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Mattel Snags Looser Credit Covenants in the Wake of Toys ‘R’ Us Ch. 11

Toymaker Mattel has revealed that it is getting looser borrowing terms just after industry peer Toys ‘R’ Us filed for bankruptcy. Mattel today disclosed amendments to its credit facility in the wake of the Toys ‘R’ Us Chapter 11 filing, providing for relief from its consolidated-debt-to-consolidated-EBITDA requirement for the fiscal third quarter of 2017, and an increase in the ratio threshold to 4.5x for the fiscal fourth quarter, from 3.75x previously, according to regulatory filings. The ratio requirement then declines to 4.25x over the balance of the covenant-modification period, which ends at the issuer’s request or when consolidated debt to EBITDA is 3.75x or less for four consecutive quarters. (For more information on covenants, click here.)

For reference, Mattel in 2013 boosted its unsecured revolving credit facility to $1.6 billion, from $1.4 billion, under a leverage covenant of 3x.

Notably, the definition of consolidated EBITDA was amended to add back a cap on extraordinary, unusual, non-recurring, or one-time cash expenses, losses, and charges at $275 million, today’s filing shows. Other amendments include more restrictive covenants for receivable financing facilities, guarantee and lien triggers on ratings downgrades, greater restrictions against certain asset dispositions, and a broader base of subsidiary guarantees.

Leading toymakers Mattel and Hasbro have significant exposures to Toys ‘R’ Us, each deriving roughly 10% of their annual revenue from associations with the retailer, according to S&P Global Ratings.

Mattel’s credit profile was already eroding. The current BBB–/Baa2/BBB ratings reflect negative outlooks on all sides, and resulted from a Moody’s downgrade in March this year and subsequent downgrades by S&P Global Ratings and Fitch at the end of July, as top-line and margin headwinds mounted for the company, blocking its efforts to return to leverage in the low-2x area.

S&P Global Ratings yesterday said that its ratings on Mattel and peer Hasbro were not immediately affected by the Toys ‘R’ Us bankruptcy, though it noted that the filing “will cause incremental gross margin pressure and hurt profitability and cash flow if current receivables are not collected or are collected more slowly.”— John Atkins

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Toys ‘R’ Us Files Chapter 11; Has $3.1B Debtor-in-Possession Loan

Toys “R” Us filed for Chapter 11 in bankruptcy court in Richmond, Va., the company announced late last night.

The filing had been rumored for several days.

According to the company’s Chapter 11 petition, the company has $6.6 billion of assets and $7.9 billion of debt. Equity sponsors are KKR (through unit Toybox Holdings), Vornado Realty (through unit Vornado Truck), and affiliates of Bain Capital, with each holding roughly 32.5% of the company’s shares.

In a statement, the company said it would use the Chapter 11 to “restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth and fuel its aspirations to bring play to kids everywhere and be a best friend to parents.”

The company operates some 1,600 stores around the world under the names, “Toys ‘R’ Us” and “Babies ‘R’ Us.”

The company further said that it intends to seek court supervision for its Canadian operations, as well, under the Companies Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice, but that neither filing would include any of the company’s other operations, which include about 255 licensed stores and a joint venture in Asia.

The company said its operations outside of the U.S. and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing and CCAA proceedings.

Beyond the company’s challenging capital structure, it is worth it to note that the company’s largest unsecured trade creditors include Mattel, with a claim of $135.6 million; Hasbro, with a claim of $59.1 million; Graco, with a claim of $59.1 million; Spin Master, with a claim of $32.8 million; and Lego, with a claim of $31.6 million.

Significant leverage and widespread speculation
The company cited its “significant leverage” as a driver of its Chapter 11, according to the first-day declaration in the case filed by CEO David Brandon.

According to Brandon, over the years the leverage left the company without capacity to maintain stores, provide expedited shipping options for customers, or implement a subscription-based delivery service.

Brandon also acknowledged that the company had “failed to capitalize” on its iconic brand “and its unique position as a one-stop shop for toys every day year round,” concluding, “The time for change, and reinvestment in operations, has come.”

But Brandon also pointed to the “widespread bankruptcy speculation in the media” as “leading to a severe constriction in the company’s trade terms.”

As Brandon sees it, if the media speculation did not cause the company’s financial distress, it clearly affected the timing of the company’s actions.

According to Brandon, the company hired Kirkland & Ellis and Alvarez & Marsal—a law firm and a financial advisory firm both known for their work in large corporate Chapter 11 situations, it should be noted—“to consider restructuring and capital structure solutions.” In addition, Brandon said, in late August, the company began negotiations with a group of lenders under its B-4 term loan to afford it breathing room through the holidays and to consider “restructuring alternatives.”

According to Brandon, however, “A news story published on September 6, 2017, reporting that the debtors were considering a Chapter 11 filing, started a dangerous game of dominos: within a week of its publication, nearly 40% of the company’s domestic and international product vendors refused to ship product without cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Further, many of the credit insurers and factoring parties that support critical Toys “R” Us vendors withdrew support.”

Noting that “the timing of all this could not have been worse,” Brandon said that given the company’s traditional 60-day trade terms, cash terms would require the company to immediately obtain more than $1 billion of new liquidity.

A Chapter 11 filing would allow the company to obtain DIP financing, which Brandon explained would stabilize operations and reopen supply channels for the holiday season.

In addition, Brandon said, the DIP obtained by the company provides “hundreds of millions of dollars of new money that is available for immediate and direct investment in the company’s stores and operations.”

DIP terms
The company said it had obtained a $3.1 billion DIP facility from “various lenders.”

Specifically, court filings show, the company’s DIP facility is comprised of three parts.

First is a $2.3 billion DIP ABL from a group led by J.P. Morgan Chase, consisting of a $1.85 billion ABL ($1.3 billion to be available on an interim basis) and a $450 million FILO senior secured term loan that will be used to refinance existing obligations under the company’s prepetition ABL and for general corporate purposes.

The ABL facility also contains a $300 million sub-facility tranche for Canadian operations.

Interest under the ADL facility is L+250, with a 1% LIBOR floor.

The second piece is a $450 million term loan DIP (up to $350 million to be available on an interim basis) provided by an ad hoc group of prepetition term lenders. Interest is at L+775, with a 1% LIBOR floor. NexBank SSB is the administrative and collateral agent.

The last piece of funding includes a commitment from an ad hoc group of holders of the company’s “Taj Notes” (roughly $583 million outstanding of 12% senior secured notes due Aug. 15, 2021, issued through unit, Tru Taj) to provide $375 million in incremental notes to support the company’s international operations. According to the Brandon declaration, the Taj noteholders also agreed to waive certain defaults under the Taj notes and to forbear from exercising rights and remedies pursuant to a default against the Debtors.

Among other things, the waiver allows the company’s prepetition Euro ABL facility to remain in place, Brandon said.

Also note that the DIP financing includes a provision for intracompany borrowing by U.S. borrowers from the company’s Canadian unit, Toys Canada, and Wayne Real Estate Parent Company, in an undetermined amount, from time-to-time (with the amount borrowed from Toys Canada capped at $75 million). — Alan Zimmerman

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Toys ‘R’ Us Debt Deepens Decline As News Reports Infer Bankruptcy

Bonds backing Toys ‘R’ Us renewed their recent dramatic slide today as news reports suggesting that a bankruptcy is increasingly inevitable pushed the issuer’s debt structure deep into distress.

So stark is the selloff that the company’s most pressing maturity—a $208 million issue of 7.375% senior unsecured holdco notes due 2018—has halved in value in the past two weeks.

The bonds traded at just 46 cents on the dollar today, according to MarketAxess, down from quotes of 60/65 yesterday morning and off a staggering 51 points from Sept. 4, when before bankruptcy rumors surfaced the bonds traded in a 97 context.

Several news stories fueled the move today. Debtwire is reporting that the company has retained Prime Clerk, a bankruptcy claims and noticing agent, while Bloomberg followed Debtwire with reports that the company’s vendors have scaled back shipments on heightened bankruptcy fears.

The Toys ‘R’ Us B-4 term loan due April 2020 was quoted at a 63.875 bid today, down roughly two points from the last session, and a fresh low for the year, sources said. The paper has plunged more than 10 points since the start of the month.

Initial expectations had pointed to a potential distressed exchange for the 2018 notes, given that the fall in bond prices would facilitate a take-out at a much more favorable price. However, because of the extremely negative price action, bankruptcy in the form of a pre-pack is increasingly possible, sources said.

The company’s complex capital structure will see $400 million of secured and unsecured debt maturing in May and October 2018, with $2.6 billion due in 2019.

S&P Global Ratings last week downgraded the issuer’s corporate rating to CCC+, from B–. Ratings at Moody’s and Fitch are B3/CCC, respectively.

Toys ‘R’ Us is expected to report its second-quarter results on Sept. 26. — Staff reports

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Bankruptcy: Avaya Cuts Deal with Credit Panel as Proposed Plan Faces Flak

Avaya said that it has reached an agreement with the unsecured creditors’ committee in its Chapter 11 case under which the cash distribution to unsecured creditors was increased to $60 million, from $25 million, with an election for holders of unsecured claims to choose to receive their recoveries in the form of reorganized stock.

The agreement also eliminated the 8.2% recovery cap for unsecured creditors, the company said in a statement filed today with the Manhattan bankruptcy court.

The settlement is subject to documentation, and the company said it would file a revised reorganization plan and disclosure statement prior to a hearing on the disclosure statement, currently set for Aug. 25.

The agreement comes on the heels of several objections filed to the company’s proposed disclosure statement by key creditor groups in the case.

Avaya announced on Aug. 7 that it had entered into a plan support agreement with first-lien lenders, and a separate agreement with the Pension Benefit Guaranty Corp., on a settlement to drive a reorganization plan. And while the company also filed a proposed amended plan that day, it also said that it would “continue to work to build consensus and gain the support of other stakeholders.”

In an objection filed last week, the ad hoc committee of second-lien lenders in the case charged that the company’s proposed amended reorganization plan was the result of “backroom negotiations” that, “contrary to the debtors’ stated desire for a prompt emergence from Chapter 11, … will only lead to protracted and costly litigation.”

According to the ad hoc panel, the company’s proposed plan, based on an agreement the company said it reached with more than 50% of its first-lien lenders, represents a strategy to pursue a cram-down “dictated by the ad hoc first-lien group, as opposed to the negotiated, arms-length process with all of their creditors that they [had previously] represented to the [bankruptcy] court.”

The second-lien group, alleging that it was excluded from negotiations that resulted in releases being granted to the company’s managers, officers, and directors in connection with intercompany and intra-company disputes affecting the their interests, and alleging conflicts of interest and self-dealing in connection with the settlements underlying the company’s proposed reorganization plan, argued that the proposed reorganization plan was “patently unconfirmable on its face.”

Similarly, the ad hoc crossover group of creditors holding first-lien, second-lien, and unsecured debt in the company, also said that the disclosure statement was premised on a “patently unconfirmable” plan.

Both ad hoc creditor groups argued that it would pointless to approve the disclosure statement and conduct a voting process for a reorganization plan that does not meet legal requirements for confirmation.

A third objection, filed by one of the company’s creditors, SAE Power Co., argued that the disclosure statement failed to disclose the existence of hundreds of millions of dollars of unsecured claims, primarily litigation claims, and numerous administrative claims, that “the company may well have no ability to satisfy.”

As a result, SAE argued, the proposed recovery for unsecured creditors (at the time, $25 million) could be “greatly diminish[ed].”

It is unclear whether the company’s agreement with the unsecured creditor panel fully addresses SAE’s concerns.

As reported, the ad hoc group of second-lien lenders presented an alternative reorganization proposal to the company last month, but Avaya has, so far, refused to negotiate with the group (see “Avaya nets exclusivity extension amid fracas with 2nd-lien group,” LCD News, July 27, 2017).

Prior to that, the crossover group had presented a proposal to the company (see “Avaya crossover group signs NDA, proposes alternate plan for company,” LCD News, May 24, 2017), but the status of that proposal is unclear. Note that the members of the second-lien panel, for the most part, were previously members of the crossover group when its proposal was made, but have since split off. — Alan Zimmerman

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Gymboree Estimates Post-Reorg Equity Value at $244–444M

gymboree logoGymboree said that the potential range of its reorganized enterprise value on a going concern basis would be $400–600 million, and that assuming net debt of $156 million, the range of the company’s reorganized equity value would be $244–444 million.

According to an amended disclosure statement filed by the company on June 29 with the bankruptcy court in Richmond, Va., based on that valuation term loan lenders are estimated to recover 31–57% of their secured claims (estimated at $164–364 million) under the company’s proposed reorganization plan.

According to the disclosure statement, the company had $788.8 million outstanding under its pre-petition credit agreement as of the petition date. After a $70 million DIP roll-up (see below), however, and the elimination of a $20 million claim owed to a particular lender that is excluded on account of the company’s assumption of a separate agreement with that lender, the remaining total outstanding claim under the credit agreement was $699 million, plus accrued and unpaid pre-petition interest. The non-secured portion would constitute an unsecured deficiency claim under the plan, for which the recovery is zero.

As noted, certain of the company’s pre-petition term lenders provided the company with a $105 million term DIP facility, comprised of a $70 million term loan roll-up facility and $35 million of new money. Under the proposed reorganization plan, the roll-up facility would be exchanged for 41% of the reorganized company’s equity, while the new money DIP would be replaced by the $35 million exit term facility.

Lenders are to receive subscription rights to a pair of backstopped rights offerings representing 46.9% of the reorganized company’s equity for $80 million, calculated at a purchase price carrying a 35% discount to a stipulated reorganized equity value of $262.5 million (based, in turn, on a total enterprise value of $430 million).

Lenders are also to share in the remaining equity reduced by the DIP repayment, the rights offering, and backstopped fees, and further diluted by a management incentive plan.

Thus, on a pro forma basis (before the MIP dilution) the contemplated transactions would result in equity ownership in the reorganized company as follows: term loan lenders that contribute their pro rata share of the $35 million new-money DIP and their pro rata share of the rights offering will obtain the benefit of the $70 million DIP term loan roll-up and ultimately share in 89.6% of the equity in the reorganized company, with an additional 2.4% of the equity distributed to those lenders backstopping the rights offering. Non-participating term lenders would receive the remaining 8% of reorganized equity.

According to the disclosure statement, holders of 99% of the term loan claims support the restructuring-support agreement on which the proposed reorganization plan is based.

Lastly, the disclosure statement notes that on June 22, the U.S. Trustee for the Richmond bankruptcy court named an unsecured creditors’ committee in the case, comprised of Hansoll Textile; GGP Limited Partnership; PREIT Services, LLC; Deutsche Bank Trust Company Americas; Simon Property Group, Inc.; Hutchin Hill Capital Primary Fund, Ltd.; and Li & Fung Centennial Pte Ltd. The committee has retained Hahn & Hessen LLP as its legal counsel and Protiviti as its financial advisor.

On June 28, the panel’s attorneys, who are admitted in New York, sought permission to appear in the Richmond bankruptcy court. Other than that, the panel does not appear to have taken any legal action in the case.

As reported, the company has paid its critical trade creditors, and under the plan remaining unsecured creditors, comprised of the company’s unsecured notes with $171 million in principal amount outstanding, the secured loan deficiency claim that ranges from $335–535 million, and other general unsecured claims of $35–48 million.

The bankruptcy court scheduled a hearing on the adequacy of the proposed disclosure statement for July 24. Under the proposed timetable laid out by the company, following disclosure statement approval the voting deadline would be Aug. 24, and a confirmation hearing would be held on Sept. 7.

The company initially filed its proposed plan and disclosure statement on June 16. As reported, the company filed for Chapter 11 on June 12 after reaching a restructuring-support agreement with two-thirds of its term lenders. — Alan Zimmerman

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Gymboree, with Restructuring Deal with Majority of Term Debt Lender, Goes Ch. 11

gymboree logoGymboree Corp. has entered into a restructuring support agreement with a majority of its term lenders for a recapitalization that would reduce the company’s debt by more than $900 million, the company announced.

To implement the restructuring, the company today filed for Chapter 11 in bankruptcy court in Richmond, Va.

Court filings show that the company has obtained a $105 million DIP term facility from a majority of its current term lenders, and up to $273.5 million in additional ABL DIP financing from the existing lenders under the company’s asset-backed loan credit facilities.

In addition, the company announced the resignation of its CFO, Andrew North, effective immediately. The company named Liyuan Woo, a director at AlixPartners, as its interim CFO, adding that North would remain with the company for a period of time as a consultant.

The Chapter 11 filing
According to the first-day affidavit in the case filed by the company’s chief restructuring officer, AlixPartners managing director James Mesterharm, the company intends to “move swiftly through these cases and obtain confirmation of a reorganization plan by Sept. 24, 2017.”

The company’s Chapter 11 petition lists assets of about $755.5 million and total debt of roughly $1.365 billion.

According to Meterharm’s declaration, the company’s precarious financial situation is attributable to a combination of higher expenses and greater dependence on store traffic arising from its relatively larger brick and mortar presence, as compared to primarily online retailers, as well as competition from other brick and mortar retailers that have less leveraged capital structures than the company.

Mesterharm noted that in addition to these ongoing financial performance issues, the company is facing “looming debt maturities,” beginning in December of this year.

Specifically, the company’s ABL revolver, with about $81 million outstanding, and ABL term facility, with roughly $47.5 million outstanding, mature in December. And the remainder of the company’s capital structure doesn’t offer much relief, with a $788.8 million term loan maturing in February 2018, and $171 million of unsecured notes maturing in December 2018.

The company also has about $49.3 million in outstanding letters of credit under the ABL revolver, court records show.

According to court filings, the prepetition ABL includes a $225 million revolver and a $50 million term portion, subject to a borrowing base that as of today was roughly $172.2 million.

The RSA
The company’s RSA contemplates a new $273.5 million DIP revolving credit facility pursuant to which all outstanding amounts under the existing ABL would be rolled up on terms similar to the existing facility, and a $105 million DIP term loan facility that would roll up $70 million of the company’s existing term loans and provide $35 million in new money.

Bank of America is the administrative agent for the ABL revolver portion of the DIP; Pathlight Capital LLC is the agent for the ABL term portion of the DIP; and Credit Suisse is the agent for the DIP new-money and roll-up term loan.

Interest under the DIP term loan would be L+1,200 for the new-money portion and L+350 for the roll-up portion.

The RSA further contemplates $80 million in new equity capital via a rights offering fully backstopped by those term lenders consenting to the RSA.

All term loan lenders would be afforded the opportunity to participate in the DIP loan facility and the rights offering.

According to the Mesterharm declaration, these transactions would result in pro forma equity ownership in the reorganized company as follows: term loan lenders that contribute their pro rata share of the $35 million new-money DIP and their pro rata share of the rights offering will obtain the benefit of the $70 million DIP term loan roll-up and ultimately share in 89.6% of the equity in the reorganized company, with an additional 2.4% of the equity distributed to those lenders backstopping the rights offering.

Non-participating term lenders would receive the remaining 8% of reorganized equity.

Up to 10% of the reorganized equity would be reserved for distribution under a management incentive plan.

The company expects to structure the transaction in such a manner as to take advantage of some $18.3 million of expected NOL state tax benefits, and additional federal NOL tax benefits accruing to the company’s benefit.

Upon exit from Chapter 11, the plan contemplates repayment of the ABL DIP (both the revolving and term portions), and the new-money portion of the DIP term facility, via replacement exit financing, such that DIP lenders would either receive cash or new paper. In addition, to the extent that the DIP new-money term loan remains undrawn, a DIP lender can elect to receive additional equity in the reorganized company.

The contemplated exit term loan facility would have a five-year term, with interest at L+1,150, with a 1% LIBOR floor. The facility would be callable at 105%, 103%, and 102% in years 1, 2, and 3, respectively, and thereafter at par.

Credit Suisse is the administrative agent for the facility.

Meanwhile, returning to distributions under the plan contemplated by the RSA, the company’s “critical trade claims”—those necessary for the company to operate as a business—would be paid in full, while general unsecured claims, which would include, among other things, the company’s unsecured notes, would receive no recovery.

Milestones under the RSA call for the filing of a proposed reorganization plan and disclosure statement by June 16, the obtaining of proposed terms for the replacement exit facilities by July 16 (with written commitments required by Aug. 25 or, alternatively, agreement by DIP lenders to convert existing DIP facilities to exit loans), approval of the disclosure statement within 50 days of filing the plan and disclosure statement (Aug. 5, on the outside), confirmation of a reorganization plan by Sept. 24, and emergence from Chapter 11 by Oct. 9. — Alan Zimmerman

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Bankruptcy: Rue21 Files Reorg Plan; Disclosure Statement Hearing Set for July 10

Rue21 on June 1 filed its proposed reorganization plan and disclosure statement with the bankruptcy court overseeing its Chapter 11 proceedings, according to court filings.

The Pittsburgh, Pa., bankruptcy court scheduled a hearing on approval of the disclosure statement for July 10.

Under the company’s proposed timeline, the company had sought a disclosure statement hearing date of June 30, a voting deadline of Aug. 11, and a plan confirmation hearing date of Aug. 16. It is unclear at this point, however, whether the 10-day difference in the actual scheduling of the disclosure statement hearing will push back the remaining parts of the timetable.

As reported, the company filed for Chapter 11 on May 16, with a restructuring support agreement in place with lenders holding 96.8% of the company’s secured term loan and 60.2% of the company’s unsecured notes.

The proposed plan’s distribution scheme differs from the terms of the RSA in the allocation of equity among prepetition lenders and DIP lenders,

That said, however, the DIP was provided by a subset of the company’s prepetition term lenders, and the net practical effect of the altered distributions on specific creditors is not detailed in the filing.

Both the RSA and the proposed reorganization plan call for a $125 million exit ABL facility and $50 million exit term facility (to replace the $50 million new money portion of the company’s DIP), with the $100 million roll-up portion of the DIP term facility and the company’s remaining prepetition debt exchanged for equity in the reorganized company.

As reported, the RSA called for lenders under the DIP roll-up to receive (assuming unsecured creditors vote in favor of the plan) 77% of the reorganized equity, while prepetition lenders were to receive 19% of the equity, and unsecured creditors were to receive 4% of the equity.

Under the plan as filed, however, DIP lenders are slated to receive (again, assuming unsecured creditors vote in favor of the plan) 33% of the reorganized equity, with prepetition lenders (with claims of $432 million) to receive 63% of the equity, and general unsecured creditors (with claims of $548.7–666 million) to receive 4%. If unsecured creditors reject the plan, then the class would receive no recovery, and pre-petition lenders would receive 67% of the equity.

The disclosure statement estimates the recovery rates for prepetition lenders at 35–53% (or at 37–56% if GUCs reject the plan), and at 2–4% for GUCs (or zero, if they vote to reject the plan).

The recovery for DIP claims, of course, is 100%.

The recovery is based on an estimated reorganized enterprise value of $340–465 million, net debt at emergence of $102.3 million (assuming $52.3 outstanding under the ABL at emergence), resulting in an implied distributable equity value of $237.7–362.7 million. — Alan Zimmerman

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Bankruptcy: Rue21 Goes Chapter 11; Co. has $275M DIP Loan

rue21 logoRue21 today filed for Chapter 11 in bankruptcy court in Pittsburgh, Pa., the company announced.

The company said that in connection with the filing it had entered into a restructuring support agreement with lenders holding 96.8% of the company’s secured term loan and 60.2% of the company’s unsecured notes.

Apax Capital, the company’s equity sponsor, is also a party to the RSA.

Lenders signing on to the pact are Apollo Management, Bain Capital, Bayside Capital, Benefit Street Partners, Bennett Management, BlueMountain, Citadel Advisors, Deutsche Bank, Eaton Vance, Empyrean Capital Partners, Eos Partners, JPMorgan Chase, Octagon Investment Partners, Mercer, JLP, Scoggin Capital Management, Southpaw Asset Management, Stonehill Capital, Tricadia Capital Management, UBS, Voya Investment Management, Hutchin Hill Capital, and Pentwater Capital, court filings show.

According to a statement from the company, the RSA “contemplates, among other things, an emergence from Chapter 11 proceedings in the fall of 2017 with a significantly deleveraged balance sheet.”

In addition, the company said that it “may evaluate additional store closings as it continues to manage its real estate lease portfolio.” As reported, the company announced last month that it had begun the process of closing 400 underperforming stores (out of a total of 1,179 locations).

Also in connection with the Chapter 11 filing and the RSA, the company said that its existing ABL lenders agreed to provide it with a $125 million ABL DIP to replace the company’s existing ABL facility (which has about $72.2 million currently outstanding, according to court documents), and that a subset of its current term lenders agreed to provide it with $150 million of term DIP financing, to be made up of $50 million in new money and $100 million in a partial roll-up of existing term debt (which has roughly $521 million outstanding).

RSA terms
Under the RSA, the $50 million of new term debt under the DIP is to be converted into an exit facility upon emergence (five year term at L+1,250), while the $100 million roll-up portion would be converted into 77% of the equity of the reorganized company, provided the company’s unsecured creditors accept the proposed reorganization plan.

Pre-petition term lenders, meanwhile, would receive 19% of the reorganized equity, again provided unsecured creditors accept the proposed plan.

For their part, if unsecured creditors accept the plan, they would receive 4% of the reorganized equity along with 100% of the proceeds of certain avoidance actions that would be preserved under the plan.

If unsecured creditors reject the plan, however, they would receive no distribution, and the equity distribution they would otherwise have received would be split 3% to DIP term lenders, increasing their equity distribution to 80%, and 1% to pre-petition term lenders, bringing their equity distribution to 20%.

According to court filings, the opportunity to participate in the term portion of the DIP was offered to all pre-petition lenders.

DIP terms
Bank of America is the administrative agent and collateral agent under the ABL portion of the DIP facility, with Wilmington Savings serving as administrative agent and collateral agent for the term debt. The facility matures on Oct. 31.

Interest for ABL borrowings would be at L+275, court filings show, while interest for the term debt would be at L+1,200 for the new-money portion and L+462.5 for the roll-up term portion. Neither rate includes a LIBOR floor.

The new-money term loans would be issued with a 2.5% OID, and carry, among other fees, a 3% put option premium to initial lenders, according to a term sheet attached to the RSA.

As for milestones, the DIP requires, among other things, that the company file a proposed reorganization plan and disclosure statement within 15 days of filing Chapter 11 (May 31), and that the bankruptcy court approve the disclosure statement within 50 days of the petition date (July 5) and confirm the reorganization plan within 105 days of the petition date (Aug. 29).

The DIP milestones also provide for an alternate timeline if the bankruptcy court fails to approve the proposed disclosure statement within the allotted 50-day period. Specifically, in that case, the company is required to file a sale motion within 55 days of the petition date (July 10), obtain bankruptcy court approval of sale and bidding procedures by within 75 days of the petition date (July 30), obtain court approval of a sale within 110 days of the petition date (Sept. 3), and close the sale within 120 days of the petition date (Sept. 13).

The company said it retained Kirkland & Ellis as its legal advisor, Rothschild as its investment banker and financial advisor, and Berkeley Research Group as its restructuring advisor. — Alan Zimmerman

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Bankruptcy: Breitburn Equity Panel Says It’s Been Left in the Dark on Plan Talks

The official equity committee in the Chapter 11 proceedings of Breitburn Energy said it has been “left in the dark” with respect to the company’s reorganization plan negotiations, despite the company’s assertion that those negotiations are in their “final stages.”

The equity panel’s comments came in a response it filed today to the company’s motion for approval to extend the maturity date of its DIP facility to Sept. 30, which was filed earlier this week (see “Breitburn seeks to extend DIP maturity as plan talks in final stages,” LCD News, May 3, 2017).

While the equity panel did not object to extending the DIP maturity, it said in the filing that “it does not want the court to construe its support as an endorsement of how the debtors continue to treat the equity committee in these Chapter 11 cases.”

Given prior statements from Manhattan Bankruptcy Court Judge Stuart Bernstein regarding inclusion of the equity panel in the plan process, and the impending expiration of the company’s exclusive period to file a reorganization plan on May 12, the equity committee said its exclusion from plan negotiations “has been particularly troubling.”

“The equity committee should have more than one week to negotiate a plan that creditors have been negotiating with the debtors for one year,” the panel complained. “That is not negotiation, it’s ‘take it or leave it.’”

The equity committee said that the only time the company has engaged with the panel was in order to resist its discovery requests, and that it took “ten days and multiple requests” before the company agreed to speak with the panel’s tax professionals about how to solve the CODI issue in the case. — Alan Zimmerman

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Caesars Mediator Resigns, Citing Bankruptcy Judge’s ‘Atypical’ Views

caesarsThe mediator in the Chapter 11 proceedings of Caesars Entertainment Operating Co., today resigned from the case, citing the “atypical views of the mediation process” of the bankruptcy court judge overseeing the case, Benjamin Goldgar.

As reported, the mediation being led by retired federal judge Joseph Farnan was voluntary. Goldgar refused to order the parties to mediation, ruling in February that recent rule changes governing the Chicago bankruptcy court had eliminated his power to do so.

In his most recent update filed with the bankruptcy court, Farnan said there had been “material progress in the mediation” and that “the parties are making progress towards a consensual resolution of the debtors’ cases and the related litigation.”

Farnan further said there was “a likelihood of continued material progress” in the mediation, and predicted that, “based on [his] experience, there ultimately should be a successful conclusion to the mediation before the conclusion of the confirmation hearing.”

As reported, the remaining key dispute in the case is between the company and its second-lien lenders over the value of potential claims that CEOC and its creditors may have against its parent, Caesars Entertainment Corp. (CEC) and its equity sponsors, Apollo Management, TPG Capital, and their principals, for fraudulent conveyance, breaches of fiduciary duties, and breaches of certain guarantees. The claims arise out of a series of pre-petition transactions between CEOC and CEC that CEOC’s junior lenders allege were designed to strip CEOC of valuable assets that could otherwise have been used to repay creditors, in order to benefit CEC, Apollo, and TPG.

In his Sept. 9 resignation letter addressed to the company’s attorneys, however, Farnan said, “Recent events have convinced me that I am unable to continue the mediation process in accordance with standard mediation procedures I adhere to.”

More specifically, Farnan cited the transcripts of an Aug. 26 bankruptcy court hearing and bench ruling (apparently the hearing concerning the lifting of the injunction blocking certain litigation against CEC related to the second-lien lender claims from moving forward. See “Bankruptcy court lets CEOC noteholder lawsuits against CEC proceed,” LCD News, Aug. 26, 2016), saying he was “struck by the extent my mediation statement regarding the process of the mediation—a standard report to a supervising court—was the focus of the hearing and the court’s observations.”

Farnan’s letter continued, “Apparently, the court did not find my progress report helpful because I didn’t breach the confidentiality of the mediation and testify in open court or describe the discussions and proposals exchange, and detail the status of the differences among the parties.”

Farnan said he believes Goldgar either “misspoke or doesn’t understand how such disclosures would be viewed by participants and the markets,” but nonetheless decided he could not continue as mediator and that “possibly a new mediator will be able to establish a workable process.”  — Alan Zimmerman

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.