The Default Notice — A week to end all bankruptcies

9fin team

28 June 2024•16 min read

The Default Notice will be paused during the upcoming holiday week and resume the following Friday, 12 July.

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A crowd of financial and legal restructuring professionals, along with media and academics, current and former students, gathered Thursday at the NYU Stern School of Business in the cavernous Paulson Auditorium — the venue named after a man who made perhaps the greatest distressed bet of all time.

There was much to discuss at the Restructuring Symposium at NYU, put on by the increasingly ubiquitous Creditor Rights Coalition and loan trade organization LSTA.

The backdrop was a momentous week for restructuring: moments before, the Supreme Court had issued a 5-4 decision invalidating the non-consensual non-debtor third-party releases that were part of the Chapter 11 plan for Purdue Pharma, a nuanced and politically neutral decision (available here).

This came on the heels of the revelation in Incora, where aspects of the expected ruling were revealed by the judge prior to issuing a formal opinion. All of this came in the wake of the decision in Robertshaw.

How professionals will use Chapter 11 both in massive tort cases and liability management exercises is now dramatically different than it was just nine days ago. And for the most part, the message is: don’t!

The message from Purdue, first and foremost, is that if you’re looking to get non-consensual releases via bankruptcy court protections by claimants in a mass tort situation, you better look elsewhere, because Chapter 11 is not your venue.

Then the message on LMEs is sure, they are here to stay, but the way those LMEs are going to be structured is going to aim to avoid bankruptcy more and more. At the very least LMEs will always aim to be structured in a way that all of the parties that would sue have been cut in and agree not to.

Judge Marvin Isgur has yet to issue his opinion in Incora involving the non-pro rata priming transaction. This transaction was orchestrated first by issuing more debt under the necessary bond indentures to get the two-thirds majority needed to strip the liens, and then by existing lenders uptiering existing debt while providing new capital in a senior position.

That being said, Isgur certainly made it clear that it is not going to be a favorable opinion for the company’s sponsor Platinum, and the participating creditors Pimco and Silver Point: “The $250m coming in was authorized with an illegal agreement and therefore not authorized,” Judge Isgur said. “I’ve now concluded this with a high degree of certainty and it’s going to be in the opinion that the new money came in unauthorized.”

While the pending Incora decision certainly will discourage more two-step or “unified” transactions that require issuing a small amount of debt under a credit agreement or indenture in order to rig a consent solicitation, another key takeaway was the issue of potentially having liens invalidated for new supersenior debt, which Judge Isgur seemed to suggest (again, his opinion has not yet been issued), and that would be pretty scary for any third party lenders looking to parachute into a distressed situation and offer priming money.

Perhaps having anticipated this trend all along, two emissaries of modern liability management, Scott Greenberg of Gibson Dunn, and Steve Zelin of PJT Partners, sat on a panel at NYU calmly suggesting that the market had already evolved to “kinder and gentler LMEs,” where new money and the steering committee get the best deal but everyone ultimately gets cut in somehow.

We’ve chronicled those situations too – though to some it doesn’t always feel that gentle. Zelin commented that Chapter 11 at this point is going to be the second, third or fourth attempt at an LME, so restructuring practices have evolved.

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Alex Rovira has joined Troutman Pepper’s New York office as a partner in the firm’s Finance and Restructuring Practice. He joins the firm from Sidley Austin.

Investigative journalist Teri Buhl has joined 9fin as a full-time distressed reporter.

This week’s news

Incora — Judge Marvin Isgur indicated that he plans to rule $250m of capital injected into Incora as part of a 2022 liability management exercise was “unauthorized” and came in under an illegal agreement.

Purdue Pharma — The Supreme Court ruled that nonconsensual third-party releases are forbidden under the Bankruptcy Code. In the near term, the result of this ruling will be to vacate Purdue’s confirmed plan, removing the $6bn settlement amount that the Sackler family was providing to Purdue’s estate, and send the parties back to the drawing board to determine next steps for the company, and the thousands of opioid victims and their families. It remains to be seen what the long-term effect of the ruling will be on all future mass tort bankruptcy cases.

Steward Health — UnitedHealth’s Optum has withdrawn its bid for Stewardship Health’s physician network because of a DOJ investigation into Steward, leaving Steward’s path forward even more uncertain.

Altice USA — A group of creditors, advised by Akin Gump and PJT Partners, is close to signing off on a three-year cooperation agreement, which could further extended upon agreement by the members.

Ardagh Group — Advisors to certain senior creditors have started confidential talks with the metal and glass packaging conglomerate on ways to address an upcoming debt wall. A large swathe of crossholders have also signed a coop agreement to bind their acts together in potential negotiations.

Rite Aid — Rite Aid notched a win this week, when the judge overseeing the case ruled in favor of Rite Aid on a working capital dispute in the Elixir APA — an approximately $200m dispute. This week, Rite Aid also faced several objections to proposed confirmation of its plan, mainly from insurance companies that took issue with how insurance contracts were being treated under the plan.

Hearthside Food Solutions — Certain creditors have started confidential negotiations with the company, as the company faces roughly $2bn of term loan maturities in 2025 and $350m in unsecured bonds due 2026.

WorldStrides — Lenders to the student trip company have retained Ducera Partners in order to develop potential alternatives to the recently expired discounted exchange offer.

Magenta Buyer/McAfee — A lender group has become restricted to engage in confidential negotiations with the company, shortly after it held discussions with creditor Elliott for new money.

Carestream Dental — The company reportedly began confidential talks with lenders to raise capital. 9fin had earlier reported that CD&R and CareCapital Advisors-backed company has been working with Jefferies to address its revolver and term loan maturities this year.

Mobileum — Certain lenders to the HIG-backed telecom software and analytics company have started confidential negotiations with the company, which missed a coupon payment on its first lien loan and faced financial reporting issues. Mobileum is also in the midst of a dispute between HIG and former sponsor (and current minority investor) Audax, with HIG blaming Audax and former management of fraud and misstatement of financials and Audax countersuing.

Belk — The retailer is closing in on a deal to raise $500m to help address its debt maturities and pad liquidity. Existing debtholder KKR and new investor Sixth Street Partners are among funds providing new money.

FreshDirect — The grocery delivery company is set to get some rescue financing from its parent company, Getir, to help support its operational needs.

Cano Health — Cano Health scored confirmation of its plan at an uncontested hearing after it was able to resolve all pending objections.

CareMax — The value-based healthcare provider extended the waivers of default under its credit agreement again, now through 8 July. CareMax had disclosed recently that it had appointed Paul Rundell from Alvarez & Marsal as chief restructuring officer.

Other active distressed and restructuring coverage

Alkegen — Formerly known as Unifrax, lenders to the specialty materials maker formed a coop as the company vetted financing proposals from third party investors.

Altice France — The telecom company has revealed its first highly anticipated move, disclosing designations of five more subsidiaries as unrestricted as well as moving its HoldCo RCF down to OpCo level. 9fin’s deep-dive report explores the range of eventualities that are blown open by creditors’ diverging incentives, Patrick Drahi’s huge capacity to strip value away from creditors, French law considerations and the intricacies of timings, triggers and creditor group make-ups.

American Rock Salt — The salt company hired legal counsel to address elevated leverage and volatile demand, according to sources.

Anthology — Nearly 100% of the first lien loans of the Veritas-backed ed-tech company are said to have agreed to exchange under a liability management deal that 9fin had reported was launched after negotiations with an ad hoc group of first lien lenders. The deal also extends the company’s revolver to early-2028.

Astound Broadband — A group of lenders started confidential talks with the Stonepeak-backed internet and cable provider. While the company has far-dated debt maturities, it is grappling with a cash flow squeeze.

CommScope — The company reported Q1 24 results, with continuing declines across segments and significant cash burn, though the CCS and OWN segments have shown signs of recovery. Management noted that CommScope was continuing to evaluate all alternatives, including using flexibilities in credit documents (9fin analyses here), to address debt maturities.

Cox Media Group — Certain holders of Cox Media Group’s term loan and bonds organized driven by concerns around the Apollo-backed TV broadcasting and radio company issuing dividends when the business is struggling and facing a high debt burden.

EchoStar/DISH — Bondholders to the EchoStar subsidiary Hughes Satellite Systems are reported to have engaged Glenn Agre to explore remedies for value leakage in the form of a recently disclosed lease agreement for a satellite. The agreement requires Hughes to pay $15.9m monthly to EchoStar, and Hughes has also made a $100m prepayment under the lease.

Emergent BioSolutions — Holders of Emergent’s 3.875% SUNs due 2028 stand to receive a high potential recovery amid a stabilization of earnings, per 9fin analysis, as our illustrative waterfall outlines a scenario-based recovery of between 92% and 93% with the bonds quoted near 60 cents.

Enviva — 9fin covered the unfolding drama after the decision in the EDVA to reject the retention application of Vinson & Elkins to be employed as Enviva’s debtors’ counsel primarily because of the firm’s disclosed relationship with equity sponsor Riverstone Investment Group on unrelated matters. The hearing on V&E’s motion to reconsider was anything but predictable.

Express — Express received permission to move forward with its sale process, and rapidly concluded the process, announcing that Phoenix Retail — a JV owned by WHP Global (majority owner of the entity holding Express’ IP), Simon Property Group, Brookfield Properties and Centennial Real Estate — emerged as the winning bidder for substantially all its assets.

EyeCare Partners — The vision care network completed its liability management deal involving $275m of new money and a discounted debt exchange that offered better terms to lenders who participated early and were involved in confidential talks with the company.

Fisker — The troubled electric vehicle manufacturer filed for a freefall bankruptcy, largely succumbing to the challenges plaguing the EV space. The debtors obtained all first day relief, but not before the unsecured noteholders alleged “a lot of suspect activity” by Fisker, its fiduciaries and secured creditor Heights Capital, much wrangling on the cash collateral motion and parties hinting that Chapter 7 remains a possibility.

Gol Airlines — Gol’s Abra bondholder group recently disclosed updated members and holders including distressed investors. The bankrupt airline has said it will evaluate all recapitalization or other transactions, including to raise capital while in bankruptcy. In recent days the UCC has objected to the debtors attempts to allow aircraft lessors to sell a participation interest in their unsecured claims, while retaining their voting rights on any potential Chapter 11 plan.

Gray Television — The broadcaster announced a $250m debt repurchase plan along with Q1 24 earnings that showcased a year-on-year improvement, sending prices of its debt and shares higher.

Hertz — The troubled rental car company priced $750m of 12.625% first lien notes due 2029 and $250m of 8% exchangeable second lien PIK notes due 2029. Proceeds will be used to pay down its revolver and improve liquidity. See 9fin’s QuickTake on the $750m issuance here.

iHeartMedia — Holders of iHeart’s secured 2028 notes have organized with Akin Gump and promptly implemented a cooperation agreement, which will last for longer than a year.

Mold-Rite — 9fin reported the terms of MRP’s deal with its lenders to swap its debt into new debt spread across four tranches, as well as to raise $113m of new money. The deal will “drastically improve” things for the Clearlake Capital-backed company. Further details are available in this S&P note.

Office Properties Income Trust — The publicly-traded REIT announced the final results of its exchange offers, with $865m of its senior unsecured notes due 2025 to 2031 set to exchange into $567m of new 9% senior secured notes due 2029. Though OPI captured around $298m of discount, it will have almost $500m of the 2025s to address in the coming months.

Petrofac — The energy services company has defaulted on its senior secured notes after failing to convince lenders to extend the grace period on a missed interest payment.

Pluralsight — 9fin reported on how the company is in talks with its sponsor Vista Equity and lenders on ways to overhaul its debt, according to sources.

Red Lobster — Red Lobster reached a global settlement with its prepetition lenders and UCC, paving the way for a sale process followed by a Chapter 11 liquidating plan. The resolution provides for the establishment of a plan/GUC trust that will pursue possible claims and causes of action against prepetition equity holders. In addition, the company was able to receive final approval of its DIP facility under the settlement.

Robertshaw — Judge Lopez found that the One Rock-sponsored company violated its credit agreement when implementing an LME in December — engineered with the support of Bain Capital, Canyon Partners and Eaton Vance, but confirmed that the participating lenders remained “required lenders” under the credit agreement. Invesco, the contesting lender, is only entitled to assert monetary damages and not equitable remedies, per the judgment. Invesco has since appealed the judgment, while Judge Lopez has approved Robertshaw’s sale to the participating lender group.

Rubio’s Restaurants — Rubio’s filed Chapter 11 bankruptcy filing in order to sell itself.

Salem Media — Certain debtholders have banded together with Paul Hastings to negotiate a possible debt restructuring with the conservative Christian media company.

SI Group — The chemical additives company shared preliminary 2023 results, which left some investors questioning the sustainability of its capital structure, even as its business shows signs of recovering.

SIRVA — The moving services company was downgraded by S&P from B- to CCC. The S&P note states that on 25 April, SIRVA’s first and second-lien credit agreements were “modified to pledge more equity from subsidiaries as collateral to lenders, to 100% from 65%, which we view as lenders' concerns over the company's performance and ability to manage its obligations in a difficult operating environment.” This comes after it raised a new money priming loan (per S&P a $84m delayed-draw term loan) in order to bridge the company to a broader debt restructuring.

Spirit Airlines — The troubled ultra low-cost airline delayed a recently-scheduled analyst day, which could suggest the execution of its standalone plan and creditor negotiations are not on track. Read our three-part series on the stressed ultra low-cost airline and its Loyalty Notes: Part 1, Part 2 and Part 3.

STG Logistics — 9fin reported that STG lenders signed a cooperation agreement, which would bind them together in potential negotiations with the company.

Sunnova Energy — The residential and commercial solar company has hired AlixPartners to help boost liquidity and Moelis to explore restructuring options. Earlier, it has agreed on several funding deals, including a new tax equity agreement with JP Morgan and a lease securitization deal with owners of home security firm Brinks Home, and more recently a DoE-guaranteed loan.

Telesat Canada — The Canadian satellite company posted expected declines in revenue, EBITDA and margins in Q1 24, and reaffirmed guidance for the full year. Backlog and cash generation for the legacy business declined as Telesat continues to lose GEO customers and focuses on Lightspeed. Certain creditors are reported to have hired Evercore and Lincoln International for advice. 9fin earlier provided a comprehensive analysis of the company’s disappointing FY 23 earnings and FY 24 guidance.

The Container Store — Certain lenders are getting legal advice from Paul Hastings, as the retailer faces a term loan maturity in 2026 and an uncertain earnings trajectory.

2U — The education tech company has started confidential negotiations with creditors on ways to overhaul its debt. Once a high-flying online education startup, 2U is facing an upcoming debt wall and heightened regulatory scrutiny of its revenue-sharing business model.

TGI Friday’s — The restaurant chain has engaged an FA to raise roughly $200m of new funding to pay down debt.

Thrive Pet Care — The company hired Evercore to examine options for its debt stack, 9fin reported. Meanwhile, a group of first lien lenders is seeking advice from Akin Gump as they brace for potential negotiations with the TSG Consumer Partners-backed company, sources said.

United Site Services — The portable toilet rental company is set to tap a $115m commitment from sponsor Platinum Equity as it battles weaker earnings amid an inflationary and higher rate environment.

VeriFone — Lenders to the payment and commerce solutions company have organized with Gibson Dunn as they prepare for negotiations ahead of the maturity of the company’s $250m revolver and over $2bn of term loans in 2025.

VistaJet — The private jet subscription company released Q4 23 results, with the company’s founder penning a letter announcing legal action against a “group of individuals” that has “disseminated half-truths, false rumors and lies”.

Wellpath — The HIG-backed prison healthcare company is working with Lazard to explore options ahead of a revolver maturing and a first lien term loan becoming current in October. A group of lenders is said to have tapped Akin Gump and have taken pitches from bankers, with Houlihan Lokey in the pole position.

WOM — WOM avoided a two-day trial on a motion to dismiss filed by an ad hoc group of unsecured noteholders and brokered global peace in the case. With the motion to dismiss out of the way, the company was able to receive final DIP approval and move forward with a marketing process.

Workhorse — The electric vehicle company continues to raise capital through the issuance of convertible notes and warrants and employ cost-cutting measures to address cash flow pressures. 9fin had earlier reported that the company is working with Stifel to help raise bridge financing.

Xplore — The Canadian rural internet provider announced an agreement to raise new debt and equity financing, with sponsor Stonepeak and certain existing lenders leading the investment and other lenders to get the opportunity to participate on substantially similar terms. Xplore has commenced a proceeding under the Canada Business Corporations Act to implement the deal.

Veritas Technologies — Elliott Management has emerged as one of the largest creditors to the company and is butting heads with the company on its liability management options, according to the FT. 9fin had previously reported that a group of creditors has begun confidential talks with the Carlyle-backed data management firm on ways to address its debt due 2025.

Vyaire Medical — Vyaire, a breathing technology company, commenced Chapter 11 after post-pandemic macroeconomic challenges led to a liquidity crisis. Backed by an RSA with a first lien ad hoc group, the company intends to continue to pursue a prepetition marketing process. The company also received interim approval of its $180m DIP facility at its first-day hearing.

Zachry Group — The family-owned EPC company received routine court approvals at the second day hearing in its Chapter 11 case. Employees have filed a WARN Act complaint claiming Zachry failed to provide the requisite 60 days’ notice before laying off around 4,100 workers.

Zayo — 9fin broke the news that Zayo is working with banks to help gauge investor interest in raising new debt at its recently carved out Europe subsidiary.