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Toys ‘R’ Us High Yield Bonds Sink in Trading Mart Amid Bankruptcy Mention

Near-term debt of Toys ‘R’ Us went into a tailspin today after news reports that the company has hired Kirkland & Ellis to assist in a restructuring also made mention of a possible bankruptcy filing.

The company’s $208 million of 7.375% senior unsecured holdco notes due 2018 hit a 19-month low of 75, versus quotes of 95 on Tuesday, according to sources.

Such a massive deterioration could, of course, facilitate a take-out of the bonds at much more favorable price, a debt exchange being one strategy that Fitch Ratings said in a note this morning the company could employ.

“Fitch expects the $208 million of 7.375% senior unsecured holdco notes to be paid down through future exchanges into other debt or by transferring cash from various operating entities through restricted payment and investments baskets,” analyst Monica Aggarwal said in today’s report.

The company’s $450 million of debt maturities coming due in 2018 consists of a €48 million French PropCo facility due February 2018, the $208 million of holdco notes due October 2018, and $186 million of B-2/B-3 term loans due May 2018.

Toys ‘R’ Us issued the following statement to LCD, but did not immediately respond with a comment on reports that it has hired Kirkland & Ellis or to reports that it is weighing bankruptcy as an option.

“As we previously discussed on our first-quarter earnings call, Toys ‘R’ Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing. We expect to provide an update about these activities, as well as the many initiatives underway to provide an outstanding customer experience in our global retail locations and webstore during the holiday season, during our second-quarter earnings call on September 26th,” Toys ‘R’ Us communications officer Amy Von Walter said in the emailed statement.

The issuer’s covenant-lite B-4 term loan due April 2020 was quoted at a 74.75 bid today, down nearly two points from the last session, sources said.

The company last year successfully completed a series of transactions to address its looming debt maturities after the toy retailer hired advisors, including Lazard, to assist in the refinancing of its capital structure.

Wayne, N.J.–based Toys ‘R’ Us is controlled by Bain Capital, KKR, and Vornado Realty Trust. Ratings are B–/B3 CCC. — Rachelle Kakouris/Kelsey Butler

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With PetroQuest, That’s 133 Defaults So Far in 2016

high yield default rate

The global speculative-grade default count has climbed to 133 so far in 2016, with PetroQuest Energy the latest issuer to join the list, according to S&P.

Defaults so far in 2016 already have topped the 2015 full-year total of 113. As is brutally clear in the chart, the energy sector has struggled most this year, with 71 of the 133 global defaults (53%).

Looking ahead, S&P Global Fixed Income Research expects the U.S. high yield default rate to increase to 5.6% by June 2017. It was 4.3% in June 2016.

Want to see more high yield analysis? You can try LCD News for free

The full analysis is available to S&P Global Credit Portal subscribers. It was written by Diane Vazza, Sudeep Kesh, and Nicole Serino.

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Bankruptcy: Samson Resources Urges Plan Mediation but Creditor Panel Balks

Samson Resources asked the bankruptcy court overseeing its Chapter 11 proceedings to appoint a mediator in the case, saying it has been unable to reach an agreement with the unsecured creditors’ committee and other key creditors in the case “given the parties’ opposite views on the fundamental issue of lien validity.”

In an Oct. 4 motion filed with the Wilmington, Del., bankruptcy court, the company suggested that the mediator be a sitting U.S. bankruptcy court judge, and asked the court to require the parties to participate in at least 50 hours of mediation.

The unsecured creditors’ panel, however, appears in no mood to play nice with the company at this point, in light of the fact that it was just cleared by the bankruptcy court to file its own competing plan proposal (see “Samson exclusivity request denied, paving the way for alternate plan,” LCD News, Sept. 28, 2016).

Indeed, in an objection to mediation filed today, the unsecured creditors’ committee said that in the wake of the exclusivity termination the company was using mediation to “regain control” over the Chapter 11 case, and to “restrict and neutralize as quickly as possible the committee’s newly-gained plan rights and the potential impact, if unfettered, they may have on the reorganization process.”

The committee said, “In essence, the debtors, having lost exclusivity, seek to effectively regain it by forcing the parties into a mediation that none of the debtors’ key stakeholders have agreed to.”

According to the panel, “mediation at this time is both premature and a distraction,” arguing that the impediments to a consensual plan “will not be framed until the committee files its plan and the parties have had a meaningful opportunity to review and engage on that plan. Once this has occurred, the parties and the court will have a better sense of the salient issues in dispute and whether mediation would be at all helpful.”

The committee said it would be focusing its efforts “during the next few weeks” on getting its plan prepared and filed, adding that “through the competing plan process, the issues will be framed and settlement discussions will occur—without the debtors’ thumbs on the scales.”

In its mediation motion, the company acknowledged the creditor panel’s opposition to mediation, but the company said it nonetheless wanted to set the “wheels of mediation … in motion as soon as possible so that the process can potentially be completed before the currently anticipated date for disclosure statement approval in mid-November 2016 and the extensive confirmation-related discovery that is likely to follow.”

Asset Sale
Meanwhile, the bankruptcy court on Sept. 30 also approved the company’s bidding procedures in connection with the sale of certain of its assets, including roughly $320 million in stalking-horse bids (see “Samson Resources nets offers for its assets, proposes new reorg plan,” LCD News, Sept. 8, 2016).

As reported, the crude oil and natural gas company said that Tecolote Holdings LLC has offered $131.07 million for its Oklahoma and Texas assets; Resource Energy Can-Am LLC has offered $75 million for its North Dakota and Montana assets; and Red Willow Production Company has offered $115.5 million for its Colorado and New Mexico assets.

Samson said it began reaching out to more than 550 potential buyers in February.

Under the approved procedures, bids were due by Oct. 4; an auction, if required, will be held on Oct. 10 at the Chicago offices of Kirkland & Ellis; and a hearing to approve the sale was set for Oct. 17. — Alan Zimmerman

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Bankruptcy: Caesars Announces Reorg Deal; 2nd-Lien Lenders to Get 66 Cents on Dollar

Caesars Entertainment Operating Co. (CEOC) said that its “major creditor groups” have agreed to support the key economic terms of a restructuring proposal that would, among other things, provide second-lien noteholders with a recovery valued at 66 cents on the dollar, the company announced.

According to a statement issued this morning, the company said that ad hoc groups in the case representing first-lien bank lenders, first-lien noteholders, and subsidiary guarantee noteholders, as well as the official committee representing second-lien noteholders, “have confirmed those creditors’ support for the [restructuring] term sheet, subject to the negotiation of and entry into definitive support agreements and the revised plan of reorganization.” The company added that it was “optimistic” that this support would translate into creditor votes sufficient to confirm the company’s reorganization plan.

According to the term sheet, the parties have committed to agreeing upon documentation, including a revised reorganization plan, by Sept. 30.

The company said that it would emerge from Chapter 11 in 2017. A reorganization plan confirmation hearing is currently set for Dec. 1.

Moving on to the terms of the transaction, the company said that its equity sponsors, Apollo Global Management and TPG Capital, would contribute their entire 14% equity stake in the reorganized company that they would have received (by virtue of their ownership in the company’s parent, Caesars Entertainment Corp., or CEC) under the transactions contemplated in the company’s reorganization plan. The company valued the sponsors’ equity contribution at about $950 million (the company noted, however, that public stockholders of CEC would continue to receive a 6% equity interest in the reorganized company).

As a result of the distributions contemplated under the revised plan, and relying upon the valuation contained in the company’s most recent disclosure statement, the company said creditor recoveries would be affected as follows:

  • First-lien bank lenders would now recover roughly 115 cents on the dollar, a decline of approximately one cent from the previous plan on a pro rata basis, due to a $66 million reduction in cash distributed under the plan. Equity distributed to bank lenders would be slightly increased.
  • First-lien noteholder recoveries would remain at about 109 cents on the dollar, but in exchange for, among other things, a fixed cash payment of $142 million, the first-lien noteholders agreed to waive their right to certain excess cash sweeps, resulting in a $79 million net reduction in cash based on the company’s projections.
  • Second-lien noteholder recoveries, as noted above, would be roughly 66 cents on the dollar, an increase of about 27 cents from the previous plan on a pro rata basis due to the addition of $345 million of cash, a 14.6% increase in fully diluted equity in the reorganized company (bringing the total equity directly distributed to second lien noteholders to 32.022% of the new stock), and an increase of about $108 million in convertible notes.
  • Subsidiary guaranteed noteholders would see recoveries reduced by one cent, to about 83 cents on the dollar, due to a slight reduction in the equity distribution.
  • Unsecured creditors (unsecured notes and undisputed and disputed unsecured claims) would receive an increase in recoveries to roughly 66 cents on the dollar, consisting of a combination of cash, an increase in the equity distribution in the reorganized company, and an increase in the allocation of convertible notes.

The company further said that under the transactions and exchange ratios contemplated under the revised reorganization plan, CEOC creditors would own roughly 70% of the equity in the new company, while shareholders of Caesars Acquisition would own about 24%. — Alan Zimmerman

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Bankruptcy: Foresight Energy Completes Out-of-Court Restructuring

Foresight Energy on Aug. 30 completed its out-of-court restructuring of more than $1.4 billion in indebtedness, the company announced.

The coal-mining company reached a tentative deal to restructure its debt outside of bankruptcy court in April after it failed to make a $23.6 million coupon payment due Feb. 15. After several extensions, the company launched the restructuring transactions on Aug. 1.

By way of background, the company found itself in a precarious position after the Delaware Chancery Court in December ruled that a revised “partnership” deal implemented by principal equity holder Murray Energy demonstrated a “de facto” change in control, putting Foresight on the hook to repay a $600 million bond issue at 101%.

With long-term debt of $1.5 billion and a cash position of $16.2 million as of March 31, Foresight did not have sufficient liquidity to repay the debt in the event of acceleration.

The company said the restructuring was implemented principally through concurrent exchange and tender offers in which holders of 99.98% of the principal amount of the company’s 7.875% senior notes due 2021 participated. The company purchased roughly $105 million of outstanding notes for cash, and exchanged the remaining notes for about $349 million of new second-lien notes, roughly $299 million of new convertible PIK notes, and warrants to acquire up to 4.5% of the total outstanding units of the company upon the redemption of the convertible PIK notes (see “Foresight Energy launches exchange offer to support restructuring,” LCD News, Aug. 2, 2016, and “Foresight Energy’s facility to be amended after exchange offer,” LCD News, Aug. 2, 2016, for a detailed description of the exchange offer and related transactions).

The company further said the restructuring also provided for, among other things, the amendment and restatement of the company’s senior credit facility and receivables securitization facility, respectively. — Alan Zimmerman

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Bankruptcy: Penn Virginia Resolves Spat with Ad Hoc Equity Committee

An ad hoc committee of equity holders in the Chapter 11 proceedings of Penn Virginia has agreed to withdraw its objection to confirmation of the company’s proposed reorganization plan and its bid for official committee status in the case, in exchange for the company’s agreement to pay the ad hoc panel’s legal fees, according to court filings.

The fees amount to $195,000 for the law firm representing the committee, LeClair Ryan.

As reported, the company’s reorganization plan does not provide any recovery for equity.

penn virginiaWhile individual creditors have filed other objections to the company’s proposed reorganization plan, the settlement effectively clears the way for confirmation of the plan, which is set for a hearing on Aug. 11.

The company said it would file an amended reorganization plan reflecting the settlement with the ad hoc committee by tomorrow.

As reported, the ad hoc panel had insisted that there was residual enterprise value in the company for equity holders, despite the company’s valuation estimates showing equity far out of the money.

The ad hoc panel filed a motion on July 14 seeking its appointment as an official committee, arguing that it needed the benefits of such status, most significantly the payment of its expenses by the company, in order to mount an effective valuation challenge to the company’s proposed reorganization plan.

But ahead of the ad hoc panel’s motion, the company preempted the group’s strategy by asking the bankruptcy court to confirm the existing plan confirmation timetable, which slated a plan confirmation hearing for Aug. 11.

The bankruptcy court issued such an order on July 6 (see “Penn Virginia’s Aug. 11 plan hearing left in place,” LCD News $). Then, two weeks later on July 20, the bankruptcy court refused to hear the ad hoc group’s motion for official status on an expedited basis, instead setting a hearing on the motion for Aug. 4, only a week before the scheduled confirmation hearing. That left the ad hoc panel in a bind, facing the possibility that it would have to run up significant costs in an effort to establish its valuation case, both for the purpose of obtaining official status and of derailing the proposed reorganization plan, without any assurance that the company would eventually cover such costs. — Alan Zimmerman

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SFX Entertainment Eyes Reorg Plan, Handing Equity to DIP Loan Lenders

SFX Entertainment on July 26 filed a proposed reorganization plan that would hand over the equity in the reorganized company to DIP lenders, the company announced.

sfx logoThe Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 proceedings scheduled a hearing on approval of the company’s proposed disclosure statement that backs the plan for Aug. 30, the company said.

As reported, the concert producer’s $115 million DIP is made up of first-out, tranche A term loans capped at $30 million and last-out, tranche B term loans capped at $85 million. SFX owes $83.2 million on the DIP, court records show.

Interest accrues at 12% per annum on the tranche A loans and at 10% per annum on the tranche B loans. The bankruptcy court approved the facility on a final basis on March 8.

Under the proposed reorganization plan, Series A preferred stock and common stock would be distributed to holders of tranche B DIP facility claims. The equity is subject to dilution, as 20% of it will be distributed to those tranche B DIP lenders that agree to participate in a contemplated $20 million new money delayed draw second-lien facility to be issued under the proposed reorganization plan.

Holders of the tranche A DIP loans, meanwhile, would receive either cash (to be funded via a new third party first-lien facility) or a pro rata share of a new first-lien facility to be funded through the conversion of the tranche A DIP facility.

Finally, unsecured creditors would receive a 100% recovery in cash, while existing equity would be cancelled.

The company filed for bankruptcy on Feb. 1 with plans to implement a restructuring support agreement that it ultimately scrapped on June 1 after the value of its business continued to decline in Chapter 11. — Kelsey Butler

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Bankruptcy Court Nixes Contrarian Capital Bid for Energy Future Mediation

The bankruptcy court overseeing the Chapter 11 proceedings of Energy Future Holdings (EFH) yesterday denied a motion by creditor Contrarian Capital to appoint a mediator in the case to resolve certain unresolved disputes related to the use of certain of the company’s tax attributes by unit Texas Competitive Electric Holdings (TCEH).

EFH logoAs reported, Contrarian, a creditor of the so-called E-side of the company (comprised of parent EFH and intermediate holding company Energy Future Intermediate Holdings, or EFIH), asked the bankruptcy court to appoint a mediator ahead of the upcoming reorganization plan confirmation hearing for TCEH, or the T-side.

A confirmation hearing on TCEH’s reorganization plan is set for Aug. 17.

At issue is TCEH’s use under the plan of net operating losses currently held by EFH to offset certain potential tax liabilities of TCEH that would be generated by the spin-off under the proposed reorganization plan.

According to Contrarian, TCEH is not providing the company’s E-side with any consideration for its proposed use of the NOLs, “which is valuable property of EFH.”

But the company said in a July 18 response to the motion that mediation would be a waste of time. According to the company, the dispute over the use of the NOLs is among the handful of longstanding and remaining issues in the case related to the allocation of value between the company’s E-side and T-side creditors that has proven immune to consensual resolution. As a result, the company said, the matter “should be litigated.”

Mediation, the company argued, “will only result in an unnecessary expenditure of limited resources,” noting, further, that the company’s failure to respond to Contrarian’s settlement offers in connection with the issue is “a reflection of how far apart the parties are and only underscores the parties’ inability to resolve these issues outside of the T-side confirmation hearing.” — Alan Zimmerman

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Bankruptcy: Aeropostale Says Standalone Reorg Plan ‘Not Feasible,’ Seeks Asset Sale

Aeropostale filed a proposed reorganization plan and disclosure statement on July 15 calling for the sale of the company, according to court filings.

In its motion seeking approval of the proposed plan, the company said it had “been engaged in negotiations with potential purchasers and equity sponsors as well as parties in interest, such as DIP lenders and the official committee of unsecured creditors … over the path forward for these Chapter 11 cases,” adding that the company “concluded that reorganization on a standalone basis is not feasible.”

aerospostal logoAs reported, the company filed for Chapter 11 on May 4 in bankruptcy court in Manhattan, saying it intended to emerge from Chapter 11 within the next six months “as a standalone enterprise with a smaller store base, increased operating efficiencies and reduced SG&A expenses.” The company also said at the time, however, that it would likewise continue to pursue an asset sale process while simultaneously developing a reorganization plan.

Court filings show that a bid deadline for the proposed sale would be Aug. 18. An auction, if required, would be held on Aug. 22, and a hearing to approve a sale would be held on Aug. 26.

As for the plan, a confirmation hearing would be held Aug. 23, and plan consummation would occur on Aug. 25.

The company scheduled a hearing on the adequacy of the disclosure statement on an expedited basis for July 25. — Alan Zimmerman

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Bankruptcy: Alpha Natural Resources Nets Reorg Plan OK

The bankruptcy court overseeing the Chapter 11 proceedings of Alpha Natural Resources confirmed the company’s proposed reorganization plan, the company announced yesterday, adding that final plan approval was “contingent upon the finalization of certain definitive documentation and the entry of an order in the coming days.”

The company said it expects to emerge from Chapter 11 in late July. Upon emergence, the company is expected to operate as a privately held company.

alpha natural resources logoIn connection with plan confirmation, the company said the Richmond, Va., bankruptcy court also approved the company’s sale of certain core coal assets to Contura Energy, a new company formed by a group of the company’s first-lien lenders. The company said the sale, which is scheduled to close upon the company’s exit from Chapter 11, includes the company’s two Powder River Basin mine complexes in Wyoming; the Nicholas, McClure, and Toms Creek mine complexes in West Virginia and Virginia; all of the company’s Pennsylvania coal operations and certain reserves; the company’s interest in the Dominion Terminal Associates coal export terminal in Newport News, Va.; and certain other assets, including working capital.

In addition, “Contura Energy will provide specified contingent credit support for reorganized Alpha in the aggregate amount of $35 million, from the effective date of emergence through September 2018,” the company said.

Lastly, the company noted that Contura has also agreed to also make contributions of up to $100 million over the next ten years into certain restricted cash accounts to help fund the ongoing reclamation activities of the reorganized company. — Alan Zimmerman

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