MultiPlan places $1B bond offering (CCC+/Caa1) to yield 6.625%

multiplanMultiPlan this afternoon completed a $1 billion offering of senior notes via J.P. Morgan and Barclays, according to sources. Terms were finalized at the tight end of talk. Take note of the deal’s issuer-friendly features, including a 40% equity claw and first call at par plus 75% coupon to balance the short schedule. Proceeds back the purchase of the company by Starr Investment Holdings and Partners Group. The two groups are acquiring the U.S. healthcare-cost-management company from BC Partners and Silver Lake Partners, which bought a controlling stake in the business in 2010 for $3.1 billion. Based in New York, MultiPlan is the largest independent preferred provider organization. Terms:

Issuer MultiPlan
Ratings CCC+/Caa1
Amount $1 billion
Issue senior notes (144a-life)
Coupon 6.625%
Price 100
Yield 6.625%
Spread T+419
Maturity April 1, 2022
Call nc3@ par+75% coupon
Trade March 18, 2014
Settle March 31, 2014 (T+9)
Lead Books JPM/Barclays
Px talk 6.75% area
Notes Equity claw up to 40% at 106.625%. First call par plus 75% coupon.

Bankruptcy: Tuscany Drilling equity committee wants sale details amid “stonewalling”

tuscany drillingA newly appointed official committee of equity holders in the Chapter 11 proceedings of Tuscany International Drilling says the company has “stonewalled” its discovery requests and other efforts the group has made to determine whether Tuscany has properly marketed the company’s assets for a proposed bankruptcy sale to pre-petition lenders.

Tuscany, a Canadian onshore drilling company with operations in Colombia, Brazil, and Ecuador, filed for Chapter 11 in Wilmington, Del., on Feb. 2, listing nearly $200 million in debt. At the time of its filing, the company reached a restructuring support agreement with holders of 95% of its pre-petition loans under which lenders will be able to credit bid their claims at auction.

The company said its board has been pursuing strategic alternatives since 2012, when it hired Black Spruce Merchant Capital. Tuscany also hired Citigroup Global Markets as a financial advisor in 2013. The equity committee says, however, that the company has withheld even “the most basic information regarding the debtors’ prepetition and postpetition (to the extent it exists) marketing efforts to allow the equity committee to evaluate whether the efforts were reasonable or effective, or whether the proposed timeline is sufficient.”

Tuscany filed its proposed plan and disclosure statement on March 3. Under the plan, holders of about $202 million in pre-petition claims will receive their pro rata share of the reorganized company’s equity. General unsecured creditors and current equity holders will be wiped out.

Within weeks of Tuscany’s bankruptcy filing, however, 78 shareholders, representing about 8.3% of all shares outstanding, had formed an ad hoc committee to fight for a shareholder recovery. On March 13, the U.S. Trustee overseeing the case appointed an official equity committee, meaning its professional advisors will be paid for by the estate. The group hired Landis Rath & Cobb as counsel and Gavin/Solmonese as financial advisor. The committee’s membership currently consists of:

  • John Adler (2119 Elliott Ave, McLean, VA 22101)
  • Jason Pageau (6573 Goldencreek Way, Las Vegas, NV 89108)
  • Nassos Kirykos (Kaviron 8, Lavrio 19500, Greece)

Tuscany’s short stay in bankruptcy has already raised other red flags. In late February, the U.S. Trustee objected to the company’s attempts to repay South American creditors ahead of its other general unsecured creditors, and to Tuscany’s request to waive certain noticing requirements of the bankruptcy code (see “Tuscany Drilling may not repay South Americans first, Trustee says,” LCD News, Feb. 27, 2014).

Judge Kevin Gross will hold a hearing on the company’s bid procedures and proposed disclosure statement on April 7. A plan-confirmation hearing is currently set for May 6. – John Bringardner


Quiznos files pre-packaged Chapter 11

Denver-based sandwich chain Quiznos filed a pre-packaged Chapter 11 in Wilmington, Del., today, seeking to reduce its debt by more than $400 million.

The company’s use of the term “pre-packaged” indicates that Quiznos has a restructuring plan already in place with enough credit support to see it pass quickly through the bankruptcy court confirmation process, though as of press time the plan had not yet been publicly filed.

QCE Finance LLC’s initial bankruptcy filing listed between $500 million and $1 billion in liabilities. The company said its senior lenders will provide Quiznos with a $15 million debtor-in-possession credit facility. U.S. Bank, as administrative agent under the company’s second-lien facility, is listed as the single largest creditor, with a claim of about $173.8 million.

All but seven of Quiznos’ nearly 2,100 restaurants are independently owned and operated by franchisees in the U.S. and 30 other countries. As separate businesses, they are not part of the Chapter 11.

“The actions we are taking are intended to enable Quiznos to reduce our debt, execute a comprehensive plan to further enhance the customer experience, elevate the profile of the brand and help increase sales and profits for our franchise owners,” Quiznos CEO Stuart Mathis said this morning. “Our business plan includes several key elements aimed at supporting our franchisees, including reducing food costs, implementing a franchise owner rebate program, in certain circumstances making loans available to franchisees for restaurant improvements, investing in advertising to improve location awareness, and providing new incentives for prospective franchisees. We are also introducing new technology at the restaurants and taking other actions to help our franchisees operate their businesses more efficiently.”

Quiznos, founded in 1981, completed an out-of-court restructuring in early 2012 that left the company in the hands of distressed investor Avenue Capital Group. The plan eliminated one-third of the company’s debt, or $300 million, and included $150 million in new equity from Avenue, which owned a significant amount of the second- and first-lien debt leading up the restructuring.

This time around, Akin Gump Strauss Hauer & Feld is advising Quiznos during its Chapter 11, with Lazard Freres & Co. as financial advisor and Alvarez & Marsal as restructuring advisor. Richards, Layton & Finger is serving as local Delaware counsel. – John Bringardner




Bankruptcy: Overseas Shipholding refiles Proskauer suit, but the plot thickens

Overseas Shipholding Group said that on March 11 it re-filed its legal malpractice lawsuit against its former counsel, Proskauer Rose, and four of its partners, in New York State Supreme Court in Manhattan, according to the company’s 2013 10-K filed today with the Securities and Exchange Commission.

As reported, the bankruptcy court overseeing the company’s Chapter 11 proceedings late last month “abstained” from hearing the lawsuit, which had been filed as an adversary action in the company’s bankruptcy in Wilmington, Del. As reported, Proskauer had asked the bankruptcy court to dismiss the lawsuit – a request upon which the bankruptcy court did not rule – or, alternatively, abstain from hearing the case on the grounds that New York State Supreme Court was a more appropriate court to consider the matter, which involved questions of state law and events occurring in New York (see “Dismissal sought on ‘baseless’ Overseas Shipholding malpractice suit,” LCD, Jan. 22, 2014).

As also reported, the company alleged that certain advice Proskauer rendered in connection with credit pacts the company entered into in 2000 and 2001 led to the inclusion of similar language in the company’s replacement $1.8 billion credit agreement in 2006 (for which the company had different legal counsel), which in turn ultimately led to a tax liability of about $463 million (subsequently settled for $264.3 million).

The tax liability required the company to restate its financials for the previous dozen years, and precipitated its Chapter 11 filing in November of 2012.

The suit further alleged that Proskauer sought to cover up its negligence in a legal opinion rendered to the company a decade later, in 2011, as the company was seeking to refinance its 2006 credit facility (see “Overseas Shipholding sues former attorneys over tax advice,” LCD, Nov. 19, 2013).

Proskauer has denied all of the allegations, and has asserted that Overseas Shipholding is using it as a scapegoat for its tax liability. With respect to the advice provided in 2000 and 2001, Proskauer argues that the claims are barred by the statute of limitations. Proskauer further notes that it provided no advice in connection with the 2006 credit agreement.

But it is company’s claims regarding the legal opinion Proskauer rendered in 2011 – and the alleged attempted cover-up of its earlier negligence – that could wind up emerging as a flashpoint.

Proskauer argued in its motion to dismiss filed in bankruptcy court that the allegedly negligent cover-up advice it provided to Overseas Shipholding in 2011 was based on misrepresentations that the company itself made to the law firm, and for which Proskauer could not be held liable.

But perhaps in recognition of the strategy that the best defense is a good offense, Proskauer filed its own lawsuit on Feb. 23, also in New York State Supreme Court, against two former Overseas Shipholding executives, general counsel James Edelson and CFO Myles Itkin, alleging that their misrepresentations constituted fraud, constructive fraud, and breaches of fiduciary duties.

As reported, Overseas Shipholding’s tax liability was based on revenue earned by the company’s foreign subsidiaries that the company had excluded from its tax calculations, but later determined was taxable revenue because those foreign units were guarantors under the company’s credit agreements.

The potential liability first came to light in 2011 when Proskauer was working on a replacement facility for the company, and noticed that the company’s foreign units had “joint and several” liability under the 2006 credit agreement – contract language that could trigger the tax liability.

At the time, Proskauer advised that the company’s ultimate liability would, however, depend upon the interpretation of the phrase “joint and several,” or more specifically, whether the company and its lenders intended for the “joint and several” language in its various credit agreements to operate as a guarantee of the debt by its foreign subsidiaries, or whether it merely resulted from sloppy and inexact drafting of documents.

To that end, Proskauer’s suit said the law firm researched the history of the credit agreement and discovered that the “joint and several” language was first used, and copied from, the company’s earlier credit agreements in 2000 and 2001.

According to the Proskauer lawsuit, the firm’s own records contained no information regarding the company’s intent at that time with respect to whether “joint and several” was intended to serve as a guaranty of the debt. Edelman and Itkin both said that the company had no documents bearing on the issue, but that their recollections were that there was never an intent that the company’s foreign subsidiaries serve as guarantors under the company’s credit agreements. Based on these representations, Proskauer concluded that the weight of evidence established that the foreign units were not intended as guarantors under the company’s credit agreements.

Proskauer said it sought to conduct additional analysis of the issue, but Overseas Shipholding prevented Proskauer from pursuing the matter further or obtaining additional evidence.

According to Proskauer, 15 months later, PriceWaterhouseCoopers, Overseas Shipholding’s auditor, asked the law firm to recast its legal memorandum as an legal opinion on the “joint and several” issue. At that time, according to the lawsuit, “Edelson finally revealed that OSG had a trove of documents easily accessible in its offices that conclusively demonstrated both that the inclusion of ‘joint and several’ in the credit agreements was intentional and that the intended meaning was ‘guarantor or co-obligor.’”

According to Proskauer’s lawsuit, those documents showed, among other things, that both Overseas Shipholding and its law firm at the time of the 2006 credit agreement, Clifford Chance LLP, “understood and intended for the company’s foreign units to act as guarantors under the 2006 credit agreement.”

“Had Proskauer known about these documents, it never would have reached the conclusion in [2011] that OSG ought to prevail in convincing a court that the credit agreements should not create [a tax] liability,” the lawsuit said.

At that point, Proskauer said the company cut off its relationship with the law firm and handed the matter over to its restructuring counsel, which is Cleary Gottlieb Steen & Hamilton.

“Adding insult to injury,” Proskauer alleged, “OSG’s management then caused OSG to commence a baseless malpractice and breach of duty lawsuit against Proskauer in an attempt to recover OSG’s extensive tax liabilities.”

The Proskauer suit alleges that Edelson and Itkin’s actions constituted fraud and negligent misrepresentation that created “significant legal fees for Proskauer” and damaged the “professional reputations” of Proskauer and the four partners named in the Overseas Shipholding lawsuit.

Proskauer also asked that if it is ultimately found liable for legal malpractice, then Edelson and Itkin should be required to pay any damages on Proskauer’s behalf since, according to the suit, their misrepresentations are the basis for any incorrect advice. – Alan Zimmerman


High yield bond funds see fifth straight investor cash inflow ($573M)

high yield bond flows

Retail-cash inflows to high-yield funds totaled $573 million in the week ended March 12, according to Lipper. This is the fifth consecutive inflow, for a net infusion of $3.95 billion over that span.

The ETF segment moderated its influence this past week, at 28% of the total, or $159 million, versus 65% of the $560 million inflow last week.

Despite another solid inflow, the trailing four-week average slips to positive $624 million per week, from positive $844 million last week. The trailing average was positive $461 million per week two weeks ago.

The full-year reading shows inflows of $2.6 billion, comprised of $2.3 billion of mutual fund inflows and $216 million of ETF inflows, or 8% of the sum.

One year ago at this time, the inflow total stood at $279 million, with a breakdown of $877 million of mutual fund inflows offset by roughly $598 million of ETF outflows.

The change due to market conditions was negative this past week, at $615 million, putting total assets at $181.9 billion, of which 20% is tied to ETFs, or $36.6 billion. Total assets are up $4.3 billion in the year to date, or a gain of roughly 3% this year.

In the full-year 2013, inflows were $1.9 billion, with ETF inflows comprising 85% of the total, at $1.6 billion.

Net assets were up $9.8 billion in 2013, a gain of 6%. The change due to market conditions was positive $12.6 billion, a gain of 8%, according to Lipper. – Matt Fuller


Bankruptcy: Ergen says new $1.65B LightSquared DIP constitutes sub rosa plan

LightSquared’s latest proposed debtor-in-possession credit facility constitutes a sub rosa plan, “conceived in bad faith” as a way to force through a reorganization plan that discriminates against the company’s largest secured lender, SP Special Opportunities, according to an objection filed late Wednesday by SPSO.

LightSquared is seeking bankruptcy court approval of a new $1.65 billion DIP facility, priced at L+1,100, with a 1% LIBOR floor, as part of its latest proposed reorganization plan. The new DIP, arranged by joint bookrunners JP Morgan and Credit Suisse, would pay off claims on the company’s two outstanding DIPs, a $72.36 million DIP for LightSquared Inc. and $33.7 million on the recently approved new DIP for LightSquared LP (see “LightSquared may tap new $33M DIP from senior lenders, Ergen,” LCD News, Feb. 4, 2014). About $930 million of the new DIP would be converted into second-lien exit financing, $300 million into a loan for reorganized LightSquared Inc., and about $115 million into new equity.

SPSO, the special purpose vehicle set up by Dish Networks founder Charles Ergen to purchase about $1 billion of LightSquared’s senior debt, is the only major creditor to have voted against LightSquared’s current reorganization plan (see “LightSquared creditors all vote in favor of plan, except for Ergen,” LCD News, March 7, 2014). Although the plan purports to repay SPSO in full, LightSquared is attempting to subordinate SPSO’s claims and repay the fund via a seven-year paid-in-kind note – treatment that SPSO has said is unacceptable.

“The DIP facility, like the unconfirmable plan, reflects the obvious motive of the DIP lenders: protect themselves from the massive risks attendant to being a stakeholder of a company whose assets nobody wants, and that has made no demonstrable progress in obtaining the FCC relief on which its future purportedly hinges,” lawyers for SPSO wrote in their March 12 objection. LightSquared has long maintained that its success as a business depends on FCC approval of its proposed wireless spectrum use, though the latest version of the company’s reorganization plan removes an earlier requirement that the company receive FCC approval before it can exit Chapter 11.

“Instead, the DIP lenders – all of whom currently hold deeply subordinated positions in the debtors’ capital structure and were the driving force behind the plan’s formulation – propose to shift that risk to SPSO, the debtors’ largest secured creditor, by subordinating SPSO’s first lien prepetition LP facility claims to $1.65 billion of debt immediately upon funding of the DIP facility, and ultimately to $2.2 to $3.2 billion of debt (if not more) once the plan becomes effective,” SPSO said. “In contrast, for their “investments” in the debtors, the DIP lenders would receive (a) downside protection in the form of priming or senior liens (under the DIP facility and second lien exit facility) to secure their new money loans, and (b) upside in the form of the reorganized debtors’ equity once the plan becomes effective. Uncomfortable with a legitimate equity investment given the substantial uncertainty about the debtors’ future viability, the DIP lenders orchestrated a transaction that would allow them to have their cake and eat it too.”

Among other things, SPSO argues Judge Shelley Chapman must reject the DIP because it was never marketed, and LightSquared has failed to show that alternative, less onerous financing is unavailable, as required under the Bankruptcy Code. What’s more, LightSquared can’t show that SPSO’s liens will be adequately protected after the company incurs $1.65 billion of priming financing, SPSO says. Under the proposed plan, SPSO is exposed to the risk that the value of its collateral will shrink long before its note is paid off, its lawyers say.

“Leaving aside anything “technical,” the debtors have pursued a plan of reorganization with no back up plan and exhausted all of their liquidity doing so,” SPSO says. “As a result, being a lender to LightSquared these days is anything but a sure thing.”

SPSO and LightSquared are due back in court on March 17 for closing arguments in a related battle over the validity of SPSO’s purchase of LightSquared debt. The hearing had been scheduled for March 12, but was postponed after LightSquared revealed new evidence Monday allegedly showing that Dish Networks was interested in LightSquared’s spectrum as early as 2012. The evidence purportedly contradicts Ergen’s previous testimony that he was interested in LightSquared purely as a personal investment. Ergen spent nearly $1 billion of his own money to make the purchases, via SPSO, buying up LightSquared debt from roughly May 2012 to May 2013. Dish Networks, as a competitor to LightSquared, was barred from making such purchases under the terms of LightSquared debt indentures.

A confirmation hearing on LightSquared’s plan is currently scheduled for March 19. – John Bringardner


United Rentals completes $1.375B 2-part bond offering at middle of talk

United Rentals this afternoon completed its two-part offering of senior notes via bookrunners Morgan Stanley, Bank of America, Wells Fargo, Citi, Barclays, Credit Suisse, and Deutsche Bank, according to sources. Terms were finalized at the midpoint of talk on both tranches. Proceeds will be used to finance in part the cash portion of the purchase price of the National Pump Acquisition and redeem $500 million of the 9.25% senior notes due 2019. Terms:

Issuer United Rentals
Ratings BB-/B2
Amount $525 million
Issue senior add-on (SEC Reg.)
Coupon 6.125%
Price 105.25
Yield 5.188%
Spread T+305
Maturity June 15, 2023
Call nc3.5
Trade March 12,2014
Settle March 26, 2014 (T+10)
Lead Books MS/BAML/WF/Citi/Barc/CS/DB
Co’s. Scotia/HSBC/MIT/JPM
Px talk 105.25 area
Issuer United Rentals
Ratings BB-/B2
Amount $850 million
Issue senior (SEC Reg.)
Coupon 5.75%
Price 100
Yield 5.75%
Spread T+306
Maturity Nov. 15, 2024
Call nc5
Trade March 12,2014
Settle March 26, 2014 (T+10)
Lead Books MS/BAML/WF/Citi/Barc/CS/DB
Co’s. Scotia/HSBC/MIT/JPM
Px talk 5.75% area

Global Ship Lease high yield bonds price to yield 10.392%; terms

global ship lease logoGlobal Ship Lease this afternoon completed an offering of secured notes via sole bookrunner Citigroup, according to sources. Terms were finalized at the midpoint of talk, following a $20 million upsizing. Timing was also moved up a day. Proceeds will be used to refinance debt, and to terminate interest-rate swaps. The company previously attempted to access the market for its debut offering in December but withdrew the deal, citing “market conditions.” Price talk for that deal was in the 9.5% area for a $400 million offering of seven-year (non-call three) secured notes. Terms:

Issuer Global Ship Lease
Ratings B/B3
Amount $420 million
Issue first-priority secured (144A)
Coupon 10.00%
Price 98.5
Yield 10.392%
Spread T+878
Maturity April 1, 2019
Call nc2
Trade March 11, 2014
Settle March 19, 2014 (T+6)
Lead Books Citi
Px talk 10% coupon at 98.5 OID
Notes Upsized by $20 million.


Cornerstone Chemical plans $75M PIK toggle high yield bond offering

cornerstone chemicalCornerstone Chemical has entered the market with a $75 million offering of senior PIK toggle notes due 2018 via sole bookrunner Imperial Capital, according to sources.

A roadshow for the deal starts today in New York, with pricing expected early next week. The deal is being issued through holding companies H.I.G BBC Intermediate Holdings and H.I.G. BBC Holding Corp. under Rule 144A for life, according to sources.

Proceeds from the unrated deal, callable in one year at 102% of par, will be used to pay a cash dividend to shareholders and fund a debt service reserve account. The company’s opco notes are rated B-/B3-, with the company maintaining a corporate rating of B-/B2.

The offering is a fourth PIK-toggle dividend deal this year, following BlueLine Rental, American Greetings, and, for a combined $628 million in proceeds. Last year there were 30 such transactions in market for a net $11.6 billion and nearly double the 19 completed in 2012 totaling $6.2 billion, according to LCD.

The opco notes were Cornerstone’s last tap of the market, priced just over a year ago. That issued was sold at par to yield 9.375%, via Imperial Capital and KeyBanc, and is currently trading at 106 for a yield of 7.4%, according to S&P Capital IQ. Proceeds from the five-year secured issue were also used to fund a dividend to shareholders and to refinance existing debt.

Cornerstone Chemical is a Louisiana-based producer of critical intermediate and specialty chemicals. H.I.G. Capital is the sponsor, according to S&P Capital IQ. – Joy Ferguson


Bankruptcy: U.S. Trustee objects to exec bonuses under proposed plan by Cengage

cengage logoThe U.S. Trustee for the bankruptcy court in Brooklyn objected to Cengage Learning’s proposed reorganization plan, arguing that an included management incentive plan upon emergence from Chapter 11 violates provisions of the Bankruptcy Code that limit the payment of bonuses to insiders.

As reported, a confirmation hearing on the largely consensual reorganization plan is scheduled for March 13.

According to the objection filed yesterday by U.S Trustee William Harrington, the proposed management incentive plan runs afoul of the Bankruptcy Code because it, “in effect, rewards the [company’s] executives with stock and stock options potentially worth over $10 million for remaining in their positions during the Chapter 11 case, rather than awarding bonuses prospectively if the executives meet performance targets set by the new board of directors.” According to Harrington, the company is seeking approval of the bonus payments in the context of confirmation, rather than via a motion to the Bankruptcy Court, in an effort to “circumvent the strict standards” in the Bankruptcy Code that seek to prevent excessive executive compensation during a Chapter 11 case.

Under the proposed MIP, which, under the reorganization plan, the company’s new board is required to adopt upon emergence, executives are to receive 5.6% of the reorganized equity valued at about $10 million (comprised 60% of incentive options and 40% restructured stock units). CEO Michael Hanson would receive 50% of that aggregate award amount, while eight other executives and a new CFO would split the other 50%. Under the plan, 80% of the awards, with a value of $8 million, would be distributed on the date the company emerges from Chapter 11.

In effect, Harrington argues, this scheme rewards the company’s executives for simply remaining with the firm during the bankruptcy, an incentive which the Bankruptcy Code specifically prohibits unless certain requirements are satisfied, such as paying a retention incentive only when an executive has already received a competing offer from a different firm.

Harrington further argues that the MIP would undermine the company’s new board of directors, since it would obligate the company to “distribute potentially $10 million in value to insiders prior to the formation of the new board of directors,” depriving the new board and the reorganized company of “corporate governance procedural protections” and precluding the board “from exercising its fiduciary duty.”

Separately, Harrington contends that a proposed severance payment provided for in the company’s reorganization plan for CFO Dean Durbin also violates the Bankruptcy Code prohibition against payments to insiders.

The company only first disclosed its intent to part ways with Durbin in its recently filed reorganization plan supplement, Harrington notes.

According to Durbin’s severance agreement, he is to receive his $600,000 salary for one year after separation from the company plus his pro rata distribution of any bonus he would have received had he remained in the company’s employ.

Harrington is not seeking to block confirmation of the company’s proposed reorganization plan, but he is asking the bankruptcy court to, among other things, deny approval of the MIP. – Alan Zimmerman