UPDATE 1: Centric Brands RSA Contemplates 1L Term Loan Claims to Receive 1L Exit Debt, 30% of Reorganized Equity and 2L Secured Claims to Receive 70% of Reorganized Equity

UPDATE 1: 10:23 a.m. ET 5/18/2020: According to the 8-K filed by Centric Brands, reorganized Centric is expected to be capitalized with a $275 million first lien revolving loan facility, a first lien term loan facility in a size to be determined, and a new securitization facility the terms of which are also to be determined. The first lien term loan claims are expected to receive recovery in the form of exit first lien term loans and 30% of the reorganized equity. The debtors propose that second lien secured claims will receive their pro rata share of 70% of the reorganized equity, while second lien deficiency claims will be grouped with general unsecured claims with a treatment to be determined.

Proposed treatment for each series of claims, as detailed in the RSA, is described below.
 

• DIP Term Loan Claims: Each holder of a DIP term loan credit facility claim will receive indebtedness under a new first lien term loan facility, with a face amount equal to the face amount of such DIP Term Loan Claims.
• DIP Revolving Loan Claims: Each holder of a DIP revolving credit facility claim will receive either (i) the face amount of its DIP revolving loan claims of indebtedness under a new first lien asset based revolving loan facility or (ii) in the event the new first lien revolving loan facility is not entered into because the conditions to closing thereof have not been satisfied or waived, payment in full in cash.
• PNC Securitized Debt Claims: Claims with respect to the trade receivables securitization facility with PNC Bank, National Association, PNC Capital Markets LLC and certain purchasers party thereto “will be treated in a manner acceptable to PNC, the Company, and the Required Consenting Creditors.”
• First Lien Term Loan Claims: Each holder of a first lien credit facility will receive (i) new first lien term loans equal to the amount of its first lien term loan claims and (ii) its pro rata share of 30% of the equity in reorganized Centric, subject to dilution by a management incentive plan to be established by the governing board of the reorganized debtors.
• Second Lien Credit Facility Claims: Second lien credit facility claims will be divided into (i) secured claims and (ii) deficiency claims, which will be treated as general unsecured claims. Each holder of a second lien secured claim will receive, on account of its claim, its pro rata share of 70% of the new Centric equity, subject to the permitted dilution.
• General Unsecured Claims: The treatment of general unsecured claims “will be determined by and acceptable to the Debtors and the Required Consenting Creditors.:
• Existing Equity Interests: Upon consummation of the restructuring, all of the company’s outstanding common stock will be cancelled and the holders thereof will receive no recovery under the plan.

Exit Financing

With respect to exit financing, Centric proposes that the reorganized entity will issue new first lien term loans, first lien revolving loans and a securitized facility. The reorganized entity will issue new first lien term loans in an aggregate principal amount equal to the sum of (a) the amount of DIP term loan claims plus (b) the amount of all first lien term loan claims, and that would mature on the date that is five years after the plan effective date. Reorganized Centric will issue a new first lien revolving loan facility in an aggregate principal amount of $275 million and that would mature on the date that is four years after the plan effective date.

Regarding the new securitized facility, according to the 8-K, reorganized Centric will either (i) enter into a new securitized facility with PNC on terms reasonably acceptable to reorganized Centric and the required consenting creditors, (ii) reorganized Centric will enter into a new receivables facility with third parties (other than PNC), on terms reasonably acceptable to reorganized Centric and the required consenting creditors or (iii) the new first lien revolving loan facility will be modified with a borrowing base including receivables and inventory, on terms reasonably acceptable to reorganized Centric and the required consenting creditors.

DIP

As previewed in their petition, the debtors have $435 million in committed DIP financing. The debtors propose a DIP revolving credit facility with up to $275 million of borrowings available, subject to a borrowing base and updated 13-week forecasts to be provided by the company. The initial advance under the DIP revolving credit facility shall (i) be deemed to refinance in full all of the company’s obligations under the company’s existing revolving credit facility and (ii) include up to $20 million in borrowing availability. Loans under the DIP revolving credit facility would carry a margin equal to LIBOR plus 6.5%.

The debtors also propose an up-to $160 million DIP term loan credit facility, the use of which will be subject to updated 13-week forecasts to be provided by the company. The initial advance under the DIP term loan credit facility of $120 million shall be used, among other things, (i) for working capital and general corporate purposes, (ii) to pay fees and expenses in connection with the chapter 11 cases and (iii) to repay all amounts outstanding with respect to the 2020 term loans. Loans under the DIP term loan credit facility would carry a margin equal LIBOR plus 8%.

According to the 8-K, the RSA sets forth terms with respect to additional financing requests from the debtors following the petition date. Under the terms of the supplemental DIP financing arrangement, consenting first lien lenders shall be offered on a ratable basis the right to provide 30% of any supplemental DIP financing, while consenting second lien lenders and consenting DIP term loan lenders would be offered the right to provide 70%.

The RSA contains certain milestones relating to the chapter 11 cases, as laid out below.
 

• Interim DIP order to be entered by the bankruptcy court no later than four days after the petition date.
• Plan and disclosure statement to be filed no later than 30 days after the petition date.
• Final DIP order to be entered no later than 35 days after the petition date.
• Order approving the disclosure statement to be entered by the bankruptcy court no later than 90 days after the petition date.
• Confirmation order to be entered by the bankruptcy court no later than 125 days after the petition date.
• Plan effective date to occur no later than the outside date, which is 160 days after the petition date.

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Original Story 9:20 a.m. UTC on May 18, 2020

BREAKING: Centric Brands Files RSA With 1L, 2L, DIP Creditors and Equityholders

Relevant Document:
8-K

The Centric Brands debtors have entered into a restructuring support agreement on May 17 with certain of its creditors and equityholders, specifically: 

• (i) such creditors consisting of at least 50.1% of the holders of the First Lien Revolving Loan Claims that collectively hold at least 66.67% of the aggregate principal amount of the first lien revolving loan claims,
• (ii) such creditors consisting of at least 50.1% of the holders of the First Lien Term Loan Claims that collectively hold at least 66.67% of the aggregate principal amount of the First Lien Term Loan Claims,
• (iii) such creditors consisting of at least 50.1% of the holders of the Second Lien Claims that collectively hold at least 66.67% of the aggregate principal amount of the Second Lien Claims,
• (iv) all of the lenders under the DIP Facilities, and
• (v) certain holders of the Company’s common stock.

According to the 8-K: "The RSA contemplates the implementation of a financial restructuring of the Debtors through, among other things, a conversion of more than $700 million of the Debtors’ funded debt into equity (such transactions, collectively, the 'Restructuring'). The Restructuring will be effectuated through a joint plan of reorganization (the 'Plan') under the Bankruptcy Code. The material terms of the Restructuring are set forth in the term sheet attached as Exhibit A to the RSA (collectively, with the exit facility term sheet, the DIP term sheets, the governance term sheet, and all other exhibits and agreement attached thereto, the 'Term Sheet')."

The RSA includes details on proposed treatment, exit facilities and the DIP facilities.

More to come...