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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 Ancestry.com, 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

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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

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Bankruptcy: LightSquared creditors all vote in favor of plan, except for Ergen

All of LightSquared’s creditors voted in favor of the company’s proposed reorganization plan, except for Charles Ergen’s SP Special Opportunities fund, whose roughly $920 million in LP facility claims LightSquared lawyers have asked the bankruptcy court to designate.

Creditors were given until March 3 to vote on the latest version of LightSquared’s plan. The claims agent in the case filed the results with the court this afternoon, showing, as expected, widespread support for the plan aside from SPSO, which is in the midst of litigation to determine whether Ergen’s fund legally acquired the claims in the first place. (see “Charles Ergen’s ‘deceit’ sabotaged LightSquared reorg, company says,” LCD News, Feb. 15, 2014).

Earlier this week, LightSquared filed a motion asking Judge Shelley Chapman to override SPSO’s no vote, arguing that it was not made in good faith, a requirement of the Bankruptcy Code. (see “LightSquared asks court to force Ergen to vote in favor of plan,” LCD News, March 4, 2014). SP Special Opportunities, a special-purpose vehicle the DISH Networks founder set up to purchase more than $1 billion in claims on LightSquared’s senior debt, was created as part of a “comprehensive and premeditated plan to acquire LightSquared’s spectrum,” the company said in a court filing late Monday. “By voting to reject the plan, SPSO seeks to further the interests of the Ergen parties and to facilitate their business strategy of acquiring spectrum assets.”

The success of the plan, in its current form, depends on a “yes” vote from SPSO, whether voluntary or designated.

The vote-designation motion was expected. LightSquared’s lawyers have said in recent court hearings they intended to file the motion as part of the company’s latest reorganization plan. Lawyers for SPSO and Ergen, who have vehemently opposed LightSquared’s accusations, must file their official response to the vote-designation motion by March 11. A hearing on the motion, and on LightSquared’s plan, is currently scheduled for March 17, before U.S. Bankruptcy Judge Shelley Chapman.

Meanwhile, closing arguments in LightSquared’s adversary proceeding against Ergen are scheduled for March 12, in Manhattan. – John Bringardner


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Select Medical add-on high yield bonds (B-/B3) price at 101.5 to yield 6.03%

Select Medical this afternoon completed an add-on to its 6.375% senior notes due 2021 through bookrunners J.P. Morgan, Goldman Sachs, Bank of America, Morgan Stanley, RBC, and Wells Fargo, according to sources. Terms were finalized at the tight end of guidance. Proceeds will be used to fund a share repurchase from sponsor Welsh Carson Anderson & Stowe. The add-on will be fungible upon registration with the $600 million already outstanding. Terms:

Issuer Select Medical
Ratings B-/B3
Amount $110 million
Issue add-on senior notes (144a)
Coupon 6.375%
Price 101.5
Yield 6.033%
Spread T+447
Maturity June 1, 2021
Call nc2.25 @ par+75% coupon
Trade March 6, 2014
Settle March 11, 2014 (t+3)
Lead Books JPM/GS/BAML/MS/RBC/WF
Px talk 101-101.50
Notes first call par+75% coupon; total now $710 million; original $600 million priced in May 2013 @par.

 

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Dewey & LeBoeuf execs face fraud charges from SEC, Manhattan DA

Dewey logoFormer Dewey & LeBoeuf executives Steven Davis, Stephen DiCarmine, and Joel Sanders could face up to 25 years in prison, Manhattan District Attorney Cyrus Vance said this morning, at a press conference where he announced charges of grand larceny and fraud that helped drive the international law firm into a 2012 Chapter 11 liquidation.

The charges are the result of a nearly two-year investigation by the DA’s office, in conjunction with the FBI, after partners at Dewey first raised concerns with law enforcement. The SEC conducted a parallel investigation and announced its own charges this morning. Davis, Dewey’s former chairman, DiCarmine, the former executive director, and Sanders, the former CFO, were taken into custody this morning, along with former client relations manager Zachary Warren. Another seven unidentified Dewey finance professionals have pleaded guilty to charges of falsifying business records, Vance said.

“The defendants are accused of concocting and overseeing a massive effort to cook the books at Dewey & LeBoeuf,” Vance said. “Their wrongdoing contributed to the collapse of a prestigious international law firm, which forced thousands of people out of jobs and left creditors holding the bag on hundreds of millions of dollars owed to them. Those at the top of the firm directed employees to hide the firm’s true financial condition from creditors, investors, auditors, and even partners of the firm, until the scheme unraveled and resulted in the largest law firm bankruptcy in history.”

Dewey filed for Chapter 11 protection on May 28, 2012, to liquidate and wind-up operations after a credit crunch at the end of 2011 kicked off a wave of partner defections that forced the firm into bankruptcy. The Chapter 11 proceedings were quick and smooth, at least according to standards set by the prior bankruptcies of large law firms. Judge Martin Glenn confirmed a liquidation plan in February 2013 that promised secured creditors an estimated 47-77 cents on the dollar. Unsecured creditors – the “limo drivers and food service staff,” as Vance characterized them today – were expected to see a return of just 5-14 cents on the dollar for their claims. The plan created a liquidation trust to pursue remaining funds for creditors.

SEC Division of Enforcement Direct Andrew Ceresney said this morning that Dewey executives used “a grab bag of accounting gimmicks” to show investors the firm had weathered the financial storm in order to sell $150 million in bonds. “It’s extremely rare for a law firm to access the public bond markets,” Ceresney said, but Dewey did so using false information to mislead investors. The SEC is seeking disgorgement of firm profits and the permanent disbarment of Davis and DiCarmine. At least one original investor still holds Dewey debt, Ceresney said.

From Dewey’s formation in 2007 – the result of a merger between two prestigious firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae – until early 2010, the firm had both term debt and revolving debt. By the end of 2008, Dewey had more than $100 million in term debt outstanding and available lines of credit of more than $130 million, Ceresney said. The firm refinanced its debt in April 2010 with a $150 million private placement with 13 insurance companies, and a $100 million revolving line of credit with a syndicate of banks. The DA’s office has accused Davis, DiCarmine, and Sanders of stealing nearly $200 million from these investors through fraudulent adjustments of firm financials. Among other things, Dewey’s offering memorandum falsely purported to disclose all of the firm’s debt, the DA’s office said.

The DA cited internal firm emails between Davis and Sanders in the midst of the alleged fraud, regarding the retirement of a firm auditor at Ernst & Young. “Can you find another clueless auditor for next year?” Davis wrote to Sanders. – John Bringardner

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Bankruptcy: Atlantic Express wins exclusivity extension to plan liquidation

U.S. Bankruptcy Judge Sean Lane granted private-bus operator Atlantic Express a 60-day extension of its exclusive right to file and solicit votes on a Chapter 11 liquidation plan, through May 5 and July 7, respectively, according to a court order signed Tuesday.

The company, identified in court filings as Metro Affiliates, is still in the process of selling off its assets and formulating its liquidation plan. Since filing for Chapter 11 on Nov. 4, 2013, the company has entered into 20 separate sale transactions with various purchasers, Atlantic Express said last month. The company entered bankruptcy hoping to raise new debt or equity financing, but a union rejection of its proposal to cut employee wages nixed chances for a restructuring (see “Atlantic Express union nixes new proposal; asset sales on tap next,” LCD News, Dec. 6, 2013). – John Bringardner

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MACH Gen files prepackaged Ch. 11 to eliminate $1B in debt

Natural-gas power-plant owner MACH Gen filed for Chapter 11 protection in Wilmington, Del., late Monday, with a prepackaged reorganization plan that will eliminate about $1 billion in debt and another $82 million in annual interest payments.

The Athens, N.Y.-based company signed a restructuring-support agreement with lenders on Jan. 15 and began soliciting votes on its plan on Jan. 21. Among its “first-day” court filings, MACH Gen asked Judge Mary Walrath to schedule a combined hearing on the company’s disclosure statement and reorganization plan for April 10, a schedule that would ensure a swift trip through the bankruptcy court.

MACH Gen owns and manages three natural-gas-fired electric-generating facilities, in Athens, Maricopa County, Ariz., and Charlton, Mass. CEO Garry Hubbard said the company’s balance sheet first came under pressure in the early 2000s, shortly after its original financing was put in place. In 2008, sale proceeds from one of MACH Gen’s four power facilities provided additional liquidity and borrowing capacity, but leverage remained high, with a significant level of second-lien PIK debt and a looming February 2015 maturity, Hubbard said.

Shrinking power demand since 2008 and lower gas prices linked to fracking and renewable-energy sources further cut into MACH Gen’s profits. In 2013, MACH Gen generated about $350 million in operating revenue, at a net loss of about $120 million. The company’s unaudited balance sheet shows about $750 million in assets and about $1.6 billion in liabilities as of Dec. 31, 2013.

Beal Bank USA will provide the company with a $200 million debtor-in-possession credit facility, priced at L+475, with CLMG Corp. as administrative agent. Up to $160 million of the DIP may be used for letters of credit. The company is seeking court approval to use up to $55.7 million of the DIP on an interim basis.

Under its proposed plan, MACH Gen will repay in full first-lien revolver claims of about $119.4 million, and first-lien term loan claims of about $483.2 million. About $1 billion in allowed second-lien claims will be exchanged for a pro rata share of new common units in the reorganized company, for an anticipated recovery of 50-65 cents on the dollar. The recovery assumes that about $545-715 million of value may be ascribed to the new common units, based on the projected enterprise value of reorganized MACH Gen. Current shareholders will be allowed to exchange their claims for 6.5% of the new common units.

MACH Gen.’s direct owners are Merrill Lynch Genco II LLC, SOLA Ltd., Strategic Value Global Opportunities Offshore Fund 1-A LP, and Strategic Value Master Fund, court records show. Its indirect owners are Värde Partners LP, Solus Alternative Asset Management LP, and Strategic Value Partners LLC.

Law firms Milbank, Tweed, Hadley & McCloy and Richards, Layton & Finger are advising the company during its bankruptcy, along with restructuring advisor Moelis & Company. – John Bringardner

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RadioShack high yield bonds plumb record lows on 4Q report; CDS gaps wider

RadioShack logoBonds and shares of RadioShack traded lower, with bonds hitting all-time lows just as default protection on the credit gapped out to record wides after the struggling retailer posted fourth-quarter financials. Net revenue in the quarter was roughly 16% below consensus estimates, at $935 million, according to S&P Capital IQ.

The RadioShack 6.75% non-call notes due 2019 plunged to record low quotes, at 55.5/57, according to sources. Low trades were reported earlier today at 55, though the paper has since changed hands at 56, according to trade reporting.

Five-year CDS in the name gapped out 23% this morning, at a record wide of 44.6/47.6 points upfront, according to Markit. With that move, the cost of protecting $10 million of RadioShack bonds is essentially $925,000 more costly upfront, with roughly a $4.7 million payment at the midpoint, in addition to the $500,000 annual fee.

Shares were off as much as 26% earlier in the session, but recovered to a 17% decline, at $2.26. The recent low was $2.04 in mid-January, while the all-time low was around $1.90 in late-November 2012, trade data show.

Total net sales were $935.4 million, which is up from $805 million sequentially but down from $1.17 billion in the important holiday-influenced year-ago fourth quarter, according to company filings. Comparable store sales were down 19% on account of “traffic declines” and “soft performance” in the mobility segment, the filings show.

SG&A expenses expanded to 41.6% of net sales, compared with 32.7% of net sales last year, the company reported.

While the company continues to push forward with it’s “five pillars” transformation plan, management today also told investors that the company expects to close up to 1,100 stores. An investor call is underway.

As reported last year, a Bloomberg News report flagged AlixPartners and investment banking firm Peter J. Solomon as refinancing advisors. – Matt Fuller

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

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HCA drives by with $3B, two-part offering to refinance notes

HCA has announced a $3 billion, two-part secured offering with pricing expected today via lead bookrunners J.P. Morgan, and a huge joint bookrunner group that includes Barclays, Bank of America, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, RBC, SunTrust, UBS and Wells Fargo, according to sources.

An investor call is scheduled for today at noon EST, with pricing to follow.

The deal will be split between five- and 10-year bullet tranches, with proceeds being used to redeem the 8.5% secured notes due 2019 and the 7.875% secured notes due 2020. These notes are initially callable on April 15 and Aug. 15, respectively, with regular-way first call premiums, at par plus 50% coupon.

The 8.5% notes traded at 105 on Friday, yielding 2.55% and the 7.5% notes due 2020 were quoted at 108.75, yielding around 2.13%, according to trade data. Those notes traded up to 109 this morning, to yield 1.86%.

The new two-part offering is SEC registered, with leads guiding investors toward BB/Ba3 ratings.

HCA last tapped the market in December 2012 with $1 billion of eight-year bullet notes that were used to fund a dividend to common shareholders. That deal was helmed by Citi and priced at 6.25% at par and most recently traded at 109, yielding 4.72%. Before that, the company issued a $2.5 billion, two-part offering in October 2012, also to fund a shareholder payment.

Nashville, Tenn.-based HCA provides healthcare services in the U.S. and England. The company trades on the NYSE under the symbol HCA with an approximate market capitalization of $22.6 billion. – Joy Ferguson

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Grifols Worldwide plans $1B offering of 8-year high yield bonds for refi

Grifols Worldwide Operations has announced a $1 billion offering of eight-year (non-call three) senior notes through Nomura, Morgan Stanley, BBVA, Deutsche Bank, and HSBC, according to sources.

A New York lunch and global investor call is scheduled for tomorrow, March 4 at noon EST, with timing for the pricing of the deal not yet disclosed. Proceeds from the notes will be used to refinance existing debt.

As reported, the Spanish healthcare company will also host a lender meeting today in New York to present a $4.8 billion, cross-border senior loan financing via MLAs and bookrunners Nomura (global coordinator), Morgan Stanley, BBVA, Deutsche Bank, and HSBC.

The facility is split between pro-rata, dollar, and euro tranches. In terms of roles BBVA (lead left) and Nomura are JLAs and physical bookrunners on the pro-rata facilities; Morgan Stanley (lead left) and Nomura are JLAs and physical books on the dollar TLB; and Nomura (lead left) and Morgan Stanley are JLAs and joint books on the euro TLB.

Grifols signed a $1.5 billion bridge loan back in November to support the acquisition of Novartis’ diagnostics business for $1.675 billion, via global coordinator Nomura alongside fellow joint bookrunners BBVA and Morgan Stanley.

Prior to this the firm signed a $4.5 billion debt financing to support its acquisition of U.S. biotherapeutics firm Talecris in 2010, in a deal that included both dollar and euro institutional term loans, along with high-yield bonds. The loan element of this financing was recut in 2012 via a retranching and repricing that left the firm with TLBs of $1.7 billion and €220 million, paying L/E+350.

Grifols’ senior secured and corporate ratings are Ba1/BB+ and Ba2/BB respectively, and it is listed in Spain on the Ibex-35. The firm published its 2013 full-year results last week, reporting revenue of €2.741 billion and adjusted EBITDA of €917.4 million, for respective increases of 4.6% and 9.7% on the prior year. At the end of 2013, Grifols’ net financial debt stood at €2.087 billion, or 2.28x adjusted EBITDA. – Staff reports