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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Bankruptcy: Vertellus Files Ch. 11; Lenders to Buy Assets for $454M Credit Bid

Vertellus Specialties existing term loan lenders have agreed to purchase substantially all of the company’s U.S. and international assets for a credit bid of $453.8 million, the company announced this morning.

To implement the transaction, which will take place under Section 363 of the Bankruptcy Code, the company filed for Chapter 11 in bankruptcy court in Wilmington, Del.

The term lenders are Black Diamond Capital Management, Blackrock, BlueBay Asset Management, Brightwood Capital Advisors, and TPG Special Situations Partners, court filings show.

The company said the proposed sale would be subject to higher offers, with the deal with term lenders serving as a stalking-horse bid. The agreement carries a 3% break-up fee, plus expense reimbursements, as stalking-horse protections.

The company said in a letter to employees that it expects the sale process would take 3–4 months. In its motion for approval of bidding procedures, the company asked the bankruptcy court to schedule a bid deadline of Aug. 15, an auction date of Aug. 18, and a sale hearing for Aug. 23.

The Chapter 11 filings do not include the company’s international entities in Belgium, the U.K., India and China, although those entities are included in the sale process, the company said.

The Chapter 11 case also does not include Elma, Wash.–based Vertellus Performance Chemicals, the legal entity containing the company’s sodium borohydride business, which has separate financing agreements in place. Furthermore, Vertellus Performance Chemicals is also not included in the agreement with lenders and will remain under the ownership of Wind Point Partners.

In connection with the Chapter 11 filing, the existing lenders have also committed to provide $110 million in DIP financing “to ensure continuity through the sale process.” Interest under the facility is at L+900, with a 1% LIBOR floor.

The DIP milestone deadlines require the sale to be completed within 100 days of interim approval of the DIP. Assuming that occurs tomorrow, the deadline would be Sept. 9.

In court filings, the company explained that it had “fallen victim to certain macroeconomic forces recently afflicting the chemical manufacturing industry. Specifically, the debtors’ VAN business division [Vertellus Agriculture and Nutrition Specialties unit] operates in a highly competitive industry, and has faced a slowing of growth rates for its pyridine and picoline products, coupled with significant increases in global capacity and production, primarily from Chinese manufacturers of VAN’s primary products.”

According to a declaration filed in the case by Philip Gillespie, the company’s CFO, the company has “begun significant realignment in the supply chain and rationalization of overall business cost structure in order to mitigate these effects. These long-term efforts are expected to assist with decreased overhead, manufacturing and supply chain costs, greater margin protection and potential new revenue streams over a period of years, all of which are intended to reduce the debtors’ exposure to sustained price volatility.”

However, the company said, beyond the competitive environment it also faced liquidity constraints due to “the burden of legacy environmental and pension liabilities” and the company’s “capital structure and debt load.”

The capital structure includes a first-lien term loan, which is not included in the S&P/LSTA Leveraged Loan Index, with roughly $471 million outstanding, and a first-lien revolver with about $82 million outstanding, including $19 million with respect to certain undrawn letters of credit, court filings show. Annual principal and interest payments under the facility were $52 million.

As reported, the company skipped an interest payment in April, prompting S&P Global Ratings to downgrade the company’s corporate credit and issue level to D, from CCC

The company also said it has about $25 million in trade claims outstanding, including about $10 million that may be entitled to administrative expense priority. — Alan Zimmerman

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Linn Energy Delisted from NASDAQ; LinnCo Exchange Offer Extended

Linn Energy said yesterday it received notice that it and LinnCo would be delisted from trading on NASDAQ, as of today’s open.

The company said that the two companies are expected to begin trading on the OTC Pink Sheets marketplace today under the symbols LINEQ and LNCOQ, respectively.

Separately, the company also said yesterday it had extended its offer to exchange Linn units for shares in LinnCo, to 12 a.m. EDT on June 30. The terms of the exchange have not changed.

As reported, the exchange offer’s purpose is to permit holders of Linn units to maintain their economic interest in Linn through LinnCo, an entity that is taxed as a corporation, rather than a partnership, which may allow Linn unitholders to avoid future allocations of taxable income and loss, including cancellation of debt income that could result from the Chapter 11.

Roughly 12.07 million shares have been exchanged so far, representing about 69% of Linn Energy’s outstanding units, the company said. — Alan Zimmerman

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Caesars Appoints Former Bankruptcy Judge as Restructuring Officer as CEOC Talks Appear To Stall

Caesars Entertainment Corp. appointed former Manhattan Bankruptcy Court Judge Robert Gerber as its chief restructuring officer, the company announced late on Friday, a potentially ominous sign for the prospects of a consensual settlement in the Chapter 11 case of the company’s unit, Caesars Entertainment Operating Co. (CEOC).

Gerber was a bankruptcy court judge for 14 years. Among his more notable cases were General Motors, Adelphia Communications, and LyondellBasell.

Gerber retired from the bench on Dec. 31, 2014, although he remained available as a recall judge through Jan. 22 of this year. He joined Joseph Hage Aaronson LLC as of counsel on Feb. 3.

As CRO, the company said Gerber would “[advise] on a potential restructuring of Caesars Entertainment if the company cannot resolve its differences with [CEOC] and its creditors with regard to CEOC’s restructuring and related litigation against Caesars Entertainment, or if other factors make a potential restructuring of Caesars Entertainment advisable.”

In its first-quarter earnings release issued earlier this week, the company said that while it “currently contemplates liquidity to be sufficient through the end of the year, Caesars Entertainment’s cash balance will be consumed by expenses associated with the CEOC restructuring unless it identifies additional sources of liquidity to meet ongoing obligations as well as to meet its commitments to support the CEOC restructuring.”

The company added that unless it is able to obtain additional sources of cash, or if CEOC does not emerge from bankruptcy “on a timely basis on terms and under circumstances satisfactory to Caesars Entertainment, it is likely that Caesars Entertainment would seek reorganization under Chapter 11 of the Bankruptcy Code.”

Among other things, the company said it has so far spent $345 million on legal and professional fees associated with the CEOC restructuring and Chapter 11.

The company also reiterated its previous warning that a bankruptcy filing could result from adverse rulings in pending litigation in Federal and state courts in New York and Delaware, alleging fraudulent conveyance and other claims against it in connection with various restructuring transactions undertaken by the company in the years ahead of CEOC’s Chapter 11 filing in January 2015.

Those cases were automatically stayed against CEOC as a result of the Chapter 11 filing, but they continued as against Caesars Entertainment Corp. In late February, however, Chicago Bankruptcy Court Judge Benjamin Goldgar enjoined those cases from proceeding against Caesars Entertainment, in order to give the CEOC and its creditors a window to negotiate a consensual reorganization plan (see “Caesars bondholder suit halted as parties await examiner’s report,” LCD, Feb. 29, 2016). The injunction expires on May 9, however, and Goldgar has recently indicated that he does not plan to extend the injunction at this time, although it is worth noting that trials are currently imminent in the pending cases.

Meanwhile, voluntary mediation in CEOC’s Chapter 11 is continuing under former Federal Judge Joseph Farnan, Jr. More than 20 parties have agreed to participate, but the only publicly disclosed progress so far has been a tentative deal reached with a group of holders of the company’s 10.75% senior notes due 2016.

That possible deal is nothing to sneeze at, but it is the company’s second lien lenders, who are positioned to benefit the most from the potential lawsuits against Caesars Entertainment, that hold the key to a global settlement of CEOC’s Chapter 11.

The company, for its part, has long conceded a willingness to settle the claims in the context of a reorganization plan. The dispute has been over valuation.

Fred Kleisner, the chairman of the company’s strategic alternatives committee of the board of directors, said in Friday’s news release, “Caesars Entertainment has offered substantial value to CEOC in an effort to end the protracted and expensive bankruptcy proceedings of CEOC. Despite a proposal that would provide CEOC and its creditors with value that Caesars Entertainment believes would be more than sufficient to address the findings of the examiner, as well as settle the ongoing guarantee litigation pending against the company, there remains disagreement between the parties, over how to quantify and allocate this value.”

For reference, the company had valued its total contribution under CEOC’s most recently proposed reorganization plan at about $3.1 billion (calculated based on a $1.6 billion contribution under CEOC’s initial restructuring scheme proposed prior to its Chapter 11 filing, plus an estimated additional contribution of $1.5 billion in connection with the amended plan filed on Oct. 8, 2015 (see “Caesars to contribute an additional $1.5B to amended CEOC revamp,” LCD, Oct. 8, 2016).

The court appointed examiner in the case, meanwhile, said in his report filed on March 15 that potential damages arising out potential fraudulent conveyance and breach of fiduciary duty claims rated as strong (meaning a high likelihood of success) or reasonable (meaning better than a 50/50 chance of success) range from $3.6–5.1 billion (see “Caesars examiner: fraudulent conveyance damages could reach $5.1B,” LCD, March 16, 2016).

The current timetable has a disclosure statement hearing scheduled for May 25, and a deadline for filing objections to the disclosure statement set at May 17.

As reported, in order to meet certain bankruptcy court deadlines, CEOC had filed its latest proposal in the form of a “temporary” reorganization plan and disclosure statement on April 4. The company said the proposal intentionally omitted “certain numbers, values and exhibits” needed to determine both creditor recoveries and contributions from the company’s parent, Caesars Entertainment Corp., in order to “facilitate the ongoing mediation process” in the case (see “CEOC files new plan; mediation ongoing in settlement quest,” LCD, April 5, 2016).

The company has said numerous times that if it is unable to reach a settlement with CEOC creditors, it would seek to confirm its current reorganization plan at a hearing contemplated to begin on Nov. 7.

In practical terms, that means the company would have to lay its cards on the table—that is, disclose the missing “numbers, values and exhibits”—at some point prior to May 17, although those deadlines are always subject to extension. — Alan Zimmerman

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S&P: European High Yield Corporate Default Rate Rises to 1.6% in April

European high yield default rateWith two defaults during the month, the European speculative grade corporate default rate rose to 1.6% in April, according to S&P Global.

Defaulting: Norway forest/paper products concern Norske Skog and UK oil company Edcon Holdings.

The full report on April defaults – including xls files detailing 2016 activity, corporate issuance, and European bond ratings actions – is available to S&P Global Credit Portal subscribers here. – Tim Cross

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Bankruptcy: Aeropostale Files Chapter 11 in Manhattan; has $160M DIP

Aéropostale today filed for Chapter 11 in bankruptcy court in Manhattan, the company announced.

The company said it intends to emerge from Chapter 11 within the next six months “as a standalone enterprise with a smaller store base, increased operating efficiencies and reduced SG&A expenses.”

The company announced an initial store closure list of 113 U.S. locations, as well as all of it 41 stores in Canada, with closings set to begin in the U.S. this weekend and in Canada next week.

The company further said it was continuing its previously announced sale process, adding that it expects that any potential sale would also be completed within the next six months.

According to Bloomberg, the company has more than 700 locations in the U.S. Over the past three years, it has closed more than 200 locations.

In addition to store closings, the company said it would use Chapter 11 to resolve its ongoing dispute with Sycamore Partners, the company’s largest secured lender and owner of its second largest supplier, that the company said has “put substantial strain on our liquidity while also preventing us from realizing the full benefits of our turnaround plans.”

Among other things, according to court papers, the supplier, MGF Sourcing, has demanded onerous payment terms from the company.

Among other first day motions, the company filed a motion asking the bankruptcy court to require MGF Sourcing, to perform its obligations under its agreements with the company.

Lastly, in connection with the Chapter 11 filing the company has a $160 million DIP facility commitment form Crystal Financial.

In court papers, the company said it received four DIP proposals from prospective lenders, which it narrowed down to two options, one from Crystal Financial and the other from Bank of America.

The facility is comprised of a $75 million term facility and an $85 million revolver, of which the company is seeking immediate access to $45 million and $55 million, respectively, on an interim basis.

Interest under the facility is at L+500. Among others, the facility carries a 5% underwriting fee.

As for milestones, the DIP requires the company to file a reorganization plan within 60 days (July 3), obtain disclosure statement approval within 95 days (Aug. 7), begin soliciting votes on the reorganization plan within 100 days (Aug. 12), begin a plan confirmation hearing within 130 days (Sept. 11), obtain plan confirmation within 140 days (Sept. 21), and emerge from bankruptcy within 145 days (Sept. 26).

In addition, the DIP requires the company to pursue a Section 363 sale process simultaneously with the plan confirmation process on the following timeline: file a motion with the bankruptcy court to approve bid procedures within 75 days (July 18), which shall include a form of a stalking horse purchase agreement; forward bid packages to potential bidders within 75 days (July 18); obtain approval of a stalking horse sale and bid packages within 105 days (Aug. 17); conduct an auction within 141 days (Sept. 22); obtain approval of a sale within 143 days (Sept. 24); and close on a sale within 145 days (Sept. 26).

The DIP provides that while the company may abandon the reorganization plan confirmation process at any time during the proceedings, it may not abandon the sale process without the lenders’ consents. — Alan Zimmerman

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Fairway Group Files Prepackaged Chapter 11 in Manhattan

Fairway Group Holdings today filed a prepackaged Chapter 11 in bankruptcy court in Manhattan, implementing the terms of a restructuring-support agreement reached with holders of more than 70% of the company’s senior secured debt, according to court filings.

The New York-based grocery chain listed its total assets at about $230 million and its total liabilities at roughly $386.7 million.

The terms of the deal reached with senior lenders would convert $279 million of the company’s secured loans into 90% of the equity and $84 million of new debt in the reorganized company, comprised of a $45 million last-out secured exit term loan (a 42-month term with interest at 4.5% payable in cash and 4.5% payable in-kind, with the company holding the option to pay all interest in-kind at a rate of 10%) and $39 million of subordinated unsecured loans (interest at 4% payable in cash 6% in-kind) at the holding company level.

The company’s disclosure statement values that recovery at 42.4–52%, court filings show. Note, however, that the company’s term loan due August 2018 (L+400, 1% LIBOR floor) was marked around 70 on Monday, according to sources. The issuer also has in place a $40 million revolver due August 2017.

Existing senior secured lenders are providing the company with a $55 million DIP term facility, convertible into a first-out secured exit facility, priced at L+800, with a 1% LIBOR floor. The company would also pay in connection with the term loan portion of the DIP a backstop fee of 2% and an exit conversion fee of 10% of the equity in the reorganized company.

The DIP also includes letters of credit for $30.6 million.

In sum, the company said, the proposed reorganization would eliminate about $140 million of secured debt from its balance sheet.

Upon its exit from Chapter 11, the company estimates that Fairway will have about $42 million of cash and cash equivalents.

Typically, in a prepackaged reorganization a company will have already solicited and obtained the acceptances to a proposed reorganization plan from the requisite numbers of impaired creditors prior to filing for Chapter 11, using the Chapter 11 process for the bankruptcy court merely to confirm that the solicitation process and the terms of the proposed reorganization plan comport with the law. A prepackaged bankruptcy can often be completed in as few as 45–60 days.

According to the company, however, its solicitation of votes will remain open until May 12, although the company noted that creditors holding more than 70% of its secured debt have already voted to accept the plan.

In the meantime, the company asked the bankruptcy court to schedule a combined hearing to approve the disclosure statement and confirm the proposed reorganization plan for “on or about June 1.”

Fairway is represented by Weil, Gotshal & Manges as its legal counsel, and Alvarez and Marsal as its financial advisor. The company’s senior secured lenders are being advised by King & Spalding, as legal counsel, and Moelis & Company as financial advisor. — Rachelle Kakouris

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CORE Entertainment files Ch. 11 as American Idol popularity wanes

CORE Entertainment, the owner and producer of American Idol, has filed for bankruptcy as the once-popular television show concluded its final season.

The company’s debt included a $200 million 9% senior secured first-lien term loan due 2017 dating from 2011, and a $160 million 13.5% second-lien term loan due 2018. U.S. Bank replaced Goldman Sachs as agent on both loans, which stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012.

Principal and interest under the first-lien credit agreement has grown to $209 million, and on the second-lien loan to $189 million, court documents showed.

A group of first-lien lenders consisting of Tennenbaum Capital Partners, Bayside Capital, and Hudson Bay Capital Management have hired Klee, Tuchin, Bogdanoff & Stern and Houlihan Lokey Capital as advisors. Together with Credit Suisse Asset Management and CIT Bank, these lenders hold 64% of the company’s first-lien debt.

Crestview Media Investors, which holds 34.8% of first-lien debt and 79.2% under the second-lien loan, hired Quinn Emanuel Urquhart & Sullivan and Millstein & Co. as advisors.

The debtor also owes $17 million in principal and interest under an 8% senior unsecured promissory note.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The company’s business model relied upon continued popularity of American Idol and So You Think You Can Dance. In late 2013, the company sold ownership of most of rights to the name and image of boxer Muhammed Ali, and of trademarks to the name and image of Elvis Presley and the operation of Graceland, and failed to acquire assets to offset the loss of that revenue.

The bankruptcy filing was blamed on the cancellation of American Idol by FOX for the 2017 season. Following a decline in ratings, FOX said that the 2016 season would be the show’s final one.

The filing was today in the U.S. Bankruptcy Court for the Southern District of New York. — Abby Latour

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Swift Energy emerges from Chapter 11

Swift Energy today emerged from Chapter 11, the company announced this morning, adding that it closed on a new $320 million senior secured credit facility in connection with the emergence.

As reported, proceeds of the exit facility were used to repay holders of the company’s prepetition $330 million RBL. The company did not provide further details of the exit facility.

As also reported, the Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 confirmed the company’s reorganization plan on March 30.

Under the plan, senior notes will be exchanged for about 96% of the reorganized company’s equity, subject to dilution on account of the equitization of the company’s $75 million DIP facility via a rights offering.

According to court documents, the DIP equitization will dilute the distribution to senior noteholders by 75%. Consequently, after giving effect to the rights offering backstop fee of 7.5% of the equity, the final equity distribution to noteholders on account of their claims will be 22.1%, resulting in a recovery rate of 4.6–12.8%, depending upon plan equity value.

At a midpoint value of $680 million, court documents show, the senior notes recovery rate stands at 8.7%.

Existing equityholders retained 4% of the reorganized company’s equity, subject only to a proposed new management-incentive program. In addition, existing equityholders are also to receive warrants for up to 30% of the post-petition equity exercisable upon the company reaching certain benchmarks. — Alan Zimmerman


Mid-States Supply bought by Staple Street in bankruptcy court sale

Middle-market private equity firm Staple Street Capital has acquired Mid-States Supply Company through a bankruptcy court sale.

The buyer was the stalking-horse bidder in a Section 363 bankruptcy court auction. The purchase price was $25 million in cash, with a negative adjustment for working capital, plus certain liabilities, court documents showed.

The company filed Chapter 11 in February in the Western District of Missouri.

The bankruptcy court documents said Mid-States Supply Company initially owed $45 million under a credit agreement with Wells Fargo dating from 2011, a loan which eventually increased to $60 million. However, this amount had shrunk to $16 million by the time of the asset-sale closing, and was not assumed by the buyer.

SSG Advisors and Frontier Investment Banc Corporation were hired as investment bankers for the sale process.

Kansas City, Mo.–based Mid-States Supply sells pipes, valves, fittings, and controls, and provides related services to the refining, oil-and-gas, and industrial markets.

Staple Street Capital is investing from a $265 million fund, and targets $15–75 million of equity per transaction, aiming at control investments. Founders are Stephen Owens, formerly of the Carlyle Group, and Hootan Yaghoobzadeh, formerly of Cerberus Capital Management. — Abby Latour

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