Tue 11/09/2021 11:44 AM
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Relevant Documents:
Voluntary Petition
Press Release
Plan / Disclosure Statement
DS Approval Motion
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda


 

















Summary
GC Services LP, one of North America’s “oldest and largest privately held” providers of accounts receivable management and business process outsourcing, is an indirect subsidiary of the debtor
Prepackaged plan is based on RSA entered into with 100% of existing secured term lenders
Existing term lender Goldman Sachs has agreed to provide $6 million in DIP financing

Houston-based ORG GC Midco LLC, a non-operating intermediate holding company whose primary revenue source is derived from its second-tier subsidiary and operating company, GC Services, which provides business process outsourcing services in the United States, filed for chapter 11 protection yesterday, Monday, Nov. 8, in the Bankruptcy Court for the Southern District of Texas, based on an RSA entered into with 100% of its secured term lenders (including Benefit Street Partners, or BSP, and Goldman Sachs, or GS). Through a prepackaged plan of reorganization, the secured term lenders would become the new indirect owners of the company. The debtor’s shareholders also support the plan, according to a press release that the company issued in connection with the filing.

Solicitation commenced prepetition on Oct. 16, with a voting deadline of Nov. 1, and 100% of existing term lenders voted to accept the plan, according to the debtor’s voting tabulation. According to the first day declaration, the debtor and its direct and indirect subsidiaries, or GCS parties, and consenting existing term loan lenders entered into a settlement and release agreement with the company’s sponsor (Austin-based private equity firm Owner Resource Group, or ORG) and minority equityholder - the Katz parties - pursuant to which the sponsor and the Katz parties agreed to support the plan and restructuring, in exchange for the payment of the sponsor’s professional fees up to $100,000. GC Services LP and ORG have also agreed to terminate a 2017 consulting agreement and ORG has agreed to waive any claims under the agreement.

Further, pursuant to a Nov. 7 forbearance agreement, existing ABL lenders have agreed to support the restructuring by continuing to provide the debtor’s operating subsidiary, GC Services, with access to the existing ABL facility during the case. The debtor has agreed not to borrow under the existing ABL facility and that no funds made available to GC Services under the facility would be made available to, or otherwise used by, the debtor during the case.

ORG GC Midco “is the only anticipated debtor in the Chapter 11 Case,” the DS says, adding that “none of Midco’s subsidiaries (collectively, the ‘Non-Debtor GCS Parties’), including the Company’s primary operating entity, GC Services, contemplate filing for chapter 11 protection.”

The debtor requests approval of a $6 million DIP term loan facility from one of the existing term lenders, Goldman Sachs Bank USA.

According to the DS, the company contemplates a restructuring of “the Company’s funded indebtedness through a prepackaged plan of reorganization that will substantially de-lever the Company by reducing its funded indebtedness from approximately $210.3 million to approximately $130.5 million [including notional size $30 million exit ABL facility, which may be increased to $40 million subject to ongoing negotiations] upon emergence.” Existing term loans of approximately $210.3 million would be cancelled and discharged in exchange for (a) take-back first lien term loans of $71 million, (b) take-back second lien term loans of $29 million, and (c) preferred and common equity of the reorganized company, with GS-owned and BSP-owned claims receiving different forms of equity treatment.

The proposed distributions are as follows:

  • Holders of allowed existing term loan claims affiliated with BSP would receive (a) pro rata share of initial new 1L loans, (b) pro rata share of new 2L loans, (c) pro rata share of new holdco junior preferred equity, and (d) 100% of the new holdco common equity;

  • Holders of allowed existing term loan claims affiliated with GS, would receive (a) pro rata share of initial new 1L loans (less the amount of term DIP claims outstanding immediately prior to the effective date rolled into initial new 1L loans), (b) pro rata share of new 2L loans, (c) 100% of the new Midco equity, and (d) as a result of receiving 100% of the new Midco equity, GS would acquire an indirect interest in (i) 100% of the new holdco senior preferred equity and (ii) pro rata share of new holdco junior preferred equity;

  • Holders of existing ABL facility claims would be treated as follows: (a) all outstanding amounts under the existing ABL facility would be converted into the exit ABL facility, which would be assumed by new holdco or (b) such other treatment to render the claim unimpaired;

  • Holders of GUCs would be paid in full in the ordinary course of business; and

  • Existing equity would be canceled.


The debtors contemplate $130 million in reorganized funded debt which consist of a $71 million new 1L facility, $29 million new 2L facility and $30 million exit ABL facility. The treatment for the ABL facility holders is that all outstanding amounts under the existing ABL facility would be converted, on a dollar-for-dollar basis, into amounts outstanding under the exit ABL facility and all of the debtor’s obligations under the existing ABL facility would be assumed by new holdco. The restructuring would be effectuated as follows:

The organizational chart at exit would be as follows:

The first day hearing has been scheduled for today, Tuesday, Nov. 9, at 5 p.m. ET.

The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:

According to the first day declaration, borrowings under the ABL facility fluctuate monthly and as noted above totaled $13.1 million, including $5.2 million in drawn letters of credit at petition. As of the Oct. 16 disclosure statement, $7.5 million was outstanding, including $5.5 million in drawn letters of credit.

The first day declaration states GC Services maintains a revolving line of credit under the credit
agreement and that the company’s obligations under the existing ABL facility are secured by a first priority lien on the ABL priority collateral and a second priority lien on the term priority collateral.
In addition, obligations under the existing term loan facility are secured by a first priority lien on the term priority collateral and a second priority lien on the ABL priority collateral. BSP Agency LLC is the existing term agent and JPMorgan Chase Bank is the existing ABL agent.

An existing intercreditor agreement governs the rights and obligations of the existing term lenders and the existing ABL lenders with respect to, among other things, collateral priority, matters of DIP financing, the use of cash collateral, and adequate protection.

As previously disclosed, Midco is the only anticipated debtor in the chapter 11 case, and none of Midco’s subsidiaries, including the company’s primary operating entity, GC Services, contemplate filing for chapter 11 protection. Based on the debtor’s organizational chart, Midco is a borrower of both the ABL facility and term loan facility, even though GC Services maintains the revolving line of credit, according to the DS.

The debtor is represented by Weil Gotshal & Manges as counsel and Riveron Management Services LLC, fka Conway MacKenzie Management Services LLC, as interim management services provider. The case has been assigned to Judge Marvin Isgur (case No. 21-90015).

Events Leading to the Chapter 11 Filing / Prepetition Restructuring Efforts

The debtor says that, though its business is operationally sound, ORG is “significantly over-levered.” For fiscal 2020, the company reported approximately $15 million of adjusted EBITDA (on a consolidated 52-week basis) versus approximately $218 million of total funded debt, including accrued and unpaid interest - implying leverage of approximately 14.5x EBITDA, the DS explains.

In the fall of 2019, ORG struggled to comply with certain of its financial covenants under the prepetition term loan agreement, leading to the debtor evaluating strategic options to right-size its balance sheet and provide financial and operational leadership to the company as it embarked on a restructuring process. In September 2020, the prepetition term loan agent delivered to the debtor a notice of exercise of rights and remedies after default, including to exercise rights under the proxy and power of attorney. The prepetition term loan agent then executed and delivered a written consent pursuant to which each Midco board member was removed and replaced by three independent managers.

On Nov. 30, 2020, the debtor and certain of the other nondebtor GCS parties entered into forbearance agreements with the prepetition term lenders and the prepetition ABL agent. Since then, the company has been operating under a series of extensions to those forbearance agreements as the company assessed its strategic options and attempted to negotiate a consensual resolution of its capital structure concerns.

The debtor says that its “precarious financial position” compared with its competitors, many of which the debtor says have already undergone their own balance sheet restructurings in the past 12 to 18 months. The debtor’s financial position has begun to hurt the company’s ability to attract and retain customers and has prevented the company from making certain technology and/or system upgrades necessary to ensure the company is in compliance with requirements imposed by certain regulatory and licensing authorities.

“After several months of good faith, arm’s length negotiations with the Consenting Lenders,” on Oct. 16, the debtor, the nondebtor GCS parties and the consenting lenders entered into the RSA. The company’s existing ABL lenders have agreed to allow GC Services to continue to access the existing ABL facility through the consummation of the restructuring through the chapter 11 case, at which point the prepetition ABL facility would either be refinanced or converted into the exit ABL facility, the DS says.

Background

Midco, the debtor entity, is a non-operating intermediate holding company. Its primary source of revenue is its second-tier subsidiary and operating company, GC Services. GC Services was launched in October 1957 as a business process outsourcing, or BPO, agency providing third-party accounts receivable management services. GC Services evolved and expanded in the 1980s to offer first-party AR collection services. Soon after, GC Services further expanded its service offerings by creating a separate teleservices division that could meet a full range of customer care needs, eventually became a privately owned business process outsourcing provider with about 6,000 employees and numerous call centers across the United States and in Manila, Philippines.

In late 2015, investment funds managed by Austin-based private equity firm Owner Resource Group, and collectively with its affiliates who own interests, directly or indirectly, in the debtor, including ORG GC Holdings, the sponsor, acquired a controlling interest in the company from the Katz family. The company is indirectly controlled by the sponsor through ORG GC Holdings, or Holdings, which owns 100% of the equity interests of Midco. Midco, in turn, directly or indirectly owns each of the other GCS parties. The company’s corporate organizational structure is shown below:

In the first day declaration, the debtor provides a capital structure following the restructuring, where a new holdco will be created as a subsidiary under ORG GC Midco and a new holdco sub will be created as a subsidiary under the new holdco. The new holdco sub will be the borrower for the 1L and 2L loans, and a guarantor for the exit ABL facility. The new holdco will be a guarantor for the 1L and 2L loans, and exit ABL facility. Senior and junior preferred shares will also be issued out of the reorganized company, as shown below:

 
The debtor's largest unsecured creditors are listed below:













































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Intact Insurance Surety Group
(fka OneBeacon Surety Group)
Atlanta Surety Undetermined
Chubb Group of Insurance
Cos.
Simsbury, Conn. Insurance Undetermined
Chapman and Cutler LLP New York Professional
Services
Undetermined
Langston & Brezina LLP Houston Professional
Services
Undetermined
Vinson & Elkins LLP Dallas Professional Services Undetermined
King & Spalding LLP Atlanta Professional
Services
Undetermined
Mayer Brown LLP Washington Professional
Services
Undetermined
Stroock & Stroock & Lavan LLP New York Professional
Services
Undetermined
Wells Fargo Bank Minneapolis Professional
Services
Undetermined
Winstead PC Dallas Professional
Services
Undetermined


The case representatives are as follows:



 


































































































Representatives
Role Name Firm Location
Debtor's Counsel Sunny Singh Weil, Gotshal
& Manges
New York
Katherine T. Lewis
Alfredo R. Pérez Houston
Debtor's Interim Management
Services Provider
John T. Young, Jr. Riveron Miami
Robert Wagstaff
Counsel to Benefit Street
Partners, as Prepetition Term Loan
Agent and Term Loan Lenders
Jayme T. Goldstein Stroock
& Stroock
& Lavan
New York
Daniel P. Ginsberg
Joanne Lau
Counsel to Goldman Sachs /
Benefit Street Partners,
as Prepetition Loan Agent and Term Loan Lenders
Charles A. Beckham, Jr. Haynes and Boone Houston
Martha Wyrick
Co-Counsel to Goldman Sachs
as Prepetition Term Lender,
Term DIP Agent and Term DIP Lenders
W. Austin Jowers King &
Spalding
Atlanta
Britney Baker
Michael R. Handler New York
Counsel to JPMorgan Chase Bank, as Prepetition ABL Agent Phillip Lamberson Winstead Dallas
Melissa Stewart
Jason Enright
Sean Davis Houston
Kadie Michaelis
Steffen Sowell
Debtor's Claims
Agent
NA Stretto NA

 


Prepackaged 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 sets forth the following classification of and proposed distributions to holders of allowed claims and interests:

  • Class 1 - Priority non-tax claims: At the option of the debtor or new holdco (with the consent of the consenting lenders): (a) payment in full in cash, (b) reinstatement or (c) such other treatment to render the claim unimpaired.

  • Class 2 - Other secured claims: At the option of the debtor or new holdco (with the consent of the consenting lenders), (a) payment in full in cash, (b) reinstatement or (c) such other treatment to render the claim unimpaired.

  • Class 3 - Existing term loan claims:

    • Holders of allowed existing term loan claims affiliated with BSP would receive (a) a pro rata share of initial new 1L loans (new term loan facility in aggregate principal amount of $71 million (inclusive of term DIP claims exchanged for initial new 1L loans on a dollar-for-dollar basis on the effective date), (b) a pro rata share of new 2L loans (second lien secured term loan facility to be provided to new holdco sub, GP Buyer and LP Buyer with BSP Agency, LLC as agent), (c) a pro rata share of new holdco junior preferred equity and (d) 100% of new holdco common equity; and

    • Holders of allowed existing term loan claims affiliated with GS would receive (a) a pro rata share of initial new 1L loans (less the amount of term DIP claims outstanding immediately before the effective date rolled into initial new IL loans); (b) a pro rata share of new 2L loans; (c) 100% of the new Midco equity; and (d) as a result of receiving 100% of the new Midco equity, GS would acquire an indirect interest in (i) 100% of the new holdco senior preferred equity and (ii) its pro rata share of new holdco junior preferred equity, “both of which shall be issued to the Reorganized Debtor; provided that prior to the Effective Date, GS may elect to have its Pro Rata share of the Initial New 1L Loans (less the amount of Term DIP Claims outstanding immediately prior to the Effective Date rolled into Initial New 1L Loans) and/or its Pro Rata share of the New 2L Loans issued to the Reorganized Debtor.”



  • Class 4 - Existing ABL facility claims: (a) All outstanding amounts under the existing ABL facility would be converted, on a dollar-for-dollar basis, into amounts outstanding under the exit ABL facility and all of the debtor’s obligations under the existing ABL facility would be assumed by new holdco or (b) such other treatment to render the claim unimpaired.

  • Class 5 - General unsecured claims: At the option of the debtor or new holdco (with the consent of the consenting lenders), (a) new holdco would continue to pay or treat each allowed general unsecured claim in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such allowed general unsecured claim or (b) such other treatment to render the claim unimpaired, in each case subject to all defenses or disputes the debtor and/or new holdco may assert as to the validity of the claims.

  • Class 6 - Intercompany claims: Adjusted, reinstated or discharged “to the extent determined to be appropriate by the Company with the consent of Consenting Lenders, but shall not be paid in Cash,” provided that intercompany claims held by ORG GC Holdings LLC or Owner Resource Group LLC and its affiliates would be released on the effective date.

  • Class 7 - Midco equity interests: The Midco equity interests will be deemed canceled, released, extinguished and will be of no further force and effect without further action by any party or order of the Bankruptcy Court.


The term DIP facility would be converted on a dollar-for-dollar basis into initial new first lien loans.

Plan Milestones

The RSA milestones are as follows:

The plan-related milestones are shown below:

DIP Financing Motion

The company proposes to enter into a $6 million superpriority secured DIP facility with the entire amount of the DIP loan available on entry of a final DIP order. The DIP financing bears interest at 6%, with 8% for the default rate, and matures on March 8, 2022. The DIP proceeds may be used to pay for amounts due to the DIP lenders and DIP agent, certain professional costs, U.S. Trustee fees and expenses, and “other expenses related to and/or necessary to be paid in connection with, or during, the Chapter 11 Case.” The DIP loans would be converted into initial first lien loans on the plan effective date. The debtors are also seeking authority to use their secured lenders’ cash collateral on a consensual basis. The debtors are not seeking access to the DIP loans or cash collateral on an interim basis.

To secure the DIP financing, the debtors propose to grant liens “on all of the real and personal property, whether now existing or hereafter arising and wherever located, tangible or intangible, of the Debtor,” including avoidance actions and the proceeds thereof, that would be junior only to the prepetition ABL liens, ABL adequate protection liens and certain prepetition permitted prior liens. The DIP lenders would also receive superpriority administrative expense claims.

The facility includes a closing fee equal to 1% of the aggregate principal amount of the DIP loan.
In support of the proposed DIP financing, the debtors filed the declaration of Robert Wagstaff, the debtor’s chief restructuring officer, who states that because the debtor is a holding company with no operations that does not generate its own revenue, access to the DIP facility and the authority to use cash collateral is necessary to ensure the debtor has “sufficient liquidity to administer this Chapter 11 Case.” Wagstaff adds that the debtor has a “small cash balance, substantially all of which constitutes Cash Collateral.”

The company proposes the following adequate protection to its prepetition term loan and ABL lenders: with respect to the ABL lenders, replacement liens on the ABL collateral and allowed superpriority administrative expense claims, and with respect to the term loan lenders, replacement liens on the term loan collateral and allowed superpriority administrative expense claims. The adequate protection package also provides for the payment of all prepetition and postpetition professional fees, expenses and disbursements incurred by the prepetition secured parties.

In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $500,000.

The DIP facility does not contemplate a budget for the use of the DIP proceeds.

The only DIP financing milestone requires that the plan effective date occur by Dec. 24.

Management Incentive Plan

The plan contemplates a post-effective date management incentive plan, which “may be formulated and approved by the New Board in its sole discretion; provided that the terms must be acceptable to BSP and GS.”

Other Plan Provisions

The plan provides for releases third-party releases of (a) the debtor, (b) the lenders party to the RSA, (c) the prepetition agents, (d) the prepetition ABL lenders, (e) the term DIP lenders and (f) the term DIP agent and their respective affiliates, subsidiaries, members, managers, equity owners, managed entities, investment managers, employees, professionals, consultants, directors and officers.

The release provisions explicitly exclude (i) any indirect holder of interests in the debtor that is not (x) a current employee of the the debtor and its direct or indirect subsidiaries or (y) a party to the settlement and release agreement between the debtor, the prepetition agent and the consenting lenders; and (ii) the former CEO of the the debtor and its direct or indirect subsidiaries whose employment was terminated by GCS LP effective as of Nov. 29, 2020.

In addition, the plan includes an exculpation provision in favor of (a) the debtor, (b) the reorganized debtor, (c) the nondebtor direct and indirect subsidiaries parties, (d) the lender party to the RSA, (e) the ABL lenders, (f) the prepetition agents, (g) the term DIP agent, (h) the term DIP lenders and (i) the exit facility agents.

The new board would consist of five members to be appointed by the holders of a majority of the new holdco common equity, provided that at least two of the five board members would be independent and that (a) as long as a holder of new holdco junior preferred equity holds at least 32% of the new holdco junior preferred equity, the appointment of two independent board members would require the consent of such holder, and (b) so long as a holder of new holdco junior preferred equity holds less than 32% of new holdco junior preferred equity but not less than 16% of the new holdco junior preferred equity, the appointment of one independent board member would require the consent of such holder.

In addition, unless otherwise agreed to by BSP and GS, the new board on the effective date would initially consist of three board members, one of which would be an independent director. The remaining two board seats would be filled following the effective date.

Members of the initial board consist of:

  • Jim Decker: Founder of JDecker & Co. Inc.

  • Garry Herdler: Former CFO, investment banker, private equity management consultant, CPA/CA and tax advisor in several industries.

  • David Zwick: CFO of Flexera Software.


Liquidation Analysis

The liquidation analysis provides that if the cases were converted to chapter 7, given that the debtor has no operations and its primary assets are its interests in its direct and indirect subsidiaries, the prepetition term lenders and prepetition ABL lenders would exercise remedies and foreclose upon the assets and property of the nondebtor direct and indirect subsidiaries, substantially all of which assets and property are subject to prepetition liens, and that consequently there would be “no distributable value available to any holders of Claims against or Interests in the Debtor.”

Valuation

The debtor also provides an estimated range for the total enterprise value of the reorganized debtor and its nondebtor affiliates, upon consummation of the plan, at ​​approximately $104 million to approximately $120 million (with the midpoint of such range being approximately $112 million).

Financial Projections

The debtor provides financial projections, which includes nondebtor affiliates, for fiscal years 2021 through 2025. The debtors project generating $61.9 million of revenue to end the fourth quarter and $252.4 million for full-year 2022. The debtors project an increase of revenue each following subsequent year and ending full-year 2025 generating $328.2 million. The debtors also project adjusted EBITDA of $2.2 million for the fourth quarter and of $9.6 million for the full-year 2022, up significantly from adjusted EBITDA of $15 million for the full-year 2020 disclosed in the first day declaration. The debtors project adjusted EBITDA will increase annually and end full-year 2025 with $28.1 million.

The debtors project they will exit chapter 11 restructuring with $2.5 million of cash in the fourth quarter of 2021 and for cash to be flat year over year from full-year 2022 to full-year 2025. While the debtors project they will generate positive levered free cash flow, the company said it expects to use cash to pay down debt with the exception of a drawing debt in full-year 2022 for $3.8 million.







(Click HERE to enlarge.)

Plan Supplement

The debtor also filed a plan supplement, including the members of the new board (as described above), a new holdco LLC agreement, new holdco sub LLC agreement, restructuring transaction steps, schedule of rejected contracts, new first lien facility and new second lien facility.

Other Motions

The debtor also filed various standard first day motions, including the following:



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