Fri 04/08/2022 11:39 AM
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Reorg’s editorial leadership has selected the following list of the most compelling and topical situations across our global coverage universe. For any suggestions please email us at questions@reorg.com.

An ongoing surge in commodity prices showing little signs of abating, continued supply chain disruptions as China locks down port cities, and the war in Ukraine are the prevailing themes in Reorg’s coverage of the leveraged finance market. Issuance of new high-yield bonds and leveraged loans have rebounded, particularly in the US, after several weeks of subdued activity, with a promise of more to come after the Easter break. While market volatility within the context of a hawkish Fed has made it harder for companies to refinance debt, this has not yet translated into a full-blown wave of restructurings. US-based Talen Energy, a merchant generator seeking to transform itself into a provider of electricity from renewable sources and crypto mining remains one of the most-followed names. Europe activity is a mix of Ukraine/Russia related situations, potential restructuring such as Corestate,and delayed refinancings like Keter. In Asia China real estate continues to dominate the newsflow.
Americas:

Talen Energy

Talen’s unsecured bondholders have organized and hired Kirkland and Ellis and Rothschild while JPMorgan and Citibank are preparing competing DIP proposals. Investors are increasingly concerned about the company’s liquidity and should the US power producer file for bankruptcy, hedge counterparties could sweep collateral posted by the company because the “automatic stay” barring creditor collection activity triggered upon a bankruptcy filing is subject to “safe harbor” exceptions for counterparties to a wide range of derivatives contracts. Reorg coverage is available HERE.

Lightstone

Merchant generator Lightstone Generation, which owns and operates four power plants in the PJM Interconnection, has discussed with a select group of lenders the possibility of extending its $1.6 billion due 2024 by three years. The Blackstone/Arclight-sponsored entity proposed increasing the loan’s margin by informing the syndicate on March 29 that an agreement had been reached to move the subsequent cash sweep date to April 19 this year, from April 5 originally. Reorg coverage is available HERE.

Cooper Standard

As supply-chain disruptions and semiconductors shortage impact auto manufacturer build schedules and boost raw material costs, component supplier Cooper Standard is planning to utilize its secured debt baskets to refinance its $323 million term loan B due 2023. The company’s ability to incur additional debt may be limited under the documents governing its credit facilities and bond indentures, according to an analysis by the Americas Covenants team. Reorg coverage is available HERE.

Envision Healthcare Corp

Envision Healthcare Corp., has been in discussions with prospective and existing investors regarding a potential new-money transaction that contemplates moving assets away from the restricted group and raising debt at a new entity. Envision failed to deliver its annual financials by March 31 as required by the credit agreement, and notified lenders that the medical group intends to file its annual financials, projections and compliance certificate by April 30. Reorg coverage is available HERE.

Incora (Wesco Aircraft)

Incora reached an agreement this month with creditors to transact a non-pro-rata uptiering exchange.The deal was reached mainly with the support of the 8.5% 2024s largest holders including Pimco and Silver Point, as well as Carlyle and Platinum, which hold the 13.125% unsecured notes. An ad hoc group of secured noteholders represented by Akin Gump that may hold a third of the existing 9% 2026 senior secured notes is likely to challenge the transaction. Reorg coverage is available HERE.

Serta Simmons Bedding

On March 29, U.S. District Judge Katherine Failla in the Southern District of New York issued an opinion denying Serta Simmons’ motion to dismiss an action brought by the LCM funds challenging the company’s June 2020 non-pro rata uptier exchange. The decision allows the LCM funds’ second attempt to bring claims for breach of the 2016 first lien credit agreement and the implied covenant of good faith and fair dealing to proceed to discovery. Reorg coverage is available HERE

Service King

Auto repair shop chain Service King has secured a $35 million rescue loan from creditors led by Clearlake Capital after missing payments on its $775 million L+675 bps term loan due 2025 and $375 million 7.875% unsecured notes due Oct. 1. The company also faces a springing maturity on the term loan in July, and the maturity of unsecured notes in October. Reorg coverage is available HERE.

NSO Group

NSO Group has been in default after skipping interest payments due at the end of last year on its loan facilities. The Israeli cyber security company’s lenders have agreed to forebear the missed interest payments. Two of the founders of Novalpina, the private equity fund that owns NSO, have been embroiled in a legal battle with Berkeley Research Group, or BRG, which has managed Novalpina’s portfolio at the behest of Novalpina’s investors since July 2021. The legal battle has spilled over to the English High Court from Luxembourg. Reorg coverage is available HERE.

Travelport

An ad hoc group of lenders to Travelport’s superpriority L+700 bps term loan due 2025 has organized with Stroock as counsel, as the travel technology company may need to raise more capital amid cash burn. A recapitalization in September 2020 and two subsequent superpriority add-on loan issuances effectively eliminated the company’s ability to incur more debt. The loan amendment also slashed its flexibility to execute new-money transactions. Monthly adjusted EBITDA in February swung to positive $12.1 million in February from negative $13 million a year earlier on a 116% revenue increase to $95 million. Reorg coverage is available HERE.

PSS Industrial

PSS Industrial, a privately owned Houston-based distributor of consumable and operating products and services with substantial exposure to the midstream segment skipped an interest payment due March 31 on $285 million L+600 bps term loan due April 2024. The company has been working with Kirkland & Ellis as counsel and Evercore as financial advisor to explore options for its balance sheet amid tight liquidity and covenant headroom, while an ad hoc group of lenders organized with Akin Gump as legal advisor and Guggenheim Securities as financial advisor. Reorg coverage is available HERE.

Alvogen

The New Jersey-based manufacturer of generic drugs has re-hired White & Case as counsel and Jefferies Financial Group as financial advisor to extend its debt maturities. After an amend and extend in 2020, the pharmaceutical company, which sells generic, brand and over-the counter drugs, has a $275 million ABL maturing on Jan. 29, 2023, and a L+475 bps first lien term loan B due December 2023. An ad hoc group of lenders is working with PJT Partners and Gibson Dunn, the sources said. Reorg coverage is available HERE.

8th Avenue Foods & Provisions

8th Avenue Food & Provisions, a Fenton, Mo.-based manufacturer of nut butter, pasta, granola, and fruit and nuts, reported deteriorating financials as record-high wheat prices owing to bad crop yields in the United States and Canada as well as impacts from the war in Ukraine are hurting the business. Reorg Covenants Prime concluded a review of the company’s first lien credit agreement, including an analysis of the company’s ability to incur additional first lien and structurally senior debt, to transfer assets to unrestricted subsidiaries, to reduce debt through open market purchases and to dispose of assets. Reorg coverage is available HERE.

Dhanani Group

Dhanani Group, a Sugar Land, Texas-based franchiser of quick-service restaurants including Popeye’s, Burger King and La Madeleine is working with Vinson & Elkins as it negotiates with lenders to once again extend a forbearance date to April 18 after tripping a restricted payments basket in its credit agreement at the end of the third quarter,. The company diverted $140 million away from the restricted group and drew down an additional $63 million on its revolver, with $72.5 million available, and used an intercompany loan to fund the acquisition of more than 300 Pizza Hut and Taco Bell locations. The company’s withdrawal exceeded the restricted payments basket by $53 million and it also sold assets contained within the restricted group, which raised questions among lenders about the use of the proceeds. Reorg coverage is available HERE.

Municipals

With sector-wide distress in the senior living space, Reorg’s Americas Municipals team reviewed bond documents and uncovered a springing senior lien among a vintage of senior living revenue bonds underwritten between 2016-2018 by a deal team at Piper Sandler. The provision affects proceeds distributed during a foreclosure proceeding and is already subject to litigation in one deal, Woodland Towers, where junior creditors are arguing that the springing lien was triggered and are therefore entitled to a pro-rata share of proceeds. The report is available HERE.

Opportunities can be found in performing credits too, thanks in large part to a dismal first quarter wherein municipal returns were a negative 5.6%. The environment has resulted in bargains up the credit scale. A good example is coverage of charter schools backed by the AAA permanent school fund in Texas. Market volatility can be seen in a gap-out of spreads through-out 2022 first quarter as charter schools attempt to borrow money in a slippery primary market. The report is available HERE.
Europe:

Russian sanctions

Investors are trying to figure out how the sanctions spurred by the Russian invasion of Ukraine will impact their ability to invest in the credit markets. Reorg hosted a webinar with Fiona Huntriss and Matt Getz, both partners at law firm Pallas Partners LLP, where they discussed the U.K. government’s sanctions, the practical and contractual effect of those sanctions on loan obligations and looking at considerations for borrowers and lenders. A summary of the discussion is HERE.

Vue International

Cinema operator Vue is working with Lazard and White & Case to evaluate a range of options to optimize its balance sheet. The U.K. cinema chain was hit heavily by Covid-19 related restrictions. Lenders have started working with Houlihan Lokey but no mandate has been signed. Reorg coverage is HERE.

Leoni

German cable and wiring manufacturer Leoni is getting ready to negotiate an amend-and-extend plan for the group’s €1.4 billion debt structure. The company’s financial advisor Herter & Co., is now working on a holistic solution for the entire capital structure. A group of the company’s RCF 1 noncore lenders are working with Houlihan Lokey alongside Kirkland & Ellis, while a group of RCF 2 and RCF 3 lenders have hired PJT and Freshfields. Reorg coverage of Leoni is HERE.

Corestate

German real estate manager Corestate is facing a €500 million maturity wall in 2022-2023, and it is looking increasingly unlikely that it will be able to pay or refinance the debt on time. The group’s 2023 bonds have fallen almost 20 points in April to the low 60s and the group is planning to appoint advisors. About 50% of the 2023 bonds are held by Pimco, which also holds 25% of the 2022 bonds. Reorg estimates the group may face a liquidity shortfall of about €100 million if it is unable to refinance in a timely manner, assuming the company’s cash conversion remains on track. Reorg coverage of Corestate is HERE.

Keter

Resin-based consumer goods producer Keter is planning to return to the primary market when it fully re-opens after the Easter break with a new deal to try and refinance its looming 2023 maturities. The BC Partners owned group is planning to bring a dual currency offering in euros and dollars to tap into the American market as it generates around 45% of its sales in the U.S. The January decision to postpone the €1.15 billion refinancing seems to have backfired given that Russia’s invasion of Ukraine and the ensuing sanctions sparked a surge in the price of oil, a key raw material in resin, and shuttered the primary market. Reorg coverage is available HERE.

Haya Real Estate

Investors holding 91.5% of Haya Real Estate 2022 notes supported a consent solicitation that will amend the indenture to allow the English High Court to have jurisdiction and sanction the company’s English law scheme of arrangement. As part of the plan, Haya’s two senior secured notes will, among other things, be extended to 2025, reinforced with more security and noteholders will take a minority stake in the Spanish real estate group. Reorg coverage is available HERE.

Schur Flexibles

Schur Flexibles’ EBITDA fell 24.8% year over year during the first two months of 2022 but exceeded budget, according to a trading update issued to lenders last week. The Austrian specialist flexible packaging producer also provided a 13-week liquidity forecast showing its cash balance would fall close to the minimum level in June, and gave an update on Alvarez & Marsal’s findings into the previous management’s compliance breaches. Reorg coverage is available HERE

Upfield

Plant-based spreads producer Upfield’s capital structure is under investors’ scrutiny. The senior secured notes have come under pressure as Russia’s invasion of Ukraine has led to rising vegetable oil prices, a key input for Upfield’s products. The group is planning to use alternative oil inputs, use reserves it holds and pass through price increases. Its senior unsecured notes are trading in the low 80s with term loans quoted in the low 90s. The structure is over levered at 9x compared with KKR acquisition multiple at 10x. But there is no trigger, maturities are in 2026, liquidity is fine for now and the group is well hedged for 2022. Reorg coverage is available HERE.

The Learning Network

Dutch e-learning services group The Learning Network is working with PJT as financial advisor to address its 2022 and 2023 maturities. The company's performance has been hit by the fact that education is increasingly moving online. Reorg coverage is available HERE

Plusserver

Investors continue to monitor German cloud business PlusServer as its loans are quoted in the high 30s to low 40s. Revenue slipped sequentially to €7.67 million in January 2022 against December and last year, but met its 2022 budget. LTM reported EBITDA improved to €12.66 million from €12.1 million at the end of 2021, while adjusted pro forma EBITDA remained flat at €29.5 million, leaving the group 8.33x net levered. Reorg coverage is available HERE.

Eurotorg

Belarusian supermarket chain Eurotorg told Reorg it remains committed to fulfilling all its obligations to the 2025 noteholders. The $300 million 9% 2025 loan participation notes are quoted in the high teens to low 20s following a sharp drop from par in March as a result of Minsk’s close ties with Moscow and Belarus’ direct assistance of Russia’s invasion of Ukraine. Liquidity has dried up in the unsecured notes, as Western financial institutions are turning their backs on credits linked to Russia. Reorg coverage is HERE.
Asia:

Modern Land China

Following Chinese real estate developer Modern Land China's announced proposed restructuring terms, Reorg conducted an exchange analysis to model fair value of the outstanding senior notes, highlighting that the company could struggle to meet its obligations under the proposed new notes should contracted sales remain weak. The analysis suggests existing noteholders could seek to include an asset sales undertaking or personal guarantee from controlling shareholders under the terms of the new notes to mitigate risk of non-payment. Reorg coverage is available HERE.

Sri Lanka

The Democratic Socialist Republic of Sri Lanka’s $1 billion 5.875% notes due July 2022 fell 7.5 points to 58.5/60.5 April 4 from last week, following the resignation of Sri Lanka’s cabinet ministers on April 2 due to protests over the government’s handling of the worst economic crisis in decades. The chaotic weekend also saw a curfew imposed to quell rising dissent in the country, which faces $8.6 billion worth of debt payments this year, including a combined $2.2 billion of principal and interest payments for dollar-denominated bonds and loans. Reorg coverage is available HERE.

China Fortune Land Development

Chinese real estate developer, China Fortune Land Development Co. (CFLD), has fallen behind in making principal repayments under a debt restructuring agreement with its onshore creditors, as its planned asset disposals are behind schedule. CFLD has delayed a repayment due around the end of March, of up to 20% of total principal, to the end of May. The developer had repaid only about 1.3% of principal in February to creditors who had signed the debt restructuring plan by Jan. 31. The debt restructuring plan calls for CFLD to repay no less than 30% principal payment by the end of 2023. Reorg coverage is available HERE.

Dr. Peng Telecom & Media Group Co. Ltd.

Chinese telecommunications network operator Dr. Peng Telecom & Media Group Co. Ltd. 's launched a consent solicitation seeking to amend the $500 million 7.55% guaranteed notes The process is a condition precedent for the sale of submarine cable project Pacific Light Cable Network (PLCN) to Meister United Ltd. But given the structure of transactions linking the CS, PLCN, and the requirement for cooperation of $150 million private secured notes issued by Pacific Light Data Communication Co. Ltd., there is potential for a scenario where noteholders accept the CS, but the PLCN sale does not crystallize. Reorg coverage is HERE.

CDS and Chinese Real Estate Developers

Using Depository Trust & Clearing Corporation (DTCC) data, Reorg has looked into credit default swap (CDS) transactions where market participants were engaging in risk transfer activity involving various Chinese real estate developers over the last two years. Over the past year, reference entities underpinning substantial notional CDS trades include Shimao, Agile, Logan, Aoyuan and Sunac among others, and data reveals the trade amount spiked in February 2021 to August 2021 to above $1.3 billion. The analysis is available HERE.
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