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November 16, 2021 – Riverbed Technology, Inc. and three affiliated debtors (“Riverbed” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-11503 (Judge TBA). The Debtors, "a worldwide provider of IT optimization products and services, catering to four core solution areas: WAN optimization, software-defined WAN, application acceleration, and network performance management," are represented by Laura Jones of of Pachulski Stang Ziehl & Jones LLP. Further board-authorized engagements include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) AlixPartners, LLC as restructuring advisors, (iii) GLC Advisors & Co., LLC and GLCA Securities, LLC (together, “GLC”) as investment bankers and (iv) Stretto as claims agent.
Further engagements include White & Case LLP and Centerview Partners as counsel and financial advisors, respectively, to the Ad Hoc Group (defined below); with Davis Polk & Wardwell LLP also involved as counsel to certain members of the Ad Hoc Group.
The Debtors’ lead petition notes between 10,000 and 25,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.983bn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) US Bank National Association (as Trustee for $9.6mn of unsecured notes), (ii) Jabil Circuit Hungary Ltd ($2.5mn trade debt) and (iii) Tibco Software, Inc ($487k trade debt).
UPDATE: On November 18th, the Court hearing the Riverbed Technology cases issued an order approving the Debtors’ (i) proposed Plan solicitation procedures and voting procedures and (iii) a timetable culminating in a December 2nd Plan confirmation hearing [Docket No. 92].
In a press release announcing the filing, the Riverbed advised that: “it has taken the next steps in its recapitalization, voluntarily commencing Chapter 11 cases to implement its 'prepackaged' financial restructuring plan to reduce the Company’s debt by more than $1 billion and provide the Company with an additional $35 million cash infusion, positioning the Company for long-term success. Lenders holding 100% of Riverbed’s funded secured debt have now approved the transactions contemplated in the previously announced Restructuring Support Agreement, which will be implemented through an accelerated court-supervised process.
As previously announced on October 13, 2021, the Company entered into a Restructuring Support Agreement with its equity sponsors and an ad hoc group of lenders (the 'Ad Hoc Group') holding a super-majority of its funded secured debt. Once the restructuring transactions, which are subject to customary closing conditions, are complete, the Ad Hoc Group of institutional investors including Apollo, will become the majority owners of Riverbed through their managed funds…[Riverbed] expects to successfully complete its financial restructuring process and emerge in mid-December."
Apollo (which has a significant position in the Debtors' $1.139bn 1st lien facility) Partner Chris Lahoud added: “We are pleased to continue our long-term support of Riverbed in this next chapter as they strengthen their financial position to deliver leading performance and visibility solutions to companies around the world.”
Goals of the Chapter 11 Filings
In a declaration in support of first day filings (the "Declaration," Docket No. 13), the Debtors provide: "Riverbed commenced these chapter 11 cases to implement a comprehensive, value- maximizing financial restructuring through a fully solicited and prepackaged plan (the 'Plan')…and is pursuing confirmation and consummation of the Plan as the best option to right-size its capital structure and position itself for long-term success."
The Debtors are party to an October 13, 2021 restructuring support agreement (the "RSA," attached to the Disclosure Statement at Exhibit B). The restructuring is currently supported by Holders of 100% of the Bridge Notes Claims, approximately 67.4% in principal amount of the First Lien Secured Claims, approximately 84% in principal amount of the Second Lien Secured Claims, and approximately 77% of the Existing Interests (collectively, the “Restructuring Support Parties”).
The key terms of the Restructuring Transactions, as set forth in the RSA and the Plan, are as follows:
- Allowed Bridge Notes Claims will be paid in full in cash on the Plan’s Effective Date.
- General Unsecured Claims, including trade claims, vendor claims, and employee claims, will be unimpaired and reinstated.
- Each Holder of an Allowed First Lien Secured Claim will receive (a) payment in full in Cash of all accrued and unpaid interest as of the Effective Date, (b) its pro rata share of the Exit Facility Term Loans totaling $900 million, and (c) its pro rata share of the First Lien Convertible Preferred Equity with an initial liquidation preference of approximately $239 million.
- Each Holder of an Allowed Second Lien Secured Claim will receive its pro rata share of the Second Lien New Common Equity, which is equal to 100% of the New Common Equity, subject to dilution.
- Each Unsecured Notes Claim will be cancelled, released, and extinguis hed without any distribution on account thereof.
- The Reorganized Debtors will raise $100 million of new money through the issuance of New Money Convertible Preferred Equity to the New Money Commitment Parties on the Plan’s Effective Date.
- Existing Interests will be cancelled on the Plan’s Effective Date."
So why did the Debtors choose an in-Court path having received the go-ahead to restructure out of Court?
The Debtors were very clear in their Disclosure Statement that if the requisite and very high (98-100% depending on stakeholder group) consent threshold was reached, the Debtors intended to "implement the Restructuring Transactions through the Out-of-Court Exchange, consistent with the RSA." That position was clearly echoed in their October 13th announcement as to their execution of the RSA, with that announcement providing: "the Recapitalization will be implemented through either an exchange transaction, or if necessary, an accelerated prepackaged court-supervised process."
Notwithstanding that the necessary consent levels were in fact achieved, the Debtors have now chose to go the Chapter 11 route.
The Declaration continues: "The RSA contemplated two methods for implementing the Restructuring Transactions: either (a) a voluntary out-of-court exchange transaction (the 'Out-of-Court Exchange'); or (b) the filing of voluntary chapter 11 cases and seeking confirmation and consummation of the Plan. Accordingly, on October 22, 2021 (the 'Solicitation Commencement Date'), the Debtors launched a dual solicitation process: simultaneously soliciting consents to the Out-of-Court Exchange with votes on the Plan from the Debtors’ applicable creditors and equity holders.
By the Consent and Voting Deadline, the Debtors received the requisite consents to implement the Restructuring Transactions through the Out-of-Court Exchange, and the Plan was accepted by 100% of creditors in all classes entitled to vote on the Plan.
Riverbed elected to file these chapter 11 cases because…[a]mong other things, an in-court restructuring will allow the Reorganized Debtors to reorganize in a manner that maximizes tax efficiencies (based on current law), which would have otherwise not been attainable in an out-of-court context. Additionally, implementing the Restructuring Transactions through these chapter 11 cases rather than through the Out-of-Court Exchange will provide the Reorganized Debtors with a more stable go-forward equity structure. In an out-of-court scenario, over one thousand existing equityholders would have their equity interests diluted to zero while remaining equityholders of the reorganized business. Although such equityholders would effectively have only a de minimis economic interest, they would remain shareholders under Delaware law. By proceeding with an in-court transaction, the Reorganized Debtors have the opportunity to fully resolve these potential legacy equityholder issues and have a clean go-forward equity structure upon emergence. An in-court restructuring also gives the Debtors the benefit and certainty of a confirmation order and a plan discharge under section 1141 of the Bankruptcy Code."
The following is a summary of classes, claims, voting rights and projected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below)
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims are $0 and projected recovery is 100%.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims are $500k and projected recovery is 100%.
- Class 3 (“Bridge Notes Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims are $65,657,222 and projected recovery is 100%.
- Class 4 (“First Lien Secured Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims are $1,146,281,697 and projected recovery is 100%. Treatement: Each Holder shall receive: (i) payment in full in Cash of all accrued and unpaid interest as of the Effective Date on such Holder’s First Lien Loans; and (ii) its Pro Rata share of the Exit Facility Term Loans; and (iii) First Lien Convertible Preferred Equity with an initial liquidation preference equal to the aggregate principal amount of such Holder’s First Lien Loans less the aggregate original principal amount of Exit Facility Term Loans received by such Holder.
- Class 5 (“Second Lien Secured Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims are $799,085,626 and projected recovery is 40%. Treatement: Each Holder shall receive its Pro Rata share of the Second Lien New Common Equity.
- Class 6 (“Unsecured Note Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.The projected aggregate amount of claims are $9,612,905 and projected recovery is 0%.
- Class 7 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims are $12.0mn and projected recovery is 100%.
- Class 8 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 9 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 10 (“Existing Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 11 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
On November 17, 2021, the Debtors' claims agent notified the Court of Plan voting results [Docket No. 19] which were as follows.
- Class 4 (“First Lien Secured Claims”): 402 claim holders, representing $1,138,522,358.66 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 5 (“Second Lien Secured Claims”): 202 claim holders, representing $770,512,456,.43 (100%) in amount and 100% in number, voted in favor of the Plan.
Events Leading to the Chapter 11 Filing
The Declaration provides: “Like many similar businesses, Riverbed faced significant COVID-19-related headwinds in 2020, including global supply chain disruptions and labor shortages, which adversely affected Riverbed’s financial performance. With factories shut down and stay-at-home orders instituted across the globe, Riverbed faced challenges maintaining its global supply chain as well as driving sales through a suddenly fully-remote salesforce. Although it faced an unprecedented labor shortage, Riverbed prioritized maintaining a sufficiently sizeable workforce to service client needs and fulfill orders in a consistently timely fashion. These factors, combined with Riverbed’s substantial debt service obligations, significantly constrained Riverbed’s liquidity through 2020. Compounding these challenges, one of Riverbed’s key markets—the wide area network optimization market—has experienced a general decline in recent years as part of a transition by organizations to alternative location- independent computing technologies.
In December 2020, to de-stress the business and address significant upcoming funded debt maturities, Riverbed executed a voluntary amend-and-extend and debt-for-debt exchange transaction (the '2020 Refinancing'). Through the 2020 Refinancing, Riverbed extended the maturity of most of its first lien term loan debt from April 2022 to December 2025 and (b) refinanced nearly all of Riverbed’s then-outstanding unsecured notes (due in 2023) with second lien term loans maturing in December 2026. Additionally, in April 2021, to address its ongoing liquidity challenges, Riverbed entered into a $35 million asset-based revolving credit facility (the “ABL Facility”), which was upsized to $50 million in May 2021, and which allowed Riverbed to meet its near-term liquidity needs.
Despite these measures, the continued economic fallout from COVID-19, including a sustained decrease in workforce participation and declined demand during the pandemic for Riverbed’s products and services, continued to hinder Riverbed’s revenue growth and frustrate Riverbed’s overall financial performance. Combined with Riverbed’s substantial debt service obligations, these challenges kept Riverbed in a difficult liquidity position and made clear the need for Riverbed to reach a comprehensive deleveraging and liquidity-enhancing solution with its key stakeholders.”
As of the Petition date, the Debtors have approximately $1.98bn in aggregate outstanding principal of funded debt obligations, as reflected below:
The equity interests of Debtor Riverbed Parent, Inc., the ultimate parent of the other Debtors, consist of class A common stock (non-voting) and class B common stock (voting). The class A common stock has priority over class B common stock with respect to dividend payments and receipt of liquidation value. As of the Petition Date, approximately 77% of Riverbed Parent, Inc.’s equity interests are held by the Sponsors (ie Thoma Bravo, L.P., a leading technology-focused
private equity investment firm, and Teachers’ Private Capital, the private equity arm of Ontario Teachers’ Pension Plan which together took the Debtors private in 2015 in a deal valued at $3.5bn), with the remainder held by various institutional investors and over one thousand of the Debtors’ current and former employees.
The Disclosure Statement [Docket No. 18] attached the following documents:
- Exhibit A: Plan of Reorganization
- Exhibit B: Restructuring Support Agreement
- Exhibit C: Liquidation Analysis
- Exhibit D: Financial Projections
The Debtors' November 18th Plan Supplement [Docket No. 65] attached the following:
- Exhibit A: New Organizational Documents
- Exhibit A-1: Certificate of Incorporation (Charter)
- Exhibit A-2: Bylaws
- Exhibit A-3: Voting Agreement
- Exhibit A-4: Investor Rights Agreement
- Exhibit B: Members of the New Board
- Exhibit C: Convertible Preferred Equity Documents
- Exhibit C-1: Co-Sale Agreement
- Exhibit C-2: Stock Purchase Agreement
- Exhibit D: Exit Facility Credit Agreement
- Exhibit E: Rejected Executory Contracts and Unexpired Leases Schedule
- Exhibit F: Schedule of Proposed Cure Amounts
- Exhibit G: Schedule of Retained Causes of Action
- Exhibit H: Restructuring Steps Memorandum
- Exhibit I: Management Incentive Plan
Liquidation Analysis (see Exhibit C of the Disclosure Statement for notes)
About the Debtors
According to the Debtors: “Riverbed enables organizations to maximize visibility and performance across networks, applications and end-user devices, so they can fully capitalize on their IT, hybrid workplace and digital investments. Riverbed solutions enable organizations to visualize, optimize, remediate and accelerate the performance of any network for any application, while supporting business objectives to mitigate cybersecurity risk and enhance the digital experience for all end users. Riverbed offers two best-in-class product lines: end-to-end visibility solutions – including Network Performance Management and Digital Experience Management (APM and EUEM) – that delivers actionable insights; and network and acceleration solutions, including application acceleration (SaaS, client and cloud acceleration), WAN optimization, and enterprise-grade SD-WAN. Riverbed’s 30,000+ customers include 95% of the Fortune 100.
Corporate Structure Chart [Docket No. 13]
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