TMA honors excellence through its annual awards program, which recognizes achievements in the categories listed in this issue, plus more. The following awards were presented at The 2018 TMA Annual in Colorado Springs, CO, on September 27.
Santa Clara, California-based Avaya is the largest provider of call center software and a global leader in “unified communications”— integrating conferencing, messaging, video, data, voice, and more. It became an independent company in 2000, when it spun off to public shareholders of Lucent Technologies Inc., itself a spin-off from AT&T. It then went private in 2007 while operating at $8.2 billion with $5.3 billion of debt.
The company encountered significant strain as a result of the Great Recession, the market shift away from hardware-based business communications toward software and services offerings, and increased competition from large competitors. In the years prior to its Chapter 11 filing, Avaya instituted broad-based initiatives to improve overall profitability and address significant debt and legacy liabilities. It also explored out-of-court restructuring alternatives, including monetizing its contact center business, which did not ultimately occur.
In 2017, Avaya filed for bankruptcy protection under Chapter 11, saying that its foreign operations would be unaffected. Avaya listed $5.5 billion in assets, $6.3 billion in debts, and $2 billion of legacy liabilities.
During the bankruptcy period, Avaya sold its networking business and associated products to Extreme Networks for $100 million. In late 2017 to early 2018, the company emerged with a new leadership team and a revised strategy based on accelerating open, cloud-first architecture; integrating artificial intelligence, blockchain, and emerging technologies; and transforming the business through increased investment in innovation.
In December 2017, Avaya again became a public company. Several months later, Avaya regained its position as a leader in the Gartner Magic Quadrant for Unified Communications, the ninth time that the company has been in a leader position—and was also positioned as a leader in the Gartner Magic Quadrant for Contact Center Infrastructure for the 17th time. Companies in the leaders’ quadrant of the Gartner Magic Quadrant are defined as companies that “execute well against their current vision and are well positioned for tomorrow.”
While the comeback story of Performance Sports Group may not rival the U.S. men’s team’s “miracle” upset of the Soviets during the 1980 Winter Olympics, the company’s odds-defying path through a multijurisdictional bankruptcy that culminated in a transaction producing 100 percent recoveries to creditors and consequential recovery to equity is, indeed, medal worthy.
Long known as Bauer Performance Sports, Performance Sports had evolved into a major equipment player for ice hockey, roller hockey, lacrosse, baseball, and softball. By 2016, however, the company was playing defense on nearly every front. A softening overall market forced several key customers—retailers such as Sports Authority—into bankruptcy and others to consolidate, leading to sharp sales declines.
The company also was saddled with debt following a multiyear acquisition strategy. Revised earnings projections sent its stock plummeting. A strengthening U.S. dollar relative to other currencies, including the Canadian dollar, compressed margins and reduced profitability. As regulators in Canada and the U.S. pursued investigations, the company also faced a securities class action lawsuit.
With its liquidity position becoming increasingly precarious, Performance Sports in late summer 2016 assembled a team of advisors to assess its strategic alternatives. Staring down a debt default within 60 days due to its inability to file timely audited financial statements, the company and its advisors were forced to make quick decisions and identify a path forward. The result: selling the company through a multijurisdictional bankruptcy process with a two-part DIP financing.
Performance Sports’ formidable brands, such as flagship Bauer Hockey, proved to be a powerful selling point. Seeing significant future potential, Sagard Capital Partners, the largest shareholder, and Fairfax Holdings stepped up with a $575 million stalking horse offer to backstop the bidding process. The price—more than 40 times EBITDA—ultimately carried the day.
In February 2017, Performance Sports won court approval for the sale and later emerged from bankruptcy in the U.S. and Canada. The transaction resulted in new ownership, produced full recovery to unsecured creditors, yielded consequential recovery to equity holders, provided lawsuit settlement funds, preserved nearly all jobs, and reset the game clock for some of the most beloved brands in sports.
The Eastern Outfitters transaction team worked collaboratively and creatively with all stakeholders to deliver an eleventh-hour transaction for a company on the brink of liquidation. To the advisors’ knowledge, EO—owner of Eastern Mountain Sports and Bob’s Stores—remains the only successful sale of any meaningful size in the sports retail space in 2017.
After an extended negotiation and several deadline modifications, an East Coast-based buyer and licenser of brands was targeted to close on the transaction in early January 2017. However, December results arrived below expectations, prompting the buyer to place additional conditions on the transaction beyond EO’s control, dooming the planned sale.
To stretch liquidity and buy additional time for a successful sale, EO’s sponsor contributed an incremental $15 million in December 2016 to acquire the junior first lien debt, and EO management employed aggressive working capital measures. Nevertheless, with limited liquidity, EO was forced to prepare for an immediate shutdown of its operations and liquidation of its assets. With limited liquidity and no clear path forward, liquidation became Plan A while hope of Plan B—a strategic Chapter 11 should a white knight buyer step forward—remained.
That savior became Sports Direct, the U.K.’s largest sporting goods retailer. However, EO lacked a finalized debtor-in-possession (DIP) loan from Sports Direct at the time it decided to file Chapter 11. Therefore, immediately after filing and without the benefit of any breathing space, the transaction team had to secure a DIP loan from Sports Direct or be forced into a liquidation again. Further complicating matters, EO’s prepetition lender preferred liquidation, as it was assured repayment in full, with little to no risk, in a shorter time frame.
Ultimately, the transaction team secured an $85 million DIP loan, with $65 million being funded on an interim basis from Sports Direct. The acquired business included approximately 50 U.S. retail stores.
First United Funding loaned—or purported to loan—more than $700 million to borrowers funded by participations involving more than 60 banks. In reality, First United was a $4 million Ponzi scheme. Once the scheme collapsed in 2009, Lighthouse Management Group was appointed receiver. Lighthouse Management retained counsel.
The result of the receivership, which concluded this year, was an almost unprecedented success. A lengthy investigation revealed that nearly 20 banks were owed around $92 million. The victims of the First United scheme have received approximately $91 million—99 percent of their claims. To reach this result, Lighthouse essentially re-created and recorded years of fraudulent, undocumented financial transactions totaling billions of dollars.
Lighthouse proactively shared information with constituents, in particular the victims, seeking to establish common ground and agreement with parties throughout the case and to minimize time and expenses for all involved. Lighthouse pursued more than 70 actions across the United States, including lawsuits against borrowers and guarantors and other parties that received millions of dollars in ill-gotten gains from the scheme.
In doing so, Lighthouse established new law on many issues, including the methods for calculating and distributing assets in receiverships. The Minnesota Supreme Court also entered an important decision concerning the right to recover fraudulent transfers that will impact claims in Minnesota, other states, and bankruptcy courts for years.
In the aftermath of the global energy downturn, CHC Group, one of the largest commercial helicopter service companies in the world, filed for Chapter 11 bankruptcy protection in the Northern District of Texas in May 2016.
Prior to the filing date, CHC employed more than 3,800 employees across 20 countries on six continents. Forty-three of CHC’s 81 entities filed for Chapter 11 bankruptcy protection. The remaining 38 entities, operating across 26 countries, continued operations while closely coordinating all activities with the debtor entities.
In its Chapter 11 case, CHC used an expedited fleet replacement strategy to right-size its fleet of approximately 230 helicopters. It removed approximately 100 aircraft from its fleet, while also restructuring agreements with numerous aircraft lenders and lessors. As a result, CHC successfully reduced its aircraft lease and financing costs by approximately $1 billion and its overall fleet by approximately 45 percent.
In addition to the significant aircraft cost savings, the overall transaction, implemented through proceedings in the United States, Canada, and the Cayman Islands, shed more than
$2 billion in debt, paid back creditors, and saved almost 80 percent of employee jobs across the globe.
After two multiday trials that included lengthy witness testimony and legal argument, CHC, the revolving lenders, the secured and unsecured noteholders, the creditors’ committee, and the anchor helicopter lessor successfully defended the plan support agreement that benefited all stakeholders.
Founded in 1977, the Big Apple Circus is a venerated cultural institution of New York City, renowned for its critically acclaimed performances and dedicated community programs. In the aftermath of the Great Recession, the Circus’ annual income from earned revenue and donor contributions slowed dramatically. Despite the Circus’ best efforts to cut costs and raise funds, in 2016 it was ultimately forced to cancel its fall performance season for the first time in its history.
Debevoise advised the circus on a pro bono basis regarding various restructuring alternatives, working with the board and management team to decide how to both maximize value for creditors and honor the nonprofit's mission. When the circus decided the best option was an orderly wind-down in Chapter 11, during which it could sell its major assets and transition its community programs to other nonprofits, its advisors jumped in to help without charge. Through two successful sales—the private sale of the circus’ real property in Walden, New York, and the public auction of its performance-related assets—the circus was resurrected in the hands of a new owner, just in time for the 40th anniversary season.
Moreover, these sales funded meaningful distributions under the circus’ confirmed Chapter 11 plan, which provided for payment in full of all allowed secured and priority claims, as well as a nearly 15 percent recovery to unsecured creditors—substantially more value than was anticipated at the start of the case and a dramatic improvement over the near-zero recoveries that would have resulted without the significant pro bono efforts.
The circus’ case provides a striking example of what can be accomplished when community members, professionals, philanthropists, and employees of a nonprofit all work together, aided by the U.S. Bankruptcy Code and the oversight of a constructive creditors’ committee and regulators, to make the best of a challenging situation and salvage every bit of value for the benefit of all constituents.
In October 2017, Caesars Entertainment Operating Company Inc., a majority owned subsidiary of Caesars Entertainment Corporation—a casino-entertainment provider—concluded its Chapter 11 restructuring. Described by the Bankruptcy Court as a “monumental achievement,” the reorganization was the successful result of a 3½-year, highly complicated and contested restructuring and turnaround process.
The global settlement thwarted billions of dollars of potential litigation claims related to Caesars’ prepetition capital structure; established a new, publicly traded real estate investment trust with more than $8 billion in real estate assets; achieved significant operational improvements; and led to a complete deleveraging. This process has positioned Caesars as a competitive force in the gaming and hospitality marketplace. It now operates a portfolio of subsidiaries consisting of 47 casinos in 13 U.S. states and five countries. (Caesars Entertainment’s resorts operate primarily under the Caesars, Harrah’s, and Horseshoe brand names.)
Ultimately, the turnaround professionals and key stakeholders reached consensus involving a series of complex corporate transactions, reducing Caesars’ debt from approximately $18.4 billion at the time of its filing to less than $2 billion when it emerged from bankruptcy. These transactions also led to about $285 million worth of adjusted EBITDA improvement—expanding its margin by 690 basis points.
Caesars’ operational turnaround extends beyond its income statement. In an effort to maintain high brand standards in the fiercely competitive gaming and hospitality industry, Caesars spent $500 million to enhance its rooms and refresh its food and beverage offerings.
BCBG—an acronym for the French phrase bon chic, bon genre, which means “good style, good attitude”—was founded by Max Azria in Los Angeles in 1989. Over the next three decades, BCBG grew to more than 550 stores in the United States, Canada, Europe, and Japan, becoming a well-known and respected name in high-end women’s apparel and accessories.
Like many retailers, BCBG (BCBG Max Azria Global Holdings LLC and its subsidiaries) was challenged in recent years by a shift away from brick-and-mortar retail and other adverse macro trends. BCBG’s challenges were characterized by an overextended physical store footprint, a lagging online presence, and an outsized overhead cost structure. These issues manifested in significant revenue declines and an adjusted EBITDA loss of $60 million in 2016.
By January 2017, BCBG was in serious trouble. The company had exhausted its liquidity, with available cash being used only to meet the company’s most critical commitments. Because of these liquidity constraints, payments to merchandise vendors had been badly disrupted. To keep stores filled, BCBG was selling aged inventory at significant discounts. As a result, sales were declining quickly and the BCBG brand was being badly damaged. It became evident to BCBG’s board of directors that drastic action was needed to save the business, leading them to engage restructuring advisors.
After initial efforts to stabilize the business, the restructuring advisors and management began exploring options to save BCBG, ultimately determining that a formal restructuring through a Chapter 11 filing was the best path forward. In February 2017, BCBG filed for bankruptcy, with financing provided by the certainty of the company’s prepetition asset-based and term loan lenders. The restructuring advisors took a series of decisive actions to fix the business, delivering the operational improvements necessary to secure buyers.
The ultimate restructuring plan incorporated an integrated going concern sale of BCBG’s intellectual property and core operations and liquidation of the company’s remaining assets. The reorganization took effect in July 2017, just five months after BCBG filed for bankruptcy. The restructuring preserved almost 350 retail locations and a sizable wholesale business, saving more than 2,000 jobs.
After 45 years in operation, the pulp and paper mill in The Pas, Manitoba, was scheduled to close. The adjacent sawmill had been shuttered 10 years previously and the small, isolated town of 5,000 (located 400 miles north of Winnipeg) was now bracing for the final economic shock. The closure announcement by the mill’s owner, Tolko Industries, led to the immediate loss of 300 jobs with suppliers to the mill, such as woodlands contractors—loggers, chippers, and truck drivers who sold off their equipment and hunkered down to survive a long, lean winter.
The mill’s 330 union employees prepared for their own unemployment when the mill would cease operations in December 2016. Customers had stopped ordering and moved their purchasing commitments to other mills. Fiber, fuel, and chemical stocks were depleted and a new security fence to protect the abandoned mill was nearing completion. Residential real estate values in The Pas dropped 25 percent in four months. The total economic hit to Northern Manitoba was estimated to be $200 million.
In this crisis, American Industrial Acquisition Corporation saw an opportunity. It assessed the viability of the mill, discovering a sincere, knowledgeable workforce seeking a solution, a superior product line, a global customer base of large packaging companies, and 22 million acres of harvestable and sustainable prime forest land. However, it also saw years of financial losses and massive paper manufacturing facilities and equipment that would require updating. While the town actively welcomed the new owner, the 12 First Nation’s tribes who inhabited the land were initially skeptical. Weeks of meetings and collaboration among a number of constituencies resulted in:
An AIAC affiliated company, Canadian Kraft Paper Industries, successfully purchased the mill three weeks before the planned shutdown. Employees accepted the challenge to create a new and better company. Under the guidance of an excellent management team and advisors, the team immediately went to work rebuilding supply chains and bringing back customers—setting new, all-time production records, including both its highest production day and month. Meanwhile scrap rates, equipment failures, and other operational challenges have plummeted thanks to investments in state-of-the-art equipment designed to speed production, increase productive capacity, enhance product quality, promote safety, and extend useful plant life. Simultaneously, the company culture has shifted toward greater inclusion, transparency, and accountability within CKPI and throughout its community.
In 18 months, the mill went from multimillion-dollar losses in 2016 to a profitable 2017 to record profitability in 2018. CKPI’s financial position is now solid and its kraft paper is again the envy of the industry, with satisfied customers on five continents and a bright, sustainable future.
Phoenix Manufacturing Partners and Joined Alloys were respected small businesses before their financial downturn. In 2011, Joined Alloys, a manufacturer of machining components used in the aerospace industry, and Di-Matrix Precision Manufacturing, a metal fabricator, merged into Phoenix Manufacturing Partners to better serve the military, aerospace, medical, energy, electronic, automotive, and general commercial industries.
Disputes between the two merged companies’ respective owners and management resulted in overextended debt levels, mismanagement, and a loss of revenues. This state of affairs was compounded by the federal government’s shutdown and budget sequestration in 2012; a long-term, multimillion-dollar lease for a needlessly large new warehouse facility; and the acquisition of a supply company in an unsuccessful attempt to reduce costs through volume purchasing.
Gross revenues declined from $23 million in 2012 to $14 million in 2013. From 2014 through mid-2016, the companies had uneven performances, but Joined Alloys’ operations kept the merged company in a bare bones survival mode. Various options were considered to avoid bankruptcy, including new capital infusion via an investment banker and a merger with a national manufacturer. By May 2016, the companies could no longer operate and filed for Chapter 11 protection.
The turnaround was accomplished by implementing a restructured management and ownership team; a meticulously renegotiated credit facility; a revised and more favorable long-term contract with Honeywell; compromises and negotiated settlement with the creditors’ committee, which yielded a 19 percent recovery for unsecured creditors; workouts and agreements with equipment financing companies and hard money lenders; and a resolution of a significant dispute with a major member interest holder of Phoenix Manufacturing Partners.
This successful Chapter 11 case resulted in a consolidated reorganized debtor, Leading Edge Manufacturing LLC, which emerged from bankruptcy on December 1, 2017, and now has a unified and goal-oriented board with competent management and strict financial structures in place. Most importantly, 92 employees retained their full-time employment.
Christ’s Household of Faith Inc. is part of an apostolic community in St. Paul, Minnesota, where individual members contribute their labor and services to support the community and its Christian mission. The community, founded in 1971, is a charitable, benevolent, and educational organization dedicated to fostering an understanding of Christ and supporting members in living a spiritual life.
About 470 members belong to the community. They live in homes owned by CHOF and work in various entities operated by CHOF that provide residential remodeling and renovations services. The community also operates a school serving more than 165 children from prekindergarten through 12th grade and runs a summer bible camp on property owned by the Christ’s Household of Faith Church.
Though they had been negatively impacted by the recession, CHOF and its operating entities were beginning to rebound. However, its secured loans were unexpectedly purchased by a private equity fund, which refused to extend the maturity date, as the original lender regularly had done. Instead, the debt purchaser began foreclosing on most of the residential properties occupied by the community members.
When negotiations with the private equity fund failed, CHOF filed for Chapter 11 to avoid foreclosure. Through the time and forum provided by the bankruptcy case, CHOF was able to negotiate with the debt purchaser and other creditors, and obtain financing from a new lender that will allow CHOF to continue operating and maintaining the community.
The reorganization plan substantially paid down debt while also forgiving millions of dollars of debt. The plan also provided for other secured creditors to be paid in full over time and unsecured creditors to be paid in full within approximately 180 days. In addition to being beneficial to CHOF and its creditors, the plan allows community members to remain in their homes and continue striving to meet their mission of service.