The Default Notice — Texas hold ‘em

9fin team

21 June 2024•14 min read

Top News

For better or worse, lender on lender violence — especially the sponsor-orchestrated variety — is here to stay, and Texas is still where bloodied lenders will wind up if they choose to challenge any pre-petition liability management exercises.

Judge Christopher Lopez handed down a verdict in Robertshaw this week and, as we wrote today, opined that bankruptcy is a decision for a company to make, not for creditors — even ones that have positioned themselves to steer a filing — and that a company has wide latitude to pursue any transaction it thinks is best.

Thus the US Bankruptcy Court for the Southern District of Texas remains the premier venue for landmark litigation related to LMEs, at least until the next decision. Last June was the Serta Simmons ruling, which is currently under appeal. And closing arguments in the Incora adversary proceeding are scheduled to begin next week.

It’s significant that rulings with ramifications likely to echo throughout the distressed investing space are still coming out of Texas after the abrupt departure of Judge David Jones following a romance scandal. His exit cast a pall over the Houston court and the two-judge panel that oversees complex bankruptcies there.

The lure of SDTX as a venue during the Jones era was consistency (either Judge Jones or Judge Isgur were going to hear your case), plus a reputation for being debtor friendly. The Robertshaw ruling shows that the debtor friendliness hasn’t necessarily gone away now that Jones is gone, but Judge Marvin Isgur’s approach to the Incora adversary proceeding hasn’t necessarily followed that pattern.

Selendy Gay partner David Coon told us in an interview that “there have been favorable decisions and favorable signs for excluded lenders” so far in the Incora case, though it’s still far too early to opine on how the judge will rule. That case is likewise set to inform how private equity sponsors approach LMEs, and how excluded creditors go about challenging them.

All that is to say, despite everything that’s happened in the bankruptcy world, SDTX is still churning out decisions that command attention.

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.

Adnan Riaz has joined Tarbela Capital as a partner, after spending 13 years as head of debt advisory at Morgan Stanley. Federico Persico has joined Cerberus Capital Management from Littlejohn, where he was the head of credit capital formation.

This week’s news

Altice USA — A group of creditors, advised by Akin Gump and PJT Partners, held a call earlier this week to corral lenders to sign onto yet another massive cooperation agreement.

iHeartMedia — Holders of iHeart’s secured 2028 notes have organized with Akin Gump and promptly implemented a cooperation agreement, which will last for longer than a year.

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.

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.

Fisker — The troubled electric vehicle manufacturer filed for a freefall bankruptcy this week, largely succumbing to the challenges plaguing the EV space. The debtors obtained all first day relief, but not before the unsecured noteholders alleged “a lot of suspect activity” by Fisker, its fiduciaries and secured creditor Heights Capital, and much wrangling on the cash collateral motion.

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.

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.

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.

Hertz — The troubled rental car company priced an issuance of $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.

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.

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.

CareMax — The value-based healthcare provider extended the waivers of default under its credit agreement through 24 June. CareMax had disclosed last week that it had appointed Paul Rundell from Alvarez & Marsal as chief restructuring officer.

Belk — The department store chain is reportedly in talks through investor KKR for around $200m of fresh financing from private credit firms. 9fin had previously reported that lenders to Belk had been speaking with the company about a restructuring that could exchange much of its debt into equity.

Magenta Buyer/McAfee — The company is reported to be in talks with creditor Elliott for new money, while a first lien creditor group represented by Centerview and Akin also circles.

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.

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.

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 — Two creditor groups continue to prepare for subsequent debt negotiations with the glass and metal packaging company after an aggressive third-party financing transaction.

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.

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

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.

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.

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 — 9fin covered the unfolding drama after the decision in the EDVA to reject the retention application of Vinson & Elkins to be employed as Enviva’s debtors’ counsel primarily because of the firm’s disclosed relationship with equity sponsor Riverstone Investment Group on unrelated matters. The hearing on V&E’s motion to reconsider was anything but predictable.

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.

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 — 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.

Incora — The judge overseeing Incora’s adversary trial handed the bankrupt aerospace supplier’s sponsor Platinum Equity a win and a loss. While Judge Marvin Isgur issued an opinion allowing witness testimony that Platinum wanted excluded, he vacated an earlier decision that recalled one of the private equity firm’s fact witnesses to the stand. The trial has since concluded and closing arguments will be heard on 24 and 25 June.

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.

Pluralsight — 9fin reported on how the company is in talks with its sponsor Vista Equity and lenders on ways to overhaul its debt, according to sources.

Red Lobster — Red Lobster reached a global settlement with its prepetition lenders and UCC, paving the way for a sale process followed by a Chapter 11 liquidating plan. The resolution provides for the establishment of a plan/GUC trust that will pursue possible claims and causes of action against prepetition equity holders. In addition, the company was able to receive final approval of its DIP facility under the settlement.

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

Spirit Airlines — The troubled ultra low-cost airline delayed a recently-scheduled analyst day, which 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.

Steward Health — The struggling hospital operator gained approval for additional DIP financing on an interim basis from a group of FILO lenders as it approached the end of its cash runway. Steward and certain parties also received the green light to commence mediation proceedings with Judge Marvin Isgur to settle certain disputes with Medical Properties Trust over the allocation of real estate proceeds. ABL lenders to Steward also signaled the potential need for additional financing beyond the FILO DIP, with 9fin’s analysis of Steward’s updated DIP budget showing increased monthly cash burn.

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.

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.

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.

WorldStrides — The student trip company’s recently launched exchange offer to Holdco term loan holders at 40 cents on the dollar has failed after the company launched the exchange with no notice or support from existing or third-party lenders.

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 — 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.