Deluxe Entertainment Services Group Inc. – Court Approves Further $60mn of DIP Financing (to Roll Into Exit Financing) as Post-Confirmation Debtors Prepare for Emergence

Register, or to view the article

October 25, 2019 – The Court hearing the Deluxe Entertainment Services cases issued a final order authorizing the Debtors to (i) access the $60.0mn  balance of a $115.0mn in debtor-in-possession (“DIP”) financing provided by an ad hoc committee of pre-petition term loan lenders (the "Ad Hoc Group") and (ii) continue using cash collateral [Docket No. 95]. The entirety of this DIP financing will be rolled into an exit financing facility (or paid with proceeds fom the exit facility), with the current tranche of $60.0mn available to the Debtors beginning one day before their emergence from Chapter 11. According to milestones set out in the DIP facility, the Debtors have 14 days to emerge from Plan confirmation, which occurred on October 25th.

In a press release announcing the Court's confirmation of their Plan, the Debtors stated: "Upon emergence from the pre-packaged Chapter 11 court process, the Company will have a much stronger balance sheet with significantly reduced leverage and enhanced liquidity, making it well-positioned to carry on its unparalleled legacy for many years to come. Following the implementation of the financial restructuring, Deluxe’s long-term debt will be reduced by well more than half, and the Company will have access to $115 million of new financing to support its ongoing operations and investments."

An October 7, 2019 interim order [Docket No. 30]  had previously made $55.0mn available to the Debtors  [Docket No. 30]); although this first tranche of DIP financing was designated as “new money,” the Debtors were obligated to repay their $14.0mn “Senior Priming Term Loans” from that $55.0mn amount.

As previously cited from the Debtors’ October 4th DIP motion [Docket No. 19], “The Plan, which is supported by holders of over 91% of the Debtors’ Priming Term Loans and approximately 70% of the Debtors’ Existing Term Loans, proposes to deleverage the Debtors’ balance sheet by approximately $800 million. To execute this value-maximizing transaction and fund these chapter 11 cases, however, the Debtors urgently need access to additional liquidity. As described in the Baird Declaration, the Debtors have only approximately $15 million in cash on hand as of the Petition Date. Accordingly, this Motion requests that the Court approve the $115 million superpriority term loan DIP Facility provided by the Ad Hoc Group.”

Key Terms of the DIP Financing

  • Borrower: Deluxe Entertainment Services Group Inc
  • Guarantors: DX Holdings LLC (“Holdings”) and all direct and indirect wholly-owned domestic and foreign subsidiaries of Holdings other than the Borrower (collectively with the Borrower, the “Loan Parties”).
  • DIP Lenders: Those DIP Lenders listed on Schedule 1 (the “Commitment Parties”) of that certain DIP Facility Commitment Letter dated September 3, 2019 (the “DIP Commitment Letter”).
  • DIP Agent: Credit Suisse Loan Funding LLC
  • DIP Backstop Parties: Those Commitment Parties that have agreed to backstop the DIP Facility in accordance with the terms of the DIP Commitment Letter.
  • DIP Commitments: The aggregate principal amount of $115.0mn:
    • In one draw on the business day immediately after the date of entry of the Interim Order, on which all conditions precedent are waived (the “Closing Date”) the Initial DIP Loan in such aggregate principal amount not exceeding $55,000,000; provided, that, to the extent that the Interim Order does not permit the obligations under the Senior Priming Term Loans (the “Senior Priming Obligations”) to be repaid, satisfied and discharged in full with proceeds of the Initial DIP Loan, the aggregate principal amount of the Initial DIP Loan shall be reduced by the amount of such accrued and unpaid Senior Priming Obligations that are not permitted to be so discharged; and
    • In one draw on the date that is immediately prior to the Effective Date (as defined in the RSA) the Final DIP Loan in an aggregate principal amount equal to the lesser of (i) $60,000,000 plus the aggregate amount (if any) of Senior Priming Obligations that were not repaid, satisfied and discharged in full with proceeds of Initial DIP Loan.
  • Maturity: All unfunded DIP Commitments will terminate, and all DIP Obligations (as defined below) will be immediately due and payable in full in cash on the earliest of: 
    • The first anniversary of the Closing Date (the “Maturity Date”);
    • The Final Order has not been entered by the Bankruptcy Court on or before the date that is thirty-five (35) calendar days after the Petition Date, on such date;
    • The date of consummation of any sale of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code;
    • The date of acceleration of the DIP Loans and the termination of the DIP Commitments upon the occurrence of an Event of Default (as defined in the Interim Order) pursuant to the terms of the DIP Credit Agreement; and
    • The Effective Date; provided, that subject to the approval by the Bankruptcy Court of the Plan and subject further to, and in accordance with, the RSA, DIP Obligations may be satisfied and discharged on the Effective Date pursuant to a refinancing thereof with proceeds of, or (as the case may be) a roll thereof into an exit financing facility as outlined in the DIP Credit Agreement.
  • Interest Rate: Interest is payable at LIBOR, subject to a 1.00% floor, plus 7.50%;
  • Default Rate: Non-default interest rate plus an additional 2.00% on the DIP Loans payable in cash, on demand.

Prepetition Capital Structure

As of October 2, 2019, the Debtors are obligors (either as borrower or guarantor) on a  principal amount of pre-petition funded indebtedness totaling approximately $1,105.0mn, as summarized below:

Debt Instrument (as defined herein)

Facility Size

Maturity Date

Outstanding Principal Amount

ABL Loans

$102.5mn

November 29, 2019

$56.35mn

Senior Priming Term Loans

$14mn

February 26, 2020

$10mn

Priming Term Loans

$73mn

February 27, 2020

$73mn

Existing Term Loans

$880mn

February 28, 2020

$783.5mn

MAFCO Secured Note

$4.75mn

Demand

$4.75mn

Canadian Loans

$50mn

December 7, 2020

$49.2mn

Australian Loans

A$20mn

N/A

A$15mn

MAFCO Unsecured Debt

$132mn

Various dates in 2020

$117.75mn

Total

$1,105.0mn

About the Debtors

According to the Debtors, "Deluxe Entertainment Services Group (Deluxe) is the world's leading video creation to distribution company offering global, end-to-end services and technology. Through unmatched scale, technology and capabilities, Deluxe enables the worldwide market for premium content. The world's leading content creators, broadcasters, OTTs and distributors rely on Deluxe's experience and expertise. With headquarters in Los Angeles and New York and operations in 38 key media markets worldwide, the company relies on the talents of more than 7,500 of the industry's premier artists, experts, engineers and innovators."

The Disclosure Statement provides: "DESG, together with its Debtor and non-Debtor affiliates, is among the world’s leading content creation-to-distribution companies, utilizing their scale, technology, and expertise to enable the worldwide market for professionally created content. The Debtors have been trusted partners to Hollywood studios, independent filmmakers, television networks, online content producers, brands, and anyone looking to bring stories and experiences to audiences for more than 100 years. Providing one of the industry’s most comprehensive suite of end-to-end digital media services, the Debtors believe they are uniquely positioned to transform, manage, localize and deliver content to any type of device at any time.

In 2006, the Debtors were acquired by MacAndrews & Forbes Media Group Inc. (“MAFCO”), which remains the sole equity owner today. 

The Debtors broadly operate their business in two primary segments: Distribution and Creative. The Distribution business focuses on the transformation, management and delivery of content to any screen around the globe, and consists primarily of the following business lines: Localization (e.g., subtitling and dubbing content for assorted languages), delivery operations (e.g., physical and digital fulfillment services and playout services), and digital cinema services (e.g., mastering and distribution of content for cinemas), which business lines are supported by the Debtors’ cloud-based platform, Deluxe One. Launched in late 2018, Deluxe One is a cloud-based platform that simplifies how clients’ content is created, stored and delivered to audiences. Through the platform, content creators and distributors can integrate their systems and vendors using Deluxe One’s open-API architecture, providing a central hub to manage virtually every step of the workflow from creation to delivery.

Read more Bankruptcy News