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August 27, 2020 – The (former) Debtors notified the Court that their Second Amended Plan had become effective as of August 27, 2020 [Docket No. 293]. The Plan had previously been confirmed on August 6th [Docket No. 274].
On June 14, 2020, Skillsoft Corporation and 15 affiliated Debtors (“Skillsoft” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11532. At filing, the Debtors, a global leader in education software and corporate learning, noted estimated assets between $1.0bn and $10.0bn and estimated liabilities between $1.0bn and $10.0bn ($2.1bn of funded debt). The Debtors' obligation to file a schedule of financial affairs and Schedules A/B was waived in respect of this prepackaged Plan.
The Debtors were represented by Mark D. Collins of Richards, Layton & Finger, P.A. Further board-authorized engagements included (i) Weil, Gotshal & Manges LLP, as general bankruptcy counsel, (ii) AlixPartners, LLP as financial advisors, (iii) Houlihan Lokey Capital, Inc. as investment banker and (iv) Kurtzman Carson Consultants LLC as claims agent.
in a press release announcing the emergence from bankruptcy, Skillsoft commented: "Through its financial restructuring process, Skillsoft reduced its total debt by approximately $1.5 billion and eliminated approximately $100 million in annual interest payments. The Company now has more than $50 million in cash and a leverage ratio of approximately 3.5x net debt-to-LTM EBITDA.
In a press release announcing the confirmation of their prepackaged Plan, the Debtors had added the following detail: “This comprehensive de-leveraging includes reducing first and second lien debt to $410 million from approximately $2.0 billion, with total net debt aggregating approximately $525 million.”
The Debtors’ CEO John Frederick adds: “We reached this milestone on an accelerated basis thanks to overwhelming support from our lenders, who will become the new owners of Skillsoft upon emergence. The leadership team and I look forward to working closely with them as we continue expanding our suite of products, solutions and support resources and providing exceptional service to our customers.”
Prepackaged Plan and RSA Overview
The Debtors' memorandum in support of Plan confirmation provides: "The reorganization to be effectuated by the Plan will result in a reduction in the Debtors’ balance sheet liabilities from approximately $2.1 billion in funded debt obligations to approximately $585 million in funded debt obligations upon emergence. This deleveraging will allow the Debtors to emerge from bankruptcy well-equipped for success as a leading learning and talent management enterprise software company. In addition, the Plan provides the Debtors with access to two new working capital facilities to continue funding the Debtors’ business operations, and will enable the Debtors’ management team to rededicate their efforts to operational performance and value creation. Key components of the Plan include the following:
- The DIP Facility will be converted into the New First Out Term Loan Facility in an aggregate principal amount of at least $110 million;
- Distribution to the holders of First Lien Debt Claims of (i) $410 million of New Second Out Term Loans, and (ii) the Class A Shares, representing 96% of the voting power of Newco Equity and 96% of the economic rights of Newco Equity;
- Distribution to the holders of Second Lien Debt Claims of (i) the Class B Shares, representing 4% of the voting power of Newco Equity and 4% of the economic rights of Newco Equity, and (ii) Tranche A Warrants and Tranche B Warrants;
- Payment in full, in the ordinary course, of General Unsecured Claims; and
- Holders of existing equity interests will not receive a recovery under the Plan."
Goals of the Chapter 11 Filings
The Frederick Declaration provides: "Skillsoft has commenced these chapter 11 cases to implement a prenegotiated, comprehensive consensual restructuring (the 'Restructuring') through a prepackaged plan of reorganization that will substantially delever the Company by reducing its balance sheet liabilities from approximately $2.1 billion in funded debt to approximately $585 million in funded debt upon emergence."
The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan or Disclosure Statement):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%
- Class 3 (“First Lien Debt Claims”) is impaired and entitled to vote on the Plan. Holders of Allowed First Lien Debt Claims (or the permitted assigns or designees of such holders) shall receive their Pro Rata share of: (i) New Second Out Term Loans; and (ii) 96% of Newco Equity (subject to dilution by the Warrants and the Incentive Plans. The estimated recovery is 71%.
- Class 4 (“Second Lien Debt Claims”) is impaired and entitled to vote on the Plan. Holders shall receive their Pro Rata share of: (i) 4% of Newco Equity (subject to dilution by the Warrants and the Incentive Plans); (ii) the Tranche A Warrants; and (iii) the Tranche B Warrants. The estimated recovery is 3%.
- Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The expected recovery is 100%.
- Class 6 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
- Class 7 (“Intercompany Claims”) is impaired/unimpaired, deemed to accept or reject and not entitled to vote on the Plan.
- Class 8 (“Existing Parent Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
- Class 9 (“Other Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The expected recovery is 0%.
- Class 10 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept or reject, and not entitled to vote on the Plan.
On August 4, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 254].
- Class 3 (“First Lien Debt Claims”) 207 claims holders, representing $1,251,025,154.45 in amount and 100% in number, accepted the Plan.
- Class 4 (“Second Lien Debt Claims”) 55 claims holders, representing $625,535,100.47 in amount and 100% in number, accepted the Plan.
Prepetition and Post-Emergence Capital Structure
- FN4: Including accrued and unpaid interest.
- FN5: Subject to increase as may be agreed by the Consenting Creditors, including the Consenting First Lien Lenders that will provide the exit financing.
- FN6: As of the Petition Date, an aggregate principal balance of approximately $79.5 million of First Lien Revolving Loans remains outstanding and letters of credit with an aggregate face amount of approximately $500,000 have been issued.
- FN7: Expected upon finalization of terms.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Frederick Declaration”), John Frederick, the Debtors’ Chief Administrative Officer, detailed the events leading to the Debtors' Chapter 11 filing. The Frederick Declaration provides: “A combination of factors has led to the Company’s present restructuring. In recent years, the Company experienced customer attrition as a result of, among other reasons, steep market competition that has been exacerbated in recent years by the entry of global enterprise technology companies into the space in which the Company operates. The Company’s core markets have also seen aggressive growth from companies that provide free access to certain services that overlap with services that the Company provides its clients, serve as aggregators of services similar to those provided by the Company, and/or specialize in a subset of the services offered by the Company. The friction the Company has faced in adapting its business model to address market shifts in a timely matter, along with inconsistent growth across the Company’s core business segments and integration issues with recent acquisitions, such as SumTotal, have also limited the Company’s ability to use its resources to their full potential.
Like so many others, the Company is also facing adverse near-term business consequences from the macroeconomic effects of the COVID-19 pandemic. While the Company has been successful in operating under its business continuity plan and has kept its operations largely uninterrupted in the midst of this global crisis, COVID-19 has or may impact several of the Company’s key business initiatives, including Percipio migrations and content development. The Company and its advisors also project that COVID-19 may result in decreased order intake and delayed customer collections in FY21, which could decrease the Company’s operating liquidity significantly.”
The Disclosure Statement attached the following documents:
- Exhibit A: Plan
- Exhibit B: Organizational Chart
- Exhibit C: Liquidation Analysis
- Exhibit D: Financial Projections
The Debtors filed Plan Supplements [Docket Nos. 236, 255 and 263] which attached the following documents:
- Exhibit A: The New Corporate Governance Documents [Docket No. 236]
- Exhibit B: The directors to be appointed to the New Board and information required to be disclosed in accordance with section 1129(a)(5) of the Bankruptcy Code [Docket No. 255]
- Exhibit C: The Exit Credit Agreement term sheet [Docket No. 236]
- Exhibit D: The Warrant Agreement [Docket No. 236]
- Exhibit E: Rejected Executory Contract and Unexpired Lease List [Docket No. 236]
- Exhibit F: Schedule of retained Causes of Action [Docket No. 236]
- Exhibit G: The Exit A/R Facility Agreement term sheet [Docket No. 263]
- Exhibit H: The Restructuring Transaction Steps [Docket No. 236]
Liquidation Analysis (see Exhibit C of Disclosure Statement for notes)
About the Debtors
According to the Debtors: "Skillsoft delivers online learning, training, and talent solutions to help organizations unleash their edge. Leveraging immersive, engaging content, Skillsoft enables organizations to unlock the potential in their best assets – their people – and build teams with the skills they need for success. Empowering 36 million learners and counting, Skillsoft democratizes learning through an intelligent learning experience and a customized, learner-centric approach to skills development with resources for Leadership Development, Business Skills, Technology & Development, Digital Transformation, and Compliance."
Corporate Structure Chart (see Exhibit B of Disclosure Statement)
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