New Chapter 11 Bankruptcy Filing - Aegean Marine Petroleum Network Inc.

Aegean Marine Petroleum Network Inc.

November 6, 2018

On Sunday, November 4, 2018, we wrote the following in our “Fast Forward” segment:

Aegean Marine Petroleum Network Inc. ($ANW) is now subject to a fraud probe by international auditors. This thing will be in a bankruptcy court near you before too long.

We didn’t expect that prediction to come to fruition so quickly!

Admittedly, Aegean, one of the world’s largest independent marine fuel logistics companies with 57 owned and chartered vessels, has been a slow moving train towards bankruptcy for some time. The recent revelation of fraud — yes, fraud — is just the cherry on top. (PETITION Note: in frothy times come desperate shenanigans. This won’t be the last bankruptcy filed in the near-term that, in part, will have an element of fraud in the story.) And, alas, earlier, Aegean Marine Petroleum Network Inc. and 74 affiliated debtors filed for bankruptcy in the Southern District of New York. The more immediate trigger? The maturity of its 4% convertible unsecured notes.

Aegean blames an over-saturated market, limitations imposed by its lenders under the credit facilities, and…wait for it…the fraud…as reasons for its bankruptcy filing. Wait. Why are we describing the debtors’ ails in words when they’ve provided us with some crafty graphics to illustrate, in part, the “perfect storm of circumstances” that have plagued them:

Source: First Day Declaration

Aegean intends to use the bankruptcy process to address its capital structure (namely the maturity), stabilize operations and sell to Mercuria Energy Group Limited, a private company that, back in August, became the sole lender under both the debtors’ US and Global credit facilities. Mercuria also provided a DIP proposal that consists of a $160mm US credit facility, a $300mm global credit facility, and a $72mm term loan that the debtors deemed better than a proposed facility from an ad hoc group of unsecured convertible noteholders. The question will be to what degree a more robust and competitive sale process emerges now that this thing is finally in bankruptcy court.

• Jurisdiction: S.D.N.Y. (Judge Wiles)

• Capital Structure: $131.7mm US credit facility (ABN AMRO Bank NV), $249.6mm global credit facility (ABN AMRO Bank NV), $206.6mm aggregated across ten secured term loans, $172.5mm 4.25% convertible unsecured notes due 2021 (U.S. Bank NA), $94.55mm 4.00% convertible unsecured notes due 2018 (Deutsche Bank Trust Company Americas)  

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Jonathan Henes, Marc Kieselstein, Ross Kwasteniet, Cristine Pirro Schwarzman, Adam Paul, Benjamin Winger, Christopher Hayes, Bryan Uelk)

  • Independent Directors: Donald Moore, Raymond Bartoszek, Tyler Baron)

  • Audit Committee of the Board of Directors

    • Legal: Arnold & Porter Kaye Scholer LLP (Tyler Nurnberg)

  • Financial Advisor: EY Turnaround Management Services LLC (Andrew Hede)

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

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

• Other Parties in Interest:

  • Prepetition Agent: ABN AMRO Capital USA LLC

    • Legal: Willkie Farr & Gallagher LLP (Ana Alfonso)

  • Prepetition Agent: Aegean Baltic Bank SA

    • Legal: White & Case LLP (Scott Greissman, Elizabeth Feld, Mark Franke)

  • Indenture Trustee for the 4% ‘18 Convertible Senior Notes

    • Legal: Ropes & Gray LLP (Mark Somerstein, Patricia Chen)

  • Largest Equity Holder/Stalking Horse Buyer: Mercuria Energy Group Limited

    • Legal: Norton Rose Fulbright US LLP (Marc Ashley, Robert Kirby)

  • Official Committee of Unsecured Creditors (Deutsche Bank Trust Company Americas, U.S. Bank National Association, American Express Travel Related Services Company Inc.)

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

    • Financial Advisor: AlixPartners LLP

Source: First Day Declaration

Updated 11/17/18

New Chapter 11 Bankruptcy Filing - Taco Bueno Restaurants, Inc.

Taco Bueno Restaurants, Inc.

November 6, 2018

Damn you Chipotle Mexican Grill Inc. ($CMG).

It’s been a rough several months for Mexican restaurants. Over the summer, Tennenbaum Capital and Z Capital-owned RM Holdco LLC (Real Mex) filed for bankruptcy in the District of Delaware and pursued a sale of its business. Now, Texas-based, TPG-owned Taco Bueno Restaurants, Inc., a Tex-Mex quick service restaurant (“QSR”) with 140 owned and 29 franchised locations, has filed a prepackaged bankruptcy that will convey ownership to Taco Supremo LLC, an affiliate of Sun Holdings Inc., which bought-out the debtors’ initial lenders in October. Taco Supremo subsequently signed a restructuring support agreement memorializing its intent to effectuate a debt-for-equity swap and provide the debtors with a DIP credit facility.

So, why is all of this necessary? The company noted:

…while Taco Bueno possesses a traditional brand with a loyal customer base and the potential for future growth under the leadership of its new management team, Taco Bueno’s existing capital structure is unsustainable and its financial performance fell significantly due to, among other things, historical mismatches between price and product value, a lack of product innovation, and deferred maintenance capital investment. In addition, competition in the Mexican food industry – including the rise in popularity of tacos at both QSRs and other types of restaurants – increased substantially in recent years, causing certain Taco Bueno stores to experience stagnant or reduced customer traffic and sales. Moreover, while Taco Bueno recently launched a process to close underperforming stores to better focus on core markets and high-value stores, Taco Bueno continues to suffer from a number of underperforming restaurants. Accordingly, Taco Bueno needs to continue to restructure its lease footprint and renegotiate existing leases to optimize profitability.

Even the “Buenoheads” — yes, that’s actually a thing, apparently — couldn’t save this thing from bankruptcy. The debtors’ EBITDA fell to approximately $17.2 million in 2017 with a projected EBITDA of approximately $5.9 million for 2018, compared to approximately $33 million in 2016 EBITDA and approximately $31 million in 2015 EBITDA. Of course, the $130mm of debt doesn’t help either.

Consequently, to salvage liquidity and allow its bankers to conduct a process, the debtors closed 20 locations in the last year (and are in the midst of negotiations with Spirit Realty Capital Inc. ($SRC), U.S Realty Capital, and Kamin Realty Co., the landlords of over 50% of the debtors’ leases). The management team has turned over and the company attempted a prepetition sale process. That process culminated in the above-noted RSA-based transaction that will attempt to flush the company in and out of bankruptcy court by the middle of December.

• Jurisdiction: N.D. of Texas

• Capital Structure: $130.9mm debt     

• Company Professionals:

  • Legal: Vinson & Elkins (David Meyer, Jessica Peet, Paul Heath, Garrick Smith, Matthew Pyeatt, Andrew Geppert)

  • CRO/Financial Advisor: Berkeley Research Group LLC (Haywood Miller)

  • Investment Banker: Houlihan Lokey Capital Inc. (Adam Dunayer)

  • Real Estate Advisor: Jones Lang LaSalle Americas Inc.

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

• Other Parties in Interest:

  • Initial Lender: Bank of America NA

  • Sponsor: TPG Growth III Management LLC

😷New Chapter 11 Bankruptcy Filing - Promise Healthcare Group LLC😷

Promise Healthcare Group LLC

November 5, 2018

Most professionals predicted at the start of 2018 that healthcare would be an active industry for restructuring activity. Instead, there’s only been a few cases here and there — nothing to really stand out from the crowd in terms of volume. And, so just when we’re on the verge of declaring that prediction utterly and emphatically wrong, here is Promise Healthcare Group LLC and its affiliated debtors — another short-term and long-term acute care and nursing facility operator in bankruptcy court (with DLA Piper and FTI Consulting in tow, a seemingly regular occurrence these days in sizable healthcare matters).

Why is another large acute care operator in bankruptcy? The debtors blame the usual deplorables, i.e., reimbursement rate declines, capital-intensive and ultimately-abandoned new business projects, underperforming facilities, and an “unsustainable balance sheet.” Consequently, it undertook performance improvement measures, including the closure of two facilities and the sh*tcanning of 147 full-time equivalent employees. This, collectively, freed up a total of $13.5mm but vendors had begun squeezing the company in such a way that this amount, alone, wasn’t enough to cash flow to sustain the debtors.

The debtors intend to (i) sell non-core assets and real estate to payoff certain secured creditors (including one in Silver Lake, Los Angeles, to the L.A. Downtown Medical Center for $84.15mm) and (ii) otherwise market and sell substantially all of the rest of their assets or, if an equity sponsor emerges, restructure. They intend to do this within six months (anyone want to take the under?). The company has a $85mm DIP commitment ($20mm new money) to fund the process.

• Jurisdiction: D. of Delaware

• Capital Structure: $61.6mm Revolver, $15mm TL debt, $200mm intercompany debt (two loans)

• Company Professionals:

  • Legal: Waller Lansden Dortch & Davis LLP (John Tishler, Katie Stenberg, Blake Roth, Tyler Layne) & (local) DLA Piper LLP (Stuart Brown, Kaitlin MacKenzie Edelman, Erik Stier, Matthew Sarna)

  • CRO/Financial Advisor: FTI Consulting Inc. (Andrew Hinkelman, Jennifer Byrne, Chris Goff)

  • Investment Banker: Houlihan Lokey Capital Inc. (Andrew Turnbull, Matthew Ryan, Scott Kremeier, Moyo Mamora, Brian Marks, Marc Epstein, Conor Dorgan) and MTS Health Partners LP (Jay Shiland)

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

• Other Parties in Interest:

  • Prepetition Administrative Agent: Wells Fargo Bank NA

    • Legal: McGuireWoods LLP (Brian Swett, Alexandra Shipley) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • Healthcare Services Group Inc.

    • Legal: Stevens & Lee P.C. (Joseph Huston Jr., Evan Coren, Robert Lapowsky)

  • Stalking Horse Purchaser: Select Medical Corporation

    • Legal: Dechert LLP (Brian Greer, Stephen Leitzell, Jonathan Stott) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Sean Greecher)

  • Official Committee of Unsecured Creditors (HEB Ababa, Ronaldoe Guiterrez and Yolanda Penney, Cardinal Health, Wound Care Management LLC d/b/a MEDCENTRIS, Freedom Medical Inc., Morrison Management Specialists Inc., Efficient Management Resources Systems Inc., Surgical Program Development)

    • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy, Rachel Brennan) & (local) Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Alan Kornfeld, Bradford Sandler, Maxim Litvak, Colin Robinson)

    • Financial Advisor: Province Inc. (Edward Kim, Paul Huygens, Carol Cabello, Jorge Gonzalez, Carlos Lovera, Paul Navid)

Updated 3/9/18

New Chapter 11 Bankruptcy Filing - PGHC Holdings Inc.

PGHC Holdings Inc.

November 5, 2018

On Sunday night, the New England Patriots took down the Green Bay Packers but the official pizza of the team took an “L.” Indeed, New England local news reported that dozens of area Papa Gino’s locations had abruptly shut down. Now we know why. And, it turns out, the dozens were really 95 stores all in. Which, we’d be remiss not to note, affects 1,100 employees who are now out of jobs.

On Monday morning, PGHC Holdings Inc., the parent company of 141 company-owned and 37 franchisee-and-licensee-owned New England restaurant chains Papa Gino’s Pizzeria and D’Angelo Grilled Sandwiches, filed for bankruptcy to effectuate a sale to WC Purchaser LLC, an affiliate of Wynnchurch Capital. Wynnchurch will provide a DIP credit facility to fund the case.

We, here, at PETITION have highlighted disruption in the casual dining space ad nauseum. The debtors, in their filings, confirmed a lot of what we’ve been saying. They noted:

Consumer preferences have shifted from in-restaurant dining to delivery and carryout ordering, which require fewer overall restaurants and smaller restaurant size to service the same geographic area. As a result of these shifting consumer preferences, the Debtors’ existing footprint is too large — in terms of both number and size of restaurants. In addition, minimum wage increases across many of the Debtors’ markets combined with higher employee benefit costs associated with health plans have also pressured the Debtors’ cash flows. The Debtors also have faced increased competition and associated price pressure from national chains that have increased their footprint in the Debtors’ core New England markets. In addition to these and other operational factors, the Debtors have a substantial debt load that, as noted above, they have been unable to service and are in default under.

Consequently, the debtors have let leases expire, engaged in (mostly unsuccessful) negotiations with landlords on lease forgiveness, changed internal IT systems, emphasized digital media marketing and formulated a smaller more efficient restaurant concept. Nevertheless, these efforts didn’t generate enough revenue and profitability to enable the debtors to handle their debt burden.

Wynnchurch will provide the company with a $13.8mm DIP facility, permit the use of cash collateral, and credit bid the debt it took over to the tune of $20mm. In other words, this is effectively a “loan-to-own” play. Bravo!

• Jurisdiction: D. of Delaware

• Capital Structure: $6.9mm Revolver A, $1.5mm Revolver B, $18.4mm Term Loan A (WC Financeco A LLC, as assignee), $34.2mm second lien debt (WC Financeco B LLC, as assignee), $27.9mm unsecured mezz debt (Hartford Life Insurance Company), $11.9mm unsecured mezz debt (Brookside Mezzanine Fund)

• Company Professionals:

  • Legal: Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Matthew Harvey, Eric Moats)

  • Financial Advisor: CR3 Partners LLC

  • Investment Banker: North Point Advisors LLC

  • Real Estate Advisor: Hilco Real Estate LLC

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

• Other Parties in Interest:

  • Mezz Debt Lenders

    • Legal: Choate Hall & Stewart LLP (Douglas Gooding)

New Chapter 11 Bankruptcy Filing - Republic Metals Refining Corporation

Republic Metals Refining Corporation

Source: Pexels.com

November 2, 2018

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

Close. But no cigar.

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

• Jurisdiction: S.D. of New York

• Capital Structure: $177mm senior debt

• Company Professionals:

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

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

  • Investment Banker: SSG Capital Advisors LLC

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

• Other Parties in Interest:

  • Senior Lender: ICBC Standard Bank Plc

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

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

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

New Chapter 11 Bankruptcy Filing - FR Dixie Holdings Corp.

FR Dixie Holdings Corp.

November 2, 2018

Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.

For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.”

The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:

Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.

Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.

• Jurisdiction: D. of Delaware

• Capital Structure: $19.6mm revolver, $267.4mm TL (Wilmington Trust NA), $8mm unsecured loans    

• Company Professionals:

  • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, David Baruch) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach, Elizabeth Justison, Tara Pakrouh)

  • Financial Advisor: BDO USA LLP

  • Investment Banker: PJT Partners LP (Peter Laurinaitis, Joseph Fallon)

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

• Other Parties in Interest:

  • Ad Hoc Group of Prepetition Secured Lenders

    • Legal: Davis Polk & Wardwell LLP & (local) Morris Nichols Arsht & Tunnell LLP

    • Financial Advisor: Ankura Consulting Group

Updated 11/2 7:45am CT

New Chapter 11 Bankruptcy Filing - Gastar Exploration Inc.

Gastar Exploration Inc.

October 31, 2018

The fallout from the oil and gas downturn appears to have a long tail.

Gastar Exploration Inc. ($GST), an oil and natural gas exploration and production company focused on shale resource plays in Oklahoma filed a prepackaged bankruptcy in the Southern District of Texas.

For anyone looking for a short primer on what exactly transpired in oil and gas country upon the 2014 downturn in commodity prices is in luck: the company provides a succinct explanation in its bankruptcy filings. It notes:

The market difficulties faced by the Debtors are consistent with those faced industry-wide. Oil and gas companies and others have been challenged by low natural gas prices for years. Since January 2014, natural gas prices fell from a peak of $5.39 per MMBtu in January 2014 to $1.73 per MMBtu by March 2016, and remain at approximately $3.17 per MMBtu. The price of crude oil has similarly plummeted from a high of $107.26 per barrel in June 2014 to a low of $29.64 per barrel in January 2016. Crude oil prices remain at approximately $67 per barrel. Additionally, NYMEX futures curves for both natural gas and crude oil are backward dated, indicating an expectation among real-money traders in the derivatives market that these commodity prices are expected to decline over the next several years.

These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues are generated from the sale of unrefined oil and gas. Over 160 oil and gas companies have filed for chapter 11 since the beginning of 2015. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings.

The Debtors were not immune to these macro-economic forces.

With hundreds of millions of dollars of debt, the company managed to avoid a bankruptcy filing during that time. This is primarily due to a 2017 refinancing transaction that it consummated with Ares Management LLC pursuant to which the company took on new first lien term loans, new second lien converts, and obtained a $50mm equity investment from Ares. The capital structure, at the petition date, is comprised of these term loans and converts. The company intended the new financing to help it weather the downturn and bridge it to a more favorable operational performance and capital markets environment. Alas, it’s in bankruptcy. So, we guess we know how those intentions played out in reality. Indeed, the company experienced significant operational challenges that resulted in a decreased in well production performance — a result that came to pass only after the company incurred the costs of production. Sheesh.

Now the company seeks, in partnership with Ares, to push through a speedy chapter 11 bankruptcy that would have the effect of deleveraging the balance sheet by approximately $300mm, handing all of the equity to Ares (on account of their second lien notes claims), and wiping out the preferred and common equity — which would only be entitled to warrants in reorganized Gastar if they don’t object to the restructuring or seek the appointment of an official committee of equity security holders. Which in the case of both common equityholders (Fir Tree Capital Management LP & York Capital Management Global Advisors LLC) and preferred equityholders…uh…is exactly what they’re doing. Clearly those warrants weren’t much of a carrot. And Judge Isgur happens to have previously demonstrated a soft spot in his heart for equity committees. See, e.g., Energy XXI.

Prior to the first day hearing, Fir Tree and York (by attorneys Quinn Emanuel - a sign of seriousness) filed an emergency motion seeking the appointment of an equity committee alleging, among other things, that the company’s plan is a pure Ares jam fest. They seek an investigation of Ares’ actions (including the refinancing transaction), citing the Energy XXI case, and noting in the process that with unsecured creditors riding through the plan, there is no viable adversary to the debtor other than the zeroed-out equity. Which makes this a private equity vs. hedge fund hootenanny!

Subsequently, an ad hoc committee of preferred stockholders filed a motion joining the arguments of Fir Tree and York, noting, however, that as a preferred equity they’re liquidation preference trumps the interest of the common stockholders. They, too, want an investigation into Ares’ involvement in these cases.

A hearing is scheduled for later this week.

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

• Capital Structure: see below (+$13.3mm in hedging obligations).     

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Ross Kwasteniet, Anna Rotman, John Luze, Ciara Foster, Brett Newman) & (local) Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh)

  • Financial Advisor: Dacarba LLC

  • Investment Banker: Perella Weinberg Partners LP (Kevin Cofsky)

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

• Other Parties in Interest:

  • Financial Sponsor: Ares Management LLC

    • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Robert Liubicic, Haig Maghakian)

  • Minority Shareholders: Fir Tree Capital Management LP & York Capital Management Global Advisors LLC

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Emily Smith, K. John Shaffer, Benjamin Finestone, Kate Scherling)

  • Ad Hoc Committee of Preferred Stock Holders (Aedes LLC)

    • Legal: Hunton Andrews Kurth LLP (Paul Silverstein, David Zdunkewicz, Brian Clarke, Timothy Tad Davidson II)

  • DIP Agent & TL Agent: Wilmington Trust NA

    • Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, Brian Lohan, Seth Kleinman)

Source: First Day Declaration

New Chapter 11 Bankruptcy Filing - Egalet Corporation

Egalet Corporation

October 30, 2018

Pennsylvania-based publicly-traded specialty pharma company, Egalet Corporation ($EGLT), filed for chapter 11 bankruptcy in the District of Delaware — the latest in a mini-trend of specialty pharma companies to work their way into bankruptcy court (i.e., Orexigen Therapeutics Inc., Bind Therapeutics, Concordia).

The company intends to use the bankruptcy process to effectuate an acquisition of the assets of Iroko Pharmaceuticals Inc., a privately-held specialty pharma company focused on pain management therapies. The company and Iroko will enter into an asset purchase agreement in connection with and as part of a plan of reorganization, and Iroko will obtain 49% of the outstanding stock of the reorganized Egalet and $45mm of new senior secured notes. The acquisition will fortify the reorganized Egalet’s product-candidate lineup which already includes one anti-inflammatory nasal spray and one oral oxycodone formulation. This proposal is also supported by various holders of the company’s debt in the form of a restructuring support agreement.

But why is this company bankrupt in the first place? First, $128.6mm of debt taken on to fund (i) the development of commercial operations relating to the company’s approved products and (ii) R&D costs relating to product candidates. Also:

For the years ended December 31, 2017, 2016 and 2015, the Debtors reported net losses of approximately $69.4 million, $90.6 million and $57.9 million, respectively. These losses were a result of the Debtors’ continued investments in their commercialization capabilities, the Debtors’ research and development activities, the Debtors’ increasing debt service obligations and general difficulties in increasing the revenue generated from the Debtors’ marketed products, including challenges specific to the abuse-deterrent market such as shifting legislative and social responses to the opioid epidemic.

On account of all of this, the company got a Nasdaq delisting which triggered a “fundamental change” under the company’s converts which required the company to buy back its converts. Of course, the company didn’t have the ability to do so under its credit docs. Ruh roh. Enter restructuring professionals here.

The reorganized debtors will continue to operate under the Egalet name and will be positioned, post-acquisition, to market six commercial products. The company intends to use cash collateral to finance the cases and be out of bankruptcy within 95 days.

Among the companies largest shareholders are Highbridge Capital Management LLC, Broadfin Capital LLC, Deerfield Management Company LP, and Franklin Advisors Inc.

• Jurisdiction: D. of Delaware

• Capital Structure: $128.6mm debt (see below)

• Company Professionals:

  • Legal: Dechert LLP (Michael Sage, Brian Greer, Stephen Wolpert, Alaina Heine) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Sean Greecher)

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: Piper Jaffray & Co.

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

• Other Parties in Interest:

  • Ad Hoc Secured Noteholder Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Jacob Adlerstein, Adam Denhoff, Michael Turkel, Miriam Levi) & (local) Cozen O’Connor (Mark Felger, Simon Fraser)

  • Ad hoc committee of holders of the 5.50% Convertible Notes due 2020 and 6.50% Convertible Notes due 2024

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Michael Byun, Erik Preis, Stephen Kuhn, Erica McGrady) & (local) Ashby & Geddes PA (Karen Skomorucha Owens)

  • Iroko Pharmaceuticals LLC

    • Legal: Baker & McKenzie LLP (Debra Dandeneau, Frank Grese III) & (local) Whiteford Taylor & Preston LLC (L. Katherine Good, Aaron Stulman)

Source: First Day Declaration

New Chapter 11 Bankruptcy Filing - Welded Construction L.P.

Welded Construction L.P.

October 22, 2018

Amidst concerns of nationwide pipeline shortages and, strangely, corresponding fears over too much pipeline capacity, it seems even more strange that a pipeline construction company would file for bankruptcy. Alas, on Monday, Welded Construction L.P., a Perrysburg Ohio-based pipeline construction contractor filed for bankruptcy in the district of Delaware despite slightly more than $1b in consolidated gross revenue in the twelve months ended 9/30/18.

We have to hand the company and its professionals some credit: they appear to be paying attention to what PETITION has been saying about the need for more efficiency in the restructuring profession as this case features one of the shortest First Day Declarations we’ve seen in recent memory. They cut right to it. No surplus. Which seems only right: surplus is definitely not something a pipeline construction contractor wants.

Sadly, that is apparently what it appears to have. Just not surplus liquidity, unfortunately. Rather they are alleged by some of their clients to have a surplus of cost overruns. And by alleged we don’t mean threatening emails or letters. We mean litigation. And then litigation has cooled the market for Welded and fed into liquidity issues.

The company is currently working on five pipeline construction projects for its various customers, a list that includes the likes of Sunoco (as affiliates of Energy Transfer Partners LP or “ETP”), Consumers Energy Company, and Williams Companies. The latter, upon completion of Welded’s construction work, is alleged to have withheld $23.5mm from a payment owed to the company and filed a lawsuit against the company alleging breach of contract. According to the company, this “created acute liquidity issues for the Debtors and concerns in the market about their viability as a going concern.” When there is a ton of pipeline construction business to be won, this timing couldn’t possibly be any worse.

Compounding matters is the fact that the company has sizable potential surety bond obligations to its insurers. The insurers, in turn, were granted security interests in the company’s assets but…uh…maybe didn’t perfect them? Whoops. Popping popcorn for this inevitable fight. There is no secured debt here other than some potential equipment financing.

Bored yet? Yeah, us too. But there is a lesson here about managing litigation risk. The lawsuit by Williams spooked other potential customers and enhanced the company’s already pressing liquidity concerns. The company states:

The Debtors vigorously dispute the allegations contained in the Williams Complaint. Since the filing of the Williams Complaint, the Debtors have engaged in dialogue with Williams and its other Customers in an attempt to consensually resolve the dispute and avert the need for the filing of these chapter 11 cases. However, the filing of the Williams Complaint was quickly made public to the market and Customers became increasingly concerned about how the payment of receivables would be utilized by the Debtors. In particular, Customers sought assurance that any new payables would be solely deployed toward expenses related to their particular Projects. As such, these discussions were unsuccessful, depriving the Debtors of the necessary liquidity to sustain their business operations outside of chapter 11 and absent negotiated arrangements with their Customers….

Subsequently, and just a few days ago, ETP sent a letter to the company purporting to terminate the company’s engagement on the ETP project. Crikey! The dominoes are falling.

That last bit of the above quote is key here. Armed with a $20mm DIP credit facility, the company intends to use the “breathing spell” afforded by the chapter 11 automatic stay to:

…negotiate arrangements to finalize the Debtors’ ongoing Projects with [customers], all with the overarching goal of maximizing the value of the Debtors’ estates for the benefit of the Debtors’ creditors and other stakeholders.

Sounds like the next few weeks are going to be riddled with intense negotiations. Sure sounds like the company’s survival depends upon it.

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: No secured debt. $240mm of accrued liabilities.

• Company Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Sean Beach, Justin Rucki, Tara Pakrouh, Betsy Feldman)

  • Financial Advisor: Zolfo Cooper LLC (Frank Pometti)

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

• Other Parties in Interest:

  • North American Pipeline Equipment Company, LLC, Bechtel Oil, Gas & Chemicals, Inc., and Ohio Welded Company LLC

    • Legal: Gibson Dunn & Crutcher LLP (Michael Rosenthal, Matthew Kelsey, J. Eric Wise, Daniel Denny, Jason Friedman) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, Katharina Earle)

  • Berkshire Hathaway Specialty Insurance Company

    • Legal: Chiesa Shahinian & Giantomasi PC (Scott Zuber, Jonathan Bondy) & (local) Burr & Forman LLP (Richard Robinson, J. Cory Falgowski)

New Chapter 11 Bankruptcy Filing - NRG REMA LLC

NRG REMA LLC

October 16, 2018

NRG REMA LLC, an indirect subsidiary of bankruptcy veteran GenOn Energy Inc., has filed for bankruptcy to effectuate a prepackaged plan of reorganization supported by “REMA, the independent directors of GenOn (who are advised by independent advisors), the independent directors of REMA (who are advised by independent advisors), more than 90% of holders of those certain Series C Pass-Through Trust Certificates due 2026, Public Service Enterprise Group and the steering committee of GenOn noteholders.”

We don’t really have much to add so we’ll leave it at that.

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

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, David Seligman, Steven Serajeddini, W. Benjamin Winter, AnnElyse Scarlett Gibbons) & (local) Zack A Clement PLLC

  • Legal to Governance Committee of BOD: Akin Gump Strauss Hauer & Feld LLP

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Rothschild

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

• Other Parties in Interest:

  • Lease Indenture Trustees and Pass Through Trustee

    • Legal: Hogan Lovells US LLP (Robert Ripin, Alex Sher)

  • Consenting PTC Holders

    • Legal: Paul Weiss Rifkind Garrison & Wharton LLP (Andrew Rosenberg, Elizabeth McColm, Alexander Woolverton)

💥New Chapter 11 Bankruptcy: Sears Holdings Corporation💥

Sears Holdings Corporation

October 15, 2018

Finally.

Early this morning, Illinois-based Sears Holdings Corporation ($SHLD) and approximately 49 affiliated entities (including KMart) finally filed for chapter 11 bankruptcy. The company lists a staggering $11.339 billion of total debts and $6.937 billion of assets.

The well-known company has 866 full-line and specialty stores as of August 4, 2018. In its chapter 11 petition, it boasts of its legacy as an “integrated retailer with significant physical and tangible assets, as well as virtual capabilities enabled through technology.” Yes, you read that correctly: they actually say “virtual capabilities enabled through technology.” That right there may help inform EVERYONE why this storied retailer has found its way into bankruptcy court. To the last, Sears stands out for its ability to appear out of touch.

The company appears to have a commitment for a $1.875 billion debtor-in-possession (“DIP”) asset-backed credit facility, including an increase of $300mm from its existing facility as well as an agreement over the use of the company’s lenders’ cash collateral. According to a company press release, the company is also negotiating an additional $300mm commitment from ESL Investments Inc. (“ESL”), the company’s largest shareholder and the investment vehicle of Eddie Lampert. The company intends to reorganize around a smaller store platform of “EBITDA-positive stores.” To this end, the company will close 142 stores near the end of the year adding to the previously announced 46 stores set to close in November 2018 — potentially further perpetuating the hurt put on U.S.-based malls over the last several years. Meanwhile, the company continues to negotiate an asset purchase agreement with ESL for “a large portion of the Company’s store base.” This would, obviously, keep the enterprise from liquidating and potentially help maintain thousands of jobs: Sears currently employs approximately 90k people.

While Eddie Lampert will remain Chairman of the Board, he has resigned as CEO of the company. Godspeed, Eddie.

The company’s top listed creditors at the time of filing include The Pension Benefit Guaranty Corporation and various trustees under five different tranches of unsecured notes totaling over $3 billion in principal amount (BNY Midwest Trust Company, Computershare Trust Company NA, The Chase Manhattan Bank NA). Trade creditors include Whirlpool Corporation ($23.4mm), Frigidaire Company ($18.6mm), and Winia Daewoo Electronics America ($15.2mm).

We will update this post on Wednesday in our next briefing; we are particularly excited to see how the company spins the “factors” that led to its appearance in bankruptcy court. Here’s one explanation:

And here’s another — seemingly more-on-point — one:

• Jurisdiction: S.D.N.Y. (Judge Drain)

• Capital Structure: $11.339b debt     

• Company Professionals:

  • Legal: Weil, Gotshal & Manges LLP (Ray Schrock, Garrett Fail, Jacqueline Marcus, Sunny Singh)

  • CRO/Financial Advisor: M-III Partners, LP (Mohsin Meghji, Colin Adams, Brian Griffith, Christopher Good, Mary Korycki, Kevin Tanaka, Enrique Acevedo, Wesley Sima, Noah Zatzkin, Joseph Frantz, Nicholas Weber, Ravi Ramnani )

  • Investment Banker: Lazard Freres & Company

  • Restructuring Committee’s Independent Directors: William Transier, Alan Carr, Paul DePodesta, Ann Reese

  • Restructuring Sub-Committee (RSC): Alan Carr and William Transier

  • Legal to RSC: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Kelley Cornish, Lewis Clayton, Susanna Buergel, Robert Britton, Jonathan Hurwitz, Emma Carlson, Teresa Lii)

  • Financial Advisors to RSC: Alvarez & Marsal North America LLC (Dennis Stogsdill, Nick Grossi, Brian Corio, Jonah Galaz, Andrew Gasbarra, Jonathan Bain, Jordan Kravette)

  • Investment Banker to RSC: Evercore Group LLC (Daniel Aronson, Jeremy Matican, Guy McCumber, Siddhesh Patkar, Jonathan Kamel, Ajith Sukumar)

  • Conflicts Counsel: Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Rolin Bissell, Ryan Bartley, Travis Buchanan)

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

• Other Parties in Interest:

  • Large Shareholders: ESL Investments. Legal: Cleary Gottlieb Steen & Hamilton LLP (James Bromley, Sean O’Neal, Andrew Weaver)

  • Prepetition RCF, Term Loans, FILO & DIP ABL Agent: Bank of America NA. Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, George Howard)

  • Citibank NA. Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Eli Vonnegut)

  • Large Shareholder: Fairholme Capital Management LLC. Legal: Sullivan & Cromwell LLP (Andrew Dietderich, Brian Glueckstein, David Zylberberg)

  • PBGC. Legal: Locke Lord LLP (David Wirt)

  • Debtors’ IP/Ground Lease Term Loan Lender: SHLD Lendco LLC. Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.)

  • Official Committee of Unsecured Creditors

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Abid Quereshi, SARA Brauner)

    • Legal (Conflicts): Herrick Feinstein LLP (Sean O’Donnell, Stephen Selbst, Steven Smith)

    • Financial Advisor: FTI Consulting Inc. (Matt Diaz, Conor Tully, Michael Berkin, Marshal Eisler, Kenny O’Trakoun, Morgan McCaskey, Samuel Star)

    • Investment Banker: Houlihan Lokey (Saul Burian, Eric Siegert, Brad Geer, Surbhi Gupta, Greg Rinsky, Tom Hedus, Ross Rosenstein, Ryan Conroy, John Hartigan, Ahmed Mumtaz, Jack Foster, James Lai, Natalie Weelborg, Andrew Felman, Matthew Stadtmauer)

  • Cyrus Capital Partners LP

    • Legal: Milbank Tweed Hadley & McCloy LLP (Eric Reimer, Thomas Kreller, Craig Price)

  • Indenture Trustee to Medium Term Notes: The Bank of New York Mellon Trust Company, N.A.

    • Legal: Carter Ledyard & Milburn LLP (James Gadsden, Leonardo Trivigno)

Updated 11/30/18

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New Chapter 11 Filing - Mission Coal Company LLC

Mission Coal Company LLC

October 14, 2018

For a recap, please see here.

• Jurisdiction: N.D. of Alabama (Judge Mitchell)

• Capital Structure: See below

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brad Weiland, Melissa Koss, Travis Bayer, Anne Gilbert Wallace, Francis Petrie, Ciara Foster, Michael Esser) & (local) Christian & Small LLP (Daniel Sparks, Bill Bensinger)

  • CRO/Financial Advisor: Zolfo Cooper LLC (Kevin Nystrom)

  • Investment Banker: Jefferies LLC

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

• Other Parties in Interest:

  • First Lien Lenders and DIP Lenders

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Martin Brimmage, Lisa Beckerman, Lacy Lawrence, Allison Miller, Erik Preis, Jason Rubin) & (local) Burr & Forman LLP (Michael Leo Hall, D. Christopher Carson, Heather Jamison)

    • Financial Advisor: Houlihan Lokey Capital

  • United Mine Workers of America

    • Legal: Rumberger Kirk & Caldwell PC (R. Scott Williams, Frederick Darrell Clarke III, Robert Adams)

  • The United Mine Workers of America 1974 Pension Plan and the United Mine Workers of America 1993 Benefit Plan

    • Legal: Morgan Lewis & Bockius LLP (Rachel Mauceri, John Goodchild III) & (local) Quinn Connor Weaver Davies & Rouco LLP (Glen Connor, George Davies)

Source: First Day Declaration

✈️New Chapter 11 Bankruptcy Filing - ONE Aviation Corporation✈️

ONE Aviation Corporation

10/9/18

ONE Aviation Corporation, a New Mexico-based OEM of twin-engine light jet aircraft (e.g., the Eclipse jet, a twin-turbofan very light jet or “VLJ”), filed a prepackaged bankruptcy case that will give 97-100% of the equity to its senior prepetition lender, Citiking International US LLC. Holders of senior secured notes will get 3% of the equity and warrants if they check the “yes” vote in the “death trap” plan of reorganization. General unsecured claimants will get a big fat zero and a bunch of court-mandated paper to throw into the recycling bin. Citiking is providing the company with a $17mm DIP credit facility that will roll into an exit facility upon emergence from chapter 11.

The company has $198.8mm of total funded debt, including approximately $53.2mm representing amounts owed to certain state and local governments in the form of development loans. Womp womp.

Why is there a bankruptcy here? The company pursued growth strategies that simply never came to fruition, including targeting the “air taxi” industry and development of new capital-intensive airplane models. The company notes:

That strategy ultimately proved unsuccessful in the near term because, in addition to the negative macro-factors, including the condition of the U.S. and global economies, ONE Aviation was unable to raise the capital needed to complete the new airplane programs. The VLJ market, a market dependent on luxury spending, simply had not recovered from its downturn in 2008.

Liquidity, therefore, became constrained as the company found itself caught between building for the future and sustaining today. After a considerable sales and marketing process conducted by multiple bankers (Guggenheim Securities, first, Duff & Phelps, second) both in the U.S. and internationally, the company had no luck finding strategic or financial buyers. Hence bankruptcy with a plan to convey the company over to the prepetition first lien lender.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $58.6mm first lien RCF (Citiking), $43.3mm subordinated secured notes (Bank of New York Mellon Trust Company, N.A.), $20.5mm subordinated unsecured notes

• Company Professionals:

  • Legal: Paul Hastings LLP (Chris Dickerson, Brendan Gage, Nathan Gimpel, Todd Schwartz, Stephen Bandrowsky) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, M. Blake Cleary, Sean Beach, Jaime Lutan Chapman)

  • Financial Advisor: Ernst & Young LLP (Briana Richards, Brian Yano)

  • Investment Banker: Duff & Phelps Securities LLC (Vineet Batra)

  • Board of Directors: Michael Wyse, Jonathan Dwight, Alan Klapmeier, Kevin Gould, RJ Siegel

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

• Other Parties in Interest:

  • Administrative Agent & Collateral Agent: Cantor Fitzgerald Securities

    • Legal: Richards Kibbe & Orbe LLP (Gregory Plotko, Christopher Jarvinen) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Senior Prepetition Lender: Citiking International US LLC

    • Legal: Emmet Marvin & Martin LLP (Thomas Pitta) & (local) Ashby & Geddes PA (Gregory Taylor, Stacy Newman)

  • Senior Subordinated Secured Noteholders

    • Legal: Manning Gross + Massenburg LLP (Marc Phillips)

Updated 10/9/18 at 5:12pm CT

🔥New Chapter 11 Filing - Westmoreland Coal Company🔥

Westmoreland Coal Company

October 9, 2018

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

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

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

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

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

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

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

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

Tack on a hefty chunk of debt:

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

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

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

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

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

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

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

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

• Capital Structure: See above.

• Company Professionals:

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

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

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

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

  • Investment Banker: Centerview Partners LLC (Marc Puntus)

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

• Other Parties in Interest:

  • WMLP Ad Hoc Group

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

    • Financial Advisor: Houlihan Lokey Capital, Inc.

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

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

  • WMB Ad Hoc Group of Term Lenders

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

  • Official Committee of Unsecured Creditors

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

  • United States Trustee

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

New Chapter 11 Filing - Herb Philipson's Army and Navy Stores Inc.

Herb Philipson’s Army and Navy Stores Inc.

October 8, 2018

Herb Philipson’s Army and Navy Stores Inc., a New York-based outdoor apparel and sporting goods retailer since 1951, filed for bankruptcy in the Northern District of New York.

The company carries various brands like Carhartt, Columbia Sportswear, Levi, lee, Under Armour, Dickies, Timberland and The North Face in its stores (most of which are now the company’s largest unsecured creditors) and also serves as the exclusive retailer for the Utica Comets Hockey Team and the new Utica City Football Club. The company has 9 locations, none of which are in or on company-owned structures or real property. The company had revenues of $43.5mm and $39.8mm in 2016 and 2017, respectively. Through nine months of 2018, the company experienced a dramatic decline in business with revenues of just $15.6mm.

What caused such a stark decline in business? The company notes:

“The decline of the Debtor’s business is directly attributable to a confluence of operational and liquidity factors. Starting in 2015, the Company began to suffer from decreased sales — largely attributable to HP’s inventory mix failing to appeal to the tastes of the market and the rise of e-commerce, which allowed the Debtor’s customers to purchase from on-line retailers the same or similar good being offered by the Company.”

Moreover, the company lost access to its line of credit, necessitating sales of new inventory to finance operations and leaving the company unable to order fresh inventory in Q1 2018.

What followed is a textbook tale of a small brick-and-mortar business trying to make it in a world dominated by upstart DTC brands, Amazon, and bigbox retail. Renegotiations of leases. Headcount reductions. An intensified focus on inventory selection and management. A scramble for new credit which, here, new ownership was able to lock down.

Clearly, however, the terms of the new credit line were either too onerous or too unrealistic as, unfortunately for the company, the new credit facility merely helped expedite the company’s spiral into bankruptcy court. Indeed, roughly a month after entering into the new lending facility, the lender, Second Avenue Capital, notified the company that it was in default under the facility. The relief afforded the company by the cash infusion was, clearly, short-lived.

Consequently, the company filed for bankruptcy so that the “automatic stay” protections of the Bankruptcy Code (section 362) could be leveraged to prevent Second Avenue Capital from exercising its rights and remedies under the credit facility and provide the company with a “breathing spell” within which to attend to “properly restructure and reorganize its affairs and propose a chapter 11 plan that would provide…creditors with meaningful recoveries.”

October 12, 2018 Update:

As is often the case in bankruptcy, there are two sides to every story. In this case, the company’s secured lender, Second Avenue Capital, argues that the company “demonstrated a shocking inability to accurately project the operating performance of the business” leading to “material deviations” to the underwriting-dependent budget. Second Avenue argues, among other things, that (i) the debtor missed its own sales projections by 33.1%, (ii) comparable store sales are projected in the company’s latest budget to be negative 30% and 37% (vs. the underwritten projected positive 5% and 10%) for the months of November and December 2018; and (iii) the company has already missed its own inventory projection by approximately 17.9%. In other words, Second Avenue — while objecting to the company’s motion to use cash collateral — is asserting that they are undercollateralized and that the company is providing inadequate adequate protection.

Notably, Second Avenue doesn’t expressly say that the company was fraudulent in providing the budget upon which Second Avenue underwrote the loan; it does say, however, that “[a]s a consequence of the Debtor’s financial performance…and not any nefarious conduct by the Lender…the Debtor was in substantial and material default” under the credit agreement. Not exactly mincing words. Which only means one of three things: (1) the company was wildly inept in putting together its projections/budget; (2) the company was hopelessly optimistic and otherworldly unrealistic about its projections/budget; (3) the macro conditions for a small brick-and-mortar retailer in today’s day are coming at owners so fast and so furious that projections and budgets, more than usual, are anyone’s guess. We’ll leave it to a court to decide but it sure looks like there may be a contested fight here with the fate of the company in the balance.*

*The first day hearing was scheduled for October 15 but no orders have hit the docket.

• Jurisdiction: N.D. of New York (Judge Davis)

• Capital Structure: $2.05mm of secured debt (Second Avenue Capital), $1.5mm secured promissory notes

• Company Professionals:

  • Legal: Griffin Hamersky LLP (Scott Griffin, Michael Hamersky, Sophia Hepheastou) & Cullen and Dykman LLP (Maureen Bass)

  • Financial Advisor & Investment Banker: Scouler Kirchhein LLC

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

• Other Parties in Interest:

  • Senior Secured Lender: Second Avenue Capital LLC

    • Legal: Riemer & Braunstein LLP (Steven Fox)

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: See below.

• Company Professionals:

  • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Guggenheim Securities LLC (Durc Savini)

  • Liquidator: Gordon Brothers Group LLC

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

  • Real Estate Advisors: A&G Realty Partners

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

• Other Parties in Interest:

  • Barclays Bank PLC

    • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Citizens Bank NA

    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Steinhoff International Holdings N.V

    • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

  • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

    • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

🚗New Chapter 11 Bankruptcy Filing - ATD Corporation🚗

ATD Corporation

10/4/18

Recap: Please see here.

• Jurisdiction: D. of Delaware (Judge Carey)

• Capital Structure: See below.

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Chad Husnick, Spencer Winters, Joshua Greenblatt, Jacob Johnston, Mark McKane, Jaimie Fedell, Andre Guiulfo) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Jones, Timothy Cairns, Joseph Mulvihill)

  • Financial Advisor: AlixPartners LLP (James Mesterharm)

  • Investment Banker: Moelis & Co. (Adam Keil)

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

• Other Parties in Interest:

  • Term Lender Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Aidan Synnott, Jacob Adlerstein, Michael Turkel, David Giller, Oksana Lashko, Eugene Park, Jacqueline Rubin) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Andrew Magaziner)

    • Financial Advisor: Houlihan Lokey

  • DIP Agent and Pre-Petition ABL Agent (Bank of America)

    • Legal: Parker Hudson Rainer & Dobbs LLP (C. Edward Dobbs, Eric W. Anderson, James S. Rankin Jr., Jack C. Basham) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch)

  • DIP FILO Lenders & Consenting Noteholders

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss) & (local) Pepper Hamilton LLP (Evelyn Meltzer, Kenneth Listwak)

    • Financial Advisor: PJT Partners

  • Indenture Trustee: Ankura Trust Company LLC

    • Legal: King & Spalding LLP (Jeffrey Pawlitz, David Zubricki, Jared Zajec) & (local) Chipman Brown Cicero & Cole, LLP (William E. Chipman, Jr., Mark D. Olivere)

  • Michelin North America Inc.

    • Legal: Nelson Mullins Riley & Scarborough LLP (George B. Cauthen, Jody A. Bedenbaugh, Shane Ramsey) & (local) Bayard PA (Justin Alberto, Evan Miller)

  • Cooper Tire & Rubber Company

    • Legal: Jones Day (Timothy Hoffmann) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, D. Ryan Slaugh)

  • Sponsor: Ares Management

    • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Adam Moses)

  • Sponsor: TPG Capital

    • Legal: Weil Gotshal & Manges LLP (Ryan Dahl, Natasha Hwangpo)

New Chapter 11 Filing - Product Quest Manufacturing LLC

Product Quest Manufacturing LLC

9/7/18

Product Quest Manufacturing LLC, a contract manufacturer of sunscreens and other sun care products, OTC drugs, prescription drugs, topical animal health products and cosmetics has filed for bankruptcy in the Middle District of North Carolina. At one point, the company produced $125mm worth of units per year, servicing the likes of drug store retailers (e.g., Walgreens, Rite Aid), big box retailers like Walmart and Target, and discount retailers like Dollar General. With an impressive customer list like that, what could've gone wrong?

The company provides a shockingly blunt reason:

These chapter 11 cases have been caused by ineffective senior leadership, employee turnover, extensive product quality issues and the subsequent recall of many products manufactured in the Daytona Facility due to stability and contamination issues and regulatory compliance issues affecting the Daytona Facility and the Kannapolis Facility.

Wowsers. You don't typically see such a harsh and to-the-point statement like that. But, the company apparently "suffered from operational cost overruns, ineffective production standards and poor pricing practices leading to significant margin erosion." Consequently, the senior lenders called a default and replaced the company's board of managers. It also received a Form 483 notice from the Food and Drug Administration regarding potential FDA violations that include, among other things, "potential cross contamination of human health and animal health products." And we were wondering why we recently started moo'ing. Now we know: it must've been the OTC treatments we purchased at CVS. This is f*cked up. And, accordingly and (apparently) appropriately, the company CEO got binned as a result. 

An investigation by King & Spalding revealed that there were, in fact, quality control issues. A little microbial contamination here. A little compliance deficiency there. Some out of specification products here. A little Staphylococcus aureus here and a little Pseudomonas aeruginosa there. The company implemented quarantines and initiated product recalls (including a CVS nasal spray product). The company also ceased operations at its two facilities. Jokes aside, we hope that no one was severely hurt. Luckily these issues were discovered before things became worse. 

The company will seek to sell its assets in chapter 11. 

• Jurisdiction: M.D. of North Carolina
• Capital Structure: $153.6mm secured debt (Madison Capital Funding LLC)    
• Company Professionals:
  • Legal: Northern Blue LLP (John Northern, Vicki Parrott, John Paul H. Cournoyer)
  • Financial Advisor/CRO: Conway MacKenzie Inc. (Joe Geraghty) 
  • Board of Directors Legal: King & Spalding LLP
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Financial Sponsor: Kainos Capital LLC
  • Prepetition Secured Lender: Bank of America NA

New Chapter 11 Filing - Duro Dyne National Corp.

Duro Dyne National Corp. 

9/7/18

Duro Dyne National Corp., a manufacturer of sheet metal accessories and equipment for the heating, ventilating and air conditioning industry has filed for bankruptcy in the District of New Jersey. It constitutes one of those rare instances where an otherwise healthy business requires bankruptcy protection to ward off potential liability. 

The company reported steadily increasing sales and profits as steel prices fell to historic lows and construction activity continued to rebound from the recession. In 2017, the company had $69mm in sales and $5.2mm in EBITDA. In 2018, steel prices have increased -- in part due to tariffs -- and so the Company also raised prices. It expects $73.6mm of sales and $5.2mm of EBITDA. So what's the issue here? 

Per the company:

Beginning in the mid to late 1980s, the Company was sued on account of Asbestos Personal Injury Claims in various jurisdictions alleging liability for bodily injury allegedly sustained as a result of exposure to products containing asbestos allegedly manufactured and/or distributed by the Company from the 1950s through the 1970s.

Consequently, due to the increasing costs of defending and resolving the asbestos personal injury claims and the decline of insurance proceeds covering them, the company filed for bankruptcy to establish a plan that institutes a "channeling" injunction that directs all present and future asbestos-related demands to a funded trust for handling and payment. 

• Jurisdiction: D. of New Jersey (Judge Kaplan)
• Capital Structure: $1.29mm funded secured debt     
• Company Professionals:
  • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Jeffrey Prol)
  • Financial Advisor: Getzler Henrich & Associates LLC
  • Claims Agent: BMC Group Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Exit Lender: Bank of America NA
  • Ad Hoc Asbestos Claimants Committee
    • Legal: Caplin & Drysdale Chartered (James Wehner, Jeffrey Liesemer)
  • Prepetition Future Claimants Representative
    • Legal: Young Conaway Stargatt & Taylor LLP (Edwin Harron, Sara Beth Kohut)

New Chapter 11 Filing - Open Road Films LLC

Open Road Films LLC

9/6/18

Rough year for movie production houses. After Relativity Media and The Weinstein Company filed chapter 11 cases earlier this year, Open Road Films LLC now finds itself in bankruptcy court. The company behind Jobs, Nightcrawler and other mostly forgettable films has had a dramatic fall from grace after being acquired by current equityholder TMP Holdings from Regal Entertainment Group and AMC Entertainment merely a year ago. Though contemplated at the time of acquisition, the company was unable to secure funding to, among other things, restructure the company (in the out-of-court sense) and streamline operations. The question is why? Why couldn't the company secure funding? 

The company notes:

Among other things, increased volatility in overall film performance exacerbated investor concerns regarding the probability and predictability of studio financial success, especially outside of the major studios. This overall volatility was exacerbated by the specific underperformance of certain of the Company’s recent motion picture releases, most of which were initiated by prior management. In addition, competitive options for consumers limit interest in theatrical distribution and the traditional film business model, imposing additional pressure on companies like the Debtors, and further fueling investor skepticism.

In other words, blame Reese Witherspoon ("Home Again" flopped), Jodie Foster ("Hotel Artemis" completely bombed) and Netflix ($NFLX). 

With no incoming funding and a resultant inability to obtain a "going concern" qualification, the company defaulted on its loan with Bank of America. BofA, therefore, limited access to certain deposit accounts, all the while vendors were seeking payments. Already this drama is more interesting than "Home Again." 

The company intends to use the chapter 11 process to market and sell its assets; it does not yet have a stalking horse bidder, though FTI reports that 11 parties have submitted indications of interest. 

The top 40 general unsecured creditors list is a who's who of media elites, including "old media" firms like Viacom Inc. (owed $7mm), The Walt Disney Company (owed $5.1mm), NBCUniversal (owed $4.4mm), Turner Broadcasting System (owed $3.5mm). Other top creditors include Google, Facebook, Snap, Twitter, Amazon, Spotify, and Pandora Media. And Latham & Watkins, which appears to be getting hosed on a half million dollar legal bill. 

• Jurisdiction: D. of Delaware (Judge Silverstein)
• Capital Structure: $90.75 mm secured debt (Bank of America NA)     
• Company Professionals:
  • Legal: Klee Tuchin Bogdanoff & Stern LLP (Michael Tuchin, Jonathan Weiss, Sasha Gurvitz, Whitman Holt) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Robert Poppiti Jr., Ian Bambrick)
  • Financial Advisor/CRO: FTI Consulting Inc. (Amir Agam)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Lender: Bank of America NA
    • Legal: Paul Hastings LLP (Andrew Tenzer, Shlomo Maza) & (local) Ashby & Geddes PA (William Bowden)
  • Prepetition Creditor: East West Bank
    • Legal: Akin Gump Strauss Hauer & Feld LLP (David Staber) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
  • Prepetition Creditor: Bank Leumi USA
    • Legal: Reed Smith LLP (Marsha Houston, Christopher Rivas, Michael Sherman