Fuse, LLC – Court Confirms Prepackaged Plan as Noteholders Swap $242mn of Debt for Ownership of Youth Entertainment Platform

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June 18, 2019 – The Court hearing the Fuse, LLC cases issued an order (i) approving the Debtors’ Disclosure Statement and (ii) confirming the Debtors' Amended Prepackaged Joint Plan of Reorganization [Docket No. 251].

On April 22, 2019, Fuse, LLC and eight affiliated Debtors (“Fuse” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10872. The Debtors' lead petition noted between 200 and 1,000 creditors, estimated assets of $201.2mn and estimated liabilities of $242.0mn.

Overview of Prepackaged Plan

The Disclosure Statement provides the following overview of the Plan and its restructuring goals: "After months of active and arm’s-length negotiations, the Company, in consultation with its advisors, reached agreement on the terms of the Plan with the Supporting Noteholders, representing a substantial majority by principal amount of the Holders of Senior Secured Notes Claims….Because Holders of Senior Secured Notes Claims are the only impaired creditor Class not deemed to reject under the Plan, only such Holders are entitled to vote on the Plan….Through confirmation of the Plan, the Company will restructure and substantially deleverage its balance sheet; reduce its cash interest expense to a level that is aligned with its expected future cash flows; and retain additional flexibility to maximize enterprise value on a going forward basis. With respect to the Debtors’ Litigation Claims, a new Fuse Litigation Trust will be created in order to evaluate and pursue any viable Litigation Claims of the Estates. 

The Debtors expect that the Plan will have the support of Holders of approximately 82.5% in principal amount of the Senior Secured Notes. Under the Plan, the Senior Secured Notes will be exchanged for (a) Cash in the Debtors’ accounts, except for Cash needed in the Reorganized Debtors’ operations as mutually agreed upon by the Debtors and the Supporting Noteholders, (b) the New Secured Debt consisting of the $45 million term loan facility, (c) 100% of the New Membership Interests of Reorganized Parent, and (d) 100% of the Litigation Trust Interests in the Fuse Litigation Trust. Allowed Other Secured Debt Claims either will be reinstated or paid in full under the Plan, or will receive the Collateral securing such claims….Because the Debtors have pledged substantially all of their assets that have any material value as Collateral to secure the Senior Secured Notes Claims and no unencumbered assets in the Estates have any material value (taking into account the deficiency claims arising under the Senior Secured Notes and the Administrative Expense Claims that the Holders of the Senior Secured Notes are expected to assert for the diminution in the value of their Collateral during the Chapter 11 Cases), the Holders of Class 4 General Unsecured Claims will receive no distributions under the Plan. Equity Interests in the Debtors will be extinguished. However, such Equity Interests shall be reinstated upon the Effective Date and deemed issued to and held by Reorganized Parent, directly or indirectly as applicable, as such Equity Interests were held prior to the Effective Date (except for the Equity Interests of Fuse, LLC, which shall be held directly by the Reorganized Parent).

Summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan):

  • Class 1 (“Other Priority Claims”) is unimpaired and not entitled to vote on the Plan. The estimated aggregate claims amount is $0 and expected recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired and not entitled to vote on the Plan. The estimated aggregate claims amount is $0 and expected recovery is 100%.
  • Class 3 (“Senior Secured Notes Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate claims amount is $242.0mn (plus interest) and expected recovery is “substantially greater than liquidation value, but substantially less than outstanding claims.”
  • Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate claims amount is $10.0-$25.0mn and expected recovery is 0%.
  • Class 5 (“Equity Interests in Debtors”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate claims amount is N/A and expected recovery is 0%.

Plan Voting

The Plan voting results were as follows:

  • Class 3 (“Senior Secured Notes Claims”) – 21 claim holders, representing $234,156,000.00 in amount and 100% in number, accepted the Plan.

Background

In a press release announcing the filing, Fuse advised that “The proposed Plan of Reorganization ('the Plan'), which…already has the support of over 80%, in principal amount, of the Company’s noteholders, would allow Fuse to reduce its secured debt by approximately $200 million while also significantly reducing the related interest expense.The Company expects to complete this process and emerge from Chapter 11 protection during the second quarter of 2019.”

About Fuse 
Fuse is a cross-platform entertainment media brand for multicultural youth. The company’s platforms include the Fuse and FM (Fuse Music) linear and video-on-demand (VOD) channels; Fuse.TV online and social media properties; OTT apps; and live events.

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