and pro rata payments they will otherwise be entitled to if their debt is to be unimpaired, as the RSA purports to require. While those are fights for another day, their significance in these cases must not be overlooked.

Whoa. That’s a lot. What does it boil down to? “F*ck you, pay me.” The first lien lenders are pissed that everyone under the sun is getting taken care of in the RSA except them.

• You want to deny us our default interest. F+ck you, pay me.

• You want a DIP despite having hundreds of millions of cash on hand and $1.3b of sale proceeds coming in? F+ck you, pay me.

• You want a 2-for-1 roll-up where, “as a condition to raising $460 million in debtor-in-possession financing, the Debtors must turn around and repay $850 million to their prepetition revolving lenders, thus decreasing the Debtors’ overall liquidity on a net basis”? F+ck you, pay me.

• You shirking our pro rata payments we’d otherwise be entitled to if our debt is to be unimpaired? F+ck you, pay me.

• You want to pay unsecured senior noteholders “incremental payments” of excess cash to compensate them for skipped interest payments without paying us default interest and pro rata payments? F+ck you, pay me.

• You want to use sale proceeds to pay down unsecureds when that’s ours under the first lien docs? F+ck you, pay me.

• You want to pay interest on the sub debt without giving us default interest? F+ck you, pay me.

• You want to do all of this without a proper adequate protection package for us? F+ck you, pay me.

The second lien debtholders chimed in, voicing similar concerns about the propriety of the adequate protection package. For the uninitiated, adequate protection often includes replacement liens on existing collateral, super-priority claims emanating out of those liens, payment of professional fees, and interest. In this case, both the first and second liens assert that default interest — typically several bps higher — ought to be included as adequate protection. The issue, however, was not up for hearing on the first day so all of this is a preview of potential fireworks to come if an agreement isn’t hashed out in coming weeks.

The debtors hope to have a confirmation order within four months with the effective date within twelve months (the delay attributable to certain regulatory approvals). We wish them luck.

______

*Commercial real estate is getting battered all over the place but not 50 Main Street, Suite 1000 in White Plains New York. Apparently Frontier Communications has an office there too. Who knew there was a speciality business in co-working for bankrupt companies? In one place, you’ve got FULLBEAUTY Brands Inc. and Internap Inc. AND Frontier Communications. We previously wrote about this convenient phenomenon here.

**The company seeks an expedited hearing in bankruptcy court seeking approval of it. It is scheduled for this week.

***Here is a Bloomberg video from June 2019 previously posted in PETITION wherein Jason Mudrick of Mudrick Capital Management discusses the effect Windstream had on Frontier and predicted Frontier would be in bankruptcy by the end of the year. He got that wrong. But did it matter to him? He also notes a CDS-based short-position that would pay out if Frontier filed for bankruptcy within 12 months. For CDS purposes, looks like he got that right. By the way, per Moody’s, here was the spread on the CDS around the time that Mudrick acknowledged his CDS position:

Here it was a few months later:

And, for the sake of comparison, here was the spread on the CDS just prior to the bankruptcy filing last week:

Clearly the market was keenly aware (who wasn’t given the missed interest payment?) that a bankruptcy filing was imminent: insurance on FTR got meaningfully more expensive. Other companies with really expensive CDS these days? Neiman Marcus Group (which, Reuters reports, may be filing as soon as this week), J.C. Penney Corporation Inc., and Chesapeake Energy Corporation.

****Notably, Aurelius Capital Management LP pushed for an exchange of its unsecured position into secured notes higher in the capital structure — a proposal that would achieve the triple-frontier-heist-like-whammy of better positioning their debt, protecting the CDS they sold by delaying bankruptcy, and screwing over junior debtholders like Elliott (PETITION Note: we really just wanted to squeeze in a reference to the abominably-bad NFLX movie starring Ben Affleck, an unfortunate shelter-in indulge). On the flip side, funds such as Discovery Capital Management LLC and GoldenTree Asset Management LP pushed the company to file for bankruptcy rather than engage in Aurelius’ proposed exchange.

---

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

• Capital Structure: $850mm RCF, $1.7b first lien TL (JP Morgan Chase Bank NA), $1.7b first lien notes (Wilmington Trust NA), $1.6b second lien notes (Wilmington Savings Fund Society FSB), $10.95mm unsecured senior notes (The Bank of New York Mellon), $100mm sub secured notes (BOKF NA), $750mm sub unsecured notes (U.S. Bank Trust National Association)

• Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Chad Husnick, Benjamin Rhode, Mark McKane, Patrick Venter, Jacob Johnston)

  • Directors: Kevin Beebe, Paul Keglevic, Mohsin Meghji

  • Financial Advisor: FTI Consulting Inc. (Carlin Adrianopoli)

  • Investment Banker: Evercore Group LLC (Roopesh Shah)

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

• Other Parties in Interest:

  • Major equityholders: BlackRock Inc., Vanguard Group Inc., Charles Schwab Investment Management

  • Unsecured Notes Indenture Trustee: Bank of New York Mellon

    • Legal: Reed Smith LLP (Kurt Gwynne, Katelin Morales)

  • Indenture Trustee and Collateral Agent for the 8.500% ‘26 Second Lien Secured Notes

    • Legal: Riker Danzig Scherer Hyland & Perretti LLP (Joseph Schwartz, Curtis Plaza, Tara Schellhorn)

  • Credit Agreement Administrative Agent: JPMorgan Chase Bank NA

    • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Nicholas Baker, Jamie Fell)

  • DIP Agent: Goldman Sachs Bank USA

    • Legal: Davis Polk & Wardwell LLP (Eli Vonnegut, Stephen Piraino, Samuel Wagreich)

  • Ad Hoc First Lien Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Gregory Laufer, Kyle Kimpler, Miriam Levi)

    • Financial Advisor: PJT Partners LP

  • Second lien Ad Hoc Group

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Susheel Kirpalani, Benjamin Finestone, Deborah Newman, Daniel Holzman, Lindsay Weber)

  • Ad Hoc Senior Notes Group

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

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Committee of Frontier Noteholders

    • Legal: Milbank LLP (Dennis Dunne, Samuel Khalil, Michael Price)

    • Financial Advisor: Houlihan Lokey Inc.

  • Ad Hoc Group of Subsidiary Debtholders

    • Legal: Shearman & Sterling LLP (Joel Moss, Jordan Wishnew)

  • Official Committee of Unsecured Creditors

    • Legal: Kramer Levin Naftalis & Frankel LLP (Amy Caton, Douglas Mannal, Stephen Zide, Megan Wasson)

    • Financial Advisor: Alvarez & Marsal LLC (Richard Newman)

    • Investment Banker: UBS Securities LLC (Elizabeth LaPuma)

🛰New Chapter 11 Bankruptcy Filing - OneWeb Global Limited🛰

OneWeb Global Limited

March 27, 2020

We have been complaining for months about how bankruptcy was getting boring. There are only so many retail, oil and gas, biopharma or mass tort cases to write about before things start to get really … and we mean REALLY … monotonous. And so a shout out to Softbank’s Masa Son: as always, you’ve supplied some much needed novelty to the mix! Amidst countless stories of one Softbank portfolio company after another getting a new directive, fresh discipline or retraded on deals (cough, WeWork), portfolio company OneWeb Global Limited and eighteen affiliates (the “debtors”) filed for bankruptcy.

As far as Softbank investments go, the debtors are SOOOOOOOO on brand. It is almost literally a “moonshot,” an uber-ambitious project aiming to deploy “the world’s first global satellite communications network to deliver high-throughput, high-speed, low-latency Internet connectivity services, having an ability of channeling 50 megabits per second, with a latency of less than 50 millisecond, and capable of connecting everywhere, to everyone.” Since 2012, the debtors have been developing a low-Earth orbit satellite constellation system and associated ground infrastructure “capable of delivering communication services for use by consumers, businesses, governmental entities, and institutions, including schools, hospitals, and other end-users whether on the ground, in the air, or at sea.” This means they have started mass producing small satellites, acquiring various authorizations and spectrum icenses (i.e., the use of Ku-band and Ka-band radio-frequency spectrum on a global basis) and domestic market access/services authorizations; they have also completed three launches of 70 satellites in the last year. “OneWeb was well on its way to growing its constellation to 648 satellites with the goal of beginning customer service demonstrations in late 2020 and providing full global commercial coverage by late 2021 or early 2022.” Right. Just like Uber Inc. ($UBER) is delivering autonomous cars and WeWork is sustainably spreading its community-first mission across the world. You have to hand it to Masa Son: the man has some vision. Some entrepreneurial spirit. Eventually, though, there has to be money to support the ambition.

Right. So, about the money. The debtors have raised a lot of it — no surprise considering the capital intensive nature of the business. The raises include:

• A $500mm equity raise backed by Airbus Group Inc. Hughes Network Systems LLC, Intelsat Corporation, Qualcomm Incorporated and Virgin Group Ltd.

• A $1.2b equity raise, $1b of which came from Softbank Group Corp. and the other $200mm from existing investors.

• A $408mm note issuance to Softbank as administrative and collateral agent.

• A $1.56b senior note issuance (and corresponding warrant issue) secured by substantially all of the debtors’ assets including share pledges and rights to radiofrequency authorizations. This issuance rolled-up the $408mm note.

In total, the debtors has over $1.73b in funded debt outstanding as of the petition date on top of the $1.7b of equity raised.

And yet it is in bankruptcy first and foremost because of liquidity issues. As a development stage company, it is what the venture capitalists would call “pre-revenue.” Worse than that, development is time-consuming and expensive and the build out of the debtors’ systems “exhausted [their] existing equity and debt financing.” Again, this is Softbank: massive cash burn is part of its playbook. We’ve all seen this movie before. There’s always tons of money until — poof! — suddenly there’s not. Since 2019, the debtors have been seeking investments from existing and new investors but nobody would bite. It seems that investors hesitated to throw good money after bad; it is also safe to presume that, by this point, a certain level of post-WeWork-fiasco Softbank taint burdened the process. Investors are leery of lighting good money on fire after bad.

Toss in COVID-19 and we’ve got ourselves a combustible situation. Per the debtors:

OneWeb had been hopeful to achieve an out of court solution to its deteriorating liquidity position. After several due diligence meetings during the first and second weeks of March 2020, the Company believed that it was going to be able to secure a long-term funding arrangement from existing shareholders. However, on March 12, 2020, as the markets began to feel the impact of COVID-19, OneWeb was notified that its current investors would not commit to a long term solution. On March 16, 2020, OneWeb entered into a term sheet for bridge financing to be consummated by March 26, 2020. On March 21, 2020, the Company was notified that the bridge financing offer was unavailable. Unfortunately, the anticipated funding opportunities OneWeb pursued were significantly and precipitously impacted by the COVID-19 pandemic and the resulting shuttering of the global economy. OneWeb, in an effort to preserve liquidity during these difficult social, political, and economic times, began shutting down nonessential aspects of its business in order to preserve the value of its existing assets.

Consequently, the debtors laid off 90% of their workforce and halted development. With the consensual use of Softbank’s cash collateral, the debtors filed chapter 11 “to provide them with the necessary breathing space to wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets.”

Given the volatility currently in the market, there’s no telling how long they’ll have to wait.

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

• Capital Structure: see above.

• Professionals:

  • Legal: Milbank LLP (Dennis Dunne, William Schumacher, Andrew Leblanc, Tyson Lomazow, Lauren Doyle)

  • Financial Advisor: FTI Consulting Inc.

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • Softbank

    • Legal: Morrison & Foerster LLP (Gary Lee, Todd Goren)

  • Collateral Agent: GLAS

    • Legal: Arnold & Porter Kaye Scholer (Jonathan Levine)

  • EchoStar Operating LLC and Hughes Network Systems LLC

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

  • Airbus DS Satnet LLC and Airbus Group Proj B.V.

    • Legal: Hogan Lovells US LLP (Ronald Silverman, Christopher Bryant, M. Hampton Foushee, Craig Ulman)
      

🌑New Chapter 11 Bankruptcy Filing - Foresight Energy Inc.🌑

Foresight Energy Inc.

March 10, 2020

Are there any coal companies left out there that HAVEN’T filed for bankruptcy at this point?

As expected by everyone, thermal coal producer Foresight Energy LP and numerous affiliates (the “debtors”) filed a “prearranged” bankruptcy on Tuesday in the District of Missouri.

Observers have long recognized that this chapter 11 filing was a fait accompli. The debtors are inextricably linked to Murray Energy, which filed late last year. The difference here, though, is that Foresight’s capital structure is FAR less complex and, because of that among other reasons, the debtors had the luxury of a bit more time to sit back and wait and see how the Murray bankruptcy played out. The debtors also had the luxury of taking their time — which is not to say that things haven’t been a sprint over the last several months — to come to terms on a deal with their lenders to emerge from bankruptcy with a significantly de-levered balance sheet. Indeed, that is the literal plan here.

The debtors have entered into restructuring support agreements with significant and meaningful percentages of holders of first lien loans and second lien notes. Moreover, the debtors have agreements with several key contract counterparties. The end result? The debtors will eliminate over $1b of debt, shed some burdensome royalty and contractual obligations, and get a new money infusion so that it can — against the odds in this hyper-negative-to-coal environment — be better positioned to survive. The reorganized entity, assuming the deal holds, will have $225mm of senior secured debt on it (which will roll in the proposed $175mm DIP facility).*

*The proposed DIP facility includes a new money multi-draw term loan facility of $100mm and a $75mm roll-up of pre-petition first lien debt into a DIP term loan.

• Jurisdiction: D. of MO (Judge Surratt-States)

• Capital Structure: $157mm RCF, $743.3mm first lien term loan, $425mm 11.5% ‘23 second lien notes

• Professionals:

  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Alice Belisle Eaton, Alexander Woolverton) & Armstrong Teasdale LLP (Richard Engel Jr., John Willard, Kathryn Redmond)

  • Financial Advisor: FTI Consulting Inc. (Alan Boyko)

  • Investment Banker: Jefferies Group LLC

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

• Other Parties in Interest:

  • Ad Hoc First Lien Group

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Brad Kahn, Ira Dizengoff, Zachary Dain Lanier, James Savin) & Thompson Coburn LLP (Mark Bossi)

  • Second Lien Notes Trustee: Wilmington Trust NA

  • Davidson Kempner Capital Management LP

    • Legal: Milbank LLP (Dennis Dunne, Parker Milender)

  • DIP Agent ($175mm): Cortland Capital Market Services LLC

New Chapter 11 Bankruptcy Filing - RentPath Holdings Inc.

RentPath Holdings Inc.

February 12, 2020

RentPath Holdings Inc. and eleven affiliated entities (the “debtors”), a digital marketing solutions enterprise that links property managers with prospective renters to simplify the residential rental experience, filed for bankruptcy in the District of Delaware. The business did $226.7mm of revenue in fiscal 2019 and had EBITDA of $46.8mm.

Where there’s money there’s competition. Where there’s competition, revenue maintenance becomes more challenging. And because of that competition, the debtors were forced to up their marketing spend and promotional activity which dented liquidity. A lack of liquidity presents some really big problems when your annual interest expense is $54.4mm on approximately $700mm of funded debt. For the math challenged, $46.8mm against approximately $700mm of funded debt means that this sucker has a leverage ratio of approximately 15. Or as President Trump would say, “It’s UUUUUUUUUUUGE.” Clearly that is unsustainable AF.

The good news is that the debtors have found themselves a potential buyer, CSGP Holdings LLC, an affiliate of CoStar Group Inc. ($CSGP), which has come forward with a $587.5mm cash bid (plus the assumption of certain liabilities) for the debtors’ assets. The debtors hope to consummate the sale pursuant to a plan of reorganization. To get there and fund the cases in the interim, the debtors obtained a fully-backstopped commitment of $74.1mm in DIP financing from certain members of the crossholder ad hoc committee and other first lien lenders.

• Jurisdiction: (Judge Shannon)

• Capital Structure: $37.95mm First Lien Revolving Facility, $479.75mm First Lien Term Loan, $170mm Second Lien Term Loan

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, David Griffiths, Andriana Georgallas, Gaby Smith, Alexander Cohen, Kyle Satterfield, Justin Pitcher, Leslie Liberman, Martha Martir, Richard Slack, Amanda Burns Shulak) & Richards Layton & Finger PA (Daniel DeFrancheschi, Zachary Shapiro)

  • Independent Director: Marc Beilinson, Dhiren Fonseca

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: Moelis & Company (Zul Jamal)

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

• Other Parties in Interest:

  • DIP Agent & First Lien Agent:

    • Legal: Paul Hastings LLP (Michael Baker, Shekhar Kumar)

  • Successor Second Lien Agent: Wilmington Savings Fund Society FSB

    • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Marie Polito Hofsdal) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Crossholder Ad Hoc Committee

    • Legal: Milbank LLP (Evan Fleck, Nelly Almeida, Andrew Harmeyer) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Second Lien Ad Hoc Committee

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Rachel Biblo Block) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Stalking Horse Purchaser: CSGP Holdings LLC (CoStar Group Inc.)

    • Legal: Jones Day (Daniel Moss, Nicholas Morin) & Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill)

  • Large Equityholders: Providence Equity & TPG

    • Legal: Vinson & Elkins LLP (David Meyer)

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

American Commercial Lines Inc.

February 7, 2020

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

The company notes:

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

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

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

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

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

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

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

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

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

---

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

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

• Professionals:

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

  • Post-Reorg Independent Director: Scott Vogel

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Greenhill & Co. Inc.

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

• Other Parties in Interest:

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

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

  • Preptition Term Loan Agent: Cortland Capital Market Services LLP

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

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

    • Financial Advisor: Evercore Group LLC

  • Large Equityholder: Platinum Equity
    

🏠New Chapter 11 Bankruptcy Filing - Stearns Holdings LLC🏠

Stearns Holdings LLC

July 9, 2019

Hallelujah! Something is going on out in the world aside from the #retailapocalypse and distressed oil and gas. Here, Blackstone Capital Partners-owned Stearns Holdings LLC and six affiliated debtors (the “debtors”) have filed for bankruptcy in the Southern District of New York because of…drumroll please…rising interest rates. That’s right: the FED has claimed a victim. Stephen Moore and Judy Shelton must be smirking their faces off.

The debtors are a private mortgage company in the business of originating residential mortgages; it is the 20th largest mortgage lender in the US, operating in 50 states. We’ll delve more deeply into the business model down below but, for now, suffice it to say that the debtors generate revenue by producing mortgages and then selling them to government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac. There are a ton of steps that have to happen between origination and sale and, suffice it further to say, that requires a f*ck ton of debt to get done. That said, on a basic level, to originate loans, the debtors require favorable interest rates which, in turn, lower the cost of residential home purchases, and increases market demand and sales activity for homes.

Except, there’s been an itsy bitsy teeny weeny problem. Interest rates have been going up. Per the debtors:

The mortgage origination business is significantly impacted by interest rate trends. In mid-2016, the 10-year Treasury was 1.60%. Following the U.S. presidential election, it rose to a range of 2.30% to 2.45% and maintained that range throughout 2017. The 10-year Treasury rate increased to over 3.0% for most of 2018. The rise in rates during this time period reduced the overall size of the mortgage market, increasing competition and significantly reducing market revenues.

Said another way: mortgage rates are pegged off the 10-year treasury rate and rising rates chilled the housing market. With buyers running for the hills, originators can’t pump supply. Hence, diminished revenues. And diminished revenues are particularly problematic when you have high-interest debt with an impending maturity.

This is where the business model really comes into play. Here’s a diagram illustrating how this all works:

Source: First Day Declaration, PETITION

The warehouse lenders got nervous when, over the course of 2017/18, mortgage volumes declined while, at the same time, the debtors were obligated to pay down the senior secured notes; they, rightfully, grew concerned that the debtors wouldn’t have the liquidity available to repurchase the originated mortgages within the 30 day window. Consequently, the debtors engaged PIMCO in discussions about the pending maturity of the notes. Over a period of several months, however, those discussions proved unproductive.

The warehouse lenders grew skittish. Per the debtors:

Warehouse lenders began reducing advance rates, increasing required collateral accounts and increasing liquidity covenants, further contracting available working capital necessary to operate the business. Eventually, two of the warehouse lenders advised the Debtors that they were prepared to wind down their respective warehouse facilities unless the Debtors and PIMCO agreed in principle to a deleveraging transaction by June 7, 2019. That did not happen. As a result, one warehouse lender terminated its facility effective June 28, 2019 and a second advised that it will no longer allow new advances effective July 15, 2019. The Debtors feared that these actions would trigger other warehouse lenders to take similar actions, significantly impacting the Debtors’ ability to fund loans and restricting liquidity, thereby jeopardizing the Debtors’ ability to operate their franchise as a going concern.

On the precipice of disaster, the debtors offered the keys to PIMCO in exchange for forgiveness of the debt. PIMCO rebuffed them. Subsequently, Blackstone made PIMCO a cents-on-the-dollar cash-out offer on the basis that the offer would exceed liquidation value of the enterprise and PIMCO again declined. At this point there’s a lot of he said, she said about what was offered and reneged upon to the point that it ought to suffice merely to say that the debtors, Blackstone and PIMCO probably aren’t all sharing a Hamptons house together this summer.

So, where did they end up?

The debtors have filed a plan of reorganization with Blackstone as plan sponsor. Blackstone agreed to inject $60mm of new equity into the business — all of which, notably, is earmarked to cash out the notes in their entirety (clearly at at discount — read: below par — for PIMCO and the other noteholders). The debtors also propose to subject Blackstone’s offer to a 30-day competitive bidding process, provided that (a) bids are in cash (credit bids will not be allowed) and (b) all obligations to the GSEs and other investors are honored.

To fund the cases the debtors have obtained a commitment from Blackstone for $35mm in DIP financing. They also sourced proposals from warehouse lenders prepetition and have obtained commitments for $1.5b in warehouse financing from Barclays Bank PLC and Nomura Corporate Funding Americas LLC (guaranteed, on a limited basis, by Blackstone). In other words, Blackstone is ALL IN here: with the DIP financing, the limited guarantee and the equity check, they are placing a stake in the ground when it comes to mortgage origination.

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

• Capital Structure: $184mm 9.375% ‘20 senior secured notes (Wilmington Trust Association NA)

• Professionals:

  • Legal: Skadden Arps Slate Meagher & Flom LLP (Jay Goffman, Mark McDermott, Shana Elberg, Evan Hill, Edward Mahaney-Walter)

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

  • Investment Banker: PJT Partners LP (Jamie O’Connell)

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

  • Board of Directors: David Schneider, William Cary, Glenn Stearns, Nadim El Gabbani, Chinh Chu, Jason Roswig, Chris Mitchell

• Other Parties in Interest:

  • Indenture Trustee: Wilmington Trust Association NA

    • Legal: Alston & Bird LLP (Jason Solomon)

  • Major Noteholder: Pacific Investment Management Company LLC

    • Legal: Hogan Lovells US LLP (Bennett Spiegel, Stacey Rosenberg)

  • Blackstone Capital Partners VI-NQ/NF LP

    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Jamie Fell)

  • Barclays Bank PC

    • Legal: Hunton Andrews Kurth LLP (Peter Partee Sr., Brian Clarke)

  • Nomura Corporate Funding Americas LLC

    • Legal: Milbank LLP (Mark Shinderman, Lauren Doyle) & Alston & Bird LLP (Karen Gelernt)

  • Fannie Mae

    • Legal: O’Melveny & Myers LLP (Stephen Warren)

  • Freddie Mac

    • Legal: McKool Smith PC (Paul Moak)

7/9/19 #30

⛽️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 11 Filing - Hexion Holdings LLC

Hexion Holdings LLC

April 1, 2019

What we appreciate that and, we hope thanks to PETITION, others will eventually come to appreciate, is that there is a lot to learn from the special corporate law, investment banking, advisory, and investing niche labeled “restructuring” and “distressed investing.” Here, Ohio-based Hexion Holdings LLC is a company that probably touches our lives in ways that most people have no knowledge of: it produces resins that “are key ingredients in a wide variety of industrial and consumer goods, where they are often employed as adhesives, as coatings and sealants, and as intermediates for other chemical applications.” These adhesives are used in wind turbines and particle board; their coatings prevent corrosion on bridges and buildings. You can imagine a scenario where, if Washington D.C. can ever get its act together and get an infrastructure bill done, Hexion will have a significant influx of revenue.

Not that revenue is an issue now. It generated $3.8b in 2018, churning out $440mm of EBITDA. And operational performance is on the upswing, having improved 21% YOY. So what’s the problem? In short, the balance sheet is a hot mess.* Per the company:

“…the Debtors face financial difficulties. Prior to the anticipated restructuring, the Debtors are over nine times levered relative to their 2018 adjusted EBITDA and face annual debt service in excess of $300 million. In addition, over $2 billion of the Debtors’ prepetition funded debt obligations mature in 2020. The resulting liquidity and refinancing pressures have created an unsustainable drag on the Debtors and, by extension, their Non-Debtor Affiliates, requiring a comprehensive solution.”

This is what that capital structure looks like:

(PETITION Note: if you’re wondering what the eff is a 1.5 lien note, well, welcome to the party pal. These notes are a construct of a frothy high-yield market and constructive readings of credit docs. They were issued in 2017 to discharge maturing notes. The holders thereof enjoy higher priority on collateral than the second lien notes and other junior creditors below, but slot in beneath the first lien notes).

Anyway, to remedy this issue, the company has entered into a support agreement “that enjoys the support of creditors holding a majority of the debt to be restructured, including majorities within every tier of the capital structure.” The agreement would reduce total funded debt by $2b by: (a) giving the first lien noteholders $1.45b in cash (less adequate protection payments reflecting interest on their loans), and 72.5% of new common stock and rights to participate in the rights offering at a significant discount to a total enterprise value of $3.1b; and (b) the 1.5 lien noteholders, the second lien noteholders and the unsecured noteholders 27.5% of the new common stock and rights to participate in the rights offering. The case will be funded by a $700mm DIP credit facility.

*Interestingly, Hexion is a derivative victim of the oil and gas downturn. In 2014, the company was selling resin coated sand to oil and gas businesses to the tune of 8% of sales and 28% of segment EBITDA. By 2016, segment EBITDA dropped by approximately $150mm, a sizable loss that couldn’t be offset by other business units.

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: See above.

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Andrew Parlan, Hugh Murtagh, Caroline Reckler, Jason Gott, Lisa Lansio, Blake Denton, Andrew Sorkin, Christopher Harris) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele, Brendan Schlauch)

  • Managers: Samuel Feinstein, William Joyce, Robert Kaslow-Ramos, George F. Knight III, Geoffrey Manna, Craig Rogerson, Marvin Schlanger, Lee Stewart

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Moelis & Company LLC (Zul Jamal)

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

• Other Parties in Interest:

  • Ad Hoc Group of First Lien Noteholders (Angelo Gordon & Co. LP, Aristeia Capital LLC, Barclays Bank PLC, Beach Point Capital Management LP, Capital Research and Management Company, Citadel Advisors LLC, Contrarian Capital Management LLC, Credit Suisse Securities USA LLC, Davidson Kempner Capital Management LP, DoubleLine Capital LP, Eaton Vance Management, Federated Investment Counseling, GoldenTree Asset Management LP, Graham Capital Management LP, GSO Capital Partners LP, Heyman Enterprise LLC, Hotchkis and Wiley Capital Management LLC, OSK VII LLC, Pacific Investment Management Company LLC, Silver Rock Financial LP, Sound Point Capital Management LP, Tor Asia Credit Master Fund LP, UBS Securities LLC, Whitebox Advisors LLC)

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Daniel Fisher, Naomi Moss, Abid Qureshi)

    • Financial Advisor: Evercore Group LLC

  • Ad Hoc Group of Crossover Noteholders (Aegon USA Investment Management LLC, Aurelius Capital Master Ltd., Avenue Capital Management II LP, Avenue Europe International Management, Benefit Street Partners LLC, Cyrus Capital Partners LP, KLS Diversified Asset Management LLC, Loomis Sayles & Company LP, Monarch Alternative Capital LP, New Generation Advisors LLC, P. Schoenfeld Asset Management LP)

    • Legal: Milbank LLP (Samuel Khalil, Matthew Brod)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Ad Hoc Group of 1.5 Lien Noteholders

    • Legal: Jones Day (Sidney Levinson, Jeremy Evans)

  • Pre-petition RCF Agent & Post-petition DIP Agent ($350mm): JPMorgan Chase Bank NA

    • Legal: Simpson Thacher & Bartlett LLP

  • Trustee under the First Lien Notes: U.S. Bank NA

    • Legal: Kelley Drye & Warren LLP (James Carr, Kristin Elliott) & (local) Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

  • Trustee of 1.5 Lien Notes: Wilmington Savings Fund Society FSB

    • Legal: Arnold & Porter Kaye Scholer LLP

  • Trustee of Borden Indentures: The Bank of New York Mellon

  • Sponsor: Apollo

  • Official Committee of Unsecured Creditors: Pension Benefit Guaranty Corporation; Agrium US, Inc.; The Bank of New York Mellon; Mitsubishi Gas Chemical America; PVS Chloralkali, Inc.; Southern Chemical Corporation; Wilmington Trust; Wilmington Savings Fund Society; and Blue Cube Operations LLC

    • Legal: Kramer Levin Naftalis & Frankel LLP (Kenneth Eckstein, Douglas Mannal, Rachael Ringer) & (local) Bayard PA (Scott Cousins, Erin Fay, Gregory Flasser)

    • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated:

🚁New Chapter 11 Bankruptcy Filing - PHI Inc.🚁

PHI Inc.

March 15, 2019

It’s pretty rare to see a company affected by macro factors in two industries. And, yet, Louisiana-based PHI Inc. ($PHI) and four affiliates filed for bankruptcy in the Northern District of Texas, marking the fourth bankruptcy fallout in the helicopter services space following Waypoint Leasing, Erickson Incorporated and CHC Group. The company is a leading provider of transportation services to both the oil and gas industry (including, for example, Shell Oil Company, BP America Production Company, ExxonMobil Production Co., ConocoPhillips Company, ENI Petroleum and the recently-bankrupt Fieldwood Energy) and the medical services industry. It operates 238 aircraft, 213 which are company-owned and 119 of which are dedicated to oil and gas operations and 111 of which are dedicated to medical services. The company generated $675mm in revenue in 2018 — with much of that revenue coming from fixed-term contracts.

The company strongly asserts that operational failures are not a cause of its bankruptcy — a clear cut message to the market which might otherwise be concerned about safety and reliability. The issue here, the company notes, is the balance sheet, especially a March 15 2019 maturity of the company’s $500mm in unsecured notes. Despite alleged efforts to address this maturity with the company’s (fresh out of the womb) secured term loan holder and an ad hoc group of unsecured noteholders, the company was unable to do so.

The broader issue, however, is that the industry may be ripe for consolidation. Back in 2017, the company acquired the offshore business of HNZ Group Inc. This transaction expanded the company’s capacity to more international geographies. But given the dearth of offshore oil and gas production activity of late and intense competition in the space, there might be a need for more industry-wide M&A. The company notes:

As a result of this prolonged cyclical downturn in the industry, oil and gas exploration projects have been reduced significantly by the Company’s customers. Indeed, many customers have significantly reduced the number of helicopters used for their operations and have utilized this time instead to drive major changes in their offshore businesses, which have in turn drastically reduced revenues to PHI’s O&G business segment in the Gulf of Mexico. And while the price of crude oil slowly began to recover in 2018, the volatility in the market continues to drive uncertainty and negatively impact the scope and volume of services requested from service providers such as PHI.

This is simple supply and demand:

The effect of the downturn in the oil and gas industry has been felt by nearly all companies in the helicopter service industry. The downturn created an oversaturation of helicopters in the market, significantly impacting service companies’ utilization and yields. Indeed, this domino effect on the industry has required helicopter operators, like their customers, to initiate their own cost-cutting measures, including reducing fleet size and requesting rental reductions on leased aircraft.

Had these issues been isolated to the oil and gas space, the company would not have been in as bad shape considering that 38% of its revenue is attributable to medical services. But that segment also experienced trouble on account of…:

…weather-related issues and delays, changes in labor costs, and an increase in patients covered by Medicare and Medicaid (as opposed to commercial insurers), which resulted in slower and reduced collections, given that reimbursement rates from public insurance are significantly lower than those from commercial insurers or self-pay.

Compounding matters are laws and regulations that prohibit the debtors from refusing service to patients who are unable to pay. This creates an inherently risky business model dynamic. And it hindered company efforts to sell the business line to pay down debt.

Taken together, these issues are challenging enough. Tack on $700mm of debt, the inability to refi out its maturity, AND the inability to corral lenders to agree on a consensual deleveraging (which included a failed tender offer) and you have yet another freefall helicopter bankruptcy. Now the company will leverage the bankruptcy “breathing spell” and lower voting thresholds provided by the Bankruptcy Code to come to an agreement with its lenders on a plan of reorganization.

*****

That is, if agreement can be had. Suffice it to say, things were far from consensual in the lead up to (and at) the first day hearing in the case. To point, the Delaware Trust Companyas trustee for the senior unsecured notes, filed an objection to the company’s CASH MANAGEMENT motion because…well…there is no DIP Motion to object to. “Why is that,” you ask? Good question…

The debtors levered up their balance sheet in the lead-up to PHI’s well-known maturity. The debtors replaced their ABL in September with the $130mm term loan provided by Al Gonsoulin, the company’s CEO, Board Chairman and controlling shareholder. Thereafter — and by “thereafter,” we mean TWO DAYS BEFORE THE BANKRUPTCY FILING — the company layered another $70mm of secured debt onto the company, encumbering previously unencumbered aircraft and granting Mr. Gonsoulin a second lien. This is some savage balance sheet wizardry that has the effect of (a) priming the unsecured creditors and likely meaningfully affecting their recoveries and (b) securing Mr. Gonsoulin’s future with the company (and economic upside). Making matters worse, the trustee argues that the company made no real effort to shop the financing nor actively engage with the ad hoc committee of noteholders on the terms of a financing or restructuring; it doesn’t dispute, however, that the company had $70mm of availability under its indenture.

So what happened next? Over the course of a two day hearing, witnesses offered testimony about the pre-petition negotiations and financing process (or lack thereof) — again, in the context of a cash management motion. We love when sh*t gets creative! The lawyers for the company and the trustee hurled accusations and threats, the CEO was called a “patriot” (how, even if true, that is applicable to this context is anyone’s guess), and, ultimately, the judge didn’t care one iota about any of the trustee’s witness testimony and blessed the debtors’ motion subject to the company providing the trustee with weekly financial reporting. In other words, while this routine first day hearing was anything but, the result was par for the course.

Expect more fireworks as the case proceeds. Prospective counsel to the eventual official committee of unsecured creditors is salivating as we speak.

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

• Capital Structure: $130mm ‘20 senior secured term loan (Thirty Two LLC), $70mm secured term loan (Blue Torch Capital LP), $500 million ‘19 unsecured 5.25% senior notes

• Professionals:

  • Legal: DLA Piper US LLP (Daniel Prieto, Thomas Califano, Daniel Simon, David Avraham, Tara Nair)

  • Legal (corporate): Jones Walker LLP

  • Financial Advisor: FTI Consulting Inc. (Robert Del Genio, Michael Healy)

  • Investment Banker: Houlihan Lokey Capital Inc.

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

• Other Parties in Interest:

  • Prepetition TL & DIP Lender: Blue Torch Capital LP

  • Ad Hoc Committee of unsecured noteholders & Delaware Trust Company as Trustee for Senior Notes

    • Legal: Milbank LLP (Andrew LeBlanc, Dennis Dunne, Samuel Khalil) & (local) Norton Rose Fulbright US LLP (Louis Strubeck Jr., Greg Wilkes)

    • Financial Advisor: PJT Partners LP (Michael Genereaux)

  • Indenture trustee under the 5.25% Senior Notes due 2019 (Delaware Trust Company)

  • Thirty Two LLC

  • Official Committee of Unsecured Creditors (Delaware Trust Company, Oaktree Capital Management LP, Q5-R5 Trading Ltd., Regions Equipment Finance Corp., Helicopter Support Inc.)

    • Legal:

  • Official Committee of Equity Security Holders

    • Legal: Levene Neale Bender Yoo & Brill LLP (David Golubnik, Eve Karasik) & (local) Gray Reed & McGraw LLP (Jason Brookner)

    • Financial Advisor: Imperial Capital LLC (David Burns)

New Chapter 11 Bankruptcy Filing - Windstream Holdings Inc.

Windstream Holdings Inc.

February 25, 2019

See here for our write-up on Winstream Holdings Inc.

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

• Capital Structure: see below.

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Stephen Hessler, Ross Kwasteniet, Marc Kieselstein, Brad Weiland, Cristine Pirro Schwarzman, John Luze, Neda Davanipour)

  • Legal (Board of Directors): Norton Rose Fulbright US LLP (Louis Strubeck Jr., James Copeland, Kristian Gluck)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: PJT Partners LP

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

• Other Parties in Interest:

  • DIP Lender ($500mm TL, $500mm RCF): Citigroup Global Markets Inc.

  • Prepetition 10.5% and 9% Notes Indenture Trustee: Wilmington Trust NA

    • Legal: Reed Smith LLP (Jason Angelo)

  • Prepetition TL and RCF Agent: JPMorgan Chase Bank NA

    • Legal: Simpson Thacher & Bartlett LLP (Sandeep Qusba, Nicholas Baker, Jamie Fell)

  • Ad Hoc Group of Second Lien Noteholders

    • Legal: Milbank LLP

    • Financial Advisor: Houlihan Lokey Capital

  • Ad Hoc Group of First Lien Term Lenders

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Andrew Rosenberg, Samuel Lovett, Michael Rudnick)

    • Financial Advisor: Evercore

  • Midwest Noteholders

    • Legal: Shearman & Sterling LLP

  • Uniti Group Inc.

    • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Eli Vonnegut, James Millerman)

    • Financial Advisor: Rothschild & Co.

  • Large Unsecured Creditor: AT&T Corp.

    • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan, Ginger Clements, Peta Gordon) & AT&T (James Grudus)

  • Large Unsecured Creditor: Verizon Communications Inc.

    • Legal: Stinson Leonard Street LLP (Darrell Clark, Tracey Ohm)

  • Official Committee of Unsecured Creditors (AT&T Services Inc., Pension Benefit Guaranty Corporation, Communication Workers of America, AFL-CIO CLC, VeloCloud Networks Inc., Crown Castle Fiber, LEC Services Inc., UMB Bank)

    • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Brett Miller, Todd Goren, Jennifer Marines, Erica Richards)

New Chapter 11 Filing - Nine West Holdings Inc.

Nine West Holdings Inc.

April 6, 2018

Nine West Holdings Inc., the well-known footwear retailer, has finally filed for bankruptcy. The company will sell its Nine West and Bandolino brands to Authentic Brands Group and reorganize around its One Jeanswear Group, The Jewelry Group, the Kasper Group, and Anne Klein business segments. The company has a restructuring support agreement in hand to support this dual-process. 

More on the situation here. 

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

• Capital Structure: See below.

Source: First Day Declaration

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, James Stempel, Joseph Graham, Angela Snell, Anna Rotman, Jamie Aycock, Justin Alphonse Mercurio, Alyssa Russell)

  • Financial Advisor: Alvarez & Marsal North America LLC (Ralph Schipani III, Julie Hertzberg, Holden Bixler, Amy Lee, Richard Niemerg, Theodore Langer, Stuart Loop, Thomas Koch, Michael Dvorak)

    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc, Alexander Lees)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Ari Lefkovits, David Hales, Mike Weitz, Nikhil Angelo, Okan Kender, Abigail Gay, Drew Deaton) & Consensus Advisory Services LLC

  • Authorized Officers: Stefan Kaluzny, Peter Morrow, Harvey Tepner, Alan Miller

  • Legal to the Authorized Officers: Munger Tolles & Olson LLP (Seth Goldman, Kevin Allred, Thomas Walper)

  • Financial Advisor to the Authorized Officers: Berkeley Research Group LLC (Jay Borow)

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

• Other Parties in Interest:

  • Stalking Horse Bidder/Buyer: Authentic Brands Group

    • Legal: DLA Piper LLP (Richard Chesley, Ann Lawrence, Rachel Ehrlich Albanese)

  • Prepetition ABL and FILO Agent: Wells Fargo NA

    • Legal: Morgan Lewis & Bockius LLP (Matthew Ziegler, Julia Frost-Davies, Amelia Joiner)

  • Administrative Agent for the prepetition secured and unsecured Term Loan Facilities: Morgan Stanley Senior Funding Inc.

  • Indenture Trustee for 3 series of Unsecured Notes: US Bank NA

    • Legal: White & Case LLP (J. Christopher Shore, Philip Abelson) & Seward & Kissel LLP (John Ashmead, Arlene Alves)

  • Ad Hoc Group of Secured Lenders (Farmstead Capital Management LLC, KKR Credit Advisors (US) LLC)

    • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Darren Klein, Adam Shpeen)

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Group of Crossover Lenders (Alden Global Capital LLC, Carlson Capital LP, CVC Credit Partners LLC, Silvermine Capital Management LLC, Trimaran Advisors)

    • Legal: King & Spalding LLP (Michael Rupe, Jeffrey Pawlitz, Michael Handler, Bradley Giordano)

    • Financial Advisor: Guggenheim Securities LLC

  • Brigade Capital Management, LP

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

    • Financial Advisor: Moelis & Company

  • Ad Hoc Group of 2019 Unsecured Noteholders (Whitebox Advisors LLC, Scoggin Management LP, Old Bellows Partners LP, Wazee Street Opportunities Fund IV)

    • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland)

  • Ad Hoc Group of 2034 Unsecured Noteholders

    • Legal: Jones Day

    • Financial Advisor: Houlihan Lokey

  • Administrative Agent for $247.5mm DIP ABL Facility

  • Administrative Agent for $50mm DIP TL Facility

  • Sponsor: Sycamore Partners LP

    • Legal: Proskauer Rose LLP (Mark Thomas, Peter Young, Michael Mervis, Jared Zajac, Chantel Febus, Alyse Stach)

  • KKR Asset Management

    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc)

  • Morgan Stanley & Co. LLC and Morgan Stanley Senior Funding Inc.

    • Legal: Ropes & Gray LLP (Gregg Galardi, Gregg Weiner)

  • Official Committee of Unsecured Creditors (Aurelius Capital Master Ltd., GLAS Trust Company LLC, PBGC, Simon Property Group, Stella International Trading (Macao Commercial Offshore) Ltd., Surefield Limited, U.S. Bank NA)

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, David Zensky, Deborah Newman, Arik Preis, Jason Rubin, Anthony Loring, Michael Byun, Patrick Chen)

    • Legal Conflicts Counsel: Kasowitz Benson Torres LLP (David Rosner, Howard Schub)

    • Financial Advisor: Protiviti Inc. (Guy Davis, Suzanne Roski, Heather Williams, John Eldred, Justin Koehler, Brian Taylor, Russell Brooks, Matthew Smith, Blake Parker, Lee Slobodien, Omkar Vale, Lok Lam, Sean Sterling) & Province Inc. (Michael Atkinson, Jason Crockett, Eunice Min, Byron Groth)

    • Investment Banker: Houlihan Lokey Capital Inc. (Saul Burian, Surbhi Gupta, Chris Khoury, Tejas Kullarwar, Matt Ender, Brendan Wu)

Updated 11/3/18 at 6:42 am CT

New Chapter 11 Filing - 21st Century Oncology Holdings Inc.

21st Century Oncology Holdings Inc.

• 5/21/17 Recap: People have been talking about an uptick in healthcare-related bankruptcies. Is this the start? Here, Florida-based cancer care provider founded in the early 80s with 179 locations (including some in South America and Latin America) finds itself in bankruptcy court after years of acquisitions (including once-bankrupt Oncure Holdings Inc.) and a perfect storm of causes - most notably, an over-levered balance sheet. Other contributing factors to the company's chapter 11 filing include (i) decreased reimbursements under current insurance programs, (ii) Medicare changes, (iii) a shift from higher revenue per treatment PPO insurance plans to HMO plans, and (iv) government regulations, penalties and settlements. Some government inquiries remain outstanding. The company has a restructuring support agreement in place, a proposed $75mm DIP credit facility, and the plan is to delever the balance sheet by up to $500mm.
• Jurisdiction: S.D. of New York
• Capital Structure: $599mm TL & $121mm RCF (Morgan Stanley Senior Funding), $35mm MDL Facility (Wilmington Savings Fund Society), $368mm 11% '23 senior unsecured notes (Wilmington Trust National Association), $19mm PIK notes    
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, William Guerrieri, John Weber, Alexandra Schwarzman, Mark McKane, Michael Esser)
  • Financial Advisor: Alvarez & Marsal LLC (Paul Rundell)
  • Investment Banker: Millco Advisors LP (Brendan Hayes)
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition MDL Agent: Wilmington Savings Fund Society FSB
    • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman)
  • First Lien Ad Hoc Committee and DIP Lenders (Apex Credit Partners LLC, Black Diamond Capital Management LLC, BlueMountain CLO Management LLC, Carlson Capital LP, Deutsche Bank AG New York Branch, GMO Credit Opportunities Fund LP, Goldman Sachs Asset Management LP, HPS Investment Partners LLC, IA Clarington Investments Inc., Intermarket Corporation, Key Bank National Association, MJX Asset Management LLC, Morgan Stanley Senior Funding Inc., Och-Ziff Capital Investments LLC, Q Investments LP, Silver Rock Financial LP, Wazee Street Capital Management LLC, Wells Fargo NA)
    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Evan Fleck, Matthew Brod)
    • Financial Advisor: PJT Partners LP
  • Ad Hoc Group of Crossholder Lenders
    • Legal: Stroock Stroock & Lavan LLP  (Frank Merola, Jayme Goldstein, Matthew Schwartz, Samantha Martin)
    • Financial Advisor: Houlihan Lokey Capital Inc.
  • Major Equity Holders (Canada Pension Plan Investment Board, Vestar Capital Partners V LP)
    • Legal for CPPIB: Debevoise & Plimpton LLP (Mi Chi To)
  • DIP Administrative Agent: Morgan Stanley Senior Funding
    • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.)
  • Patient Care Ombudsman
    • Legal: Otterbourg PC (Melanie Cyganowski, Keith Costa, Jennifer Feeney)
  • Backstop Parties: Beach Point Capital Management LP, Governors Lane LP, JPMorgan Investment Management Inc., Oaktree Capital Management LP, Roystone Capital Management LP, HPS Investment Partners LLC
  • Official Committee of Unsecured Creditors
    • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Jonathan Levine, Daniel Harris, Benjamin Butterfield)

Updated 7/11/17

New Chapter 11 Filing - Gulfmark Offshore Inc.

Gulfmark Offshore Inc.

• 5/17/17 Recap: Everyone has been waiting for the offshore action and it's finally here. Except, its fairly anticlimactic. Here, the publicly-traded Houston-based offshore oil and gas logistics services provider filed for bankruptcy to effectuate a financial restructuring pursuant to a Restructuring Support Agreement signed with holders of its unsecured senior notes. The noteholders will get approximately 36% of the equity in the newly reorganized company along with rights to purchase an additional 60% equity slug pursuant to a backstopped $125mm rights offering. Existing equity will get a small equity "kiss" and some warrants. This is so boring that EVEN WE can't really find much to make fun of. 
• Jurisdiction: D. of Delaware
• Capital Structure: $100mm RCF ($72mm funded)(Royal Bank of Scotland), NOK600mm Norwegian Facility ($44.3mm funded)(DNB Bank ASA), $430mm '22 6.375% unsecured senior notes (funded)(US Bank NA)    
• Company Professionals:
  • Legal: Weil (Gary Holtzer, Ronit Berkovich, Debora Hoehne) & (local) Richards Layton & Finger PA (Mark Collins, Zachary Shapiro, Brett Haywood, Christopher De Lillo)
  • Financial Advisor: Alvarez & Marsal LLC (Brian Fox, Kevin Larin, RIchard Niemerg, Don Koetting, Lacie Melasi, Robert Country)
  • Investment Banker: Evercore Group LLC (Stephen Hannan, David Andrews, Sachin Lulla, Pranav Goel, Arth Patel)
  • Claims Agent: Prime Clerk LLC (*click on company name above for access to free docket)
• Other Parties in Interest:
  • Indenture Trustee: US Bank NA
    • Legal: Foley & Lardner LLP (Derek Wright, Mark Prager)
  • Ad Hoc Group of Unsecured Noteholders
    • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Evan Fleck, Nelly Almeida) & (local) Morris Nichols Arsht & Tunnell LLP (Gregory Werkheiser, Robert Dehney)
      • Financial Advisor: Houlihan Lokey Capital Inc.
  • Prepetition Multicurrency RCF Lender: Royal Bank of Scotland
    • Legal: Sullivan & Cromwell LLP (Michael Torkin, Brian Glueckstein, David Zylberberg) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joseph Barry, Ian Bambrick)
    • Financial Advisor: FTI Consulting Inc.
  • Prepetition NOK Lender: DNB Bank ASA
    • Legal: Hughes Hubbard & Reed LLP (Christopher Kiplok, Anson Frelinghuysen, Erin Diers) & (local) Bayard PA (Erin Fay)
    • Financial Advisor: Guggenheim Securities LLC
  • Gulfmark Rederi AS
    • Legal: Norton Rose Fulbright US LLP (Jason Boland, William Greendyke) & (local) Womble Carlyle Sandridge & Rice LLP (Matthew Ward)

Updated 7/12/17 9:301 am CT

New Chapter 11 Filing - rue21 Inc.

rue21 Inc.

• 5/15/17 Recap: Pennsylvania-based specialty fashion retailer (owned by private equity shop Apax Partners LP) with 1184 brick-and-mortar locations (pre recent closing initiative) in various strip centers, regional malls and outlet centers filed for bankruptcy to (i) further revamp its e-commerce strategy, (ii) improve the in-store experience, (iii) right-size the store footprint and lease portfolio, (iv) de-lever its capital structure, and (v) effectuate a long-term business plan under its relatively new management. The numbers here are interesting: the company had a negative EBITDA swing of approximately $51mm from 2015 to 2016 - despite rising sales. The company's girls' division got decimated due to "an evolution of customer tastes." Wow! Who knew that teenage girls have fickle fashion tastes? These merchandising issues combined with (a) supply chain issues (heightened - in a self-fulfilling kind of way - by all of the rumors surrounding the company's bankruptcy), (b) "the shift away from brick-and-mortar retail sales to online channels," AND (c) a "not as robust" e-commerce presence relative to competitors, to put the company in a tough spot. A digression: we have previously noted David Simon's comments on the Simon Properties Group (SPG) earnings call from 4/27/17 that SPG is NOT experiencing a decline in traffic - though he offered absolutely ZERO data to back that up. According to SPG's own website, there are currently 90 rue21 locations in SPG properties (which translates to nearly 8%): we're curious to see whether any of these 90 locations will be featured in store closing motions coming soon to a bankruptcy court near you; indeed, in the first instance, it appears that some already are). The company is proposing a deal whereby the Term Lenders will effectively own the majority of the company post-bankruptcy after rolling-up a $100 DIP credit facility (applied in addition to $50mm of new money to be rolled into an exit facility). They've been so kind so as to give general unsecured creditors (read: the little guys) a 4% equity kiss - but only if they vote to accept the plan. Otherwise, the "death trap" door opens and general unsecured creditors end up with nada. We're sure a creditors' committee will have something to say about that. 
• Jurisdiction: W.D. of Pennsylvania
• Capital Structure: $150mm RCF ($78mm funded)(Bank of America), $521mm '20 TLB (Wilmington Savings Fund Society as successor to JPMorgan Chase Bank NA), $239mm '21 9% unsecured bonds (Wells Fargo Bank NA).    
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jonathan Henes, Nicole Greenblatt, Robert Britton, George Klidonas) & (local counsel) Reed Smith LLP (Eric Schaffer, Jared Roach)
  • Financial Advisor: Berkeley Research Group LLC (Stephen Coulombe, Kyle Richter, Patrick Farley)
  • Investment Banker: Rothschild Inc. (Neil Augustine, Jonathan Brownstein)
  • Real Estate Advisor: A&G Realty Partners LLC
  • Liquidator: Gordon Brothers Retail Partners LLC
    • Legal: Greenberg Traurig LLP (Nancy Peterman)
  • Claims Agent: KCC (*click on company name for access to the free docket)
• Other Parties in Interest:
  • ABL Agent and DIP ABL Agent: Bank of America
    • Legal: Morgan Lewis & Bockius LLP (Matthew Furlong, Marc Ledue, Julia Frost-Davis) & (local) Buchanan Ingersoll & Rooney PC (James Newell, Timothy Palmer, Kelly Neal)
  • TL Agent and DIP TL Agent: Wilmington Savings Fund Society FSB and Term Lender Group (Bayside Capital LLC, Benefit Street Partners LLC, Bennett Management Corporation, Citadel Advisors LLC, Eaton Vance Management, JPMorgan Chase Bank NA, Octagon Credit Investors LLC, Southpaw Credit Opportunity Master Fund LP, Stonehill Capital Management LLC, Voya Investment Management)
    • Legal: Jones Day LLP (Scott Greenberg, Michael J. Cohen, Jeffrey Bresch, Genna Ghaul)
    • Financial Advisor: PJT Partners
  • Indenture Trustee: Wells Fargo Bank NA
    • Legal: Milbank Tweed Hadley & McCloy LLP (Gerard Uzzi, Robert Nussbaum, Eric Stodola)
  • Sponsor: Apax Partners LP
    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Nicholas Baker, Jonathan Endean) & Duane Morris LLP (Joel Walker, Kenneth Argentieri)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Michael Klein, Lauren Reichardt) & Fox Rothschild LLP (John Gotaskie Jr.)
    • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated 7/12/17

New Filing - Commonwealth of Puerto Rico

Commonwealth of Puerto Rico & Puerto Rico Sales Tax Financing Corporation ("COFINA")

• 5/3/17 Recap: The Commonwealth of Puerto Rico filed a petition for relief under Title III of the the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). Much has been written on this situation and so we're going to keep this brief. We're also going to shed the snark. Why? Well, because this is truly a sad story. GNP in Puerto Rico has declined over 14% in the last decade. The unemployment rate is 12.1% as of 10/16. The labor participation rate plummeted to 40%. The population has declined by 10% over the last decade. 46.1% of PR's residents live below the federal poverty level: the national average is 14.7% and Detroit's poverty level at the time of filing for Chapter 9 was 36%. Brutal. All in, the Commonwealth has $74 billion of bond debt and $48 billion of unfunded pension liabilities. A total dumpster fire.
• Jurisdiction: United States District Court for the District of Puerto Rico
• Capital Structure:

• Professionals:
  • Counsel to the Oversight Board: Proskauer Rose LLP (Martin Bienenstock, Scott Rutsky, Philip Abelson, Ehud Barak, Maja Zerjal, Timothy Mungovan, Steven Ratner, Paul Possinger) & O'Neill & Borges LLC (Hermann Bauer)
  • Strategic Consultant to the Oversight Board: McKinsey & Co.
  • Municipal Investment Banker to the Oversight Board: Citigroup Global Markets
  • Financial Advisor to the Oversight Board: Ernst & Young LLP
  • Counsel to the Puerto Rico Tax Agency and Financial Advisory Authority: O'Melveny & Myers LLP (John Rapisardi, Suzzanne Uhland, Peter Friedman)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Ad Hoc Retiree Committee
    • Legal: Bennazar Garcia & Milian CSP (A.J. Bennazar-Zequeira) & Clark Hill PLC (Robert Gordon, Shannon Deeby, Jennifer Green)
  • National Public Finance Guarantee Corporation
    • Legal: Weil (Marcia Goldstein, Kelly DiBlasi, Gabriel Morgan)
  • Ambac Assurance Corporation
    • Legal: Milbank Tweed & McCloy LLP (Dennis Dunne, Andrew Leblanc, Atara Miller)
  • UBS Family of Funds
    • Legal: White & Case LLP (John Cunningham)
  • Oppenheimer Funds
    • Legal: Kramer Levin Naftalis & Frankel LLP (Thomas Mayer, Amy Caton, Douglas Buckley, David Blabey Jr., Phillip Bentley)
  • American Federation of State, County and Municipal Employees
    • Legal: Saul Ewing LLP (Dipesh Patel, Sharon Levine)
  • The Employees Retirement System of the Government of the Commonwealth of Puerto Rico
    • Legal: DLA Piper LLP (Richard Chesley, Rachel Albanese)
  • Goldman Sachs Asset Management LP
    • Legal: McDermott Will & Emery LLP (James Kapp, Megan Thibert-Ind, William Smith)
  • Trustee: Bank of New York Mellon 
    • Legal: Reed Smith LLP (Luke Sizemore, Eric Schaffer, Kurt Gwynne)

Updated 5/11/17

From the Commonwealth's petition.