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WaveDivision PIK toggle bonds (B-/Caa1) price to yield 8.25%

WaveDivision Holdings this morning completed its offering of senior PIK toggle notes to fund a shareholder dividend via Deutsche Bank, Wells Fargo, RBC, and SunTrust Robinson Humphrey, according to sources. Terms were finalized at the tight end of talk, along with a $25 million upsize. Half of the increase will be used for cash on the balance sheet, while the remaining half will be used to increase the distribution to shareholders. Issuing entities are Wave Holdco, LLC and Wave Holdco Corp. WaveDivision is a cable and broadband services company that provides television, Internet, and phone services for residential and business customers in Washington, Oregon, and California. Terms: 

Issuer WaveDivision
Ratings B-/Caa1
Amount $175 million
Issue senior PIK toggle (144A-life)
Coupon 8.25% cash/ 9% in kind
Price 100
Yield  8.25%
Spread  T+653
Maturity July 15, 2019
Call nc1
Trade June 18, 2014
Settle June 25, 2014
Bookrunners DB/WFS/RBC/STRH
Price talk 8.375% area
Notes upsized by $25M
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West Corp. high yield bonds price to yield 5.375%

Communications infrastructure and services firm West Corp. completed its offering of senior notes via Deutsche Bank, Wells Fargo, Bank of America, BMO, Goldman Sachs, Morgan Stanley, and Citi, according to sources. Mizuho is a comanager. Terms were finalized at the midpoint of talk. Note the first call at par plus 75% of the coupon. West seeks capital to pay down existing bonds, with two series outstanding: the 8.625% notes due 2018 and the 7.875% notes due 2019. The company was acquired in 2006 by an investor group led by Thomas H. Lee Partners and Quadrangle Group, but last year went public on the Nasdaq under the symbol WSTC and now carries an approximate $2.2 billion market capitalization.

Terms:

Issuer West Corp.
Ratings B+/B3
Amount $1 billion
Issue senior notes (144A-life)
Coupon 5.375%
Price 100
Yield 5.375%
Spread T+297
Maturity July 15, 2022
Call nc3 @par+75% coupon
Trade June 18, 2014
Settle July 1, 2014 (T+9)
Bookrunners DB/WFS/BAML/BMO/GS/MS/Citi
Co-Managers Mizuho
Price talk 5-25-5.5%
Notes First call at par +75% coupon

 

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Bankruptcy: Ahead of key hearing, Momentive’s proposed case schedule draws flak

The indenture trustee for Momentive Performance Materials 11.5% senior subordinated notes due 2016 has asked the bankruptcy court to schedule a “threshold hearing” for the week of July 28 on the issue of whether the notes are subordinate in payment rights to or, as the indenture trustee contends, pari passu with, the company’s second-lien debt.

In a June 16 court filing, the subordinated notes trustee, U.S. Bank, argued that the subordination issue was a threshold issue that should be decided before the bankruptcy court addresses other issues in the case. According to U.S. Bank, if the second-lien lenders prevail in the dispute, the company can continue with confirmation of its proposed reorganization plan, but if subordinated noteholders prevail, it would render the company’s proposed reorganization plan unconfirmable and require new negotiations – an issue better decided sooner rather than later.

U.S. Bank said it proposed the threshold hearing schedule in a June 12 letter to Bankruptcy Court Judge Robert Drain.

As reported, the company’s proposed reorganization plan provides for second-lien lenders to receive 100% of the reorganized company’s equity, after giving effect to the subordination provisions of the subordinated notes. Holders of subordinated notes would not see any recovery under the proposed reorganization plan.

On May 30, however, the indenture trustee, U.S. Bank, filed a lawsuit arguing that under the terms of the subordinated notes indenture, the second-lien debt does not constitute “senior indebtedness,” and as a result is pari passu with the subordinated notes (see “Momentive’s subordinated holders sue, claim pari passu with 2nd-lien,” LCD, June 3, 2014). According to the lawsuit, the definition of “senior indebtedness” in the subordinated notes indenture excludes any debt that “by its terms is subordinate or junior in any respect to any other indebtedness or obligation of the company.”

According to the lawsuit, the key phrase in that language is “junior in any respect,” which the suit argues means that it applies not only to debt that is considered junior in right of payment, but also to debt that is junior in other respects as well – such as a junior secured ranking of second-lien debt.

As also reported, Momentive on June 5 asked the bankruptcy court to set a schedule for the case that would see, among other things, the subordination issue litigated on an accelerated timeline along with two other adversary actions filed in the case, namely, lawsuits filed by the company’s senior creditors (comprised of $1.1 billion of 8.875% first-priority senior notes due 2020 and $250 million of 10% senior secured notes due 2020, the so-called 1.5-lien notes, respectively) seeking declaratory judgments that holders are entitled to acceleration payments as a result of early repayment of the debt.

The company’s requested timetable would see discovery completed simultaneously for all three matters by July 25, with a confirmation hearing slated to begin on Aug. 14, continuing to Aug. 14, 15, 20, 21, and 22.

Momentive filed its reorganization plan and disclosure statement on May 12, and a hearing on, among other matters, the adequacy of the disclosure statement is set for tomorrow. In that regard, it is worth noting that virtually every creditor constituency in the case, with the exception of a group of the second-lien noteholders who are serving as backstop parties to the company’s proposed $600 million rights agreement and who will, under the company’s proposed reorganization plan, wind up with the lion’s share of the reorganized equity, has objected to the proposed disclosure statement.

Meanwhile, in addition to asking Drain to set a threshold hearing on the subordination issue, U.S. Bank also objected to Momentive’s proposed timetable more generally due to its compressed timeframe, saying it was “patently unreasonable and devoid of any notion of due process.”

U.S. Bank added, “But, the most offensive part of the debtors’ proposed schedule is that there is no real reason for it. The debtors’ post-petition financing does not mature until the date that is 12 months following the commencement of these cases—i.e., well into 2015. The only reason the debtors have requested a confirmation hearing in mid-August is because that is when the plan proponents determined they want to be paid.”

Meanwhile, the indenture trustee for the company’s 1.5-lien notes also objected to the proposed timetable, calling it “unjustifiably compressed” and “unduly prejudicial.”

“The debtors have failed to allege, let alone demonstrate, cause for their proposed shortened deadlines, and, in fact, no such cause exists,” the indenture trustee, Wilmington Trust, said.

Wilmington Trust put forth an alternative timetable for the case that would see discovery on the adversary actions and confirmation issues concluding by Sept. 9, with motions for summary judgment filed by Sept. 15 and briefing on the motions concluded by Oct. 13.

Under this schedule, the confirmation hearing would be held at a date to be determined, presumably after the court has decided on the adversary actions, inasmuch as Wilmington Trust said that creditors should not be required to vote on the plan until the issues raised in adversary actions are resolved.

A hearing on setting a schedule for the case is scheduled for tomorrow in White Plains, N.Y. – Alan Zimmerman

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All Aboard Florida inks 5-year PIK toggle notes at 12% yield

All Aboard Florida this afternoon completed its offering of senior secured PIK toggle notes via joint bookrunners J.P. Morgan and Morgan Stanley, along with co-manager BMO. Terms were finalized on the midpoint of talk after the company upsized the deal by $15 million to account for additional interest reserve and made some investor-friendly revisions. The issue is also now structured to be 50% cash pay/50% PIK initially and after the opening date, the notes must be 100% cash pay if the company has cash sufficient to pay all interest. Initially, the deal was structured with more flexibility on subsequent payments; either 100% cash or 50% cash/50% PIK. The express passenger rail operator is seeking proceeds to finance all or a portion of the design, construction, and development of a rail project extending from Miami to West Palm Beach, and to fund pre-opening expenses and working capital. Terms:

Issuer All Aboard Florida via AAF Holdings LLC & AAF Finance Company
Ratings
Amount $405 million
Issue secured PIK toggle (144A-life)
Coupon 12% cash/12.75% PIK
Price 100
Yield 12% cash/12.75% PIK
Spread T+1,025
Maturity July 1, 2019
Call nc2.5
Trade June 17, 2014
Settle July 1, 2014 (T+10)
Bookrunners JPM/MS
Co-lead Managers BMO
Price talk 12% area
Notes Upsized by $15 million, along with some investor-friendly revisions.

 

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Bankruptcy: EFIH 2nd-lien noteholders file suit seeking make-whole claim payment


energyfutureholdings
The indenture trustee for the two issues of second-lien notes of Energy Future Holdings’ unit, Energy Future Intermediate Holdings

Litigation over the make-whole claim on the second-lien debt was expected in the case, whether via an adversary action or a motion before the bankruptcy court. A similar issue is also at play in the case in connection with the company’s proposed repayment of $5.4 billion of first-lien debt at EFIH.

The second-lien debt is comprised of about $1.75 billion of 11.75% second-lien notes due 2022 and about $406.4 million of 11% second-lien notes due 2021. The June 16 lawsuit filed by the notes’ indenture trustee, Computershare Trust Co., argues that under the indentures make-whole payments are due if the notes are repaid before March 1, 2017 (for the 11.75% notes) or May 15, 2016 (for the 11% notes).

According to the lawsuit, the company contends that the make-whole payments have not been triggered because the company is not opting to repay the notes early, but rather that the company’s bankruptcy filing on April 29 automatically accelerated the principal to become immediately due and payable.

In response to that argument, however, Computershare argued that bankruptcy law does not require a debtor to repay secured debt upon a bankruptcy filing, and that Computershare, as trustee, has not taken any action to compel repayment of the second-lien notes. Computershare also argued that, even if the bankruptcy filing accelerated payment of the notes, the make-whole payment would still be due under the clear language of the indenture.

As reported, under the company’s proposed reorganization scheme, the second-lien debt is to be paid in full, including accrued and unpaid interest (it’s worth noting that the Computershare adversary action also argues that a higher, default interest rate applies), but excluding the make-whole payment, through the roll-up of a proposed $1.9 billion second-lien DIP backed by certain unsecured creditors of EFIH and Energy Future Holdings.

The bankruptcy court has scheduled a June 30 hearing on approval of the DIP, which is being contested by a group of second-lien lenders that have proposed their own rival second-lien DIP for the company. Which group ultimately wins out as DIP lender is significant because under the company’s restructuring proposal, the facility is slated to be exchanged for equity in the reorganized company.

Meanwhile, as reported, on May 9 the company launched a tender offer to repurchase the second-lien notes incorporating a proposed settlement of the make-whole claim that would pay holders of the 11.75% notes $1,116.22 for each $1,000 principal amount of notes, and holders of the 11% issue $1,073.22 for each $1,000 principal amount of notes, plus an additional $50 per $1,000 principal amount of notes for early participation in the tender offer – amounts which the company said are 50% of the potential second-lien make-whole claims (see “Energy Future launches tender offer for EFIH second-lien debt,” LCD, May 12, 2014).

Holders of 35% of the notes by face value had already agreed to the settlement in a pre-petition restructuring support agreement with the company. Meanwhile, the company said in a filing with the Securities and Exchange Commission on Friday that holders of 43%, or $922.4 million of the total of about $2.2 billion of second-lien debt, have agreed to “early participation” in the settlement, the deadline for which was June 11 (see “EFIH 2nd-lien make-whole settlement nabs 43% early participation,” LCD, June 16, 2014).

The tender offer is set to expire on July 3, the company said, noting that the participation rate is therefore subject to change. A hearing on bankruptcy court approval of the settlement is scheduled for June 30.

Returning to the adversary action, the next step in the litigation process would be for the company to file a response to the adversary action with the bankruptcy court. That will eventually occur, but on a more practical level, now that the issue – which, as noted, both sides agree needs to be litigated – has been placed before the court, look for the parties to either work out a discovery and litigation schedule, as was done with respect to the first-lien debt make-whole claim (see “Parties agree to September trial on EFIH first-lien make-whole claim,” LCD, June 4, 2014), or leave it to the bankruptcy court to set a timetable for resolving the matter. – Alan Zimmerman

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WaveDivision (Oak Hill Partners, GI Partners) outlines price talk on PIK-toggle dividend bond deal

WaveDivision Holdings is shopping a $150 million offering of senior PIK-toggle notes in the 8.375% area, with pricing at par via Deutsche Bank, Wells Fargo, RBC, and SunTrust Robinson Humphrey, according to sources. Books close at 5:00 p.m. EDT this afternoon, and pricing is expected tomorrow morning under Rule 144A for life.

Issuing entities are Wave Holdco, LLC and Wave Holdco Corp., with the company seeking proceeds to fund a distribution to shareholders. The five-year notes are non-callable for one year and include a 40% equity claw during the non-call period at par plus the coupon, according to sources.

Ratings are B-/Caa1, with stable and negative outlooks, respectively. Additionally, S&P assigned a recovery rating of 6 to the deal, indicating expectation for negligible recovery (0-10%) in the event of default.

Moody’s said the negative outlook is due to the increase in junior capital, but at the same time upgraded the existing loan and bond ratings by one notch apiece, to Ba3 and B3, respectively. The new corporate entity is B2.

In 2012, Oak Hill Partners and GI Partners acquired WaveDivision from an ownership group led by Sandler Capital Management for roughly $920 million. The acquisition was funded with an equity contribution of around $212 million, a $500 million term loan, and $250 million of 8.125% notes due 2020. That paper currently is marked at 107.75, yielding about 6%, according to S&P Capital IQ.

While the dividend will increase leverage slightly, the company states that it maintains strict financial discipline, reducing its leverage from 6.8x at the completion of the 2012 acquisition to 5.8x as of March 31 through the generation of cash flow and organic and acquisition-related EBITDA growth. From 2011 to 2013, total revenue and adjusted EBITDA grew at 17.7% and 18.6%, respectively.

Including the new notes, the company will have total debt of $951.6 million.

This marks potentially a 14th PIK-toggle deal of 2014, for a pro forma total of $3.7 billion in supply, after 32 deals last year for $11.6 billion, according to LCD. Recall that there have also been two plain PIK deals this year.

WaveDivision is a cable and broadband services company that provides television, Internet, and phone services for residential and business customers in Washington, Oregon, and California. – Joy Ferguson/Matt Fuller

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

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All Aboard Florida sets talk on upsized $405M of 5-year PIK notes

All Aboard Florida is guiding its $405 million offering of senior secured PIK-toggle notes in the 12% area, via joint bookrunners J.P. Morgan and Morgan Stanley, along with co-manager BMO. The company upsized the deal by $15 million to account for additional interest reserve.

Books close at 2:00 p.m. EDT tomorrow, June 17, with pricing to follow.

Some investor-friendly revisions have also been made to the structure. The 144A-for-life deal is set to mature in 2019, with the first call date pushed out six months, to 2.5 years, from two years, at par plus 50% of the coupon. The notes can also be redeemed at par plus 100% of the coupon with proceeds of a government loan during the first 2.5 years, which is revised from par plus 75% of the coupon during the first two years, and the equity claw is now 25%.

The issue is also now structured to be 50% cash pay/50% PIK initially and after the opening date, the notes must be 100% cash pay if the company has cash sufficient to pay all interest. Initially, the deal was structured with more flexibility on subsequent payments; either 100% cash or 50% cash/50% PIK.

Note the unique senior security of the offering. Historically, just four of 131 PIK toggle deals were secured and sold regular-way, while a three others were secured and issued by a distressed exchange, according to LCD.

The express passenger rail operator is seeking proceeds to finance all or a portion of the design, construction, and development of a rail project extending from Miami to West Palm Beach, and to fund pre-opening expenses and working capital.

Leads are guiding investors toward triple-C ratings. As stated in the offering memorandum, the company is required to get ratings from two of three agencies within 90 days of issuance, otherwise the coupon steps up by 25 bps.

Parent entity Florida East Coast Industries was in market just two months ago with a bond-refinancing deal. An $875 million issue of 6.75% secured notes due 2019 was completed at par, but now trades around 105, yielding about 5.3%, while a $275 million issue of 9.75% unsecured notes due 2020 was also issued at par, but now is pegged at roughly 104.75, yielding about 8.42%, according to sources. Ratings are B/B3 and CCC+/Caa1, respectively. Both were issued under Rule 144A for life, with first call premiums at par plus 75% of the coupon.

Issuance for All Aboard’s offering is via AAF Holdings LLC & AAF Finance Company. All Aboard Florida is an intercity passenger rail project being developed by Florida East Coast Industries (FECI) that will connect Miami to Orlando, with intermediate stations in Fort Lauderdale and West Palm Beach. This rail service will provide Floridians and visitors a viable transportation alternative to congested highways and airport terminals. All Aboard Florida will be the first privately owned, operated, and maintained passenger rail system in the U.S. – Joy Ferguson

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High Yield Bond Issuance Surges To $9.8B Amid Investor Cash Inflow

Amid investor cash inflows to the asset class the U.S. high yield bond market kicked into higher gear last week, posting nearly $10 billion in volume, more than double the amount seen the previous week and the most since the middle of May.

With last week’s volume, high yield bond issuance so far in 2014 is $165.4 billion, slightly above the $162.7 billion recorded at this time a year ago. Full-year issuance in 2013 was a hefty $322 billion, the second-highest yearly figure on record (the highest: $344.8 billion in 2012).

The surge in activity comes as technicals bolster the corporate high yield debt market. Despite some shakiness in the ETF sector, U.S. high yield funds last week saw their sixth straight period of net inflows, totaling some $2.7 billion, according to Lipper.

That momentum is impacting yields. The yield to worst on the S&P U.S. Issued High Yield Corporate Bond Index was a slim 4.91% last week, according to LCD’s Joy Ferguson, and the average new-issue yield on high yield deals priced over the past 30 days dipped inside 6%, at 5.98%, according to LCD.

The highest-profile deals last week: Dialysis concern DaVita DVA -0.42% Healthcare Partnersissued $1.75 billion of B+/B1 rated notes at 5.125%, backing repayment of bank debt, while Gates Globalissued $1 billion of B/Caa2 notes backing the LBO of  the transmission belts and fluid-power products concern by Blackstone.

 

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Dolan Co. plan goes effective as brouhaha among equity heats up

The Dolan Company said the effective date of its reorganization plan occurred on June 12, according to court filings.

Even so, it appears that a final family dispute among equity holders is yet to be resolved.

As reported, the Wilmington, Del., bankruptcy court approved the adequacy of the company’s disclosure statement and confirmed its prepackaged reorganization plan on June 9, after the company reached a settlement of a valuation challenge by the equity committee in the case under which the company agreed to distribute $2 million in cash and certain other consideration to equity holders (see “Dolan Co. prepackaged reorganization plan nets confirmation,” LCD, June 9, 2014).

The confirmation order, which stated the terms of the settlement, also said the distribution to equity holders would be allocated 20.13% to holders of the company’s preferred stock and 79.87% to holders of the company’s common stock.

As reported, on Wednesday, Nantahala Capital Management, which said it represents holders of preferred stock, filed a motion seeking to amend the confirmation order to eliminate the stated allocation among preferred and common stock holders, to allow equity holders to renegotiate a new allocation (see “Dolan Co. pfd shareholders want bigger slice of equity distribution,” LCD, June 11, 2014).

According to Nantahala, the equity committee, which is comprised solely of common stock holders, intentionally left Nantahala out of the loop in deciding upon the allocation – despite knowledge that Nantahala held preferred shares and had been an active participant in the case previously – because the panel “was afraid that the preferreds would ask for a greater share of the equity consideration because of their liquidation preference.”

Since the distribution to equity was in the form of a trust structure, Nantahala argued that equity holders could work out their differences without affecting the timing or implementation of the company’s reorganization plan. What’s more, Nantahala said, it would not take long to negotiate a new split given the modest sums involved.

But common shareholders don’t seem eager to revisit the matter.

In an objection to the Nantahala motion filed yesterday, the equity committee said Nantahala was not excluded from participation in settlement discussions because of its ownership of preferred stock (of which the equity committee said it was unaware), but because Nantahala – which the committee concedes had participated in some aspects of the case, including seeking the appointment of an equity committee on which it then refused to serve – intentionally “chose to defer entirely to the equity committee presumptively” in connection with the valuation dispute with the company “because it did not want to restrict its trading opportunities.”

Second, the equity panel argued, negotiating the allocation of the equity distribution among equity holders in the confirmation order was clearly within its authority, and given that, “if the [bankruptcy] court then was satisfied that the equity committee did its job appropriately, the [Nantahala] motion offers nothing new to call that conclusion into question.”

“Indeed,” the equity committee added, “the only new fact is that Nantahala does not like the deal.”

Third, the committee argues, despite Nantahala’s assertion that a new allocation could be quickly agreed upon, reopening the issue “would prolong these cases and facilitate further discord and litigation.” The committee argues that while Nantahala would pursue a split of the equity proceeds that it deems to be favorable, other stockholders in addition to Nantahala would likely “favor different split ratios, which further their own parochial interests.”

“The conversation could easily become extended and multifaceted,” the panel said.

In addition, both the company and its primary creditor, Bayside Capital, also objected to the Nantahala motion.

The company said its settlement with the equity panel “should not now be disturbed by a disgruntled shareholder that was fully aware of the dispute with the equity committee, but otherwise did not take part in the substantive fight over confirmation of the debtors’ plan.”

As for Bayview, it stated that the settlement was reached in the context of “a highly contested dispute,” but that “once an agreement was reached to resolve the litigation, the parties moved forward on an expedited basis to ensure that the debtors’ enterprise value was preserved and that the debtors were able to exit Chapter 11 as quickly as possible.”

Bayview concluded, “Under these circumstances, … the confirmation order should not be amended to modify to accommodate Nantahala’s request.” – Alan Zimmerman

 

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Bankruptcy: US Trustee says Momentive disclosure statement lacks information

The U.S. Trustee for the Southern District of New York’s bankruptcy court filed an objection to Momentive Performance Material’s proposed disclosure statement, saying that the document fails to provide enough information to creditors about, among other things, the implications of a subordination dispute in the case.

As reported, the indenture trustee for company’s subordinated notes has asserted that the notes are not subordinate in payment to, but rather are pari passu with, the company’s second-lien notes. If the bankruptcy court upholds that position, the company’s reorganization plan would not be confirmable (see “Momentive’s subordinated holders sue, claim pari passu with 2nd-lien,” LCD, June 3, 2014).

According to the June 12 objection from the U.S. Trustee, William Harrington, the company’s disclosure statement fails to both adequately disclose that absent a settlement of this subordination dispute, creditors will have to cast ballots on the plan before the issue is fully litigated, and, second, the fact that a court ruling that the subordinated notes and the second lien debt are pari passu would doom the company’s proposed reorganization plan.

Among other things, the prospect that the proposed plan might ultimately prove unconfirmable is tied into widespread opposition in the case to the company’s proposed restructuring-support agreement and rights-offering-backstop agreement, which would, in effect, pay certain second-lien lenders a $30 million break-up fee if the company’s proposed reorganization plan is ultimately not confirmed.

Harrington’s filing said that the company has informed him that it intends to file an amended disclosure statement and, according to Harrington, “it appears likely that this revised document will address” his concerns, but he did not state when the new disclosure statement would be filed.

Still, the U.S. Trustee’s objection is one more indication that Momentive’s proposed reorganization plan faces significant headwinds.

A hearing on the adequacy of the disclosure statement, as well as on approval of the RSA and the backstop commitment, is set for June 19 in White Plains, N.Y.

As reported, at the core of the company’s proposed reorganization plan is the exchange of second-lien debt for all of the equity in the reorganized company, and the right to participate in a $600 million rights offering at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion, applying a 15% discount to the equity value.

That proposal, however, has generated opposition from virtually every stakeholder in the case, except for the group of second-lien lenders, led by Apollo Management, that are backstopping the rights offering and are parties to the RSA (see “Momentive plan-support pact faces a slew of objections,” LCD, June 10, 2014).

Objecting parties include not only the subordinated noteholders whom the plan leaves without a recovery, but also the company’s senior lenders ($1.1 billion of 8.875% first-priority senior secured notes due 2020 and $250 million of 10% senior secured notes due 2020, the so-called 1.5 notes), who are slated to be repaid in full, in cash, but contend, among other things, that they are entitled to a make whole payment of about $250 million, as well as Fortress Investment Group, a second-lien lender that says it was excluded from participating in the rights-offering backstop. Indeed, Fortress argues, among other things, that the backstop commitment is a sham, since virtually every holder of second-lien debt is likely to participate in the very favorable deal. – Alan Zimmerman