The Default Notice — Private equity’s LME-filled Brat Summer

9fin team

23 August 2024•19 min read

The Default Notice is 9fin's weekly newsletter, incorporating summaries and commentary from our US distressed coverage for the past week. Find out more about what we do for distressed here.

Top News

Clearlake and Platinum Equity are two financial sponsors often associated with aggressive transactions meant to preserve equity value at the expense of creditors.

Which is why Clearlake built a position in the debt of a Platinum Equity portfolio company restructuring its debt.

Wait, what?

This week, Platinum-backed United Site Services unveiled a series of transactions designed to raise $300m of new money, extend the maturity on the majority of its debt through 2030, and capturing a $154m discount using an apparent double dip structure and distressed exchange with participation from the “vast majority” of its creditors.

Clearlake has built a position in the USS debt, according to 9fin sources and news reports. But typically, Clearlake is on the other side of the fence on these sorts of deals, working with a portfolio company in dire financial straits.

An obvious example is Hoonigan (formerly known as Wheel Pros), which engaged in a liability management exercise with a double dip structure last year. As we reported last week, the company is once more under duress, this time due to pressure on the business brought on by its leverage. The company is working on a plan that includes an out-of-court restructuring, as well as DIP financing needs for a potential bankruptcy filing.

Other Clearlake portfolio companies that have undergone debt restructurings or seen creditors organize this year include Alkegen, Valcour Packaging (doing business as MRP Solutions), and Springs Window Fashions.

So what’s the deal with Clearlake? (We’ve already written about the deal with Platinum, and you can read about that here.)

Like most private equity investors, Clearlake paid high multiples for certain portfolio companies using unhedged, floating rate debt during the low-interest rate environment prior to 2022. Clearlake itself is unique, however, in that two of the now billionaire co-founders José Feliciano and Behdad Eghbali have a background in distressed investing and LBOs, respectively, and started the firm in 2006 to do a combination of the two. Like investors who walk that tight rope, it has experience in taking over companies from other private equity sponsors through the debt, like it did with Service King, a car repair chain previously owned by Blackstone, in 2022

Which leads back in to what we mentioned before: Clearlake is willing to pursue very aggressive transactions in order to preserve its investments in portfolio companies. With so many of them in difficult positions due to the amount of leverage on their balance sheets, it means the company is likely to continue to butt heads with creditors.

Clearlake didn’t immediately respond to a request for comment.

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.

Willkie Farr announced that it has added a team of capital markets and M&A professionals from Mayer Brown including Edward Best, Jennifer Carlson, John Ablan, Esther Chang and Susan Rabinowitz.

This week’s news

Out-of-court

United Site Services — The Platinum Equity-backed portable toilet rental unveiled an LME with $300m in new money with an apparent double dip structure.

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

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.

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.

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

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.

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.

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.

B. Riley Financial — The troubled financial services 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. Earlier, 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 (with the 10-Q delayed) and suspended dividend in the midst of SEC investigations into its relationship with former Franchise Group CEO Brian Kahn and disclosure issues.

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-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.

Magenta Buyer/McAfee — Lenders left out of the company’s recent LME are reported to have hired advisors. 9fin had earlier reported the details of the LME which was agreed to by the company, an ad hoc lender group and major first lien and second lien debtholder Elliott Management. The LME includes $400m of new money backed by a dropdown of assets, an exchange of existing debt at varying discounts and the potential inclusion of all of its lenders in the exchange.

CareMax — After delivering another round of disappointing results, the value-based healthcare again extended waivers under its credit agreement, first through 22 August and then through 3 September. It had earlier executed an eighth amendment to its credit agreement, which provided for $20m in incremental term loan facilities.

Bankruptcy

Steward Health Care — A stalking horse bidder for certain of the debtors’ Florida hospitals was approved with no objections after a week of fighting among the debtors and MPT.

Fisker — The electric vehicle company has avoided a conversion of the cases to Chapter 7, with an agreement in place to pursue a Chapter 11 liquidation. The debtors today filed a revised settlement term sheet, and a revised proposed interim cash collateral order that should help fund the case through 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.

Enviva — The court granted the debtors’ motion to schedule a disclosure statement hearing, which will take place on 4 October. The debtors must file a disclosure statement by 30 August.

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.

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 France — The telecom company is set to hold its debt investor call 29 August. 9fin’s deep-dive report explores the range of possibilities given the various moving parts.

Altice International — The telco announced its AdTech business, Teads, is to be acquired by industry peer, Outbrain, for $1bn. Since its French counterpart’s ultimatum, Altice International’s creditors have been wary that a similar stunt may be pulled on them, but details are thin. We discuss Altice’s options and the potential deleveraging here.

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.

Astound Broadband — The Stonepeak-backed internet and cable provider disclosed Q2 results to bondholders. 9fin had reported early last quarter that a group of lenders had started confidential talks with , which has been grappling with a cash flow squeeze.

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.

Diamond Sports Group — Diamond Sports Group has adjourned its confirmation hearing to a date to be determined as it seeks to finish negotiating a possible deal with Comcast, the NBA and the NHL.

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.

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.

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

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

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 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.

Hoonigan (fka Wheel Pros) — The Clearlake-backed company is working on a business plan to present to its lenders as the company’s performance has been pressured by its high debt burden.

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.

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.

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.

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.

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

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.

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.

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.

WW International — Weight Watchers creditors, which organized with Gibson Dunn, have signed a cooperation agreement to work together ahead of potential debt talks with the beleaguered diet company.

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.

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.

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 this week 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.

Conn’s Inc — Conn’s, a home goods retailer, filed for Chapter 11 protection in the US Bankruptcy Court for the Southern District of Texas, seeking to effectuate an orderly wind-down of its business. You can read more about the case here.

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.

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. 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.

Incora — The judge overseeing Incora’s Chapter 11 case indicated that he would publish a final order in the LME trial in the near-term, to allow for any appellate process to begin. In addition, a confirmation hearing has been scheduled for 7 October.

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.

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 has to modify its “opt-out” procedure for consenting to third-party releases in its proposed plan after the UST argued that the decision in the Purdue Pharma case prohibited such relief.

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.

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

SunPower — The residential solar technology company (finally) filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware with a stalking horse bidder in place, in order to complete its ongoing sale process. The debtors received approval for all first day motions without objection.