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July 22, 2020 – Global Eagle Entertainment Inc. and 16 affiliated Debtors (Nasdaq: ENT; “Global Eagle” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11835. The Debtors, a "leading provider of media, content, connectivity and data analytics to mobility end-markets across air, sea and land," are represented by Michael R. Nestor of Young Conaway Stargatt & Taylor LLP. Further board-authorized engagements include (i) Latham & Watkins LLP as general bankruptcy counsel, (ii) Alvarez & Marsal North America, LLC as financial advisors, (iii) Greenhill & Co. as investment banker and (iv) Prime Clerk as claims agent.
The Debtors’ lead petition notes between 10,000 and 25,000 creditors, estimated assets $630.5mn and estimated liabilities of $1.086bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) U.S. Bank National Association (as trustee for $82.5mn 2.75% Convertible Senior Notes due 2035),
(ii) New Skies Satellites B.V. ($26.6mn trade debt claim) and (iii) Intelsat USA Sales Corp ($9.8mn trade debt claim). All 30 of the Debtors' top 30 unsecured creditors have claims in excess of $400k (14 in excess of $1.0mn)
As we previously reported in Distressed Company News: "On July 16, 2020, Moody's Investors Service downgraded its corporate family rating on Global Eagle Entertainment, Inc. to Ca from Caa2, its probability of default rating to Ca-PD/LD from Caa2-PD and its first lien facilities rating to Caa2 from B3. The downgrade follows the Company's announcement that it had not made the interest payment due on its first lien facilities on 9 July 2020 and had agreed, with its lenders, to amend the first lien credit agreement. The amendment extends the grace period for the missed interest payment from five business days (i.e. 16 July 2020) to August 1, 2020. According to Moody’s Investors, the downgrade also reflects expectations of an upcoming imminent restructuring of Global Eagle's debt as the Company's ongoing liquidity seems inadequate in the face of the COVID-19 related disruption to the air travel sector."
In a press release announcing the filing, Global Eagle advised that: “it has agreed upon a definitive 'stalking horse' asset purchase agreement under which substantially all of the Company’s assets will be acquired for total consideration of $675 million by an entity established at the direction of holders of approximately 90% of the Company’s senior secured first-lien term loans, led by lenders managed by Apollo Global Management, Inc. (‘Apollo’), Eaton Vance Management, Arbour Lane Capital Management, L.P., Sound Point Capital Management, Mudrick Capital Management, or one or more of their respective affiliates, and certain funds and accounts under management by BlackRock Financial Management, Inc. (the 'Investor Group'). The proposed transaction will have no material impact on Global Eagle’s global operations as the Company continues to provide services to all of its customers in the ordinary course, before and after the transaction. As a result of the proposed transaction, the Company will reduce its total debt by approximately $475 million and obtain significant additional liquidity, positioning it to continue driving long-term innovation and growth and serving its customers around the world.
The Debtors’ Chief Executive Officer, Joshua Marks, added: “While we made important progress last year managing our cash flow and reducing operating expenses, we have been particularly impacted by COVID-19-related travel restrictions and demand declines in both airline and cruise end-markets. We expect to emerge from this process with a stronger balance sheet, significantly reduced debt and substantial liquidity, well-positioned to continue supporting our global customers into the future. Our investors have been strong strategic partners with Global Eagle, we appreciate their continued support, and we believe this is the best path forward for our company and our customers, partners and employees.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Mezger Declaration”), 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 preceeding 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 resultof 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."
Restructuring Support Agreement
On July 22nd, the Debtors entered into a restructuring support agreement (the “RSA,” attached to the Mezger Declaration as is a term sheet) with an ad hoc group representing approximately 90% of the Debtors’ first lien term loan and approximately 78% of the first lien lenders (“the Ad Hoc First Lien Group”). The RSA provides that the Debtors will initiate a section 363 sale process for a sale of all or substantially all of the Debtors’ assets. The RSA also contemplates that the Ad Hoc First Lien Group will serve as the Debtors’ stalking horse bidder.
Conspicuously absent from the RSA are two groups of creditors sitting below first lien term loan holders: (i) Searchlight which, in addition to being a significant shareholder, holds 100% of the Debtors' Second Lien Notes ($188.7mm outstanding, including $38.7mn of payment-in-kind interest) and (ii) holders of $82.5mn of 2.75% Convertible Senior Notes due 2035.
The Mezger Declaration provides: "Following the provision of this relief [the July 2019 amendment to the senior credit facility], the Debtors engaged in a series of negotiations in the ensuing months, including with Searchlight, in connection with the restructuring of the Debtors’ balance sheet. The Debtors also engaged in outreach to the Ad Hoc Convertible Noteholder Group. Ultimately, however, negotiations stalled with these parties."
DIP and Exit Financing
The Debtors have obtained commitments for $80.0mn of debtor-in-possession (“DIP”) financing from the Investor Group and adds that "the acquisition is expected to be financed by an additional investment in the business in the form of a $125 million exit facility, which would include assumption or refinancing of the DIP financing."
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."
- Nantahala Capital Management, LLC: 31.0%
- ABRY Partners, LLC: 10.1%
- Searchlight II TBO-W, L.P.: Greater than 5.0%
- Frontier Capital Management Co., LLC: Greater than 5.0%
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 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."
Corporate Structure (see Mezger Declaration, Docket No. 2)
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