Dynata
CASE SUMMARY: Dynata Files Prepack With Support From Supermajority of Debt Stack; Plan Would Cut Nearly 40% of Funded Debt, Infuse $81.5M of Liquidity Through DIP and Exit Facilities, Leave GUCs Unimpaired
Wed 05/22/2024 18:14 PM
Relevant Documents:
Plan
Disclosure Statement
DIP Motion
First Day Declaration
Press Release
First Day Hearing Agenda
Dynata LLC, a first-party data market research firm, and several affiliates filed a prepackaged chapter 11 this morning in the Bankruptcy Court for the District of Delaware. The Shelton, Conn.-based debtors report $1 billion to $10 billion in assets and liabilities. Dynata enters chapter 11 after signing a restructuring support agreement with 67% of first lien lenders, second lien lenders, revolving lenders and the company’s sponsors Court Square Capital Partners, HGGC and affiliated funds.
Pursuant to the RSA, the company would write down approximately 40% of its total debt - down to $780 million from approximately $1.3 billion - with the company’s first lien lenders receiving 95% and second lien holders 5% of pre-dilution reorganized equity. The company notes that the restructuring is limited to Dynata's U.S. entities and that all foreign businesses remain unaffected. In a press release, the company states that the support of its lenders will enable the company to “further invest in its 36-month transformation initiatives and support its long-term growth strategy.”
The RSA provides that all first lien lenders may participate in a $31.5 million new-money senior-secured DIP as well as a $50 million in new-money exit financing. The DIP facility is structured as a single draw term loan, with the debtors eligible to draw the full amount upon interim DIP approval. The DIP and exit financing is backstopped by certain members of an ad hoc group of first lien lenders. Upon maturity, DIP claims may be converted into the exit term loan facility upon the claimholder’s election.
Pursuant to the RSA, the plan would provide the following claim treatment:
In his first day declaration, Dynata CFO Steven Macri says that the debtors engaged in prepetition negotiations with two ad hoc lender groups prepetition: a first lien ad hoc group represented by Gibson Dunn and PJT, and a second lien ad hoc group represented by Vinson & Elkins and Lazard. The negotiations culminated in amendments to the first lien and second lien credit agreements to address certain events of default and cross-defaults that would have occurred beginning Feb. 1.
In the face of slowing growth, increased interest rates and the lingering impact of the Covid-19 pandemic, Macri says, the company negotiated with the first lien ad hoc group to secure “must-needed new money financing, centered around a conversion of the First Lien Loans into the substantial majority of equity of the reorganized Debtors.”
On May 21, Macri says, the debtors, certain members of the first lien ad hoc group, the revolving credit lenders, the second lien ad hoc group and sponsors - affiliates of Court Square Capital and HGGC - entered into the restructuring support agreement. The debtors are targeting a July 2 combined confirmation and final DS approval hearing.
The first day hearing is scheduled for tomorrow, Thursday, May 23, at 1 p.m. ET.
The debtors’ outstanding debt obligations are detailed below.
The debtors’ outstanding debt as of the petition date includes $96.9 million outstanding under a revolving credit facility and a term loan with $920.8 million outstanding, both of which are secured by a first-priority lien on substantially all of the debtors’ assets. The debtors also have a $250 million term loan outstanding secured by a second priority lien on substantially all of the debtors’ assets. Additionally, general unsecured obligations, including vendor and litigation claims, totaled $158.9 million as of the petition date.
According to Reorg’s CLO Database, $89.4 million of the first lien term loan was held by First Eagle Investment Management as of May 8, and $67.5 million was held by Bain Capital Credit as of May 6. The full list of holders in our database is shown below.
Similarly, the CLO database indicates that AXA Investment Managers held $6.8 million of the second lien term loan as of May 6, and Bain Capital Credit held $1.5 million as of April 8.
The DS includes a valuation, financial projections and a liquidation analysis, detailed below.
Houlihan Lokey, the debtors’ financial advisor, estimates the reorganized debtors’ total enterprise value, as of an assumed June 30 effective date, at between $820 million and $1.02 billion, with a midpoint of $920 million, according to the valuation analysis. Assuming net debt of approximately $745 million as of the assumed effective date, the reorganized debtors’ implied equity value range is estimated to be between $75 million and $275 million, with a midpoint of $175 million.
The case has been assigned to Judge Thomas M. Horan (case No. 24-11057). The debtors are advised by Willkie Farr & Gallagher as general bankruptcy counsel, Young Conaway as Delaware counsel, Alvarez & Marsal North America as restructuring advisor and Houlihan Lokey as investment banker. Kroll is the claims, notice and solicitation agent.
Gibson Dunn is counsel and PJT Partners is investment banker to an ad hoc group of controlling first lien lenders in connection with the restructuring.
DS Approval Motion / Confirmation Timeline
The debtors commenced solicitation on May 21, prior to the filing, based on a May 9 voting record date. Dynata seeks approval of the following confirmation schedule:
RSA Milestones
Background / Events Leading to Bankruptcy Filing
In his first day declaration, Macri says Dynata - a global data platform company in the “business-to-business insights” industry - provides its clients “the ability to collect data for market research studies.” The company obtains such data by recruiting “members” and enrolling the members in “online panels” to complete surveys.
Macri explains that “clients can provide Dynata with the exact survey they want to disseminate or Dynata can assist with writing or curating the survey.” For example, for a client who “may want to survey 100 male left-handed golfers in Arizona to understand how this demographic will react to a specific product launch,” Dynata “is able to reach out to the applicable demographic of panelists and create a report of results for the client.”
The debtors also perform other “market research, data collection and processing, and client relationship management services,” Macri says.
According to Macri, the debtors “reach more than 70 million consumers and business professionals globally, serve more than 5,000 clients, and produce over 100 million complete surveys per year.”
Macri states that notwithstanding “significant business growth in recent years,” the debtors faced “numerous challenges” in recent months. Such challenges included a “slow” M&A environment - which Macri cites for lowering demand for Dynata’s services - impending covenant defaults under the first and second lien loan facilities, and “fluctuating interest rates,” which caused a “steep increase” in the debtors’ cash interest obligations.
Broadly, Macri notes that the debtors have been slow to adapt to “an evolving competitive market.” Macri also partially pins the debtors’ need for chapter 11 relief on the Covid-19 pandemic, which interfered with the debtors’ efforts to recruit survey panelists using travel loyalty points.
The company faced a default under their first lien and second lien credit agreements in “early 2024,” and they therefore “engaged” with the first lien and second lien ad hoc groups, according to the first day declaration. Negotiations with those groups led to an amendment of the credit agreements on Feb. 6, which contained a milestone requiring the debtors to enter an RSA with the first lien ad hoc group by Feb. 29.
Macri explains that “since the execution” of the amendments, the debtors have “worked tirelessly to negotiate a consensual restructuring” and received “multiple extensions” of the RSA milestone to provide more time for negotiating a consensual restructuring. Macri states that these efforts resulted in the May 21 RSA.
The debtors' largest unsecured creditors are as follows:
The case representatives are as follows:
Plan / Disclosure Statement
Below is a chart of the plan’s classes, along with their impairment status and voting rights:
Treatment of Claims and Interests
The debtors’ plan treatment includes the following classification of and proposed distributions to holders of allowed claims and interests:
The management incentive plan would provide for the issuance of up to 11% of new common stock, subject to approval of the reorganized board on terms consistent with the RSA.
Other Plan Provisions
The plan provides for releases of the debtors, the sponsors, consenting lenders, the first lien and second lien ad hoc groups, DIP lenders, DIP backstop parties, exit backstop parties, the DIP, first lien and second lien agents and second lien lenders who vote to accept the plan. Holders of claims and interests who object to the plan or opt out would be excluded from the releases.
In addition, the plan includes an exculpation provision in favor of the debtor and related parties, including current and former directors and officers, equityholders and professionals.
DIP Financing Motion / Cash Collateral Motion
The debtors propose to fund the cases with a $31.5 million new-money DIP and consensual use of cash collateral. The entirety of the DIP financing would be available on interim approval. Participation in the DIP would be open to all first lien lenders through a postpetition syndication process. Certain members of the first lien ad hoc group would backstop the syndication; the backstop was offered to all restricted members of the first lien ad hoc group.
The DIP loans would bear interest at SOFR+8.75% annually. The DIP provides for a 3.5% commitment fee, 9% backstop fee and 2% exit fee, each payable in cash.
The DIP would roll into the debtors’ $81.5 million senior secured term loan exit facility, subject to the right of DIP lenders to elect payment in cash. The DIP otherwise matures 75 days after the closing date, subject to customary maturity triggers (including conversion or dismissal of the cases).
Ethan Kopp of Houlihan Lokey, the debtors’ investment banker, says in a supporting declaration that the debtors need the $31.5 million DIP to “comfortably operate their business in the ordinary course postpetition.” Kopp adds that Houlihan Lokey conducted a prepetition marketing process directed at third-party lenders to secure “non-consensual priming” or “junior” unsecured DIP financing, but no third party was willing to provide a DIP on those terms. Kopp also asserts that the DIP is an “essential component” of the RSA, and absent DIP approval, prepetition lenders would not consent to the use of cash collateral.
The proposed budget for the use of the DIP facility is HERE.
The DIP would be secured by a first-priority lien on substantially all of the debtors’ assets.
The company proposes customary adequate protection for the DIP lenders, including replacement liens, superpriority claims, and payment of reasonable and documented fees and expenses.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge the lenders’ collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The post-termination carve-out for professional fees is $1 million.
The DIP financing milestones mirror the RSA case deadlines, apart from the interim DIP milestone (which uses a “business day” calculation):
Anticipated Emergence Capital Structure
The debtors’ anticipate the following capital structure on emergence:
First-Out Term Loan Facility
First lien lenders would provide an $81.5 million four-year first-out term loan facility, which would be used for payment of chapter 11 expenses, working capital and other general corporate purposes. The facility would include $50 million in new money and $31.5 million in converted DIP claims.
The facility would be backstopped by the exit backstop parties - certain members of the first lien ad hoc group - which would receive a 9% backstop fee, payable in cash.
The first-out term loans would be issued with a 1.5% original issue discount, amortize at 1% per annum (payable quarterly) and bear interest at SOFR+5%.
The facility would be secured by a first-priority lien on substantially all of the loan parties’ assets. However, if the company enters into a new ABL facility secured by a first-priority lien on working capital assets, then the first-out lenders would have a second lien on those assets junior to the new ABL lien.
New ABL Facility
The plan anticipates a $75 million exit ABL facility. The facility would be secured by first-priority liens on the working capital assets that secured the existing first lien credit agreement and second-priority liens on all other assets that secured the existing first lien credit agreement.
Second-Out Take-Back Term Loan Facility
Existing first lien lenders would receive a pro rata share of a $694 million second-out take-back term loan facility as partial consideration for their first lien claims.
The take-back facility would bear interest at SOFR+5.5% and mature 4.25 years from the effective date. The loans would amortize at 1% annually, payable quarterly.
The take-back facility would be secured by a first-priority lien with second payment priority on all collateral securing the first-out term loan facility. To the extent the company enters into the new ABL facility, the second-out take-back loans would be secured by a second-priority lien with second payment priority on working capital assets.
New Warrants
The five-year new warrants issued to second lien lenders would entitle them to purchase up to 12.5% of reorganized equity at a strike price equal to the value of reorganized equity that would allow holders of first lien claims to receive a par plus accrued interest recovery on the total value of the first lien claims. The value of the first-out new-money loan would be added to the enterprise value and equity value calculation.
Valuation Analysis
Investment bankers and financial advisors estimate the enterprise value of the reorganized debtors at $820 million to $1.02 billion, with a midpoint of $920 million, as of the assumed effective date of June 30. Houlihan Lokey adds that assuming net debt of approximately $745 million as of the assumed effective date, the implied equity value range of the reorganized debtors would range from $75 million to $275 million, with a midpoint of $175 million.
Financial Projections
The debtors provide the following projected statement of operations through 2027:
The debtors provide the following projected balance sheet through 2027:
The debtors provide the following cash flow projections through 2027:
Liquidation Analysis
The debtors provide the following analysis of recoveries under the plan:
Other Motions
The debtors also filed various standard first day motions, including the following:
Plan
Disclosure Statement
DIP Motion
First Day Declaration
Press Release
First Day Hearing Agenda
| Summary |
| Data market research firm Dynata files prepackaged plan with restructuring support agreement signed by holders of more than 67% of all funded debt classes to equitize $520 million, or 40%, of prepetition funded debt. |
| First lien revolving and term lenders to inject $81.5 million of new-money DIP and exit financing, with reorganized equity split 95%/5% between first lien and second lien lenders. |
| Lenders to receive take-back loans and cash, in addition to equity, with projected recoveries “TBD.” |
| The company attributes the bankruptcy filing to slowing M&A environment, increased interest costs and lingering effects of the Covid-19 pandemic. |
Dynata LLC, a first-party data market research firm, and several affiliates filed a prepackaged chapter 11 this morning in the Bankruptcy Court for the District of Delaware. The Shelton, Conn.-based debtors report $1 billion to $10 billion in assets and liabilities. Dynata enters chapter 11 after signing a restructuring support agreement with 67% of first lien lenders, second lien lenders, revolving lenders and the company’s sponsors Court Square Capital Partners, HGGC and affiliated funds.
Pursuant to the RSA, the company would write down approximately 40% of its total debt - down to $780 million from approximately $1.3 billion - with the company’s first lien lenders receiving 95% and second lien holders 5% of pre-dilution reorganized equity. The company notes that the restructuring is limited to Dynata's U.S. entities and that all foreign businesses remain unaffected. In a press release, the company states that the support of its lenders will enable the company to “further invest in its 36-month transformation initiatives and support its long-term growth strategy.”
The RSA provides that all first lien lenders may participate in a $31.5 million new-money senior-secured DIP as well as a $50 million in new-money exit financing. The DIP facility is structured as a single draw term loan, with the debtors eligible to draw the full amount upon interim DIP approval. The DIP and exit financing is backstopped by certain members of an ad hoc group of first lien lenders. Upon maturity, DIP claims may be converted into the exit term loan facility upon the claimholder’s election.
Pursuant to the RSA, the plan would provide the following claim treatment:
- Holders of first lien term loan claims and revolving credit loan claims would receive a combination of their pro rata share of: the option to fund their pro rata share of first-out new-money term loans, the second-out take-back term loans, 95% of the new common stock (subject to dilution) and an approximately $11.7 million cash payment;
- Holders of second lien term loan claims would receive their pro rata share of 5% of the reorganized equity (subject to dilution), new warrants to acquire 12.5% of the new common stock and a $750,000 cash payment;
- All general unsecured claims, including vendor and service provider claims, would be paid in full and unimpaired; and
- All existing equity interests would be wiped out.
In his first day declaration, Dynata CFO Steven Macri says that the debtors engaged in prepetition negotiations with two ad hoc lender groups prepetition: a first lien ad hoc group represented by Gibson Dunn and PJT, and a second lien ad hoc group represented by Vinson & Elkins and Lazard. The negotiations culminated in amendments to the first lien and second lien credit agreements to address certain events of default and cross-defaults that would have occurred beginning Feb. 1.
In the face of slowing growth, increased interest rates and the lingering impact of the Covid-19 pandemic, Macri says, the company negotiated with the first lien ad hoc group to secure “must-needed new money financing, centered around a conversion of the First Lien Loans into the substantial majority of equity of the reorganized Debtors.”
On May 21, Macri says, the debtors, certain members of the first lien ad hoc group, the revolving credit lenders, the second lien ad hoc group and sponsors - affiliates of Court Square Capital and HGGC - entered into the restructuring support agreement. The debtors are targeting a July 2 combined confirmation and final DS approval hearing.
The first day hearing is scheduled for tomorrow, Thursday, May 23, at 1 p.m. ET.
The debtors’ outstanding debt obligations are detailed below.
The debtors’ outstanding debt as of the petition date includes $96.9 million outstanding under a revolving credit facility and a term loan with $920.8 million outstanding, both of which are secured by a first-priority lien on substantially all of the debtors’ assets. The debtors also have a $250 million term loan outstanding secured by a second priority lien on substantially all of the debtors’ assets. Additionally, general unsecured obligations, including vendor and litigation claims, totaled $158.9 million as of the petition date.
According to Reorg’s CLO Database, $89.4 million of the first lien term loan was held by First Eagle Investment Management as of May 8, and $67.5 million was held by Bain Capital Credit as of May 6. The full list of holders in our database is shown below.
Similarly, the CLO database indicates that AXA Investment Managers held $6.8 million of the second lien term loan as of May 6, and Bain Capital Credit held $1.5 million as of April 8.
The DS includes a valuation, financial projections and a liquidation analysis, detailed below.
Houlihan Lokey, the debtors’ financial advisor, estimates the reorganized debtors’ total enterprise value, as of an assumed June 30 effective date, at between $820 million and $1.02 billion, with a midpoint of $920 million, according to the valuation analysis. Assuming net debt of approximately $745 million as of the assumed effective date, the reorganized debtors’ implied equity value range is estimated to be between $75 million and $275 million, with a midpoint of $175 million.
The case has been assigned to Judge Thomas M. Horan (case No. 24-11057). The debtors are advised by Willkie Farr & Gallagher as general bankruptcy counsel, Young Conaway as Delaware counsel, Alvarez & Marsal North America as restructuring advisor and Houlihan Lokey as investment banker. Kroll is the claims, notice and solicitation agent.
Gibson Dunn is counsel and PJT Partners is investment banker to an ad hoc group of controlling first lien lenders in connection with the restructuring.
DS Approval Motion / Confirmation Timeline
The debtors commenced solicitation on May 21, prior to the filing, based on a May 9 voting record date. Dynata seeks approval of the following confirmation schedule:
- June 18: Plan supplement filing deadline;
- June 25, 4 p.m. (ET): Plan/DS objection deadline and voting deadline;
- June 28, 12 p.m. (ET): Deadline to file proposed confirmation order and confirmation brief; and
- July 2: Confirmation hearing, subject to court availability.
RSA Milestones
- May 25 (three days after the petition date): Entry of the interim DIP order;
- June 21 (30 days after the petition date): Entry of the final DIP order;
- July 6 (45 days after the petition date): Entry of the plan confirmation order; and
- July 11 (50 days after the petition date): Occurrence of the plan effective date.
(Click HERE to enlarge.)
Background / Events Leading to Bankruptcy Filing
In his first day declaration, Macri says Dynata - a global data platform company in the “business-to-business insights” industry - provides its clients “the ability to collect data for market research studies.” The company obtains such data by recruiting “members” and enrolling the members in “online panels” to complete surveys.
Macri explains that “clients can provide Dynata with the exact survey they want to disseminate or Dynata can assist with writing or curating the survey.” For example, for a client who “may want to survey 100 male left-handed golfers in Arizona to understand how this demographic will react to a specific product launch,” Dynata “is able to reach out to the applicable demographic of panelists and create a report of results for the client.”
The debtors also perform other “market research, data collection and processing, and client relationship management services,” Macri says.
According to Macri, the debtors “reach more than 70 million consumers and business professionals globally, serve more than 5,000 clients, and produce over 100 million complete surveys per year.”
Macri states that notwithstanding “significant business growth in recent years,” the debtors faced “numerous challenges” in recent months. Such challenges included a “slow” M&A environment - which Macri cites for lowering demand for Dynata’s services - impending covenant defaults under the first and second lien loan facilities, and “fluctuating interest rates,” which caused a “steep increase” in the debtors’ cash interest obligations.
Broadly, Macri notes that the debtors have been slow to adapt to “an evolving competitive market.” Macri also partially pins the debtors’ need for chapter 11 relief on the Covid-19 pandemic, which interfered with the debtors’ efforts to recruit survey panelists using travel loyalty points.
The company faced a default under their first lien and second lien credit agreements in “early 2024,” and they therefore “engaged” with the first lien and second lien ad hoc groups, according to the first day declaration. Negotiations with those groups led to an amendment of the credit agreements on Feb. 6, which contained a milestone requiring the debtors to enter an RSA with the first lien ad hoc group by Feb. 29.
Macri explains that “since the execution” of the amendments, the debtors have “worked tirelessly to negotiate a consensual restructuring” and received “multiple extensions” of the RSA milestone to provide more time for negotiating a consensual restructuring. Macri states that these efforts resulted in the May 21 RSA.
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Cint USA Inc | New York | Trade | $ 1,562,429 |
| Prime Insights Group LLC | Dover, Del. | Trade | 782,637 |
| Amazon Web Services | Seattle | Trade | 779,350 |
| Make Opinion GmbH | Berlin | Trade | 770,501 |
| BitBurst GmbH | Monheim am Rhein, Germany |
Trade | 738,872 |
| Innovate MR, LLC | Calabasas, Calif. |
Trade | 409,057 |
| DISQO Inc. | Glendale, Calif. |
Trade | 366,846 |
| SHI International Corp | Somerset, N.J. |
Trade | 335,254 |
| Salesforce.com | San Francisco | Trade | 310,639 |
| Borderless Access Panels | Seattle | Trade | 290,017 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel |
Jeffrey D. Pawlitz Andrew S. Mordkoff Erin C. Ryan Amanda X. Fang |
Willkie Farr & Gallagher |
New York |
| Debtors' Co-Counsel |
Edmon L. Morton Matthew B. Lunn Shella Borovinskaya Kristin L. McElroy |
Young Conaway Stargatt & Taylor |
Wilmington, Del. |
| Debtors' Restructuring Advisor |
NA | Alvarez & Marsal North America |
NA |
| Debtors' Investment Banker |
Ethan Kopp | Houlihan Lokey |
New York |
| Counsel to 1L Ad Hoc Group |
Scott J. Greenberg AnnElyse Scarlett Gains Jonathan M. Dunworth |
Gibson, Dunn & Crutcher |
New York |
| Counsel to 2L Lenders |
George Howard Steven Zundell Matthew D. Struble |
Vinson & Elkins |
New York |
| Counsel to Sponsor |
Christopher Marcus | Kirkland & Ellis |
New York |
| Co-Counsel to 1L Revolving Credit Loan Claims |
Joel Moss Jordan Wishnew |
Cahill Gordon & Reindel |
New York |
| Co-Counsel to 1L Revolving Credit Loan Claims |
Mark D. Collins | Richards Layton & Finger |
Wilmington, Del. |
| U.S. Trustee | Joseph Cudia Joseph McMahon |
Office of the U.S. Trustee |
Wilmington, Del. |
| Debtors’ Claims Agent |
Benjamin J. Steele | Kroll | New York |
Plan / Disclosure Statement
Below is a chart of the plan’s classes, along with their impairment status and voting rights:
Treatment of Claims and Interests
The debtors’ plan treatment includes the following classification of and proposed distributions to holders of allowed claims and interests:
- Unclassified claims:
- Administrative claims, including professional fee claims, priority tax claims and U.S. Trustee fees would be paid in full in cash.
- Holders of DIP facility claims would receive a pro rata share of $31.5 million of the first-out converted term loans and the first-out new-money term loans.
- Class 1 - Other secured claims: Holders would either receive payment in full in cash, reinstatement or other treatment sufficient to render their claims unimpaired.
- Projected recovery: 100%
- Class 2 - Other priority claims: Holders would receive payment in full in cash or other treatment sufficient to render their claims unimpaired.
- Projected recovery: 100%
- Class 3A - First lien term loan claims: Holders would receive a pro rata share of:
- An option to fund the first-out new-money term loans;
- The second-out take-back term loans;
- 95% of reorganized equity, subject to dilution by the MIP (up to 11% of new common stock) and the new warrants (for up to 12.5% of new common stock); and
- $11.67 million in cash.
- The $81.5 million first-out term loans facility would consist of $50 million in new-money exit term loans and $31.5 million in converted DIP facility claims.
- The first lien holders’ equity share may be increased if holders of revolving loan claims elect to receive additional incremental take-back loans.
- The $694 million second-out take-back term loan facility is subject to a 5% increase if revolving loan creditors elect to receive loans in lieu of their pro rata share of reorganized equity.
- Allowed amount: Approximately $920.77 million in principal plus accrued interest, fees and other amounts owing under the prepetition credit agreement.
- Projected recovery: TBD
- Class 3B - Revolving credit loan claims: Holders would receive a pro rata share of:
- An option to fund the first-out new-money term loans;
- The second-out take-back term loans;
- 95% of reorganized equity, subject to dilution by the MIP (up to 11% of new common stock) and the new warrants (for up to 12.5% of new common stock); and
- $11.67 million in cash.
- In lieu of receiving reorganized equity, holders may receive a pro rata share of the 5% incremental second-out take-back term loan. As a result of the election, the reorganized equity allocation for revolving credit holders would be increased, but the reorganized equity that would otherwise have been distributed to revolving credit holders would be distributed to first lien claimholders.
- Allowed amount: Approximately $96.9 million in principal plus accrued interest, fees and other amounts owing under the prepetition credit agreement.
- Projected recovery: TBD
- Class 4 - Second lien term loan claims: Holders would receive a pro rata share of:
- 5% of reorganized equity, subject to dilution by the MIP (up to 11% of new common stock) and the new warrants (for up to 12.5% of new common stock);
- The new warrants; and
- $750,000 in cash.
- Allowed amount: $250 million in principal plus accrued interest, fees and other amounts owing under the prepetition credit agreement.
- Projected recovery: TBD
- Class 5 - General unsecured claims: Holders would receive payment in full in cash on the effective date of the plan unless previously paid in the ordinary course of business.
- Allowed amount: Approximately $158.94 million
- Projected recovery: 100%
- Class 6 - Intercompany claims: Would be either reinstated or discharged.
- Projected recovery: 100% or 0%
- Class 7 - Section 510(b) claims: Would be canceled without recovery.
- Projected recovery: 0%
- Class 8 - Intercompany interests: Would be either reinstated or discharged.
- Projected recovery: 0%
- Class 9 - Existing equity interests: Would be canceled without recovery.
- Projected recovery: 0%
The management incentive plan would provide for the issuance of up to 11% of new common stock, subject to approval of the reorganized board on terms consistent with the RSA.
Other Plan Provisions
The plan provides for releases of the debtors, the sponsors, consenting lenders, the first lien and second lien ad hoc groups, DIP lenders, DIP backstop parties, exit backstop parties, the DIP, first lien and second lien agents and second lien lenders who vote to accept the plan. Holders of claims and interests who object to the plan or opt out would be excluded from the releases.
In addition, the plan includes an exculpation provision in favor of the debtor and related parties, including current and former directors and officers, equityholders and professionals.
DIP Financing Motion / Cash Collateral Motion
The debtors propose to fund the cases with a $31.5 million new-money DIP and consensual use of cash collateral. The entirety of the DIP financing would be available on interim approval. Participation in the DIP would be open to all first lien lenders through a postpetition syndication process. Certain members of the first lien ad hoc group would backstop the syndication; the backstop was offered to all restricted members of the first lien ad hoc group.
The DIP loans would bear interest at SOFR+8.75% annually. The DIP provides for a 3.5% commitment fee, 9% backstop fee and 2% exit fee, each payable in cash.
The DIP would roll into the debtors’ $81.5 million senior secured term loan exit facility, subject to the right of DIP lenders to elect payment in cash. The DIP otherwise matures 75 days after the closing date, subject to customary maturity triggers (including conversion or dismissal of the cases).
Ethan Kopp of Houlihan Lokey, the debtors’ investment banker, says in a supporting declaration that the debtors need the $31.5 million DIP to “comfortably operate their business in the ordinary course postpetition.” Kopp adds that Houlihan Lokey conducted a prepetition marketing process directed at third-party lenders to secure “non-consensual priming” or “junior” unsecured DIP financing, but no third party was willing to provide a DIP on those terms. Kopp also asserts that the DIP is an “essential component” of the RSA, and absent DIP approval, prepetition lenders would not consent to the use of cash collateral.
The proposed budget for the use of the DIP facility is HERE.
The DIP would be secured by a first-priority lien on substantially all of the debtors’ assets.
The company proposes customary adequate protection for the DIP lenders, including replacement liens, superpriority claims, and payment of reasonable and documented fees and expenses.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge the lenders’ collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The post-termination carve-out for professional fees is $1 million.
The DIP financing milestones mirror the RSA case deadlines, apart from the interim DIP milestone (which uses a “business day” calculation):
- Monday, May 27 (three business days after the petition date): Entry of interim DIP order;
- June 21 (30 days after the petition date): Entry of final DIP order;
- July 6 (45 days after the petition date): Entry of DS and confirmation orders; and
- July 11 (50 days after the petition date): Plan effective date.
Anticipated Emergence Capital Structure
The debtors’ anticipate the following capital structure on emergence:
First-Out Term Loan Facility
First lien lenders would provide an $81.5 million four-year first-out term loan facility, which would be used for payment of chapter 11 expenses, working capital and other general corporate purposes. The facility would include $50 million in new money and $31.5 million in converted DIP claims.
The facility would be backstopped by the exit backstop parties - certain members of the first lien ad hoc group - which would receive a 9% backstop fee, payable in cash.
The first-out term loans would be issued with a 1.5% original issue discount, amortize at 1% per annum (payable quarterly) and bear interest at SOFR+5%.
The facility would be secured by a first-priority lien on substantially all of the loan parties’ assets. However, if the company enters into a new ABL facility secured by a first-priority lien on working capital assets, then the first-out lenders would have a second lien on those assets junior to the new ABL lien.
New ABL Facility
The plan anticipates a $75 million exit ABL facility. The facility would be secured by first-priority liens on the working capital assets that secured the existing first lien credit agreement and second-priority liens on all other assets that secured the existing first lien credit agreement.
Second-Out Take-Back Term Loan Facility
Existing first lien lenders would receive a pro rata share of a $694 million second-out take-back term loan facility as partial consideration for their first lien claims.
The take-back facility would bear interest at SOFR+5.5% and mature 4.25 years from the effective date. The loans would amortize at 1% annually, payable quarterly.
The take-back facility would be secured by a first-priority lien with second payment priority on all collateral securing the first-out term loan facility. To the extent the company enters into the new ABL facility, the second-out take-back loans would be secured by a second-priority lien with second payment priority on working capital assets.
New Warrants
The five-year new warrants issued to second lien lenders would entitle them to purchase up to 12.5% of reorganized equity at a strike price equal to the value of reorganized equity that would allow holders of first lien claims to receive a par plus accrued interest recovery on the total value of the first lien claims. The value of the first-out new-money loan would be added to the enterprise value and equity value calculation.
Valuation Analysis
Investment bankers and financial advisors estimate the enterprise value of the reorganized debtors at $820 million to $1.02 billion, with a midpoint of $920 million, as of the assumed effective date of June 30. Houlihan Lokey adds that assuming net debt of approximately $745 million as of the assumed effective date, the implied equity value range of the reorganized debtors would range from $75 million to $275 million, with a midpoint of $175 million.
Financial Projections
The debtors provide the following projected statement of operations through 2027:
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The debtors provide the following projected balance sheet through 2027:
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The debtors provide the following cash flow projections through 2027:
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Liquidation Analysis
The debtors provide the following analysis of recoveries under the plan:
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Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 24-11057.
- Motion to establish trading procedures
- The debtors seek to establish trading procedures for the common stock of New Insight Holdings Inc. to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors estimate they have approximately $412 million in NOLs.
- Motion to pay prepetition employee wages and benefits
- The debtors seek authority to pay up to $3.4 million in prepetition workforce obligations on an interim basis and $8.1 million on a final basis.
- Motion to use cash management system
- The company has bank accounts with Wells Fargo & Co. and Western Alliance Bank.
- Motion to maintain insurance programs
- Motion to pay prepetition taxes and fees
- The debtors seeks authority to pay up to a $78,000 in prepetition taxes and fees, the amount projected to become due within the first 21 days of the bankruptcy. The debtors estimate that they owe approximately $140,000 in prepetition taxes.
- Motion to continue customer programs
- The motion seeks authority to maintain the company’s preexisting customer rebate programs. The debtors estimate they have approximately $4.4 million of prepetition customer obligations with $1 million potentially coming due within the first 21 days of the bankruptcy.
- Motion to provide utilities with adequate assurance
- Motion for order enforcing and restating automatic stay for foreign creditors
- Motion to pay prepetition trade claims
- The debtors seek authority to pay prepetition ordinary course vendor claims, foreign vendor claims and shipping claims of up to $16.5 million on an interim basis. The debtors estimate that they owe approximately $37.2 million in outstanding vendor and shipping claims.
- Motion to file consolidated list of creditors
- Application to appoint Kroll Restructuring as claims agent
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