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Two situations this week again highlighted the tension between what is considered pro rata (open to everyone, equally) and not pro rata, fair or not fair — or somewhere in between. 

In the case of bankrupt regional sports broadcaster Diamond Sports, 9fin was the first to report this week that a group of dissenting lenders who hold second-lien and unsecured debt is looking to provide an alternative DIP. Currently, a group holding large chunks of first, second and unsecured funded debt is providing a DIP under the holistic agreement disclosed in January, which includes Amazon as a white knight strategic partner to revitalize the flailing regional sports network business.

The dissenting group touted a fully backstopped DIP identical to the one on offer by the crossholder group — but with lower premiums and better recovery for second-lien and unsecured funded debt claims. Diamond Sports swiftly rejected this alternative deal. The dissenting group disclosed the details of their offer on the docket, and potential argument on the matter is being pushed to the next hearing on 26 February. 

As 9fin has reported, the crossholder group in the current DIP is looking at recoveries at least double what is on offer for similarly situated creditors not in the group. And even within the crossholder group, some of the members are receiving slightly more consideration than others. 

Why the preferential treatment? In addition to stepping up with their checkbooks first, 9fin has heard that certain members of the crossholder group were instrumental in getting the deal with Amazon in place — and thus things are being structured in a way that rewards that value-add. After all, with Amazon on board, recoveries will be better for all parties, even those left out of the sweeter economics — the thinking goes. But how much reward is too much?

Separately, in an out-of-court liability management exercise disclosed this week, advisors to the Francisco Partnersand Elliott Management-backed remote work software provider GoTo (formerly LogMeIn), crafted a distressed exchange that, similar to Diamond Sports, gave members of a backstop group better economics than those not in the group — and that also gave members of a steering committee within that backstop group more than the rest of the group itself. 

The scoreboard would read: Steering committee, exchanged debt at 90 cents on the dollar, half FLFO, half FLSO; non-steering committee in the ad hoc group, exchanged debt at 85 cents on the dollar, half FLFO, half FLSO; non-ad hoc group (read: excluded creditors), offered chance to exchange at 77 cents, 42% FLFO, 58% FLSO. 

Anyone who doesn’t exchange sits behind all of the new priming debt. Deadlines are next week for the exchanges being offered to the excluded group, who organized with a financial advisor and law firm to discuss their options in light of the disparate treatment. 

9fin sources point out that this deal is far from the worst-case scenario for left out members — the GoTo bonds are up more than 10 points! — and the steering committee as well as to an extent the backstop group were the ones who did all the heavy lifting in crafting a deal that could ultimately benefit all creditors. Surely they deserve some reward — the thinking goes. 

Diamond Sports Group — The company rejected an alternative DIP proposal made by a second group of lendersholding largely second lien and unsecured debt. Compared to the terms proposed by the crossholder group advised by Paul Hastings and PJT, this proposal offers increased recoveries to non-backstop first-lien, and second lien and unsecured funded debt claims and could be cheaper for the company.

Spirit Airlines — The troubled low-cost carrier announced earnings for Q4 23 that surpassed or were largely in line with guidance. Management indicated that the company is in the “early innings” of refinancing its $1.1bn in loyalty bonds due 2025, mentioned $1.2bn of financeable assets and expects the company will be operating cash flow positive from Q2 24. To address its debt stack, a group of bondholders is getting advice from Akin Gump, while the company is reportedly working with Davis Polk and Perella Weinberg. The company remains committed to completing its stalled merger with JetBlue.

GoTo Group — A group of lenders excluded from a recently completed private exchange has hired Houlihan Lokeyand Hogan Lovells in an attempt to seek improved terms for exchanging their debt into paper with extended maturities.

Office Properties Income Trust — The office REIT continues to address its maturity wall in piecemeal fashion. It plans to use the proceeds of a $300m SSN issuance to retire upcoming maturities in part. The company recently replacedits $700m unsecured revolver with a $325m secured revolver and $100m of term loans due 2027. B. Riley, Moelis and Wachtell have been advising the company on these efforts.

Equinox — The luxury fitness company again extended the maturity of its revolver — which is now due 29 February. The company has over $1bn of first lien debt maturing in March and a $200m second lien term loan due in September. HPS and Ares are among funds seeking to provide refinancing options.

Lumen — The telecom company continues to market the proposed restructuring as being transformative for the business. The improved transaction support agreement, if implemented, would address the bulk of 2025 maturities, largely extend maturities of debt at Lumen and Level 3 through at least 2029, and help shore up liquidity. In its Q4 23 earnings presentation, the company hinted at dealing with holdouts and excluded lenders using further coercive measures.

Magenta Buyer  — A group of lenders to Magenta Buyer (dba McAfee) is working with Akin Gump as the cyber security software provider struggles with liquidity and business performance problems.

Belk — Lenders to the department store chain have been speaking with the company about a restructuring that could result in an exchange of much of its debt into equity. The company underwent a largely unsuccessful restructuring in 2021, and is now contending with a $900m ABL maturing in August this year and around $1.2bn of secured debt coming due in July 2025.

Cano Health — The de-SPACed healthcare services provider finally filed for bankruptcy with a restructuring support agreement from holders of around 86% of its secured debt and 92% of the senior notes. The company is pursuing adual-track process, under which it will either sell its assets or cede control to a group of secured lenders. A $150m DIP facility is also contemplated — a $50m interim draw was approved by the court, though approval of the 15% participation fee, which was objected to by the US Trustee, was made subject to a final order.

Other active distressed and restructuring coverage

DISH - A historically large co-op group of crossholders is opposing Charlie Ergen’s aggressive maneuvers to begin delevereging DISH DBS, while two other groups of convertible notes have formed, at least one with its own co-op, but there has been no engagement so far on the part of the company.

AccentCare – Lenders had until 2 February to decide if they want to join the Advent International-backed home health company’s proposed debt extension plan, or potentially become last in the repayment line. We reported earlier that the company had 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.

CommScope – A group of secured lenders offered new money as the struggling telecommunications infrastructure company has more than $1.2bn of debt coming due in 2025.

Hearthside Food Solutions – A group of lenders signed a cooperation agreement to bind themselves in looming debt talks with the US food packaging company.

Sonrava Health – The New Mountain-backed dental company and lenders tapped advisors.

Xplore – Advisors to Xplore and a group of lenders are discussing options to recapitalize the business.

Allen Media – The media company designated several subsidiaries – holding equipment that is claimed by the company to have zero market value – as unrestricted.

Astound Broadband – The company hired advisors to engage with lenders on inbound liability management proposals.

Careismatic Brands – The maker of medical scrubs filed for Chapter 11 in New Jersey after a post-pandemic slowdown hurt demand.

Carestream – Lenders organized ahead of the dental company’s debt wall.

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.

Gol – The Brazilian low-cost airline filed for a freefall bankruptcy in the Southern District of New York.

Loparex – A group of second lien lenders to the coated paper and films manufacturer organized.

Radiology Partners – The radiology practice announced transactions to address near-term maturities.

SI Group – A majority group of term loan lenders to the SK Capital-backed chemical additives manufacturer formed an exclusionary co-op agreement.

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

Audacy – The pre-packaged bankruptcy in Houston remains on track, in a plan that would reduce its 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 banking crisis casualty Signature Bank, with some managing to turn a profit on the trade.

United Site Services – Certain lenders to United Site Services have banded together, as the portable toilet rental company battles weaker earnings amid an inflationary and higher rate environment

The Default Notice — Pro non-pro rata

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