New Cotai LLC
CASE SUMMARY (Middle Market): New Cotai LLC Files For Chapter 11 Staving Off Repayment of $856M PIK Notes Due May 1; Hearing on May 9
Thu 05/02/2019 06:54 AM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
New Cotai LLC, a Greenwich, Connecticut-based limited liability company, and several affiliates filed Chapter 11 petitions on May 1, reporting $100 million to $500 million in assets and $500 million to $1 billion in liabilities. The unsecured liabilities of the debtors include $856 million 10.625% PIK Notes which matured on May 1. An ad hoc committee of noteholders has formed which holds over 50% of the notes. The notes are unsecured but benefit from a guarantee provided by New Cotai Holdings, LLC. The filing of the petitions triggers an automatic stay over creditor actions including initiating enforcement action and/or legal proceedings. The company says it intends to continue to engage with the ad hoc group with the goal of achieving a consensual restructuring. A first day hearing has been scheduled for May 9 at 10:00 am (EST) in the Bankruptcy Court for the Southern District of New York.
Access to the New Cotai docket is available on Reorg HERE.
The New Cotai affiliates who also filed petitions are New Cotai Ventures, LLC,a New York limited liability company, New Cotai Holdings, LLC, a Delaware limited liability company, and New Cotai Capital Corp., a British Virgin Islands company limited by shares.
New Cotai LLC, is a vehicle for Silver Point Capital and Oaktree Capital Management’s stake in Macau casino resort operator Studio City, which is also part owned by Melco Crown Entertainment Limited through its subsidiary MCE Cotai Investments Limited, according to the notes offering memorandum.
The debtors are represented by Skadden, Arps, Slate, Meagher & Flom as legal counsel and Houlihan Lokey Capital as financial advisor. The ad hoc committee is represented by Akin Gump Strauss Hauer & Feld. Prime Clerk is the claims agent.
The case has been assigned to Judge Robert D. Drain (jointly administered under case no. 19-22911, as requested by the debtors).
The company’s prepetition capital structure includes:
According to the first day declaration, the ad hoc group is comprised of the following holders:
Background
According to the first day declaration, Brecker was retained as an independent fiduciary on April 29. Brecker testifies that the debtors were formed for the purpose of investing in Studio City International Holdings the owner of the Studio City project - “an integrated resort comprising entertainment, retail, hotel and gaming facilities located in the Macau Special Administrative Region of the People’s Republic of China.” Studio City opened in 2015, according to Brecker.
Brecker states that Studio City International completed an IPO in October 2018. Prior to the IPO, New Cotai owned 40% of Studio City International, and Melco Resorts & Entertainment owned 60%. According to Brecker, Melco, which controlled the board, authorized the IPO over the objection of New Cotai. After the IPO, New Cotai held the economic, non-voting equivalent of approximately 23.07% of Studio City International, Melco held approximately 54.11%, affiliates of Silver Point owned approximately 13.01%, and public holders held approximately 9.56%, per the declaration. Brecker testifies that Melco “has the right to appoint a majority of the Board of Directors and thus controls the development and operations of the Studio City project.”
In 2013 and 2014, the company issued $467.5 million in 10.625% senior unsecured PIK notes due May 1 2019 in order to finance equity contributions to the Studio City project, Brecker states. According to the declaration, the total principal balance of the notes as of the petition date is approximately $856 million. The notes are the debtors only funded debt obligations, Brecker indicates. An ad hoc group of noteholders holds “more than a majority” of the notes, according to Brecker; this group has retained Akin Gump as counsel.
Brecker testifies that delays in the development of the Studio City project, unexpected increases in construction costs, reduced allocations of gaming tables from the government, and unanticipated declines in the Macau gaming market have made it impossible to refinance the notes by today’s maturity, stating that “through no fault of their own, the Debtors were unable to satisfy the Notes obligations by their maturity.” Furthermore, Brecker notes that in 2014 unexpected construction costs resulted in an additional $300 million being needed to complete phase 1 of the Studio City project. Later on, the critical phase 2 development was pushed out from July 24, 2018 to July 24, 2021.
Nevertheless, Brecker states that the company believes “that the Investment continues to represent a significant economic opportunity—the value of which is not accurately represented in the current market prices” of depositary shares in Studio City International and that “should the Studio City project continue to develop on its currently anticipated timeframe, the Debtors expect the Investment to generate sufficient value to repay the Notes in full.”
In order to fund the bankruptcy, Brecker indicates that the company will seek approval of a $6.25 million DIP facility from SPCP Group LLC, an affiliate of Silver Point Capital, one of its investors, with no milestones, a 12-month maturity renewable for another 12 months at the company’s option, interest at L+7%, and a 1% commitment fee. Brecker states that the company intends to solicit alternative DIP offers during the interim period, including offers from the ad hoc group of noteholders, while it operates using $1.28 million in cash on hand.
According to the declaration, New Cotai filed for chapter 11 with approximately $1.281 million in their bank accounts which remains unencumbered, “sufficient to sustain the Debtors for the first approximately 30 days of these cases.”
DIP Financing Motion
The proposed Silver Point backed DIP financing bears interest at L+7.0% for LIBO rate loans and base rate plus 6.0% for base rate loans, with an additional 2.0% for the default rate, and matures in 12 months, with a 12-month option for the company to extend. The DIP proceeds may be used for general corporate expenditures, which the company anticipates will consist primarily of fees and expenses accruing to professionals and other advisors retained by the company in connection with the bankruptcy.
To secure the DIP financing, the debtors propose to grant liens on essentially all of their assets, which are presently unencumbered. The debtors further note the advantage of the facility having no attached milestones. Nonetheless, the declaration also notes, “the Debtors with the assistance of Houlihan intend to solicit DIP proposals from potential third party lenders, including members of the Ad Hoc Group, following the Petition Date and prior to the hearing on the Motion. If the Debtors are able to procure financing on terms superior to the DIP Facility, the Debtors may determine to replace the DIP Facility without penalty.”
The facility includes a 1.0% commitment fee, plus payment of reasonable fees and expenses.
In support of the proposed DIP financing, the debtors filed the declaration of Jay S. Weinberger of Houlihan Lokey, who states that, as a holding company, the company does not have “significant liquidity needs.” According to Weinberger, the company expects postpetition expenditures to “primarily consist of fees and expenses accruing to the professionals and other advisors retained by the Debtors with respect to the Debtors’ restructuring and the administration of these Chapter 11 Cases.” The debtors stress the need for DIP financing because they can only pay expenses using unencumbered cash on hand for the first 30 days of the bankruptcy, and they do not generate cash in the ordinary course. Prior to the bankruptcy, the debtors obtained funding through “equity infusions” from parent companies; these infusions are “no longer feasible” after the filing.
The carveout for professional fees is $1 million for estate-retained professionals after occurrence of an event of default plus $250,000 for trustee or examiner fees and expenses, with typical limitations on the use of fees and expenses relating to a challenge of the DIP and DIP liens.
The proposed DIP facility does not include any milestones or budget.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
New Cotai LLC, a Greenwich, Connecticut-based limited liability company, and several affiliates filed Chapter 11 petitions on May 1, reporting $100 million to $500 million in assets and $500 million to $1 billion in liabilities. The unsecured liabilities of the debtors include $856 million 10.625% PIK Notes which matured on May 1. An ad hoc committee of noteholders has formed which holds over 50% of the notes. The notes are unsecured but benefit from a guarantee provided by New Cotai Holdings, LLC. The filing of the petitions triggers an automatic stay over creditor actions including initiating enforcement action and/or legal proceedings. The company says it intends to continue to engage with the ad hoc group with the goal of achieving a consensual restructuring. A first day hearing has been scheduled for May 9 at 10:00 am (EST) in the Bankruptcy Court for the Southern District of New York.
Access to the New Cotai docket is available on Reorg HERE.
The New Cotai affiliates who also filed petitions are New Cotai Ventures, LLC,a New York limited liability company, New Cotai Holdings, LLC, a Delaware limited liability company, and New Cotai Capital Corp., a British Virgin Islands company limited by shares.
New Cotai LLC, is a vehicle for Silver Point Capital and Oaktree Capital Management’s stake in Macau casino resort operator Studio City, which is also part owned by Melco Crown Entertainment Limited through its subsidiary MCE Cotai Investments Limited, according to the notes offering memorandum.
The debtors are represented by Skadden, Arps, Slate, Meagher & Flom as legal counsel and Houlihan Lokey Capital as financial advisor. The ad hoc committee is represented by Akin Gump Strauss Hauer & Feld. Prime Clerk is the claims agent.
The case has been assigned to Judge Robert D. Drain (jointly administered under case no. 19-22911, as requested by the debtors).
The company’s prepetition capital structure includes:
- Unsecured debt: $856 million 10.625% PIK Notes due May 1 and approximately $265,000 unsecured debt owed to professional services firms and other unsecured trade creditors.
- Equity: The equity is held as per the corporate structure provided in the petitions and set out below:
According to the first day declaration, the ad hoc group is comprised of the following holders:
Background
According to the first day declaration, Brecker was retained as an independent fiduciary on April 29. Brecker testifies that the debtors were formed for the purpose of investing in Studio City International Holdings the owner of the Studio City project - “an integrated resort comprising entertainment, retail, hotel and gaming facilities located in the Macau Special Administrative Region of the People’s Republic of China.” Studio City opened in 2015, according to Brecker.
Brecker states that Studio City International completed an IPO in October 2018. Prior to the IPO, New Cotai owned 40% of Studio City International, and Melco Resorts & Entertainment owned 60%. According to Brecker, Melco, which controlled the board, authorized the IPO over the objection of New Cotai. After the IPO, New Cotai held the economic, non-voting equivalent of approximately 23.07% of Studio City International, Melco held approximately 54.11%, affiliates of Silver Point owned approximately 13.01%, and public holders held approximately 9.56%, per the declaration. Brecker testifies that Melco “has the right to appoint a majority of the Board of Directors and thus controls the development and operations of the Studio City project.”
In 2013 and 2014, the company issued $467.5 million in 10.625% senior unsecured PIK notes due May 1 2019 in order to finance equity contributions to the Studio City project, Brecker states. According to the declaration, the total principal balance of the notes as of the petition date is approximately $856 million. The notes are the debtors only funded debt obligations, Brecker indicates. An ad hoc group of noteholders holds “more than a majority” of the notes, according to Brecker; this group has retained Akin Gump as counsel.
Brecker testifies that delays in the development of the Studio City project, unexpected increases in construction costs, reduced allocations of gaming tables from the government, and unanticipated declines in the Macau gaming market have made it impossible to refinance the notes by today’s maturity, stating that “through no fault of their own, the Debtors were unable to satisfy the Notes obligations by their maturity.” Furthermore, Brecker notes that in 2014 unexpected construction costs resulted in an additional $300 million being needed to complete phase 1 of the Studio City project. Later on, the critical phase 2 development was pushed out from July 24, 2018 to July 24, 2021.
Nevertheless, Brecker states that the company believes “that the Investment continues to represent a significant economic opportunity—the value of which is not accurately represented in the current market prices” of depositary shares in Studio City International and that “should the Studio City project continue to develop on its currently anticipated timeframe, the Debtors expect the Investment to generate sufficient value to repay the Notes in full.”
In order to fund the bankruptcy, Brecker indicates that the company will seek approval of a $6.25 million DIP facility from SPCP Group LLC, an affiliate of Silver Point Capital, one of its investors, with no milestones, a 12-month maturity renewable for another 12 months at the company’s option, interest at L+7%, and a 1% commitment fee. Brecker states that the company intends to solicit alternative DIP offers during the interim period, including offers from the ad hoc group of noteholders, while it operates using $1.28 million in cash on hand.
According to the declaration, New Cotai filed for chapter 11 with approximately $1.281 million in their bank accounts which remains unencumbered, “sufficient to sustain the Debtors for the first approximately 30 days of these cases.”
DIP Financing Motion
The proposed Silver Point backed DIP financing bears interest at L+7.0% for LIBO rate loans and base rate plus 6.0% for base rate loans, with an additional 2.0% for the default rate, and matures in 12 months, with a 12-month option for the company to extend. The DIP proceeds may be used for general corporate expenditures, which the company anticipates will consist primarily of fees and expenses accruing to professionals and other advisors retained by the company in connection with the bankruptcy.
To secure the DIP financing, the debtors propose to grant liens on essentially all of their assets, which are presently unencumbered. The debtors further note the advantage of the facility having no attached milestones. Nonetheless, the declaration also notes, “the Debtors with the assistance of Houlihan intend to solicit DIP proposals from potential third party lenders, including members of the Ad Hoc Group, following the Petition Date and prior to the hearing on the Motion. If the Debtors are able to procure financing on terms superior to the DIP Facility, the Debtors may determine to replace the DIP Facility without penalty.”
The facility includes a 1.0% commitment fee, plus payment of reasonable fees and expenses.
In support of the proposed DIP financing, the debtors filed the declaration of Jay S. Weinberger of Houlihan Lokey, who states that, as a holding company, the company does not have “significant liquidity needs.” According to Weinberger, the company expects postpetition expenditures to “primarily consist of fees and expenses accruing to the professionals and other advisors retained by the Debtors with respect to the Debtors’ restructuring and the administration of these Chapter 11 Cases.” The debtors stress the need for DIP financing because they can only pay expenses using unencumbered cash on hand for the first 30 days of the bankruptcy, and they do not generate cash in the ordinary course. Prior to the bankruptcy, the debtors obtained funding through “equity infusions” from parent companies; these infusions are “no longer feasible” after the filing.
The carveout for professional fees is $1 million for estate-retained professionals after occurrence of an event of default plus $250,000 for trustee or examiner fees and expenses, with typical limitations on the use of fees and expenses relating to a challenge of the DIP and DIP liens.
The proposed DIP facility does not include any milestones or budget.
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. 19-22911-rdd.
- Case Management Procedures Motion
- Creditor List Motion
- Schedules/SOFA Motion
- Motion to Use Cash Management System
- The company has seven bank accounts with Citibank, US Bank, and Bank of America.
- As of the petition date, the bank accounts had an aggregate combined balance of $1,281,340.61.
- Company requests authority to maintain existing accounts and make intercompany transactions, which are “primarily used to fund the payment of various vendors and professionals, such as auditing firms or counsel.”
- Motion to Maintain Insurance Policies
- Motion to Pay Taxes and Assessments
- Application to Appoint Prime Clerk as Claims Agent
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