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January 25, 2021 – The Debtors requested Court authority to (i) access $20.0mn of new money, debtor-in-possession (“DIP”) financing and (ii) use cash collateral [Docket No. 20].
The DIP financing is being provided by existing second lien noteholders (with ICG Debt Administration LLC, or “ICG,” serving as administrative agent and collateral agent) in the form of a note purchase agreement (the “DIP Facility,” and the notes issued thereunder, the “DIP Notes”); and is to be made available in three tranches: (i) $5.0mn with an interim DIP order, (ii) $12.5mn with a final DIP order and (iii) $2.5mn upon the Plan's effectiveness date (this last tranche to be used post-emergence to fund payments necessary to consummate the Plan). Interest for the DIP Facility is at Issuer’s option (i) LIBOR + 600bps cash subject to LIBOR floor of 1.00% or (ii) Base Rate + 500bps cash subject to Base Rate floor of 2.00%. In addition, there are no financing fees associated with the DIP Facility.
The Debtors chose this financing over an alternative proposal submitted by first lien lender Fortress Investment Group LLC ("Fortress," which had only just purchased that debt, reportedly at par) and insist that there exists an adequate equity cushion to protect Fortress (equity cushions, like beauty, somewhat in the eye of the beholder) such that the ICG-led DIP financing can be fairly allowed to prime it.
The Debtors' investment banker provides: "Based on the Valuation, I estimate the value of the Prepetition First Lien Lenders’ collateral, which includes substantially all of the Debtors’ assets, at a range of between $145 million and $175 million. Because the amount outstanding under the Prepetition First Lien Credit Agreement is approximately $90 million, I estimate that the Prepetition First Lien Lenders, therefore, have an equity cushion of approximately between 60% and 90%." Also posited as an argument in favor of an equity cushion is the fact that Fortress had only just purchased that debt at par (indicating "that Fortress believed that the value of the company exceeds the amount of the Debtors’ prepetition first lien indebtedness"); fair point as to the existence of an equity cushion if not necessarily the size of it.
In any event, the Debtors clearly found the Fortress DIP offer unattractive, noting in particular that it (i) came with significant fees (on both the new money and roll-up components); (ii) required a roll-up of all of the Debtors’ prepetition first lien indebtedness (resulting in an unpalatable new roll-up:new money ratio of 4:1) and (iii) was "predicated upon a bankruptcy sale process without the benefit of a stalking horse or a credit bid."
The Debtors' DIP motion provides: "…the Debtors seek approval to access up to $20 million ($5 million on an interim basis) of new money financing provided by a group of the Debtors’ existing second lien noteholders, led by ICG. The Debtors face an immediate need to enter into the DIP Facility and obtain the interim draw in order to, among other things, satisfy payroll, rent, royalties, utilities, taxes, and obligations to pay interest, all of which are imperative to maximizing the value of the Debtors’ estates and avoiding immediate and irreparable harm. In addition, it is important to send a message to the Debtors’ business and operational counterparties that the Debtors have the requisite liquidity to land softly into chapter 11 without any interruption to their business operations. 14.The DIP Facility is reasonable under current market conditions and provides the Debtors with access to the amount of capital that is necessary to administer their chapter 11 cases on terms better under the circumstances than any other alternative source of postpetition financing.”
Key Term of the DIP Financing:
- Borrowers: Alpha Media LLC and Alpha 3E Corporation
- Guarantors: The Debtors other than the Borrowers
- DIP Lenders: Various institutions party to the DIP Note Purchase Agreement, with those lenders also being certain of the Debtors' prepetition second lien noteholders
- Agent: ICG Debt Administration LLC as administrative agent and collateral agent
- Term: The date which is the earliest of: (a) the DIP Maturity Date; (b) the consummation of a sale of all or substantially all of the Credit Parties’ assets, (c) the effective date of the Plan of Reorganization or any other plan of reorganization in respect of the Debtors, (d) the date that is forty-five (45) days after the Petition Date if the DIP Final Order and the Confirmation Order have not been entered by the Bankruptcy Court by such date, and (e) the date the Obligations are accelerated pursuant to Section 7.2 of the DIP Note Purchase Agreement. “DIP Maturity Date” means the nine month anniversary of the Petition Date; provided that if the FCC has failed to approve (and has not disapproved or rejected) the change of ownership described in the FCC Interim Long Form Application by such date, the DIP Maturity Date shall be automatically extended until thirty (30) days after the earlier of (i) the date the FCC approves such change of ownership or (ii) the date the FCC denies or rejects such change of ownership; provided further, that in no event shall the DIP Maturity Date be extended past December 31, 2021."
- Commitment: $20.0mn to be made available in three tranches: (i) $5.0mn with an interim DIP order, (ii) $12.5mn with a final DIP order and (iii) $2.5mn upon the Plan's effectiveness date
- Interest Rates: Interest for the DIP Facility is at Issuer’s option (i) LIBOR + 600bps cash subject to LIBOR floor of 1.00% or (ii) Base Rate + 500bps cash subject to Base Rate floor of 2.00%. The default rate is 2% above the applicable rate (see 1.3(c) of credit agreement).
- New Money: $20.0mn
- Roll-Up: None
- Use of Proceeds:
- Up to $17,500,000 of the proceeds of the DIP Notes shall be used for the purposes set forth in Paragraph 10 of the DIP Interim Order, namely (i) for general corporate and working capital purposes of the Debtors during the Chapter 11 Cases (ii) to pay interest, fees, costs and expenses related to the DIP Notes; (iii) to pay the reasonable, documented and invoiced fees, costs and expenses of the estate professionals retained in the Chapter 11 Cases and approved by the Court; provided, however, that payments under this clause (iii) are not subject to the Approved Budget; (iv) to pay the fees, costs, disbursements and expenses of the DIP Secured Parties to the extent provided by the respective DIP Note Documents, provided, however, that payments under this clause (iv) are not subject to the Approved Budget; (v) to make all permitted payments of costs of administration of the Chapter 11 Cases; (vi) to pay such prepetition expenses as are consented to in writing by the DIP Agent and approved by the Court; (vii) to satisfy any adequate protection obligations owing under this Interim Order; and (viii) subject to entry of the Final Order, to make payments under the Plan in connection with the consummation thereof.
- The remaining $2,500,000 of the proceeds of the DIP Notes (together with any unused portion of the $17,500,000) shall be used to fund the payment of all costs and expenses necessary to consummate the Plan of Reorganization.
- Fees: None
- Deadline to file Plan, Disclosure Statement and DIP motion: The Petition date
- Deadline to file FCC Forms 316 seeking approval of transfer of control of FCC Licenses: 3 business days after the Petition date;
- Deadline for interim DIP order: 3 business days after the Petition date;
- Deadline for final DIP order: 35 business days after the Petition date;
- Deadline to file Plan Supplement: 45 days after the Petition date;
- Deadline for approval of Disclosure Statement: 45 days after the Petition date;
- Deadline for Plan confirmation: 80 days after the Petition date;
- Deadline for plan effectiveness: 3 business days after the FCC approves the FCC Interim Long Form Application.
Lead Debtor Alpha Holdings is the direct or indirect parent of each of the other Debtors, all of which are entities organized under the laws of the State of Delaware. As of the Petition Date and as summarized in the table below, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate principal and interest amount of approximately $267.0mn.
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