ResCap disclosure statement approved, confirmation set for Nov. 19

U.S. Bankruptcy Judge Martin Glenn signed an order this morning approving Residential Capital‘s disclosure statement following an Aug. 21 hearing on the document, which outlines creditor treatment under the company’s reorganization plan.

Glenn also granted ResCap an extension of its exclusive right to file and solicit votes on a plan, through Nov. 14 and Jan. 14, respectively. The extension is largely a formality at this point – ResCap has already filed its plan and will finish soliciting votes by Oct. 21, in time for a Nov. 19 confirmation hearing – but the company made the request “out of an abundance of caution.”

According to the disclosure statement, ResCap’s proposed plan divides creditor recoveries between three debtor groups: the so-called “ResCap debtors,” the GMACM debtors, and the “RFC debtors,” or Residential Funding Company. About $2.233 billion in total junior secured noteholder claims will be repaid in full, but unsecured creditors of the “ResCap debtors” will recover only 31.5-41.9%; unsecured creditors of GMACM will recover 26-34.7%; and RFC unsecured claim holders will see only 2.9-3.6% of their claims repaid. – John Bringardner


American Roads bondholders want confirmation delayed, eye investigation

american roads logoA group of American Roads LLC bondholders filed a preliminary objection to the private toll-facility manager’s disclosure statement and prepackaged reorganization plan on Wednesday, asking Judge Burton Lifland to delay an Aug. 28 confirmation hearing to allow time for an investigation into the plan.

American Roads, which operates both sides of the international tunnel between downtown Detroit and Windsor, Ontario, filed a prepackaged Chapter 11 in Manhattan on July 25, seeking court approval of a plan that would transfer ownership of the reorganized company to its bond insurer, Syncora Guarantee Inc. American Roads entered into a restructuring and plan support agreement with Syncora and the company’s current owner, private equity firm Alinda Capital Partners, on July 17. (See “American Roads, operator of Detroit tunnel, files prepack Ch. 11,” LCD News, July 25, 2013).

Although the waterfall provisions of the plan dictate that bondholders will receive no distributions, the plan will not affect their rights under the bond policies, the company said.

The Bank of New York Mellon is the agent for $198 million in outstanding G-1 bonds and $298 million in outstanding G-2 bonds. Both issues mature in 2056. Within five days of the plan’s effective date, American Roads will offer to purchase all bonds for a one-time cash payment equal to 20% of principal. Syncora will provide up to $50 million to make the bond release offer, supplemented by a portion of the cash remaining in the company’s reserve accounts.

But an ad hoc group of G-1 and G-2 bondholders represented by Sidley Austin said Wednesday that the plan is a classic cram-down that is being unnecessarily rushed through the court. American Roads, with Syncora’s support, is seeking to confirm the plan “under the guise of a ‘consensual prepackaged restructuring’ in order to avoid the scrutiny that is associated with a traditional plan confirmation process,” the bondholders wrote in their objection.

“But there is nothing consensual about the plan and nothing traditional about the prepetition transactions between the debtors, certain of their insiders and Syncora that led to the filing of these Chapter 11 cases. To the contrary, the plan can only be described as an improper attempt by Syncora to leverage its prepetition litigation claims against certain of the debtors’ insiders into a forced restructuring that results in Syncora owning 100% of the reorganized debtors’ equity, the bondholders losing all of their rights with respect to the existing collateral, and the debtors’ insiders receiving the benefit of third-party releases,” the bondholders wrote.

The company’s disclosure statement cannot be approved because, among other things, it makes no mention of the New York state lawsuit Syncora filed against American Roads last May, alleging the company and certain insiders had defrauded numerous creditors, the ad hoc group added. Syncora later dropped its suit at about the same time it entered into restructuring negotiations with American Roads.

As for the plan itself, the bondholders argue that it improperly treats the company’s swap policies as senior to bondholder claims “based on a plainly erroneous interpretation of the relevant financing documents.” No more than a fraction of the swap policies should be entitled to priority, and an investigation may determine that the entirety of the swap claims should be treated as pari passu or even equitably subordinated to the bondholder claims, the group said.

Judge Lifland is scheduled to consider the bondholder motion in Manhattan on Aug. 28 – the date the combined disclosure statement and plan hearing is currently scheduled to take place. – John Bringardner


Eastman Kodak wins bankruptcy reorganization plan OK

kodak logoKodak won bankruptcy-court confirmation of its reorganization plan at a hearing in Manhattan this afternoon, after Judge Allan Gropper overruled a handful of remaining objections from shareholders and the U.S. Trustee.

Kodak creditors voted overwhelmingly in favor of the plan last week. The company, which filed for bankruptcy in January 2012, expects to emerge from Chapter 11 by Sept. 3.

Reorganized Kodak will be “a very different company than the one in the popular imagination, and a very different one than the one that filed for bankruptcy,” Kodak lawyer Andrew Dietderich, a partner at Sullivan & Cromwell, told Judge Gropper this morning. Since its bankruptcy filing, the iconic 121-year-old company auctioned its digital-imaging-patent portfolio for $527 million and sold its personalized-imaging and document-imaging business to the U.K. Kodak Pension Plan for $650 million. A streamlined Kodak will focus, post emergence, on its commercial-imaging business.

Kodak entered Chapter 11 last year with $6.75 billion in liabilities and assets of only $5.1 billion. The company blamed its financial woes on four main problems – the economic recession of 2008, costly retiree benefits, withering returns from its intellectual-property-licensing efforts, and strains on trade credit in the wake of negative publicity.

“Its decline and bankruptcy is a tragedy of American economic life,” Judge Gropper said today as he read aloud his opinion.

The company traced the demise of its traditional film business back at least a decade. As consumers shifted to digital photography, Kodak’s revenue declined from about $13.3 billion in 2003, to about $6 billion in 2011. During that same period, Kodak’s global workforce shrank from about 63,900 employees, to about 17,000.


Under Kodak’s reorganization plan, the company’s second-lien noteholders will see their $375 million in allowed claims paid in full, in cash, funded by the proceeds of a $406 million rights offering. Under the company’s initial plan the second-lien noteholders were to receive 85% of the company’s reorganized equity (with the remaining 15% going to holders of GUCs and retiree claims).

The plan also provides for the payment to second-lien holders of an additional $20 million in cash to resolve disputes related to whether holders are entitled to a make-whole payment.

The remaining 15% of the equity in the reorganized company will be contributed to an “unsecured creditor pool” that would be distributed, on a pro rata basis, to holders of the company’s general unsecured claims and unsecured claims arising under a settlement with retirees that was reached in October 2012.

Kodak will set aside about $1.8 billion for allowed general unsecured claims, Dietderich said this morning, a recovery of about 4-5%. Retiree settlement unsecured claims are $635 million. The company’s current equity will be wiped out.

Kodak conducted a $406 million rights offering for unsecured creditors that will fund cash distributions to second-lien noteholders, backstopped by GSO Capital Partners, Blue Mountain Capital, George Karfunkel, United Equities Group, and Contrarian Capital.

Under the rights offering, holders of general unsecured claims and holders of retiree claims were offered the right to purchase up to 34 million shares of the reorganized company at $11.94 per share. Up to six million of those shares were offered to unsecured creditors as so-called “Section 1145 rights” under a provision of the bankruptcy code that allows new securities to be exchanged for claims. The remaining shares, including any unsubscribed Section 1145 rights shares, were offered to holders of unsecured claims and retiree claims who are “accredited investors” or “qualified institutional buyers” in order to qualify under certain securities registration exemptions.

Kodak’s ultimate value became a major point of contention during the hearing today, as a handful of shareholders made a last-ditch effort to convince Judge Gropper that the company is actually worth far more than it claims. Gropper allowed one shareholder to question Kodak’s valuation experts from Lazard, but gave him a short leash. Last week, Gropper denied a motion filed by shareholders seeking the formation of an official committee to represent their interests. It was the second time Gropper had denied an equity committee, with professionals funded by the estate.

Looking ahead, Kodak has said it anticipates “stabilization and then growth in revenue with a commercial imaging EBITDA improvement of approximately $327 million between 2013 and 2017.”

Kodak has said its commercial-imaging EBITDA improved by approximately $106 million between 2011-2012, explaining, “the significant improvement in EBITDA is a result of both Kodak’s increase in the installed base of new products introduced in the last four years and the effect of its accumulated annuities plus a strong focus on new growth markets and new product introductions that drive higher gross profit, as well as the concerted actions to reduce corporate cost structure through extensive partnerships and resource realignment.”

More specifically, the company projected operational EBITDA of $199 million for 2014, $282 million for 2015, $360 million for 2016, and $494 million for 2017, on gross profits for those years of $539 million, $628 million, $737 million, and $898 million, respectively.

The company has estimated that post-emergence, it will have a global cash balance of $815 million. Kodak CEO Antonio Perez will continue to serve as CEO for up to one year following emergence, or until the company’s new board names a successor. – John Bringardner/Alan Zimmerman

Note: This story was updated on 8/21 to to correct 2nd-lien info.


Cengage files bankruptcy reorg plan; says it has ‘requisite’ creditor support

cengage logoCengage Learning filed its proposed pre-arranged reorganization plan with the bankruptcy court in Brooklyn, N.Y. on Friday, asking the court to schedule a hearing to approve its disclosure statement on Sept. 27 and a plan confirmation hearing on Nov. 8.

As reported, Cengage filed for Chapter 11 on July 2, saying it had negotiated a plan and restructuring support agreement with holders of roughly $2 billion of its first-lien debt. That RSA required Cengage to file its proposed plan by Aug. 16, and to have the plan confirmed by Nov. 14.

The company’s proposed reorganization has subsequently come under fire from second-lien lenders, senior noteholders, and unsecured creditors. The company said in the disclosure statement that it would continue to negotiate with stakeholders from this point forward “to achieve a fully consensual plan,” but added, “To the extent that the debtors cannot reach full consensus … the debtors believe that they already have the requisite creditor support necessary to confirm the plan and intend to proceed on a path to confirmation of the plan in an expeditious manner.”

As reported, under the proposed plan, second-lien and unsecured creditors (including holders of the senior notes) could see a recovery of an undetermined amount. The potential recovery would be funded from a pool of assets comprised of $265 million of disputed cash held by the company in an investment account that Cengage contends does not comprise collateral for the first-lien debt, a portion of the company’s equity in certain non-debtor foreign subsidiaries that is not pledged as collateral to first-lien lenders, and the value of certain copyrights held by the company for which first-lien lenders allegedly failed to perfect their liens.

At the time of the Chapter 11 filing, Cengage specifically said it would not put a dollar figure on the potential recovery by junior creditors, since the parties were all still in negotiations.

Indeed, according to the disclosure statement, first-lien lenders contend that even if the disputed cash issue is resolved in favor of unsecured creditors, first-lien lenders would still lay claim to a majority of these assets in any reorganization plan based on first-lien deficiency claims. Further, Cengage said, any unencumbered equity value in the foreign subsidiaries could be wiped out by existing inter-company debt,

Since the petition date, the official creditors’ committee appointed in the case, along with senior noteholder Centerbridge Partners and an ad hoc group of second-lien lenders, have all aggressively attacked the company’s proposed plan, arguing that the potential for fraudulent conveyance and other avoidance claims in the case could potentially provide them with better recoveries.

Among other things, these creditors want to investigate the company’s 2007 LBO led by Apax Partners, as well as more recent open-market purchases of Cengage debt by Apax that unsecured creditors argue could be subject to equitable subordination and avoidance. In connection with this, creditors have sought to put a stop to an internal investigation by the company into Apax, based on the fear that it will be an incomplete investigation that could be used as a pretext to prevent a more extensive one at a later time by unsecured creditors. The company said in the disclosure statement, however, that its internal investigation “is nearly complete.”

So far, these issues have come up within the context of the company’s motion to use cash collateral, with the unsecured and second-lien creditors arguing that the terms of that cash collateral use would, in effect, commit Cengage to an aggressive timetable designed to prevent junior creditors from effectively investigating and pursuing the potential fraudulent conveyance and avoidance claims.

With the filing of the reorganization plan and disclosure statement, however, the focus of that battle is likely to shift to the confirmation process itself. – Alan Zimmerman



European high yield funds see €138M inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €138 million inflow for the week ended Aug. 14. Of that total, €5 million is attributable to ETFs. The reading for the week ended Aug. 7 is not revised from €171 million inflow. With the latest reading, six consecutive weekly inflows have now been recorded.

The provisional reading for July is a €1.08 billion inflow. That compares with a €2.4 billion outflow in June, a €723 million inflow in May, a €555 million inflow in April, a €579 million inflow in March, a €156 million outflow in February, and a €1.8 billion inflow in January. The latest estimate for total inflows this year through July is €2.1 billion.

While no new deals are expected to emerge until September, the solid period of inflows seen over the last six weeks bodes well for fresh supply. Fund managers admit they have plenty of cash to put to work once again, and continue to believe that the new issue market offers the best opportunities for deploying cash in size, while also generating decent yields. However should a wall of cash meet supply in the coming months, primary yields may tighten back to the 6.63% tight recorded in June, according to LCD, and fund managers will then likely deem the market too expensive once again. For reference the average primary yield is currently at 7.84%, the highest it has been since the third quarter of 2012, according to LCD.

In the U.S., retail cash inflows to high-yield funds changed direction for the fourth consecutive week, with an outflow of $388 million in the week ended Aug. 14, according to Lipper, a Thomson Reuters company. Take note, however, that the reading was ETF-heavy, at 79% of the withdrawal, or roughly $308 million. With a fresh redemption over the past week, the year-to-date figure remains squarely in the red, with outflows of $4.9 billion, versus an inflow of $20.4 billion in the year-ago period. The current year-to-date reading is 21% tied to ETFs, while 37% was tied to ETFs at this point a year ago.

Retail-cash inflows into bank loan mutual funds and ETFs totalled $1.45 billion for the week ended Aug. 14, according to Lipper FMI, a division of Thomson Reuters. That represents a pullback from the record-setting $1.85 billion inflow logged the week before. It is the 61st consecutive cash infusion to the asset class, for a net $44.2 billion over that span.

As reported, J.P. Morgan only calculates flows for funds that publish daily or weekly updates of their net asset value and total fund assets. As a result, J.P. Morgan’s weekly analysis looks at around 50 funds, with total assets under management of €10 billion. Its monthly analysis takes in a larger universe of 90 funds, with €27 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation.” – Luke Millar


Detroit bankruptcy: Judge orders Detroit officials, unions, to first mediation Sept. 17

Detroit and Michigan state officials will meet with representatives of the bankrupt city’s unions and retiree associations for an initial mediation session Sept. 17 to discuss the treatment of various creditors under a plan of adjustment and the renegotiation of collective-bargaining agreements, according to a court order filed today.

U.S. Bankruptcy Court Judge Steven Rhodes this week appointed Gerald Rosen, the chief district judge for the Eastern District of Michigan, as mediator in the case. Although Chapter 9 is distinct from Chapter 11, mediators are often appointed in large and complex corporate restructurings to help keep a case moving swiftly through the court. Both creditors and the debtor in the Chapter 11 proceedings of Residential Capital, for example, have recently praised Judge James Peck of the Southern District of New York for his efforts as a mediator in resolving contentious issues outside of the courtroom.

In an order issued this morning, Rhodes assigned plan treatment and collective-bargaining agreements to Rosen. Rosen filed a scheduling order shortly thereafter, asking that Detroit Emergency Manager Kevyn Orr, Attorney General Bill Schuette, U.S. Bank, the State of Michigan, and various union and retiree associations each send no more than two attorneys and two party representatives to the initial mediation session, and any subsequent mediation proceedings.

The U.S. Trustee in the case filed a notice today setting a time for the formation meeting of an official retiree committee, approved by the court earlier this month (see “Detroit expects to file plan by year end; retirees to get committee,” LCD News, Aug. 2, 2013). The trustee solicited applications for membership in the committee on Aug. 7, and will hold a formation meeting Aug. 20, in the courtroom of Judge Julian Cooke, located in the Theodore Levin U.S. Courthouse in Detroit. Attendance at the meeting is not mandatory for individuals who have already applied. The Trustee will not appoint the committee at the meeting, but will file a notice of appointment sometime thereafter, according to court filings. Professionals interested in representing the committee should not attend the Aug. 20 meeting, the notice specified. – John Bringardner


Foresight Energy high yield bonds (CCC+/Caa1) price at 99.28 to yield 8%; terms

Foresight Energy today completed an offering of senior notes via joint bookrunners Morgan Stanley, Citi, Barclays, Deutsche Bank, Goldman Sachs, J.P. Morgan, and UBS, according to sources. Terms were finalized in line with talk and with a $100 million upsizing, to $600 million. The privately held coal-mining company will use proceeds from the 144A-for-life bond issue, together with a new senior facility and cash on hand, to pay a one-time $375 million dividend, as well as to refinance an existing senior facility, a $600 million issue of 9.625% notes due 2017. Note that, with the upsizing of the bond deal, the proposed dividend was increased from $275 million, according to sources. The $950 million senior facility includes a $450 million TLB and a $500 million revolver. St. Louis-based Foresight Energy is a producer of thermal coal, operating four mines in the Illinois basin. Investor Chris Cline owns roughly 70% of the business, with Riverstone holding a minority interest. Terms:

Issuer Foresight Energy
Ratings CCC+/Caa1
Amount $600 million
Issue senior notes (144A-life)
Coupon 7.875%
Price 99.276
Yield 8.00%
Spread T+557
FRN eq.
Maturity Aug. 15, 2021
Call nc3; 1st call @ par plus 75% of coupon
Trade Aug. 16, 2013
Settle Aug. 23, 2013 (T+5)
Bookrunners MS/Citi/Barc/DB/GS/JPM/UBS
Jt Leads
Px talk 7.875% coupon, 8% yield
Notes w/ three-year equity clawback for 35% @ 107.875; subject to T+50 make-whole call; w/ change-of-control put @ 101; upsized by $100 million.

ACI Worldwide high yield bonds (BB-/B2) price at par to yield 6.375%; terms

ACI Worldwide today completed an offering of senior notes via joint bookrunners Wells Fargo and Bank of America, according to sources. Pricing came at the midpoint of guidance and at the target size of $300 million. Issuance will come under Rule 144A for life and proceeds will be used to repay borrowings outstanding under the company’s revolving credit facility and to fund general corporate purposes. As of June 30, there was $188 million outstanding under the RC, an SEC filing shows. ACI Worldwide, based in Naples, Fla., develops, markets, installs, and supports a line of software products and services for facilitating electronic payments. Terms:

Issuer ACI Worldwide
Ratings BB-/B2
Amount $300 million
Issue senior notes (144a-life)
Coupon 6.375%
Price 100
Yield 6.375%
Spread T+421
FRN eq. L+403
Maturity Aug. 15, 2020
Call nc3
Trade Aug. 15, 2013
Settle Aug. 20, 2013 (T+3)
Joint Bookrunners WF/BAML
Px talk 6.25-6.5%
Notes w/ three-year equity clawback for 35% @ 106.375; subject to T+50 make-whole call; w/ change-of-control put @ 101.

T-Mobile USA high yield bonds (BB/Ba3) price at par to yield 5.25%; terms

T-Mobile USA today completed an offering of senior notes via sole bookrunner Deutsche Bank, according to sources. Terms were finalized tight to talk, and an early read from the gray market points to roughly a one-point gain on the break, sources add. The wireless provider will use funds raised from the BB/Ba3 offering for general corporate purposes. This marks the first bond deal since Bellevue, Wash.-based T-Mobile USA, a subsidiary of Deutsche Telekom, completed its acquisition of MetroPCS. Terms:

Issuer T-Mobile USA
Ratings BB/Ba3
Amount $500 million
Issue senior notes (144A)
Coupon 5.25%
Price 100
Yield 5.25%
Spread T+378
FRN eq. L+360
Maturity Sept. 1, 2018
Call nc2
Trade Aug. 14, 2013
Settle Aug. 21, 2013 (t+5)
Joint Bookrunners DB
Px talk 5.375% area
Notes w/ two-year equity clawback for 35%; subject to T+50 make-whole call; w/ change-of-control put @ 101.

Eastman Kodak names post-bankruptcy board members

kodak logoEastman Kodak released the names of its new board of directors today, selected by the parties providing the backstop to Kodak’s recently completed rights offering and the creditors’ committee in its Chapter 11 proceedings.

Kodak CEO Antonio Perez will remain on the post-bankruptcy board, for now. Kodak recently announced that Perez would continue to serve as CEO for up to one year following the company’s emergence from bankruptcy, or until the new board names a successor. Kodak hopes to emerge from Chapter 11 by Sept. 3. A confirmation hearing on its reorganization plan is scheduled for Aug. 20.

Kodak has said Perez would be “actively involved” in identifying his successor, and serve as a consultant for up to an additional two years. Until then, he’ll be joined on the new board by:

  • Mark Burgess, chairman of the Clondalkin Group, a global manufacturer of flexible and specialty plastic-packaging solutions and former CEO of Graham Packaging Company.
  • James Continenza, president of STi Prepaid, LLC, a telecommunications company, who formerly served in executive positions with Anchor Glass Container Corp. and Teligent, Inc. Continenza has been a Kodak director since April 1, 2013.
  • George Karfunkel, chairman of Sabr Group, a consulting company, and co-founder and former senior vice president of American Stock Transfer & Trust Company.
  • Jason New, a senior managing director of The Blackstone Group and Head of Special Situation Investing for GSO Capital Partners, who previously served in senior positions with Credit Suisse and Donaldson, Lufkin & Jenrette.
  • William G. Parrett, former senior partner of Deloitte & Touche USA, where he held several executive positions, including CEO of Deloitte Touche Tohmatsu and managing partner of Deloitte & Touche USA. Parrett has been a Kodak director since November 2007 and serves as chairman of the board’s Audit & Finance Committee.
  • Derek Smith, a managing principal and senior portfolio manager at BlueMountain Capital Management, who previously worked in senior investment-management positions with Deutsche Bank and Goldman Sachs.
  • Matt Doheny, president of North Country Capital, an advisory and investment firm, who previously served as managing director of the Distressed Assets Group of Deutsche Bank Securities Inc.
  • John Janitz, co-founder and chairman of Evergreen Capital Partners, LLC, an investment firm that provides advisory services and co-invests with private equity sponsors, who previously served as co-managing principal for Questor Management Company LLC, a turnaround capital investment firm, and as president and chief operating officer of Textron Inc., a $10 billion NYSE-listed multi-industry company.

– Staff reports