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September 2, 2022 – The Debtors filed a First Amended Combined Plan and Disclosure Statement, (the “Combined Document”) which attaches a redline showing changes from the version filed on June 3, 2022 [Docket No. 627].
The Combined Document reflects developments in the Debtors' sale process which has borne modest fruit and which has otherwise pushed out now revised Plan and sale milestones (see below). As a result, what was a "toggle" Plan has now become a sale-based Plan (dropping a possible equitization path) albeit with some elements of a reorganization still a possibility in that if "the Debtors’ Eagle assets are not sold, the Debtors intend to reorganize around the Eagle business and any other remaining assets."
The asset sale process may have found buyers for two of the Debtors' three business lines, but not at prices that will see recoveries for most classes. The disappointing sale results (albeit apparently still preferable to a full equitization path) mean that some senior prepetition debt that had been promoted further to the Debtors' debtor-in-possession ("DIP") financing arrangements will be "un-rolled," ie lose that promotion. The Combined Document provides on this unusual reversal:
"[The] sale process did not produce bids at a value in excess of the two senior most tranches of the Term Loan DIP Facility, i.e. the Tranche A Term Loan DIP Facility Claims and the Tranche B Term Loan DIP Facility Claims (including any potential bid for the Debtors’ remaining Eagle assets). As a result, pursuant to the “Roll-Up Recharacterization” provision of the Final DIP Order, the full amount of the Tranche C Term Loan DIP Facility Claims will be deemed to be “un-rolled” and restored as prepetition Second Lien Credit Agreement Claims."
As such, the Plan now also now drops Class 7 ("Term Loan Deficiency Claims") and treats three further classes, including second lien and general unsecureds classes, as deemed to reject and not entitled to vote.
UPDATE: On September 7th, the Court hearing the Sungard AS New Holdings cases issued an order approving: (i) the Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in an October 3rd combined hearing [Docket No. 635].
The amended combined document [Docket No. 627] notes, “In February 2022, when it became evident that a more comprehensive restructuring of the Company would be required, the Debtors retained restructuring advisors to assist with the development of possible restructuring alternatives. The Debtors, with the assistance of these advisors, explored various alternatives, including whether it was practicable to effectuate an out-of-court restructuring, and ultimately determined that an in-court restructuring was necessary. The Debtors began negotiations regarding potential restructuring transactions with the Ad Hoc Group in March 2022. These good-faith negotiations resulted in the applicable parties’ entry into the Restructuring Support Agreement, which is attached hereto as Exhibit B. In addition, as set forth above, in order to ensure a smooth landing into chapter 11, the Debtors obtained additional liquidity from certain members of the Ad Hoc Group in the form of the Bridge Financing in the amount of $7 million prior to commencing the Chapter 11 Cases. On April 11, 2022, the Debtors entered into the Restructuring Support Agreement with First Lien Lenders holding in excess of 80% of the term loans under the First Lien Credit Agreement and Second Lien Lenders holding in excess of 80% of the term loans under the Second Lien Credit Agreement. The Restructuring Support Agreement contemplated, among other things, that the Debtors would run a comprehensive sale process for a sale of all or any subset of their assets and would implement a chapter 11 plan pursuant to which (i) any Sale Proceeds would be distributed and (ii) the Debtors would reorganize around any assets and/or business lines not sold and would distribute Reorganized Debtor Equity to Holders of Term Loan DIP Claims and, as applicable, Credit Agreement Claims on account thereof.
On May 11, 2022 and August 8, 2022, the Debtors entered into amendments to the Restructuring Support Agreement, which, among other things, extended certain milestones for the restructuring and sale process.”
As revised, the Plan now drops Class 7 ("Term Loan Deficiency Claims") and treats three further classes as deemed to reject and not entitled to vote as summarized below:
The following is an amended/updated summary of classes, claims, voting rights and expected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement; as of September 1st, a Liquidation Analysis had not been filed):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $15.7mn and expected recovery is 100%.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“First Lien Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is approximately $10.71mnFN1 and estimated recovery is [.]%FN2. Holder shall receive: (i) in event of the Eagle Sale Scenario, its Pro Rata share of the First Lien Sale Consideration plus such Holder’s Pro Rata share of any additional Cash and/or proceeds of any assets not included in the Sale Transactions available after repayment of the Term Loan DIP Facility Claims in full up to the Allowed Amount of such Holder’s First Lien Credit Agreement Claims; or (iii) in the event of the Equitization Scenario, its Pro Rata share of the First Lien Equity Consideration as set forth in the Equity Allocation Schedule.
FN1: As of the Petition Date, approximately $108,233,409.28 in principal amount was outstanding under the First Lien Credit Agreement (inclusive of the Bridge Financing). The amount of Allowed First Lien Credit Agreement Claims is estimated as of the date of the filing of this Plan and Disclosure Statement and accounts for the repayment of the Bridge Financing and roll-up of certain First Lien Credit Agreement Claims into Term Loan DIP Facility Claims pursuant to the Final DIP Order. The final Allowed Amount of First Lien Credit Agreement Claims is subject to change in accordance with the “Roll-Up Recharacterization” provision in the Final DIP Order and will be determined in connection with the filing of the Plan Supplement to be filed with the Bankruptcy Court no later than seven (7) days in advance of the Voting Deadline .
FN2: The estimated recovery for Class 3 will be provided in connection with the Plan Supplement to be filed with the Bankruptcy Court no later than seven (7) days in advance of the Voting Deadline.
- Class 4 (“Second Lien Credit Agreement Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 5 (“Non-Extending Second Lien Credit Agreement Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 6 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 8 (“Intercompany Claims”) is unimpaired / impaired and presumed to accept / deemed to reject on the Plan.
- Class 9 (“Intercompany Interests”) is unimpaired / impaired and presumed to accept / deemed to reject on the Plan.
- Class 10 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
In settlement of disputes with the Committee relating to entry of Final DIP Order, the Debtors, the Committee and the Required Consenting Stakeholders agreed to a global resolution of various matters in connection with the Debtors’ restructuring (the “Global Settlement”). The relevant components of the Global Settlement are as follows (the terms of which are summarized below but qualified by the terms of the Final DIP Order and specifically paragraph 49 of the Final DIP Order):
- The Required Consenting Stakeholders agreed to fund the Wind Down Amount.
- The Required Consenting Stakeholders agreed to fund an amount up to $4,050,000 on account of accrued, unpaid and allowed claims for postpetition rent for the period between April 11, 2022 and April 30, 2022 for any commercial real property lease to be paid promptly upon such allowance either as part of Cure Costs (as defined in the Bidding Procedures Order) or from the cash sale proceeds realized from one or more Sale Transactions, subject to a dollar-for-dollar reduction if such lease is assumed by a Successful Bidder, satisfied pursuant to any asset purchase agreement, or consensually agreed to by a landlord.
- The Required Consenting Stakeholders agreed to fund an amount up to $781,000 on account of claims subject to Bankruptcy Code section 503(b)(9) (the “503(b)(9) Claims”), subject to a dollarfor-dollar reduction to the extent any 503(b)(9) Claim is disallowed, reduced by agreement or court order, assumed by a successful bidder or otherwise satisfied during the Chapter 11 Cases (in the Debtors’ business judgment) or pursuant to another provision of an asset purchase agreement.
- Avoidance Actions shall be excluded from any sale of the Debtors’ assets with a commitment of the Debtors not to prosecute such actions or, if sold as part of a Sale Transaction, subject to a covenant not to sue.
- No General Unsecured Creditor will receive a distribution where the recovery to such General Unsecured Creditor exceeds the percentage recovery on the Tranche C Term Loan DIP Facility Claims, excluding General Unsecured Creditors paid under any Final Order approving First Day Pleading, any General Unsecured Creditor whose lease or contract is assumed, or any General Unsecured Creditor that has an alternative source of recovery from outside the Debtors’ Estates.
… under the Global Settlement, the Debtors, the Required Consenting Stakeholders and the Committee agreed that no General Unsecured Creditor would receive a distribution in excess of the recovery for holders of Tranche C Term Loan DIP Facility Claims (the junior most tranche of the Term Loan DIP Facility). Despite an extensive Court-approved marketing process, such sale process did not produce bids at a value in excess of the two senior most tranches of the Term Loan DIP Facility, i.e. the Tranche A Term Loan DIP Facility Claims and the Tranche B Term Loan DIP Facility Claims (including any potential bid for the Debtors’ remaining Eagle assets). As a result, pursuant to the “Roll-Up Recharacterization” provision of the Final DIP Order, the full amount of the Tranche C Term Loan DIP Facility Claims will be deemed to be “un-rolled” and restored as prepetition Second Lien Credit Agreement Claims. The Tranche B Term Loan DIP Facility Claims will also be subject to the Roll-Up Recharacterization as prepetition First Lien Credit Agreement Claims to the extent that they are ultimately determined to have exceeded the value realizable by the Term Loan DIP Lenders under the Plan. As such, because the Debtors’ restructuring process (inclusive of any Sale Transactions consummated) are not expected to result in value in excess of the Tranche A Term Loan DIP Facility Claims and Tranche B Term Loan DIP Facility Claims, the holders of Tranche C Term Loan DIP Facility Claims will not receive any recovery pursuant to the Plan. Although the Global Settlement contemplated a potential small cash distribution for General Unsecured Creditors, such distribution was contingent on the holders of Tranche C Term Loan DIP Facility Claims receiving a distribution pursuant to the Plan. Therefore, General Unsecured Creditors are not entitled to any recovery under the Global Settlement.
On August 31, 2022, further to a May 11th bidding procedure order [Docket No. 219] and an August 31st sale hearing, the Court hearing Sungard AS New Holdings cases issued an order approving the sale of “the majority of the Debtors’ U.S. colocation services and network services” to 365 SG Operating Company LLC (the “Purchaser,” $52.5mn credit bid) [Docket No. 607]. The Purchaser’s APA is attached to the order at Exhibit 1.
The Purchaser is an affiliate of 365 Data Centers which was acquired by Stonecourt Capital in November 2020. 365 Data Centers describes itself as: "365 Data Centers is a leading network centric colocation provider operating 13 carrier-neutral data centers located in strategic, primarily edge markets. We offer a comprehensive suite of solutions that includes secure and reliable edge colocation, nationwide network connectivity, cloud compute and storage, DRaaS, BaaS, and business continuity services.
There are two further asset groupings which the Debtors are looking to sell; with one, their cloud and managed (CMS) services unit, at an advanced stage.
The Combined Document now provides: "On August 31, 2022, the Bankruptcy Court approved the sale of the Debtors’ U.S. colocation services, network services and workplace services assets to 365 Data Centers and the Debtors are seeking approval of a sale of their North American cloud and managed services and mainframe as a service assets to 11:11 Systems, Inc…The Debtors also remain engaged in discussions regarding a potential sale transaction for the Debtors’ data recovery business and related assets (i.e, the Eagle assets). To the extent the Debtors’ Eagle assets are not sold, the Debtors intend to reorganize around the Eagle business and any other remaining assets. In the event that the Debtors determine to proceed with an Eagle Sale Transaction, it is not anticipated that the value resulting from the consummation of such sale would be sufficient to satisfy the First Lien Credit Agreement Claims in full.
Updated Key Dates
Plan Confirmation Timeline
- Conditional approval of Disclosure Statement: September 8, 2022
- Plan and Disclosure Statement Objection Deadline: September 26, 2022
- Confirmation Order: October 5, 2022
- Effective Date: October 7, 2022
- Entry of Sale Order: September 14, 2022
- Execution of transition services agreement(s) between the Debtors and purchasers of Bravo and CMS: September 21, 2022
- Execution of a Purchase Agreement for the sale of Pantheon, with a purchase price reasonably acceptable to the Required Consenting Stakeholders: September 30, 2022
- Closing of Bravo Sale Transaction: October 7, 2022
- Closing of CMS Sale Transaction: October 7, 2022
- Closing of Pantheon Sale Transaction: October 7, 2022
Updated Key Documents
The Disclosure Statement [Docket No. 627] attaches the following exhibits:
- Exhibit A: Organizational Structure
- Exhibit B: Restructuring Support Agreement
About the Debtors
According to the Debtors: “Sungard Availability Services (Sungard AS) is a leading provider of cloud connected infrastructure solutions serving enterprise customers from 75 hardened data centers and workplace recovery facilities in nine countries. Sungard AS has a 40-year track record of delivering resilient and highly available hybrid IT solutions. Backed by high-performance networks, Sungard AS modernizes customers’ end-to-end IT across connected infrastructure, cloud, recovery and workplace solutions. Working with customers to understand their business objectives, Sungard AS identifies gaps in customers’ current environments and tailors a solution to achieve their desired business outcomes."
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