The Default Notice — In the spirit of non-cooperation

9fin team

26 January 2024•8 min read

It’s hard out there for smaller lenders.

Whether it’s in Diamond Sports Group, Incora, DISH, Lumen, Petmate and most recently SI Group, lenders without sufficient size are increasingly finding themselves on the outside looking in when it comes to transactions, restructurings, and/or cooperation agreements.

There was a brief period last year towards open cooperation agreements, and some ‘pro rata’ deals like double-dip structures became kinder and gentler. In those situations, all creditors of distressed companies were given a shot to participate in rescue financings or priming deal. But the recent vintage of deals shows that trend is reversing.

“If you don’t have a big enough position in a particular broadly syndicated loan with an upcoming maturity, a lender won’t be invited into the group, and is just better off selling,” said a restructuring professional.

9fin reported this week on a group of SI Group term loan investors that recently organized with Paul Weiss and promptly forged a cooperation agreement that is excluding smaller loan holders from joining that group.

We’ve been hearing that this is increasingly common in the latest co-ops. These deals, where a group of lenders and/or bondholders agree to not turn on each other for a given period of time (especially when an aggressive owner is looking to pit creditors against each other, à la DISH and Charlie Ergen) have become more prevalent in the last two years.

This is partly down to the enterprising team at Gibson Dunn getting a slew of major lenders in the broadly syndicated loan market — often big CLO managers — to organize early, in anticipation of negotiations with a sponsor.

Many co-ops were originally open to all lenders, which made them a tool to avoid creditor-on-creditor violence. But all major creditor law firms are now looking to use this tool — and they seem willing to weaponize it by capping membership once a group has enough size to perform priming and covenant stripping maneuvers that will decimate those left behind.

What began as a conflict-avoidance tool is now becoming a conflict-enablement tool. The circle of life.

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This week’s news

AccentCare — The Advent International-backed home health company hired Evercore to advise on negotiations with creditors in light of ongoing cash burn and a 2026 debt maturity. A group of lenders had previously organized with Gibson Dunn and Centerview Partners.

Astound Broadband — The company hired PJT Partners and Kirkland & Ellis to engage with lenders on inbound liability management proposals. We reported last week that the company had received proposals from existing and third-party lenders involving double-dip financing.

Careismatic Brands — The maker of medical scrubs filed for Chapter 11 in New Jersey this week after a post-pandemic slowdown hurt demand. The company is looking to convert all of its first lien debt to equity.

Carestream — Some lenders organized with Davis Polk ahead of the dental company’s debt wall. Most of Carestream’s debt is due this year, including a $100m revolver due on 3 June and $489m in first lien term loans due on 1 September.

Enviva — The troubled wood pellet producer is entertaining proposals for a loan to fund operations through a possible bankruptcy. An out-of-court process remains the priority (we previously reported talks around a potential priming loan) but resolving onerous customer contracts outside of bankruptcy may prove challenging.

Gol — The Brazilian low-cost airline filed for a freefall bankruptcy in the Southern District of New York on Thursday, a day after we reported the company was preparing to do so. Gol noted that it has a commitment for a $950m DIP facility from certain bondholders at Abra, its controlling shareholder.

Incora — Incora and related parties reached a deal with a group of bondholders on a standing issue that could have delayed the adversary trial that kicked off properly on Thursday.

Loparex — A group of second lien lenders to the coated paper and films manufacturer have organized with King & Spalding, and certain first lien lenders have hired Lazard and Akin Gump.

Lumen — The beleaguered telecom company finally struck a deal with its bank lenders and filed an amended transaction support agreement. The amended TSA provides for incremental new money, a $1bn revolver at the parent company with credit support from Level 3, pro rata exchanges and paydowns of term loans, and non-pro rata exchanges of notes.

Radiology Partners — The company announced transactions to address near-term maturities, involving amend-and-extends of its revolver and first lien term loan, and an offer to exchange its secured and unsecured notes. A paydown funded by $300m of new equity (from existing backers and family offices) and the addition of PIK interest and superpriority status for a portion of the revolver are also contemplated.

SI Group — A majority group of term loan lenders to the SK Capital-backed chemical additives manufacturer are formulating a cooperation agreement. The group – organized under Paul Weiss and Lazard – is now closed to other holders.

Steward Health Care — The hospital operator has engaged Lazard to explore strategic options, as the company struggled to pay outstanding rent and loans to its landlord Medical Properties Trust.

Other active distressed and restructuring coverage

Spirit Airlines — On 16 January, a federal judge ruled to block JetBlue's proposed acquisition of Spirit, and this week it was reported that JetBlue might just scrap its merger plans. 9fin has been talking to multiple distressed investors that are doing work on the interplay of the collateral flowing over from the planes backing EETC notes, as well as the loyalty program, credit cards, and other IP. We’re looking at what the first lien debt could recover in any scenario, versus what is unencumbered and would be shared by the unsecureds.

Cano Health — 9fin reported that Cano is in advanced talks with lenders focused on its heightened funding needs. The company has been exploring ways to boost liquidity and rework its debt stack, including cutting costs and selling assets.

Diamond Sports Group — The restructuring support agreement involving an investment from Amazon and a settlement with parent Sinclair still has some way to go, as the debtors negotiate with various sports teams on being part of their offering.

Audacy — The pre-packaged bankruptcy in Houston remains on track, in a plan that would reduce the radio operators debt load from $1.9bn to $350m by converting much of it to equity.

Signature Bank — Distressed investors have been buying up debt issued by this banking crisis casualty, with some managing to turn a quick profit on the trade. But the nature of receivership could create challenges for anyone looking to hold the bonds for the long-term.

United Site Services — Certain lenders to the portable toilet company have banded together, as the Platinum Equity-backed firm battles weaker earnings.

First Quantum Minerals — Bonds shot up earlier this year after a report that Barrick Gold held talks with some of the copper miner’s largest investors to gauge support for a potential takeover. The deal could provide the Canadian firm with some much-needed relief, after a Panama court decision and political unrest disrupted operations at its Cobre Panama mine.

Office Properties Income Trust — The REIT is seeking roughly $1bn in secured debt financing in order to address a pile of bonds coming due over the next 13 months, sources told 9fin. The company is working with B. Riley on the capital raise, as we reported earlier this month.