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November 13, 2020 – The Debtors filed their Plan of Liquidation and a related Disclosure Statement [Docket Nos. 577 and 578, respectively].
[Update] On November 20th, the Debtors filed a motion requesting Court approval of (i) the Disclosure Statement (ii) Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a January 26th Plan confirmation hearing [Docket No. 599].
Overview of Plan
The centerpiece of the Debtors' Plan is the $675.0mn sale (the "Sale") of substantially all of the Debtors' assets to an entity established at the direction of holders of approximately 90% of the Debtors’ senior secured first-lien term loans as contemplated by a prepetition restructuring support agreement (the "RSA") and ultimately backed by the parties to a global settlement, ie the Debtors, the Debtors' Official Committee of Unsecured Creditors and an ad hoc DIP and First Lien Lender Group (see more on the Sale, RSA and settlement below).
Overview of Plan
The Disclosure Statement [Docket No. 578] provides: “As reflected in that certain restructuring support agreement (the ‘Restructuring Support Agreement') [Docket No. 34] entered into immediately prior to the commencement of the Chapter 11 Cases by and between the Debtors and an ad hoc group representing approximately 90% of the Debtors’ first lien term loan and consisting of approximately 78% of the Debtors’ first lien lenders (the ‘Ad Hoc DIP and First Lien Lender Group'), the Debtors initiated the Chapter 11 Cases in order to pursue a competitive sale process for their assets.
The sale process culminated in the sale of substantially all of the Debtors’ assets pursuant to that certain asset purchase agreement (the ‘Asset Purchase Agreement') by and between the Debtors and GEE Acquisition Holdings Corp. as Purchaser(the ‘Sale Transaction”). GEE Acquisition Holdings Corp. is a special purpose entity formed for the benefit of the First Lien Lenders (as defined below) which, pursuant to the Asset Purchase Agreement, will, among other things and as set forth in more detail herein, in the Sale Order and in the Plan, credit bid a portion of the First Lien Loan Claims and ensure the administrative solvency of the Debtors and an orderly liquidation and wind-down of the Post-Effective Date Debtors. The Sale Transaction was approved by the Bankruptcy Court on October 15, 2020. The closing of the Sale Transaction is a condition precedent to the Plan becoming effective.
The Bankruptcy Court entered an order (the 'Sale Order') [Docket No. 518] on October 15, 2020, approving the Sale Transaction. The Debtors intend to consummate the Sale Transaction as promptly as practicable and in advance of, or concurrent with, the consummation of the Plan. As described in detail in Article IV.H. of this Disclosure Statement, the Plan reflects the terms of the Committee Settlement among the Debtors, the Committee and the Ad Hoc DIP and First Lien Lender Group incorporated into the Sale Order pursuant to which the Purchaser will (a) pay up to $8.5 million in cash in Additional Sale Consideration to be distributed in accordance with the terms of the Plan (in lieu of an equal amount of credit bid consideration), and (b) through funding of the Wind-Down Reserve and the Professional Fee Escrow (as each may be supplemented pursuant to the terms of the Plan and the Committee Settlement), in accordance with the Wind-Down Budget, pay all amounts as necessary to ensure the satisfaction of all Administrative Claims, Other Priority Claims, Priority Tax Claims and Professional Fee Claims under the Plan. In addition, pursuant to the Asset Purchase Agreement, the Purchaser has agreed to repay and satisfy the debtor-in-possession financing and related obligations in connection with the closing of the Sale Transaction.
In addition, the terms of the Plan reflect the terms of an agreement in principle among the Debtors, the Ad Hoc DIP and First Lien Lender Group and the Searchlight Parties, in their capacity as Holders of Second Lien Note Claims, pursuant to which, the Debtors, the Searchlight Parties and the Ad Hoc DIP and First Lien Lender Group support the treatment of the Second Lien Note Claims as set forth in Article III.B.3(c)(1) of the Plan and the Holders of Convertible Notes Claims and General Unsecured Claims will receive their Pro Rata Share of $4 million.
Distributions under the Plan shall be funded from the Additional Sale Consideration Escrow Account, the Wind-Down Reserve or the Professional Fee Escrow Account, as applicable, in accordance with the Wind-Down Budget, attached as Exhibit D hereto, upon consummation of the Sale Transaction. In addition, on the Effective Date, the Plan Administrator shall sign the Plan Administration Agreement and will accept, on behalf of Holders of Allowed Claims entitled to distributions under the Plan, the Plan Administration Assets. The Additional Sale Consideration Escrow Account and the Wind-Down Reserve, but not the Professional Fee Escrow Account, shall vest in the Debtors and their Estates pursuant to Article V.D of the Plan as Plan Administration Assets.
The individual or entity designated in the Plan Supplement shall serve as Plan Administrator and shall, among other things, facilitate Distributions under the Plan until the Chapter 11 Cases of all of the Debtors have been fully administered.
After the Effective Date, upon payment of all Administrative Claims, Professional Fee Claims, Priority Tax Claims, Other Priority Claims and Plan Administration Expenses, and to the extent that the Plan Administrator determines in good faith, in consultation with the Ad Hoc DIP and First Lien Lender Group and on a reasonable basis that substantially all of the claims and expenses for which the Wind-Down Amount was held in escrow are no longer outstanding or otherwise satisfied in full, the Plan Administrator shall remit any remaining unused Wind-Down Amount and Plan Administration Assets (or proceeds thereof) to the Purchaser.”
The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 100%.
- Class 2 (“First Lien Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $608.4mn and the estimated recovery is 96%. (i) Each Holder of a First Lien Loan Claim shall, pursuant to the Sale Transaction Documents in accordance with the Sale Order, credit bid its Pro Rata Share of First Lien Loan Secured Claims, in the aggregate, in the First Lien Credit Bid Amount, in accordance with Section 2.06 of the Asset Purchase Agreement in consideration of interests in the Purchaser and such other consideration set forth in Sale Transaction Documents, including the Asset Purchase Agreement, the Direction Letter and the Plan and, (ii) for the avoidance of doubt, no First Lien Loan Deficiency Claims shall receive any recovery directly on account of such claims from the Additional Sale Consideration; provided, however, that (a) the rights of the Holder of any First Lien Loan Claims in connection with the reduction of the Additional Sale Consideration on account of the Second Lien Turnover Amount pursuant to the Subordination and Turnover Provisions of the Intercreditor Agreement as provided in Article III.B.3(c) of the Plan, and (b) with respect to the Purchaser’s right to receive any remainder of the Wind-Down Amount pursuant to Article V.D. of the Plan, shall be preserved and treated in accordance with Article V.D of the Plan.
- Class 3a (“Second Lien Note Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $196.6mn – $277.1mn and the estimated recovery is <1%. (i) If and only if Class 3a votes to accept the Plan, each Holder of a Second Lien Note Claim shall receive in Cash its Pro Rata Share of the Class 3a Additional Sale Consideration Amount, which shall not be subject to any right or claim for turnover or recovery pursuant to the Intercreditor Agreement, including pursuant to the Turnover and Subordination Provisions thereof, or otherwise; or (ii) If Class 3a does not vote to accept the Plan, in accordance with the Committee Settlement and the Turnover and Subordination Provisions of the Intercreditor Agreement, each Holder of a Second Lien Note Claim shall be entitled to receive its Pro Rata Share of the Additional Sale Consideration; provided, however, that all Distributions to Holders of Second Lien Note Claims pursuant to the Plan shall be subject to the terms of the Intercreditor Agreement, including, without limitation, the Turnover and Subordination Provisions, and all such Distributions to each Holder of a Second Lien Note Claim of its Pro Rata Share of the Additional Sale Consideration shall instead, at the option of the Ad Hoc DIP and First Lien Lender Group either (A) be distributed to the First Lien Agent or (B) reduce the amount of the Additional Sale Consideration to be paid by Purchaser or funded by Retained Cash, on a dollar-for-dollar basis, by the Second Lien Turnover Amount (but in no event, following and after accounting for such distribution to the First Lien Agent or reduction but before accounting for the Class 3b and Class 3c Additional Sale Consideration Amount, shall the Additional Sale Consideration be less than $4,000,000). In the event that any Second Lien Party objects to, challenges, opposes, votes to reject or otherwise seeks to impede the confirmation or consummation of the Plan, no such Second Lien Party shall constitute a Released Party, and the Distributions on account of any Second Lien Note Claims shall be as provided herein. Except to the extent of any Distribution made in accordance with Article III.B.3(c)(1) of the Plan, all Distributions to Holders of Second Lien Note Claims pursuant to the Plan shall be subject to the terms of the Intercreditor Agreement, including, without limitation, the Turnover and Subordination Provisions (as to which all parties’ rights are reserved), and the Disbursing Agent shall disburse the Additional Sale Consideration in accordance with the terms of the Plan.
- Class 3b (“Convertible Note Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $83.5mn and the estimated recovery is 2.4% – 3.2%. Each Holder of a Convertible Note Claim shall receive its Pro Rata Share of the Class 3b and 3c Additional Sale Consideration Amount to which it is entitled.
- Class 4 (“Section 510 Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated 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 N/A and the estimated recovery is 0%.
- Class 6 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
- Class 7 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
On October 15, 2020, the Court approved (i) the $675.0mn sale of substantially all of the Debtors assets to Gee Acquisition LLC (the “Stalking Horse Bidder” or “Purchaser”) and (ii) the asset purchase agreement (the “APA”) amongst the Debtors and the Purchaser [Docket No. 518].
The Stalking Horse Bidder is an entity established at the direction of holders of approximately 90% of the Debtors’ senior secured first-lien term loans (including Apollo Global Management, Inc., Eaton Vance Management, Arbour Lane Capital Management, L.P., Sound Point Capital Management, Mudrick Capital Management and certain funds and accounts under management by BlackRock Financial Management, Inc., together, the “Investor Group”) and the Stalking Horse APA, which details a $675.0mn (mostly) credit bid, is attached to the sale order as Exhibit A [Docket No. 518].
On October 7th, the Debtors notified the Court that, absent any further qualified bids beyond that of the Stalking Horse Bidder, the auction scheduled for October 9th had been cancelled and the Stalking Horse Bidder designated as the Successful Bidder [Docket No. 462].
The Investor Group, which is also providing the Debtors with debtor-in-possession (“DIP”) financing, had given the Debtors 100 days (from the Debtors’ July 22nd Petition date) to find an interested third party bidder and close a sale transaction. In furtherance of attracting third party bidder interest, the Stalking Horse Bidder did not request a break-up fee.
In a press release announcing the Court’s go-ahead on the sale, the Debtors stated: “As a result of the sale, Global Eagle will reduce its total debt by approximately $475 million and obtain significant additional liquidity, positioning it to continue driving long-term innovation and growth….The sale, which is subject to certain customary closing conditions and regulatory approval, is expected to close by the first quarter of 2021.”
The Disclosure Statement [Docket No. 578] attached the following exhibits:
- Exhibit A: Plan (filed separately at Docket No. 577)
- Exhibit B: Organizational Chart
- Exhibit C: Liquidation Analysis (to be filed)
- Exhibit D: Wind-Down Budget
- Exhibit E: Asset Purchase Agreement
Proposed Key Dates
- Disclosure Statement Hearing: December 16, 2020
- Voting Record Date: December 16, 2020
- Voting Deadline: January 19, 2021
- Objection Deadline: January 19, 2021
- Confirmation Hearing: January 26, 2021
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Mezger Declaration”) [Docket No. 2], Christian M. Mezger, the Debtors’ Chief Financial Officer, detailed the events leading to Global Eagle’s Chapter 11 filing. The Mezger Declaration cites the COVID-19 pandemic as compounded by liquidity issues as the two fundamental factors leading to the need to seek Chapter 11 shelter although surely the order of the two factors should be reversed, the liquidity issues clearly preceding the COVID-19 pandemic with the Debtors losing $153.0mn in 2019 and needing to seek amendments to their senior credit facility only halfway through that year.
The Mezger Declaration provides: “The most significant factor contributing to the Debtors’ need to commence these Chapter 11 Cases is the extraordinary surge of the COVID-19 pandemic across the world. As a result of the pandemic, the airline, cruise and travel industries have faced unprecedented challenges stemming from a significant reduction in demand for worldwide travel, as well as travel restrictions, government and business-imposed shutdowns and other operational issues. Most of the Debtors’ airline and cruise line customers have temporarily ceased, and/or severely reduced, operations in most markets. Demand for the Company’s services has similarly, and drastically, declined. In 2019, the Company had been on a trajectory of profitable growth, achieving year-over-year free cash flow improvement of approximately $88 million in 2019 while growing the business by 1.5%. However, the recent decline in demand for its customers’ services as a result of COVID-19, and the uncertainty regarding a potential resurgence of the pandemic, has had a swift and negative impact on the Company’s operations and cash flows.
Compounding the effects of COVID-19, and as described in detail above, the Company also faced liquidity challenges arising from its substantial debt load and significant debt service payments. Prior to the pandemic, the Company incurred net losses of approximately $153 million in 2019 and generated negative cash flows from operations in 2018 and 2019 primarily as a result of significant cash interest payments arising from the outstanding debt balance. In July 2019, the Debtors entered into an amendment to their Senior Secured Credit Agreement (the 'July 2019 Amendment'), which afforded the Company with additional accommodations, including approximately $60 million of incremental liquidity over a subsequent eighteen-month period and relaxed the Maximum Leverage Covenant Ratio. The July 2019 Amendment provided for significant additional liquidity to help support the Debtors’ operations. However, while on track for continued profitable growth, the benefits of this amendment were significantly diminished by the emergence and global spread of COVID-19.”
The Debtors’ latest 10-Q provides: “As of March 31, 2020, we had $504.7 million aggregate principal amount in senior secured term loans (the “Term Loans”) outstanding under our senior secured credit agreement (the “2017 Credit Agreement”). In addition, we had $80.6 million drawn under the 2017 Revolving Loans (excluding approximately $4.4 million in letters of credit outstanding thereunder), with no remaining availability thereunder; $188.7 million aggregate principal amount of outstanding Second Lien Notes, including $38.7 million of payment-in-kind (“PIK”) interest converted to principal since issuance; $82.5 million aggregate principal amount of 2.75% convertible senior notes due 2035; and other debt outstanding of $22.9 million.”
About the Debtors
According to the Debtors: “Global Eagle is a leading provider of media, content, connectivity and data analytics to markets across air, sea and land. Global Eagle offers a fully integrated suite of rich media content and seamless connectivity solutions to airlines, cruise lines, commercial ships, high-end yachts, ferries and land locations worldwide. With approximately 1,100 employees and 30 offices on six continents, the Company delivers exceptional service and rapid support to a diverse customer base.”
The Mezger Declaration [Docket No. 2] adds: “Formed in February 2011, Global Eagle is a leading provider of entertainment, connectivity and data analytics across the globe. Global Eagle’s operations generate revenue through two primary sources: (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other ‘away-from-home’ non-theatrical markets; and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets. The Company operates worldwide, serving its customers on nearly every continent, including in North America, South America, Europe, the Middle East, Africa and Asia, and over the oceans.”
Organizational Chart (See Exhibit B to Disclosure Statement [Docket No. 578])
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