Revlon
Excel Model: Revlon Amended Plan Increases 2016 Term Lender Recovery Via Higher Equity Allocation; BrandCo 2L Lenders Still Slated to Hold Majority of Post-Reorg Equity
Thu 02/23/2023 13:38 PM
Relevant Items:
Link to Reorg Analysis Page
Amended Plan / Redline
Amended DS / Redline
Amended RSA
The Revlon debtors on Tuesday, Feb. 21, filed amended RSA and plan documents after announcing a global settlement providing 2016 term lenders that did not participate in the 2020 BrandCo transaction with higher recoveries than under the prior plan, including a larger common equity allocation and participation in an increased rights offering and backstop premiums. While the 2020 term B-2, or BrandCo 2L, lenders are giving up some equity, they are still slated to receive 82% of pre-dilution reorganized equity under the amended plan.
Assuming a $1.58 billion midpoint plan equity value and no dilution from a management incentive plan or warrants for unsecured noteholders under the plan, Reorg estimates that nonbackstop 2016 term lenders would get 17 cents of recovery on account of their prepetition claims plus an additional 17 cents for participating in the rights offering assuming full pro rata rights offering participation. Nonbackstop lenders could see recoveries drop materially at lower levels of rights offering participation as shown below.
Backstop 2016 term lenders would get an additional 9 cents of recovery from their rights offering backstop allocation and backstop premium.
In addition to rights offering participation, valuation is a key driver of recovery. Assuming full rights offering participation, Reorg estimates 2016 term lender recoveries could vary by 16 points from the low end plan equity value of $1.33 billion to the high end plan equity value of $1.83 billion indicated in the amended disclosure statement (which did not change from the original disclosure statement). BrandCo 2L recoveries could vary by 30 to 40 points from the low to high end of the contemplated plan valuation range.
An Excel model of the proposed treatment implied by the amended plan can be found HERE.
Equity Splits
The amended plan simplifies the treatment of Class 4, Class 5 and Class 6 claims, which now primarily reflect the 2016 term loan, 2020 term B-1 loan (BrandCo 1L) and 2020 term B-2 loan (BrandCo 2L), respectively, instead of a combination of term loan claims and guaranty claims under the prior plan. A summary of key claims by class is shown below:
The amended plan and global settlement also provides clarity on post-reorg equity splits with holders of Class 6 BrandCo 2L claims slated to receive 82% of pre-dilution common equity, while Class 4 OpCo term loan claimholders would receive the remaining 18%. This represents an improvement for OpCo term loan claimholders on the implied 85%/15% split of predilution equity under the prior plan.
The amended plan contemplates a $670 million rights offering, upsized from $650 million under the prior plan. Consistent with the prior plan, the rights offering will be offered at a 30% discount to plan value with 70% allocated for equity subscription rights and 30% allocated for the backstop parties, who will also receive a 12.5% equity backstop premium at a 30% discount to plan value.
Under the amended plan, Class 6 BrandCo 2L claimholders would get 82% of the equity subscription rights allocation and Class 4 OpCo term loan claimholders would receive the remaining 18%. Backstop lenders from the 2016 term lender ad hoc group would receive 18% of the rights offering backstop allocation and 18% of the backstop premium, while other backstop lenders, including those from the BrandCo ad hoc group, would receive the remaining 82% of the rights offering backstop allocation and backstop premium.
Before accounting for any dilution from the MIP or warrants, Reorg estimates BrandCo 2L lenders would receive 26% of post-reorg equity on account of their claims and BrandCo 2L rights offering participants would receive an additional 35% of post-reorg equity, assuming a fully subscribed rights offering. Reorg estimates BrandCo 2L backstop lenders would receive an additional 21% of post-reorg equity comprising 15% from the rights offering backstop allocation and 6% from the backstop premium.
Regarding Class 4 OpCo term loan claims, assuming full rights offering participation and before accounting for dilution from the MIP or warrants, Reorg estimates nonrights offering participants would receive nearly 6% of post-reorg equity and rights offering participants would receive an additional nearly 8% of post-reorg equity. Reorg estimates backstop lenders would receive an additional nearly 5% of post-reorg equity from their backstop allocation and premium.
Post-reorg equity splits are summarized, reflecting the dilution impact from the rights offering, MIP and warrants, in the table below:
Plan Treatment Analysis
Pursuant to the plan, DIP claims and first-in, last-out, or FILO, ABL claims are slated to be paid in full in cash. The key classes of recovery are Class 4 OpCo term loan claims (again, the 2016 term loans that did not participate in the BrandCo transaction) and Class 6 BrandCo 2L claims as discussed above.
A new feature of the plan pursuant to the global settlement is a cash recovery option available to Class 4 claimholders. OpCo term loan claimholders can elect to recover (i) their pro rata share of $56 million of cash or (ii) the equity consideration discussed above amounting to 18% of pre-dilution equity and 18% of the equity subscription rights. The amended plan states that no more than $334 million of OpCo term loan claims can elect to receive cash. Assuming the maximum $334 million of holdings elect a cash recovery implies a 16.75% recovery floor and that $543 million of claims would elect the equity recovery.
The five BrandCo ad hoc group lenders Angelo Gordon, Glendon Capital, King Street, Nut Tree and Oak Hill, which collectively held $90 million of 2016 term loans as of Feb. 15, are assumed to elect the cash recovery option under the plan. However, the RSA contemplates that the “cash-out backstop lenders” can make the equity election if holders of less than $543 million of claims make the equity election.
Other specified cash-out backstop lenders are consenting 2016 term lenders that are not allowed to make the equity election. These lenders are Sunrise Partners Ltd. (Paloma), HPS, New Generation Advisors, Benefit Street, Cedar Funding V CLO (Aegon USA) and Ellington. Collectively, these lenders held $166 million of 2016 term loans as of Jan. 25, led by Benefit Street’s $132 million of holdings. The largest and third-largest 2016 term loan holders as of Jan. 25 from the 2016 term lender ad hoc group, Antara and Nuveen, are not specified as cash-out backstop lenders.
Aside from the changes to recoveries for holders of Class 4 and Class 6 claims discussed above, other plan terms are largely unchanged from the prior plan.
Holders of Class 5 2020 term B-1 loan claims, or BrandCo 1L claims, would get their pro rata share of roughly $1.1 billion of take-back term loans or cash in an amount equal to the take-back term loans. Pursuant to the amended plan, the BrandCo 1L lenders have agreed to forgo $20 million in adequate protection payments in order to help facilitate the cash recovery for Class 4 claims discussed above.
Consistent with the prior plan, holders of the company’s 6.25% senior notes due 2024 are entitled to receive five-year warrants worth up to 11.75% of post-reorg equity with a strike price set at a $4 billion enterprise value, which represents a 33% premium to the midpoint plan enterprise value of $3 billion. If the class votes to accept the plan, holders would get their pro rata share of the recovery described above. If the class rejects the plan, consenting noteholders would receive their pro rata share of 50% of the aforementioned recovery.
The plan also contemplates that 7.5% of post-reorg equity will be reserved for the MIP with half to be awarded to participants no later than Jan. 1, 2024.
An illustrative treatment table is shown below:
An illustrative post-emergence capital structure is shown below:
--Krishan Sutharshana
Link to Reorg Analysis Page
Amended Plan / Redline
Amended DS / Redline
Amended RSA
The Revlon debtors on Tuesday, Feb. 21, filed amended RSA and plan documents after announcing a global settlement providing 2016 term lenders that did not participate in the 2020 BrandCo transaction with higher recoveries than under the prior plan, including a larger common equity allocation and participation in an increased rights offering and backstop premiums. While the 2020 term B-2, or BrandCo 2L, lenders are giving up some equity, they are still slated to receive 82% of pre-dilution reorganized equity under the amended plan.
Assuming a $1.58 billion midpoint plan equity value and no dilution from a management incentive plan or warrants for unsecured noteholders under the plan, Reorg estimates that nonbackstop 2016 term lenders would get 17 cents of recovery on account of their prepetition claims plus an additional 17 cents for participating in the rights offering assuming full pro rata rights offering participation. Nonbackstop lenders could see recoveries drop materially at lower levels of rights offering participation as shown below.
Backstop 2016 term lenders would get an additional 9 cents of recovery from their rights offering backstop allocation and backstop premium.
In addition to rights offering participation, valuation is a key driver of recovery. Assuming full rights offering participation, Reorg estimates 2016 term lender recoveries could vary by 16 points from the low end plan equity value of $1.33 billion to the high end plan equity value of $1.83 billion indicated in the amended disclosure statement (which did not change from the original disclosure statement). BrandCo 2L recoveries could vary by 30 to 40 points from the low to high end of the contemplated plan valuation range.
An Excel model of the proposed treatment implied by the amended plan can be found HERE.
Equity Splits
The amended plan simplifies the treatment of Class 4, Class 5 and Class 6 claims, which now primarily reflect the 2016 term loan, 2020 term B-1 loan (BrandCo 1L) and 2020 term B-2 loan (BrandCo 2L), respectively, instead of a combination of term loan claims and guaranty claims under the prior plan. A summary of key claims by class is shown below:
The amended plan and global settlement also provides clarity on post-reorg equity splits with holders of Class 6 BrandCo 2L claims slated to receive 82% of pre-dilution common equity, while Class 4 OpCo term loan claimholders would receive the remaining 18%. This represents an improvement for OpCo term loan claimholders on the implied 85%/15% split of predilution equity under the prior plan.
The amended plan contemplates a $670 million rights offering, upsized from $650 million under the prior plan. Consistent with the prior plan, the rights offering will be offered at a 30% discount to plan value with 70% allocated for equity subscription rights and 30% allocated for the backstop parties, who will also receive a 12.5% equity backstop premium at a 30% discount to plan value.
Under the amended plan, Class 6 BrandCo 2L claimholders would get 82% of the equity subscription rights allocation and Class 4 OpCo term loan claimholders would receive the remaining 18%. Backstop lenders from the 2016 term lender ad hoc group would receive 18% of the rights offering backstop allocation and 18% of the backstop premium, while other backstop lenders, including those from the BrandCo ad hoc group, would receive the remaining 82% of the rights offering backstop allocation and backstop premium.
Before accounting for any dilution from the MIP or warrants, Reorg estimates BrandCo 2L lenders would receive 26% of post-reorg equity on account of their claims and BrandCo 2L rights offering participants would receive an additional 35% of post-reorg equity, assuming a fully subscribed rights offering. Reorg estimates BrandCo 2L backstop lenders would receive an additional 21% of post-reorg equity comprising 15% from the rights offering backstop allocation and 6% from the backstop premium.
Regarding Class 4 OpCo term loan claims, assuming full rights offering participation and before accounting for dilution from the MIP or warrants, Reorg estimates nonrights offering participants would receive nearly 6% of post-reorg equity and rights offering participants would receive an additional nearly 8% of post-reorg equity. Reorg estimates backstop lenders would receive an additional nearly 5% of post-reorg equity from their backstop allocation and premium.
Post-reorg equity splits are summarized, reflecting the dilution impact from the rights offering, MIP and warrants, in the table below:
Plan Treatment Analysis
Pursuant to the plan, DIP claims and first-in, last-out, or FILO, ABL claims are slated to be paid in full in cash. The key classes of recovery are Class 4 OpCo term loan claims (again, the 2016 term loans that did not participate in the BrandCo transaction) and Class 6 BrandCo 2L claims as discussed above.
A new feature of the plan pursuant to the global settlement is a cash recovery option available to Class 4 claimholders. OpCo term loan claimholders can elect to recover (i) their pro rata share of $56 million of cash or (ii) the equity consideration discussed above amounting to 18% of pre-dilution equity and 18% of the equity subscription rights. The amended plan states that no more than $334 million of OpCo term loan claims can elect to receive cash. Assuming the maximum $334 million of holdings elect a cash recovery implies a 16.75% recovery floor and that $543 million of claims would elect the equity recovery.
The five BrandCo ad hoc group lenders Angelo Gordon, Glendon Capital, King Street, Nut Tree and Oak Hill, which collectively held $90 million of 2016 term loans as of Feb. 15, are assumed to elect the cash recovery option under the plan. However, the RSA contemplates that the “cash-out backstop lenders” can make the equity election if holders of less than $543 million of claims make the equity election.
Other specified cash-out backstop lenders are consenting 2016 term lenders that are not allowed to make the equity election. These lenders are Sunrise Partners Ltd. (Paloma), HPS, New Generation Advisors, Benefit Street, Cedar Funding V CLO (Aegon USA) and Ellington. Collectively, these lenders held $166 million of 2016 term loans as of Jan. 25, led by Benefit Street’s $132 million of holdings. The largest and third-largest 2016 term loan holders as of Jan. 25 from the 2016 term lender ad hoc group, Antara and Nuveen, are not specified as cash-out backstop lenders.
Aside from the changes to recoveries for holders of Class 4 and Class 6 claims discussed above, other plan terms are largely unchanged from the prior plan.
Holders of Class 5 2020 term B-1 loan claims, or BrandCo 1L claims, would get their pro rata share of roughly $1.1 billion of take-back term loans or cash in an amount equal to the take-back term loans. Pursuant to the amended plan, the BrandCo 1L lenders have agreed to forgo $20 million in adequate protection payments in order to help facilitate the cash recovery for Class 4 claims discussed above.
Consistent with the prior plan, holders of the company’s 6.25% senior notes due 2024 are entitled to receive five-year warrants worth up to 11.75% of post-reorg equity with a strike price set at a $4 billion enterprise value, which represents a 33% premium to the midpoint plan enterprise value of $3 billion. If the class votes to accept the plan, holders would get their pro rata share of the recovery described above. If the class rejects the plan, consenting noteholders would receive their pro rata share of 50% of the aforementioned recovery.
The plan also contemplates that 7.5% of post-reorg equity will be reserved for the MIP with half to be awarded to participants no later than Jan. 1, 2024.
An illustrative treatment table is shown below:
An illustrative post-emergence capital structure is shown below:
--Krishan Sutharshana
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