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March 11, 2021 – The Debtors notified the Court that their Third Amended Plan became effective as of March 11, 2021 [Docket No. 1498]. The Court had previously confirmed the Debtors’ Plan on January 22, 2021 [Docket No. 1397].
On April 23, 2020, SpeedCast International Limited and 32 affiliated Debtors (formerly listed on Australia’s ASX, ticker “SDA,” “Speedcast” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-10343. At filing, the Debtors, an international remote communications and information technology services provider, noted estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn ($689.1mn of funded debt). In a subsequently filed Schedule A/B, the lead Debtor noted $588.7mn of assets and $713.8mn of liabilities [Docket No. 367].
The Debtors were represented by (i) Weil, Gotshal & Manges LLP as local bankruptcy counsel, (ii) Herbert Smith Freehills as bankruptcy counsel, (iii) FTI Consulting, Inc. as financial advisors (and supplying a chief restructuring officer), (iv) Moelis Australia Advisory Pty Ltd and Moelis & Company LLC as investment bankers and (v) Kurtzman Carson Consultants as claims agent.
In a press release announcing the emergence the Debtors commented, “Speedcast has successfully completed its restructuring process and today emerged from chapter 11 proceedings under the ownership of Centerbridge Partners, L.P. Following Centerbridge’s USD $500 million equity investment in the company, Speedcast now has a clean balance sheet with no secured debt and a healthy cash balance, optimally positioning it as a stable, long-term partner for its employees, customers and vendors.
Over the past 12 months, Speedcast has taken meaningful steps to reduce its cost structure and strengthen its operations. Now under new ownership, the company is moving forward on the course it set to transform its business and help customers evolve what their remote operations can achieve with fully connected systems that harness future-ready technologies and applications. Part of this effort includes integrating the company’s previous mobility networks to build a comprehensive, unified global platform capable of supporting the most demanding customer operations and digital transformation requirements.”
Administrative claims are due by Monday April 12, 2021 (30 days after effectiveness with that date falling on a weekend, ie Saturday April 10th)
Overview of the Plan (all subject to revisions included in the Settlement Agreement as described below)
The Disclosure Statement [Docket No. 893] notes, “The Plan provides for a comprehensive restructuring of the Debtors’ balance sheet and corporate organizational structure and a significant investment of capital in the Debtors’ business. The transactions contemplated in the Plan will strengthen the Company by substantially reducing its debt and increasing its cash flow on a go-forward basis and preserving approximately 900 jobs. Specifically, the proposed restructuring contemplates, among other things:
- a complete discharge of the Company’s debt under the Syndicated Facility Agreement in the amount of approximately $633.9 million;
- a Plan Sponsor Selection Process that will run simultaneously with the solicitation of the Plan, with the goal of securing potentially higher recoveries for the Debtors’ creditors;
- a $500 million equity investment provided by the Plan Sponsor in cash (or such greater amount as may be determined pursuant to the Plan Sponsor Selection Process);
- a $150 million recovery to holders of Allowed Syndicated Facility Secured Claims in cash (or such greater recovery as may be determined pursuant to the Plan Sponsor Selection Process);
- a $25 million recovery to holders of Unsecured Trade Claims in cash; an establishment of a Litigation Trust for the benefit of Other Unsecured Claims.”
Black Diamond Settlement
The Plan confirmation order attaches the January 20, 2021 Settlement Agreement (Docket No. 1397 at Exhibit B with term sheet at p.151 of pdf) by and among the Debtors, Black Diamond Commercial Finance, L.L.C., Black Diamond Capital Management, L.L.C., and Centerbridge Partners, L.P (Black Diamond and Centerbridge having been at each others throats from the outset). The headline term of the settlement is Centerbridge's agreement to purchase approximately $400.0mn of term loan and revolver syndicated facility claims from Black Diamond for almost $72.0mn plus a redacted settlement fee.
The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Syndicated Facility Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $150.0mn and expected recovery is 100%. On the Effective Date, except to the extent that a holder of an Allowed Syndicated Facility Secured Claim agrees to different treatment, each holder of an Allowed Syndicated Facility Secured Claim as of the Class 3 Trust Record Date shall receive, on account of such Allowed Syndicated Facility Secured Claim as of the Class 3 Trust Record Date, its Pro Rata share of the Class 3 Trust Interests. Centerbridge Partners, L.P., on behalf of itself and its controlled affiliates and any funds advised or managed thereby, irrevocably and forever disclaims and waives any r ight it or they have to receive any Class 3 Trust Interests on the Effective Date.
- Class 4A (“Unsecured Trade Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $67.0mn – $93.0mn and expected recovery is 27% – 37%. Each Holder shall receive its Pro Rata share of the Trade Claim Cash Amount in Cash.
- Class 4B (“Other Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $507.0mn – $516.0mn and expected recovery is ≥0%. Other Unsecured Claims include Syndicated Facility Deficiency Claims in an aggregate amount of approximately $483.0mn.
- Class 5 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is TBD and expected recovery is 100%/0%.
- Class 6 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is TBD and expected recovery is 0%.
- Class 7 (“Parent Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is TBD and expected recovery is 0%.
- Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is TBD and expected recovery is 0%.
On December 16, 2020, the claims agent notified the Court of the Plan voting results [Docket No. 1113], which were as follows:
- Class 3 (“Syndicated Facility Secured Claims”): 25 claim holders, representing $297,540,759.26 (or 49.63%) in amount and 78.12% in number, accepted the Plan. 7 claim holders, representing $301,947,939.20 (or 50.37%) in amount and 21.88% in number, rejected the Plan.
- Class 4A (“Unsecured Trade Claims”): 6 claim holders, representing $495,524.87 in amount and 100% in number, accepted the Plan.
- Class 4B (“Other Unsecured Claims”): 47 claim holders, representing $228,084,700.66 (or 49.75%) in amount and 83.93% in number, accepted the Plan. 9 claim holders, representing $230,366,855.76 (or 50.25%) in amount and 16.07% in number, rejected the Plan.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Healy Declaration”), Michael Healy, the Debtors' Chief Restructuring Officerposition] detailed the events leading to Speedcat's Chapter 11 filing. The Healy Declaration states: "To capture the potential synergies and margins possibly arising from the Company’s recent growth, the Company was pursuing an operational transformation plan (the ‘Transformation Plan’) that contemplated an equity raise and internal reorganization that would maximize the value of the enterprise on a go-forward basis. Despite its efforts, a number of factors throughout 2019 contributed to the lower than expected financial results, including (i) compressions in margin, (ii) higher than expected revenue declines in Speedcast’s Globecomm business compared to the initial investment case, (iii) cost-saving measures hampering the realization of integration scale benefits, (iv) key customer profitability issues, and (v) financial stress impacting relationships and improvement programs.
Further, the lasting and distressed market conditions in the maritime and oil and gas industries, and the recent and dramatic impact of the COVID-19 pandemic, have impacted all players in the global marketplace. The Company has been particularly hard hit by these adverse market conditions. The outsized impact on the Company’s Maritime Business and Energy Business customers has manifested in a dramatic reduction in cash receipts. This macroeconomic downturn, along with the above-mentioned headwinds that contributed to the lower than expected FY19 financial results, made clear that the Company would not satisfy the Net Leverage Covenant under the Credit Agreement.
On May 20, 2020, the Court hearing the SpeedCast International Limited cases issued a final order authorizing the Debtors to (i) access a further $55.0mn of new money debtor-in-possession (“DIP”) financing and (ii) continue using cash collateral [Docket No. 239]. In an April 23rd order, the Court had granted interim access to $35.0mn of the new money DIP financing [Docket No. 49].
As of the Petition date, the Debtors have outstanding funded debt obligations in the aggregate amount of approximately $689.1mn, which amount consists of (i) approximately $87.7mn of borrowings under a revolving credit facility, (ii) approximately $591.4m in term loans and (iii) an approximately $10.6mn in prepetition credit facility outstanding letters of credit.
The Debtors' Disclosure Statement [Docket No. 810] attached the following documents:
- Exhibit A: Plan
- Exhibit B: Organizational Chart
- Exhibit C: Equity Commitment Agreement
- Exhibit D: Liquidation Analysis
- Exhibit E: Financial Projections
- Exhibit F: Valuation Analysis
- Exhibit G: Release Provisions
- Exhibit H: Plan Sponsor Selection Procedures
- Exhibit I: Creditors’ Committee Recommendation Letter
- Exhibit J: Class 4A Unsecured Trade Creditors
The Debtors filed Plan Supplements at Docket Nos. 1011, 1144, 1384 and 1496 which attached the following:
- Exhibit A: Term Sheet of Key Terms of New Organization Documents [Docket No. 1011]
- Exhibit B: Litigation Trust Agreement [Docket No. 1144]
- Exhibit C: Schedule of Retained Causes of Action [Docket No. 1144]
- Exhibit D: Non-Released Party Exhibit [Docket No. 1011]
- Exhibit E: Schedule of Assumed and Rejected Contracts [Docket No. 1496]
- Exhibit F: Restructuring Steps Memorandum [Docket No. 1384]
- Exhibit G: Class 3 Trust Agreement [Docket No. 1384]
- Exhibit G [also]: Initial Board of Directors, Managers or Officers of New Speedcast Parent [Docket No. 1144]
Background on Black Diamond and Centerbridge Dispute
In a December 17, 2020 Memorandum in Support of Confirmation of their Second Amended Plan, the Debtors responded to an outstanding objection raised by Black Diamond and asked the Court to overrule the objection [Docket No. 1143].
The Debtors put specific emphasis on rebutting one of a list of concerns that Black Diamond raised in connection with proposed Plan confirmation, namely Black Diamond's contention that its credit bidding rights have been denied. Specifically, the Debtors explained in the memorandum, "…[T]his confirmation dispute involves Speedcast’s fundamental right to prosecute its chapter 11 reorganization. Black Diamond’s contention that it has a right to credit bid its claims is not supported by the factual record or the law. The Bankruptcy Code does not obligate a debtor to provide a secured creditor the opportunity to credit bid. Even so, Speedcast, through its Plan Sponsor Selection Procedures (as defined below) and direct communication with Black Diamond, in an effort to find the best chapter 11 exit, made Herculean efforts to afford Black Diamond the ability to pursue a credit bid transaction in the face of the substantial challenges posed by a sale structure. Speedcast led the horse to water and it did not drink."
The memorandum states, "Having successfully financed, stabilized and protected its businesses through these chapter 11 cases, Speedcast now proposes a recapitalization and reorganization plan utilizing chapter 11 tools to effect the most efficient emergence possible within the liquidity timeframe afforded to it by its bankruptcy financing. Only one objector remains: Black Diamond…Reorganized Speedcast will emerge from these chapter 11 proceedings with no funded debt, having eliminated all of its funded debt through the Plan, and financed by an equity recapitalization from Centerbridge Partners, L.P. ('Centerbridge'). Through the Plan, Speedcast also seeks to redomicile from Australia to the United States, so that its business is better aligned with its core markets and customers. Speedcast seeks to reorganize as an enterprise, and this Plan is the only actionable restructuring path available to it."
Additionally, the memorandum provides background that indicates that Black Diamond has been in a battle to cement its position and get its way in the Debtors' cases from the outset.
According to the memorandum, "During the course of July and August of 2020, the Company became caught in an internecine feud among its two largest lenders, Black Diamond Capital Management L.L.C. ('Black Diamond') and Centerbridge over the appropriate restructuring path for the Company to pursue. Following Speedcast’s chapter 11 filing, both lenders sought to consolidate their positions in the Company’s prepetition Syndicated Facility Agreement (as amended, restated, supplemented or otherwise modified from time to time, the 'SFA') and today hold almost all of the Company’s SFA claims. This debt trading, coupled with the inability to reach agreement on Speedcast’s restructuring among themselves, paralyzed the Company’s restructuring process. The consent rights of the Company’s initial debtor in possession (“DIP”) lenders (the 'Initial DIP Facility,' and the lenders thereunder, the 'Initial DIP Lenders') and SFA lenders (together with the Initial DIP Lenders, the 'Lenders') over the terms of an 'Acceptable Restructuring' in the DIP meant the Company could not progress its restructuring without their consent. Plan filing milestones were extended by the Lenders for over three months while they remain deadlocked.
With a looming liquidity wall and cognizant of the risk of not being able to complete a restructuring transaction within its liquidity timeframe, Speedcast refinanced its existing DIP loans and repaid them in full in cash, with a refinancing DIP loan from Centerbridge that paid off the rolled-up portion of the existing Initial DIP Facility in the process (the 'Refinanced DIP Facility'). Importantly, the Refinanced DIP Facility allowed Speedcast to pursue any transaction that the Company’s Board determined was in the best interest of all creditors. That transaction is before the Court today, and comes on the heels of a competitive process between Black Diamond and Centerbridge that has yielded ever higher values for all of Company’s creditors. That competitive process was then followed by a further competitive market test in which the Company sought higher and better binding transactions to the one it had reached with Centerbridge."
Centerbridge was chosen as plan sponsor, and Black Diamond continued to plead its case that the Debtors' Plan should not be confirmed.
Black Diamond Objection
The memorandum further states, "Remarkably, for a case of this size and complexity, only two objections were filed to confirmation of the Plan, and only one objection remains outstanding. One significant creditor – Black Diamond – objects to the Company’s chapter 11 plan. Black Diamond’s objection is replete with references to a proposal that is not before the Court today, the Initial ECA (as defined below), a proposal that was never ultimately pursued. At the beginning of August 2020, the Initial ECA was the only viable restructuring transaction available to the Debtors. The Debtors’ negotiations over the Initial ECA stimulated competitive bidding between Black Diamond and Centerbridge over an exit transaction for the Company culminating in the Plan before the Court today for confirmation, a transaction that has also been the subject of a market test.
Black Diamond objects to confirmation of the Plan on the basis that the Plan:
- denies Black Diamond credit bidding rights;
- impairs Class 3 Claims by paying such Claims in the amount allowed by the Court under section 506(a) of the Bankruptcy Code;
- violates the absolute priority rule due to reinstatement of intercompany claims and subsidiary stock interests;
- improperly classifies certain trade creditors separately from other general unsecured creditors, including the deficiency claim of the prepetition secured lenders as a result of the 506 bifurcation;
- proposes substantive consolidation of certain Debtor entities; and
- contains impermissible releases in favor of non-debtors.
Debtors Push Back
Each of these objections should be overruled. First, this confirmation dispute involves Speedcast’s fundamental right to prosecute its chapter 11 reorganization. Black Diamond’s contention that it has a right to credit bid its claims is not supported by the factual record or the law. The Bankruptcy Code does not obligate a debtor to provide a secured creditor the opportunity to credit bid. Even so, Speedcast, through its Plan Sponsor Selection Procedures (as defined below) and direct communication with Black Diamond, in an effort to find the best chapter 11 exit, made Herculean efforts to afford Black Diamond the ability to pursue a credit bid transaction in the face of the substantial challenges posed by a sale structure. Speedcast led the horse to water and it did not drink.
Black Diamond believes that, by virtue of an alleged right to credit bid, which it did not attempt to exercise, it is entitled to divest Speedcast and all of its stakeholders of the freedom to consider any plan of reorganization other than one Black Diamond sponsors. This argument is beyond any credible reading of section 1129 of the Bankruptcy Code and the attendant case law and is antithetical to the principles of chapter 11. Testimony will show that early on in these chapter 11 proceedings, Speedcast was required by its Lenders, including Black Diamond, to determine the value maximizing path out of chapter 11. Speedcast determined, as communicated to its Lenders, including Black Diamond, through a written report, that material benefits would be achieved by a recapitalization transaction maintaining and respecting the Company’s corporate structure, as compared to conducting asset sales at every legal entity….
Speedcast estimated that selecting the appropriate restructuring process – a plan of reorganization – would achieve the preservation of significant tax attributes for the benefit of reorganized Speedcast and significantly lower transaction costs by approximately $100 million. As will be detailed through testimony at confirmation, Speedcast pursued a process to solicit higher or better proposals from potential Plan Sponsors to the ECA transaction it had from Centerbridge. To facilitate Black Diamond’s participation in the process set forth in the Plan Sponsor Selection Procedures (the 'Plan Sponsor Selection Process'), Speedcast also provided Black Diamond with bespoke treatment, allowing it to use the value of its secured claims as currency in the Plan Sponsor Selection Process, a benefit not afforded to Centerbridge. Further, Speedcast’s equity commitment agreement with Centerbridge contains a customary 'fiduciary out,' a fact that was communicated to Black Diamond repeatedly in writing, and which Black Diamond has been aware of since the withdrawal of the Initial ECA Motion (as defined below) in August. Accordingly, Speedcast has always had the ability to accept and pursue a binding proposal from Black Diamond for a sale of the Company through a credit bid and this ability was communicated to Black Diamond.
Despite this knowledge, Black Diamond only provided Non-Binding Indications of Interest (as defined below) during the Plan Sponsor Selection Process, despite repeated calls and written requests for detailed commitments and the terms of binding transaction documents. Of equal importance, the transaction embodied in the Plan is a classic recapitalization, with traditional recapitalization hallmarks including that a plan sponsor makes an investment into the Debtors pursuant to which the Debtors’ legal entities remain in place, the debt is compromised, the equity of the very same debtor entities is reissued to the Plan Sponsor based on values judicially determined and the plan is determined to be fair and equitable and not unfairly discriminatory….
For the reasons set forth above and herein, and the evidence to be adduced at confirmation, the Court should overrule the Black Diamond Objection and confirm Speedcast’s Plan. The alternative, should the Court not confirm this plan, is a sale process that will likely yield no different outcome, other than disenfranchisement and a reduction in the recovery to creditors."
Liquidation Analysis (see Exhibit D of Disclosure Statement [Docket No. 893] for notes)
About the Debtors
The Debtors are an international remote communications and information technology (“IT”) services provider focused on delivering communications solutions through a multi-access technology, multi-band, and multi-orbit network of more than 80 satellites and interconnecting global terrestrial network, bolstered by extensive on-the-ground local support in more than 40 countries. The Debtors provide managed information services with differentiated technology offerings, including cybersecurity, crew welfare, content solutions, data and voice applications, Internet of Things (“IoT”) solutions and network systems integration services. The Debtors' primary customers are in the cruise, energy, government, and commercial maritime businesses.
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