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Bankruptcy: Breitburn Energy Files Chapter 11 with $150M DIP Loan in Hand

Breitburn Energy Partners today filed for Chapter 11 in bankruptcy court in Manhattan, the company announced this morning.

The company said it had a $75 million DIP facility, adding that the DIP lenders “have offered to arrange an additional $75 million of DIP financing at Breitburn’s request.”

The company said it would use Chapter 11 “to continue and complete … discussions with key stakeholders and evaluate other value-maximizing opportunities.”

As reported, the company elected to defer interest payments due on April 14 of about $33.5 million on its 7.875% notes due April 2022 and about $13.2 million on its 8.625% senior notes due October 2020, entering into a customary 30-day grace period to explore “strategic alternatives to strengthen its balance sheet.”

In today’s statement, the company said that over the last 30 days it “has been engaged in constructive discussions with its second-lien noteholders and the advisors to its unsecured noteholders regarding the need for, sponsorship of, and terms of a balance sheet restructuring.” The company added that it has “simultaneously … been engaged in constructive discussions with its revolving lenders regarding their support for emergence financing, as well as the treatment of Breitburn’s valuable hedging assets in conjunction with its emergence from the Chapter 11 cases.”

According to an affidavit filed in the case by the company’s CFO, James Jackson, despite the productive discussions, the company could not complete an out-of-court restructuring within the 30-day time frame.

Meanwhile, in what has now become a familiar refrain to both the energy and distressed sectors, Hal Washburn, the company’s CEO, explained the company’s Chapter 11 filing as the result of “the prolonged decline in commodity prices that began in 2014,” adding, “Our long-lived, low-decline portfolio of diverse assets continues performing in line with our expectations, but the current outlook for commodity prices makes our existing debt burden unsustainable.”

The company’s Chapter 11 petition listed roughly $4.7 billion in assets and $3.4 billion in debts.

The DIP facility is being provided by a group of the company’s first-lien lenders, court filings show, with Wells Fargo acting as agent. The named lenders on the loan documents are Citibank and J.P. Morgan Chase.

Upon interim approval, the facility would provide the company with $75 million, along with $75 million in available letters of credit. Upon final approval, an incremental $75 million would be available to the company, subject to additional lender approvals and documentation.

Interest under the facility will be at L+575, with no LIBOR floor.

As reported, Weil, Gotshal & Manges is the company’s legal advisor, Lazard its investment banker, and Alvarez and Marsal its financial advisor. — Alan Zimmerman

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High Yield Bond Funds See Another $1.9B Cash Withdrawal

hy fund flowsU.S. high-yield funds recorded an outflow of $1.9 billion in the week ended May 11, according to Lipper. It’s a second-consecutive large outflow of cash after $1.8 billion last week, which itself ended four weeks of inflows totaling roughly $2 billion.

Take note, however, that this week was again essentially all ETF outflows, at 91% of the sum. Last week’s breakdown was $1.8 billion of ETF outflows against inflows of $31 million to mutual funds.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this past week’s net outflow takes the trailing four-week average deeper into the red, at negative $751 million, from negative $254 million last week and positive $493 million two weeks ago.

The year-to-date total infusion has now been whittled down to $6 billion, with 21% ETF-related. Last year at this point, after 19 weeks, the $7.6 billion net inflow was 33% ETF-related.

The change due to market conditions this past week was positive $133 million, which is essentially nil against total assets of $188.8 billion at the end of the observation period. ETFs account for about 20% of the total, at $37.7 billion. — Matt Fuller

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S&P: Global Corporate Default Tally Climbs to 62 YTD; 5 Additions this Week

high yield defaults

There were five corporate defaults during the week, bringing the year-to-date global total to 62, compared to 37 at this point in 2015, according to S&P Global Fixed Income Research.

Defaulting during the week:

  • RGL Reservoir Management, a Canadian oil & gas firm
  • Fairmont Santrol, a U.S.-based metals/mining concern
  • Claire’s Stores, a U.S.-based specialty retailer
  • Atlas Iron, an iron ore producer based in Australia
  • USJ Açúcar e Álcool, a consumer products co. based in Brazil

 

The full analysis, from S&P Global’s Dianne Vazza and Sudeep K. Kesh, is available to Global Credit Portal supporters here. It includes a Global Corporate Default Summary and a list of global corporate defaults YTD (xls files for all charts).

 

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Bankruptcy: Arch Coal Plan Trims Unsecured Recoveries, but co. Sees More Talks

The bankruptcy court overseeing the Chapter 11 proceedings of Arch Coal set a hearing on the adequacy of the company’s proposed disclosure statement for June 9, according to a hearing notice filed in the case.

The company filed a proposed reorganization plan and disclosure statement on May 5, according to the court docket. The company said the proposed plan was “in accordance with” the restructuring support agreement the company reached in January with an ad hoc group of lenders holding more than 50% of the company’s first-lien debt.

At the same time, however, the company also made clear that the filing of the proposed plan represents a starting point, not an ending point, in plan negotiations, particularly as it related to unsecured creditors, adding that it “remains focused on reaching consensus on a plan of reorganization among their creditors and will modify the plan and disclosure statement as necessary during this process.”

Underscoring that point, on May 10 the company asked the St. Louis, Mo., bankruptcy court to extend its exclusive period to file a reorganization plan by 120 days, through Sept. 7, and to also extend the corresponding its exclusive period to solicit acceptances to a plan through Nov. 6, saying it would use the extension “to further negotiate a plan of reorganization that maximizes creditor recoveries.”

The company’s exclusivity periods to file and solicit votes to a plan are currently set to expire on May 10 and July 9, respectively.

Notwithstanding the company’s assertion that its proposed reorganization plan is “in accordance” with the RSA, the plan as filed appears to differ in several respects from the plan contemplated by the January RSA.

For example, under the reorganization plan, senior lenders would receive about $114.8 million in cash, along with $326.5 million of new first-lien five-year term debt (L+900, with a 1% LIBOR floor, with interest payable in cash, but also payable in kind if the company’s available cash, including under any working capital facility, falls below $375 million), and 100% of the reorganized company’s equity, subject to dilution on account of the management incentive plan and any distributions to unsecured creditors of equity and warrants.

Under the plan contemplated by the January RSA, however, first-lien lenders were slated to receive $145 million in cash (although, it should be noted, as explained below, the plan also no longer provides for an equity and warrant distribution to unsecured creditors, meaning less potential dilution to the lenders equity distribution).

The more significant change between the plan as filed and the one contemplated by the RSA was to the proposed recovery for unsecured creditors.

Under the plan as filed, unsecured creditors, including first-lien deficiency claims, are now slated to receive a pro rata share of the value of the company’s unencumbered assets, less adequate protection claims and an allocation of DIP and administrative expenses. The disclosure statement does not put a dollar figure on the value of unencumbered assets.

As reported, the plan as contemplated by the RSA, would have offered unsecured creditors the option, if they voted as a class to accept the plan, to receive 4% of the reorganized company’s equity and five-year warrants exercisable into 8% of the reorganized company’s equity (with those distributions proportionally reduced based on the amount of claims that opt for this recovery), in lieu of the value of unencumbered assets.

In addition, as contemplated by the RSA, if unsecured creditors accepted the proposed plan, first-lien lenders agreed to waive their deficiency claims for purposes of receiving a distribution.

But the unsecured creditors’ committee appointed in the case publicly signaled its opposition to the contemplated reorganization plan when, only two weeks after it was named, one of its first moves was to challenge the company’s proposed $275 million DIP facility, which was being provided by the same ad hoc lender group backing the RSA.

The unsecured panel argued, among other things, that the DIP facility was “merely a vehicle for the debtors’ prepetition secured creditors to extract fees, fund the current payment of post-petition interest on their prepetition loans, and irrevocably wrest control over these cases away from the debtors and other stakeholders.”

The bankruptcy court approved the DIP in late February after the company agreed to ease certain terms to address the unsecured creditor panels’ objections.

Notwithstanding the resolution of that skirmish, however, the company explained in its disclosure statement, that “in the weeks prior to the filing of this plan, it became clear that this proposed distribution [the option to receive stock and warrants] would not currently meet with wide acceptance among holders of general unsecured claims.”

As a result, the company said, it amended the RSA “to remove this proposed distribution” and file a proposed reorganization plan that left unsecured creditors with “the distribution they are entitled to under the Bankruptcy Code,” namely, their pro rata share of unencumbered assets. — Alan Zimmerman

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S&P Global: US High Yield Default Rate Expected to Hit 5.3% by March 2017

default rate projection

The U.S. speculative grade default rate likely will climb to 5.3% by the end of 2017’s first quarter, from 3.8% at the end of the first quarter this year, as low oil and commodities prices will continue to plague debt issuers from those sectors, according to S&P Global.

The projected rate of 5.3% would mean 93 U.S. corporate defaults for the 12 months ended March 2017, a noticeable increase from the 69 defaults seen during the 12 months ended March 2016. There were only 31 defaults during the same period in 2015.

The expected defaults would be amid an estimated $161 billion of speculative grade debt due to mature in 2017, S&P says.

The 5.3% figure is a baseline forecast. Under an optimistic scenario the rate would increase to 4.2%, while under a pessimistic scenario the rate would increase to 7%, according to Diane Vazza and Nick W Kraemer of S&P, authors of the report, which was published May 9. (The full research is available here – subscriber link). – Tim Cross

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Europe: Corporate Downgrades Top Upgrades in 1Q16, thanks to Oil & Gas (of course)

european downgrades v upgrades

There were 46 corporate downgrades of European debt during 2016’s first quarter, compared to only 24 upgrades, according to S&P Global Market Intelligence. The main driver of the ratings activity will come as no surprise: commodities – specifically oil & gas – continued to struggle during the quarter.

The full analysis is available to S&P Global Credit Portal subscribers here. It also details 1Q 2016 Corporate Ratings Stats, sovereign ratings actions, ratings bias distribution, and a full list of 1Q ratings actions. 

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WireCo Worldgroup Hires Goldman to Address Near-Term Debt

WireCo Worldgroup has hired Goldman Sachs to explore strategic alternatives to address the company’s upcoming loan maturities, analysts were told in an earnings call for Solar Capital.

Solar Capital holds $48 million of WireCo private senior notes due May 2017. The firm acquired the notes in June 2012.

WireCo’s credit fundamentals and fair values have improved “significantly” since year-end, analysts heard. The debt was booked at $45 million at fair value as of March 31, compared to $40 million at year-end, SEC filings showed.

“While WireCo faces some headwinds with a portion of its business derived from the oil sector, it also sells wire rope into a wide range of industrial applications, and there, business appears to have stabilized,” said Bruce Spohler, COO at Solar Capital, in the call on May 4.

“We remain extremely confident that our loan will be paid off in full, but continue to closely monitor the situation as the company approaches its debt maturities next year.”

Spohler said trades in the debt after the close of the quarter had taken place at even higher levels, above 97% of par.

Arrangers syndicated a $335 million, 4.75-year term loan B for WireCo in June 2012 via Goldman Sachs and Deutsche Bank. Proceeds backed the company’s acquisition of Koninklijke (Royal) Lankhorst Euronete Group and refinanced debt. Fifth Third is administrative agent. The financing included a $145 million revolving credit, also due February 2017.

At the same time, WireCo privately placed junior debt, as $82.5 million due May 2017.

In March, S&P Global Ratings cut the company’s corporate credit rating on WireCo WorldGroup to B– from B; on senior secured facilities due February 2017 to B from B+; and on $425 million senior unsecured notes due May 2017 to CCC+ from B–.

In June 2011, WireCo WorldGroup, formerly Wire Rope Corporation of America, issued $150 million of 9.5% add-on senior notes due May 2017 through Goldman Sachs and Deutsche Bank, adding to the original $275 million.

Solar Capital is a BDC that trades on Nasdaq under the ticker SLRC. The firm primarily invests in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans, and equity securities. — Abby Latour

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This story first appeared on www.lcdcomps.com, 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.

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Claire’s announces PIK exchange of notes held by Apollo, CEO resigns

Claire’s Stores has entered into an agreement with funds managed by affiliates of Apollo to swap out their subordinated debt holdings for new PIK notes.

The agreement comes after the company’s equity sponsor acquired a significant portion of the existing debt through open market purchases, a move that would potentially give Apollo a greater position around the bargaining table in the event of a bankruptcy filing.

According to an 8-K form filed with the SEC, the company has agreed to exchange $174.4 million held by the funds of the $259.6 million 10.5% senior subordinated notes due 2017 for new $174.4 million of 10.5% PIK subordinated notes due 2017.

The new notes will be paid in kind with respect to the June 1 coupon, and may be PIK, paid in cash, or 50/50 on the Dec. 1, 2016 interest payment. Though the company will save some cash through this exchange, analysts at Citi expressed concern that this could suggest a need for liquidity to stay compliant with the first-lien leverage ratio, and also that Apollo is not jumping to equitize the subordinated notes, which has been part of its base case scenario.

Claire’s also announced today the appointment of Ron Marshall as its new CEO. Commenting on the hire, Citi Analysts note that Marshall has been at the helm of a number of struggling companies that no longer exist in their original form, including A&P, Pathmark, and Borders.

“We view both pieces of today’s news as potentially tactical on the sponsor’s part in terms of the decision and timing, as lower bond prices are preferable in the event Apollo buys back more bonds (to gain control elsewhere in structure and more optionality) or attempts to negotiate with existing lenders,” Citi analyst Jenna Giannelli said in a note.

“Our thesis has been one in which Apollo utilizes its leverage as the majority owner of the ’17s and agrees to equitize, in exchange for cooperation with existing lenders elsewhere in the capital structure. We don’t think it makes sense for the Sponsor to tap into the small basket available at International subs, given the little value it would recover on the notes, still looming ’19 maturities and over levered structure,” Giannelli said.

The first-lien 9% notes due 2019 traded down 2.5 points, at 67.5, trade data show. Unsecured 8.875% notes due 2019 were trading in small batches in the high 20s, which is unchanged from recent valuation, the data show.

Hoffman Estates, Ill.–based Claire’s Stores operates as a specialty retailer of fashionable jewelry and accessories for young women, teens, and children worldwide. The company was taken private by Apollo Management in early 2007 for roughly $3.3 billion. As of January 30, 2016, Claire’s total debt was approximately $2.41 billion, consisting of notes, U.S. credit facility, Europe credit facility, and a capital lease obligation. — Rachelle Kakouris

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Mobile Mini High Yield Bonds Price to Yield 5.875%; terms

Mobile Mini this afternoon completed an offering of senior notes via a Deutsche Bank–led bookrunner group. Terms on the BB–/B2 offering were finalized at the tight end of talk amid the mixed market conditions today, according to sources. Proceeds will be used to refinance the borrower’s $200 million of 7.875% notes due 2020, which are currently callable at 103.938, and to repay ABL debt. Terms:

Issuer Mobile Mini
Ratings BB–/B2
Amount $250 million
Issue senior notes (144A)
Coupon 5.875%
Price 100
Yield 5.875%
Spread T+423
Maturity July 1, 2024
Call nc3 @ par+75% coupon
Trade May 4, 2016
Settle May 9, 2016 (T+3)
Bookrunners DB/BAML/JPM/Barc/BNP
Co-managers BBVA, MUFG
Price talk 6% area
Notes First call par+75% coupon.

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PTC debut bonds price inside of talk, at par to yield 6%; terms

Engineering software company PTC this afternoon completed its debut in market via J.P. Morgan as sole bookrunner. Terms on the BB–/Ba3 transaction were finalized inside of talk by 12.5 bps, at 6%, and an early read from the gray market points to follow-on demand, with quotes up at least one point on the break, according to sources. Proceeds will be used to repay a portion of the amounts outstanding under the company’s bank credit facility, filings showed. Needham, Mass.–based PTC offers software and services tied to computer-aided design products and engineering calculation solutions. Terms:

Issuer PTC Inc.
Ratings BB–/Ba3
Amount $500 million
Issue senior notes (SEC reg.)
Coupon 6%
Price 100
Yield 6%
Spread T+434
Maturity May 15, 2024
Call nc3 @ par+75% coupon
Trade May 4, 2016
Settle May 12, 2016 (T+6)
Bookrunners JPM
Co-managers Barc, FTS, HSBC, JM, Key, RBC, RBS, Sant, STRH, TD, Hunt, USB
Price talk 6.25% area
Notes First call par+75% coupon; inside of talk by 12.5 bps.