Bankruptcy News Makers

 
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    Gymboree and why retailers are increasingly prone to ‘Chapter 22’

    January 18, 2019 – Gymboree Group on January 17 became the latest retailer to file for ‘Chapter 22’ – a euphemism for a second bankruptcy – and the 60th since 1984, according to BankruptcyData. With 2019 certain to be another tough year for retailers, there are liable to be more such Chapter 22’s, begging the question as to why the retail sector seems so prone to bankruptcy recidivism.
     
    Gymboree follows Wet Seal, Walking Company Holdings and Samuels Jewelers as retailers that have had to declare bankruptcy again in the past 24 months. As BankruptcyData lays out, this is the second petition for Gymboree in under two years, the Debtors having previously announced a pre-negotiated Chapter 11 plan on June 11, 2017 and having emerged from that bankruptcy on September 29, 2017. In its first turn on the bankruptcy roundabout, Gymboree cancelled $171mn of its then-outstanding unsecured notes and approximately $770mn of Gymboree’s then-outstanding funded debt was converted into equity. Additionally, the Company raised $80mn of new capital through a rights offering, and arranged $285mn in exit financing.
     
    Unfortunately, while many companies and their new, often private equity, owners, see Chapter 11 as a way to slash their debt and re-emerge with a right-sized balance sheet, financial restructurings and operational restructurings are two very different and largely separate challenges. Balance sheet restructurings of retailers like Gymboree have often not been accompanied by equal post-emergence attention to the core operational issues that led to the original bankruptcy filing in the first place.
     
    In the declaration in support of the Chapter 11 filing, Stephen Coulombe, Gymboree’s Chief Restructuring Officer cited stiff competition from other direct bricks-and-mortar competitors and an assault on its business from discount stores, big-box retailers, and, of course, internet retailers like Amazon competing on price. Piper Jaffray in a recent report said that Amazon already controls about half of the US online retail marketplace and that share is still growing. 
     
    Experts say these are  difficulties common to all high street retailers and, given there appears no letup in them – indeed, they are intensifying – they are major reasons why retail Chapter 22’s are becoming so commonplace, since bankruptcy does little to solve these underlying problems. Gymboree also cited a failure to keep up with changing customer tastes, a process which only seems to be accelerating with the advent of the digital age and Millennials. 
     
    “Closing unprofitable stores without changing the underlying economics and developing a consumer-focused strategy is an ineffective way to emerge from bankruptcy for retailers, [while] inefficient supply chains with slow design, manufacturing and shipment processes make retailers unable to quickly change their products to match current trends,” David Berliner, partner and leader of BDO’s business restructuring & turnaround services practice, points out in a comment piece. 
     
    Yet it is about more than just Amazon, online shopping and competing in a rapidly evolving marketplace. Compounding such problems is that many of these retailers are still burdened with too much debt, even after going through bankruptcy once before, ie. balance sheets were sometimes NOT being fixed. 
     
    Some of this stems from retailers being targeted by private equity, which used record low interest rates to acquire many of these businesses earlier this decade. According to 2018 research by Chuck Carroll and John Yozzo of FTI Consulting, the retail sector accounted for 17% of Chapter 11 filings by private equity-owned companies in 2011-2017 versus 7% for non-private equity-owned filers. This is because debt-fueled buyouts followed by a program to expand stores and other operations to facilitate a sale or IPO is a risky strategy, especially where margins for error are very narrow. Moody's Investors Service said in a report in 2017 that 19 distressed retailers had “well over” $3.7 billion in debt that matures over the next five years – most of that either came due last year or will come due this year. Rising interest rates will only exacerbate this problem.

    It turns out that bankruptcy law itself can actually exacerbate a retail bankruptcy, with the Chapter 11 lifecycle often failing to match up with a retailer’s selling cycle. David Berliner of BDO points to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA), which stipulated that bankrupt retailers have only an initial 120 days to assume or reject leases and can only receive one additional 90-day extension without landlord approval. Prior to BACPA, bankrupt retailers could in practice seek as many extensions that a bankruptcy court would approve, which enabled them to keep stores open through at least one holiday season and take their time to determine if these stores should continue operating. “Bankrupt firms were able to wait until after the holidays to decide which stores to close so that the sales associated with holiday season spending could be used in their analysis. BACPA, however, eliminated this option to continue to extend the decision as to whether to assume or reject leases,” he writes.
     
    Thus, a rush to exit bankruptcy the first time around without fixing balance sheets properly, high debt levels often from leveraged buyouts amid rising interest rates, and the radically changing face of retail mean ‘Chapter 22’ will likely be one trend that retailers will continue to set.

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    Bondholders accuse LBI Media’s CEO and directors of $129mn fraud

    January 16, 2019 – A group of bondholders of bankrupt LBI Media, the largest privately held Spanish-language broadcaster in the US, have accused the CEO and other directors of the company of perpetrating a fraudulent scheme that prevented them from recovering about $129.5 million.
     
    In documents filed with the US Bankruptcy Court for the District of Delaware on January 15, the “Plaintiff Group of Noteholders” – a subset of holders of the 11½-13½% PIK toggle second priority secured subordinated notes due 2020 – requested leave to prosecute president and CEO Lenard Liberman, a group of directors, and the company’s investment adviser HPS Investment Partners for cutting a deliberately bad restructuring deal that cost them about $129.5 million. 
     
    “This action arises out of a deceptive scheme perpetrated by Defendants LBI; the Company’s President, Chief Executive Officer, controlling shareholder, and director, Liberman; its remaining directors, J. Liberman, Horton, Delgadillo, Connoy, and Goldman (collectively, the “Director Defendants”); and HPS, to prevent Plaintiffs from recovering about $129.5 million to which they are contractually and otherwise entitled as creditors of LBI,” the documents state.
     
    The plaintiffs lay out an elaborate and “deceptive” scheme by Liberman, the directors and HPS involving a 2014 debt exchange, which was intended to serve as bridge financing until the sale of certain assets by LBI in a Federal Communications Commission spectrum auction, the proceeds of which would be used to reduce LBI’s debt. “In this regard, the second lien indenture expressly required that the proceeds of any such sale be used to retire the company’s first lien debt and not for any other purpose,” the document says.
     
    However, after the sale by LBI of the spectrum assets, the plaintiffs allege that LBI violated this core contractual restriction and set about trying to disenfranchise the holders of the second lien notes. “Specifically, in the months leading up to the Company’s inevitable bankruptcy, and while LBI was insolvent, Defendants wrongfully diverted funds to preferred creditors and company insiders, thereby eliminating Plaintiffs’ ability to recover on their notes and precluded Plaintiffs, as holders of LBI’s 'fulcrum’s securities', from receiving the 100% ownership stake in the reorganized debtor to which they would otherwise have been entitled,” they claim.
     
    The plaintiffs allege the overall scheme harmed them in several ways, including: diverting millions of dollars to pay fees and indemnities to third parties like HPS, which bought the company’s debt at prices several percent higher than the company itself could have paid; giving HPS a “make whole” penalty that – if enforceable – added $87 million to the company’s debt; and turning the first lien debt into the company’s “fulcrum securities” whereas the second lien debt had previously held that position. 
     
    LBI Media, a Spanish-language media company headquartered in Burbank, California, filed for bankruptcy on November 21, 2018 under Chapter 11 (case number 18-12655).

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    Moody’s Sees Global Defaults Rising in 2019 After Falling for 2nd Straight Year in 2018

    January 11, 2019 – Moody’s Investors Service said its global trailing 12-month speculative-grade default rate ended 2018 at 2.3%, down from 2.8% at the end of the third quarter, though the rating agency expects the global default rate to begin rising again in 2019, reaching 3% by the end of the year.

    The data tallies with that of BankruptcyData, which reported that the number of public companies and assets filing for bankruptcy in 2018 fell for the second year in a row. However, BankruptcyData analysts agree this trend will reverse in 2019, as a combination of retail’s continuing woes, tightening debt markets, and large volumes of lower quality bond and bank debt coming due take their toll on the health of corporate America.

    Moody’s said in its “2018 Default Report”, published January 9, that 77 companies defaulted in 2018, down from 104 in 2017 and 144 in 2016. This left the agency’s trailing 12-month global speculative-grade default rate at the end of the fourth quarter at 2.3%, down from 2.8% at the end of the previous quarter and 3.4% at the end of 2017. 

    The default count surged to 10 in December 2018, pushing up the default tally to 17 in the fourth quarter, up from 14 in the third quarter. December’s defaulters included three companies in Construction & Building, three in Non-Bank Financials and two in Oil & Gas. The month's largest defaulter was Checkout Holding Corp., a provider of consumer-driven digital media solutions, including discount coupons.
     
    For the whole of 2018, retail recorded 16 defaults, the most of any sector. Of the 35 industry groups Moody’s tracks, 16 industries had fewer defaults in 2018 than in 2017, while 10 recorded more defaults. Defaults fell the most in Oil & Gas (15 defaults in 2018 vs 27 defaults in 2017) as the industry continues to recover. “Many companies in the sector have taken advantage of higher oil prices to reduce debt, sell assets and transform their property portfolios toward higher oil content and lower cost production,” Moody’s noted.

    BankruptcyData also showed that last year’s top 10 public chapter 7 and chapter 11 filings were dominated by the oil & gas and retail sectors, with three of the year’s largest top 10 public bankruptcies coming in retail.

    Looking ahead to 2019, Moody’s forecasts that after dipping to 2% in the second quarter of 2019, the global default rate will begin rising again, to reach 3% by the end of the year, with advertising, printing and publishing seeing the most defaults in the US in 2019, and the hotel, gaming and leisure sector to be the most troubled in Europe.

    “Our default rate forecast assumes more difficult market conditions in 2019 as economic growth slows, credit conditions tighten and borrowing costs increase,” Moody’s Sharon Ou said in the report. “We also expect escalated volatility in the high-yield market due to uncertainty around interest rates and geopolitical issues, including U.S.-China trade tensions, though most Moody’s-rated companies have low refinancing risk in the coming year and corporate profits and liquidity remain healthy.”

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    Sidley Austin Announces Pair of Additions to Global Restructuring Practice, Mark Knight in London and Charles Persons in Dallas

    January 9, 2019 - Sidley Austin LLP announced a pair of additions to its global restructuring practice; Mark Knight who will join Sidley in London as a partner and Charles Persons who will join Sidley’s Dallas team as counsel.

    In a press release announcing the Knight hire, James Conlan, Sidley’s Global Head of Restructuring, and Patrick Corr, firmwide Restructuring Practice Area Team Leader, shared their view that “Mark Knight adds strength to our market-leading Restructuring practice.”

    Mr. Knight is experienced in leading complex, precedent- setting multijurisdictional restructurings on both the creditor and debtor sides….Before joining Sidley, Mr. Knight served as a partner and general counsel of an investment platform that services non-performing loans in some of Europe’s most challenging restructuring jurisdictions, including Greece and Italy. Prior to this, Mr. Knight was a partner in the restructuring group of an international law firm where he advised clients on the acquisition, disposal and reorganization of distressed businesses.

    In an announcement heralding the arrival of Mr. Persons, Yvette Ostolaza, Managing Partner of Sidley’s Dallas office, noted, “Charles is a valuable addition to our global Restructuring group and will be an integrated member of our practice everywhere.” Commenting on his arrival at Sidley, Mr. Persons added, “Sidley is well-known for its work on high-profile and complex Chapter 11 cases….I’ve worked with many of the talented lawyers here at Sidley and am delighted to be joining such an incredible firm.”

    Mr. Persons has experience in the representation of major domestic and international debtors and creditors’ groups and has built a practice around public and private out-of-court reorganizations and in-court Chapter 11 cases, advising on a variety of multifaceted matters including high-profile multinational restructurings. These include distressed acquisitions and a variety of bankruptcy litigation matters across multiple industries, from oil and gas to manufacturing and retail.

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    Two Financial Restructuring Experts Among Stroock Promotions

    December 18, 2018 – Stroock announced the promotion of two lawyers to partner and six lawyers to special counsel, including Alon M. Goldberger (Partner) and Christopher Guhin (Special Counsel), each New York-based members of Stroock’s Financial Restructuring Group.

    Mr. Goldberger’s practice focuses on a variety of complex finance transactions, with an emphasis in debt finance. He represents agents, lenders, public and private borrowers, private equity sponsors and their portfolio companies, business development companies, and other providers (bank and non-bank) of senior and subordinated debt financing. He also advises clients across a variety of industries and business structures on a broad range of financing transactions, including first- and second-lien revolving and term-loan credit facilities, asset-based and cash-flow based lending, acquisition financing, unitranche credit facilities, refinancings, recapitalizations and both in-court and out-of-court restructurings. Goldberger is nationally recommended by The Legal 500 United States and has been recognized as a “Rising Star” by IFLR1000. He received his law degree from the Benjamin N. Cardozo School of Law and his undergraduate degree from Touro College.

    Mr. Guhin’s practice focuses on providing counsel to banks, private equity funds, hedge funds and large investment managers. He specializes in the analysis of legal rights and obligations under complex contracts and developing strategies to maximize clients’ leverage. Guhin is currently representing two investment banks in a contractual dispute with a mutual client who failed to pay fees owed upon consummation of a tender offer, and an investment bank in a contractual dispute with former employees of an Australian subsidiary. He spent part of 2013 and 2014 seconded to the compliance division of a major investment bank. He received his law degree from the University of Virginia School of Law and his undergraduate degree from Brown University.

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    Marc J. Carmel Joins McDonald Hopkins as Member of Restructuring Group

    October 22, 2018 - Marc J. Carmel has joined the Business Restructuring Services Group at McDonald Hopkins LLC as a Member in their Chicago office. Mr. Carmel joins from litigation finance firm Longford Capital Management where, as a director, he advised on investments in the bankruptcy and restructuring sector. Previously. Mr. Carmel had practiced law at Kirkland & Ellis and Paul Hastings. 
     
    Mr. Carmel has two decades of experience representing public and private companies, private equity and other investment firms, directors and executives, lenders, committees, and equityholders in a variety of distress and non-distress engagements. Mr. Carmel regularly advises clients regarding strategic alternatives, including: out-of-court and in court restructurings and bankruptcies; mergers and acquisitions, refinancings, recapitalizations, and sales; and fiduciary duties and governance matters throughout the United States and internationally.
     
    Sean D. Malloy, chair of McDonald Hopkins’ Business Restructuring Services Department, commented on the hire, “Marc has deep experience and a national reputation, and we are thrilled to welcome such an accomplished and respected restructuring attorney to McDonald Hopkins.”  Mr. Carmel added, “I am impressed with the McDonald Hopkins platform and excited to join. Particularly with its Midwest footprint and recent additions to an already-strong presence in Chicago, the firm is positioned to expand rapidly in the middle market.”
     
    Mr. Carmel is a frequent author and speaker on restructuring topics, with a focus on fiduciary duties, acquisitions of distressed assets, and strategies and tactics to address bankruptcy issues, as well as writing and speaking about litigation finance. Mr. Carmel earned his J.D. from Harvard Law School and his Masters of Accounting and Bachelor of Business Administration degrees from the University of Michigan. Mr Carmel is also a Certified Public Accountant.

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    Alison Miller to Join Omni Management Group as Senior Vice President

    October 23, 2018 - Omni Management Group, an affiliate of Beilinson Advisory Group (“Beilinson”), announced the appointment of Alison Miller as Senior Vice President. Ms. Miller will focus on sourcing new opportunities, developing and directing strategic initiatives aimed at growing the firm's market share, and supporting its relationships within the bankruptcy, restructuring and investing communities. Notably, the addition of Ms. Miller to the Omni team is part of a larger growth strategy for the firm, which was acquired earlier this year by management, Beilinson Chairman Marc Beilinson, and affiliates of Beilinson.  

    Commenting on Ms. Miller’s move, Mr. Beilinson noted, “The expansion of the Omni leadership team to include Alison and her business development expertise and expansive network is in line with Beilinson Advisory Group’s commitment to grow the company, expand market share and continue exploring additional opportunities.”  

    Ms. Miller began her career in the Restructuring Group in the New York office of Kirkland & Ellis (“K&E”), where she represented financially distressed companies in all aspects of corporate restructuring. After leaving K&E, Ms. Miller served in a series of business development roles, where she was responsible for developing and implementing various strategic marketing and origination initiatives at firms in the legal, private equity and bankruptcy administration sectors

    Ms. Miller holds a J.D. with honors from Fordham University School of Law.

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    Akin Gump Adds Four-Partner Restructuring and Global Debt Finance Group

    October 23, 2018 - Akin Gump announced the addition of four Morgan Lewis attorneys to its financial restructuring and global debt finance practices. Thomas F. O’Connor will be joining Akin’s team in London; and Renée M. Dailey, Christopher E. Lawrence and Chester L. (“Chip”) Fisher will launch the firm’s new Hartford, Connecticut office.

    Akin Gump Chairperson Kim Koopersmith commented on the hires, “The addition of these four outstanding lawyers is a fantastic opportunity for us to extend our reach in the areas of financial restructuring and ‘new money’ finance transactions. With deep ties in the insurance sector as well as among other institutional private placement investors in the U.S., Europe and Australia, Tom, Renée, Chris and Chip will enable us to grow and expand our work for clients in these spaces.”

    “As a group, we are delighted to be at Akin Gump,” added Renée Dailey. “Its restructuring and debt finance practices are well known for their top-tier work with sophisticated clientele, and its global platform and talent mix are ideal fits for our practice and the clients we serve.”

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    B. Riley FBR - Announces Hiring of Richard NeJame as New Senior Managing Director

    October 11, 2018 - B. Riley FBR, a leading full service investment bank and wholly-owned subsidiary of B. Riley Financial, Inc., announced that it has named Richard NeJame as a Senior Managing Director in the firm’s Corporate Restructuring division. Mr. NeJame is a veteran corporate restructuring advisor with expertise in leveraged finance, distressed M&A advisory and capital raising for special situations. He will be based in the firm’s New York office.

    Mr. NeJame joins from Oppenheimer, where he served as managing director and head of Restructuring & Special Situations Advisory for Investment Banking. He previously served as a managing director and co-head of Recapitalization and Restructuring at Gleacher, responsible for new business origination of restructuring and leveraged finance transactions. He served as managing director at Imperial Capital where he also covered corporate finance and M&A advisory. NeJame was a senior founding member of Lazard’s Restructuring Group where he worked for nearly a decade.

    Perry Mandarino, B. Riley FBR’s Co-Head of Investment Banking and Head of Corporate Restructuring commented, “With a long track record of success advising clients on complex matters and recapitalization situations, Rich brings extensive experience in all aspects of restructuring and transaction advisory. We’re pleased to welcome Rich as another strong addition to our Corporate Restructuring team and look forward to continuing to expand our presence in the marketplace.”

    Commenting on his move, Mr NeJame added, “B. Riley FBR’s entrepreneurial culture offers tremendous growth opportunities. This robust platform allows us to deliver a unique combination of advice and execution capabilities to our corporate and institutional clients. I’m thrilled to join the team and to contribute to the growth of our corporate advisory business.”

    Mr. NeJame earned his M.B.A in Accounting and Finance from The Wharton School, The University of Pennsylvania. He received his B.S. in Electrical Engineering and Economics from Duke University, graduating Cum Laude.

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    AlixPartners Announces Acquisition of Zolfo Cooper, Combined Entity to Include 350 Turnaround and Restructuring Professionals Worldwide

    September 27, 2018 – Global consulting firm AlixPartners announced that it had entered into an agreement to acquire independent financial advisory and interim management firm Zolfo Cooper This proposed acquisition follows AlixPartners’ acquisition of Zolfo Cooper’s European franchise in February 2015.

    In a press release announcing the acquisition, AlixPartners commented, “All of Zolfo Cooper’s Managing Directors and staff, based in New York and Los Angeles, will join AlixPartners, with the majority in its Turnaround and Restructuring (TRS) practice. Upon completion of the transaction, it is AlixPartners’ intent that the Zolfo Cooper brand will be retired from the international restructuring marketplace. The transaction is subject to customary closing conditions, including regulatory approval, and is expected to close in the fourth quarter.” According to Alix Partners, the combined firm’s global turnaround and restructuring division will include around 350 senior professionals, including 66 managing directors. 

    Simon Freakley, Chief Executive Officer, AlixPartners commented: “[T]his transaction reflects our strategy of identifying high-impact, tuck-in acquisitions which deliver our clients immediate value while adding to our top quality talent base. Joff Mitchell, Managing Partner, Zolfo Cooper, added: “Bringing together two of the most recognized players in our industry means that collectively we will be able to offer our clients a broader and deeper range of skills and experience than ever before. We are exceptionally proud of what we have achieved as a market-leading boutique business, and now look forward to joining a larger organization with whom we have so much in common.” 

    Terms of the acquisition were not announced. Willkie Farr & Gallagher LLP acted as legal counsel to AlixPartners, and Wollmuth Maher & Deutsch LLP as legal counsel to Zolfo Cooper.

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    James T. Grogan Joins Blank Rome’s Houston Finance and Restructuring Practice as Partner

    September 12, 2018 - Blank Rome announced that James T. Grogan has joined the firm as a partner in its Finance, Restructuring, and Bankruptcy group in Houston. Mr. Grogan, who joins from Paul Hastings where he was of counsel in that firm’s Houston finance and restructuring practice, focuses his practice on Chapter 11 bankruptcy cases, representing a client base of debtors, lenders, and committees of unsecured creditors across a wide range of industries. His Paul Hastings biography notes that “He has been integrally involved in representing some of the largest chapter 11 debtors in history, including Lehman Brothers Holdings Inc. and WorldCom, Inc.” a point echoed by Alan J. Hoffman, Blank Rome’s Chairman and Managing Partner who commented, “From his experience representing some of the largest Chapter 11 debtors in history, to his broad client mix, James fits in seamlessly with our practice and we are thrilled to welcome him to Blank Rome.” Regina Stango Kelbon, Co-Chair of Blank Rome’s Finance, Restructuring, and Bankruptcy group, added, “With the recent wave of restructuring activity in the Houston market, combined with the cyclical nature of bankruptcy within various industries, James could not be joining us at a better time.” In a recent interview, Mr Grogan noted that despite the lift from recent oil price rises, the energy industry is “still an area of some distress” and energy companies continue to consider Chapter 11 as an opportunity to reorganize. Mr Grogan earned his B.A. from Wheaton College and his J.D. from the University of Kansas School of Law, where he was associate editor of the Kansas Law Review

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    Kasowitz Benson Torres Hires Bankruptcy Veteran Kyung Lee to Join Houston Office

    September 12, 2018 – Kasowitz Benson Torres LLP, the law firm headed by President Trump’s lawyer Marc Kasowitz, has hired bankruptcy specialist Kyung S. Lee who will join the firm in its Houston office as a partner in its bankruptcy and restructuring litigation practice. Mr Lee joins from Diamond McCarthy LLP where he was a partner for more than 17 years. According to Mr Lee’s biography at Kasowitz, “Kyung S. Lee is a financial restructuring and bankruptcy litigation partner with over 30 years of experience advising on all aspects of troubled credit, from workouts to post-confirmation disputes, for clients including public and private companies, boards of directors, senior management, secured lending groups, secured and unsecured committees, trustees and other parties-in-interest in Chapter 11, 15 and 7 proceedings.” Unsurprisingly, a review of recent transactions reveals that much of Mr Lee’s Houston-based work has been on behalf of oil and gas clients; a sector currently generating a considerable volume of distressed company legal work.

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    JND Legal Administration Announces Acquisition of Healthcare Lien Specialist, Lien Resolution Group

    September 5, 2018 - JND Legal Administration announced its acquisition of Lien Resolution Group, a settlement solutions company which assists law firms and corporate entities with issues relating to client healthcare liens. JND Legal Administration, backed by private equity firm Stone Point Capital, is a legal management and administration company offering clients multiple, intersecting service lines, including class action settlements, corporate restructuring, e-discovery, mass tort claims & lien resolution and government services. As a part of the acquisition, Lien Resolution Group’s Managing Director Rachel Stoering will join the JND team as chief operating officer - class action, mass tort & lien resolution. Prior to her tenure at Lien Resolution Group, Ms. Stoering oversaw class action operations at a claims administration firm after working in private practice as an attorney at Heins Mills & Olson PLC. “The acquisition of Lien Resolution Group completed the missing piece to our mass tort puzzle,” commented Jennifer Keough, JND Legal Administration’s chief executive officer and founder. Ms. Stoering added, “The companies’ combined experience makes us a powerful resource in the mass tort space.” Financial terms of the transaction, which completed on August 1, 2018, were not disclosed.

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    Turnaround Specialist Tom Allison Joins Portage Point Partners

    August 23, 2018 — Portage Point Partners, LLC (Portage Point) announced that turnaround specialist Thomas J. Allison has joined the firm as a Senior Advisor. Chicago-based Portage Point, founded in 2016, serves as an interim management and advisory firm that partners with middle market companies. Matthew Ray, Managing Partner of Portage Point, commented, “Tom’s world-class experience and capabilities as well as his extensive business network will be significant assets to Portage Point and our clients.” Mr. Allison commented on his move, “Matt and I have worked so well together on many engagements over the years, and it is a natural progression for us to formalize that partnership. I am excited to be joining Portage Point as the firm continues to execute on substantial growth opportunities.” Mr. Allison joins Portage Point from Mesirow Financial Consulting where he was Executive Vice President and Senior Managing Director. Prior to Mesirow, he was one of the original founders and National Restructuring Group Practice Leader for Huron Consulting as well as the Partner-in-Charge for Arthur Andersen’s Central Region Restructuring Practice. Mr Allison is a founder and past chairman of the Turnaround Management Association (TMA) and was inducted into the TMA Hall of Fame in 2018. He was also the 2017 recipient of the TMA Legend Award and the first recipient of the TMA Peter Tourtellot Award. Mr. Allison, who has been a Certified Turnaround Professional (CTP) since 1994, is currently a Director and Restructuring Committee member for The NORDAM Group, Director and Audit Committee Chair for Monroe Capital, Director, Board Chair and the Audit Committee Chair for Katy Industries and Director for PTC Group Holdings Corp.

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    Claire’s Stores – Oaktree Prepares $1.5 billion Cash Bid

    August 17, 2018 – In the latest chapter of a bitter battle between Oaktree Capital (“Oaktree”) and Apollo Global Management LLC (“Apollo”) over the future of Claire’s Stores, Inc. (“Claire’s” or “the Debtors”), Bloomberg is reporting that Oaktree is scrambling to meet an August 31 deadline to raise $1.5 billion for a cash bid that would top a debt-for-equity deal valued at $1.4 billion; the latter championed by Claire’s senior lenders, led by Elliott Capital Management, and Apollo, Claire’s’ private equity sponsor. Apollo is the holder of almost 98% of Claire’s outstanding equity and $52.8 million of debt which ranks senior to the $159 million of Claire’s second lien debt currently held by Oaktree. Reporting from the courtroom, Bloomberg quotes White & Case’s Tom Lauria on the looming deadline: “We are under extreme pressure raising $1.5 billion in cash.” Oaktree’s efforts may not be, however, exactly manic. As noted below, the Oaktree offer has been brewing for weeks and as Bloomberg reminds, “Oaktree is one of the largest distressed-debt investors in the world…[with]… $20 billion of uncommitted funds or ‘dry powder’ as of midyear.” If Oaktree wants to accessorize with Claire’s, it can. The real questions for Oaktree would appear to be ones of valuation and commitment: How much over $1.4 billion is Claire’s worth…and does Oaktree truly want to accessorize its portfolio with ownership or is it simply putting pressure on Apollo to push its valuation into territory more rewarding for second lien holders? The line of battle is clear: Apollo has embraced a plan of reorganization (“the Plan”) which values Claire’s at $1.4 billion, almost enough to make the largest class of Claire’s first lien lenders whole (86.8% estimated recovery), but which firmly shuts the door on a meaningful recovery by second lien lenders, who are left with a 3.5% estimated recovery (if they sign up to the Plan). Oaktree, Claire’s largest second lien lender, believes that Claire’s value extends $100’s of millions beyond the Plan valuation, possibly placing second tier lenders firmly in the money. Oaktree’s assault on the $1.4 billion valuation, has been holistic, and includes: (i) questioning why the Debtor picked a valuation at the bottom range of its own expert’s range (Lazard’s range as to enterprise value being $1,355,000,000 to $1,680,000,000), (ii) challenging the Debtor’s interpretation of a second lien intercreditor agreement, (iii) focusing on the apparent value added by post-petition operations at Claire’s (citing management projections as indicative of $400 million in additional enterprise value) and (iv) questioning whether Apollo’s efforts to protect its own Claire’s investment might have stepped over the line with a fraudulent transfer. According to Court documents reviewed by BankruptcyData.com, Oaktree has been paving the way for a competing bid for a number of weeks, taking concerted steps in court that are intended to open up a reorganization process that Oaktree asserts has been managed by Claire’s management to its detriment as a second lien lender and in order to advance the interests of its controlling shareholder…Apollo. On July 17, 2018, Oaktree filed a motion seeking authority to “commence, prosecute and, upon Court approval, settle certain claims and/or causes of action of the Debtors’ estates,” namely a series of transactions between Apollo and Claire’s’ affiliates that Oaktree argues amounted to a “fraudulent transfer.” The motion appears to have a twofold purpose: (i) to aggressively characterize Apollo as a bad actor and (ii) push yet another argument as to why the Debtor’s $1.4 billion enterprise valuation is unfairly low, notably to out-of-the-money second lien lenders. The motion [Docket No. 649] states, “Apollo…is well known for the notorious zeal with which it ‘will aggressively protect [its] investments and defend [its] companies’ using all the tools available [citing WSJ]’….This Motion concerns Apollo’s attempts to ‘aggressively protect’ its equity and debt investments in Claire’s Stores by requiring a Debtor, while it was insolvent, to undertake a complicated refinancing transaction (the ‘Affiliate Transaction’) pursuant to which Apollo and others exchanged distressed (and, in some cases, near worthless) debt in Claire’s Stores for new structurally senior debt….The successful avoidance of CBI’s transfer of the Claire’s IP [this transfer a component of the Affiliate Transaction]….will generate more than $170 million in additional distributable value for all creditors of the Debtors’ estates—first lien creditors, second lien creditors, and unsecured creditors, alike.” On July 18, 2018, Oaktree submitted to the Claire’s’ Finance Committee a partially committed preliminary all-cash offer, subject to securing certain additional financing commitments, that Oaktree contends awards cash payments to each class of creditors in an amount that exceeds their recoveries under Claire’s’ current Restructuring Support Agreement (‘the RSA’) with Apollo and a large majority of its first lien lenders. In a July 20, Court hearing, Oaktree advised that it “expects that its proposal will be fully committed by the August 31 Bid Deadline.” In that same July 20 hearing, Oaktree raised with the Court its concerns that, as drafted, the Disclosure Statement lacked clarity as to whether the Debtors’ could, or would, allow for the Debtors to “toggle” to a better offer (made in advance of the August 31 bid deadline) without requiring the maker of that offer to begin a new solicitation process; this restart adding months to the reorganization and presumably allowing for further bids that would threaten that made by Oaktree, including any made by parties to the RSA (“the RSA Parties”). The Judge hearing the case agreed [Docket No. 693], approving Claire’s Disclosure Statement subject to the inclusion of language making clear that the Debtors could in fact toggle without resolicitation; although Oaktree has expressed its concern that the Debtors are exploring ways to allow first lien lenders to “veto” a higher bid, ie to find an end-run around the toggle provision. On August 3, 2018, Oaktree objected [Docket No. 732] to Claire’s motion of July 17, 2018 requesting an extension of the exclusive periods during which Claire’s could file a Chapter 11 Plan and solicit acceptances thereof [Docket No. 614]. In its objection, Oaktree further underscored its seriousness as to a competing bid by notifying the Court that, “If exclusivity ends, Oaktree will file a chapter 11 plan that incorporates its proposal in the near term .” As at the date of the objection, Claire’s sat between the filing and solicitation deadlines of July 17, 2018 and September 15, 2018, respectively. Following on the heels of Oaktree’s competing bid, it is reasonable to see some degree of strategic gamesmanship from both sides. Extensions are not normally requested after the expiration of an exclusive filing period and, absent a competing bid, the nearing expiration of the solicitation period would presumably have been welcomed by the RSA Parties. If, however, Oaktree was able to have its bid inserted into the Plan at the last minute, with the RSA parties obligated to continue their support of the altered Plan, The RSA Parties would find their ability to counterbid largely cut-off. Perhaps noting competing efforts to control the reorganization timetable, and certainly aware of a suddenly active bidding process, on August 17, 2018, the Court approved Claire’s extension request [Docket No. 791]. It will be an exciting two weeks.

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