In the case of distressed debt investors, the opportunity surrounding Lumen was a covenant breach spotted by holders of Lumen’s Level 3 subsidiary debt. These savvy investors had scrutinized the August 2022 transaction where Lumen sold its Latam assets that were in the Level 3 box for $2.7bn and then used the proceeds to pay down Lumen debt. The holders claimed this paydown violated the covenants in the Level 3 secured notes indentures, which required using such proceeds to redeem Level 3 debt before it would go towards Lumen debt. This potentially triggered a default, the ad hoc group argued, which was when the company decided to come to the table to negotiate the ambitious restructuring that saw some debt investments more than double in value in the past six months. Bloomberg reported the particularly clever hedge fund was Paloma Partners.

Distressed investing has increasingly involved hunting for opportunities via a combination of some fundamental value thesis mixed with a nuanced understanding of the credit documents and where in the capital structure it will be best to take advantage of that understanding. In this case, it was recognizing that Level 3 debt might have a strong argument to make due to the unknown covenant breach, and that the company likely would be able to improve once its capital structure was addressed.

Since January, shares in Lumen have shot up from $1 per share to more than $6 per share as the company rode a wave driven by investor appetite for exposure to artificial intelligence.

The Kerrisdale report then pointed out a worsening liquidity position and deteriorating revenue as causes for investor skepticism rather than euphoria. Kerrisdale said investors were attributing a $5 per share gain to a transaction announced this summer that would amount to $1.18 per share in total value.

Like the distressed debt investors, Kerrisdale noticed something the market had not reflected, namely the potentially fantastical nature of the company’s projections, and benefitted by making a convincing argument to the market, and/or having a reputation for noticing overhyped stocks (at least temporarily, as Lumen has nearly recovered to where it was trading prior to Kerrisdale’s report).

As Silver Point’s Michael Gatto suggests in “The Credit Investor’s Handbook”, distressed investing can create outsized returns closer to (but not quite as big as) equity winners, while still protecting the downside with deep credit work: “Unlike equities, where an investor can offset bad trades with home runs… in credit investing, you do not have that luxury. Outside of distressed investing, the upside on a credit investment is generally limited to ‘clipping your coupon’… and getting par… at maturity” (emphasis 9fin’s).

People Moves

If you have any recent moves to announce, please send to one of our team’s emails below to include in our People Moves section.

Latham & Watkins hired Joe Zujkowski to the firm’s New York office as a partner in the Restructuring & Special Situations group away from Gibson Dunn.

Recent news

Out-of-court

Lumen Technologies — The embattled telecom company launched follow-on debt exchanges, after having concluded its massive, heavily-negotiated exchange deal in May this year. The latest exchanges target bondholders of roughly $2bn in debt who were left out of the initial deal, and come after Kerrisdale Capital disclosed a short position in Lumen and Hedgeye published a short idea, resulting in a fall in the company’s share price.

Radiate Holdco (aka Astound Broadband) — The company has received a new $50m loan from its private equity backer Stonepeak. It has been exploring restructuring options with a group of lenders, but the talks fell apart over certain terms of the proposed debt swap and new money offer.

Wellness Pet Company — Certain lenders to the Clearlake Capital-backed company organized with Gibson Dunn and took pitches from restructuring bankers, according to 9fin sources. The move comes as the quotes on the company’s loans are veering deeper into distressed territory, they said.

Hoonigan (fka Wheel Pros) — The Clearlake-backed company has allowed its forbearance to lapse as it advances talks with its lenders. It is now attempting to draw up a potential prepackaged bankruptcy framework.

Hearthside Food Solutions — The company reported Q2 24 earnings showing widening losses and warned that its ability to continue as a going concern depended on its efforts to address a raft of near-term debt maturities.

WW International — The weight management company is seeking advice from Simpson Thacher to help address its debt amid an operational turnaround. Certain lenders are hoping to get more clarity on WW's strategy and how that will impact debt repayments.

Magenta Buyer (dba Trellix and Skyhigh) — The Symphony Technology Group-backed company has garnered support from 99.9% of its lenders to participate in its liability management deal.

Emergent BioSolutions — The pharma company disclosed that it had raised a $250m first lien loan from Oak Hill to refinance debt due May 2025. The financing package gives Oak Hill $10m of common stock and warrants to purchase an additional 2.5m shares. The company’s stock declined 11% on the day.

Altice International — After the company sold its first asset since announcing its strategic review and since Altice France’s ultimatum, listeners on the Q2 24 earnings call were keen to hear how the telco would apply the Teads sale proceeds. It’s fair to say management was slightly ambiguous. 9fin’s earnings review is available here.

Altice France — The distressed telco provided few updates on its Q2 24 earnings call which lasted under 10 minutes without a Q&A session. Management briefly touched on results (summarized here), which continue to decline with EBITDA down 7.5% YoY, and the company disclosed that €200m was upstreamed to shareholders by XpFibre in the form of a shareholder loan repayment.

Telegram — Convertible bonds issued by the messaging app company traded down around 11 points to the 85-87 cent range after founder and CEO, Pavel Durov, was arrested in France.

United Site Services — The Platinum Equity-backed portable toilet rental posted an update on the LME it had unveiled earlier. The LME includes $300m in new money with an apparent double dip structure.

EchoStar/DISH — The company is reported to be in talks to settle the litigation which DISH DBS noteholders represented by Lazard and Milbank had filed in April, contesting a series of transfers involving “billions of dollars of assets” breached their indentures. EchoStar common stock is up 22% this week and the DISH bonds too registered price increases. Meanwhile, EchoStar sold some Puerto Rico and USVI spectrum assets and mobile subscribers to Liberty Latin America for $255m.

B. Riley Financial — Lenders to the troubled financial services company were reported to have allowed the company more time to share its delayed Q2 financial report in the midst of discussions on amendments to its credit agreement. Earlier, the company was reported to be in talks for Oaktree to acquire a majority interest in two arms of the business at a valuation of around $380m. Bryant Riley, co-founder and largest shareholder, made a non-binding proposal to take the company private at $7 a share after the company disclosed poor preliminary Q2 results and suspended dividend in the midst of SEC investigations into its relationship with former Franchise Group CEO Brian Kahn and disclosure issues.

TGI Friday’s — The management of the restaurant chain is reported to have been replaced by FTI in relation to many day-to-day functions after the company failed to share certain documents with bondholders on time. 9fin had earlier reported that the restaurant chain had engaged an FA to raise roughly $200m of new funding to pay down debt.

CareMax — After delivering another round of disappointing results, the value-based healthcare continues to extend waivers under its credit agreement, most recently through 10 September. It had earlier executed an eighth amendment to its credit agreement, which provided for $20m in incremental term loan facilities.

Bankruptcy

Curious about where the largest US bankruptcies have been filed so far this year? Read our feature on jurisdictions here.

Incora — Judge Marvin Isgur agreed to sign off on Incora’s disclosure statement once it had been amended even as he raised concerns over the company’s proposed plan of reorganization. During a hearing Thursday, Judge Isgur said the confirmation plan was “non-confirmable” and described it as a “heads I win, tails you lose plan.”

Purdue Pharma — The mediation process that Purdue is hoping will bring about a new settlement has been extended 18 days through and including 27 September. The preliminary injunction blocking lawsuits against the Sackler family has been extended for the same amount time, while the hearing on the UCC’s motion for standing has been pushed to 23 September.

Express — The company’s disclosure statement hearing has been pushed to 29 October after the UCC objected to approval of the document and filed a cross-motion to terminate the debtors’ exclusivity.

Conn’s Inc — Final DIP approval was granted earlier this week after the company was able to resolve numerous objections and reservation of rights, along with informal comments. Bids for the company’s assets are due today, with a possible auction scheduled for 11 September.

Diamond Sports — Diamond Sports received approval of the assumption of modified agreements with the NHL and NBA, as well as an amendment to the final DIP order. A status conference has been set for early October to keep all the parties informed as to the progress for the company to exit Chapter 11.

Vyaire Medical — Sales of the company’s ventilator business and respiratory diagnostic business were approved, with the final sale price being only $90.5m. The sale orders also amended the final DIP order, a necessary change required by the company’s DIP lenders to allow the sales to move forward despite falling short of the required $140m minimum bid for the combined business.

Steward Health Care/Medical Properties Trust  — MPT made a surprise deal to take over the running of dozens of Steward’s hospitals until they can be sold. In addition, Steward agreed to the sale of four Massachusetts hospitals for $203m, with virtually all the proceeds set to go to MPT lender Apollo which has or is in the process of foreclosing on the hospitals. Steward’s bankruptcy judge temporarily withheld $17m slated to go to Apollo from the Massachusetts sale proceeds of the non debtor owned real estate after Steward’s FILO lenders argued objections to the allocation in court. A stalking horse bid for Steward’s hospital in Texas set a price of only $4.5m. Finally, read how Steward’s use of captive (though nondebtor) insurers has impacted medical malpractice claims.

Enviva — The bankrupt wood pellet manufacturer filed its plan of reorganization and disclosure statement. The plan, which garnered support from a large majority of stakeholders, involves a comprehensive restructuring with a $1bn first lien exit facility and a rights offering and follows the framework of the RSA which was entered into in March through the debtors previously main counsel and now special counsel, Vinson & Elkins.

SunPower — The residential solar company received court approval for the sale of certain solar loans and related assets, the appointment of Hilco as liquidator, and the bidding procedure motion which designates competitor Complete Solaria as the stalking horse bidder.

2U Inc — The EdTech company received approval for plan confirmation today after making some changes to the plan’s exculpation language.

Red Lobster — Red Lobster secured the confirmation of its Chapter 11 plan over the objections of key shareholder and unsecured creditor Thai Union. The plan will hand control to prepetition term lenders including Fortress, TCW, and Blue Torch, who acted as stalking horse bidders via a credit bid of their DIP loan.

Fisker — The electric vehicle company filed its Chapter 11 plan and disclosure statement, after it avoided a conversion of the cases to Chapter 7 with a settlement agreement in place to pursue a Chapter 11 liquidation. On 9 September, the debtors will seek interim approval of the disclosure statement and approval of the settlement in relation to the Austrian insolvency.

Other active distressed and restructuring coverage

Distressed Pitch List — We have published an update to our Distressed Pitch List. We added Newfold Digital, New Fortress Energy, and Tropicana/Naked Juice and removed MultiPlan, which will be a part of our regular coverage going forward. To view the full report, click here. An updated report will be published soon.

Restaurants Distress — A recent string of restaurant bankruptcies, including Rubio’s Coastal Grill and Red Lobster, suggests a bleaker outlook for the sector.

Out-of-court

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 — A group of lenders has hired an FA in preparation of liability management talks with the company.

Altice USA — 9fin explores the different options available to Altice USA and its creditors in our LME Breakdown.

AMC Entertainment — Q2 24 earnings were disappointing, but company executives noted that AMC had its best June ever and things might be looking up. Meanwhile, the creative liability management deal, which 9fin reported exclusive details on, was a massive hit but first lien noteholders are unhappy.

American Physician Partners — For the vendors and firms owed money by a bankrupt company, the primary motivation to join an Unsecured Creditors’ Committee is often simple: maximize economic recoveries. Listen as Doctor Dennis Deruelle recounts his experience in navigating the rapid shuttering of APP and what lessons we can learn from it.

American Rock Salt — The salt company and lenders 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.

Better Health (fka Physician Partners) — The healthcare provider is getting advice from Evercore and Kirkland as uncertainty swirls around its earnings trajectory, while a group of lenders have banded together with Davis Polk and Houlihan Lokey ahead of potential negotiations with the company and sponsor Kinderhook Industries.

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

Brightspeed — Lenders to the Apollo-backed telecom company agreed to exchange their hung debt at a steep discount and, together with the sponsor, infused $3.7bn of capital to help finance the company’s fiber build. Notes issued by Embarq, a Brightspeed subsidiary, which are in the midst of a dispute, were left alone.

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.

CommScope — 9fin published the first of many LME Breakdowns, to answer questions around how CommScope could use sale proceeds to address almost $6bn in 2025 and 2026 maturities, after the announcement of the $2.1bn sale of assets to Amphenol.

Cox Media Group — A steering committee has kickstarted negotiations with Cox Media on ways to address its upcoming debt maturity.

Del Monte — The canned food company has struck a deal to raise up to $240m of new money and exchange existing term loan debt into second and third out debt under different terms depending on lenders’ participation in the new money financing and whether they are in an exclusive ad hoc group, according to sources and disclosures. Excluded lenders are in talks with Glenn Agre over potentially fighting the deal.

Drive DeVilbiss Healthcare — The CD&R-backed company has embarked on a sale process that could involve selling its assets piecemeal or as a single entity. Drive, which makes medical equipment, previously went through an out-of-court restructuring, in which the sponsor kicked in fresh cash and existing first and second lien lenders agreed to extend debt wall.

EmployBridge — Certain lenders have organized with Gibson Dunn as the company reported weaker performance with debt trading poorly and rumors of the company’s sponsor Apollo buying back debt in the secondary market.

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.

Franchise Group — A group of first lien lenders were reported to have agreed to waive some covenants in Franchise Group’s credit agreement and second lien lenders have agreed to defer cash interest. In exchange, first lien lenders have been given tighter protections and the company has agreed to certain milestones including delivering a restructuring proposal by mid-September. B. Riley Financial has a minority interest in Franchise Group which was written down recently. 9fin had earlier reported about Franchise Group and its lenders having hired advisors.

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

GPS Hospitality — The privately owned quick service restaurant franchisee disclosed poor quarterly numbers, and senior secured notes dropped 11 cents.

GrafTech International — Certain creditors have signed a cooperation agreement to bind their acts together in potential negotiations with the company.

Hertz — The rental car company reported a meaningful decline in EBITDA as it continued to recognize losses and write-downs relating to its fleet in Q2 24, but management provided a clearer timeline for the completion of its fleet transformation plan.

iHeartMedia — iHeartMedia remains in “active dialogue” with its largest creditor group, management told analysts on the company’s earnings call for the second quarter ended 30 June, after the company announced earnings.

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.

LifeScan — The Platinum Equity-backed medical device company reported year-over-year declines in revenue and EBITDA for the second quarter ending 30 June, but not by as much as the company had projected.

MultiPlan — MultiPlan has hired Guggenheim to explore ways to revamp its debt stack, according to 9fin sources. The company reported disappointing Q2 24 results, and certain secured creditors organized and signed a cooperation agreement to present a united front.

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 — A group of lenders led by Blue Owl took majority control of Pluralsight, while Vista Equity Partners, its co-investors and company management kept the remaining stake. The restructuring deal wiped out $1.2bn of debt and included $275m in new money.

Porter Airlines — The Canadian airline has gauged interest from private credit lenders in raising CA$250m in preferred equity to boost liquidity.

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.

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

Screenvision — Certain lenders of the Abry Partners-backed company have organized with Gibson Dunn to negotiate ahead of its $201.5m in loans that are set to mature in 2025.

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, faced with sizable maturities in 2025, announced the completion of a restructuring that cedes control to a group of funds, including those managed by KKR, Evolution, and BlackRock. Further details of the restructuring are available in this S&P note.

Spirit Airlines — The troubled ultra low-cost airline reported poor Q2 24 earnings and disclosed a poorer outlook for the next quarter amid industry oversupply and a “shift from being just low-cost and low-fare to delivering value with low cost”. Company executives were unwilling to share details of their conversations with bondholders on upcoming maturities.

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.

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 2026 and 2028 bonds of the residential and commercial solar company rose after executives outlined a plan to raise cash through securitizations and asset sales to pay off existing debt. 9fin had reported in May on the company hiring advisors and agreeing to several funding deals.

TeamHealth — The healthcare staffing firm has completed its latest refinancing with the help of new money provided by firms including Ares, King Street, and its sponsor Blackstone.

Telesat Canada — The Canadian satellite company posted expected declines in revenue, EBITDA and margins in Q2 24. Though the legacy GEO business continues to shrink and management cast doubts over Telesat’s contracts with Xplore and EchoStar, it delivered positive news on LEO and reaffirmed guidance for the full year, and stock was up meaningfully. Certain creditors were earlier reported to have hired Evercore and Lincoln International for advice.

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.

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.

Tosca Services — The plastic crate maker got 100% of lenders to participate in a private exchange deal by the 22 August deadline. Previously, 9fin reported that Tosca launched a deal to raise $100m and to extend debt maturities via an uptier liability management exercise-style transaction.

Tupperware — Tupperware disclosed a further extension of its forbearance agreement with its lenders, this time to 30 September, and an agreement for a $8m bridge facility (14% PIK interest; 25% OID; $4m already drawn) due 30 September. It also delayed filing its 10-Q for Q2. The company had recently announced the departure of its CFO.

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.

Veritas Technologies — 9fin reports on the Carlyle-backed data management firm and its creditor group attempting to revive restructuring talks, and on where the discussions stood when they stalled.

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 — It’s reported that the bonds of the bankrupt Chilean telecom company have jumped as it markets its assets for sale amid potential interest from Carlos Slim’s America Movil.

Workhorse — The electric vehicle company rescheduled its Q2 earnings call and delayed filing its 10-Q. It 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.

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.

Zayo — Zayo was reported to have completed the carve-out of its European assets, with the parent receiving around $1bn in consideration through an intercompany loan and cash. 9fin had earlier broken the news that Zayo is working with banks to help gauge investor interest in raising new debt at its recently carved out Europe subsidiary.

Bankruptcy

Avon International — AIO filed for Chapter 11 protection to pursue a sales process anchored by its parent company and near-exclusive lender, Natura & Co. Its first-day hearing, while consensual, previewed battles to come with respect to legacy talc liabilities.

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.

Gol Airlines — Gol’s Abra bondholder group 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. 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.

Invitae — After hearing arguments 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 — Telecommunications analytics firm Mobileum filed a prepackaged Chapter 11 bankruptcy, covered here.

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 approved Robertshaw’s plan of liquidation and found that Invesco’s Proof of Claim related to the debtors’ breach of the credit agreement was an unsecured claim.

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

Weekly declines

Top bond movers (link to full screener on 9fin)

Top loan movers (link to full screener on 9fin)

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