Reproduced with permission from BNA’s Bankruptcy Law Reporter, 25 BBLR 1130, 08/15/2013. Copyright � 2013by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

THIRTY TWO DAYS AND THIRTY TWO MINUTES

BY SHARON L. LEVINE, PAUL KIZEL AND TANIA

INGMAN OF LOWENSTEIN SANDLER LLP AND PETER

KAUFMAN AND DAVID HERMAN OF GORDIAN GROUP

LLC 1

W hile the Chapter 11 process is typically an ardu-ous process for a company’s management, apre-negotiated plan can, when the circum-

stances are right, permit for a smooth and efficientreorganization—capturing whatever benefits of Chap-ter 11 are necessary for the business and emergingquickly without incurring the sometimes significantcosts of Chapter 11 and preventing the harm that canresult from a business languishing in bankruptcy court.

Such a successful outcome was recently obtained inthe Jobson bankruptcy case. On March 20, 2012, JobsonMedical Information Holdings LLC and certain of its af-filiates, advised by investment banker Gordian GroupLLC and bankruptcy counsel Lowenstein Sandler LLP,emerged from Chapter 11 cases pending in the UnitedStates Bankruptcy Court for the Southern District ofNew York. The bankruptcy court confirmed Jobson’sjoint prepackaged plan of reorganization on March 5,2012 after a confirmation hearing lasting just under ahalf an hour and just 32 days after the cases were filed.

The terms of the prepackaged plan allowed Jobson’s in-terest holders to retain 80% of the reorganized compa-nies and managerial control – and all of this in the faceof the maturity of close to $120 million in debt (or 6xEBITDA) held by a disparate group of lenders that in-cluded hedge funds with a stated desire to own theCompany outright.

Jobson is a diversified communications and educa-tion company serving the healthcare market owned bya leading private equity firm. The Jobson group’s mediaactivities reach and teach healthcare professionals inthe medical, pharmacy and optical industries through awide range of communication programs, live events,websites, direct mail, and electronic and database infor-mation services. Since 2003, Jobson has expanded itsoperations through a combination of acquisitions andinternal growth.

Extremely well-managed, Jobson was operationallyand financially sound. In fact, for the eleven monthsended November 30, 2011, Jobson generated revenuesof approximately $72 million and reported approxi-mately $17 million of EBITDA. For the fiscal year endedDecember 31, 2010, Jobson generated revenues of ap-proximately $85 million, had a net profit of approxi-mately $340,000 and reported approximately $20 mil-lion of EBITDA. Despite Jobson’s operational success,Jobson had been unable to effect a refinancing of its$117 million senior secured credit facility which wasscheduled to mature in December 2011.

Jobson’s remarkably fast and efficient restructuringwas facilitated by the following:

1. Early start. In light of the impending maturity ofthe credit facility in December 2011, Jobson’s advisorscame on board in October 2011 and began intensive ne-gotiations with the agent for the secured lenders andcertain of the participating lenders on the terms of aproposed restructuring of the credit facility debt. Where

1 Sharon L. Levine and Paul Kizel are part-ners in and Tania Ingman is counsel to Low-enstein Sandler’s Bankruptcy, Financial Reor-ganization & Creditors’ Rights Department.Peter S. Kaufman is president of GordianGroup and heads the firm’s Restructuring andDistressed M&A practice and David L. Her-man is a partner in the Gordian Group.

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the restructuring is necessitated by a maturity event, aconsensual resolution will require 100% lender consent.Unless all the debt is held by a single lender or an adhoc committee holding 66 2/3 in amount of the debt andmore than 1⁄2 in number of the debt holders, negotiatingto obtain 100% approval is challenging and will taketime. And, where, as was the case in Jobson, securingthe consent of all holders was impossible, the debtorwill need to switch gears and quickly prepare for aChapter 11 filing in order to consummate the restruc-turing over the objections of the ‘‘hold-outs’’.

2. Creativity and Flexibility. Over the next fewmonths, Gordian and Lowenstein, among other things,organized a group of the senior lenders that includedboth traditional banks and hedge funds (including cer-tain lenders that had stated a desire to take over theCompany). Herding the lenders toward a consensus re-quired nimble strategic negotiations. One strategy in-cluded finding a Company-friendly new lender to takeout one of the less supportive holders which enabledJobson to cross the minimal threshold of 66 2/3rds prin-cipal amount and 50% in number of the holders toachieve a consensual restructuring and which enabledJobson to impose the deal on holdouts through a Chap-ter 11 process.

Achieving this hurdle enabled Jobson to develop thenecessary ‘‘carrots and sticks’’ that provided the neces-sary leverage to allow Jobson to reach an agreement onthe terms of a comprehensive balance sheet restructur-ing with the agent and certain lenders, which was em-bodied in a formal restructuring support agreement(‘‘RSA’’) dated December 20, 2011.

The RSA contemplated that in the event that 100% ofthe lenders voted to accept the terms of the proposedrestructuring, the restructuring would be implementedout of court. However, in the event 100% lender consentcould not be achieved, the restructuring would beimplemented on identical terms through a ‘‘prepack-aged’’ bankruptcy and the commencement of the Chap-ter 11 cases. Because the parties committed to effectu-ating the same transaction either out of court or in aChapter 11 proceeding, once the consent of a sufficientnumber of lenders was obtained, the terms of the reor-ganization were in some ways a ‘‘fait accompli,’’ al-though subject to the uncertainties that are inherentwith any court proceeding.

After executing the RSA, Jobson moved swiftly toconsummate the restructuring by drafting the prepack-aged plan and disclosure statement. The prepackagedplan represented the culmination of significant arm’slength negotiations among Jobson, the lenders, and in-terest holders to reach a fair and equitable restructur-ing.

On January 10, 2012, Jobson began soliciting votesfrom its lenders in connection with the prepackagedplan. While Jobson hoped to consummate the proposedrestructuring out of court through an agreement withall its lenders, unfortunately, one recalcitrant lender(out of 12 lenders) attempted to use the need for unani-mous support for negotiating leverage. As a result, Job-son was unable to garner 100% lender support for anout-of-court restructuring. However, Jobson did obtain

more than sufficient lender support to approve a pre-packaged plan through the Chapter 11 process.

3. Narrowly tailored requested relief. On January31, 2012, in the absence of 100% lender consent, pursu-ant to the terms of the RSA, Jobson and the supportinglenders, executed a prepackaged plan support agree-ment (the ‘‘PSA’’). By executing the PSA, the partiesagreed to vote in favor of a prepackaged plan of reorga-nization and otherwise support confirmation in bank-ruptcy court.

On February 2, 2012, Jobson commenced the Chap-ter 11 cases in the United States Bankruptcy Court forthe Southern District of New York, immediately seek-ing confirmation of the prepackaged Chapter 11 plan ofreorganization. The terms of the prepackaged planwere based upon, among other things, the value of theDebtors’ businesses, the Debtors’ assessment of theirability to achieve the goals under the prepackaged plan,to make the distributions contemplated under the pre-packaged plan, and to pay all of their continuing obli-gations in the ordinary course of business.

The prepackaged plan offered a straightforward andyet comprehensive and fair solution to the Debtors’ li-quidity issues caused by the December 2011 maturity ofthe Debtors’ secured obligations under the prepetitioncredit agreement. First, the prepackaged plan providedfor the payment in full of all of Jobson’s operating ex-penses. Because all creditors, except the secured lend-ers, would be paid in full, they were deemed to acceptthe plan under Section 1126 of the Bankruptcy Code,and solicitation of this class was not required. In addi-tion, with respect to the lenders, Jobson agreed to enterinto exit financing pursuant to which the amounts dueunder the prepetition credit agreement will mature onDecember 31, 2014, and issue the lenders membershipunits, representing 20% of the membership interests ofthe reorganized company. Jobson’s existing interestholders received membership units representing 80% ofthe membership interests in the reorganized company.The lenders further provided the Company with a $5million revolving line of credit.

In short, Gordian and Lowenstein were able to or-chestrate a successful prepackaged plan of reorganiza-tion with a disparate group of lenders (including a hos-tile core who wished to take over the Company) com-prised of traditional lenders and hedge funds, theresults of which included:

i. the Company emerging from bankruptcy in littlemore than one month;

ii. as opposed to losing everything, the private equitysponsor maintaining an 80% ownership interest inthe reorganized Company (despite the maturationof debt of close to $120 million, or 6x EBITDA);

iii. the effective extension of the maturity date of thesecured debt by approximately three years, pro-viding ample runway for continued growth andthe maximization of shareholder value; and

iv. the preservation of the businesses as going con-cerns with as little interruption as possible, pre-serving jobs for nearly 300 individuals and theirfamilies.

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8-15-13 COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. BBLR ISSN 1044-7474