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November 19, 2021 – The Debtors notified the Court that their Prepackaged Chapter 11 Plan of Reorganization had become effective as of November 19, 2021 [Docket No. 106]. The Court had previously confirmed the Debtors’ Plan on November 12, 2021, adding these Debtors to a growing list of "super speed" Chapter 11 filers who win Plan confirmation in a day or less [Docket No. 197] and further cementing the dominance of a small group of professional teams (including Jackson Walker, Kirkland & Ellis and Prime Clerk) in this lucrative and growing part of the Chapter 11 ecosphere.
On November 11, 2021, Carlson Travel Inc. and 37 affiliated Debtors (“CWT” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-90017 (Judge Isgur). At filing, the Debtors, which operate a business travel management company or "Business-to-Business-for-Employees (B2B4E) travel management platform," noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn.
The Debtors were represented by Jackson Walker LLP. Further board-authorized engagements include (i) Kirdland & Ellis LLP as general bankruptcy counsel, (ii) AlixPartners LLP as financial advisor, (iii) Houlihan Lokey Capital, Inc. as investment banker, (iv) Shearman & Sterling LLP as corporate finance counsel and (iii) Prime Clerk LLC as claims agent.
A deadline to file professional fee claims has been set at January 3, 2022.
For Judge Marvin Isgur, CWT represents a third "super speed" prepack in recent years which has coincided with the Southern District of Texas's rapid rise to the top of the bankruptcy Court heap under his guidance of and that of Judge David R. Jones. Isgur's earlier one-day cases include Belk and Mood Media each of which also featured Jackson Walker as local bankruptcy counsel, Kirkland & Ellis as general bankruptcy counsel and Prime Clerk as claims agent in what was undoubtedly pitched to the CWT Debtors as a cohesive and experienced team effort (a future pitch that just got even more convincing). Judge Jones oversaw the Sheridan Holding Company I, LLC cases which also featured the Jackson Walker, Kirkland, Prime Clerk trio (AlixPartners also engaged as financial advisor). Notably, Kirkland and Prime teamed up in the one-day Delaware cases (FullBeauty Brands Inc. and Sungard Availability Services) overseen by soon to retire Judge Robert D. Drain.
In a brief press release announcing the filing, the Debtors stated, "CWT, the Business-to-Business-for-Employees (B2B4E) travel management platform, today announced it has taken the next step to implement its previously announced recapitalization plan. CWT initiated a legal process in the United States, which it expects to complete on an expedited basis due to the overwhelming support of its financial stakeholders. The recapitalization plan provides CWT with $350 million of new equity capital to reinvest in the business, eliminates approximately half of the Company’s debt and provides for all business partners and other providers of goods and services to CWT to be paid in full.
CWT’s recapitalization plan has the support of 100% of its bank group and holders of over 90% of the Company’s outstanding secured debt."
As reported previously, on October 4, 2021, the Debtors began solicitation of creditors in respect of a prepackaged Chapter 11 Plan.
In a September 15, 2021 press release announcing a restructuring support agreement and its intention to begin the Chapter 11 solicitation process, CWT noted that it had: "entered into an agreement with financial stakeholders representing over 90% of the Company’s outstanding debt to recapitalize the business and further strengthen CWT’s financial position as the recovery in business travel continues to gain momentum in key markets around the world.
Key terms of the agreement, entered into with financial stakeholder Barings LLC, among others, include:
- Adding $350 million of new equity capital into the business;
- Eliminating almost $900 million of debt by replacing CWT’s existing $1.5 billion in debt with new first lien debt of $625 million issued at market rates and a new undrawn revolving credit facility;
- Providing CWT with substantial long-term liquidity through the resulting balance sheet cash and new revolving credit facility; and
- Providing for all business partners and other providers of goods and services to CWT to be paid in full.
CWT expects to begin soliciting formal approval of the plan from its existing financial stakeholders in the next few weeks and to finalize implementation of the plan later this year."
A notice filed by the Debtors on November 5th indicates that the Plan confirmation hearing was postponed to November 12, 2021 from November 8th. The Debtors' page on the claims agent's website notes that the first-day hearing will be held on that date, but does not yet mention whether that will include the Plan confirmation hearing.
The Disclosure Statement for the Prepackaged Plan provides: "The Debtors (together with their non-debtor subsidiaries, 'CWT” or the 'Company”) commence these Chapter 11 Cases with the support of holders of 100 percent of Revolving Credit Facility Claims, holders of approximately 95 percent of New Money Notes Claims, holders of approximately 90 percent of New Senior Secured Notes Claims, holders of approximately 86 percent of Third Lien Notes Claims, and certain affiliates of CWT, and their equity owners, and commitments for a $350 million in equity capital (including through a fully backstopped equity rights offering) and $775 million of exit facilities. The equity infusion and exit facilities, combined with the repayment or equitization of substantially all outstanding debt obligations pursuant to the Restructuring Support Agreement executed by the Debtors and the Consenting Stakeholders, a copy of which is attached hereto as Exhibit B, will eliminate approximately half of CWT’s existing $1.5 billion in debt. This remarkable level of support and investment, achieved in the midst of a sustained global downturn in the travel industry caused by the COVID-19 pandemic, will position the Debtors for long-term success."
Restructuring Support Agreement (attached at Exhibit B of Disclosure Statement)
The Disclosure Statement notes: "CWT entered into a restructuring support agreement with the Crossover Groups, Carlson, and the Parents on September 10, 2021, and an amended and restated restructuring support agreement (the 'Restructuring Support Agreement'), with the Crossover Groups, Carlson, the Parents and the RCF Lenders on September 22, 2021. To fund operations through negotiation of definitive Plan documents and consummation of the restructuring transactions, certain members of the Crossover Groups consented to an additional $80 million bridge financing, which closed on September 22, 2021.
The Restructuring Support Agreement contemplates a plan of reorganization that will eliminate approximately half of CWT’s existing $1.5 billion in debt, and provide $350 million of new equity capital. Specifically, the Restructuring Support Agreement and the Plan provide for, among other things:
- payment in full of the Revolving Credit Facility and New Money Notes;
- partial equitization of the New Senior Secured Notes, rights to participate in a new money equity rights offering and, if applicable, the funding of exit first lien notes, and the receipt of either a $125 million cash pay down or the issuance of a similar amount of exit first lien notes;
- release and extinguishment of the Third Lien Notes in consideration for the New Warrants;
- release and extinguishment of the Subordinated Notes in consideration for $250,000 in cash if the class votes to accept the Plan;
- cancellation of existing equity;
- payment in full of general unsecured claims;
- $625 million Exit Debt;
- a $150 Exit Financing Facility; and
- an approximately $191 million equity rights offering backstopped by the certain members of the Crossover Groups."
A September 22, 2021 restructuring term sheet is filed at Exhibit C to RSA which is itself attached to the Disclosure Statement at Exhibit B.
The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Revolving Credit Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $124.8mn (Amount does not include $21.3mn in letters of credit issued under the Revolving Credit Facility, or $2.1mn in credit support for the JPM Credit Card Program) and expected recovery is 100%. Treatment: Each Holder of an Allowed Revolving Credit Facility Claim shall receive payment in full in Cash, and the Debtors or Reorganized Debtors shall either cash collateralize, or otherwise backstop by way of replacement letters of credit, all letters of credit and guarantees outstanding in connection with the Revolving Credit Facility in a manner in form and substance acceptable to the applicable Consenting Stakeholders and the Required Consenting Noteholders.
- Class 4 (“New Money Notes Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $441.1mn and expected recovery is 100%. Treatment: The New Money Notes Claims will be released and extinguished and each Holder of an Allowed New Money Notes Claim shall receive indefeasible payment in full in Cash.
- Class 5 (“New Senior Secured Notes Claims”) is impaired and entitled to vote on the Plan. Estimated claims are the sum of $411.0mn and €325.0mn and estimated recovery is 27.6%. Treatment:The New Senior Secured Notes Claims will be released and extinguished and each Holder of an Allowed New Senior Secured Notes Claim shall receive its Pro Rata share of:
- solely to the extent the Debtors place the Exit Marketed Facility in the market (with such determination to be made on or before October 15, 2021), $125 million of Cash; or
- solely to the extent the Debtors issue the Exit First Lien Notes, $125 million of Exit First Lien Notes;
- 100% of the New Common Stock, subject to dilution by the Management Incentive Plan, the Equity Rights Offering Securities, the Direct Allocation Shares, the Put Option Premium, and the New Common Stock issuable upon the exercise of the New Warrants
- 100% of the Equity Subscription Rights to purchase the Equity Rights Offering Securities; and
- solely to the extent the Debtors issue the Exit First Lien Notes, 100% of the Debt Subscription Rights to purchase the Debt Rights Offering Notes.
- Class 6 (“Third Lien Notes Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $251.6mn and estimated recovery is 4.0%. Treatment: The Third Lien Notes Claims will be released and extinguished and each Holder of an Allowed Third Lien Notes Claim shall receive, in full and final satisfaction of such Allowed Third Lien Notes Claim, its Pro Rata share of the New Warrants.
- Class 7 (“Subordinated Notes Claims”) is impaired and entitled to vote on the Plan. Estimated claims are the sum of $4.0mn and €5.0mn and estimated recovery is 2.5/0.0%. If Class 7 votes to accept the Plan, on the Effective Date, the Subordinated Notes Claims will be released and extinguished and each Holder of an Allowed Subordinated Notes Claim shall receive, in full and final satisfaction of such Allowed Subordinated Notes Claim, its Pro Rata share of $250,000 of Cash. If Class 7 votes to reject the Plan, on the Effective Date, the Subordinated Notes Claims will be released and extinguished and, through the enforcement of the subordination and turnover provisions in Article XIII of the Subordinated Notes Indenture, each Holder of Subordinated Notes Claims will not receive any distribution on account of such Claims.
- Class 8 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated claims are $429.5mn and estimated recovery is 100.0%. Treatment: Each Holder of an Allowed General Unsecured Claim shall receive, at the Debtors’ option, subject to the consent of the Required Consenting Stakeholders, either: (i) Reinstatement of such Allowed General Unsecured Claim pursuant to section 1124 of the Bankruptcy
Code; or (ii) payment in full in Cash on (a) the Effective Date, or (b) the date due in the ordinary course of business in accordance with the terms and conditions of the particular transaction giving rise to such Allowed General Unsecured Claim, unless otherwise agreed to by such Holder.
- Class 9 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 10 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 11 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Treatment: All Existing Equity Interests will be cancelled, released, and extinguished and will be of no further force and effect. No Holders of Existing Equity Interests will receive a distribution under the Plan.
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides: "In 2019, CWT recorded its highest traffic, transactions, revenue, and EBITDA in the history of its business. CWT’s upward growth trajectory was dramatically altered, however, by the onset of the COVID-19 pandemic. The impact of the COVID-19 pandemic on the travel industry cannot be overstated. As countries across the world enacted lockdowns and stay-at-home orders in early 2020, global travel plummeted—business travel spending in North America alone dropped nearly 80 percent from 2019 to 2020. Additionally, the speed of the near-global halt in travel due to the COVID-19 pandemic was unprecedented, even for companies (like CWT) that had planned for the possibility of reduced demand for travel services as the pandemic spread. CWT experienced a dramatic drop in business nearly overnight; CWT’s revenue dropped 57 percent between February 2020 and March 2020, and 66 percent year over year. Though CWT’s diversified business segments ensured that CWT generated cash flow despite the downturn, it became clear that CWT would need to take operational steps to preserve cash and explore potential sources of new liquidity to weather a sustained downturn."
The 2020 RSA and Exchange Offer
In March 2020, CWT retained, among others, Kirkland & Ellis LLP ('Kirkland') and Houlihan Lokey Capital, Inc. ('Houlihan Lokey') to advise on potential transactions. In April 2020, CWT entered into negotiations with certain of its prepetition lenders….After several months of arm’s-length negotiations, CWT entered into the 2020 RSA on July 7, 2020, with lenders across its entire capital structure. Specifically, the 2020 RSA was supported by 100 percent of CWT’s prepetition revolving credit facility lenders, holders of 90 percent of the principal amount of the CWT’s 2023 dollar-denominated notes, holders of 56 percent of the principal amount of CWT’s 2023 euro-denominated notes, holders of 91 percent of the principal amount of CWT’s 2024 notes, and 100 percent of CTI’s equityholders.
The 2020 RSA contemplated a $250 million capital infusion into CWT’s business through a $125 million equity commitment from Carlson, Inc., CWT’s indirect parent company, and the issuance of $125 million of new senior secured notes and equity shares equal to 10 percent of the common stock of a newly formed indirect parent
company of Carlson Travel, Inc., called CTII Holdings, Inc. The 2020 RSA also contemplated an out-of-court exchange offer and consent solicitation for CWT’s secured and unsecured notes to extend all maturities by two years. The 2020 transactions are summarized below:
Ultimately, the exchange offer was successful: approximately 99 percent of CWT’s secured noteholders and 100 percent of CWT’s unsecured noteholders opted to tender their notes in the exchange offer. The $125 million of new senior secured notes was later supplemented by a $135 million add-on offering. The liquidity infusion and near-term maturity extension resulting from the 2020 transactions was instrumental in preserving the value of CWT’s business and providing CWT with additional time to develop a long-term business strategy to address the effects of the COVID-19 pandemic on its operations.
As of the Petition date, CWT has approximately $1.592bn in total funded debt obligations (assume 1euro = $1.1669). The relative amounts and priorities of each debt obligation set forth herein are as follows:
FN 12 Notes exchange rate referenced just above.
FN13 Amount does not include $21.3mn in letters of credit issued under the Revolving Credit Facility, or $2.1mn in credit
support for the JPM Credit Card Program.
The Disclosure Statement attached the following:
- Exhibit A: Plan of Reorganization
- Exhibit B: Restructuring Support Agreement
- Exhibit C: Financial Projections
- Exhibit D: Liquidation Analysis
- Exhibit E: Corporate Organization Structure
Liquidation Analysis (see Exhibit D to Disclosure Statement for notes)
About the Prepetition Debtors
According to the Debtors: “CWT is a worldwide leader in business travel management, providing large global corporations, small and medium-sized businesses, military and government institutions and agencies, and nongovernmental organizations with a comprehensive suite of travel booking services for flights, hotels, rental cars, and more. CWT’s fully integrated travel management platform simplifies corporate travel for clients and personalizes booking suggestions to the preferences of the client and their travelers. CWT also provides clients with robust travel management tools that monitor traveler safety, identify sources of potential savings, and help ensure compliance with the client’s travel policies. CWT also provides services to its clients focused on organizing and managing business meetings and events. With over 12,000 employees and operations in around 140 countries and territories around the world, CWT has the resources to handle client’s travel needs regardless of their size or location."
Corporate Structure Chart (see Exhibt E of Disclosure Statement for legible version)
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