October 14, 2022 – Satisfied with the consent of the U.S. Trustee and additional information filed by the Debtors in respect of the identity of the members of the board of directors of the reorganized company, Judge Lisa G. Beckerman said at a hearing held on Friday that she would issue an order confirming the Debtors' Second Amended Prepackaged Plan of Reorganization.

Beckerman told counsel for the Debtors at the confirmation hearing that she "candidly" would not have signed off on confirmation of the Plan if the Debtors had not filed their Plan supplement providing the names of five of a proposed up-to-eight directors and had not outlined the process for selecting the remaining directors.

“It was something I was having a really hard time with," Beckerman said. "It’s not like there’s a lot of wiggle room in the requirements.”

Scott Greenberg, representing an ad hoc group of the Debtors' term lenders, told the Court that, with a view toward a Plan Effective Date occurring before the end of October, the parties are forming a committee to assist in the selection of the as-yet unnamed directors.

Also at the confirmation hearing, during which Beckerman also said she would approve the adequacy of the Disclosure Statement on a final basis, Debtors' counsel George Klidonas touted achievement of a “Fully consensual pre-packaged plan.” The Debtors also summarized the most recent Plan changes, which, in response to comments from the U.S. Trustee, changed the definition of releasing parties to exclude interest holders who were deemed to reject the Plan and did not opt out, as well as those who did not consent to the releases. 

In all, the Debtors said 22 class 8 members are now carved out of the releases, as well as lenders who traded claims and did not opt out.

Case Status

On August 29, 2022, Lumileds Holding B.V. and nine affiliated debtors (together, “Lumileds” or the “Debtors”) filed for Chapter 11 protection on a “prepackaged” basis noting estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn (although note $1.72bn of funded debt for consolidated Debtors below). On the Petition date, the Debtors filed copies of their earlier solicited prepackaged Plan and a related Disclosure Statement [Docket Nos. 24 and 25, respectively].

On August 31st, the Court hearing the Lumileds Holding B.V. cases issued an order authorizing the Debtors to: (i) access up to $175.0mn in new money, debtor-in-possession (“DIP”) financing (the "Initial Funding") from certain of their prepetition lenders (ie, the "Ad Hoc Term Loan Lender Group" which holds 67% of the outstanding obligations under the Debtors’ Prepetition Credit Agreement) and (ii) use cash collateral [Docket No. 73]. If the Debtors fail to secure the continuation of the "Receivables Factoring Facility" with Crédit Agricole Leasing & Factoring S.A., a second $100.0mn tranche of DIP financing (the “Delayed Draw DIP Facility”) is to be made available upon issuance of a final DIP order, with consideration of that order now scheduled for October 14th (delayed from September 22nd).

On September 2, 2022, the Court hearing the Lumileds Holding B.V. cases issued an order approving: (i) the Debtors’ proposed Plan solicitation and voting procedures and (ii) a proposed timetable culminating in an October 14, 2022 confirmation hearing [Docket No. 78]. As standard with prepackaged plans, the Court also conditionally waived requirements as to filing of Schedules A/B and statements of financial affairs (SOFA).

Plan Overview

The Debtors' memorandum in support of Plan confirmation [Docket No. 169] provides: "The Plan that the Debtors seek to confirm on a fully-consensual basis is a tremendous accomplishment. It not only reduces the Debtors’ outstanding debt by approximately $1.4 billion, but also secures up to $300 million of exit financing to fund the Debtors’ go-forward operating needs, provides full recoveries to the Holders of General Unsecured Claims so as to maintain the Debtors’ valuable vendor and customer relationships, secures the employment of thousands of individuals worldwide, and ensures the long-term continuation of the Debtors’ brand and operations. Ultimately, the Plan will enable the Debtors to emerge from the Chapter 11 Cases as a stronger company, less burdened by debt, so that they can focus on what they do best: developing and manufacturing innovative lighting solutions.

In light of the many benefits provided under the Plan, it is not surprising that the Debtors are seeking to confirm the Plan on a completely consensual basis. Over 92% in claim amount4 and over 83% of all creditors that were entitled to vote on the Plan—i.e., the Holders of Claims in Class 3 (First Lien Loan Claims)—voted in favor of the Plan, and no creditors voted against the Plan. Moreover, the Debtors received only one filed objection and four informal comments to the Plan—all of which have been resolved, as shown in the response chart attached hereto as Exhibit A. These facts speak volumes regarding the fairness of the Plan and the good-faith efforts by which it was crafted.

This consensus was made possible by months of prepetition, good-faith, arm’s-length negotiations between the Debtors, the Ad Hoc Term Loan Lender Group (comprising Holders of approximately 67% of the outstanding First Lien Loan Claims), and the Consenting Cooperative Members (holding 100% of outstanding equity interests in the parent Debtor, Luminescence Coöperatief U.A.) (collectively, the “Initial RSA Parties”). Those prepetition negotiations culminated in the execution of the Restructuring Support Agreement, dated August 26, 2022, pursuant to which the Initial RSA Parties agreed to support the Plan and the restructuring contemplated thereby.

The Debtors’ efforts to gain stakeholder support for the Plan, however, did not stop upon the commencement of the Chapter 11 Cases. To the contrary, the Debtors continued to work hard with their various stakeholders on a postpetition basis. Ultimately, Holders of over 99% in amount of Claims in Class 3 (First Lien Loan Claims), 100% of the Holders of Interests in Class 7 (Existing Interests in Luminescence Coöperatief U.A.), and over 65% of the Holders of Interests in Class 8 (Existing Co-Investment Interests in Aegletes B.V.) executed the Restructuring Support Agreement, thereby paving the way for a consensual, expeditious, and value-maximizing prepackaged bankruptcy case."

The Disclosure Statement [Docket No. 25] adds, “The Plan contemplates certain transactions, including, without limitation, the following transactions:

• conversion of approximately $1.711 billion of First Lien Loan Claims to 100% of the New Common Equity, subject to dilution (as described in more detail below), and their Pro Rata share of $125 million of Exit First Lien Takeback Term Loans;
• postpetition financing—in the form of a $275 million DIP Facility—to enable the Debtors to continue to operate in the ordinary course of business during the Chapter 11 Cases;
• access to new capital up to $175 million of an Exit Revolving/Factoring Debt Facility (with the size and terms of such facility subject to the approval of the Required Consenting First Lien Lenders) which may take the form of (a) the existing Receivables Factoring Facility (if such facility is reinstated on the Plan Effective Date), (b) a new receivables factoring facility, and/or (c) a new revolving credit facility or asset-based lending facility;
• each Holder of an Allowed DIP Facility Claim will receive its Pro Rata share of the Exit First Lien Converted Term Loans or Cash (depending on the amount drawn under the DIP Facility);
• each Holder of an Allowed General Unsecured Claim will receive payment in full in Cash on 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;
• each Holder of an Allowed Intercompany Claim or Intercompany Interest will, at the option of the Debtors, either have its Claim: (a) Reinstated; or (b) set off, settled, distributed, contributed, merged, canceled, or released;
• each Holder of an Existing Interest in Luminescence Coöperatief U.A., a Co-Investment Interest in Aegletes B.V., or a Subordinated Claim will have its Claim or Interest be cancelled and extinguished, be of no further force or effect, and receive no distribution under the Plan (except that, to the extent required under Dutch Law, a nominal amount will be paid to the Existing Co-Investment Interests in Aegletes B.V. in connection with such cancellation); and
• the legal, equitable, and contractual rights of each Holder of an Allowed Other Secured Claim and an Allowed Other Priority Claim will be unaltered by the Plan.”

The following is an unchanged summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement, see also Liquidation attached 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 (“First Lien Loan Claims”) is impaired and entitled to vote on the Plan. Holder shall receive its Pro Rata share of (i) 100% of the New Common Equity, subject to dilution by the MIP, the Participation Fee, the Exit Commitment Fee, and the Backstop Fee, and (ii) the Exit First Lien Takeback Term Loans.
• Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 5 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 6 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 7 (“Existing Interests in Luminescence Coöperatief U.A.”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 8 (“Existing Co-Investment Interests in Aegletes B.V.”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 9 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

Voting Results

On October 7, 2022, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 161]:

• Class 3 (“First Lien Loan Claims”): 430 claim holders, representing $1,560,804,738.07 in amount and 100% in number, accepted the Plan.

Key Documents

The Disclosure Statement attaches the following documents:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Financial Projections
• Exhibit D: Liquidation Analysis
• Exhibit E: Valuation Analysis
• Exhibit F: Organizational Structure

The Plan Supplements attach the following documents:

[Docket No. 90]

• Exhibit A: Exit First Lien Term Loan Credit Agreement
• Exhibit B: Exit Revolving/Factoring Debt Documents
• Exhibit C: Transaction Steps Plan
• Exhibit D: Amended/New Organizational Documents
• Exhibit E: Members of the New Board
• Exhibit F: Rejected Executory Contract/Unexpired Lease List

 [Docket No. 91]

• Exhibit A: New Common Equity Documents

[Docket No. 167]

• Exhibit A: Updated Members of the New Board

Petition Date Perspective

In a press release announcing the filing, Lumileds stated that: "it has entered into a restructuring support agreement (the 'RSA' or the 'Agreement') with its lenders holding a significant majority of the loans outstanding under its prepetition first lien debt facility on the terms of a comprehensive financial restructuring that would significantly de-leverage and strengthen its balance sheet by over $1.3 billion, accelerate Lumileds’ growth, and enable further investment in innovation to pursue additional strategic opportunities through the injection of up to $275 million of liquidity.

To efficiently implement the de-leveraging, a narrowly focused prepackaged Chapter 11 plan (the 'Plan') involving only Lumileds’ U.S. and Dutch entities has commenced in the U.S. Bankruptcy Court for the Southern District of New York (the 'Court'). Lumileds’ European, Asian, and other foreign subsidiaries and affiliates are not included in the filing and are unaffected by the Chapter 11 process. The Company has obtained the necessary support from its lenders to confirm the Plan prior to commencing its proceedings and expects to meet the requirements to confirm the Plan and emerge from Chapter 11 within approximately sixty days. 

The Debtors’ CEO Matt Roney commented: “We have proactively taken steps to de-leverage our balance sheet given the ongoing challenges presented by global supply constraints, COVID-related issues, and the crisis in Ukraine.”

Restructuring Support Agreement

Under the terms of the RSA, the existing secured lenders are expected to commit to support, and vote in favor of, a transaction that, when executed, will reduce the Company’s funded debt by approximately $1.3 billion, from approximately $1.7 billion to $400 million comprised of takeback debt and post-petition loans, which will be combined into a 5-year exit facility.

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: "A number of macroeconomic and geopolitical events have altered demand for the Debtors’ products, raised costs, or otherwise negatively affected the Debtors’ financial condition, which, in turn, has resulted in a liquidity crisis that prompted the filing of the Chapter 11 Cases.

• First, the COVID-19 pandemic and related supply chain disruptions have directly negatively affected Lumileds’ revenue. Revenue losses are attributable to decreased demand from customers in China, as a result of lockdowns, and from OEMs, as a result of the general reduction of car production due to the global semiconductor shortage and other supply chain issues. Additionally, many of the Company’s manufacturing facilities were forced to close temporarily for extended periods of time due to lockdowns in Asia, thus compounding supply chain difficulties within the Company’s integrated production process.
• Second, the Russian invasion of Ukraine impacted raw material supply and energy pricing while further compromising supply chain stability. Moreover, the Debtors fully suspended their aftermarket automotive business in Russia in April 2022, which represented a significant and permanent loss of revenue.
• Third, elevated raw material and utility costs, rising wages, inflation, and unfavorable foreign exchange and interest rates, in addition to the aforementioned declines in automobile production, have increased pressure on both the Debtors and their customers. For the Debtors, this has resulted in higher costs without a corresponding ability to raise prices to levels that effectively combat inflation (i.e., lower margins). The Debtors’ profitability is dependent on their customers’ ability to pay for the premium technologies that are the Debtors’ hallmark. Thus, as their customers have become unable or unwilling to pay this premium, the Debtors have been correspondingly affected."

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $1.7bn in aggregate debt outstanding as summarized below:

Anticipated Exit Capital Structure

The Debtors anticipate an exit structure as summarized below:

Liquidation Analysis

About the Debtors

According to the Debtors: "Lumileds is a global leader in OEM and aftermarket automotive lighting and accessories, camera flash for mobile devices, MicroLED, and light sources for general illumination, horticulture, and human-centric lighting. Our approximately 7,000 employees operate in over 30 countries and partner with our customers to deliver never before possible solutions for lighting, safety, and well-being."

Corporate Structure Chart (simplified version below, see also Exhibit F to Disclosure Statement)

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