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January 26, 2022 – The Court hearing the Alpha Latam Management cases issued an order approving (i) the Debtors' Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a March 3, 2022 Plan confirmation hearing [Docket No. 518]. The Debtors also filed solicitation versions of their Plan and Disclosure Statement [Plan attached to the Disclosure Statement at Docket No. 520] having earlier in the day filed updated versions of each to reflect last-minute, Court approved amendments [Docket Nos. 512 and 513, respectively, with redlines of each at Docket No. 514].
Adding to the general sense of momentum, the Court also issued an order extending the Debtors exclusive Plan filing and solicitation periods through March 31st [Docket No. 505].
The amended Plan documents follow objections to the Disclosure Statement from the U.S. Trustee assigned to the Debtors' cases and a consortium of debtor-in-possession ("DIP") lenders (the “DIP Note Purchasers Consortium,” which also objected to the Debtors' exclsuivity extension motion), with each objection (see our earlier coverage) citing the Plan's proposed release provisions and mechanisms for opting out of those releases. The U.S.Trustee's objection [Docket No. 486] argued that, inter alia, (i) the Plan's "labyrinth" of third party release provisions were "incomprehensible," (ii) the related opt-out opportunity was "meaningless," (iii) that the Disclosure Statement failed to provide adequate information as to newly revealed Plan provisions and (iv) that given the ongoing nature of Plan negotiations, it was generally impossible to determine whether the Plan was adequately described in the Disclosure Statement. The DIP Note Purchasers Consortium”, describing itself as "the Plan's only impaired/voting class" stated that it was unwilling to support the Plan without further clarification on releases.
In a response to the objections, the Debtors informed the Court [Docket No. 498] that they had resolved issues with the DIP Note Purchasers Consortium and had made progress with the U.S. Trustee (although the Plan still requires creditors to affirmatively opt-out of releases, albeit that the opt-out mechanics are now presented with a greater degree of clarity). The Debtors' response provides: "the Debtors received an objection to its Exclusivity Extension Motion from the DIP Note Purchasers and objections to the Disclosure Statement from the DIP Note Purchasers and Inter-American Investment Corporation (acting on behalf of the Inter-American Development Bank) (' DB'). The Debtors disagree with the DIP Note Purchasers’ and IDB’s allegations, construction of the legal standards, and their mischaracterization of many of the relevant facts made in the Objections. Nevertheless, the Debtors have made substantial progress in their negotiations with the DIP Note Purchasers and the IDB and believe they have resolved all of the Objections. To the extent any issues remain, the Debtors are willing to remain engaged and work cooperatively with their creditors and the U.S. Trustee to resolve them consensually when possible."
As a result of the objections and ensuing negotiations, the following language was added to the revised Disclosure Statement, "Portions of the Plan, including the Applicable Reserves, the Wind-Down Reserve, various release provisions, exculpation provision and structuring of the Liquidating Trust and Alpha Noteholder Claims Trust, are a result of discussions among the Debtors, the Special Committee and the Ad Hoc Group following several structuring proposals and multiple rounds of strenuous negotiations. The Debtors believe that the structures developed in these discussions are an invaluable element of the Plan and will pave the way for a path forward to confirmation of the Plan, approval by an Ad Hoc Majority (and Class 4b (Notes Claims)) and the ability for the Debtors to wind-down their operations on a post-Effective Date basis while distributing value to their creditors.
In consideration for the hard fought negotiations and in anticipation of the members’ of the Ad Hoc Group’s support for the Plan, the Debtors have agreed to pay the Ad Hoc Group Fees and Expenses and the Notes Indenture Fees and Expenses so long as (a) a requisite number of the members of the Ad Hoc Group vote in favor of the Plan so that Class 4(b) (Notes Claims) accepts the Plan and (b) the members of the Ad Hoc Group do not opt out of the releases provided by the Plan.
The Ad Hoc Group estimates that its professionals unpaid fees will total approximately $4.5 million (including an approximately $3.25 million transaction fee due to the Ad Hoc Group’s financial advisors and assuming that the Plan is timely confirmed). However, given that several members of the Ad Hoc Group are also DIP Lenders and the same firms are acting as professional advisors for both the Ad Hoc Group and the DIP Lenders, the Debtors may already be obligated to pay a substantial portion of these fees under the terms of the Final DIP Order."
The Disclosure Statement also provides the following timeline:
- Voting Record Date: January 26, 2022
- Plan Supplement Deadline: February 18, 2022
- Plan Objection Deadline: February 25, 2022
- Voting Deadline: February 25, 2022
- Deadline to file Voting Report: March 1, 2022
- Confirmation Hearing: March 3
The Disclosure Statement [Docket No. 513] notes, “The Plan contemplates the liquidation and dissolution of the Debtors (except for ALM) and the resolution of all outstanding Claims against and Equity Interests in such Debtors. After an exhaustive marketing and sale process, the Bankruptcy Court entered an Order….approving a sale of the majority of the loan portfolio and operational assets of Alpha Capital S.A.S. and Vive Créditos Kusida S.A.S. (collectively, the ‘Colombian Sellers’) to CFG Partners Colombia SAS, free and clear of all liens, Claims, Encumbrances, and Interests…in accordance with the terms and conditions contained in that certain Asset Purchase Agreement (‘APA’) between the parties, dated as of November 4, 2021. The Debtors expect to close the Sale Transaction at or prior to the Effective Date of the Plan.
On or before the Effective Date, the Debtors intend to effectuate and consummate the Sale. If not already fully satisfied by the Effective Date, the Debtors shall pay any DIP Claims from the Sale Consideration. The Debtors shall also use Cash on hand, if any, and then use the Cash from the Sale Consideration to fund the Applicable Reserves, the Professional Fee Escrow, and the Wind-Down Reserve. Except as otherwise provided in the Plan or in any contract, instrument, release, or other agreement or document created pursuant to the Plan or in the Confirmation Order, upon the Effective Date, pursuant to sections 1141(b) and (c) of the Bankruptcy Code, all of the Debtors’ Assets (including all interests, and rights related thereto) of each of the Debtors other than the Liquidating Trust Assets shall immediately vest in the Debtors free and clear of all Claims, Liens, encumbrances, charges, and other interests. All Claims, Liens, encumbrances, charges, and other interests against or in the Assets (other than the Liquidating Trust Assets) shall be deemed fully released as of the Effective Date, except as otherwise provided in the Plan or the Confirmation Order.
On the Effective Date, the Debtors (other than ALM or AlphaDebit) shall transfer one hundred percent (100%) of the Liquidating Trust Assets to the Liquidating Trust for the benefit of the Liquidating Trust Beneficiaries, which Liquidating Trust Assets shall vest in the Liquidating Trust. On the Effective Date, subject to applicable local law, the Liquidating Trust shall be authorized to make distributions to the Liquidating Trust Beneficiaries in accordance with the Plan, the Confirmation Order, and the Liquidating Trust Agreement. The Liquidating Trust shall be administered in accordance with the Liquidating Trust Agreement and shall have the standing and authority to enforce any obligations to it under the Plan; provided that the costs of administering the Liquidating Trust and all fees and expenses incurred by and on behalf of the Liquidating Trust shall be charged against the Liquidating Trust Assets subject to the terms of the Liquidating Trust Agreement.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Foreign Convenience Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $40,728 and expected recovery is 100%.
- Class 4a (“Other Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $2,151,695 and expected recovery is 7.7% – 12.6%. Treatment: Each Holder of an allowed Other Unsecured Claim against the Debtors shall receive its Pro Rata Share of the beneficial interest in the Liquidating Trust.
- Class 4b (“Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $736,159,981 and expected recovery is 7.7% – 12.6%. Treatment: Each Holder of an allowed Notes Claim shall, subject to the Notes Indenture Trustee’s Charging Lien and the funding of the Notes Indenture Trustee Mexican Proceeding Reserve, receive its Pro Rata Share of the beneficial interest in the Liquidating Trust.
- Class 4c (“Funded Debt Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $59,182,134 and expected recovery is 7.7% – 12.6%. Treatment: Each Holder of an allowed Funded Debt Claim shall receive its Pro Rata Share of the beneficial interest in the Liquidating Trust.
- Class 4d (“Credit Suisse Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is $9,631,697 and expected recovery is 0%
- Class 5 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $73,435,167 and expected recovery is 0%.
- Class 6 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“ALM Equity”) is reinstated, deemed to accept and not entitled to vote on the Plan.
On November 16th, further to a September 15th bidding procedures order [Docket No. 198] and an auction conducted on November 4th, the Court hearing the Alpha Latam Management cases issued an order approving the sale of substantially all of the loan portfolio of Alpha Capital S.A.S. and Vive Créditos Kusida S.A.S. and certain related operational assets (the “Purchased Assets”) to CFG Partners Colombia SAS (“CFG Colombia,” with cash consideration the Debtors estimate at $149.0mn; although see $110.0-$120.0mn range below) [Docket No. 365]. CFG Colombia is an affiliate of Puerto Rico headquartered CFG Partners L.P. which, since its November 2018 acquisition from Irving Place Capital, is 100% owned by an investor group led by BayBoston Managers.
In a November 5th notice [Docket No. 341] announcing its selection of CFG Colombia as the successful bidder, the Debtors also named affiliates of CarVal Investors as the back-up bidder ($148.1mn bid). The successful bidder and back-up bidder APAs are attached to the notice as Exhibit A (p. 6) and Exhibit B (p.134), respectively, as is a redline comparing the CFG Colombia APA against that of stalking horse Cerberus South American Investments, LLC ("Cerberus") which had opened the auction process with a bid that the Debtors valued at $137.2mn. Cerberus will now be in line for a $3.0mn break-up fee and an up to $1.0mn expense reimbursement.
The Debtors are obligated to repay amounts outstanding under their $45.0mn debtor-in-possession ("DIP") facility with the proceeds.
Alpha Latam announced the sale in a press release, stating, "The proposed sale, which was presented to the Bankruptcy Court on Tuesday, is estimated to produce a gross value of approximately $149.5 million. CFG Partner's successful bid is the result of six rounds of competitive bidding during the auction and is higher than the purchase price reflected in the Stalking Horse APA approved by the Bankruptcy Court in early October of $134.9 million.
The CFG Partners bid ultimately was deemed the highest and best bid because in addition to the purchase of the assets of the loan portfolio, it included the assumption of the Colombian Sellers' Bogota headquarters lease, the purchase of related HQ facility assets and equipment, and the potential hiring of certain of the Debtors' employees.
The closing of the sale is conditioned upon regulatory approval by the Colombian Superintendence of Corporations, and other customary closing conditions."
The Disclosure Statement now adds: "The Debtors expect to close the Sale in early 2022, prior to or contemporaneous with the Effective Date. On December 17, 2021, the Colombian Superintendence issued its written approval of the Sale. The Sellers estimate the Purchase Price, which is based off the October loan tape for the Purchased Loans, will be in the range of $100 to $120 million, as it is subject to certain adjustment under the terms of the APA with CFG. The final Purchase Price may vary materially depending on a number of factors set forth in the APA. Moreover, actual Sale proceeds to be received by the Colombian Sellers will be
less after netting several APA required items. After complying with the provisions of the Plan, including the funding of various reserves in the Plan, recoveries to creditors will differ significantly from the Purchase Price and net Sale proceeds. It is underscored that the Debtors make no representation as to the ultimate
purchase price or net sale proceeds to be generated fr om the Sale Transaction or as to recoveries to creditors. The Debtors expressly disclaim any obligation to update any estimates or assumptions after the date hereof on any basis (including new or different information received and/or errors discovered)."
Petition Date Perspective
On August 1, 2021, Alpha Latam Management, LLC and six affiliated Debtors (d/b/a AlphaCredit, “Alpha Latam” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-11109 (Judge TBD). The Debtors’ lead petition noted between 10,000 and 25,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn ($768.4mn in third-party financial debt).
In a press release announcing the filing, the Debtors advised that: “Alpha Holding [defined below] announced on April 20, 2021, that it would restate its financial statements for the years ended December 31, 2018, and 2019 (the ‘Prior Period Financial Statements’) to correct an error in Alpha Holding’s accounting for its derivative positions. Alpha Holding also identified additional accounting errors that it anticipates will result in a restatement of other assets and other accounts receivable in its financial statements for previous years, including the Prior Period Financial Statements, or a current write-down of other assets and other accounts receivable. The accounting errors ultimately resulted in several defaults and events of default under the Company’s funded debt obligations. Though the Company endeavored to negotiate forbearance and waiver agreements with several of its lenders, such efforts were unsuccessful. Given these events, the Company no longer had access to the new financing necessary to continue originating new loans, and accordingly has ceased its on-balance sheet origination activities. Today’s actions became necessary despite the Company’s best efforts to streamline the business by implementing significant cost-cutting measures.
The Debtors’ affiliates operating in Mexico, including Alpha Holding, S.A. de C.V. (‘Alpha Holding’…) are not included in the chapter 11 filing.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Castellano Declaration”), John Castellano, a Managing Director with the Debtors’ financial advisors AlixPartners, detailed the events leading to Alpha Latam’s Chapter 11 filing. The Castellano Declaration provides: “In connection with an internal accounting review, the Company identified certain accounting errors with respect to the Mexican segment of its business, and on March 13, 2021, formally presented a preliminary report of such accounting errors to the board of managers of ALM (the ‘ALM Board’). As a result, a special committee, comprised of non-management members of the ALM Board (the ‘Special Committee’), was formed and hired independent counsel to provide advice in connection with the investigation of the accounting errors. The Special Committee’s legal counsel retained a forensic accounting firm to assist legal counsel in providing advice to the Special Committee. The Special Committee is chaired by the Board’s independent manager.
On April 20, 2021, the Company publicly announced errors in the Company’s accounting for its derivative positions and the need to restate its financial statements for the years ending 2018 and 2019. The Company also disclosed additional accounting errors relating to the Company’s: (i) allowance for loan losses; (ii) reserves for certain accounts receivables; and (iii) amortization of certain capitalized expenses. Shortly after the Company’s announcement, certain creditors sent notices of default to the Company for, among other things, failure to accurately report financial statements. Though the Company and its advisors tried to negotiate forbearance and waivers with these creditors, these efforts proved unsuccessful. As a result, the Company was unable to continue raising capital to continue to originate new Alpha Loans [“In Colombia, the Debtors have historically focused on providing PDLs to current and former governmental, union, and private sector employees, pensioners, and retirees (the ‘Alpha Loans’ and the borrowers thereunder, the ‘Alpha Borrowers’) using the Vive brand’.]”
The Company’s advisors also began analyzing the Company’s liquidity position. As part of that process, the Company determined that due to several factors, including the variability in loan collections, it needed to preserve cash. As a consequence, the Company, based on advice from its advisors and with a view toward maximizing value in the best interests of the Company and all relevant stakeholders, determined that the Company would cease making any new loan originations and would elect to exercise the grace period under the Senior Notes…by not making the June 19, 2021 interest payment.
Starting in May 2021, with Rothschild’s assistance, the Company began to market the Company’s unencumbered Colombian loan portfolio (the “Colombian Assets”) in an effort to bolster its cash position. As the Company’s liquidity position tightened, and negotiations with key stakeholders progressed, it became evident that the best path for a restructuring of the Company was a sale of substantially all of the Debtors’ Colombian Assets pursuant to section 363 of title 11 of the United States Code (the “Bankruptcy Code”). To that end, the Company began preparing for the commencement of these Chapter 11 Cases in parallel with negotiating a stalking horse bid and soliciting a $45 million debtor-in-possession financing (“DIP Financing”) to provide the bridge necessary for the Debtors to effectuate a sale of the Colombian Assets.”
As at filing, the Debtors were either borrowers/issuers or guarantors of approximately $766.4mn in third-party financial debt obligations as summarized below:
About CFG Partners
In November 2018, an investor group led by BayBoston Managers (BayBoston) acquired 100% ownership of CFG Partners from Irving Place Capital. BayBoston is the sponsor of an international investor consortium that includes Insigneo Financial Group, the Elias Group, Victory Park Capital, Amzak Capital, and M & A Capital. Victory Park Capital and Prival Bank provided debt facilities to support the acquisition.
Even though the roots of the company date back 40 years, CFG was established in December 2006 as a result of the sale of Wells Fargo Financial’s Latin American Consumer operations to Irving Place Capital, a private equity firm based in New York City.
CFG Partners currently operates more than 60 locations throughout Panama and the Caribbean.
About the Debtors
According to the Castellano Declaration : “The Debtors, together with their Mexican non-Debtor affiliates (the 'Mexican Affiliates') and certain other affiliated non-Debtors…operate a specialty finance business that offers consumer and small business lending services to underserved communities in Mexico and Colombia.
The Company was founded in 2011 with the mission of improving the quality of life of individuals in the low-income segment of the population and promoting the growth of small and midsize enterprises ('SMEs') in Mexico by offering these populations greater access to credit. The Company began its consumer lending operations by providing loans with repayment via payroll deduction, or 'PDLs,' to federal and state government employees in Mexico and, over the next ten years, grew into a leading financial technology company. In 2015, the Company expanded its operations into the Colombian marketplace with creation of the Vive brand, a platform providing PDLs, and acquired TotalCredit, a Mexico-based PDL lender that partners with various employers across Mexico. In 2016, the Company launched Alcanza Capital, a leasing and factoring initiative and also acquired Crediamigo, a pioneer in the discount credit industry utilizing income advancement for government employees. In 2018, the Company expanded its technological platforms by launching its first mobile application, AXS, to offer instant loans to its customers. In 2019, the Company launched Bontu, a credit platform for SMEs based on new internet sales models, and completed the 100% digitization of the business for its consumers from origination to collection of each loan.
The Debtors’ target borrowers have a monthly gross income ranging from COP 700,000 to COP 10,000,000 ($181 to $2,591 USD) and ages ranging from 31 to 84. On average, a PDL has an initial term of approximately 108.9 months and an initial principal amount of COP 18.03 million or $4,900 USD. The average interest rates for PDLs is 24.40% per annum, which complies with Colombian interest rate regulations. As of May 31, 2021, the Debtors had approximately 36,800 PDLs outstanding with an aggregate principal amount of COPs 647.8 billion or $174.4 million USD."
Corporate Structure Chart
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