RentPath Holdings, Inc. – With FTC Committed to Block CoStar Sale on Antitrust Grounds, Debtors Seek Enforced Payment of $58.75mn Break-Up Fee

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December 29, 2020 – The Debtors filed a motion requesting that the Court hearing their Chapter 11 cases enforce its Plan confirmation order, specifically provisions within that order relating to their now terminated $587.5mn sale to CSGP Holdings, LLC (the “Stalking Horse Bidder,” an affiliate of publicly traded commercial real estate information company CoStar Group, Inc., or "Costar" NASDAQ: CSGP) and CoStar's payment of a $58.75mn break-up fee.

On March 26, 2020, the Debtors notified the Court that the Stalking Horse Bidder had been designated the successful bidder and that RP Lender Acquisition Corporation, an entity formed by credit-bidding prepetition lenders, had been designated as the the back-up bidder and on June 10th, the Debtors' Plan, including its "cornerstone" sale to CoStar, was confirmed by the Court.

Much of the Debtors' motion details the extensive efforts to obtain FTC approval of the transaction which began with the expiration of HSR waiting periods on April 29, 2020 and the FTC's issuance of a "'Second Request' to continue its investigation with respect to certain issues relating to the Sale Transaction," an investigation which ultimately resulted in the FTC looking to enjoin the sale by way of an administrative proceeding (the FTC commencing an action on November 30th and the proceeding now scheduled to begin on June 21, 2021). On December 4th, the Debtors were hit with a temporary restraining order in respect of the CoStar sale; and further to Costar's decision not to request a second three month extension (that extension coming with a $7.5mn price tag to cover further legal fees), have now terminated the CoStar asset purchase agreement (the "APA," with the December 29th termination notice attached at Docket No. 658).

The Debtors argue that they have already done more than enough (antitrust legal fees to date over $7.0mn) to demonstrate the futility of further battle with the FTC, especially given the lengthy nature of that battle and the FTC's recent dominance of the horizontal merger battlefield ("Since 2010, the FTC has prevailed in twelve (12) of the past fifteen (15) horizontal merger cases that have been litigated" with that number not including many mergers abandoned following the threat of FTC intervention).

The Break-Up Fee

The Debtors argue that their Plan, confirmed on June 10, 2020 [Docket No. 657], makes emphatically clear that the payment of the break-up fee was clearly negotiated amongst the parties to anticipate an antitrust challenge to the CoStar sale and to assign risk as to any such challenge; that risk in the form of the break-up fee. a contractually agreed, Court approved, sale term that the Court must enforce before the Debtors' run out of cash. The Debtors' argue that CoStar has cynically pursued a win-win strategy whereby, "either the Stalking Horse Bidder obtains antitrust approval of the Sale Transaction…or, if antitrust approval is not obtained [leaving the Debtors] in a materially weakened position and not able to engage in lengthy and costly litigation over payment of the Break-Up Fee that the Stalking Horse Bidder has indicated it intends to withhold."

This is not a tough call, the Debtors argue: "The Plan, among other things, implemented the Sale Transaction with the Stalking Horse Bidder, while providing for a mechanism by which the Debtors could toggle and implement the Credit Bid APA if the Debtors were unable to consummate the Sale Transaction pursuant to the Stalking Horse APA. On June 10, 2020, the Court entered the Order (I) Confirming Modified Joint Chapter 11 Plan of RentPath Holdings, Inc…(the ‘Confirmation Order’’)…and approving the Sale Transaction pursuant to the Stalking Horse APA. Specifically,…the Court ordered that ‘[t]he Plan, each of its provisions and exhibits, and the transactions contemplated therein, including the Sale Transaction [pursuant to the Stalking Horse APA], is approved,’…and that “[t]he documents contained in the Plan Supplement, including the Sale Transaction Documents, [inclusive of the Stalking Horse APA]. . . are integral to the Plan and are approved by the Court…” Thus, every obligation contained in the Stalking Horse APA—including the Stalking Horse Bidder’s obligation to pay the Break-Up Fee—also is a term of the Confirmation Order entered by the Court.

The motion continues, “This Motion seeks to resolve a critical issue in an expedited fashion: the Stalking Horse Bidder’s obligation to pay the Court-approved and contractually agreed-upon Break-Up Fee of $58,750,000 given that the parties could not obtain antitrust approval of the Sale Transaction by the negotiated Outside Date, which has already been extended once by the Stalking Horse Bidder.

As the Court is aware, the Debtors, through their management and experienced antitrust counsel, have been expending significant effort and resources for nearly ten (10) months to secure approval from the FTC to consummate the Sale Transaction pursuant to the Stalking Horse APA. Indeed, the Stalking Horse APA provided the highest and otherwise best bid for the Company after extensive prepetition and post-petition sale processes and has the overwhelming support of the Debtors’ key creditor constituencies and other stakeholders; the Debtors have had every incentive to take and have taken extensive efforts to see that transaction consummated. Both the Debtors and the Stalking Horse Bidder have appeared before the Court a number of times and provided status updates concerning these extensive efforts to obtain FTC approval. Despite these efforts, including the Debtors’ incurrence of over $7 million in antitrust related legal fees and expenses — on top of several additional months of chapter 11 costs due to the FTC Process prolonging the Debtors’ chapter 11 cases — the FTC determined to oppose the Sale Transaction, has commenced litigation to block the Sale Transaction, and a temporary restraining order is currently enjoining the parties from consummating the Sale Transaction. Unfortunately, there is no prospect at this point of a speedy resolution to the issues presented by the regulatory approval process. In light of the FTC’s decision to seek to enjoin the transaction, the Debtors — still in chapter 11, with duties to all stakeholders — now face months of expensive litigation with a highly uncertain outcome at best, especially given the FTC’s proven litigation track record once it determines to seek to block a transaction in court.

Although this result is an enormous disappointment, the Debtors contemplated this possibility and addressed this exact scenario in the Stalking Horse APA, which forms the cornerstone of the Plan that was confirmed by this Court. Specifically, anticipating the antitrust risks associated with the Sale Transaction, the parties agreed that, if antitrust approval were the only remaining obstacle to consummation of the Sale Transaction and had not yet been obtained, then the Stalking Horse Bidder would have the ability to make a payment and effectuate two (2) three (3) month extensions of the Outside Date, for a total of six (6) months. The first extension, in fact, occurred. On July 29, 2020, the Stalking Horse Bidder exercised its option to extend the Outside Date from August 12, 2020 to November 12, 2020. But, when the extended Outside Date arrived on November 12, the Stalking Horse Bidder declined to exercise its second extension option. With November 12 having now come and passed, FTC approval of the Sale Transaction is nowhere in sight. To the contrary, the parties are just now in the opening stage of litigation with the FTC that will take months to resolve, with a highly uncertain outcome at best under the circumstances here.

In light of the real risks to the Debtors of spending millions of dollars in incremental legal fees in connection with the ongoing litigation with the FTC, as well as the additional chapter 11 costs and increasing risks to the Debtors’ business as a result of an even further prolonged stay in chapter 11, the Debtors, in their reasonable business judgment, determined to terminate the Stalking Horse APA and collect the Break-Up Fee (as mandated by the contract and incorporated into the Confirmation Order), for which the Debtors bargained and to which they are entitled. The Debtors need such funds to continue to fund their ongoing business obligations, preserve the Debtors’ ability to compete, and to fund their chapter 11 cases to and through a successful emergence.

Time is of the essence. With each day that passes, the Debtors’ proceeds of the Debtors’ DIP Financing are depleted, and the Debtors’ liquidity runway is shortened. Accordingly, concurrently with the Debtors’ delivery of the Termination Notice to the Stalking Horse Bidder, terminating the Stalking Horse APA and requesting payment of the Break-Up Fee, the Debtors filed this Motion, with the goal of expediting the receipt of such funds.

Expedition is necessary because the Stalking Horse Bidder has made clear that it does not intend to honor its obligation to pay the Break-Up Fee, with potentially irreparable consequences for the Debtors. Unfortunately, the Stalking Horse Bidder has pursued a ‘win-win’ strategy from the outset of these chapter 11 cases: either the Stalking Horse Bidder obtains antitrust approval of the Sale Transaction and acquires the Debtors’ business before the Outside Date, or, if antitrust approval is not obtained by the Outside Date, the Debtors’ business, having spent many months in chapter 11 pursuing FTC approval, is in a materially weakened position and not able to engage in lengthy and costly litigation over payment of the Break-Up Fee that the Stalking Horse Bidder has indicated it intends to withhold.

…the dispute with respect to the Break-Up Fee can and should be resolved quickly pursuant to this Motion. The Break-Up Fee provisions in the Stalking Horse APA are straightforward and easily applied here: the failure of the parties to close by the Outside Date entitled the Debtors to terminate the Stalking Horse APA and, because antitrust approval was not obtained by the date of termination, the Break-Up Fee is owed and must be paid. Any attempt by the Stalking Horse Bidder to unnecessarily complicate the issues can and should be avoided.”

A hearing on the motion is scheduled for January 28, 2021, with objections due by January 12, 2021.

Further Background

Marketing Efforts

The Debtors bidding procedures motion stated, “The Debtors are pleased to report that, after considerable deliberation, extensive negotiations, and multiple rounds of revisions of terms, the Debtors have entered into a stalking horse purchase agreement (the ‘Stalking Horse Agreement’) with CSGP Holdings, LLC (the ‘Stalking Horse Bidder’), an affiliate of CoStar Group, Inc., a commercial real estate information company. The Stalking Horse Agreement is the result of the Debtors’ extensive Prepetition Sale Process and contemplates a value-maximizing transaction pursuant to a going concern sale of the Debtors’ assets (the ‘Assets’) for an aggregate purchase price equal to $587.5 million in cash (the ‘Stalking Horse Cash Consideration’), plus certain assumed liabilities.

Prior to the Petition Date, the Debtors also proactively engaged in constructive negotiations and discussions with an ad hoc committee of crossholder lenders holding first lien claims and second lien claims, an ad hoc group of lenders holding Second Lien Claims, and the Company’s equity sponsors. Following months of good faith, arms’-length negotiations with such parties, on February 11, 2020, the Company executed a restructuring support agreement (the ‘RSA’) with two groups of lenders, a crossholder ad hoc committee of first lien and second lien lenders (collectively, the ‘Crossholder Ad Hoc Committee’) and an ad hoc committee of second lien lenders (the ‘Second Lien Ad Hoc Committee’ and, together, with the Crossholder Ad Hoc Committee and other lenders that may sign joinders to the RSA, the ‘Consenting Creditors’), and the Company’s equity sponsors, Regal Holdco LP (an affiliate of Providence Equity Partners LLC) and Pittsburgh Holdings, L.P. (an affiliate of TPG Partners VI, L.P.) (Regal Holdco LP and Pittsburgh Holdings, L.P., collectively, the ‘Consenting Sponsors’, and together with the Consenting Creditors, the ‘RSA Parties’). Pursuant to the RSA, the Consenting Creditors have agreed to backstop the Debtors’ Sale Process (as defined below) by submitting a binding credit bid in the amount of $492.7 million (the ‘Credit Bid’). The Credit Bid is binding and irrevocable until (x) the Court enters an order approving a third-party bid and (y) if the Credit Bid is designated as the Back-Up Bid, the Back-Up Bid Termination Date (as defined in the Bidding Procedures) has occurred.

As set forth in greater detail in the Jimenez Declaration, the Company conducted an extensive and robust prepetition marketing, solicitation, and sale process over seven (7) months, which commenced in July 2019 and ran through the commencement of these chapter 11 cases (the ‘Prepetition Sale Process’). With the prepetition marketing process in mind, and in an effort to maximize value for all stakeholders, the Debtors and their advisors have developed post-petition marketing, bidding and auction procedures (the ‘Post-petition Sale Process’) for the orderly marketing and sale of the Debtors’ business (the ‘Bidding Procedures’). The Bidding Procedures are designed to promote a competitive and robust bidding process, and are intended to generate the greatest level of interest in the Debtors’ business—higher or otherwise better than the Stalking Horse Agreement.”

About the Debtors

The Debtors are “a leading digital marketing solutions company, that empowers millions nationwide to find apartments and houses for rent. Through its brands, RentPath continues to simplify the apartment search experience while driving quality advertiser leads that result in occupancies and a high return on investment. With powerful online and mobile solutions that provide prospective renters with the information and tools they need, RentPath connects consumers with a home that reflects their personal lifestyles.”

About CoStar

From the CoStar website: “CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. STR provides premium data benchmarking, analytics and marketplace insights for the global hospitality sector. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 6 million monthly unique visitors. Realla is the UK’s most comprehensive commercial property digital marketplace. Apartments.com, ApartmentFinder.com, ForRent.com, ApartmentHomeLiving.com, WestsideRentals.com, AFTER55.com, CorporateHousing.com, ForRentUniversity.com and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. CoStar Group’s websites attracted an average of over 51 million unique monthly visitors in aggregate in the third quarter of 2019. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of over 4,300 worldwide, including the industry’s largest professional research organization. For more information, visit CoStarGroup.com.”

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