Financial Restructuring

Expert reporting and in-depth analysis on firms facing the need for financial restructuring with a focus on the complexities of each case. Our coverage dives deep into different types of restructurings including corporate restructuring, mergers and consolidations, recapitalizations and post-reorganization insight.

Intralot Restructuring; Novel Redemption Facility Structure
Tue Oct 12, 2021 6:24 pm Financial Restructuring

Intralot’s recent restructuring of its two tranches of equally ranking unsecured notes due 2021 and 2024 used a consensual out-of-court implementation method to bypass the 90% amendment threshold in its 2021 notes’ indenture. The Intralot restructuring, which completed in early August, highlights the weakness in bargaining power of temporally subordinated noteholders, when an earlier maturing but pari ranking note negotiates a restructuring with an issuer. 

Although the company announced that it was open to negotiation and was speaking to a group of the temporally subordinated 2024 noteholders, sources Reorg spoke to in the 2024 noteholder group claimed that the company did not offer them any attractive amended terms and that the 2024 group was not properly involved in any deal formation. The 2021 noteholders appeared to drive the Intralot restructuring process.

Unlike contractual, collateral, or structural subordination, where protections can be put in place to mitigate erosion of a subordinated debtor’s position, a temporally subordinated creditor can do little to better their position, without a looming maturity date or missed interest payment, or other trigger event.

Further, the group used a novel “redemption facility” structure to reach the 90% consent threshold required for amendments to its 2021 notes. The process eroded the consent threshold in the notes indenture by effectively repaying pro rata some of the outstanding 2021 notes and then issuing brand new notes to members of a 2021 ad hoc group. 

The transaction resulted in the 2021 ad hoc group holding over 90% of the 2021 notes and being able implement a 2021 notes exchange. Existing 2021 noteholders were granted new secured notes in exchange for their 2021 notes.

To read our extensive analysis and intelligence on the Intralot restructuring situation as well as our EMEA Core Credit team’s analysis of hundreds of other high-yield and distressed debt situations request a trial here:

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Litigation Coverage: Moby Accuses Bondholder, Morgan Stanley of Trying to Scuttle Restructuring
Tue Oct 5, 2021 4:39 pm Distressed Debt  Financial Restructuring

With more than 25 updates on Italian ferry operator Moby so far this year, our European coverage team has been looking closely at the stressed credit. The big news at the end of September, was that Moby SpA was suing Antonello Di Meo, Morgan Stanley and Morgan Stanley employees Massimo Piazzi and Dov Hillel Drazin in the Southern District of New York for “attempting to illegally acquire control” of the company and its Italian concordato restructuring proceeding by purchasing a controlling stake in Moby’s bonds at a “substantial discount using inside information.”  (more…)

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Reorg Webinar Series: Enforcement Mechanisms for Keepwell Notes

Recent developments around stressed Chinese companies including property developer China Evergrande Group have again brought to the fore mechanisms for enforcing keepwell deeds for offshore notes issued by the companies. In this webinar, Shasha Dai from Reorg will host a panel discussion with Fergus Saurin and Jacqueline Tang from Kirkland & Ellis and Junqi Wang and Chandice Wang from DeHeng Law Office (Shanghai) to discuss the latest developments, their implications for creditors and considerations around enforcing keepwell deeds. Register now.

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European Leveraged Loan Primary Market Trends | 9/29/2021
Wed Sep 29, 2021 8:08 pm Financial Restructuring  Leveraged Finance

After the summer hiatus, the European leveraged loan primary market has come back to life with a steady flow of deals. 2021 has been a strong year so far and, with a strong pipeline in place, the record-breaking pace is looking likely to continue through to the year end.

With more and more bank/bond structures, the convergence of bank and bond covenants has continued apace. Strong demand from investors has emboldened borrowers to push for, and in most cases achieve, increasing flexibility under their credit documentation. Although we have seen some successful pushback from investors resulting in terms being flexed and, in some cases, deals being pulled.

Some of the notable trends that we have seen emerging in the market this year have included the ability to use capacity under one covenant to create capacity under other covenants, upward-only adjustments to grower baskets, autocure features for financial covenants, testing flexibility for ratios and baskets and extensive EBITDA adjustments. The combined effect of these innovations is to muddy the waters for investors trying to determine the capacity for debt incurrence and value leakage. Our European leveraged loan primary market analysis, combining input from our legal and financial analysts, enables us to guide our clients through this minefield.

It will be interesting to see how this increased flexibility will be used by borrowers when the economic cycle turns. Will it allow them to be more nimble in sidestepping potential pitfalls and avoid defaults, or will it tie the hands of investors and result in greater value destruction and reduced recoveries?

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Webinar: PBF Energy’s Path Forward Amid Regulatory Complexity
Mon Sep 27, 2021 2:27 pm Distressed Debt  Financial Restructuring

Join Reorg on Thursday, Sept. 30, at 12 p.m. ET as we discuss PBF Energy’s background, recent financial results and the regulatory challenges it faces in the latest installment of our webinar series.

Our coverage team will provide an overview of PBF Energy’s business and the continuing effects of the Covid-19 pandemic, which led to more than $1 billion of 2020 FCF burn. While the company’s cash burn rate has improved upon entering 2021, PBF Energy has encountered increased Renewable Fuel Standard, or RFS, compliance costs due to dramatically higher market prices of RFS-related renewable identification number, or RIN, credits. Adding to the company’s regulatory complexity, the Bay Area Air Quality Management District, or BAAQMD, on July 21 adopted particulate matter-reduction amendments that PBF initially estimated would require it to install an $800 million wet scrubbing system at its 2020-acquired Martinez refinery.

Please join members of our financial, legal and regulatory teams as we explore these issues. Among additional items, our coverage team will also discuss:

  • The mechanics of the RFS program;
  • The current state of the RFS, and the roadmap to additional clarity on renewable volume obligations, or RVOs;
  • PBF Energy’s Martinez Refinery Co.’s Sept. 7 complaint in California Superior Court challenging the BAAQMD rulemaking along with other means to address the matter;
  • The potential financial consequences of PBF’s escalating environmental compliance costs

Register for this webinar below and request a trial and get up to speed on our extensive and ever-expanding coverage of PBF Energy’s financial situation here:

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New Developments in Bankruptcy and Restructuring | 9/22/2021 |
Wed Sep 22, 2021 7:50 pm Bankruptcy Filings  Financial Restructuring

Fall is here, and with it comes a slew of new developments in bankruptcy and restructuring.

Recently in oil & gas, oilfield services company Key Energy announced the sale of substantially all of its fluid management and saltwater disposal well assets in Texas and New Mexico, effectively completing the company’s exit from that line of business in those states. In addition, lenders to Yak Access, a supplier of access mats to oil & gas companies in North America, have reportedly organized amid concerns over the company’s liquidity position, earnings trajectory and possible expansion into the power markets.

Later this month, experts from our Americas team will discuss PBF Energy, including regulatory challenges such as the ongoing effect of increased renewable fuel standard compliance costs.

In consumer discretionary, although supply chain issues and labor and commodity inflation continue to challenge the restaurant industry, public restaurant companies generally reported improved financial performance in 2021 and multiple chains, including Dutch BrosPortillo’s and Sweetgreen, have announced or consummated plans to go public.

In addition, although BJ’s RestaurantsCheesecake Factory and Red Robin continue to operate under covenant relief waivers obtained near the onset of Covid-19 pandemic, each has significantly improved its financial ratios over the first and second quarters and appears positioned to meet its upcoming financial covenant tests when they are reinstated by the end of the year.

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Private Equity Seek High Returns From Gaming Companies Expected to Auction in September
Thu Sep 2, 2021 4:16 pm Distressed Debt  Financial Restructuring

Mid-market funds are monitoring a spate of video game developers expected to come to market in September after the robust performance of gaming companies during the Covid-19 crisis was noted. About 82% of global consumers played video games during the height of the Covid-19 lockdowns last year, analysis from data and market measurement firm Nielson showed. Traditionally, the video games sector has been dominated by venture capital and large game studios such as Microsoft and Sony, but now both direct lenders and private equity have started to enter the sector in pursuit of attractive returns. Click through to read the full story.

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China Huarong in Talks with Potential Strategic Investors
Thu Sep 2, 2021 4:01 pm Financial Restructuring  High Yield Bonds

Management of China Huarong Asset Management, said on an earnings call Aug. 30, that Huarong is also in talks with other potential strategic investors, including Chinese and foreign firms, who had shown interests in investing in the company and joining CITIC, China Insurance Investment, China Life, Cinda, Sino-Ocean as its strategic investors. Of the dozens of earnings calls our Asia Core Credit team has covered this season, the Huarong call was noteworthy due to the topical nature of the controversial credit. Click through to read the full story.

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Virgin Active Restructuring; Three Inter-Conditional Part 26A Plans
Wed Sep 1, 2021 2:00 pm Financial Restructuring  High Yield Bonds

Hogan Lovells reflects on the impact of the landmark decision in respect of the Virgin Active restructuring in three inter-conditional Part 26A plans on 21 May 2021.

The Virgin Active restructuring plans represented the first fully contested cross class cram down for the new Part 26A process, since its introduction almost exactly one year ago. The plans saw five out of seven creditor classes in each of the plans subject to cram-down, delivering a comprehensive restructuring of its real estate liabilities as part of a plan that saw material new money injected by sponsors, and Lenders extending. DeepOcean and Smile Telecoms are the only other restructuring plans to successfully utilise the cram-down mechanism, both concerned structural debt and were not contested at sanction.

The seven creditor classes for each of the plan companies included: (i) the senior secured lenders; (ii) the UK landlords, categorised in classes A to E (based on traditional CVA structure); and (iii) a class of other general unsecured property creditors. As well as the changes to the senior facilities, the restructuring plans involve waivers and deferrals of rent arrears, reductions in rents and compromises of the claims of general property creditors. At the plan meetings, the secured lenders and the class A landlord creditors approved the plans but the other classes of landlord creditors (B through E) and the general property creditors dissented. The plan companies requested the Court to cram down the dissenting classes to sanction the restructuring plans.

An ad hoc group of four landlords opposed the restructuring plans at both the convening and sanction hearings. Arguments were numerous, including assertions that the “no worse off” test had not been satisfied in the absence of market testing and/or appropriate valuation, and/or that the Court should not use its discretion to sanction the plans because the treatment of the landlords under the plans was not just and equitable particularly by reference to the adequacy of timely sharing of information and efforts at pursuing an alternative. These arguments ultimately failed on the facts of this case.

The judgement of Snowden J on the Virgin Active restructuring plans has now become the leading authority on cram downs. It has provided welcome guidance on how the Court will assess the relevant alternative for the “no worse off” test. In particular, it clarified that there is no absolute obligation for the relevant alternative to be underpinned by a market testing process but that the merits and feasibility of market testing must be assessed on a case by case basis. Guidance is also given as to valuation, and it seems creditors will need to adduce their own independent valuation evidence to successfully challenge the company (even if this has to be produced based on less than optimal information and timeframes). Snowden J’s judgement also sets out the factors the Court will consider when exercising its discretion to sanction plans where creditor classes have dissented. The judgement was robust in emphasising that it is for the “in the money” creditors to determine how to divide up any value or potential future benefits following the restructuring (i.e. the restructuring surplus), and little if any weight is likely to be placed on votes of ‘out of the money’ dissenting creditor classes. This point might compare with the recent decisions on the New Look and Regis CVAs which flagged that the level of compromise suffered by a group of creditors under a CVA who are carrying a vote to impair dissenting creditors will be scrutinised closely by the Court and a lack of sufficient for compromise could amount to an unfair prejudice issue). Lastly, whilst there was complaint that the timetable may have been deliberately engineered or aggressive to jam an impairment on dissenting creditors, it was ultimately not substantiated on the facts. Virgin Active had actively engaged with landlords throughout the COVID pandemic, and moved quickly to re-model its business plans and re-engage again following the Kent variant and “lockdown three” which dominated its business in Q1 2021.

This may pave the way for more aggressive treatment of out of the money creditors by plan companies going forwards. However, it is a case decided very much on its facts and investors should be wary of extrapolating too much from this successful case and backing plans unlikely to succeed. Considerations are materially different where compromised creditors might be in the money, there are other preferable and deliverable alternatives available, and/or timetables could have afforded market testing or lengthier window or opportunity for valuation. We have just seen the Court refuse to sanction the Hurricane Energy restructuring plan because the judge was not convinced that the company’s relevant alternative of a controlled wind down was the most likely outcome if the plan was not sanctioned. Zacaroli J in that case was of the view that there was a realistic prospect of finding a solution to the shortfall to the bondholders. Whilst Hurricane was also decided on its facts, it shows the Court is looking closely at the company’s choice of relevant alternative, particularly where the company’s liquidity runway gives time for options to be explored. Well advised debtors and investors will be wary of plans launched from a more engineered platform, with delays in creditor engagement or pursuit of alternatives in the hope of achieving more aggressive compromise.

Hogan Lovells (Tom Astle and James Maltby) acted for the senior secured lenders in relation to the Virgin Active restructuring scheme. The firm also advised the senior lenders in relation to the Smile Telecom restructuring plan, the successful challenge to the Regis CVA, and challengers in relation to the NCP restructuring plan.

Guest post written by Lucy Xu, Senior Associate at Hogan Lovells International LLP.

To learn more about the Virgin Active restructuring plan as well as news, commentary and analysis on issues affecting the high-yield, stressed and distressed markets in EMEA visit our EMEA Core Credit product page.


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Middle Market Distressed Debt; Americas & EMEA

Providing subscribers with intelligence, analysis and news on middle market distressed debt and high-yield situations, our EMEA and Americas reporters and analysts work tirelessly to stay up to speed on situations involving up to €250 million or $500 million in funded debt. Our workflow tools enable financial and legal professionals to perform in-depth searches on companies of interest, dockets, new filings and proprietary Reorg content. In addition, insightful coverage from our uniquely structured team combines reporting with legal and financial analysis offering a holistic perspective on the information you need to stay competitive in the middle market distressed debt and high-yield space.

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Below are a few examples of the types of middle market distressed debt and high-yield intelligence you would receive access to as a Reorg subscriber:

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