GCX Limited – Files Modified Plan, Voting Results and Exit Financing Documents in Advance of December 4th Confirmation Hearing

Register, or to view the article

December 2, 2019 – The Debtors filed a Modified Joint Prepackaged Chapter 11 Plan and a related blackline showing changes from the version of the Plan filed on September 15, 2019 [Docket Nos. 169 and 170, respectively]. The lightly revised Plan does not introduce any material amendments to classes and claims, which are otherwise summarized below. The Debtors also filed (i) Plan voting results [Docket No. 167], (ii) their memorandum of law in support of Plan confirmation [Docket No. 168], (iii) a proposed confirmation order [Docket No. 171] and (iv) a Plan supplement which attached, inter alia, key exit financing documentation [Docket No. 172].

The Debtors memorandum notes, “The Debtors filed these Chapter 11 Cases with the full support and backing of holders of their senior secured debt to effectuate a sale of the Debtors’ business or, failing that, an equitization of Senior Secured Note Claims. For either scenario, in general, Claims against the Debtors (other than the Senior Secured Note Claims) would ride through the Chapter 11 Cases; only the Senior Secured Note Claims and the completely out-of-the-money equity would be impaired. In accordance with the Bidding Procedures Order, the Debtors, with the assistance of their advisors, conducted a thorough, court-approved sale process, even extending certain deadlines where warranted, and substantial efforts were made to find a Qualified Bid (as defined in the Bidding Procedures) or an otherwise higher or better transaction compared to the Reorganization Transaction. Despite the Debtors’ efforts, no such offer was available. With the sale and marketing process failing to produce a Qualified Bid (as defined in the Bidding Procedures), the Debtors now come before this Court seeking confirmation of a plan of reorganization that in principle accomplishes two primary original goals:  (i) a balance sheet restructuring consented to by the Debtors’ Senior Secured Noteholders, which generally leaves all other Claims unimpaired; and (ii) the extinguishment of equity interests that have been shown to be worthless. Pursuant to the Plan, the Debtors will substantially de-lever their balance sheet making them competitive post-emergence, and the Debtors will receive exit financing that will be sufficient to fund their operations going forward.  Despite the eleventh-hour objection filed by RCOM3 in a poor and misguided attempt to gain leverage in their ongoing transition services negotiations with the Debtors, the Plan is clearly in the best interest of all of the Debtors’ creditors and conforms to the requirements of the Bankruptcy Code.  As described herein, the Plan satisfies each of the confirmation requirements under section 1129 of the Bankruptcy Code and achieves the objectives of chapter 11. 

Confirming the Plan, among other things, reduces the Debtors’ balance sheet liabilities by up to $155 million in funded debt, provides the Debtors with access to a new working capital facility to continue funding the Debtors’ business operations, and enables the Debtors to continue as a leading global data communications service provider, operating one of the world’s largest undersea cable networks (approximately 66,000 kilometers worldwide). The Plan and its proposed restructuring are the culmination of significant efforts, arm’s-length negotiations, and consensual agreements by the Debtors and the Consenting Senior Secured Noteholders. The fact that holders of Senior Secured Note Claims, which are the fulcrum creditors in these Chapter 11 Cases, have overwhelmingly supported the Plan further demonstrates that it is the best restructuring alternative available to the Debtors’ Estates.”

Key components of the Plan include the following:

  • Each holder of a Senior Secured Note Claim will receive, on the Effective Date, or as soon as reasonably practicable thereafter, such holder’s Pro Rata share of (i) the Senior Secured Noteholder Equity Distribution and (ii) the New Second Lien Bonds;
  • All other Claims, other than Class 8 (Subordinated Claims), are unimpaired under the Plan; and
  • All GCX Interests shall be extinguished in accordance with the Description of Transaction Steps and each such holder of a GCX Interest shall not receive or retain any distribution, property, or other value on account of its GCX Interest

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan):

  • Class 1 (“Priority Non-Tax Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. 
  • Class 2 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. 
  • Class 3 (“Senior Secured Note Claims”) is impaired, entitled to vote on the Plan. As to recovery, the Debtors provide (see more in "Liquidation Analysis" below): "Based on the assumptions outlined herein, the Debtors project they would realize $148.2 million (Low Case) to $209.4 million (High Case) in gross liquidation proceeds from their encumbered assets in a chapter 7 liquidation, representing 15% to 21% of aggregate net book value, excluding intercompany receivables and investments in affiliates & subsidiaries. After estimated asset sale commissions and auction fees, chapter 7 administrative claims and operating expenses, the carve-out for accrued and unpaid estate professional fees, costs for collection of receivables, and repayment of the projected loans under the DIP Credit Agreement, recovery to Holders of Senior Secured Notes is estimated to range from $72.8 million to $133.3 million, or a recovery rate of 20% to 36% of the $365,872,5002 in Senior Secured Note Claims
  • Class 4 (“General Unsecured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. 
  • Class 5 (“Intercompany Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The estimated recovery is NA.
  • Class 6 (“Intercompany Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The estimated recovery is NA.
  • Class 7 (“GCX Interests”) is impaired, entitled to vote on the Plan. The estimated recovery unknown. The projected Plan recoveries for Class 7 and do not take into account the potential value of the releases provided by the Debtors and third parties under the Plan, which value is speculative and uncertain. Approximate recoveries in a Sale Transaction, if any, will be determined by the sale proceeds.
  • Class 8 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.

The Debtors' claims agent also notified the Court of Plan voting results [Docket No. 167], which were as follows:

  • Class 3 (“Senior Secured Note Claims”) 64 claim holders, representing $302,670,000.00 (or 98.46%) in amount and 99.87% in number, accepted the Plan. 1 claim holder, representing $400,000.00 (or 1.54%) in amount and 0.13% in number, rejected the Plan.
  • Class 7 (“GCX Interests”)  No valid votes were received.

The Debtors also filed an Amended Plan Supplement to their Joint Prepackaged Chapter 11 Plan [Docket No. 172].

The Amended Plan Supplement attached blacklines for the following exhibits:

  • Exhibit D: New First Lien Facility Credit Agreement with blackline at Exhibit D-1.
  • Exhibit E: New Second Lien Documents with blackline at Exhibit E-1
  • Exhibit F: New Intercreditor Agreement with blackline at  Exhibit F-1
  • Exhibit G: Shareholders’ Agreement Term Sheet 
  • Exhibit K: Employee Arrangements with blackline at Exhibit K-1
  • Exhibit N: Liquidating Trust 

Liquidation Analysis

The Debtors provide, notably in respect of the all important Class 3 (Senior Secured Note Claims) : "Based on the assumptions outlined herein, the Debtors project they would realize $148.2 million (Low Case) to $209.4 million (High Case) in gross liquidation proceeds from their encumbered assets in a chapter 7 liquidation, representing 15% to 21% of aggregate net book value, excluding intercompany receivables and investments in affiliates & subsidiaries. After estimated asset sale commissions and auction fees, chapter 7 administrative claims and operating expenses, the carve-out for accrued and unpaid estate professional fees, costs for collection of receivables, and repayment of the projected loans under the DIP Credit Agreement, recovery to Holders of Senior Secured Notes is estimated to range from $72.8 million to $133.3 million, or a recovery rate of 20% to 36% of the $365,872,5002 in Senior Secured Note Claims. Holders of General Unsecured Claims, including the Senior Secured Note deficiency Claims are not expected to realize any recoveries in a chapter 7 liquidation. Holders of GCX Interests are not expected to realize any recoveries in a chapter 7 liquidation. 

The estimated recovery for Holders of Senior Secured Note Claims is based on a comparison of the post-petition debt reinstated totaling $200 million and adjusted enterprise values expressed by offers obtained during the Debtors’ marketing and sale process in connection with a potential Sale Transaction. As explained in the Summary of Marketing Efforts included as Exhibit H to the Plan Supplement, there was no actionable offer in an amount equal to the Senior Secured Note Claims. Given these reference points, the Debtors estimate the Holders of Senior Secured Note Claims will receive a recovery well below 100% under the Plan, but more than the estimated 20% to 36% recovery that the Holders of Senior Secured Note Claims would receive under a hypothetical chapter 7 liquidation.

About the Debtors

The Debtors, together with their non-Debtor affiliates that are subsidiaries of GCX are a global data communications service provider, operating one of the world’s largest fiber networks. The Company provides its services through a global network of subsea cables, landing stations, terrestrial networks, IP network, and managed network platforms controlled by a fully global network operating center (collectively, the “GCX Global Network”). The GCX Global Network connects to most of the major telecommunications hubs across the globe, from the developed markets in the U.S. and Europe to key emerging markets in the Middle East and Asia, including India and China. The GCX Global Network consists of, among other things, five owned subsea systems with over 66,000 route kilometers (“rkms”) of cable, landed at 46 landing stations in 27 countries. This system further consists of owned and leased terrestrial networks with a total length of over 9,839 rkms in 34 metropolitan areas across 14 countries. These subsea, terrestrial, and managed networks make the Company’s operation an integral element to communications for thousands of customer and non-customer businesses and millions of people worldwide.

Read more Bankruptcy News