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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

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering 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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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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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering 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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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

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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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Southcross Holdings emerges from Chapter 11

Southcross Holdings, the parent company of Southcross Energy Partners, has emerged from Chapter 11, the company announced yesterday.

As reported, the bankruptcy court overseeing the company’s Chapter 11 on April 11 confirmed the company’s reorganization plan and approved the adequacy of its disclosure statement following a combined hearing.

As also reported, the company filed a prepackaged Chapter 11 on March 28 in Corpus Christi, Texas (see “Southcross Holdings files prepack Ch. 11 with new $170M investment,” LCD News, March 28, 2016). The reorganization plan will result in the elimination of almost $700 million of funded debt and preferred equity obligations, along with a new $170 million equity investment from the company’s existing equity holders, EIG Global Energy Partners and Tailwater Capital.

Among other things, under the company’s contemplated reorganization plan, an $85 million DIP from existing equity holders is to be converted into one-third of the equity of the reorganized company. DIP lenders are also to provide an additional exit investment of $85 million for an additional one-third of the reorganized equity. The company’s term lenders are slated to receive, among other things, the remaining one-third of the reorganized equity. — Alan Zimmerman

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Peabody Energy, with $800M DIP Loan in Hand, Files for Bankruptcy

Peabody Energy today filed for Chapter 11 in bankruptcy court in St. Louis, Mo., the company announced, citing an “unprecedented industry downturn.”

The company said that NYSE trading in its shares is expected to be suspended immediately, pursuant to exchange regulations.

In connection with the filing, the company said it obtained an $800 million DIP facility comprised of a $500 million term loan, a $200 million bonding accommodation facility, and a cash collateralized $100 million letter of credit facility. DIP lenders include “a number of the company’s secured lenders and unsecured noteholders,” the company said, adding that Citigroup arranged the loan.

Peabody also announced that the planned sale of the company’s New Mexico and Colorado assets was terminated after the buyer was unable to complete the transaction.

The company said its mines and offices are expected to continue operations in the ordinary course of business during the Chapter 11 process.

The company’s Australian units are not included in the filing.

With respect to the factors affecting the global coal industry in recent years, the company cited a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas, and ongoing regulatory challenges.

That said, the company also looked forward to a post-reorganization environment, noting that “multiple third-party estimates project that both the U.S. and global coal demand will stabilize,” and adding, “Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction. Coal currently fuels approximately 40% of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come.”

Further, the company said, U.S. gas prices are projected to rebound from recent lows.

“A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world,” said Glenn Kellow, the company’s president and CEO, in a statement. “We are a leading producer and reserve holder in our core regions of the Powder River Basin, Illinois Basin, and Australia. Peabody has a new management team, outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”

Last, but not least, the company noted that its U.S. operations were cash-flow positive in 2015, and that the Australian platform earned more than the prior year despite lower prices for coal and the company’s administrative expenses and capital investments were at the lowest levels in nearly a decade.

The company said Jones Day is its legal advisor, Lazard Fréres & Co. is its investment banker and financial advisor, and FTI Consulting is its restructuring advisor.

Peabody Energy is the world’s largest private-sector coal company. — Alan Zimmerman

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Pacific Sunwear Files for Bankruptcy with $100M DIP Loan in Hand

Pacific Sunwear of California said that it entered into a restructuring support agreement with affiliates of secured term lender Golden Gate Capital calling for, among other things, implementation of the restructuring through a Chapter 11.

The company filed the Chapter 11 petition this morning in Wilmington, Del.

In connection with the filing, Pacific Sunwear said it obtained a commitment for a flexible-draw $100 million DIP facility from Wells Fargo Bank, the company’s current revolver lender.

The company is seeking to use up to $62.5 million on an interim basis. Proceeds of the facility would be used to, among other things, roll up amounts currently outstanding under the company’s existing revolving credit. Borrowings would be at L+400.

Wells Fargo has also committed to provide the company with a five-year $100 million revolving line of credit effective upon the company’s emergence from Chapter 11, the company said.

Under the reorganization plan contemplated by the RSA, Golden Gate Capital would convert more than 65% of its term loan debt into the equity of the reorganized company and provide a minimum of $20 million in additional capital to the reorganized company upon emergence from Chapter 11.

The company’s president and CEO, Gary Schoenfeld, explained that the company is seeking to use the restructuring “to solve the two structural issues that operationally we could not fix on our own. First is a very high occupancy cost of approximately $140 million per year, and second is nearly $90 million of long-term debt coming due later this year.”

Klee, Tuchin, Bogdanoff & Stern LLP is the company’s legal counsel, Guggenheim Securities is acting as investment banker, and FTI Consulting as restructuring advisor. — Alan Zimmerman

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering 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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Leveraged Finance Fights Melanoma benefit planned for May 24

The fifth annual Leveraged Finance Fights Melanoma benefit and cocktail party is planned for May 24 at the Summer Garden and Sea Grill at Rockefeller Center. Funds raised at the event will support the Melanoma Research Alliance (MRA), the world’s largest private funder of melanoma research, which was founded in 2007 by Debra and Leon Black under the auspices of the Milken Institute.

Since this event was launched in 2012, the leveraged finance community has come together and generously supported over $5 million of cutting-edge cancer research. These funded studies have accelerated advances in immunotherapy treatments that have led to breakthroughs like anti-PD-1 agents which are being used to treat melanoma, were recently approved to treat lung cancer, and are now being tested in other tumors including bladder, blood, and kidney cancers.

The event co-hosts are Brendan Dillon from UBS; Lee Grinberg from Elliott Management; George Mueller from KKR; Jeff Rowbottom from PSP Investments; Cade Thompson from KKR; and Trevor Watt from Hellman & Friedman. Attendees include the biggest names in leveraged finance, from all of the top banks, many investment houses, several law firms, select issuers, and some private equity sponsors. As with the prior events, LCD is a proud sponsor.

Due to ongoing operational support from its founders, 100% of donations to MRA go directly to support research programs working toward a cure for melanoma, the deadliest type of skin cancer. Since MRA began its work, 11 new treatments have been approved by the FDA.

Funds raised from prior year events have supported six MRA research awards at institutions spanning the U.S. These projects focus on targeted and immunotherapy treatments, which boost the immune system to fight off cancer more effectively. The studies address critical research questions to advance the development of new therapies for melanoma patients and inform progress against cancer as a whole.

“We’re making tremendous breakthroughs in understanding and treating melanoma, including several new therapies that could be game-changers for the entire field of oncology,” said Jeff Rowbottom, LFFM co-host and MRA board member. “The Leveraged Finance Fights Melanoma events have supported important research that is enabling innovations in the way we treat cancer.”

The objectives for the 2016 LFFM event are to increase awareness, to raise funds to further advance research, and to save lives. Melanoma awareness and early detection are vital when it comes to combating the disease; if melanoma is detected early—before it has spread beyond the skin—it is almost always treatable. Past events have led to many members of the leveraged finance community seeing dermatologists for skin checks and even to the discovery and treatment of several early stage melanomas.

Tickets are $300. For further information about the event and to purchase tickets, please visitcuremelanoma.thankyou4caring.org/lffm2016. Those seeking information about the event and sponsorship opportunities can contact Rachel Gazzerro of MRA at (202) 336-8947 or RGazzerro@curemelanoma.org. — Staff reports