Retail, Travel, Energy are the Focus of This Week’s Sale-Heavy Chapter 11s

Fifteen chapter 11 cases commenced since last week’s recap, including Ann Taylor’s Ascena Retail Group, the year’s sixth case to report more than $10 billion in liabilities and the second case on First Day record with that level of debt to be filed by a retail chain owner; and three additional companies reporting over $1 billion in liabilities: airline and cruise digital entertainment provider Global Eagle Entertainment, engine and power equipment manufacturer Briggs & Stratton and educational travel and experiences provider Lakeland Tours. On the energy front, there were five filings this week: one coal producer, Rhino Resource Partners, and four oil and gas companies, BJ Services, Patriot Well Solutions, Columbus Oil & Gas and Permian Holdco 1. In addition to Ascena, this week was also heavy with filings on the retail side, with cases commenced by the “largest pure-play e-commerce platform for prom dresses,” Occasion Brands, and NTS W. Corp., the U.S. retail arm of Spanish fashion retailer Desigual. IMH Financial, a real estate investment holding company that owns the 64-room historic MacArthur Place hotel in Sonoma, Calif., and “thousands” of acres of undeveloped real property and related water rights outside of Albuquerque, N.M., also filed this week.

If we zoom in on the annual timeline of aggregate chapter 11 filings and look at the May 1 to July 31 period, 2020’s trajectory is steepening away from each of the four previous years:
 
The week's filings bring 2020’s count of chapter 11s with more than $100 million in liabilities to 112, just three cases shy of 2019’s complete year total and 24 cases beyond 2018’s complete year total. For cases with more than $1 billion in debt, 2020 is up to 40 cases, after 2019 notched 27 in 12 months and 2018 reached 22. Of the year’s 40 billion-dollar bankruptcies, 15 were filed in the Southern District of Texas (nine energy, four retail, two other) and a more diverse set of 10 were filed in Delaware.

The chart below shows the number of annual chapter 11 filings involving more than $100 million in debt. Though nothing striking sticks out at first glance, the 2020 column is with respect to the first 206 days of the year, while the prior four are complete year totals.
 
The same comparison for cases with more than $1 billion in debt is shown below:
 
For cases across both of the aforementioned liability ranges, the breakdown by sector for 2020 is shown below:
 
This week had three clothing retailers filing: Ascena Retail Group, Occasion Brands and NTS W. Corp. Ascena, the owner of nationwide mall brands, Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, Catherins and Justice, filed on Thursday in the Eastern District of Virginia, with the goal to reduce the store count. Ascena had entered into a restructuring support agreement prior to filing with lenders holding 68% of their $1.6 billion secured term loan facility, which contemplates $311.8 million in DIP financing, including $150 million in new money backstopped by certain of the supporting lenders and up to $161.8 million of rolled up prepetition loans. Occasion Brands and NTS W. Corp. also filed on Thursday in the Southern District of New York. Occasion Brands, an online-only retailer focusing on prom, homecoming, bridal and other special occasion events, filed for chapter 11 protection to exit its costly business with Kleinfeld Bridal Corp. through the sale of its exclusive interest in the Kleinfeld license and related assets and to sell all of its non-Kleinfeld assets. NTS W. Corp., a wholesale distributor of women’s, children's and infants’ clothing and accessories, estimates $1 million to $10 million in assets and $10 million to $50 million in liabilities and is seeking relief under Subchapter V of chapter 11 for small business debtors.

Ascena’s filing is the biggest retail case with respect to debt in the First Day Database, reporting more than $12 billion on its chapter 11 petition, which inches above the prior record holder, Sears, which is the only other retail chapter 11 to involve more than $10 billion in debt. Year-to-date, retail chains make up approximately $33 billion of aggregate chapter 11 liabilities, which is more than the level of retail chain chapter 11 debt accumulated in all of years 2016, 2017 and 2019 combined. The chart below shows the timeline of aggregate chapter 11 retail chain debt accumulation per year, with company labels shown for cases involving more than $1 billion in liabilities.
 
Going back to June 2015, when First Day was launched, retail chains have accumulated more than $80 billion in aggregate liabilities in connection with roughly 105 chapter 11 cases.
 
The biggest of the week’s energy filers by debt was fracking services provider BJ Services, which reported $500 million to $1 billion in liabilities and filed seeking to sell its assets and wind down in the wake of prolonged commodity price volatility and an “unmanageable” capital structure. Well completion services provider Patriot Well Solutions and above-ground wellsite containment and processing services company Permian Holdco 1 each reported $10 million to $50 million in liabilities and blamed the familiar oil and gas industry woes of collapsing commodity prices, depressed demand for oilfield services and the hindrances of Covid-19.

On the coal end of the energy sector was the filing of thermal and metallurgical coal producer Rhino Resource Partners, which laments increased production costs and plummeting commodity prices, along with idled mines as a result of Covid-19. Rhino reports $100 million to $500 million in liabilities. While coal producers in past chapter 11s have remarked about a healthier market for metallurgical coal (used to produce steel) relative to thermal coal (used to produce electricity), Rhino says this was true until approximately the third quarter of 2019 before the metallurgical market declined “substantially” beginning in the fourth quarter of 2019, resulting in a sustained low-price environment. Other coal production companies that have filed chapter 11 in 2020, including Harsthorne and Murray Energy, have cited similar struggles with respect to the metallurgical side of their businesses.

2020 has surpassed 2016 - previously the busiest year for energy filings on First Day record - with respect to energy filings year-over-year. The break-down of these cases by liability range is shown below:
 
Global Eagle Entertainment, an airline and cruise digital entertainment provider, filed on Wednesday in the District of Delaware after entering into restructuring support agreement with an investor group holding approximately 90% of its senior secured first lien term loans which contemplates a $675 million sale of the company’s assets by the investor group as well as a $80 million DIP facility and $125 million exit facility. Due to the Covid-19 pandemic, Global Eagle’s airline and cruise line customers have ceased or reduced their operations, which has resulted in the company suffering a drastic decline in revenue.

On Monday, engine and power equipment manufacturer, Briggs & Stratton, filed in the Eastern District of Missouri. Prior to filing, the debtors received a stalking horse bid from KPS Capital Partners for the purchase of substantially all of the debtors’ assets and equity interests for $550 million. The debtors had indicated that the stalking horse bid would serve as a “floor” and that creditors’ recoveries would increase through the auction process. As the “world’s largest producer of gasoline engines for outdoor power equipment,” Briggs & Stratton states that factors such as weather conditions, the bankruptcy of Sears (one of the company’s largest customers), shifts in consumer preferences, “unfair” Chinese trade practices and the impact of Covid-19 precipitated the need to file and pursue a sale.

Educational travel and experiences provider Lakeland Tours filed their prepackaged chapter 11 cases in the Southern District of New York on Tuesday, with the support of 85% of their prepetition secured loan claims holders. The proposed restructuring provides for an “immediate” infusion of $200 million in new capital from the consenting lenders and the sponsors as part of a $351.8 million DIP financing package, which would also include $150 million in rollup loans. Like many other travel sector companies, Lakeland business was “decimated” by the Covid-19 pandemic and the related global shutdown of nonessential travel beginning in early March resulting in loss of most revenue and a slowdown in future bookings as well as causing liquidity challenges due to refund of customer deposits. This has resulted in Lakeland being unable to operate tours “during what otherwise would be the peak of the 2020 travel season.”

Many of this week’s debtors are looking to sell their assets, with most of the debtors securing stalking horse bids from insiders, equityholders and/or existing lenders. Rhino’s prepetition lenders have submitted a credit bid, just as Golden Eagle Entertainment has secured as stalking horse an investor group led by Apollo Global Management Inc., Eaton Vance Management, Arbour Lane Capital Management LP, Sound Point Capital Management, Mudrick Capital Management and BlackRock Financial Management holding approximately 90% of its senior secured first lien term loans. Permian Holdco 1’s prepetition secured lender, New Mountain (a representative of which served on the debtors’ boards of directors), which is also a minority holder of the Permian’s common and preferred equity, is also a stalking horse credit bidder. At the same time, Patriot Well Solutions has secured a stalking horse bid from White Deer Energy, an affiliate of majority member WDE PWS Aggregate, LLC, and BJ Services has a bid from one of its equity sponsors and an insider, CSL Capital Management, for certain assets.

Below is a recap of the sale-related events for the week’s cases:  
Case data, such as advisors and DIP financing terms, including for filings discussed above, can be found in the First Day Database, which includes all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.