Register, or Login to view the article
November 21, 2018 – Privately-held LBI Media, Inc. and 17 affiliated Debtors (together, “LBI Media” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-12655. The Company, the largest privately held, minority-owned Spanish-language broadcaster in the United States with TV and radio stations operating in many of the top Hispanic markets, is represented by Daniel J. DeFranceschi of Richards, Layton & Finger. Further board-authorized engagements include Weil, Gotshal & Manges as counsel, Guggenheim Securities as investment banker, Alvarez & Marsal North America as financial advisor and Epiq Corporate Restructuring as claims agent.
LBI Media’s petition notes between 1,000 and 5,000 creditors; estimated assets between $100 million and $500 million; and estimated liabilities between $500 million and $1 billion. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) TMI Trust Company, as agent for unsecured notes ($27,954,755 unsecured debt claim), (ii) USBNA as agent for unsecured notes ($8,464,963 unsecured debt claim) and (iii) ASCAP ($1,977,292 trade claim).
The Company’s Petition references a $38 million debtor-in-possession (“DIP”) loan credit facility to be entered into between the Company, “as borrower, and the existing and future direct and indirect wholly-owned subsidiaries of the Corporation, as guarantors, the lender(s) from time to time party thereto (the ‘Lenders’), and HPS Investment Partners, LLC, as administrative agent.”
Events leading to the Chapter 11 filing
Events leading to the Chapter 11 filing
In a declaration in support of the Chapter 11 filing (the “Kei Declaration”) [Docket No.13], Brian Kei, the Company’s Chief Financial Officer, detailed the events leading up to the Company’s Chapter 11 filing, which, in a nutshell, he characterized as a “challenging market leading to an over-leveraged capital structure.”
The Kei Declaration notes, “Notwithstanding their core operating strengths and growth potential, the Debtors have not been immunized from broader market challenges and pressures affecting U.S. television and radio broadcasters, including shifting viewer habits and reduced expenditures on traditional advertising. Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending generally. Certain categories of advertising spend have not returned, such as home mortgages. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast television and radio….Such market conditions forced the Debtors to incur substantial indebtedness in recent years to maintain and grow their operations. The cost of servicing such debt has limited the Company’s free-cash flow available for operations and capital expenditures. In 2017, the Debtors’ cash interest expense totaled approximately $47 million, in comparison to adjusted EBITDA of $29 million – implying leverage of approximately 18x EBITDA.”
Against the backdrop of operational challenges and its diminishing ability to service debt, in April 2018 the Company found itself in the middle of a protracted fight between holders of first and second lien notes that, although effectively stayed by the Chapter 11 filing, will undoubtedly feature prominently during the Chapter 11 process. As discussed further below, the HPS-supported Plan (filed contemporaneously with the Petition) is based around a simple choice being offered by first lien HPS to its second lien adversaries: If you are not happy with the Company’s Plan (as co-managed by ourselves), just buy out our own claims (in full) and take the reorganized Company’s new equity yourself.
Beginning in 2017, the Company engaged with groups of holders of its first lien notes (the “First Lien Notes”) and second lien notes (the “Second Lien Notes”) regarding a potential refinancing or restructuring of either or both tranches of that debt. Further to these discussions, in April 2018, the Company chose to pursue a refinancing of the First Lien Notes in a transaction with funds managed or controlled by HPS (the “First Lien Financing Transaction”). Among other things, the transaction resulted in HPS acquiring 100% of the First Lien Notes, the extension of the maturity of those notes to 2023, and the provision to the Company of additional liquidity. On April 25, 2018, however, the Company’s “Junior Noteholder Group” filed a complaint and accompanying preliminary injunction motion in state court to enjoin the closing of the First Lien Financing Transaction and a complaint (as amended) against LBI Media and its CEO asserting, among other things, breaches of the indenture governing the Second Lien Notes. On May 16, 2018, the state court denied the preliminary injunction motion, and on May 17, 2018, the First Lien Financing Transaction closed. As detailed in the Kei Declaration, “the Junior Noteholder Group continued to pursue its lawsuit against the Debtors and the CEO….Engagement among the Debtors, HPS and the Junior Noteholder Group intensified in advance of November 15, 2018, when cash coupon payments totaling $28 million in the aggregate were due under the First Lien Indenture and Second Lien Indenture (the ‘Coupon Payments’). The Debtors did not have sufficient cash to satisfy the Coupon Payments, but instead utilized the grace period available under the relevant indentures, and continued engaging with HPS.”
Restructuring Support Agreement (the “RSA”) with HPS and the Joint Chapter 11 Plan of Reorganization (the “Plan”)
The Kei Declaration states that, “Despite the absence of a global settlement among the Company’s lenders, rather than continuing to waste resources in a litigation war of attrition, the Company focused on constructive restructuring discussions with HPS….Resulting in LBI securing a commitment from HPS pursuant to [the RSA]… to provide debtor-in-possession financing and support a chapter 11 plan that will preserve the going-concern value of LBI’s business, allow the Company to emerge from chapter 11 significantly de-levered, and protect the livelihoods of the hundreds of individuals who depend on LBI.”
The Kei Declaration continues, “As a baseline, the Plan provides for, among other things, HPS to exchange their first lien notes for a majority equity interest in the reorganized company, as well as the provision of recoveries for other classes of creditors supporting the restructuring, including to the holders of second lien notes….The Plan also provides significant flexibility in that it allows the Debtors to either (i) seek out and consummate a superior proposal, or (ii) have their obligations under the first lien make-whole provision waived if the Junior Noteholder Group elects to refinance HPS’s claims. Importantly, the Plan and RSA allow the Debtors to pursue and consummate an alternative value-maximizing transaction without incurring any penalty or ‘break-up fee’ to HPS.
The Plan and RSA allow the Debtors to run a marketing process for a period of up to seventy-five (75) days following the Petition Date….Further, the Plan provides that the Junior Noteholder Group may obtain 100% of the equity interests in the reorganized Company to the extent it votes to accept the Plan and is willing to satisfy HPS’s claims under the DIP Facility and First Lien Notes in full, without the need to satisfy the make-whole obligation.….The Debtors believe that conducting their Chapter 11 Cases on an expedited timeline is important to preserving and maximizing the going-concern value of their estates. Accordingly, they intend to prosecute these Chapter 11 Cases in a measured, but efficient manner.”
Read more Bankruptcy News