By Sharon L. Levine, Paul Kizel and Tania Ingman, Lowenstein Sandler LLP; Peter Kaufman and David Herman, Gordian Group LLC
While the Chapter 11 process is typically an arduous process for a company's management, a pre-negotiated plan can, when the circumstances are right, permit for a smooth and efficient reorganization—capturing whatever benefits of Chapter 11 are necessary for the business and emerging quickly without incurring the sometimes significant costs of Chapter 11 and preventing the harm that can result from a business languishing in bankruptcy court.
Such a successful outcome was recently obtained in the Jobson bankruptcy case. On March 20, 2012, Jobson Medical Information Holdings LLC and certain of its affiliates, advised by investment banker Gordian Group LLC and bankruptcy counsel Lowenstein Sandler LLP, emerged from Chapter 11 cases pending in the United States Bankruptcy Court for the Southern District of New York. The bankruptcy court confirmed Jobson's joint prepackaged plan of reorganization on March 5, 2012 after a confirmation hearing lasting just under a half an hour and just 32 days after the cases were filed. The terms of the prepackaged plan allowed Jobson's interest holders to retain 80% of the reorganized companies and managerial control – and all of this in the face of the maturity of close to $120 million in debt (or 6x EBITDA) held by a disparate group of lenders that included hedge funds with a stated desire to own the Company outright.
Jobson is a diversified communications and education company serving the healthcare market owned by a leading private equity firm. The Jobson group's media activities reach and teach healthcare professionals in the medical, pharmacy and optical industries through a wide range of communication programs, live events, websites, direct mail, and electronic and database information services. Since 2003, Jobson has expanded its operations through a combination of acquisitions and internal growth.
Extremely well-managed, Jobson was operationally and financially sound. In fact, for the eleven months ended November 30, 2011, Jobson generated revenues of approximately $72 million and reported approximately $17 million of EBITDA. For the fiscal year ended December 31, 2010, Jobson generated revenues of approximately $85 million, had a net profit of approximately $340,000 and reported approximately $20 million of EBITDA. Despite Jobson's operational success, Jobson had been unable to effect a refinancing of its $117 million senior secured credit facility which was scheduled to mature in December 2011.
Jobson's remarkably fast and efficient restructuring was facilitated by the following:
1. Early start. In light of the impending maturity of the credit facility in December 2011, Jobson's advisors came on board in October 2011 and began intensive negotiations with the agent for the secured lenders and certain of the participating lenders on the terms of a proposed restructuring of the credit facility debt. Where the restructuring is necessitated by a maturity event, a consensual resolution will require 100% lender consent. Unless all the debt is held by a single lender or an ad hoc committee holding 66 2/3 in amount of the debt and more than 12 in number of the debt holders, negotiating to obtain 100% approval is challenging and will take time. And, where, as was the case in Jobson, securing the consent of all holders was impossible, the debtor will need to switch gears and quickly prepare for a Chapter 11 filing in order to consummate the restructuring over the objections of the “hold-outs”.
2. Creativity andFlexibility. Over the next few months, Gordian and Lowenstein, among other things, organized a group of the senior lenders that included both traditional banks and hedge funds (including certain lenders that had stated a desire to take over the Company). Herding the lenders toward a consensus required nimble strategic negotiations. One strategy included finding a Company-friendly new lender to take out one of the less supportive holders which enabled Jobson to cross the minimal threshold of 66 2/3rds principal amount and 50% in number of the holders to achieve a consensual restructuring and which enabled Jobson to impose the deal on holdouts through a Chapter 11 process.
Achieving this hurdle enabled Jobson to develop the necessary “carrots and sticks” that provided the necessary leverage to allow Jobson to reach an agreement on the terms of a comprehensive balance sheet restructuring with the agent and certain lenders, which was embodied in a formal restructuring support agreement (“RSA”) dated December 20, 2011.
The RSA contemplated that in the event that 100% of the lenders voted to accept the terms of the proposed restructuring, the restructuring would be implemented out of court. However, in the event 100% lender consent could not be achieved, the restructuring would be implemented on identical terms through a “prepackaged” bankruptcy and the commencement of the Chapter 11 cases. Because the parties committed to effectuating the same transaction either out of court or in a Chapter 11 proceeding, once the consent of a sufficient number of lenders was obtained, the terms of the reorganization were in some ways a “fait accompli,” although subject to the uncertainties that are inherent with any court proceeding.
After executing the RSA, Jobson moved swiftly to consummate the restructuring by drafting the prepackaged plan and disclosure statement. The prepackaged plan represented the culmination of significant arm's length negotiations among Jobson, the lenders, and interest holders to reach a fair and equitable restructuring.
On January 10, 2012, Jobson began soliciting votes from its lenders in connection with the prepackaged plan. While Jobson hoped to consummate the proposed restructuring out of court through an agreement with all its lenders, unfortunately, one recalcitrant lender (out of 12 lenders) attempted to use the need for unanimous support for negotiating leverage. As a result, Jobson was unable to garner 100% lender support for an out-of-court restructuring. However, Jobson did obtain more than sufficient lender support to approve a prepackaged plan through the Chapter 11 process.
3. Narrowly tailored requested relief. On January 31, 2012, in the absence of 100% lender consent, pursuant to the terms of the RSA, Jobson and the supporting lenders, executed a prepackaged plan support agreement (the “PSA”). By executing the PSA, the parties agreed to vote in favor of a prepackaged plan of reorganization and otherwise support confirmation in bankruptcy court.
On February 2, 2012, Jobson commenced the Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York, immediately seeking confirmation of the prepackaged Chapter 11 plan of reorganization. The terms of the prepackaged plan were based upon, among other things, the value of the Debtors' businesses, the Debtors' assessment of their ability to achieve the goals under the prepackaged plan, to make the distributions contemplated under the prepackaged plan, and to pay all of their continuing obligations in the ordinary course of business.
The prepackaged plan offered a straightforward and yet comprehensive and fair solution to the Debtors' liquidity issues caused by the December 2011 maturity of the Debtors' secured obligations under the prepetition credit agreement. First, the prepackaged plan provided for the payment in full of all of Jobson's operating expenses. Because all creditors, except the secured lenders, would be paid in full, they were deemed to accept the plan under Section 1126 of the Bankruptcy Code, and solicitation of this class was not required. In addition, with respect to the lenders, Jobson agreed to enter into exit financing pursuant to which the amounts due under the prepetition credit agreement will mature on December 31, 2014, and issue the lenders membership units, representing 20% of the membership interests of the reorganized company. Jobson's existing interest holders received membership units representing 80% of the membership interests in the reorganized company. The lenders further provided the Company with a $5 million revolving line of credit.
In short, Gordian and Lowenstein were able to orchestrate a successful prepackaged plan of reorganization with a disparate group of lenders (including a hostile core who wished to take over the Company) comprised of traditional lenders and hedge funds, the results of which included:
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