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iHeart Again Extends Forbearance as Bankruptcy Looms

iHeartMedia lenders have again agreed to forbear from calling default on the company’s missed interest payment, as the radio broadcaster continues to work on a consensual pre-arranged bankruptcy filing.

In a Form 8-K filed with the SEC, iHeartMedia said lenders have agreed to forbear on the missed interest payment until 11:59 p.m. Central Time on March 12, from the previously extended deadline of March 7.

As reported, iHeart failed to make a $106 million Feb. 1 interest payment to holders of its 14% senior unsecured notes due 2021 issued via subsidiary iHeartCommunications, entering instead into a customary 30-day grace period with lenders.

The company earlier this week filed a draft restructuring support agreement and term sheet showing senior lenders—including holders of the company’s term loans and priority guarantee notes—stand to receive 93.25% of the recapitalized equity, bridging the gap on a key sticking point of contentious year-long negotiations between the company’s sponsors and its debtholders.

iHeart is also is also operating under a customary 30-day grace period after it missed interest payments due on two series of priority-guarantee notes, ramping up the pressure among its more senior lenders to achieve a comprehensive restructuring of the company’s $20 billion debt load. — Rachelle Kakouris

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Fieldwood Energy Files Ch. 11 Petition, Looks to Slash Debt By $1.6B Through Restructuring

Fieldwood Energy has filed for bankruptcy protection in Houston to implement a restructuring plan that would reduce the company’s debt by $1.6 billion.

In a statement, the company said it has secured a $60 million DIP to support its Chapter 11 case, and intends to raise about $525 million in capital through an equity rights offering.

Additionally, Fieldwood said it has agreed to acquire all the deepwater oil assets of Noble Energy, located in the Gulf of Mexico, which complement its existing asset base and operations.

Details of the company’s restructuring support agreement have yet to be filed with the court, but the company said it has secured support from key stakeholders, including those holding 75% in principal of its first-lien debt, 72% in principal of its first-lien last-out term loan, and 77% in principal of its second-lien term loan, in addition to private equity sponsor Riverstone Holdings.

Today, Fieldwood filed a number of customary motions, including requesting clearance to pay pre-petition claims and use its cash management system. A first-day hearing has been scheduled for tomorrow morning.

The company also requested that its case be designated as a complex Chapter 11 due to the fact that it has more than $10 million in liabilities and there are more than 50 parties in interest in the case.

Fieldwood reported $1–10 billion in assets and liabilities in its petition.

The company recently entered into forbearance with first-lien last-out and second-lien term loan lenders after the exploration-and-production company failed to make interest payments due Dec. 29.

Fieldwood, a portfolio company of Riverstone Holdings, focuses on the acquisition and development of conventional oil and gas assets in North America, including the Gulf of Mexico.

Weil, Gotshal & Manges LLP is debtor counsel; Opportune LLP is financial adviser; and Evercore Group LLC is investment banker. — Kelsey Butler/Rachelle Kakouris

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iHeart Skips $106M Interest Payment, Enters 30-Day Grace Period

iHeartCommunications has failed to make a $106 million February 1 interest payment to holders of its 14% senior unsecured notes due 2021, entering instead into a customary 30-day grace period with its lenders.

For nearly 11 months, iHeartMedia has been negotiating the terms of a sweeping debt exchange targeting roughly $14.6 billion of its $20 billion debt load at its iHeartCommunications subsidiary, including $6.3 billion of its term loan debt. Despite sweetening the offer a month later, the out-of-court restructuring failed to gain traction with noteholder participation reported at just 0.4% at the Jan. 18 update.

After being extended multiple times, the current debt exchange deadline is 5 p.m. EST on Feb. 16.

In a press release the company said that active discussions are continuing among its lenders, noteholders, and financial sponsors on the terms of a debt restructuring.

Citi analyst David Phipps said in a note to investors this morning that he does not expect a successful debt exchange owing to varying interest among creditors. In the event of a bankruptcy, Phipps expects iHeart term loans and priority guarantee notes to trade down at least 10 points since no interest would be paid during bankruptcy.

Restructuring proposals filed with the SEC late last year disclosed iHeart’s sponsors, Bain Capital and Thomas Lee Partners, had offered creditors 87.5% of the reorganized equity, as well as 87.5% of the company’s stake in Clear Channel Outdoor, its partially owned billboard subsidiary.The filing also showed that senior lenders had yet to bridge their differences on key terms, which as reported, include the value of the Clear Channel Outdoor business, the assets of which became a source of a contention following iHeart’s disputed 2015 transfer of Clear Channel Outdoor shares to its Broader Media unit.

Bain Capital and Thomas Lee Partners–owned iHeartMedia operates as a media and entertainment company through three segments: iHeartMedia, Americas Outdoor Advertising, and International Outdoor Advertising. The company formerly known as Clear Channel changed its name to iHeartMedia, Inc. in September 2014.

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Leveraged Loan Portfolio Managers Foresee Steady Increase in Default Rate, to 2.24% in 2018

Rather than a sudden spike, portfolio managers of U.S. leveraged loans foresee a slow inflection higher in the headline default rate, marked by pockets of distress in certain sectors. With energy having already experienced its own default cycle, retail, broadcasting, and healthcare are seen as the next potential trouble spots.

At the macro level, participants in LCD’s quarterly survey reined in their default forecasts somewhat, but still see a steady increase, with expectations that the loan default rate will end 2018 at 2.24%, from the current 1.91%.

The sentiment is more benign than that expressed in the third-quarter survey, when respondents had forecast a 2018 rate of 2.42%.

Almost all responses regarding where the expected one-year forward default rate will fall, at year-end 2018, were in a range of 2–2.70%.

Default Rate Projection 2018

Further out, loan investors, on average, expect the default rate to finish 2019 at 2.65%. The views here, polled for the first time this quarter, for the most part (80%) ranged from 2.25–3.30%.

Looking back

The end of year is an opportune time to review the accuracy of past predictions.

Defaults within the S&P/LSTA Leveraged Loan Index jumped to 1.95% in November. While still well short of the 2.44% year-end 2017 rate predicted by loan managers this time last year, a potentially substantial default lurks in the shadows. With few expecting iHeartMedia to even hold another earnings call with its current balance sheet intact, a default on the company’s Clear Channel term loans D and E would, hypothetically speaking, push the default rate to a 33-month high of 2.63%.

LCD also asked participants when they expect the default rate to breach 3.1%—the historical average. More than half (67%) now expect this to be a 2020 event (on an intra-year basis), with only 33% expecting the historical average to be breached in 2019. This is down from 93% forecasting 2019 at the third-quarter reading.

— Rachelle Kakouris

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S&P: As Risk, Defaults Rise in Retail, Expect Recoveries to Lag other Sectors

Amid sector challenges and rising defaults, default-related losses are likely to be higher in retail than in other sectors, especially for creditors that are either unsecured or have junior-lien positions, according to a new report published by S&P Global Ratings on Thursday.

Furthermore, with retailers historically showing a higher tendency to liquidate rather than reorganize after default, a separate report also finds that recovery prospects in a liquidation scenario are often dramatically lower than when a company continues to operate. This is because most retailers are asset light, meaning most creditors are highly dependent on profitability and cash flow as a source of repayment.

retail recoveryThe overall credit environment is generally improving amid mostly favorable economic conditions, including modest but steady GDP growth, low unemployment, tame inflation, and healthier household balance sheets. This environment—and more stable oil and gas prices—has contributed to a sharp decline in the speculative-grade default rate, which has dropped from 5.1% at the end of 2016 to 3.8% at the end of June, and now stands below the historical long-term average of 4.3%.

In contrast, distress and default levels are rising in the retail sector, with factors such as adapting to online retailing, rising competition, and shifting consumer tastes and spending habits contributing to the struggles.

In terms of trouble ahead, 18% of U.S. retail ratings are in the CCC category or lower, about double the level at the beginning of the year.

Meanwhile, the market is also signaling concern with the distress ratio —the share of speculative grade issues with option-adjusted spreads more than 1,000 bps above Treasuries—rising to 21% for the retail sector, well above that of the oil and gas sector, which has the next-highest distress ratio for a non-financial sector at 14%.

In the post-default scenario, overall recovery prospects for creditors to U.S. retailers are much lower than those for the greater domestic corporate universe, especially for creditors that are either unsecured or have junior-lien positions.

In the event of liquidation, estimated recoveries in the retail sector would be about 50% lower than going-concern recoveries on average. The full reports entitled “U.S. Retail Debt Recoveries Likely To Be Below Average Amid Sector Challenges And Rising Defaults“, and “U.S. Retail Recovery Prospects: Liquidation Could Lead To Worse Recovery Outcomes,” are available at www.globalcreditportal.com and at www.spcapitaliq.com. — Staff reports

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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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Distressed Debt: S&P Cuts Guitar Center to CCC+ on ‘Unsustainable Capital Structure’

S&P Global Ratings lowered its corporate credit rating on Guitar Center Holdings to CCC+, from B–. The outlook is negative.

The agency said the downgrade reflects its view that strategic operating initiatives will be insufficient to meaningfully improve revenue and profits ahead of looming sizable debt maturities in early 2019, especially in light of a challenging retail environment that S&P Global said it expects will continue.

As such, given thin EBITDA interest coverage, high debt leverage, and weak cash flow from operations and expectations at S&P Global that the company will not improve operations meaningfully ahead of its early 2019 debt maturities, the agency views the company’s capital structure as unsustainable.

Still, S&P Global believes the company will maintain access to and availability under its ABL revolver, providing adequate liquidity for operating needs, particularly for seasonal working capital requirements over the next 12 months and affording the company some time to execute on planned operational improvements.

In conjunction with the lower corporate credit rating, S&P Global also lowered its issue-level rating on the company’s $375 million asset-based lending (ABL) revolver to B from B+; its $615 million of 6.5% senior secured notes due April 15, 2019 to CCC+ from B–; and its $325 million of 9.625% senior unsecured notes due April 15, 2020 to CCC– from CCC.

S&P Global expects adjusted debt leverage to slightly improve to 9.4x in 2017 on modest EBITDA growth. Adjusted total debt to EBITDA was high at close to 10x at Dec. 31, 2016. Adjusted EBITDA interest coverage is thin at 1.3x.

As at March 14, the company has approximately $134 million of borrowing availability under the $375 million ABL revolving facility.

Guitar Center, Inc. operates as a retailer of music products in the United States. The company is based in Westlake Village, Calif. Guitar Center, Inc. operates as a subsidiary of Guitar Center Holdings, Inc. — Rachelle Kakouris

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SAExploration Wraps Debt-for-Equity Restructure, Nets New Loan

SAExploration entered into a new $30 million term loan agreement as part of a successful debt-for-equity restructuring.

Bondholders received new second-lien notes and equity at below-par value.

SAExplorationIn exchange for $138 million of 10% secured notes due 2019, the company issued $69 million of new 10% (11% PIK) secured second-lien notes due 2019, and 6.4 million of new common stock, following a reverse stock split.

The company announced in June it had entered a comprehensive restructuring support agreement with holders of 66% of 10% secured notes. At the close of the offer, which expired on July 22, nearly 99% of notes were exchanged.

Liens on the new second-lien notes due 2019 are subordinate to liens on an existing $20 million revolver with Wells Fargo dating from November 2014, as well as on the $30 million multi-draw senior secured term loan that SAE entered into on June 29 with certain 10% secured noteholders.

As of May 16, the borrower owed $13.4 million under the revolver.

Low oil and natural gas prices hurt the company, as well as a delayed payment for a large receivable from a specific customer due to uncertainty over tax credits from the State of Alaska.

In a debut high-yield bond issue, SAExploration placed $150 million of 10% secured notes due 2019 at par in June 2014 via sole bookrunner Jefferies. Proceeds refinanced debt and funded equipment purchases for operations in Alaska.

SAExploration provides seismic data acquisition services to oil-and-gas E&P companies, specializing in logistically challenging, remote, and environmentally sensitive regions such as Arctic Alaska, tropical South America, and shallow and deep-water marine environments. — Abby Latour

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Dakota Plains Amends Forbearance Agreement; Eyes Aug. 1 Restructuring Plan

Midstream energy company Dakota Plains disclosed that it has entered into an amendment to the forbearance agreement it entered into in May. The company has also entered into an amendment to its revolver and secured a one-time waiver of revolver loan borrowing requirements.

Under the terms of the amendment made to the forbearance agreement, the termination date has been extended to Aug. 31, from July 25. Also, the company is required to submit a restructuring plan to SunTrust Robinson Humphrey, the administrative agent, before Aug. 1 together with a timeline for completing the restructuring plan.

Meanwhile, lenders have agreed to an amendment that would increase aggregate revolver commitments to $20.5 million, from $20 million, and approved a one-time waiver of certain revolver loan borrowing requirements to allow a funding in the amount of $500,000 on or around July 6.

As of March 31, 2016, there was $55.4 million outstanding under the credit facility.

In December 2015, the company extended the maturity date of a tranche B term loan that then totaled $22.5 million to January 2017, from December 2015, and modified certain covenants.

Under the terms of that amendment, the leverage ratio was set at 9.42x through the fiscal quarter ending June 30, 2016, then at a ratio of 7.52x in the fiscal quarter ending Sept. 30, 2016; 5.15x in the fiscal quarter ending on Dec. 31, 2016; and 3.5x for each fiscal quarter ending on or after March 31, 2017. The deal is also covered by a fixed-charge coverage ratio set at 1.5x. As a result of that amendment, pricing under the tranche B term loan increased by 25 bps, to L+950.

The credit facility also includes a tranche A term loan due December 2017, which then totaled $15 million, and a $57.5 million revolver due December 2017. Pricing on the tranche A term loan and revolver ranges from L+350–425, tied to a leverage-based grid.

Dakota Plains obtained the credit facility in December 2014 to buy interests from its former partner in an oil-transloading joint venture, a sand-transloading joint venture, and an oil-marketing joint venture, and to refinance unsecured promissory notes. —Richard Kellerhals

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Bankruptcy: Hercules Offshore Files Prepackaged Chapter 11

Hercules Offshore filed its prepackaged Chapter 11 today in Wilmington, Del., the company announced. The company said that lenders holding roughly 99.7% of its first-lien claims voted in favor of the proposed reorganization plan.

As reported, the company announced late last month that it would solicit acceptances to a prepackaged reorganization plan and file for Chapter 11. As also reported, the company only emerged from Chapter 11 last November with a new $450 million senior secured facility in place that was backstopped by a group of the company’s then bondholders (“Hercules Offshore emerges from Chapter 11,” LCD, Nov. 6, 2015).

The company said that under the terms of the current reorganization plan, the company’s assets would be marketed for sale, with those left unsold at the completion of the Chapter 11 process placed into a wind-down vehicle until sales are finalized.

The company’s international subsidiaries are not included as part of the Chapter 11 case, but will be part of the sale process, the company said.

Unsecured creditors will be paid in full in the ordinary course of business or at the completion of the Chapter 11 process.

Shareholders would receive $12.5 million in cash and interests in the wind-down vehicle if they vote as a class to accept the plan, or just interests in the wind-down vehicle if the class votes against the plan.

“Importantly,” the company said, “shareholders will have to wait until the lenders are paid in full before receiving any recovery on their interests if the class votes to reject the plan as opposed to receiving their pro rata share of $12.5 million on the effective date of the plan and incremental cash distributions thereafter based on the success of the sale process if the class votes to accept the plan.”

The company said it is continuing to solicit votes on the proposed plan from Hercules shareholders.

Akin Gump Strauss Hauer & Feld is the company’s legal counsel, PJT Partners is the company’s financial advisor, and FTI Consulting its restructuring advisor. — Alan Zimmerman

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