February 13, 2019 - Imerys Talc America, Inc. and two affiliated Debtors ("Imerys" or the "Company") filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10289 [Docket No. 1]. The Company, the leading talc producer on the American continent, with operations in Montana, Vermont, and Texas, is represented by Mark D. Collins of Richards, Layton & Finger. Further board-authorized engagements include (i) Latham & Watkins as co-counsel, (ii) Alvarez & Marsal North America as financial advisor and (iii) Prime Clerk as claims agent. The Company’s petition notes between 10,000 and 25,000 creditors; estimated assets between $100mn and $500mn; and estimated liabilities between $50mn and $100mn. Documents filed with the Court list the Company's three largest unsecured creditors as each having trade claims that are less than $1mn, ie inconsequential to the Debtors. What is both consequential and telling is a schedule entitled: “Debtors’ Consolidated List of the Top Thirty Law Firms with the Most Significant Representations of Talc Claimants.”In a press release announcing the filing, Imerys stated, "Imerys Talc America, Inc., along with Imerys Talc Vermont, Inc. and Imerys Talc Canada, Inc. ('the filing companies'), announced that they have made a determination to initiate voluntary Chapter 11 cases in Delaware. The filing companies have reached this decision after evaluating a range of strategies to safeguard their long-term business interests and address their historic talc-related liabilities in the United States. The Chapter 11 process will allow the filing companies the time and protection to negotiate a global agreement with creditors, primarily representatives of current and future claimants in cosmetic talc-related litigation, while defining a path forward for the impacted talc businesses....The Chapter 11 filing immediately suspends all outstanding U.S. talc-related litigation against the filing companies. As a result, it is expected that normal operating cash flow will be sufficient to satisfy all of the filing entities' operating obligations during this period."Giorgio La Motta, the Company's President, commented: "This is an important, meaningful, strategic step for our business. After carefully evaluating all possible options, we determined that pursuing Chapter 11 protection is the best course of action to address our historic talc-related liabilities and position the filing companies for continued growth. The safety of talc has been confirmed by dozens of peer-reviewed studies, as well as regulatory and scientific bodies, and the litigation is entirely without merit....However, it is simply not in the best interests of our stakeholders to litigate these claims in perpetuity and incur millions of dollars in projected legal costs to defend these cases. By deciding to file for Chapter 11 protection, we have laid the groundwork to efficiently resolve our historic talc-related liabilities and focus on our continued success in the industry."In a declaration in support of the Chapter 11 filing (the “Picard Declaration”) [Docket No. 10], Alexandra Picard, Imerys’ Chief Financial Officer, further commented on the rationale for a Chapter 11 filing, "The Debtors’ decision to commence the Chapter 11 Cases was prompted by certain recent developments arising from the growing number of Talc Claims [ie, claims by plaintiffs alleging personal injuries caused by exposure to talc mined, processed, and/or distributed by one or more of the Debtors] in the United States. These developments include: (i) the significant increase in settlement demands with respect to cosmetic Talc Claims in the wake of recent verdicts, including a multi-billion dollar verdict rendered against Johnson & Johnson ('J&J'), and the ensuing media focus on talc for cosmeticapplications; (ii) the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure; and (iii) recent constructive discussions with a proposed future claims representative that led the Debtors to conclude that the Chapter 11 Cases would be the optimal path for resolving their historical talc-related liabilities in a manner that maximizes distributable value for all stakeholders.The Debtors’ primary goal in filing these Chapter 11 Cases is to confirm a consensual plan of reorganization pursuant to Sections 105(a), 524(g), and 1129 of the Bankruptcy Code that channels all of the present and future Talc Claims to a trust vested with substantial assets and provides for a channeling injunction prohibiting claimants from asserting against any Debtor or non-debtor affiliate any claims arising from talc mined, produced, sold, or distributed by any of the Debtors prior to their emergence from these Chapter 11 Cases. While the Debtors dispute all liability as to the Talc Claims, the Debtors believe this approach will provide fair and equitable treatment of all stakeholders."Events Leading to the Chapter 11 FilingThe Picard Declaration makes it clear that there exists only one contributing factor to the Company’s current need to shelter in a Chapter 11, exposure to Talc Claims litigation. Imerys is profit making and has little or no debt. In what may be a first for a large Chapter 11 filing, the Picard Declaration states, "The Debtors are not party to any secured financing arrangements or any third party credit facilities, and instead have relied on the positive cash flow generated by their operations to run their businesses." Its client base is diversified and cosmetic talc, which is the source of the Talc Claims litigation makes up only 5% of total sales [NB: In 2018, talc sales by category were polymers (31%); paper (18%); paints and coatings (16%); specialties (16%); rubber (7%); personal care/cosmetics (5%); building materials (4%); and others (3%)]. The Company has ample insurance and believes it is generally protected by indemnities from J&J. In a nutshell, however, the problem is that there are holes in Imersys' insurance coverage and J&J is not rushing to embrace Imersys' view of the J&J indemnities; it is these uncertainties that put the Company at risk and militated towards a Chapter 11 filing.The Picard Declaration states, “The Debtors are among the defendants in thousands of actions brought before several U.S. federal and state courts by multiple plaintiffs asserting Talc Claims. The Debtors believe this litigation is without merit and their strategy has consistently been to mount a vigorous defense to all such claims. Given the increasing number of Talc Claims asserted, the rise in settlement demands in cosmetic talc lawsuits, and the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure, the Debtors determined that the commencement of these Chapter 11 Cases was their best option to protect their estates and preserve value for all stakeholders. The Debtors lack the financial wherewithal to remain in the tort system." Talc Claims OverviewThe Picard Declaration further notes, "Plaintiffs generally have asserted two types of Talc Claims: (1) claims alleging ovarian cancer or other gynecological diseases arising as a result of talc exposure (the “OC Claims”) and (2) claims alleging respiratory cancers or other asbestos-related diseases arising as a result of talc exposure (“Mesothelioma Claims”). As of the Petition Date, there are approximately 13,800 pending alleged OC Claims and approximately 850 pending alleged Mesothelioma Claims.As they have consistently argued during all such litigation, the Debtors maintain that their talc is safe, that the OC Claims and the Mesothelioma Claims are entirely without medical or scientific merit, and that exposure to their talc products has not caused any personal injuries. The safety of the Debtors’ talc has been confirmed by dozens of peer-reviewed studies and multiple regulatory and scientific bodies, including the FDA. Three of the largest real- world studies ever conducted—one on talc miners over the course of 50 years and two of the largest studies of women’s health ever conducted in the United States—have overwhelmingly confirmed that talc is not carcinogenic. Moreover, the trial court supervising the coordinated talc ovarian cancer litigation in New Jersey state court held that the scientific evidence of talc as an alleged cause of ovarian cancer was insufficient to allow selected bellwether cases in that court (approximately 286) to proceed to trial against ITA and J&J." Insurance/IndemnitiesThe Picard Declaration continues, "One or more of the Debtors have rights to the proceeds of insurance policies for both the OC Claims and the Mesothelioma Claims, and the Debtors continue to litigate and negotiate the scope of the potentially available insurance coverage. The Debtors are informed and believe that the total amount of insurance available for the OC Claims is at least $529 million and believe the total amount of insurance coverage for the Mesothelioma Claims is at least $180 million. The Debtors also believe that the Talc Claims related to the Debtors’ sale of talc to J&J are subject to uncapped indemnity rights against J&J under various stock purchase and supply agreements. One or more of the Debtors also have rights to the proceeds of insurance policies issued to J&J and its subsidiaries, and policies issued to Standard Oil and its subsidiaries, which the Debtors believe to have total limits of approximately slightly more than $3 billion. Despite this seemingly robust insurance coverage, the Debtors have determined that it is no longer feasible for them to continue to litigate the Talc Claims. While the Debtors have access to numerous insurance policies, coverage is not available for all claims. For example, where a claimant’s alleged date of first exposure to talc occurs after a certain date, the claim may not be covered under some of the insurance policies. In addition, some policies only provide coverage for non-asbestos related injuries, and punitive damages often are not covered by insurance. The Debtors, in consultation with their insurance coverage counsel, have thoroughly analyzed their various insurance policies and determined that currently available insurance coverage for certain cosmetic talc-related litigation may be exhausted in the first half of 2019.One or more of the Debtors also have certain indemnity rights against J&J or one of its affiliates for OC Claims and Mesothelioma Claims. For example, under a 1989 stock purchase agreement pursuant to which the Debtors purchased the entity known today as ITV, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of use or exposure to talc-containing products supplied to J&J prior to the January 6, 1989 closing date. In addition, under various talc supply agreements, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of the supply of talc to J&J during the term of the supply agreements. While the Debtors have additional protection from the Talc Claims through these indemnification agreements with J&J and its affiliates, the Debtors’ ability to recover under these indemnification agreements in a timely fashion is uncertain. As of the Petition Date, J&J has refused to acknowledge or accept its indemnification obligations and has disputed the scope of coverage available to the Debtors under these agreements (or denied indemnification altogether). As such, the Debtors’ recovery under these indemnification agreements has been significantly delayed." Trust under Sections 105 and 524(g) of the Bankruptcy Code According to the Picard Declaration, as a result of the increasing talc litigation and the unwillingness of the Debtors’ insurers and indemnitors to provide coverage for the Debtors’ mounting defense costs, the Debtors retained advisors to identify and assess alternatives to resolve the Talc Claims, including the costs and benefits associated with continued litigation of the Talc Claims in the tort system. At the same time, the Debtors explored the viability of using Chapter 11 to address these Talc Claims by channeling them to a trust created under Sections 105 and 524(g) of the Bankruptcy Code that would be structured to ensure fair and equitable treatment of present and future claimants. As part of this exploratory effort and to facilitate the implementation of this potential Chapter 11 strategy if and when authorized by their boards of directors, the Debtors entered into an engagement letter with James L. Patton, Jr. of Young, Conaway, Stargatt & Taylor, LLP (“Young Conaway”) on September 25, 2018 to serve as a proposed future claims representative (the “Proposed FCR”) to represent the interests of individuals who may in the future assert talc-related demands against the Debtors. The Debtors had hoped to engage with plaintiffs firms prior to the commencement of these Chapter 11 Cases to determine if a pre-arranged chapter 11 plan could be achieved. The Debtors did not have sufficient time, however, to conduct the diligence process that would be necessary for the parties to engage in meaningful discussions given the pending trial calendar (and risk of incurring a judgment for which the Debtors could not post an appeal bond) and the ever-increasing costs of settlement and defense. Nevertheless, the constructive discussions with the Proposed FCR confirmed, from the Debtors’ perspective, the viability of using Chapter 11 to resolve the Talc Claims in a manner that will maximize the distributable value for all stakeholders and will provide fair and equitable treatment of the Talc Claims.After extensive discussions with their advisors, the Debtors ultimately determined that, due to the increasing number of Talc Claims asserted and the prospect of diminishing, readily accessible insurance/third party indemnitor coverage, continued litigation in the tort system was not a viable option and that the commencement of these Chapter 11 Cases was in the best interests of the Debtors, their estates and their stakeholders. Accordingly, on February 13, 2019, the Debtors’ boards of directors authorized the filing of these Chapter 11 Cases.
February 12, 2019 – The Court hearing the SQLC Senior Living Center at Corpus Christi (d/b/a Mirador) case authorized (i) the asset purchase agreement dated February 8, 2019 (the ‘Stalking Horse APA’ which is attached to the order) with Ronald E. Jennette, Trustee, as trustee of the Aldergate Trust (the ‘Stalking Horse’), (ii) the Debtor's proposed bid protections and (iii) the break-up fee agreed between the Debtor and the Stalking Horse [Docket No. 46]. Further to the Stalking Horse APA, the parties have agreed a purchase price to be comprised of $20.35mn and certain assumed liabilities, the latter notably including residence agreements and former residence agreements (ie the contracts between the Debtor and its senior residents).As previously reported [Docket No. 15], “After a lengthy marketing process and substantial discussions with the Indenture Trustee and the Residents Council, the Debtor entered into an Asset Purchase Agreement dated February 7, 2019 (the ‘Stalking Horse APA’) with Ronald E. Jennette, Trustee, as trustee of the Aldergate Trust, a Texas trust (an affiliate of Methodist Retirement Communities, Inc.) (the ‘Stalking Horse’). In accordance with the Stalking Horse APA, the Debtor agreed to sell and the Stalking Horse agreed to buy substantially all of the Debtor’s assets, including the Facility (the ‘Assets’) Free and Clear (as defined in the Stalking Horse APA) of any or all liens, claims and interests, except as otherwise set forth in the Plan, pursuant to a sale under section 363 of the Bankruptcy Code, for $20,350,000 in cash plus the assumption of certain liabilities (the ‘Transaction’), subject to higher and better offers through a competitive auction process (the ‘Bidding Process’). Pursuant to the Stalking Horse APA, the Stalking Horse shall assume all liabilities in connection with Residence Agreements (as defined in the Stalking Horse APA) and Executory Former Residence Agreements (as defined in the Stalking Horse APA), with no modifications thereto and the Residents shall retain their rights under such agreements, including any right to a Resident Refund.” Key terms of the Stalking Horse APA Assets to be sold: Substantially all of Debtor’s assets, right and properties pertaining to or used in connection with the business of and operation of the Facility.Purchase Consideration: $20.35mn payable in cash plus the assumption by the Stalking Horse of the Assumed Liabilities (including residence agreements and former residence agreements).Financing: The Stalking Horse APA does not provide a financing contingency.Break-up fee: $750kDeposit: $375k (the “Initial Deposit”) paid by the Stalking Horse upon signing of the Letter of Intent (the “LOI”) as an initial purchase price deposit. Upon entry of the Bid Procedures Order, such Initial Deposit shall be increased by $375k for a total deposit in the amount of $750k (the “Deposit”), and the Deposit shall become nonrefundable (except in the event of Debtor’s default or failure of any Closing Conditions to be satisfied/waived) and shall be credited toward the purchase price or retained by Seller as liquidated damagesBuyer’s Closing Conditions: The Stalking Horse is not required to close unless, among other things, (a) Debtor has performed its covenants in all material respects, (b) the representations and warranties of Debtor are true and correct in all material respects, (c) Debtor has conveyed to the Stalking Horse the Real Property, free and clear of all Liens, except Permitted Liens; (d) Debtor has caused the Bond Financing to be satisfied in full and all Liens related thereto released; (e) Debtor has obtained all required governmental approvals; (f) the Court has entered a bid procedures order by February 18, 2019; (g) the Court has entered an order approving the sale by April 19, 2019 and such order has become final by May 3, 2019; and (h) Debtor has provided evidence of the termination of the current Manager of the Real Property.Debtor’s Closing Conditions: Debtor is not required to close unless (a) the Stalking Horse has performed its covenants in all material respects, (b) the representations and warranties of the Stalking Horse are true and correct in all material respects, (c) the Court has entered a final order approving the sale, (d) the Stalking Horse has delivered or caused to be delivered to Debtor on the Closing each of the required Transaction Documents, and (e) the Post Closing Licensee has entered into the OTA (and if required therein, an interim management agreement and a sublease), (f) there is no Order, judgment or injunction or no proceeding pending or threatened challenging the Contemplated Transaction; (g) the Stalking Horse shall have paid Cure Costs. The Court scheduled the following dates:Bid Deadline: March 29, 2019Auction: April 3, 2019Objection Deadline: April 10, 2019Sale Hearing: April 15, 2019
February 12, 2019 – Further to a hearing held at noon on February 12, 2019, the Court hearing the Elements Behavioral Health case confirmed the Debtors' Combined Plan and Disclosure Statement. The Court has not yet issued a confirmation order, but a certificate attaching the proposed order was submitted by the Debtors [Docket No. 763]. Also attached is the Memorandum of Law filed in support of confirmation [Docket No. 696].On May 21, 2018, Elements Behavioral Health and 31 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-11212 (EBH Topco, LLC). The Company, which operates treatment centers for addiction and mental health disorders has from the outset anticipated a sale of its assets to a group of its First Lien Lenders. On July 24, 2018, following the cancellation of a scheduled auction for lack of any further qualified bidders, the Court approved the asset purchase agreement (“APA”) between the Debtors and Project Build Behavioral Health (“PBBH” or “the Purchaser”) and (ii) authorized the sale contemplated by the APA [Docket No. 313], pursuant to which PBBH purchased substantially all of the Debtor’s assets for a purchase price of $65 million. PBBH was entitled to bid for, and purchase, the Company’s assets using amounts owed to it under (i) a new $14.2 million DIP facility and (ii) debt it had purchased from prepetition lenders, in each case getting a dollar-for-dollar credit for amounts outstanding. PBBH was initially unrestricted in the amount that it could credit bid, although a limit of $65 million (the sale price agreed between EBH and PBBH in their Stalking Horse APA) was subsequently established. The Combined Disclosure Statement and Plan [Docket No. 589] explains, “The Combined Plan and Disclosure Statement is a liquidating Chapter 11 Plan. The Combined Plan and Disclosure Statement provides that upon the Effective Date: (i) Creditor Trust Assets will be transferred to the Creditor Trust; (ii) any Acquired Assets not previously transferred to PBBH will be transferred from the Debtors to PBBH, in each instance as part of a Close of Sale; and (iii) after completing all of their ordinary course business operations and fiduciary obligations, the Reorganized Debtors will be dissolved. Thereafter, the Creditor Trust Assets will be administered and distributed as soon as practicable pursuant to the terms of the Combined Plan and Disclosure Statement. To the extent any Residual Assets remain upon the Effective Date of the Combined Plan and Disclosure Statement, the Reorganized Debtors will wind down and liquidate the Residual Assets, with any proceeds from such disposition being paid to PBBH in partial satisfaction of PBBH’s senior secured liens on the Residual Assets.” The following is a summary of classes, claims, voting rights and expected recoveries: Class 1 (“DIP Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $29.9 million and the estimated recovery is 100%.Class 2 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $0.00 million and the estimated recovery is 100%.Class 3 (“First Lien Claims”) is impaired and is entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $134,679,040.52 and the estimated recovery is 26%.Class 4 (“Second Lien Claims”) is impaired and is entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $47,512,247 and the estimated recovery is 0%.Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The The estimated aggregate amount of allowed claims is $75,698 and the estimated recovery is 100%.Class 6 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $52,312 and the estimated recovery is 100%.Class 7 (“General Unsecured Claims”) is impaired and is entitled to vote on the Plan. The aggregate amount of allowed claims is approximately $195,128,358.87 and the estimated recovery is 0%.Class 8 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%. Class 9 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.
February 11, 2019 – The Debtors filed a Joint Plan of Reorganization and a related Disclosure Statement [Docket Nos. 2119 and 2120], together with a motion to requesting approval of the Disclosure Statement and the scheduling of a Plan confirmation hearing [Docket No. 2121].Summary of the PlanThe Disclosure Statement provides the following overview of the Plan, “The Plan incorporates a global, integrated settlement of numerous disputes between and among the Debtors, the FE Non-Debtor Parties, and the Debtors’ creditors (the 'Plan Settlement'). The Plan Settlement not only incorporates the FE Settlement Agreement between and among the Debtors, certain key creditor constituencies and the FE Non-Debtor Parties, but it also resolves numerous additional areas of potential litigation arising from (i) the historical and ongoing business relationships between and among the Debtors, including the validity, enforceability and priority of various Inter-Debtor Claims, (ii) the allocation of value of the Debtors’ assets and the consideration from the FE Settlement Agreement, and (iii) the allocation of administrative expenses incurred during the Chapter 11 Cases. The Plan also incorporates the Mansfield Settlement. Based on the Plan Settlement, the Plan resolves a variety of highly complex issues that would have been a source of contention and which, if left unresolved, would have potentially led to significant costly litigation and resulted in uncertainty and delays in distributions to creditors and the Debtors’ ability to timely exit bankruptcy protection. The largest parties in interest in these cases, including the Debtors, the Independent Directors and Managers, the Committee, the Ad Hoc Noteholder Group, the Mansfield Certificateholders Group and the FES Creditor Group independently analyzed these potential disputes, with the assistance of their respective advisors. The terms of the Plan Settlement are integrated and not severable, and are the result of hard-fought, arm’s-length negotiations between the parties. The Plan Settlement is described in greater detail in Article V.H of this Disclosure Statement.” In addition to incorporating the terms of the FE Settlement Agreement, the Plan Settlement comprises the resolution of the following disputed matters: First, the Plan resolves potential litigation surrounding the allocation of value and consideration received under the FE Settlement Agreement (the “FE Settlement Value”). Second, the Plan resolves potential litigation surrounding the allowance and treatment of Inter-Debtor Claims. Third, the Plan incorporates a settlement of potential disputes surrounding the allocation of Administrative Claims between and among the Debtors. certainty to Creditors of the various Debtors as to their projected recoveries under the Plan.Fourth, the Plan incorporates the Mansfield Settlement and resolves potential litigation surrounding the rejection of the Mansfield Facility Documents and related agreements, as well as litigation surrounding the amount of any claim or claims arising from such rejection.Fifth, the Plan incorporates a settlement between and among the Debtors, the Committee, the Ad Hoc Noteholder Group, the FES Creditor Group and the Mansfield Certificateholders Group concerning the allocation of New FES Common Stock and cash between the holders of Unsecured Bondholder Claims and General Unsecured Claims and overall allocations of value between and among the Debtors’ estates.The following is a summary of FES classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement): Class A1 (“Other Secured Claims Against FES”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.Class A2 (“Other Priority Claims Against FES”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.Class A3 (“Unsecured Bondholder Claims Against FES”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $2.2bn and the estimated recovery is 22.9%. Each holder of an allowed Unsecured PCN/FES Notes Claim Against FES will receive New FES Common Stock, subject to dilution for the Management Incentive Plan, in an amount equal to its pro rata share of FES Unsecured Distributable Value, subject to the reallocation of (i) the Reallocation Pool to holders of Single Box Unsecured Claims, (ii) the FENOC-FES Claim Reallocation to holders of FES Single-Box Unsecured Claims and Holders of FENOC-FES Unsecured Claims against FES and (iii) the Mansfield Reallocation. Class A4 (“Mansfield Certificate Claims Against FES”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $786mn and the estimated recovery is 22.8%. Each holder of an allowed Mansfield Certificate Claim Against FES shall receive, New FES Common Stock, subject to dilution for the Management Incentive Plan, in an amount equal to its pro rata share of FES Unsecured Distributable Value, subject to the reallocation of (i) the Reallocation Pool to holders of Single Box Unsecured Claims, and (ii) the FENOC-FES Claim Reallocation to holders of FES Single-Box Unsecured Claims and Holders of FENOC-FES Unsecured Claims against FES and (iii) the Mansfield Reallocation. Class A5 (“FENOC-FES Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $138.6mn and the estimated recovery is 25.5%. Each holder of an allowed FENOC-FES Unsecured Claim Against FES shall receive cash equal to its pro rata share of (i) the FES Unsecured Distributable Value and (ii) the FENOC-FES Claim Reallocation, provided that such holders shall have the option to elect to receive their pro rata share of New FES Common Stock in equal amount, subject to dilution for the Management Incentive Plan. Class A6 (“FES SingleBox Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $568.6mn and the estimated recovery is 31.4%. Each holder of an allowed FES Single-Box Unsecured Claim shall receive cash equal to its pro rata share of (i) the FES Unsecured Distributable Value, (ii) the portion of the Reallocation Pool allocated to FES, (iii) the FENOC-FES Claim Reallocation, and (iv) the NG Reallocation Pool, provided that such holders shall have the option to elect to receive their pro rata share of New FES Common Stock in equal amount, subject to the Equity Election Conditions and subject to dilution for the Management Incentive Plan. Class A7 (“Mansfield TIA Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims and the estimated recovery is needs to be decided.Class A8 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $13.9mn and the estimated recovery is 36.4%. Each holder of an allowed Convenience Claim against FES that has properly elected to be treated as such on its Ballot shall receive cash in an amount equal to 36.4% of the allowed Convenience Claim.Class A9 (“Inter-Debtor Claims”) is impaired and not entitled to vote on the Plan. The estimated aggregate amount of claims is $3.2bn and the estimated recovery is 22.8%. Each holder of an allowed prepetition Inter-Debtor Claim against FES shall receive their pro rata share of the FES Unsecured Distributable Value. In lieu of Cash payment or other distribution to the Debtors holding such prepetition InterDebtor Claims against FES, the distributions on account of such prepetition Inter-Debtor Claims against FES shall be made to the Holders of allowed Unsecured Claims against the Debtor holding such prepetition InterDebtor Claims against FES by including the recovery on such prepetition Inter-Debtor Claims against FES in the calculation of the Unsecured Distributable Value relating to the Debtor holding such prepetition InterDebtor Claims against FES.Class A10 (“Interests in FES”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 0%. As of the Effective Date, Interests in FES shall be cancelled and released without any distribution on account of such Interests.The following exhibits were attached to the Plan: Exhibit A: Distributable Value SplitsExhibit B: FE Settlement Agreement The following exhibits were attached to the Disclosure Statement: Exhibit A: List of Debtors Exhibit B: Plan of Reorganization Exhibit C: Current Corporate Structure of the Debtors and Certain Non-Debt or Affiliates Exhibit D: Financial Projections Exhibit E: Valuation Analysis Exhibit F: Liquidation Analysis Exhibit G: Disclosure Statement Order Exhibit H: Restructuring Support Agreement Key Dates: Deadline for Objections/Responses to Disclosure Statement: March 12, 2019Disclosure Statement Hearing Date: March 19, 2019Solicitation Deadline: Five (5) business days after entry of the OrderDeadline to File Plan Supplement: April 19, 2019Deadline for Objections/Responses to Confirmation of the Plan: April 26, 2019Voting Deadline: April 26, 2019Confirmation Hearing: May 7, 2019
February 11, 2019 – The Debtors' Official Committee of Unsecured Creditors (the “Creditors Committee”) objected [Docket No. 2544] the Debtors’ motion to extend their Plan exclusivity period [Docket No. 2312] by a period of four months. In what may be a sign of things to come, ie a continued fight between the Creditors Committee and the emerged Debtors, the Creditors Committee has objected to the Debtors' request for a four month extension and suggested a maximum of 30 days instead. In a pointed barb, the Creditors Committee takes the opportunity to remind all that they are not about to walk away and that they are looking to get their hands on claims against ESL, Investments, Inc. ("ESL") as quickly as possible, noting "Indeed, it is the Creditors’ Committee’s constituency that will be the primary beneficiary of the assets to be transferred to the liquidating trust under such a plan, which assets will consist primarily of significant claims and causes of action against ESL, ESL affiliates (including Lands’ End and Seritage) and avoidance actions." The objection states, “Given the expected imminent closing of the sale of substantially all of the Debtors’ assets to ESL (the ‘ESL Sale’) and the estates’ risk of administrative insolvency, these cases must proceed promptly toward consummation of a consensual liquidating chapter 11 plan. The Debtors’ request for a four month extension of the Exclusive Periods does not progress that objective. The Debtors frame their request for an extension of the Exclusive Periods as standard procedure in these ‘large’ and ‘complex’ cases—a necessary next step in light of their accomplishments to date. Yet, upon the closing of the sale, (i) the Debtors no longer will have any operating businesses for which the Chapter 11 Cases are a disruption, (ii) the only assets of any significance that will remain in the Debtors’ estates will be litigation claims and (iii) the estates will be at risk of being administratively insolvent. In short, the Debtors are winding down and will be liquidating their remaining assets, principally litigation claims, through a trust to be established under a chapter 11 plan. These changed circumstances are not cause for a four month extension of the Exclusive Periods. As a result, the Court should limit any extension of the Debtors’ Exclusive Periods to no more than 30 days in order for the Debtors and the Creditors’ Committee to work together to reach consensus on the terms of a liquidating chapter 11 plan. Indeed, it is the Creditors’ Committee’s constituency that will be the primary beneficiary of the assets to be transferred to the liquidating trust under such a plan, which assets will consist primarily of significant claims and causes of action against ESL, ESL affiliates (including Lands’ End and Seritage) and avoidance actions. Working swiftly with the Debtors to negotiate and document such a liquidating chapter 11 plan is of paramount importance to the Creditors’ Committee’s constituency and is a necessity based on the Debtors’ expected financial position following the anticipated consummation of the ESL Sale.”
February 11, 2019 - Ditech Holding Corporation ("Ditech" or the "Company," f/k/a Walter Investment Management Corp) and 13 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-10412. The Company, an independent servicer and originator of mortgage loans and servicer of reverse mortgage loans, is represented by Ray C. Schrock of Weil, Gotshal & Manges. Further board-authorized engagements include (i) Houlihan Lokey Capital as investment banker, (ii) Alix Partners as financial advisor and (iii) Epiq Corporate Restructuring as claims agent.The Company’s petition notes between 50,000 and 100,000 creditors; estimated assets of $12,335,007,000; and estimated liabilities of $12,279,825,00. Documents filed with the Court list the Company's three largest unsecured creditors as (i) GN Solutions Inc. ($1.5mn trade debt), (ii) Black Knight Tech Solutions ($1.5mn trade debt) and (iii) Servicelink ($1.2mn trade debt). Chapter 22This is the second time in bankruptcy in just over a year for these Debtors. In November 2017, while still Walter Investment Management Corp (WIMC"), the Debtors filed a prepackaged Chapter 11, emerging on February 9, 2018 having eliminated $800mn of debt. At the time, the emerging Debtors stated, "Ditech Holding is beginning its next chapter with increased financial flexibility and continued momentum in our efforts to transform our business. We are excited about the prospects of our core business and are confident that we are well positioned to drive profitable growth and create value for our shareholders." In a press release announcing the current filing, the Company announced that it, along with certain of its subsidiaries including Ditech Financial LLC and Reverse Mortgage Solutions, Inc., ("RMS") had entered into a restructuring support agreement (the "Restructuring Support Agreement" or the "RSA") with certain lenders holding more than 75% of Ditech Holding's term loans (the "Consenting Term Lenders"). According to the Company, “The RSA provides for a restructuring of the Company's debt while the Company continues to evaluate strategic alternatives. Under the RSA, the Company will pursue a recapitalization that deleverages its capital structure by extinguishing over $800 million in corporate debt, and a liquidity enhancing transaction that includes an appropriately sized working capital facility at emergence. As contemplated by the RSA, the Company simultaneously continues to consider a broad range of options, including but not limited to potential transactions such as a sale of the Company and/or a sale of all or a portion of the Company's assets, as well as potential changes to the Company's business model.”Thomas F. Marano, President and Chief Executive Officer of Ditech, said, "Since we completed a recapitalization last February, we have made important progress on our strategic initiatives and our expense management efforts. However, as a result of market challenges that have continued to accelerate and pressure our business, we must take further action. We intend to use this process to restructure our balance sheet and help us meet our obligations. We will continue to evaluate a broad range of options with the goals of maximizing value and creating the best path forward for our business. We are pleased to have the support of our lenders in this process." Restructuring Support AgreementOn February 8, 2019, the Company executed the RSA with an ad hoc group of term lenders holding approximately $736.6 million of term loans. The Lombardo Declaration (defined below) states, "By virtue of the Restructuring Support Agreement, the Company has commenced these chapter 11 cases with a clear path to a confirmable chapter 11 plan of reorganization and a viable recapitalization—in which, among other things, over $800 million in funded debt would be extinguished, leaving a significantly deleveraged reorganized Company wholly owned by the Term Lenders, with $400 of term loan debt and an appropriately sized exit working capital facility or consummation of another liquidity enhancing transaction (the 'Reorganization Transaction'). As a toggle to the Reorganization Transaction, the Restructuring Support Agreement also provides for the continuation of the Company’s Prepetition Marketing Process...whereby any and all bids for the Company or its assets will be evaluated as a precursor to confirmation of any chapter 11 plan of reorganization." In an 8-K filed with the SEC, Ditech provides further detail as to this flexible approach to strategic alternatives, "The RSA also provides for the continuation of the Company’s prepetition review of strategic alternatives (the 'Marketing Process'), whereby, as a potential alternative to the implementation of a Reorganization Transaction, any and all bids for the Company or its assets will be evaluated as a precursor to confirmation of any chapter 11 plan of reorganization. The Marketing Process will provide a public and comprehensive forum in which the Debtors will seek bids or proposals for three types of potential transactions, as described below. If a bid or proposal is received representing higher or better value than the Reorganization Transaction, it will either be incorporated into the Reorganization Transaction or pursued as an alternative to the Reorganization Transaction in consultation with the Consenting Term Lenders and subject to the RSA....The three types of transactions for which bids will be solicited are: (i) a 'Sale Transaction' meaning, a sale of substantially all of the Company’s assets, as provided in the RSA; (ii) an 'Asset Sale Transaction' meaning, the sale of a portion of the Company’s assets other than a Sale Transaction consummated prior to Effective Date; provided such sale shall only be conducted with the consent of the Requisite Term Lenders; and (iii) a 'Master Servicing Transaction' meaning, as part of a Reorganization Transaction to the extent the terms thereof are acceptable to the Requisite Term Lenders, entry by the Company into an agreement or agreements with an approved subservicer or subservicers (the “New Subservicer”) whereby, following the Effective Date, all or substantially all of the Company’s mortgage servicing rights are subserviced by the New Subservicer. The RSA presently contemplates the following treatment for certain key classes of creditors under the Reorganization Transaction: DIP Warehouse Facility Claims. On the Effective Date, the holders of DIP Warehouse Facility Claims will be paid in full in cash;Term Loan Claims. On the Effective Date, the holders of Term Loan Claims will receive their pro rata share of new term loans under an amended and restated credit facility agreement in the aggregate principal amount of $400 million, and 100% of the Company’s new common stock, which will be privately held;Second Lien Notes Claims. On the Effective Date, the holders of the Company’s 9.00% Second Lien Senior Subordinated PIK Toggle Notes due 2024 (“Senior Notes”) will not receive any distribution;Go-Forward Trade Claims. On the Effective Date, holders of all Go-Forward Trade Claims (i.e., trade creditors identified by the Company (with the consent of the Requisite Term Lenders (as defined in the RSA)) as being integral to and necessary for the ongoing operations of New Ditech) will receive a distribution in cash in an amount equaling a certain percentage of their claim, subject to an aggregate cap; andExisting Equity Interests. On the Effective Date, holders of the Company’s existing equity will have their claims extinguished."The RSA is filed with the Lombardo Declaration and attached to the 8-K.DIP Financing To address the working capital needs and support the transactions contemplated by the RSA, the Debtors have secured commitments for debtor-in-possession (“DIP”) warehouse facility facilities (“DIP Warehouse Facilities”) that will provide the Debtors with up to $1.9 billion in available financing to refinance their existing warehouse and servicer advance facilities (the “DIP Warehouse Financing”). The DIP Warehouse Facilities will provide (i) up to $650 million to fund Ditech Financial’s origination business, (ii) up to $1.0 billion will be available to RMS and (iii) up to $250 million will be available to finance the advance receivables related to Ditech Financial’s servicing activities. In addition, DIP lenders have agreed to provide Ditech Financial up to $1.9 billion in notional trading capacity required by Ditech Financial to hedge its interest rate exposure with respect to the loans in Ditech Financial’s origination pipeline, as well as those loans that will be subject to repurchase obligations with the DIP Warehouse Facilities lenders prior to being securitized.Events Leading to the Chapter 11 FilingIn a declaration in support of the Chapter 11 filing (the “Lombardo Declaration”) [Docket No. 2], Gerald A. Lombardo, Ditech’s Chief Financial Officer, detailed the events leading to the Company’s Chapter 11 filing.The Lombardo Declaration states, “Notwithstanding the Company’s efforts to implement its business plan, which included further cost reductions, operational enhancements and streamlining of its business, following emergence from the WIMC Chapter 11 Case, the Company continued to face liquidity and performance challenges that were more persistent and widespread than anticipated. Coupled with the industry and market factors, these performance challenges have resulted in less liquidity, making the implementation of key operational enhancements more difficult—resulting in their postponement. In addition, a number of industry factors have caused Ditech increased uncertainty with respect to its future performance, including the projected decrease in total originations, and for reverse mortgages, the impact of changes in HUD regulations, among other things. The increase in interest rates has also negatively impacted mortgage originators and servicers generally—the Debtors are no exception. As interest rates have risen, less borrowers are refinancing loans in a higher interest rate environment, resulting in lower origination volume for the Company.The Company’s liquidity has also suffered from a burdensome interest and amortization obligations on its corporate debt and tightening of rates from its lending counterparties. In the normal course of business, the Company utilizes its mortgage loan servicing advance facilities and master repurchase agreements to finance, on a short-term basis, mortgage loan related servicing advances, the repurchase of HECMs out of Ginnie Mae securitization pools, and funding of newly originated mortgage loans. These facilities are typically subject to annual renewal requirements and typically contain provisions that, in certain circumstances, prevent the Company from utilizing unused capacity under the facility and/or accelerate the repayment of amounts under the facility."Additional Professional EngagementsKirkland & Ellis LLP is acting as legal counsel and FTI Consulting Inc. is acting as financial advisor to the consenting Term Lenders.
February 8, 2019 – The Debtors filed a Third Amended Disclosure Statement [Docket No. 758] which attaches a redline showing changes from version filed on February 7, 2019. [Docket Nos. 731]. The amendments reflect changes agreed between the parties during a telephonic hearing held on February 8, 2019 and do not include any changes to the treatment of creditor classes which are summarized below. The adequacy of the Disclosure Statement and procedures relating to the solicitation of Plan votes were subsequently approved [Docket No. 762].The changes agreed include, (i) firmer language as to the Debtors' obligation to pursue a section 363 asset sale should any successful bidder prefer that path, (ii) an extension of the deadlines further to which the Debtors' unsecured creditors committee can continue to pursue certain claims against the Debtors and (iii) further disclosure as to those creditors' claims.The following summary of classes, claims, voting rights and projected recoveries is unchanged (defined terms are as defined in the Disclosure Statement): Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%. Each Holder of an Allowed Other Priority Claim shall receive payment in full in cash or other treatment rendering such claim unimpaired.Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is N/A. Class 3 (“DIP Facility Claims”) is impaired (the summary claims table lists the class as impaired/unimpaired) and entitled to vote on the Plan. The estimated aggregate amount of claims is $209.2mn. Expected recovery of 69%-95%.Class 4 (“Second Lien Secured Claims”) is impaired and entitled to vote on the Plan. Each holder of an Allowed Second Lien Secured Claim will receive its pro rata share, based on the Allowed amount of its Second Lien Secured Claim, of the Sale Transaction Proceeds, solely to the extent the DIP Facility Claims are paid in full in cash. The estimated aggregate amount of claims is $71.7mn - $127.2mn. Expected recovery of 0%.Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $87.7mn - $1,414.0mn and expected recovery is 0%. Each holder of an Allowed General Unsecured Claim will receive (i) its pro rata share of the General Unsecured Claims Amount as provided in Article IVE (if any), and (ii) the Sale Transaction Proceeds, to the extent the DIP Facility Claims and the Second Lien Secured Claims are paid in full in cash. NB: The low range of the General Unsecured Claims estimate is representative of a Successful Bidder assuming the Debtors’ CBAs and retiree obligations, i.e., quite unlikely. Class 6 (“Intercompany Claims”) is impaired/unimpaired, deemed to accept or reject the Plan and not entitled to vote on the Plan. The estimated aggregate amount of claims is $401.8mn and expected recovery is N/A. Each Intercompany Claim will, at the election of the Debtors be reinstated; or cancelled, released, and extinguished as of the Plan Effective Date, and will be of no further force or effect. Unimpaired, in which case the Holders of Allowed Intercompany Claims in Class 6 are conclusively presumed to have accepted the Plan or Impaired, and not receiving any distribution under the Plan, in which case the Holders of Allowed Intercompany Claims in Class 6 are deemed to have rejected the Plan. Class 7 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept or reject the Plan and not entitled to vote on the Plan. Each Intercompany Claim will, at the election of the Debtors be reinstated; or cancelled, released, and extinguished as of the Plan Effective Date, and will be of no further force or effect. Unimpaired, in which case the Holders of Allowed Intercompany Claims in Class 7 are conclusively presumed to have accepted the Plan or Impaired, and not receiving any distribution under the Plan, in which case the Holders of Allowed Intercompany Claims in Class 7 are deemed to have rejected the Plan.Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.Class 9 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The court scheduled a confirmation hearing for March 20, 2019.
February 7, 2019 - The Debtors requested Court authority to (i) enter into a commitment letter for a $325mn term loan facility (the “Term Loan Commitment Letter”) with Goldman Sachs Bank USA (“Goldman Sachs” and the “Term Loan Facility,” respectively) and a related fee letter and (ii) enter into a commitment letter (the “ABL Commitment Letter”) for a $187.5mn ABL facility with Wells Fargo Bank, N.A. (the “ABL Facility and “Wells Fargo,” respectively) that includes a $12.5mn first-in, last-out term loan facility (the “ABL Facility,” and together with Term Loan Facility, the “Exit Facilities”) and a related fee letter [Docket No. 1223]. The Debtors also filed a motion requesting authority to file the two fee letters under seal and to redact portions of the Term Loan Commitment Letter [Docket No. 1224]. Summary of Term Loan FacilityTerm Loan Facility: A senior secured term loan facility (the “Term Loan Facility”) in an aggregate principal amount equal to $325.0 million.Borrower: Nine West Holdings, Inc., a Delaware corporation (the “Borrower”).Guarantors: Jasper Parent LLC, a Delaware limited liability company (“Holdings”), each of the Borrower’s wholly-owned subsidiaries and any other entity (other than the Borrower with respect to its own obligations) that guarantees or is a borrower under the ABL Facility (the foregoing, collectively, the “Guarantors”; the Guarantors and the Borrower shall be referred to herein collectively as the “Loan Parties”).Term Loan Agent: As yet unnamed Term Loan Lenders: The Initial Lender and certain other financial institutions selected by the Arranger in consultation with, and reasonably acceptable to, the Borrower (such consent not to be unreasonably withheld, delayed or conditioned), other than Disqualified Institutions (the “Term Loan Lenders”).Term: The Term Loan Facility will mature on the date that is five years after the Closing Date (the “Maturity Date”).Interest Rates and Fees: (a) Interest Rate: The interest rate applicable to the Term Loans will be LIBOR (subject to a 1.00% floor) plus 8.00% per annum (the “Applicable Margin”), (b) Interest Periods and Interest Payment Dates: LIBOR interest periods shall be 1, 2, 3, 6, or, if consented to all relevant affected Term Loan Lenders, 12 months or a shorter period (as selected by the Borrower). Interest shall be paid on the last day of each relevant interest period and, in the case of any interest period longer than 3 months, on each successive date 3 months after the first day of such interest period. (c) Default Rate: During the continuance of an event of default under the Term Loan Operative Documents, at the option of the Requisite Lenders (or automatically in the case of a payment or bankruptcy Event of Default), all overdue amounts will bear interest at a rate equal to 2.00% per annum plus the otherwise applicable rate.Financial Covenant: The Term Loan Operative Documents will contain a maximum Total Net Leverage Ratio financial maintenance covenant, set (i) at 5.50:1.00 for each fiscal quarter ending after the Closing Date and through and including March 31, 2020, (ii) at 5.00:1.00 for the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, (iii) at 4.50:1.00 for the fiscal quarters ending March 31, 2021 and June 30, 2021, (iv) at 4.00:1.00 for the fiscal quarters ending September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022 and (v) at 3.50:1.00 thereafter (the “Financial Covenant”), which shall be tested on the last day of each fiscal quarter of the Borrower, and which shall otherwise be acceptable to the Term Loan Lenders; it being understood that (1) borrowings under the ABL Facility shall not be included in the numerator of the Total Net Leverage Ratio and (2) “Consolidated EBITDA” shall be calculated in a manner that is substantially similar as that set forth in the materials delivered to the Commitment Party on January 17, 2019.Security: Subject to the Intercreditor Agreement, the Term Loan Facility will be secured, with the priority described below under the heading “Priority”, by a perfected security interest in and lien on all or substantially all of the Loan Parties’ tangible and intangible assets interests in a manner substantially consistent with the Documentation Principles (collectively, the “Collateral”). Priority: Subject to the Intercreditor Agreement and subject to Documentation Principles: (a) all amounts owing by the Loan Parties under the Term Loan Facility shall at all times be secured by a perfected (i) first priority lien on all Term Loan Priority Collateral (to be defined in a manner substantially consistent with the Intercreditor Agreement) and (ii) second priority lien on all ABL Priority Collateral (to be defined in a manner substantially consistent with the Intercreditor Agreement, excluding clause (11) of the definition thereof), junior only to the liens of the ABL Facility with respect thereto, subject to permitted liens; and (b) all amounts owing by the Loan Parties under the ABL Facility shall at all times be secured by a perfected (i) first priority lien on all ABL Priority Collateral and (ii) second priority lien on all Term Loan Priority Collateral.Summary of the ABL FacilityABL Facility: Subject to the terms under the heading “Availability,” an aggregate principal amount of $187,500,000 will be available through the following facilities: (a) Revolving Facility: a $175 million revolving credit facility (the “Revolving Facility”) available from time to time until the fifth anniversary of the Closing Date, which will include a $30 million sublimit for the issuance of letters of credit (the “Letters of Credit”) and a $15 million sublimit for swingline loans (each a “Swingline Loan”). Letters of Credit will be issued by Wells Fargo (in such capacity, the “Issuer”). Swingline Loans will be made available by Wells Fargo, and each of the Lenders under the Revolving Facility will purchase an irrevocable and unconditional participation in each Letter of Credit and each Swingline Loan and (b) FILO Facility: a $12.5 million first in, last out term loan facility (the “FILO Facility”). The FILO Facility shall be advanced in full on the Closing Date. Once repaid, no portion of the FILO Facility may be re- borrowed.Borrowers: Nine West Holdings, Inc., a Delaware corporation (the “Company”), Kasper Group LLC, a Delaware limited liability company, New One Jeanswear Group, LLC, a New York limited liability company, and/or any entity formed to hold any newly issued equity in respect of the Debtors or any assets transferred from the Company upon its emergence from bankruptcy (collectively, the “Borrowers”).Guarantors: The obligations of the Borrowers and their subsidiaries under the ABL Senior Credit Facility and under any treasury management, bank products, interest protection or other hedging arrangements entered into with the Administrative Agent, a Lender (or any affiliate thereof) or ther counterparties selected by a Borrower (as reasonably acceptable to the Administrative Agent (such acceptance not to be unreasonably withheld, conditioned or delayed)) will be guaranteed by Jasper Parent LLC, a Delaware limited liability company that is the direct parent of the Company (“Holdings”),1 each other obligor, if any, of the Exit Term Loan Facility, and each existing and future direct and indirect wholly owned domestic subsidiary of the Borrowers (collectively, the “Guarantors”, and together with the Borrowers, the “Loan Parties”). Notwithstanding the foregoing, the guaranty requirements will be subject to exceptions subject to Documentation Principles. All guarantees will be guarantees of payment and not of collection.Administrative Agent: Wells Fargo Bank, National Association (“Wells Fargo”) will act as sole administrative agent (in such capacity, the “Administrative Agent”).Lead Arranger: Wells Fargo will act as sole lead arranger and sole bookrunner (in such capacities, the “Lead Arranger”).Lenders: A group of lenders that are reasonably acceptable to the Borrowers arranged by the Lead Arranger, provided that no such Lender shall be a Disqualified Lender (collectively, the “Lenders”).Use of Proceeds: The proceeds of the ABL Senior Credit Facility shall be used solely for, in each case in a manner consistent with the terms and conditions herein, (a) repayment of the loans and all other obligations under the DIP Credit Agreement, (b) payments described in the Approved Plan, (c) payment of fees, costs and expenses incurred in connection with consummation of the Approved Plan, and (d) for working capital, capital expenditures and other general corporate purposes of the Loan Parties and their respective subsidiaries (including acquisitions, investments, restricted payments and other transactions permitted by the ABL Senior Credit Facility).Term: The ABL Senior Credit Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full on the earlier of (i) five years after the Closing Date and (ii) 91 days prior to the maturity of the Exit Term Loan Facility if the Exit Term Loan Facility is not repaid, refinanced, amended or modified to extend its maturity to a date that is at least 91 days after the fifth anniversary of the Closing Date prior to such date.Interest Rates: The interest rates per annum applicable to the ABL Senior Credit Facility (other than in respect of Swingline Loans) will be LIBOR plus the Applicable Rate (as hereinafter defined) or, at the option of the Borrowers, the Base Rate (to be defined as the highest of (a) the Federal Funds Rate plus ½ of 1%, (b) the Wells Fargo prime rate and (c) LIBOR plus 1.00%) plus the Applicable Rate. “Applicable Rate” means a percentage per annum to be determined in accordance with the pricing grid set forth below. Each Swingline Loan shall bear interest at the Base Rate plus the Applicable Rate for Base Rate loans under the Revolving Facility. Notwithstanding anything to the contrary contained herein, to the extent that, at any time, LIBOR shall be less than zero, LIBOR shall be deemed to be zero for purposes of the Senior Credit Facility. The Applicable Rate for the period from the Closing Date through the first full fiscal quarter of the Borrowers after the Closing Date shall be as set forth in Level II below. The Borrowers may select interest periods of one, two, three or six months for LIBOR loans, subject to availability. Interest shall be payable at the end of the selected interest period, but no less frequently than quarterly. During the continuance of any default under the Senior Credit Facility Documentation (as hereinafter defined), at the option of the Lenders, the Applicable Rate on obligations owing under the Senior Credit Facility Documentation shall increase by 2% per annum.Security: Substantially the same as the Existing Credit Agreement subject to the Documentation Principles.Financial Covenant: If at any time Excess Availability is less than the greater of (x) $14,000,000, and (y) 10% of the Maximum Borrowing Amount (as calculated without giving effect to the FILO Reserve), the Loan Parties shall maintain a Fixed Charge Coverage Ratio for the trailing twelve-month period most recently ended equal to or greater than 1.00 to 1.00.The motion attached the following exhibits:Exhibit A: Proposed OrderExhibit B: Term Loan Commitment Letter Exhibit C: Term Loan Fee Letter (filed under seal)Exhibit D: ABL Commitment Letter Exhibit E: ABL Fee Letter (filed under seal)Exhibit F: Lefkovits Declaration
February 8, 2019 – The Debtors (or "SKB") filed a notice of winning bidder announcing JDH Capital Company ("JDH") as the successful bidder in an auction held on February 6, 2019. Rabo AgriFinance, LLC ("Rabo") a senior lender probably thrilled to avoid a winning bid, has agreed to serve as a back-up bidder. JDH's $28.0mn consideration is comprised of (i) $1.5mn in cash to be used to settle tax obligations and make a payment to Rabo, (ii) the assumption of a $6.5mn loan made by Rabo to the Debtors and (iii) a $20.0mn cash injection to "resume operations as soon as possible and provide ongoing environmental and operational capex, working capital, and other operating expense." Significantly for the Debtors, the Debtors' 750 furloughed employees and the Debtors' many beef suppliers/feeders, the proposed purchase is for substantially all of the Debtors' assets. Following the collapse of a deal with a prospective stalking horse bidder, and facing an urgent need to press forward with an auction, the Debtors had offered to sell the Debtors' assets quartered, even asking Court permission to abandon rump, unsold assets. The bid of JDH , who is looking to be the Debtors' fourth owner in six years, is subject to a number of conditions including (i) commitments from Texas feeders to resume relationships with the Company, (ii) a green light in respect of outstanding environmental issues, (iii) the agreement of current acting CEO Chris Daniel to stay on at SKB and (iv) the release of existing liens held by Marquette Transportation Finance, LLC (“Marquette”).The Company, which has operated a meat-packing plant in Corpus Christi, Texas since 1949 (see "God Bless America" and "People Love Beef" below), filed for Chapter 11 protection on January 23, 2019 listing estimated liabilities of between $50mn and $100mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) Marquette Commercial Finance ($47.6mn), (ii) Luckey Custom Feedlot ($5.8mn) and (iii) Carrizo Feeders ($4.2mn).Who is JDH Capital or "Did SKB Cowboys Just Get Rescued by a Polo-Playing Billionaire Philanthropist"?The Debtors have not yet filed an asset purchase agreement which is expected shortly and details as to JDH are on its face limited. Court documents state that "JDH Capital Company" is a Texas Corporation based in Houston Texas. Court documents further state that there are "over 3,000 employees in the JDH family of companies." The Court filing continues, "JDH Capital is the investment manager of a high-net worth individual that manages certain private, controlled investments in various industries, including oil field services, power, and real estate. Purchaser has access to available funds to satisfy purchase price, required capex, and working capital needed to operate the facility." In a declaration made by Peter Kaufman, a principal at the Gordian Group which is serving as the Debtors' financial advisor, Kaufman states that, "Gordian generally reviewed JDH Capital’s financial wherewithal (and is generally familiar with the wherewithal of its financial backer)." Yesterday a statement was made in respect of the purchase by Ryan Connelly who identified himself as the managing director at JDH. Records also indicate that Mr, Connelly is or has been "Managing Director-Investments at Hilcorp Energy Company" which is part of Hilcorp. Hilcorp, with which JDH apparently shares Houston offices, was founded by billionaire, philanthropist and polo player Jeffery D. Hildebrand (ie JDH). Hildebrand's philanthropy includes significant support of the Houston Zoo, the Contemporary Arts Museum Houston and Texas A&M's Hildebrand Equine Complex. If Hildlebrand is, as appears, the mysterious "financial backer," SKB employee's are likely to feel reassured, Hilcorp has been included on Fortune Magazine's 100 Best Companies to Work For list in 2013, 2014 and 2015. According to Fortune, in December 2015, Hilcorp gave all 1,380 employees a $100,000 Christmas bonus. Events Leading to the Chapter 11 FilingAs is the case with many, non-prepackaged Chapter 11's, SKB’s Chapter 11 filing was preceded by sudden events that left the Company with little or no choice but to file. In SKB’s case, those events were (i) the receipt of a notice that the Company was in violation of waste water treatment regulations, which threatened SKB’s ability to maintain operations and (ii) notice from a finance source, Marquette, that funding, necessary for cattle purchase and operations, was not assured. Absent that assurance, cattle suppliers, cognizant of a recent history of bill payment problems on the part of the Company, refused to supply further cattle.For cattle suppliers this was a difficult moment, on the one hand SKB is a key processing facility with no nearby alternatives; on the other hand SKB has a recent history of being a poor partner, especially when it comes to all-important payment issues. Commenting on the importance of SKB to the industry, Lou Waters, Jr., a cattle rancher from Houston who purchased SKB in 2013 and sold it in 2015, said "Well, this plant is a key link in the beef business in South Texas....It's the only plant that processes beef for the feeders down here, and if this plant were to close, the entire industry would close with it in the southern half of Texas."In the Spring of 2016, the United States Department of Agriculture began an investigation of SKB related to purported violations of the Packers and Stockyards Act of 1921, as amended ('PSA' or the 'Act) which requires 'packers, like SKB, to pay promptly for livestock purchased for slaughter. As a result of an investigation, and persistent failures to remedy payment practices that were found to be in violation of the Act, ultimately the U.S. Government sued for the appointment of a receiver, with that appointment being made on October 5, 2018. The payment issues have been both large and persistent with the Schmidt declaration noting, “In January 2018, as a result of the late payment violations, seventy-seven (77) livestock sellers filed Packer Trust claims against SKB under the provisions of the PSA in the total amount of $142,965,561.12….On June 8, 2018, SKB, as required by the Consent Order, provided to the United States an unaudited report showing it owed $34,960,000 to livestock sellers, and that the payments to sellers were made 38 days late, on average.” 38 days is a long time in respect of the PSA’s prompt payment regulations and the commercial realities of selling a perishable good like beef [a Court filing somewhat ironically underlining the “emergency” nature of SKB’s need for Court bankruptcy protections when noting, “The nature of the Debtor’s operations is such that, if the processing of the slaughtered beef is not completed in a timely manner, the product may spoil and become worthless”], so it is easy to imagine cattle suppliers taking issue with effectively waiting for payment until after SKB has in all likelihood collected payment for processed and packaged beef."God Bless America" and "People Love Beef"SKB was founded by Sam Kane (born Kanengiesser in Spisske Podhradie, Czechoslovakia), a one-time rabbinical student turned resistance hero, almost completely by chance. In 1949, on his way out of town in search of greener pastures, the then plumber's assistant took some advice from a ticket agent at the bus terminal, "Check out the vacancy for butcher at the grocery store." The rest of Sam's life became Texas-sized legend for the Czech resistance fighter who at 98 lbs once gnawed at a cowhide he found in the snow and survived two years fighting the Nazis while losing his entire family to the holocaust. Kane, who went from gnawing cowhide to owning one of the world's largest meat packers lived by two simple mottoes, "God bless America" and "People love beef."In May 2013, the business (then managed by Sam's son Jerry Kane; Sam lived into his 90's) was sold to a group of Texas ranchers and cattlemen who subsequently onsold SKB to its current owners, a subsidiary of South American dairy operator The Fernandez Group, in December 2015.Further About SKBThe Debtor’s 238,186 square foot facility in Corpus Christi is considered the hub of the South Texas beef industry. The Debtor’s facility is capable of processing 1,200 head of cattle per shift, or approximately 8,400 head of cattle per week. In 2017 alone, the Debtor processed 204,000 head of cattle, and production increased to 324,000 head in 2018. Due to its large commercial scale capabilities, the Debtor’s Facility has appraised value of approximately $55.6 million, and an estimated replacement value of $100 - $150 million. In the fourth quarter of 2018, the Debtor had working capital assets of approximately $25 million in accounts receivable and $10 million in inventory.”
February 7, 2019 – On Thursday, following three intensive days of firmly kicking the tires on ESL Investments, Inc.’s (“ESL”) $5.2bn purchase of the Debtors’ “going concern” assets, Judge Robert Drain of the Southern District of New York gave the deal the go ahead. Approval of the sale allows the Debtors a new life and 45,000 of the Debtors’ employees some short-term job security; failure would almost certainly have resulted in the rapid, piecemeal sale of the Debtors’ assets, an outcome that some unsecured creditors vigorously argued was the most fair outcome for these Chapter 11 cases. For those creditors, and ESL, there almost certainly remains another day in court. The sale hearing (“Sale Hearing”) was not a pro forma rubber stamping (or kicking) exercise, but a rigorous, testy trial which was exactly what the Debtors and ESL needed; it was only via impeachable rigor, effort and professionalism, ie real integrity in the last few months of the Debtors’ old life, could it emerge into a new one, albeit in the hands of a man whose integrity and leadership of Sears was viewed as eminently impeachable. In short, the bankruptcy process itself is what gave Sears new life; the Debtors were not reborn because they got through it, they were reborn because of what happened in it. In coming years and months, yesterday’s result will largely be attributed to two men, Alan Carr and William Transier, independent Directors who saved Sears and the reputation of its Board from itself.On Friday February 1, on the last business day prior to the scheduled Sale Hearing, Judge Drain and his team had their Super Bowl plans wrecked. As part of a concerted effort to push back on objections from the Debtors’ Official Committee of Unsecured Creditors (the “Creditors Committee”) [Docket No. 2309], the Debtors, ESL and their respective teams of advisors bombarded Drain with filings intended to convince him that, whatever may have happened in the Debtors’ recent, painful past, the sale to ESL had been handled with skill, competence and rigor. Judge Drain was being asked exactly what he wanted to be asked…and have demonstrated to him…that good corporate governance during the Chapter 11 process, and observance of bankruptcy rules, could and should absolve the sins of bad governance past. From Monday through Thursday, the Debtors argued (and were prepared to encourage and address Judge Drain’s aggressive challenges) that truly independent Directors advised by bankruptcy professionals had actually cut a disinterested deal with the very man whose interests have for so long been conflated with those of the Debtors; that last hour professionalism and independence could more than net out the long, suspect history of Edward Lampert and his hand-picked Board. The February 1 filings, effectively the agenda for the trial, argued that ESL has paid more, worked harder and gotten less than it asked for. The filings detailed blow by blow each rejected ESL offer, each of ESL’s deal sweeteners, each pushback on ESL’s asks; trying to present the case that it was the Debtors, and not ESL, that exerted the real bargaining power in the end. Of course, this is what everyone except the Creditors Committee wanted, a reason to say yes; to approve the ESL transaction in spite of itself. 45,000 jobs...is a lot of jobs. The Debtors seem to have accomplished their goal and even ESL (and its advisors) pitched in with their “wow, they were tough” affirmation as to how the Debtors purportedly inflicted pain throughout the negotiating process. Some of that pain, however, is very real, as it undoubtedly had to be in order to convince Judge Drain. As discussed further below, two of the most aggressive blows landed by the Debtors’ restructuring sub-committee (ie Carr and Transier, the “Subcommittee”) of the Debtors’ restructuring committee (the “Restructuring Committee”) were (i) the hard cutback of ESL’s demand for a blanket release for pre-petition liabilities and (ii) the finding by Carr that the Creditors Committee may probably be right as to insider allegations. As it stands, the Creditors Committee will now be allowed to pursue many of its allegations against ESL and the emerged Debtors post-petition, notably as to the Land’s End and Seritage transactions, they will also have some powerful testimony from Carr and Transier with which to attack Lampert and ESL. Judge Drain was pushed by the Creditors Committee as to whether he really thought that could be good enough, whether the bankruptcy Court should be punting to a future Court claims that could more properly be resolved now; whether expediency and the public interest in nominally “saving” 45,000 jobs should trump massive legitimate claims of injury resulting from insider dealing. Yesterday they did not get the answer they were looking for, but thanks to the efforts of the Debtors' independent Directors, they have the right to ask it again. Even more emotive than whether ESL insider dealing charges could be punted, the Creditors Committee questioned whether ESL should be allowed to credit bid $1.3bn of debt amassed, at least in part claimed the Creditors Committee, as a result of tainted financial transactions. If you take away the $1.3bn as part of the package of consideration being offered by ESL, the ESL deal was dead in the water even by ESL’s own estimation as to recoveries in a liquidation. Again, Judge Drain’s answer will have been a disappointment to the Creditors Committee. It is also the one issue that might keep Carr, Transier and Drain up at night as it gets second guessed and relitigated, but it was the sine qua non of this transaction, no credit bid meant…no sale. The Independents Weigh-In More than anything, the result yesterday was about the appointment of independent Directors. Most important amongst the February 1 filings were not the omnibus responses to the Creditors Committee’s objections filed by the Debtors and ESL, but those by Alan Carr and William Transier, notably (i) the response of the Subcommittee, (ii) the Declaration of Alan Carr in support of the Subcommittee’s response [Docket No. 2321] and (iii) the Declaration of William Transier [Docket No. 2341]. The roles of the two men were largely split, with Transier detailing the rigor with which the Debtors treated ESL throughout the negotiating process and Carr detailing the Debtors efforts to get to the bottom of insider dealing claims lodged against Lampert/ESL. Carr’s effort was very much the shorter because it comes to a quick and simple solution; finding that ESL and Lampert may very well be guilty as charged by the Creditors Committee. Transier’s longer effort was about presenting a purely overwhelming pile of evidence as to the bona fides efforts of the Debtors’ independent Directors to do the right thing, wherever those efforts might take the Debtors and whatever might be the result. The Carr Declaration We have known since January 18, 2019 [Docket No. 1730] that ESL had agreed to have its blanket release for all pre-petition actions trimmed back, but buried in the heart of the Carr Declaration is a stunning statement: “Based on the work performed so far by Counsel and the Financial Advisors, the Subcommittee has identified valuable claims arising from the Related-Party Transactions, including claims against Mr. Lampert, ESL, and others, including claims for actual and constructive fraudulent transfer and illegal dividend payments arising from the Lands’ End and Seritage transactions. As noted, the Seritage and Lands’ End claims together involve transfers in excess of $3.7 billion.” This is remarkable language, not just because it is so certain in its presentation, but because it so clearly takes a position that is anathema to the interests of ESL. This language, and probably Mr Carr himself, will be used against ESL in future court proceedings. It is a strong statement of independence, and combined with the now limited release, stands to leave ESL to foot the bill for any liability that the Creditors Committee may someday prove. In a transaction full of unpleasant surprises for all involved, this language, penned after ESL had committed to a deal, may be amongst the biggest. One of the principal concerns raise by the Creditors Committee and others is that the terms of the ESL sale allowed ESL to escape liability as to self-dealing transactions that have lined the pockets of ESL as it headed towards bankruptcy. The Creditors Committee claimed that, “The ESL-centric financing facilities were put in place while Sears was lying on its deathbed following a series of spin-off transactions, like Seritage and Lands’ End, that lined Lampert’s and ESL’s pockets while stripping Sears of its most valuable business lines and real estate assets.” Up to the very end, ESL had in fact existed on exactly this level of blanket release as part of each of its proposals. The language of its most recent public proposal (the “Revised Proposal”) which incorporates the “Going Concern Proposal” of December 28, 2018, except as expressly changed by the ESL’s letter to Lazard Freres of January 9, 2019, was very clear on this point, ie that ESL required “a full release by the Debtors of ESL and certain ESL-related parties from any liability related to any prepetition transactions involving ESL.” The Carr and Transier Declarations make it clear that late in the process (late on the evening of January 15 to be precise) a blanket release was taken off the table, with Carr asserting that, “The APA does not include a global release for claims arising from the Related-Party Transactions as ESL had previously required. Instead, ESL agreed to the Subcommittee’s demand that the release discharge only the equitable subordination, recharacterization, and other claims against ESL associated with its ability to credit bid (the ‘Limited Release’). The Limited Release expressly excludes all other claims and causes of action including: (a) claims for actual or constructive fraudulent transfer; (b) claims for illegal dividend; (c) claims for breach of fiduciary duty; (d) all claims related to the Lands’ End or Seritage transactions; and (e) certain claims that have been alleged in the CCAA proceedings of Sears Canada.”That is not all, the APA makes clear that “Mr. Lampert and ESL cannot benefit from prospective litigation involving Seritage or Lands’ End, including claims asserted by third parties or any other claims involving willful misconduct by ESL or Mr. Lampert. Specifically, (a) Mr. Lampert and ESL cannot assert 507(b) claims or deficiency claims on proceeds of litigation involving Seritage, Lands’ End, or any willful misconduct by ESL; and (b) Any 507(b) recoveries by ESL from the proceeds of any other litigation are limited to $50 million, with the remainder of any such 507(b) claims to be treated as unsecured prepetition deficiency claims." The Transier DeclarationThe Transier Declaration concludes “I firmly believe—and it is the view of the entire Restructuring Committee—that the ESL sale transaction described in the Revised Proposed Sale Order represents a higher and better offer than any alternative scenario presented, and that approval of the transaction is the best means to preserve and maximize the value of the Debtors’ estates for the benefit of all creditors and interested parties.”It is not the end, however, but the means to the end, that clearly matter here and Transier provides detailed back-up as to the points that will have mattered to Judge Drain, (i) the independence of the individuals charged with assessing the transaction, (ii) the rigor with which independent Directors assessed that transaction and its alternatives and (iii) the degree to which the actual transaction reflected that independence and rigor. Viewing the Debtors’ filings holistically, it is clear that the role of Transier is to hammer home this last “the proof is in the pudding” point. Over and over again, Transier details (i) the sheer volume of the efforts by independent Directors and their professional advisors, (ii) the Debtors’ willingness to walk away from ESL and (iii) efforts to extract a better deal and to consider alternatives, including liquidation. It is rare to see such a detailed blow-by-blow insight into such a high stakes negotiation, and this particular effort will make many a future textbook on negotiating. The Transier Declaration (provides considerably more detailed than the brief summary below) notes: Prior to joining the Restructuring Committee, Transier did not have any association or interactions with Lampert, ESL President Kunal Kamlani or any other ESL management or leadership (Carr makes the same statement).The Restructuring Committee met no less than fifty-eight times prior to accepting a proposed ESL transaction at a meeting on January 16.The Restructuring Committee convened no less than six (6) meetings after receiving the first ESL Bid before ultimately determining, on January 4, 2019, that the ESL Bid was NOT a qualified bid.The Restructuring Committee actually recommended on January 8, 2019 that the Debtors pivot to a liquidation.ESL’s next (January 9, 2019) bid, predicated on an increased deposit to $120 million, of which $17.9 million would be non-refundable, was rejected.ESL’s next (January 15, 2019) bid, including ESL’s agreement to (i) remove its debt financing conditions, (ii) accept the forfeiture of the $120 million deposit for financing failure, (iii) agreeing to assume certain environmental liabilities and (iv) agree to certain protections for employees AND even as the only going concern bid, was rejected. Transier states, “The Restructuring Committee unanimously agreed that the January 15 ESL Bid was still not a higher or otherwise better alternative to a wind-down [even when] weighed against the heavy consideration that a wind-down scenario would mean the immediate loss of tens of thousands of jobs in communities across the country.”ESL’s next (January 15, 2019-revised) bid, included some breakthrough concessions by ESL, including what may ultimately prove the most important, not only in respect of emerging from Chapter 11, but also in determining the success or failure of the emerged company. Transier states, “ESL agreed to a release that was substantially more limited and narrow, releasing only equitable subordination, recharacterization, and disallowance claims, yet preserving for the benefit of the estates all remaining litigation claims against ESL and its affiliates, which the Restructuring Subcommittee, in reliance on its advisors, determined to have substantial value.”Transier sums up the experience, “In total, the Restructuring Committee formally met no less than twenty- two times between when we received the initial ESL Bid on December 28, 2018, and when the Auction was closed on January 17, 2019. During that period, we twice concluded that the ESL bid on the table at the time was not the “highest or otherwise better bid” and therefore were prepared to pivot to a liquidation. It was only after intense negotiations at the Auction that we succeeded in getting ESL to significantly improve its bid, at which point we approved the Successful Bid because in our business judgment, it would maximize value for the estates and their creditors.”
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