The Default Notice — Debtor counsel retention diss tracks

9fin team

10 May 2024•16 min read

Top news

“Know you a master manipulator and habitual liar too… But don't tell no lie about me and I won't tell truths 'bout you,” was not a line in the recent back-and-forth from the retention battles going on in the Chapter 11 cases of Enviva and Invitae, but it might as well have been.

Per bankruptcy rules, the retention of counsel for the debtors needs to be approved by the presiding judge — thus the proposed counsel for each company filing for chapter 11 must file a retention application. For the most part, these “applications” are forgone conclusions. Debtor’s counsel — a lucrative position long-dominated by Kirkland & Ellis and a handful of other firms that usually have strong private equity practices — has been retained long before the filing and then continues through the company’s exit and often long after.

Those cozy days may be over.

Kirkland & Ellis had to fight off a challenge by the UCC and UST to prohibit it from representing in Invitae at a hearing this week. While in Enviva, the lead attorney for proposed debtor’s counsel Vinson & Elkins came out in court saying he was outright “offended” and “rather mad” at the US Trustee’s objection to the V&E retention application.

The UST’s objection points out, “Vinson’s longstanding and continuing representation of Riverstone, which is the Debtors’ largest equity holder”, among other issues. V&E submitted declarations responding to the objections hereand here, and in court, highlighted precedent for big law firms representing private equity firms in unrelated matters as being routine, including Kirkland & Ellis’s debtor representation in Caesars, where they also represented TPG and Apollo in unrelated matters, and Skadden’s debtor representation of Stearns.

9fin had to dig deep to find any exceptions to this set-up — and did! But we challenge our readers to come up with more off the tops of their heads: In Project Orange, DLA Piper’s retention application to be appointed as debtor’s counsel was denied as a result of its conflict with GE, the debtor’s largest unsecured creditor in the case. Judge Martin Glenn denied the application after finding that DLA’s conflict waiver with GE severely limited the firm’s ability to act in the best interests of the debtors, since the waiver barred DLA from bringing or even threatening to bring a lawsuit against GE for monetary damages or equitable relief.

When DLA protested that this conflict was disclosed and should not be an issue, Judge Glenn stated counsel was “tone deaf” and wrote, “Identifying conflicts does not involve a game of ‘gotcha,’ where disclosure of a conflict party in one schedule excuses counsel from the consequences of a conflict if no one finds the earlier disclosure and objects.”

Bottom line: there are conflicts, and then there are conflicts.

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Bain Capital has tapped Angelo Rufino as head of its special situations business in North America and head of corporate special situations in Europe. Rufino came from Brookfield Asset Management, where he served as global head and chief investment officer of the firm’s special investments business. Gibson Dunn hired Caith Kushner in New York office as a partner and a member of its special situations practice from Paul Weiss. Gibson Dunn also hired Ro Spaziani as a partner in New York in the financial institutions group from Wachtel.

Paul Hastings expanded its restructuring team with the hires of Paris-based Caroline Texier as a partner, Maxime Nativelle as a counsel, and Lilia Djebbouri as an associate. Cahill Gordon hired Amit Trehan as a partner in New York, from Barclays, where he most was a principal in special asset management.

This week’s news

Office Properties Income Trust — Certain holders of OPI’s senior notes due 2026 to 2031 have retained PJT Partners and Paul Weiss to help prepare a comprehensive counterproposal to the company’s recently announced exchange offers. The current exchanges are structured in a way that prioritizes an exchange of the senior notes due 2025 and are difficult to block without support from holders with at least 85% of the 2025s.

Steward Health Care — Steward‘s descent into bankruptcy is anything but ordinary. Listen to our podcast on how the hospital operator ended up in its current situation and the many challenges Steward and its landlord— and lender— Medical Properties Trust— have to navigate. So far, the hospital operator has been able to secure a $75m DIP from MPT as it lines up the sale of multiple hospital operations, with the potential for another $225m in DIP funding if certain sale milestones are met. Steward’s first day hearing also highlighted potential tensions with MPT as the medical property REIT’s exposure to Steward was clarified. And over in Malta, a lawyer connected to three Steward subsidiaries will be arraigned on criminal charges and summoned to court following an asset freeze order issued by Malta’s attorney general tied to a money laundering investigation.

Medical Properties Trust — MPT management outlined during its Q1 24 earnings call that it expects to be able to re-tenant all of the Steward Healthcare operated hospitals “at or near” current contractual levels, with Steward not seeking to reject its master leases in bankruptcy.

Dynata — The Court Square and HGGC-backed company is advancing negotiations with its creditors over a restructuring plan, which could see it hand control to a group of first lien lenders.

Hearthside Food Solutions — Some par holders have sold their positions in Hearthside’s loan to Apollo Global Management, which is leading the steering committee of an ad hoc group of lenders.

Veritas Technologies — A group of creditors has begun confidential talks with the Carlyle-backed data management firm on ways to address its debt due 2025.

Altice France — 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.

WeWork — WeWork continues to reject attempts from the Flow Parties, which includes Adam Neumann, the company’s former CEO, to derail its Chapter 11 case. The latest objections from the group came against the company’s proposed $450m new money exit DIP facility. The court overruled those objections and granted access to $50m so that WeWork can pay off certain administrative expenses, including attorneys’ fees. Final approval, as well as confirmation of the company’s plan, will be heard on 30 May.

Invitae — Kirkland & Ellis defeated objections from both the UCC and UST to its proposed retention as debtor counsel at a hearing this week. It also received approval for the sale of its assets to LabCorp and plans to file a plan and disclosure statement in the near term.

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.

iHeartMedia — Debt and shares of iHeartMedia sold off as management signaled the potential for an LME transaction during their Q1 24 earnings call, with Q2 24 adjusted EBITDA guidance coming in approximately 30% below consensus estimates.

EchoStar/DISH — EchoStar posted dismal Q1 24 results on Wednesday, triggering an 11% fall in its stock on the day. The company continued to bleed subscribers and hemorrhaged $1.2bn cash in Q1 24, while still not having stated plans to manage its debt obligations, the most conspicuous of which is $1.98bn in outstanding senior notes due in November. Management commented that they will look to fight off the recently filed DISH DBS noteholder lawsuit in court.

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.

Enviva — Vinson & Elkins fought the US Trustee’s objection to its proposed retention as debtors’ counsel at a hearing this week. V&E’s lawyer and the US Trustee sparred over what acceptable disclosure and conflicts processes entail.

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.

Fisker — The troubled EV company’s forbearance agreement with Heights Capital was extended again to 17 May, with its Austrian subsidiary filing for a restructuring proceeding via self-administration under the Austrian Insolvency Code. The company also disclosed that a group holding over 25% of its 2026 convertible senior notes had delivered a letter seeking to accelerate repayment of the notes, stemming from an event of default as the company had missed an interest payment. Our latest coverage of the troubled EV manufacturer and the dual track process set by Heights Capital can be found here.

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.

Spirit Airlines — The troubled ultra low-cost airline reported Q1 24 earnings, disappointing but largely in line with guidance published recently. Management painted a bleak picture for Q2 and beyond, which caused Spirit’s share price to tumble on the day and the senior secured notes due 2025 to fall through the week. Management also announced concrete plans to survive on a standalone basis. Read our three-part series on the stressed ultra low-cost airline and its Loyalty Notes: Part 1, Part 2 and Part 3.

Staples — The Sycamore Partners-backed office supplies company announced an exchange of notes and a capital raise to address maturities through 2027. 9fin had earlier reported that the company was working with bankers at JP Morgan and Morgan Stanley to gauge investor interest in a refinancing of upcoming debt.

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. 9fin had earlier reported that a group of largely unsecured lenders pitched new money second lien financing to repay near-term maturities.

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.

Lionsgate — The film and TV media company announced an exchange that would see a majority of its 5.5% SUNs due 2029 exchange into new notes at par that would be attributed to its yet-to-be separated Studios business, following investor concerns over the viability of the Starz business post-separation. The parties completed the exchange on 8 May, with the 2029 SUNs indenture being amended to strip certain covenants and events of default.

Zayo — The telecom company earlier this week announced that it is carving out two entities, including its European business and its business that manages network needs outside of the North American and European networks. After the separation, Zayo Europe will appoint a new board of directors.

For more information, click here.

Other active distressed and restructuring coverage

Alkegen — Formerly known as Unifrax, the specialty materials maker is getting financing proposals from third party investors to help pad its liquidity and address its upcoming debt wall.

Altice USA — As part of the heavily indebted Drahi empire that has come into focus after the hardball tactics taken with Altice France creditors, the USA business of Altice has now reportedly started working with a financial advisor while bondholders are organizing.

Ardagh Group — Holders of unsecured bonds and ARD Finance PIK notes have migrated to work with Akin Gump and hired an FA.

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.

Bausch Health — Bausch Health’s Q1 numbers and transcript are up on 9fin, as the company reported that it has kept chipping away at 2025-2027 maturities through open market repurchases, which will continue, while the B+L spinoff is a key priority in 2024. The suit BHC filed against Amneal triggered a 30-month stay of potential FDA approval for Amneal.

Belk — Lenders to the department store chain have been speaking with the company about a restructuring that could exchange much of its debt into equity.

Cano Health — The de-SPAC’d healthcare services provider is in bankruptcy with a restructuring support agreement from holders of around 86% of its secured debt and 92% of the senior notes.

Carestream Dental — The CD&R and CareCapital Advisors-backed company has been working with to address its revolver and term loan maturities this year.

Charge Enterprises — The electric vehicle charging company remains in Chapter 11 before the US Bankruptcy Court for the District of Delaware.

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.

ConvergeOne — The technology services provider filed a prepack in SDTX with an RSA signed by 81% of its first lien and second lien lenders that would see the equitization or cancellation of $1.6bn in funded debt, with first lien lenders set to receive most of the reorg equity.

CURO Group — In a pre-pack led by Oaktree, Caspian Capital, and Empyrean, the consumer finance company filed for Chapter 11 in SDTX with a plan that calls for the equitization of most of its secured debt and an effective date within 120 days post-petition.

Del Monte Foods — The packaged food manufacturer and distributor is looking to raise a $300m first-in, last-out loan to bolster liquidity in light of high costs and declining sales.

Express — The retailer filed for Chapter 11 protection with the intention of pursuing a going concern sale by 10 June.

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.

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.

Hertz — The rental car company’s capital structure took a hit after Q1 24 results outlined an acceleration of vehicle depreciation tied partially to the company’s investment in electric vehicles, with higher-than-expected cash burn and concerns over its ABS structure and future liquidity.

Incora — The judge overseeing the Incora adversary trial wants to hear arguments on the authenticity of 2026 notes issued as part of the March 2022 liability management exercise disputed in the case.

McAfee — A group of lenders that 9fin had reported had organized are said to have signed a cooperation agreement and also hired an FA.

MRP Solutions — Lenders to Clearlake Capital-backed packaging manufacturer MRP Solutions (fka Mold-Rite Packaging) are organizing.

Red Lobster — The seafood restaurant chain is seeking third party financing as it faces steep losses and debt coming due in 2026. It has also brought on a new independent board member at the behest of its lenders and there are reports that it is considering bankruptcy.

Robertshaw — The judge overseeing the Robertshaw bankruptcy and the legal fight over the company’s 2023 liability management exercise denied motions brought by parties on both sides of the dispute in a hearing this week.

Rubio’s Restaurants — Rubio’s is considering a possible Chapter 11 bankruptcy filing in order to sell itself. A bankruptcy filing would be its second in the past four years.

rue21 — The Blue Torch-controlled fashion retailer filed a Chapter 33 before Judge Brendan Shannon of the US Bankruptcy Court for the District of Delaware. The company aims to close all stores, conduct wind-down sales, and market its IP and intangibles for a sale. The docket is available here.

SI Group — The chemical additives company recently 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.

Sonrava Health (fka Western Dental) — The New Mountain-backed company is sounding out investor interest on new funding backed by its accounts receivables balance.

Sound Inpatient Physicians — Lenders to the Summit Partners-backed medical group have extended a co-op agreement to 2 June as the company continues to explore options for raising capital.

Sunnova Energy — The commercial solar company’s bonds rebounded slightly after executives at the residential did not confirm a rumored advisor hire during a first quarter earnings call.

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

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

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”.

Xplore — The Canadian rural internet provider kickstarted a grace period after skipping a coupon payment due at the end of March. It has been in talks with creditors and sponsor Stonepeak on ways to restructure its legacy business and fund the growth of its fiber projects.

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