Pyxus International, Inc. – Tobacco Leaf Supplier and Processor Files Prepackaged Chapter 11 Citing Rise of COVID-19 and Fall of Cannabis

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June 15, 2020 – Pyxus International, Inc. and four affiliated Debtors (f/k/a Alliance One International, Inc., NYSE: PYX; “Pyxus” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11570. The Debtors, a leading tobacco leaf supplier and processor, are represented by Pauline K. Morgan of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) Simpson Thacher & Bartlett LLP as general bankruptcy counsel, (ii) RPA Asset Management Services as financial advisors, (iii) Lazard Freres as investment banker and (iv) Prime Clerk as claims agent. 

The Debtors’ lead petition notes between 500 and 1,000 creditors, estimated assets of $1.01bn and estimated liabilities of $1.06bn (although see list of funded debt of $1.5bn below). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Willis Towers Watson Northeast Inc Fargo ($5.8mn insurance services claim), (ii) Philip Morris USA ($5.7mn trade debt) and (iii) China Tobacco International (HK) ($1.8mn trade debt)

In a press release announcing the filing, the Debtors advised that: “In connection with the filing, the Company entered into a Restructuring Support Agreement ('RSA') with noteholders holding more than 92% in principal amount of the Company's first lien notes and more than 67% in principal amount of its second lien notes. In addition, the Company's receivables financing lenders and certain key foreign lenders have granted waivers and amendments under their respective facilities, demonstrating significant global financial support for the Company.

Under the terms of the RSA, Pyxus' second lien noteholders will convert approximately $635 million of the Company's debt into equity or cash, and its first lien noteholders will, among other things, extend the maturity date of their existing notes by four years. To implement the financial restructuring contemplated under the RSA, the Company commenced solicitation of a prepackaged Chapter 11 Plan of Reorganization (the 'Prepack Plan') and thereafter filed for Chapter 11 to restructure its debt and delever its balance sheet. The Prepack Plan contemplates that all outstanding shares of Pyxus common stock and rights to acquire Pyxus common stock will be cancelled and each holder of outstanding Pyxus common stock will be entitled to receive its ratable share of $1,000,000 in cash provided that such holder does not opt out of the third-party releases contained in the Prepack Plan or object to the Prepack Plan.”

Restructuring Support Agreement and Plan Overview

The Disclosure Statement provides “[The Restructuring] will eliminate approximately $440 million of net indebtedness…and provide the Debtors and Reorganized Debtors at least $260 million of new working capital. 

On June 14, 2020, the Debtors, certain Holders of greater than 92% of the First Lien Notes Claims (the 'Consenting First Lien Noteholders') and certain Holders of greater than 67% of the Second Lien Notes Claims (the 'Consenting Second Lien Noteholders') entered into the Restructuring Support Agreement [attached to Disclosure Statement at Exhibit C] that sets forth the principal terms of the Restructuring Transactions and requires the Consenting First Lien Noteholders and the Consenting Second Lien Noteholders to support the Plan. 

As set forth in the Plan, the Restructuring Transactions provide for a comprehensive restructuring of a significant portion of the Claims against and Interests in the Debtors by replacing or refinancing in full the First Lien Notes and by equitizing or distributing Cash on account of the Second Lien Notes. Holders of at least 67% of the Second Lien Notes have elected the Second Lien Notes Stock Option. Holders of Second Lien Notes that do not elect the Second Lien Notes Stock Option will receive Cash in an amount equal to 2.00% of the principal amount of their Second Lien Notes. 

Eligible Holders of Second Lien Notes Claims can ratably participate in 87.5% of the DIP Facility subject to subscription terms, conditions, and procedures to be distributed following the Petition Date. 

The Debtors’ existing ABL Facility will be refinanced by the DIP Facility, and upon emergence, the Reorganized Debtors will enter into a new exit ABL revolving or term loan facility having commitments of not less than $60 million (the 'Exit ABL Facility'). The Exit ABL Facility may be provided by new third party lenders or by the Company’s existing creditors. Existing Pyxus Interests will be discharged and cancelled on the Effective Date, but Holders of Pyxus Common Stock that (i) do not opt out of the releases contained in Article VIII.F of the Plan pursuant to the Equityholder Opt-Out Form and (ii) do not otherwise oppose, object to, or seek to impede or delay confirmation of the Plan will receive their ratable share of $1,000,000 in Cash on the Effective Date."

The following is a 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 $200,000 and expected recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $12,300,000 and expected recovery is 100%.
  • Class 3 (“First Lien Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $275,000,000 and expected recovery is 100%.
  • Class 4 (“Second Lien Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $635,686,000 and expected recovery is 30.3%.
  • Class 5 (“Foreign Credit Line Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $523,000,000 and expected recovery is 100%.
  • Class 6 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $21,700,000 and expected recovery is 100%.
  • Class 7 (“Debtor Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is $280,000,000 and expected recovery is N/A.
  • Class 8 (“Non-Debtor Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claim is $315,000,000 and expected recovery is N/A.
  • Class 9 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is N/A.
  • Class 10 (“Existing Pyxus Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is 0%.

Events Leading to the Chapter 11 Filing

The Disclosure Statement details the Debtors' long history with burdensome debt levels and servicing costs that ultimately ran up against a June 2020 "maturity wall;" with efforts to refinance/restructure debt ultimately thwarted by (i) adverse tradewinds, including a strong U.S. dollar and the U.S.-China trade dispute, (ii) the sudden collapse of what had appeared to be an IPO-worthy Canadian cannabis market and (iii) the COVID-19 pandemic.

The Disclosure Statement provides: "Pyxus was formed by the merger of DIMON Incorporated and Standard Commercial Corporation in 2005. At the time, both companies had significant amounts of corporate debt, which the merged Company has continued to carry and service. 

In 2013 and 2016, Pyxus issued the Second Lien Notes and First Lien Notes, respectively, to refinance some of that legacy debt and for working capital. In 2016, Pyxus also entered into the ABL Facility to fund working capital expenses. 

Each year, the Debtors pay approximately $85 million in interest on these facilities, which imposes a significant burden on their free cash flow. The First Lien Notes, Second Lien Notes and ABL Facility were scheduled to mature by July, 2021, but in reality needed to be refinanced by June 2020, when the Company’s annual financial statements were to be published.

Absent a refinancing by June, 2020, the Company’s independent auditors likely would have included a ‘going concern qualification’ in the annual financial statement, which would have triggered events of default or caused Foreign Credit Line lenders not to renew. In order to address its ‘maturity wall,’ the Company began developing a refinancing strategy in 2018; however, its options were limited due to its leverage metrics. 

Net income remained fairly flat during this period for a number of reasons, including the strengthening U.S. dollar and the U.S.-China trade dispute. As a consequence, the Company’s debt to EBITDA ratio – a common metric for leverage – remained high and existing cash flow would not support a traditional refinancing of the First Lien Notes and Second Lien Notes.

Beginning in mid-2019, the Company tried to take advantage of a strong market for 'cannabis' companies in Canada and began preparing for a potential initial public offering of its Canadian cannabis business combined with its hemp and CBD business and e-liquids flavor and fragrance business. 

The Company moved quickly to take advantage of the positive market conditions: it engaged investment bankers in Canada and dedicated considerable resources to complete all the requisite regulatory filings. Unfortunately, there was a sudden and significant downturn in the public markets for Canadian cannabis companies and the Company’s investment bankers determined an IPO was not feasible based on conditions in September and October 2019. In reaction to those unfavorable market conditions, the Company pivoted, and began exploring private capital solutions. However, the offers it received were inadequate to address its refinancing needs. The Company pivoted again, and in late 2019, Pyxus pursued possible financing transactions, including a potential debt-for-debt exchange. However, a confluence of factors beyond the Company’s control, most significantly the COVID-19 pandemic, made that effort impossible and catalyzed these Chapter 11 Cases."

DIP Financing

The Debtors have secured commitments for a $206.7mn of debtor-in-possession financing facility ("DIP") financing from certain prepetition noteholders the proceeds of which will be used to refinance the Debtors' existing asset-based revolver, for working capital and general corporate purposes, and to pay expenses incurred in connection with the Chapter 11 Cases. The DIP financing, combined with projected cash flows, are expected to provide liquidity to support the Debtors' operations during the restructuring process. Each Holder of a DIP facility claim will also receive its ratable portion of the Exit Facility Shares, consisting of approximately 44.44% shares of New Common Stock issued on the Effective Date subject to dilution by New Common Stock issued on account of the New MIP.

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $1,513.0mn in principal amount of outstanding funded debt obligations, comprised of:

Type of Debt

Description

Maturity

Principal Outstanding

ABL Facility

Revolving credit facility based on eligible accounts receivable and eligible inventory

January 2021

$44,900,000

First Lien Notes

8.5% senior secured first lien notes due 2021

April 2021

$275,000,000

Second Lien Notes

9.875% senior secured second lien notes due 2021

July 2021

$635,686,000

Foreign Credit Lines

Uncommitted short-term seasonal lines of credit at the local level

Various

$557,000,000

About the Debtors

Pyxus International, Inc. (NYSE: PYX) is a global agricultural company with more than 145 years of experience delivering value-added products and services to businesses, customers and consumers. Driven by a united purpose—to transform people's lives, so that together we can grow a better world—Pyxus International, its subsidiaries and affiliates, are trusted providers of responsibly sourced, independently verified, sustainable and traceable agricultural and consumer-driven products and ingredients.

The Disclosure Statement attached the following documents:

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

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