The Default Notice — Not all co-op paper is created equal

9fin team

19 July 2024•18 min read

Top News

For the past year and change, as cooperation agreements have proliferated, trading desks had begun to publish quotes on loans and bonds that indicated “co-op” or “non-coop”, or “AHG” or “non-AHG”, indicating if paper was owned by an ad hoc group and had an effective co-op in place.

Whether or not parties believed that these agreements were enforceable, or even good for the market, one thing was for sure: They were having an impact on the actual trading prices of the securities. Often the quotes for co-op paper would be higher than those for non-coop paper, depending on whether or not the co-op was perceived to have a critical mass of holdings that would force a company to cut a deal through them. Sometimes non-coop paper would be quoted higher because there was simply more liquidity.

One of the first instances where this was noticeable was in the bonds of Carvana. Recently, 9fin has reported on disparities in co-op/non-coop paper of Alkegen, where there was at one point a more than 40-point difference between secured paper that should be pari.

It started to become a headache in some ways. BWICs containing tranches of loans that were party to co-op agreements sometimes would not mention whether or not the portion for sale was part of a co-op or not. And the market evolved: Recently, BWICs have started to consistently note when it was or is co-op paper, for names such as iHeartMedia, Sound Inpatient Physicians, Anastasia Beverly Hills, Wellpath, and Altice France. Additionally, in Bausch Health, lawyers who designed the co-op put in place provisions that allowed creditors who were party to the co-op to acquire non-coop paper and continue to freely trade that purchased paper as non-coop paper.

This week, 9fin reported on a potentially new twist: The same term loan debt of one company that is owned by two different co-op groups quoted 10 points apart. One group of Springs Window Fashions term loan holders accumulated a majority of the company’s term loan debt, while another held 40% of the term loan debt plus more than two-thirds of the company’s bonds. The result in the secondary market is that the same paper from the $1.6bn term loan B due 2028 is being quoted roughly 10 points apart depending on which group holds it, according to trading desk sources. The paper held by the former group is bid at 85, while the latter debt is quoted in a 72-75 range. Does it indicate anything? Will it become an arbitrage opportunity if the co-op expires without a deal? Are standard co-ops just getting longer to last until a deal must be struck? We’ll continue to track such trends at 9fin as these situations come to a head.

This week’s news

CommScope — The struggling telecom infrastructure company agreed to sell a large chunk of its business to Amphenol for $2.1bn in cash, triggering a rally across the capital structure. In response, two creditor groups — one secured-weighted and one unsecured-weighted — that had earlier organized, have begun considering working together and potentially signing a co-op to negotiate a deleveraging liability management exercise. Questions remain around how CommScope will use sale proceeds and its plans to address almost $6bn in 2025 and 2026 maturities.

Rodan & Fields — The multi-level marketing company, in which TPG owns a minority stake, announced a comprehensive liability management exercise aimed at reducing debt from $614m to $105m. The transaction, which has the support of around 86% of the existing second-out and 56% of the third-out term loan, includes $75m in priming new money, uptier exchanges (with a subsequent equitization of uptiered loans handing control to lenders), and non-consenting lenders being stripped of key protections.

Springs Window Fashions — The Clearlake-backed window treatment company retained Kirkland & Ellis and Centerview to engage with creditors who have organized into two groups, both with cooperation agreements in place. One creditor group holds a majority of the company’s term loan debt, while the other holds upwards of 40% of the term loan debt plus over two-thirds of the company’s bonds, according to sources.

AMC Entertainment — The steering committee for an ad hoc group of secured lenders is in talks with the company. The steerco includes Marathon, HBK and Hudson Bay, and the group is advised by Gibson Dunn and PJT, while Weil Gotshal and Moelis are advising the company.

B. Riley Financial/Franchise Group — Franchise Group shareholders have sued the company’s executives and minority owner B. Riley over alleged breach of fiduciary duties in relation to the franchise holding company’s 2023 take-private deal. 9fin had earlier reported that Franchise Group and its lenders had hired advisors following weak earnings and news of Conn’s — in which it holds a large chunk of equity after it sold a business to Conn’s in 2023 — considering bankruptcy.

Fisker — The bankrupt electric vehicle manufacturer received court approval for the sale of its inventory of Ocean vehicles to American Lease. Shortly after, primary secured creditor Heights Capital requested a conversion of the Chapter 11 cases to Chapter 7.

Medical Properties Trust — The healthcare REIT hired the same private investigation firm, Audere International, as its largest tenant Steward Health Care had. Steward was understood to have had hired Audere to perform surveillance on whistleblowers or people perceived as threats to the company.

Steward Health Care — The physician-owned healthcare provider extended the bid deadline for its Stewardship Health physician network by a week (doc #1608) to 22 July, following UnitedHealth’s Optum’s recent withdrawal of its bid because of a DOJ investigation into Steward. 9fin recently examined the different bearish scenarios potential bidders who have until 15 July to place a bid are weighing, as well as the lease recharacterization issue that is a key subject of the mediation between the debtors and their creditors.

Dynata — The data platform company announced its emergence from bankruptcy, after its Chapter 11 plan was earlier confirmed on an uncontested basis and without a hearing. Dynata eliminated 40% of its $1.3bn of debt and received $82m of financing, with first and second lien lenders — including Bain Capital and funds advised or managed by BlackRock and First Eagle — now controlling the company.

Magenta Buyer/McAfee — The company is reported to be considering a proposal for a $400m first-out new money term loan from Elliott. 9fin had earlier reported that 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.

Spirit Airlines — The troubled ultra low-cost airline lowered its second quarter outlook because of weaker than expected non-ticket revenue, and its bonds and stock tumbled. It had also recently delayed a planned analyst day, which 9fin had reported 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.

SunPower — The struggling residential solar power company endured another rough week, as its stock plummeted after it was reported to have told dealers it would halt shipments and cease supporting new installations. Recently, SunPower’s auditor EY resigned (and responded to the 8-K announcing the resignation) and details of financial misconduct allegations against senior management and the SEC’s examination of its revenue recognition practices were revealed.

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.

Tupperware — Tupperware disclosed a further extension of its forbearance agreement with its lenders, this time to 15 August, and a requirement from lenders that it deliver letters of intent for a repayment transaction by 31 July. The company had recently announced the departure of its CFO.

Leslie’s — The swimming pool maintenance and supply company shared a bleak preview of the quarter and full year, sending its stock and term loan tumbling.

Beyond Meat — The producer of plant-based meat substitutes is reported to have engaged with a group of convertible noteholders on a restructuring.

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.

Allen Media — Certain first lien lenders to the media company were reported to have organized with Gibson Dunn and signed a cooperation agreement. 9fin had earlier reported that Allen Media had designated several subsidiaries — holding equipment that is claimed by the company to have zero market value — as unrestricted.

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.

Altice USA — The three-year cooperation agreement, which a group of creditors advised by Akin Gump and PJT Partners was earlier close to signing, is set to become effective after it reached the 60% minimum threshold of support.

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.

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.

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.

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.

CareMax — The value-based healthcare provider paid lenders a 3% PIK fee to execute an eighth amendment to its credit agreement, which provides for $20m in incremental term loan facilities and extend waivers through 15 August 2024. The loans mature on the earlier of 10 April 2025 and the occurrence of “certain liquidity events”, bear interest at SOFR + 13%, require that the lenders receive a 1.3x MOIC on repayment and impose many restrictive provisions. CareMax had recently disclosed that it had appointed Paul Rundell from Alvarez & Marsal as CRO.

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.

Chicken Soup for the Soul — Chicken Soup filed for Chapter 11 protection and reached an agreement with prepetition agent HPS Investment Partners for a DIP, but its case was converted to Chapter 7 after its lenders indicated that they would not be willing to fund any additional post-petition financing following shocking allegations of mismanagement at the debtor companies.

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.

Del Monte Foods — The company is in talks with existing lenders about a potential new money injection after efforts to raise secured debt from third parties failed.

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 — Vinson & Elkins’ second attempt to be employed as Enviva’s debtors’ counsel also failed. Judge Brian Kenney of EDVA remained uninterested in V&E’s many proposed solutions to render the firm “disinterested”.

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.

Fossil Group — Following quarters of dismal results and with an operational restructuring ongoing, Fossil announced the resignation of its CFO and the appointment of Andy Skobe of Ankura to provide interim CFO services.

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

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.

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.

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 — The steering committee of the Pimco-led ad hoc group advised by Davis Polk and Perella Weinberg has gotten restricted to engage in negotiations with the company.

Incora — Judge Marvin Isgur ruled that the aerospace parts supplier’s disputed March 2022 transaction breached certain bond indentures, dealing a blow to Platinum Equity and other creditors who participated in that deal. Here’s a look at what the ruling could mean for future LMEs, and here’s a transcript with Judge Isgur’s oral decision.

Invitae — After hearing arguments earlier in the week on the UCC’s standing motion for litigation related to uptiers, and arguments over makewholes, Judge Michael Kaplan decided to issue a preliminary ruling denying the standing motion and reserved his ruling on the makewhole issue.

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.

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 — Sponsor Vista Equity was reported to be in talks to hand over control of the company to its lenders, though no agreement is certain. 9fin had earlier reported on talks between parties on ways to overhaul Pluralsight’s debt.

Purdue Pharma — Purdue Pharma and its creditors will move forward with 60-day mediation to try to come up with a settlement that would satisfy the Supreme Court’s ruling. If a settlement cannot be reached, the UCC in the case will pursue litigation against the Sackler family that the UCC estimates is worth approximately $11.5bn.

Red Lobster — Red Lobster announced a potential pivot to a Chapter 11 reorganization instead of a 363 sale, with the intent to exit bankruptcy by August-end. This plan of action has the support of prepetition lenders and the UCC, with which it recently reached a global settlement.

Rite Aid — Rite Aid notched a win 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, and then agreed to confirm the Chapter 11 plan. Rite Aid also received approval to sell $435m of a term loan issued by Elixir structured as a seller note held by Rite Aid. However, all is not resolved — MedImpact, Elixir’s purchaser, has appealed the Elixir ruling, and others have appealed confirmation.

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 and has claimed over $100m in damages supported by a comprehensive analysis (see the proof of claim), while Judge Lopez has approved Robertshaw’s sale to the participating lender group.

Rubio’s Restaurants — Rubio’s filed Chapter 11 bankruptcy 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.

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.

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

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.