Bankruptcy: Quiksilver Amended Reorganization Plan Nets Court OK

The bankruptcy court overseeing the Chapter 11 proceedings of Quiksilver yesterday confirmed the company’s reorganization plan, according to court documents.

The bankruptcy court has not yet formally entered a written confirmation order, as certain parties requested changes. The company submitted the amended order to the bankruptcy court for signature today.

As reported, the unsecured creditors’ committee in the case had objected to the proposed plan on valuation grounds, but according to an amended plan the company filed yesterday prior to the hearing, the company and the panel were able to settle their dispute.

Among other things, the company’s amended plan increased the cash distribution to unsecured creditors to $14 million, from $12.5 million, and provided for the distribution to unsecured creditors of 3.56% of the reorganized company’s equity, assuming consummation of the plan’s contemplated rights offering/exchange offer to Euro noteholders.

It should be noted that the contemplated equity distribution to unsecured creditors resulted in a reduction, when compared to the company’s prior reorganization plan, of equity allocated to secured note holders (reduced to 15.34%, from 17%) and to rights offering participants (reduced to 77.76%, from 80%), although the allocation to the rights-offering backstop parties increased slightly, to 3.34%, from 3%.

In this regard, it should also be noted that if the rights offering/exchange offer to Euro noteholders is not consummated, then the reorganized equity allocation would be 20.28% to senior noteholders, 70.78% to the rights-offering participants, 4.75% to unsecured creditors, and 4.19% to backstop parties—again, representing a comparable decrease from the prior plan for secured noteholders and the rights-offering participants, and an increase for unsecured creditors and the backstop parties.

Lastly, the amended plan increased the exit revolver funding the plan to $140 million, from $120 million, and added a $50 million exit term facility from the plan’s sponsors. — Alan Zimmerman

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US High Yield Funds See $883M Cash Inflow, all Via ETFs

U.S. high-yield funds recorded a net inflow of $883 million in the week ended Jan. 27, marking the first positive reading in four weeks. Still, the inflow barely dents last week outflow of $2 billion, not to mention the combined outflows of $4.9 billion over the prior three weeks.

high yield bond funds

The net-positive reading was all tied to exchange-traded funds, however, as mutual funds netted an outflow of $661 million against ETF inflows of $1.5 billion. This is the first ETF-inflow inverse reading in five weeks; all three prior outflow were both ETF and mutual fund related.

Regardless of what that might say about market-timing, hedging, and fast-money activity, it’s a net inflow that draws down the trailing-four-week average to negative $1 billion per week, from negative $1.2 billion last week. Recall that prior to the December outflow streak, the trailing-four-week observation was positive $231 million in mid-November.

With steady outflows for the new year beyond this past week’s inflow, the year-to-date outflow total is now $4.1 billion, with 29% related to the ETF segment. The full-year 2015 reading was deeply in the red, at negative $7.1 billion. The full-year reading was negative $7.7 billion for mutual funds against positive $686 million for ETFs, for a roughly 10% inverse reading.

Alongside this past week’s inflow and stronger momentum in the secondary market, the change due to market conditions over the past week was the positive $3.1 billion, the strongest in 67 weeks, or since an increase of equally $3.1 billion in the week ended Dec. 10, 2014. This week’s expansion is nearly a 2% gain against total assets, which were $172.1 billion at the end of the observation period.

At present, the ETF segment accounts for $32.8 billion of total assets, or roughly 19% of the sum. — Matt Fuller

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Bankruptcy: Verso Inks Debt-for-Equity Deal with Creditors; Nets OK for DIP Loan

The bankruptcy court overseeing the Chapter 11 proceedings of Verso Corp. gave interim approval today to the company’s proposed $775 million DIP facility, according to court orders entered on the docket.

The interim approval gives the company access to an aggregate of $425 million of revolver funding, and $125 million in new-money term debt.

A final hearing was scheduled for Feb. 24. Final approval would clear the company for an additional $50 million of new-money term debt and $175 million of roll-up term debt.

Verso filed for Chapter 11 yesterday in Wilmington, Del., saying it expected to close on at least $600 million of DIP financing by today. In fact, the company was able to file motions seeking approval of its proposed DIP facilities yesterday afternoon.

The DIP financing is comprised of three separate facilities, namely, a $325 million (including a $100 million letter of credit sub-facility) revolving facility to the company’s NewPage subsidiary, a $350 million term facility to the NewPage subsidiary (described in more detail, below), and a $100 million asset-based revolver (including a $50 million letter of credit sub-facility) to parent company Verso Holdings, according to court filings.

Meanwhile, court filings also show that the company yesterday entered into a restructuring-support agreement with “virtually all of their principal creditor constituencies” that would see the company exchange most of its outstanding debt for equity in a reorganized company.

Contemplated reorganization terms 
According to a restructuring term sheet filed in the case, the RSA contemplates a reorganization plan that would exchange claims held at the parent company Verso Holdings level for 53% of the equity in the reorganized company (plus warrants for an additional 5% of equity at a strike price of $1.04 billion of equity value) and claims held at the NewPage subsidiary level for 47% of the equity in the reorganized company.

According to the first-day declaration filed in the Chapter 11 case by the company’s CFO, Allen Campbell, the company has $2.8 billion of funded debt, about $1.8 billion of which sits at Verso Holdings, and about $972 million of which sits at NewPage.

As reported, Verso acquired NewPage in 2014.

The Verso holdings debt is comprised of a $150 million ABL revolver and a $50 million cash-flow revolver, along with $418 million of 11.75% first-lien notes due 2019 issued in 2012 and $650 million of 11.75% first-lien notes, issued in 2015 in connection with the NewPage acquisition; $272 million of 1.5-lien notes issued in 2012; $181 million of 13% second-lien notes due 2020, issued in 2014 pursuant to an exchange offer and $97 million of old 8.75% second-lien notes due 2019 that remained outstanding following the exchange offer; and $65 million of 16% senior subordinated notes due 2020, issued in 2014 in connection with an exchange offer and $41 million of old 11.38% senior subordinated notes due 2016 that remained outstanding following the exchange offer.

At NewPage, there is $238 million outstanding under an ABL revolver, and $734 million outstanding under the floating-rate senior secured term loan issued in 2014 in connection with the NewPage acquisition.

Under the plan contemplated by the RSA, holders of Verso Holdings’ first-lien debt (the cash-flow revolver, and the first-lien notes issued in 2012 and 2015, respectively), would receive pro rata shares of 50% of the equity in the reorganized company and 100% of the warrants (or, if certain required consents are obtained, debt discounted to the value of the corresponding plan equity value).

Holders of the Verso 1.5-lien debt would receive 2.85% of the reorganized equity, and holders of the Verso subordinated debt would receive 0.15% of the equity.

Holders of NewPage first-lien debt (including first-lien debt claims rolled up by the DIP facility as described below) would receive the remaining 47% of the reorganized equity.

As for milestones, among other things the RSA requires the filing of a reorganization plan or disclosure statement within 60 days of the petition date (March 26), approval of a disclosure statement within 105 days (May 10), plan confirmation within 160 days (July 5), and an effective date within 30 days of confirmation.

The RSA, which was filed with the bankruptcy court in a partially redacted form, does not state the amount of claims represented by parties to the agreement, but as reported, the company said yesterday in its statement announcing the Chapter 11 that parties to the RSA constituted “at least a majority in principal of most classes.”

Among the parties to the RSA are funds and entities affiliated with Centerbridge Partners, Synexus Advisors, KLS Diversified Asset Management, Mudrick Capital Management, Oaktree Capital Management, Stone Lion Capital, Credit Suisse, Whitebox Credit, and Monarch Alternative Capital.

DIP Terms
The $350 million NewPage term DIP would consist of a $175 million new-money DIP (with $125 million available upon interim approval of the facility, and the remaining $50 million funded upon final approval) and a $175 million roll-up of DIP lender claims under the NewPage pre-petition term loan (deemed borrowed upon final approval of the DIP), with interest at L+950.

Holders of the term debt would have the right to fund, in the aggregate, up to 70% of the new-money DIP to receive the benefit of the roll-up portion, on a pro rata basis, while 30% of the new-money DIP would be reserved for members of an ad hoc committee of holders of the pre-petition term debt that have agreed to provide a backstop for 100% of the new money DIP.

Fees under the term DIP would include, among others, an upfront fee of 1.5% of the new-money DIP commitment and a backstop fee for backstop parties of 2.5% of the new-money DIP commitment.

The new-money portion of the DIP would be repaid in cash under the restructuring contemplated by the RSA, while the roll-up portion of the DIP would be wrapped into the equity recovery by NewPage pre-petition term loan lenders.

The revolver portions of the DIP, meanwhile, would be used to replace existing revolver debt and to provide additional working capital, with each facility charging L+250, with no LIBOR floor.

It is worth noting that the milestone deadlines under the DIP are slightly extended compared to those in the RSA, and the RSA requires, among other things, the filing of a reorganization plan or disclosure statement within 75 days of the petition date (April 11), approval of a disclosure statement within 125 days (May 30), plan confirmation within 185 days (July 30), and an effective date within 30 days of confirmation. — Alan Zimmerman

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Cost of US Steel Default Protection Rises, Co. Bonds Slide in Trading After 4Q Miss

U.S. Steel bonds were under pressure after the company released fourth-quarter and full-year results that fell short of analyst expectations and said it continues to face a challenging market environment. The company’s short-dated paper was most active, with the 6.05% notes due 2017 plunging to a 72.5/73.5 quote this morning from trades in the 81–82 range late yesterday, according to market sources and trade data.

The 7% notes due 2018 changed hands at 57.5 today but was trading in the mid-60s yesterday afternoon, data show. As for longer maturities, there were trades in the $600 million issue of 7.375% notes due 2020 in the 46 area, versus the low 50s ahead of the news.

Five-year CDS in the name widened mostly, pushing out nearly 7% today, to 49.8/52.8 points upfront. That works out to approximately $310,000 more of an upfront payment, at roughly $5.1 million at the midpoint, in addition to the $500,000 annual payment, to protect $10 million of U.S. Steel bonds.

In 2015 the company’s adjusted EBITDA of $202 million was under a consensus mean estimate for $233 million, according to S&P Capital IQ. Revenue of $11.57 billion was slightly better than a consensus call of $11.5 billion. However, both figures are down sharply from 2014 when the company generated $1.7 billion adjusted EBITDA on revenue of $17.5 billion.

In its earnings release yesterday, management stated that the company is facing “significant headwinds and uncertainty” in many of the markets it serves. Moreover, at current market conditions adjusted EBITDA for 2016 would be near break-even.

According the S&P Capital IQ estimates, analysts were expecting 2016 adjusted EBITDA of about $266 million on revenue of around $9.76 billion.

Shares of U.S. Steel, which trade on the NYSE under the ticker X, were off 13% at midday, to $6.74. U.S. Steel is rated BB–/B1, with negative outlooks on both sides. The company’s senior notes are BB–/B2. — Jon Hemingway

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Centene Returns to High Yield Bond Mart with $2.27B Offering Backing Health Net buy

Medicaid-plans operator Centene is back in market after one year with a $2.27 billion offering of senior notes in two tranches to help fund the acquisition of managed-care rival Health Net. An investor call is scheduled for 12:30 p.m. EST tomorrow, with pricing expected later in the week via a Wells Fargo–led bookrunner team that includes joint books Barclays, Citi, and Suntrust Robinson Humphrey, according to sources.

The pitch is for a to-be-determined split between a five-year (non-call two) series and an eight-year (non-call three) tranche, sources said. First call premiums have not immediately been defined, but take note that more aggressive, issuer-friendly schedules with a first call of just par plus 50% coupon have become increasingly acceptable of late, especially for the shorter of the two structures last year, although a more-balanced first call at par plus 75% coupon still reigns on shorter schedules, according to LCD.

Issuance is under Rule 144A with registration rights, and tranching is based on demand. Investors are being guided toward a BB/Ba2 profile, sources said.

That’s the profile on the company’s most recent tap, a $200 million add-on to the $300 million issue of 4.75% notes due 2022. The tack-on came at par, the wide end of talk in January 2015, and it’s now pegged at 93, offering about 6.1% to worst, with a first call still three years out, at par plus 50% coupon, according to S&P Capital IQ.

St. Louis–based Centene provides multi-line healthcare programs and services in the United States. It operates in two segments, managed care and specialty services. The Health Net transaction, which was announced last summer, remains subject to regulatory approval, but the company continues to expect the transaction to close early in 2016, according to a company statement. — Matt Fuller

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Verso Files Chapter 11, Eyes Debt-for-Equity Swap, Lines up $600M DIP Loan

Verso Corp. filed for Chapter 11 in Wilmington, Del., the company announced this morning.

According to the company’s president and CEO, David Paterson, Verso expects to agree on a reorganization plan with creditors holding at least a majority in principal amount of most classes of the company’s funded debt that would result in those holders exchanging their claims for equity in a reorganized company.

Paterson did not state, however, when the company would reach such an agreement. He said that creditor support for the company was “strong,” adding that the contemplated restructuring plan would eliminate $2.4 billion of the company’s debt and permit the company to “exit the Chapter 11 process in a short timeframe.”

Verso also said it expects to finalize a DIP financing package totaling up to $600 million “in the next day,” but did not provide any further details.

While noting its acquisition of NewPage last January, which added significant debt onto the company’s capital structure, the company blamed today’s Chapter 11 filing on “a confluence of external factors, including an accelerated and unprecedented decline in demand for our products, a significant increase in foreign imports resulting from a strong U.S. dollar relative to foreign currencies, and Verso’s impending financial obligations.”

In its Chapter 11 petition, the company reported $2.9 billion of total assets and $3.9 billion of total debts.

As reported, the company earlier this month elected not to pay the interest due on its senior secured notes and the NewPage term loan, triggering 30-day and five-day grace periods with lenders on the respective debt.

Verso was due to make a $17 million interest payment on the NewPage term loan due 2021 (L+825, 1.25% LIBOR floor) on Jan. 14.

The company was also due to make the $78.67 million interest payment on Jan. 15 on three series of first- and junior-lien 11.75% secured notes due 2019 totaling $1.339 billion.

What’s more, the February coupon payment date is already looming. The company has four series of second-lien and subordinated notes owed a combined $19 million that day. These issues are small balances of Verso bonds left over after a variety of uptier debt exchanges over recent years.

As reported, Verso last year hired PJT Partners for restructuring and transactional services and O’Melveny & Myers LLP for restructuring legal advice.

The company earlier this month sold one of its subsidiaries, Verso Androscoggin Power, to Eagle Creek Renewable Energy for approximately $62 million in cash in an effort raise funds amid growing losses and cash flow concerns. — Alan Zimmerman/Rachelle Kakouris

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Peabody Energy Discloses Debt Exchange Proposal; Term Debt Quoted Lower in Secondary

Peabody Energy Corp.’s term loan B was quoted lower today after the largest coal producer in the U.S. disclosed in a regulatory filing a preliminary proposal for two exchanges targeting its 6% senior notes due November 2018, though no exchange offer appears to have launched.

The Peabody Energy TLB due 2020 (L+325, 1% floor) dipped about three points, quoted wrapped around 42.5. At the bond level, Peabody’s 10% second-lien notes due 2022, which were issued a year ago at 97.6 to yield 10.5% via a Bank of America-led syndicate, were steady in the mid-teens on the news. Block trades were reported at 15.5, versus 16 going out last week, and around 30 late last year, trade data show.

The company—which disclosed last month that it had entered into non-disclosure agreements with certain debtholders in an effort to leverage and optimize its liquidity and said at the time that it was in ongoing discussions with some of the holders of its 6% notes due 2018—said the offers contemplate an uptier swap for its most pressing maturity, the $1.52 billion series of 6% unsecured bullet notes due 2018, into three distinct series of new first-lien 6% notes due 2020 referencing different liens on coal mines and other assets, as well as some common equity representing up to 10% of the company, according to a company filing. Details of the multi-pronged exchange offer are available online.

The consideration adds up to just under 50% of par under the terms of the deal, as compared to the low-teens market valuation for the targeted bond issue. All other senior unsecured notes from the issuer are essentially worthless, with trades reported in and around the 10% of par context, trade data show. — Staff reports

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SandRidge Energy taps advisors for ‘strategic alternatives’

SandRidge Energy has retained Kirkland & Ellis as legal advisor and Houlihan Lokey as financial advisor to assist in “financial, transactional and strategic alternatives,” the company announced this morning.

At the same time, SandRidge has also drawn the remaining amount under its revolving credit facility to $499.95 million, including $11.05 million of outstanding letters of credit.

As reported, Oklahoma City–based SandRidge, which has a debt outstanding of around $4 billion, last year engaged in a series of debt repurchases in an effort to improve its leverage and heavy interest burden.

While the repurchases reduced the company’s debt by approximately $70 million, Sandridge later went on to announce an acquisition in Colorado’s Niobrara Shale for $190 million, amounting to nearly a quarter of its cash pile at the time.

The company’s $1.25 billion of 8.75% notes due 2020, sold in June 2015 at par, were trading this morning in and around recent levels, at 22, trade data show.

SandRidge Energy is an Oklahoma City–based oil and natural-gas producer. The company trades on the NYSE under the ticker SD, with an approximate market capitalization of $39 million. Ratings are SD/Caa2. — Staff reports

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YouTube: 4Q 2015 European leveraged loan market analysis

LCD’s video analysis detailing 2015 fourth-quarter activity in the European leveraged loan market, and a look at 2016, is now on YouTube.

The 2015 market could not match 2014 in terms of volume, but it did post impressive returns – at least compared to its counterpart in the U.S. LCD’s Ruth McGavin takes a look at the market, and what might lie ahead this year. Charts in the video:

– European leveraged loan volume 

– Leveraged loan repayments vs CLO issuance 

– Secondary loan bids, Europe vs US

– Returns by assets class: loans, bonds, equities

– Leveraged loan yields, US vs Europe

– Loan forward calendar

The URL:

Click here to download PDF slides of the video via Slideshare.

URL for the slides:

While you’re on YouTube please subscribe to LCD’s YouTube Channel – that way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email, or here:

If you’d like to embed any LCD video on a web page or in other digital media, it’s simple via the “embed” button on the YouTube page for the video. You can also embed the slides via Slideshare.

This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


GCP Applied bonds volatile after gain on break to robust high yield bond market

GCP Applied Technologies 9.5% notes due 2023 traded initially at 102 on the break this afternoon, from par issuance, but then again as high as 103, trade data show. More recent block trades, however, were 101.75 and 102.5, flagging late-Friday volatility in the $525 million market debut by the construction products and packaging concern.

Still, that’s healthy performance by any measure for a first-time issuer that’s been on a long roadshow through the market melee over the past week and a half. As reported, the B+/B1 transaction, which at $525 million backs a spin-off from W.R. Grace into a separate, publicly traded company, was ushered to market via a Goldman Sachs–led bookrunner team, and issuance is under Rule 144A for life after some covenants were reworked.

Gains are noted against the backdrop of a robust rebound throughout the market today after a harsh start to the New Year. Benchmarks were significantly higher, such as Sprint 7.875% notes due 2023, which were trading at 65 this afternoon, versus 63/64 market quotes to start the session and low trades of 59.5 earlier this week, and even energy credits rode the wave. Laredo Petroleum 7.375% notes due 2022, for example, were trading at 70.5 this afternoon, versus 68/69 quotes to start and a 65 context yesterday, while EP Energy 9.375% notes due 2020 changed hands in large blocks at 42 this afternoon, which was nearly 10 points higher than quotes of 34/35 to start the day, according to sources and trade data

As for GCP Applied, take note of an issuer-friendly first call premium of just par plus 50% coupon despite the short schedule, as well as a mandatory par-plus-accrued repayment covenant if the spin-off doesn’t close by 150 days after issuance. As for the former, such structures were increasingly acceptable last year. Indeed, some 60 transaction were inked that way in 2015 (whether 5/2, 7/3, or 8/3 arrangements), for a combined $38.5 billion in supply, or roughly 15% of all issuance, and in addition several of the uptier-exchange deals were inked with such a structure. That compares to 55 deals for $33 billion in all of 2014, for approximately 11% of supply, and just 27 for $11 billion during 2013, for just about 4% of supply, according to LCD. — Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.