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BANKRUPTCY INSIDERa n a b s o lu t e p r i o r i t y f o r b a n k ru p t c y p r o f e s s i o na l s

21 Deal doctorsGreenberg Traurig Maher adds Norley, Alberts moves to Dickstein Shapiro, MidOcean Partners appoints Miller chairman

Special Section: Year in review

23 Debtor-in-possession loansBankrupt companies secured 356 postpetition loans through Nov. 15, with existing lenders dominating the landscape

30 exit financingsNew money remains in short supply, but lending options for debtors are increasing and prices are dropping

33 private equity filingsEasy and cheap debt at the tail end of the buyout boom left many bankruptcies in its wake this year

38 venture capital filingsWith capital markets constricted, some 40 VC companies fell into bankruptcy, with a majority heading to liquidation

Volume 6, Issue 24

Week of Thursday, December 17, 2009

Bankruptcy DatabaseThe Deal’s online resource for information on filings, advisers, bankruptcy M&A, DIP fund-ings, exit loans and more. It’s part of your subscription to The Deal Pipeline and pipeline.thedeal.com.

High and tight

W hile the five largest bank-ruptcies of 2009 were filed in Manhattan, the difference in

pay scale between what debtor counsel there and in Delaware earn is a mere $8 per hour in the New York court’s favor.

At least that’s according to a pipeline.thedeal.com study of the five largest cases in terms of assets filed this year in each of those popular bankruptcy ven-ues. The average hourly rate for debtor

counsel in the cases filed in Manhattan—Chrysler LLC, Lyondell Chemical Co., General Growth Properties Inc., CIT Group Inc. and General Motors Corp.—is $913, versus $905 for the largest cases filed in Wilmington—Capmark Finan-cial Group Inc., Nortel Networks Inc., R.H. Donnelley Corp., Smurfit-Stone Container Corp. and AbitibiBowater Inc.

In reprising the study—we first did it in 2001, looking at large cases and hourly rates for 1990, 1995 and 2000—the $8 gap is the narrowest when comparing those years and cases in 2005 and 2009 in both venues for debtor counsel. Just as inter-esting, perhaps, is that the $68 schism among associates in the 2009 cases ($604 per hour in Delaware versus $672 in New York) and the $46 gap among paralegals ($227 per hour in Delaware versus $273 in New York) represent the widest in the five years studied.

Nowadays, debtor counsel such as Deryck Palmer of Cadwalader, Wicker-sham & Taft LLP in the Lyondell case make $1,050 per hour. But in the cases pipeline.thedeal.com looked at in 2001, the hourly rates understandably were much lower. For example, the top earn-er, Harold Novikoff at Wachtell, Lipton, Rosen & Katz, was billing $675 per hour in W.R. Grace & Co.’s Delaware case.

One bankruptcy academic, Lynn Lo-Pucki, Security Pacific Bank professor of law at the UCLA School of Law, calcu-lates that bankruptcy fees have risen at a rate of about 8% to 10% yearly for each

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As lawyer pay rises, the gap between New York and Delaware shrinks

Bankruptcy Insider is published every other Thursday as a feature in The Daily Deal, a service of The Deal Pipeline. For demonstration and subscription information, please call 888-257-6082.

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the past five years nationwide, regardless of court. That rise is about double the rate of inflation and is about on par with the ris-ing costs of healthcare, he says.

But bankruptcy lawyers disagree. They claim the work is getting harder and re-quires longer hours.

“The biggest differences between 2005 and 2009 are the size of the matters, the complexity and the number of large cases that have been filed,” says Richard Cieri of Kirkland & Ellis LLP, who charged $795 per hour to work on Calpine Corp., one of the biggest New York cases in 2005. “Cases now are much larger.”

Another New York bankruptcy attorney, who asked not to be named, agrees. “Bank-ruptcy cases these days have become more and more complicated,” he notes. “Cases these days are also shorter, with several large companies emerging in months in-stead of years. Our partners and associates are doing more and more work per hour.”

Palmer, for example, has logged 1,428 hours of work for the first eight months of Lyondell’s bankruptcy case. And there are attorneys that are charging even more. Witness Adam Plainer of Jones Day, a debtor counsel for Chrysler. Plainer is in Jones Day’s London office and is billing $1,175 an hour (the weak U.S. dollar is like-ly a factor in that, too), but his part of the case has only consumed about 15.9 hours of work, and so we’re not including him in our analysis.

Still, bankruptcy attorneys can’t dis-pute that they’ve seen a healthy bump in their hourly rate. The highest earners for the largest 2005 cases we looked at in New York and Delaware—N. Lynn Hiestand and J. Gregory Milmoe of Skadden, Arps, Slate, Meagher & Flom LLP—each billed $835 per hour for their work in Refco Inc.’s New York bankruptcy. Palmer’s rate is 26% higher, far beyond the rate of inflation.

“The rates reflect the tremendous in-crease in demand,” Cieri says.

And Milmoe himself believes bank-ruptcy attorneys still may not be getting their due. “I do not think that bankruptcy fees have gone up compared to other legal

fees,” Milmoe says, pointing to a study he’s seen in which several M&A lawyers are charging in excess of $1,100 per hour. “To the contrary, I think bankruptcy fees are lagging behind increases in other fees, on a per-hour basis.”

LoPucki isn’t sympathetic to that argu-ment. “There’s no one controlling rates,” he says. “The debtor doesn’t have much incentive to control fees, since a lot of it is essentially being paid by the creditors. The court can’t control fees, because the cases would simply go elsewhere. Put yourself in the judges’ position. If all of the judges in New York got together and said, ‘We’re go-ing to draw a line on fees,’ lawyers will take cases to Delaware.”

Partners are not the only ones reaping the benefits of the higher billing rates. As-sociates who do a significant portion of the work in modern-day bankruptcies as a whole have also received a significant boost in salaries.

Take Reuven Falik, an associate at Paul, Weiss, Rifkind, Wharton & Garrison LLP working on the 2009 Delaware bankruptcy filing of AbitibiBowater. The $660 that he is billing per hour is about 33% more than the $495 that Marion Quirk of Skadden charged for serving in a similar role in 2005 in another Delaware case, Birch Telecom Inc. Falik did not return calls for comment. (Besides Birch Telecom, the other 2005 Delaware cases we studied were Foamex International Inc., Meridian Automo-tive Systems Inc., FLYi Inc. and Ameri-can Business Financial Services Inc. In New York, besides Calpine and Refco, we looked at Delphi Corp., Northwest Airlines Corp. and Delta Air Lines Inc.)

The same increases also apply to para-legals. Cadwalader is billing $385 for Wen-dy Kane in Lyondell, the most in the 2009 cases we looked at. That rate is 60% higher than the top rate for 2005 cases—the $240 that Kirkland billed for Beth Friedman in Calpine.

The pay scale in Delaware is growing faster than the one in New York, too. The highest-earning debtor counsel in the Del-aware cases billed at an average of $905 per hour, a 21% higher clip in 2009 than the $747 they did in 2005. In the New York

cases, there was a 17% rise between 2009’s $913 and 2005’s $779.

The top associates fared the best, how-ever. Delaware associates are earning a whopping 45% more today than they did in 2005, with their average rate for five cas-es rising to $604 an hour from $417. Asso-ciates in New York are narrowly outpaced but still enjoy a 44% increase in pay ($672 in 2009 versus $468 in 2005.)

The boost for paralegals mirrored those of partners. In Delaware, the $227 per hour average in 2009 was 27% loftier than 2005’s $179. In Manhattan, the $273 aver-age rate in 2009 was an impressive 52% higher than the $180 four years earlier.

What associates and paralegals are bill-ing is noteworthy, since they are amass-ing more billable hours than partners. But one reason for this, Milmoe says, is that “partners delegate work down for cost ef-ficiency.” After all, assigning mundane pa-perwork to a paralegal billing for $150 an hour is more cost efficient than having a $950 per hour partner deal with it.

In 2005, there was little difference be-tween the pay scale of paralegals in New York and Delaware. Manhattan had a $1 an hour edge. The mere fact that the gap has widened by $45 since then speaks to the fact that Manhattan is attracting many more cases.

Alas, it’s something that Delaware, which once before eclipsed Manhattan’s dominance as a bankruptcy venue, is aware of. “Of course,” LoPucki says. “They com-pete for the big cases. Big-case bankruptcy is a business for Delaware. It’s an impor-tant industry for the state. In New York, it’s an important industry for the bankruptcy community. Neither jurisdiction wants to lose big cases.”

And neither really has. In 2005, of the 10 largest Chapter 11 cases, six were filed in New York and one was filed in Delaware. Their dominance has grown in 2009; of the 10 largest Chapter 11 cases, six were filed in Manhattan and three were filed in Delaware.

That means hourly pay for partners, associates and paralegals is only likely to keep growing in both jurisdictions. n

—Kevin Fung

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Debtor: birch telecom inc.*

Skadden, Arps, Slate, meagher & Flom llP J. Gregory Milmoe $825 Marion Quirk $495 Various paralegals $125-$195

Mark S. Chehi 695 Christopher Chow 430

Debtor: FoAmex internAtionAl inc.*

Paul, Weiss, rifkind, Wharton & Garrison llP Alan Kornberg $785 Justin Brass, Ephraim Diamond 435 Various paralegals $155

Brian Hermann 585 Pang Lee 310

Young conaway Stargatt & taylor llP Pauline K. Morgan $460 Joseph Barry $325 Debbie Laskin $175

M. Blake Cleary 385 Kenneth Enos 225

Debtor: meriDiAn Automotive SYStemS inc.*

Sidley Austin brown & Wood llP James Conlan, Larry Nyhan $725 Paul Caruso $450 Lauren Hoeflich $165

Janet Henderson 650 Lori Kujawski 250 Susan Summerfield 95

Young conaway Stargatt & taylor llP Robert Brady $475 Edward Kosmowski, Edmon Morton $345 Thomas Hartzell $170

Ian Fredericks 220

Debtor: FlYi inc.*

Jones Day Paul Leake $725 S. Friedman $430 D.M. Sciabarassi $205

Brad Erens 605 K.M. Neff, R.S. Barr 260

Young conaway Stargatt & taylor llP Brendan Linehan Shannon $460 Joseph Malfitano $325 Debbie Laskin $175

M. Blake Cleary 385 Ian Fredericks 225 Michelle Smith 110

Debtor: AmericAn buSineSS FinAnciAl ServiceS inc.*

blank rome llP Thomas Biron, Michael Brownstein $595 J. Staib $275 J. Recchiuti $210

Raymond Patella 300 L. McCloskey 195 M. Dero 190

hangley Aronchick Segal & Pudlin Joseph Dworetzky $505 Matthew Hamermesh $275 Jennifer Grieves, Christine Hewlett $150

Alan Promer 300

Debtor: cAPmArk FinAnciAl GrouP inc.†

Dewey & leboeuf llP $625-$995 $385-$625 $155-$275

richards, layton & Finger PA Mark Collins $675 Jason Madron $345 Aja McDowell $195

Lee Kaufman 275

Debtor: nortel netWorkS inc.*

cleary Gottlieb Steen & hamilton llP James Bromley $940 Jesus Beltran, Sandrine Cousquer, Sanjeet Malik $605 Various paralegals $275

Lisa Schweitzer 870 Various paralegals 210

morris, nichols, Arsht & tunnell llP Robert Dehney $725 Daniel Butz $415 Angela Conway, Renae Fusco $205

Derek Abbott, Eric Schwartz 550 Erin Fay 265 Emma Campbell, Jason Kittinger 190

Debtor: r.h. DonnelleY corP.*

Sidley Austin llP James Conlan $925 Bojan Guzina $625 Nancy Lusk $190

Jeffrey Bjork, Paul Caruso 700 Various associates 375

Young conaway Stargatt & taylor llP Robert Brady $610 Donald Bowman $325 Melissa Bertsch, Casey Cathcart $155

Edmon Morton 480 Kenneth Enos 310 Anastasia Joseck 145

Debtor: SmurFit Stone contAiner corP.*

Sidley Austin llP James Conlan, Larry Nyhan $925 Bojan Guzina $625 Nancy Lusk $230

Dennis Twomey 650 Peter Booth 315 Michelle Smith 150

Young conaway Stargatt & taylor llP Robert Brady $610 Matthew Lunn $375

Edmon Morton 480 Robert Poppiti 260

Debtor: AbitibiboWAter inc.*

Paul, Weiss, rifkind, Wharton & Garrison llP Kelley Cornish $925 Reuven Falik $660 William Keller, Joseph Monzione $225

Various associates 395 Sharon-Cind Meister 165

Young conaway Stargatt & taylor llP Joel Waite $610 Sean Greecher $330 Debbie Laskin $210

Pauline Morgan 600 Pilar Kraman 240 Anastasia Joseck 145

Debtor counsel / co-counsel Partner hourly fee Associate hourly fee Paralegal hourly fee

DelAWAre 2005

DelAWAre 2009

Source: pipeline.thedeal.com

BANKRUPTCY FEES larGest cases Jan. 1–Nov. 15, 2009

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Debtor: refco Inc.*

Skadden, Arps, Slate, Meagher & flom LLP N. Lynn Hiestand, J. Gregory Milmoe $835 Various associates $540 Various paralegals $60- $230

Eric Davis, Felicia Gerber Perlman 695 Loren Friedman, Douglas Herrmann, Karen Skomorucha 295

Debtor: DeLPhI corP.*

Skadden, Arps, Slate, Meagher & flom LLP N. Lynn Hiestand $826 Chris Dickerson, Christian Pilkington $540 Various paralegals $75-$230

John Lyons 645 Allison Verderber Herriott 354

Debtor: northweSt AIrLIneS corP.*

cadwalader, wickersham & taft LLP Bruce Zirinsky $800 Ingrid Bagby, Deborah Piazza $470 Peter Vail $215

Gregory Petrick 665 Alexander Strom 230 Donna Kirk 100

Debtor: cALPIne corP.*

Kirkland & ellis LLP Richard Cieri $795 Leonard Budyonny, Evan Gartenlaub, Javier Schiffrin $455 Beth Friedman $240

Edward Sassower 520 Robert Urband 330 Michael Levin 105

Debtor: DeLtA AIr LIneS Inc.†

Davis Polk & wardwell John Fouhey, Marshall Huebner, Benjamin Kaminetzky $495-$785 $195-$475 $70-$220

Debtor: LyonDeLL cheMIcAL co.*

cadwalader, wickersham & taft LLP Deryck Palmer $1,050 Scott Griffin, Doug Mintz $615 Wendy Kane $385

Christopher Mirick 700 Various associates 335 Victoria Taylor 135

Debtor: cIt GrouP Inc.†

Skadden, Arps, Slate, Meagher & flom LLP $730-$995 $360-835 $175-$295

Debtor: GenerAL Growth ProPertIeS Inc.*

weil, Gotshal & Manges LLP Marcia Goldstein $950 Elisa Lemmer $640 Kathleen Lee, Christopher Stauble $245

Kelly Dybala 725 Gabriel Morgan 355 Ramesh Dhanaraj 95

Kirkland & ellis LLP James Sprayregen $965 Chad Husnick, Scott Kitei $610 Beth Friedman $275

Debtor counsel / co-counsel Partner hourly fee Associate hourly fee Paralegal hourly fee

new yorK 2005

new yorK 2009

Source: pipeline.thedeal.com*Interim fee application† Retention motion

Debtor: GenerAL MotorS corP.†

weil, Gotshal & Manges LLP $650-$950 $355-$640 $155-$290

Debtor: chrySLer LLc*

Jones Day Corinne Ball, David Heiman $900 V. Roovers $600 E.L. Goodman, D.M. Hirtzel, M.B. Stone $275

Carl Black 575 G.R. Howard 225 A.K. Sobczak 250

BANKRUPTCY FEES larGest cases Jan. 1–Nov. 15, 2009



DEAL DOCTORS MOVERS & SHAKERS

L yndon Norley has joined Green-berg Traurig Maher LLP to launch its restructuring practice.

Before joining the U.K. branch of Green-berg Traurig LLP, the London sharehold-er led the European restructuring practice of Kirkland & Ellis International LLP. He was debtor counsel for Dura Auto-motive Systems Inc. and advised the ad-ministrators of Collins & Aikman Europe. In addition, Norley has worked on the re-structurings of Groupe Eurotunnel SA, J.L. French Automotive Castings Inc., Nybron Flooring International, Sea Containers Ltd. and UAL Corp.

Dickstein Shapiro LLP has added Sam J. Alberts to its bankruptcy and creditors’ rights practice in Washington.

Alberts previously led the Washington financial restructuring and insolvency group of White & Case LLP. Before that, he was a partner at Akin Gump Strauss Hauer & Feld LLP.

He has served as debtor counsel for Sunchase Capital Partners XI LLC and Mirant Corp., represented creditors of MCSi Inc., Hospital Partners of Ameri-ca Inc. and Lehman Brothers International (Europe) Ltd. and was liquidating trustee of Doctors Community Healthcare Corp.

Middle-market private equity firm Mid-Ocean Partners LP has named restructur-ing veteran Robert S. Miller chairman.

Miller last served as executive chair-man of Delphi Corp. (he earlier was chair-man and CEO) and has also led the in-court restructurings of Bethlehem Steel Corp. and Federal-Mogul Corp. He began his career at Ford Motor Co. in 1968 and subsequently worked at Chrysler Corp. for 13 years, where he led the financial negotiations with some 400 lenders and the federal government that resulted in the Chrysler Corp. Loan Guarantee Act of 1979. Miller was a senior partner at invest-ment bank James D. Wolfensohn Inc. from 1992 to 1993.

He currently is a director of American International Group Inc., Symantec Corp. and UAL.

Former MidOcean chairman Mark An-

gelson remains a board member. In Sep-tember he became chairman and CEO of World Color Press Inc., the post-Chapter 11 name of Quebecor World Inc. He previ-ously was nonexecutive chairman.

MidOcean appointed Angelson chair-man in December 2007 following his re-tirement as CEO of printing services com-pany R.R. Donnelley & Sons Co.

Investment management firm Consilium Investment Management has launched a fund focused on debtor-in-possession financing and superpriority loan opportu-nities.

In a statement, Consilium chief invest-ment officer Jonathan Binder said “re-duced competition and recent history of increasing bankruptcies have created an opportunity of unusual magnitude for participating in DIP financing.” The firm called attention to what it said was the cur-rent “highly constrained” role of banks in postpetition funding.

Consilium joins the roster of firms that recently launched funds that at least in part will participate in DIP financing: Tennenbaum Capital Partners LLC (the $330 million Tennenbaum DIP Op-portunity Fund LLC), Sankaty Advi-sors LLC (roughly $673 million raised for Sankaty DIP Opportunities Fund), Third Avenue Management Inc. (Third Avenue Focused Credit Fund, a mutual fund), Brookfield Asset Management Inc. (a C$1 billion [$950 million] dis-tressed-debt fund) and Marlin Equity Partners LLC (the $650 million Marlin Equity III LP). The vehicles are part of a wave of new distressed debt and equity funds.

Brad Hillier has shifted to the New York office of AlixPartners LLC.

The director formerly was national service line leader for KPMG LLP’s re-structuring network and led its cash and liquidity service. He earlier was a director at PricewaterhouseCoopers LLP.

Investment bank Global Hunter Securi-ties LLC has added Steve Sebastian as co-head of financial advisory and restruc-

turing services. The managing director will work with counterpart Jeff Zolkin from a new Los Angeles office.

Sebastian previously was a managing di-rector at Chanin Capital Partners. Before that, he provided financing to middle-mar-ket companies at Ravenscourt Capital and worked at Bear, Stearns & Co. and Bankers Trust Co. He has been financial adviser to Crescent Jewelers Inc. and investment banker for Legacy Estate Group LLC.

Sarah Smith has joined the London office of Bingham McCutchen LLP.

The Bingham partner was co-head of Sidley Austin LLP’s international finance group in London and led the firm’s Singa-pore finance practice from 1996 to 1998. She will initially focus on general restruc-turing and finance matters.

Fred Zeidman is the newest principal at XRoads Solutions Group LLC. He joins the firm’s global energy practice in Hous-ton.

Zeidman most recently was chief re-structuring officer of Transmeridian Ex-ploration Inc. and interim president of Nova Biosource Fuels Inc. He also served as CEO, president and chairman of Seitel Inc. during a turnaround of the company.

The International Women’s Insolvency & Restructuring Confederation honored N. Lynn Hiestand on Dec. 4 as 2009 Woman of the Year in Restructuring.

The Skadden, Arps, Slate, Meagher & Flom LLP partner, who serves as co-head of the law firm’s European corporate re-structuring practice, switched to restruc-turing in the early 1990s from mergers and acquisitions work. She helped build Skad-den’s London restructuring practice. The group, founded in 2004, now has 11 full-time members.

She recently has represented Nokia Siemens Networks BV in its bid for the wireless infrastructure business of Nortel Networks Corp.; Koenigsegg Auto-motive AB and investors in their bid for Saab Automobile AB; Nomura Holdings

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DEAL DOCTORS MOVERS & SHAKERS

Inc. in its acquisition of certain Lehman Brothers Holdings Inc. assets; Hayes Lemmerz International Inc.; and the joint liquidators of Flightlease Holdings (Guernsey) Ltd. and other affiliates of Swissair Group AG.

Hiestand previously was debtor counsel for Comdisco Inc., Delphi, Kmart Corp. and Refco Inc.; represented asset acquirer UC Rusal in the Kaiser Aluminum Corp. case; and advised lender Deutsche Bank AG in the OAO NK Yukos case.

She began her career at Fried, Frank, Harris, Shriver & Jacobson LLP after clerking for Judge Pierce Lively of the U.S. Court of Appeals for the Sixth Circuit.

Milbank, Tweed, Hadley & McCloy LLP has elected five new partners, including financial restructuring associates Evan Fleck and Tyson M. Lomazow in New York.

Fleck represents the official committee of unsecured creditors of Lehman Brothers and has served as debtor counsel to North-west Airlines Corp. and Enron Corp. He also has represented the creditors’ com-mittee of Heartland Automotive Hold-ings Inc. and Calpine Corp. noteholders.

Lomazow has advised debtor Corn Exchange LLC, the DIP agents for Hayes Lemmerz and Cooper-Standard Auto-motive Inc., unsecured banks of Capmark Financial Group Inc. and the creditors’ committee of VI Acquisition Corp.

Weil, Gotshal & Manges LLP has ap-pointed three new partners and six new counsel, effective Jan. 1, including business finance and restructuring attorneys Ronit Berkovich and Elisa Lemmer.

Berkovich, a New York senior associ-ate, joins Weil’s partnership. She serves as debtor counsel for BearingPoint Inc., Motors Liquidation Co., Lehman Broth-ers and Lenox Group Inc. and previously represented WorldCom Inc., Parmalat Fi-nanziaria SpA and Vertis Inc., as well as the examiner of FiberMark Inc.

Lemmer, a Miami associate, will be-come counsel.

Latham & Watkins LLP has named 23 new partners and 13 new counsel, effective Jan. 1.

New tax partner Julie Marion in Chi-cago and corporate partners Dirk Kocher in Hamburg, Rory Negus in London, Kil-ian Helmreich in Munich and Hiroki Kobayashi in Tokyo all have some experi-ence with corporate restructuring or insol-vency.

Similarly, finance counsel Olivier Ver-meulen in Doha, Qatar, has debt restruc-turing experience, and employment law counsel Lionel Vuidard in Paris has ad-vised in restructurings.

Scott Greenberg will be the newest spe-cial counsel in the financial restructuring department of Cadwalader, Wickersham & Taft LLP next year.

The New York attorney has represented Lyondell Chemical Co., Atkins Nutrition-als Inc. and Saint Vincent Catholic Medi-cal Centers of New York; the Portland Trailblazers in an out-of-court restruc-

turing; bidder Ice Edge Holdings LLC in the Dewey Ranch Hockey LLC case; and first-lien lenders of UTGR Inc.

White & Case has elected 33 partners, in-cluding four in its global financial restruc-turing and insolvency practice.

New York-based Scott Greissman joined the firm in January 2004 and repre-sents potential acquirer Pilot Travel Cen-ters LLC in the Flying J Inc. case.

Michael Shepherd joined the Miami office of White & Case in 2006.

Thierry Bosly in Brussels is counsel to interested parties of Lobster Land Sea Products, creditor Frank Roberts & Sons Ltd. in the Nucta NV case and lenders to Plastal Holding AB.

London-based Mark Glengarry has represented Cordiant Group plc, a steer-ing committee of lenders for JVH Gaming Group, Deutsche Bank in several restruc-turings and aircraft finance parties in the Delta Air Lines Inc. and Northwest Air-lines Corp. cases.

Iker I. Arriola Peñalosa in Mexico City and Carsten Rodemann in Berlin also have restructuring experience.

Citigroup Inc. may have edged Bank of America Corp. for top DIP lender in 2009 through Nov. 15 (see story, page 23), but it’s BofA that ends the year as the hottest post-petition lender.

The Charlotte, N.C., bank provided $557.5 million in DIP funding in the three months ended Dec. 10, far outdistanc-ing 3239432 Nova Scotia Co., which lent C$230 million ($219 million) to Abitibi-Consolidated Inc.

General Electric Co. was the most prolific lender, supplying $41.83 million through five DIPs. BofA and Credit Suisse AG, Cayman Islands Branch finished sec-ond for their involvement in three loans.

Figures for all the hottest DIP lend-ers are down sharply since the last time Bankruptcy Insider checked on March 31. That’s not surprising, however, since DIP issuance has tailed off from $14.24 billion in the first quarter to $2.25 billion for the three months ended Dec. 10. n

—David Elman

Hottest debtor-in-possession lenders Ranked by number of new loans and total loan volume during the three months ended Dec. 10

Rank Firm No. of new DIPs

1 General Electric Co. 5

2Bank of America NA 3

Credit Suisse AG, Cayman Islands Branch

3

Rank Firm Volume ($mill.)

1 Bank of America NA $557.5

2 3239432 Nova Scotia Co. 219.0

3 Credit Suisse AG, Cayman Islands Branch 175.0

4 Wilmington Trust FSB 150.0

5

Goldman Sachs Lending Partners LLC 105.0

Jefferies Finance LLC 105.0Source: pipeline.thedeal.com

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D espite a severe restriction in credit markets that traces its roots to the late 2008 bankrupt-

cy filing of Lehman Brothers Holdings Inc., it has been a record-setting year for debtor-in-possession financing by almost any measure, and to be sure, an imagina-tive one.

For all the talk of a virtually nonexis-tent DIP lending market, debtors in 2009 had raised 356 DIPs totaling $59.67 billion through Nov. 15, compared with 300 DIPs totaling $17.36 billion over the same pe-riod a year earlier, according to pipeline.thedeal.com. (See table, pages 26 to 29.)

Obviously, this year’s numbers are sub-stantially skewed by the mammoth DIPs lent by the U.S. Department of the Trea-sury and Export Development Canada in the megabankruptcies of General Motors Corp. (which received $33.3 billion in DIP financing) and Chrysler LLC ($4.96 bil-lion). But even after removing those gov-ernment-funded cases from the equation, debtors had secured $21.41 billion in DIP financing through Nov. 15, still more than last year’s total and way ahead of the pace through the same period in 2007 (206 DIPs totalling $13.45 billion) and 2006 (186 DIPs totalling $6.35 billion).

But the raw numbers don’t tell half of the story. One of the defining aspects of this bankruptcy cycle is the heavily layered capital structures debtors enter Chapter 11 with and how those compli-cated structures define the real power brokers in each case.

“The systemic problem is the fact that the pyramid [of corporate debt] is so broad at the base, there are so many co-lenders in each loan, it’s almost like a sociologi-cal experiment” trying to get them on the same page, says Scott Baena, chair of the restructuring and bankruptcy group at Bilzin Sumberg Baena Price & Axelrod LLP. The Miami attorney says in modern Chapter 11 restructurings a debtor rarely negotiates directly with the agents for its

prepetition debt. These agents have es-sentially been reduced to the role of “bal-lot-takers,” he says.

Deeply levered debtors also usually have little or no unencumbered assets to offer traditional strategic DIP lend-ers as collateral. Absent a priming battle in bankruptcy court—a rare occurrence, but always lengthy and expensive—a DIP lender cannot move in and prime an exist-ing lender’s security interests.

Add to that a decline in valuations vir-tually across the board, which leaves a very slim equity cushion (if there’s one at

all) that DIP lenders can look to as secu-rity.

The result, regardless of third parties with the funds and desire to enter the lu-crative DIP market, has been a shift to an era of postpetition financing dominated by existing lenders, which, more often than not, happen to be traditional banks with no real appetite for bankruptcy lending.

For example, not including Treasury and EDC, Citigroup Inc. was the big-gest DIP lender this year through Nov. 15, providing $2.4 billion through seven loans. Bank of America Corp. is next with 29 DIPs totaling $2.33 billion, fol-lowed by General Electric Co. ($1.12 billion, 22 DIPs), UBS AG ($953.17 mil-lion, seven DIPs), Goldman Sachs Group Inc. ($911.99 million, two DIPs), Wells Fargo & Co. ($876.83 million through a

2009 high of 33 DIPs), Deutsche Bank AG ($856.34 million, seven DIPs) and J.P. Morgan Chase & Co. ($826.7 million, 11 DIPs).

Since the credit markets dried up, “we still haven’t seen a really true, new DIP lender, one that’s looking for an opportu-nity to lend strictly for a return on their capital,” says Brett Barragate, co-head of Jones Day’s financial institutions litiga-tion and regulation group.

Barragate, like many of the bankruptcy professionals interviewed for this article, noted that in the rare case when a debtor could raise a third-party DIP this year, it usually came from an investor looking to acquire its assets out of bankruptcy and using the loan as a bridge to a Section 363 sale.

For example, Sun Capital Partners Inc. used the strategy to purchase Cat-terton Partners portfolio company Lang Holdings Inc. out of bankruptcy. Lang entered Chapter 11 on July 16 with a $16 million DIP from Sun Capital affiliate Sun Lang Finance LLC. The Boca Raton, Fla., investment firm teamed with Catterton to form LHI Enterprises Inc. to buy Lang. Sun Capital credit-bid roughly $15 million outstanding on its DIP, while Catterton credit-bid a portion of debt it acquired from prepetition lender Bank of America.

“The concept of hiring an investment banker to get the right terms for DIP fi-nancing and get [lenders] to compete against each other” largely no longer ex-ists in the current Chapter 11 landscape, says Cathy Hershcopf, a partner in Cooley Godward Kronish LLP’s bankruptcy and restructuring group.

This dominance of traditional banks in the market for DIP lending has changed the landscape of how DIPs are structured. Refinancing, or rolling up, outstanding debt into a DIP loan is by no means a new phenomenon. But in 2009, existing lend-

Wresting the reins

CONTINUED >

With debtors deeply leveraged, prepetition lenders have had firm control of debtor-in-possession lending

“We still haven’t seen a really true, new DIP lender,

one that’s looking for an opportunity to lend strictly for a return on capital.”

—Brett Barragate

23 ThE DAIlY DEAl T h U R s D AY D E C E m b E R 1 7 2 0 0 9



ers were as forceful and creative as ever in rolling up their debt, which gives them priority above almost all other creditors in repayment. The end result was not a lot of bang for the overall buck, so to speak, for debtors.

The 356 DIPs raised by debtors through Nov. 15 include $50.37 billion, or 84.4%, “new money.” Take GM and Chrysler out of the equation, though, and the remaining DIPs include $12.11 billion, or just 56.5%, in new money. (For more on the top new-money lenders, see page 25.)

In other words, DIP lenders excluding Treasury and EDC used almost half of their total DIP commitments to roll up their ex-isting debt. Rolling up large amounts of debt often does not afford debtors with enough new capital to survive a Chapter 11 case and often serves only as a means for existing lenders to keep the lights on long enough to liquidate their collateral.

Though it filed for Chapter 11 in late 2008, Circuit City Stores Inc. is per-haps the best and well-known example of the consequences to this practice. The electronics retailer entered bankruptcy armed with a $1.1 billion DIP from exist-ing lenders led by BofA, GE Capital Mar-kets Inc. and Wells Fargo Retail Finance LLC. The size of the DIP was misleading, however, as it rolled up some $898 million outstanding on Circuit City’s $1.3 billion prepetition line of credit.

When Circuit City could not raise $75 million in junior financing as required by the DIP’s terms—and when it missed rev-enue projections to boot—its DIP lenders pulled the plug and forced the chain into liquidation.

In early 2009, two bankruptcies brought with them the introduction of a new, creative way to incentivize lenders to fund large DIP loans with new capi-tal. Lyondell Chemical Co.’s $8.5 billion DIP (the second-largest commitment in 2009, behind only GM’s) and Aleris In-ternational Inc.’s $1.62 billion DIP both feature a dollar-for-dollar rollup of prepe-tition debt.

Lyondell’s DIP includes a $6.5 billion

term loan, half of which is new funding, while the remainder rolls up prepeti-tion debt. (The DIP also includes a $1.52 billion revolver, expandable to $2 bil-lion, to replace existing working capital facilities.)

Similarly, in addition to a $575 million revolver, Aleris’ DIP rolls up as much as $540 million in term debt and contains roughly $500 million in new money.

Such a structure gives lenders incen-tive to lend new money to a bankrupt company and provides debtors with enough capital—and time—to successfully reorganize.

“What we saw this year in the way of these imaginative devices is a testament to how we started the year without [financ-ing] and clawed our way through it with incentive-driven DIPs,” Baena says.

On the heels of Lyondell and Aleris’ creative DIPs, it seemed in the beginning of the year that virtually every bankruptcy loan with a substantial new-money com-mitment would include a dollar-for-dol-lar rollup. ION Media Networks Inc. entered bankruptcy in May with a $300 million DIP that included $150 million in new money and rolled up an equal portion of existing debt. (The broadcast television station operator ultimately scrapped the rollup portion of the loan after it met re-sistance from first-lien lenders not invited to participate in the rollup, a routine ob-jection when the technique is used.)

But rather than becoming the new norm in bankruptcy financings, DIPs with this structure may be only a sign of the turbulent times of early 2009.

“The only reason you need a rollup is that there’s no third-party capital avail-able for a DIP,” says Mark Cohen, head of restructuring and workout at Deutsche Bank. “Rollups are a sign of a fractured market.”

Cohen, who led Deutsche’s team that participated in Aleris’ DIP, says it is un-likely there will be more dollar-for-dollar rollups going forward “unless we see an-other market setback.”

“They are not a normal market fea-ture” but rather a classic example of de-fensive DIP financing, he says.

While Aleris and Lyondell were able to persuade their existing lenders to com-mit new money in bankruptcy by creating innovative DIP structures, dozens of oth-er companies were forced to consent to more basic rollups of their debt through DIP loans. One debtor in particular, though, became the envy of all bankrupt companies.

General Growth Properties Inc., which owns and operates 200 malls in 44 states, entered Chapter 11 with a $375 million all-new-money DIP from equity holder Pershing Square Capital Man-agement LP but ultimately found itself with three prospective lending groups. Interest in providing GGP with a DIP was such that the debtor decided to hold an auction to choose the best proposal, a scenario unheard of in the current DIP market and rare at any time.

The Chicago company eventually chose a $400 million DIP from existing unsecured creditors led by Farallon Cap-ital Management LLC. The loan, like at least one other proposal, can be paid back by converting outstanding debt to equity, a sign that the lenders on board see value in a reorganized GGP.

“The fact that there was a potential equity upside in the DIP set it apart,” says David Feldman of Gibson, Dunn & Crutcher LLP, counsel to Farallon in the

< PREVIOUS

CONTINUED >

“What we saw this year in the way of these imaginative devices is a testa-ment to how we started the year without [financ-

ing] and clawed our way through it with

incentive-driven DIPs.” —Scott Baena

24 ThE DAIlY DEAl T h U R S D AY D E C E m b E R 1 7 2 0 0 9


case. Though GGP had the Pershing DIP in place when it filed bankruptcy, it did not draw down from the loan. Instead, it used some $209 million in cash collat-eral to fund operations of its malls during the first three weeks of its case. All the while, GGP solicited rival proposals.

“The company went out and cut a deal initially on a DIP that many parties believed was a rich deal for the DIP lender. That’s why parties that had a stake in GGP felt that they could do bet-ter,” says Feldman, referring to the Farallon-led group, and the third bidder, Goldman Sachs Group Inc., owed about $225 million in prepetition debt.

To be sure, GGP was not the only debtor to enter Chapter 11 this year with a DIP loan not fa-vored by other creditors. But un-like most debtors in this current cycle, GGP had something to offer a third-party lender.

“The view was that there was enough equity in some of the properties and some significant unencumbered assets ... and [ex-tra] cash on the balance sheet” to serve as collateral, Feldman says, speaking about Farallon’s interest in particular.

Despite the competition for its DIP, though, GGP still paid a steep price. The loan is priced at LIBOR plus 1,200 basis points (a high but not unheard-of coupon in the first half of the year) and includes a 3.75% exit fee for Far-allon.

Most notably, however, Faral-lon and the other lenders par-ticipating in the loan can convert outstanding amounts on the DIP into either 8% of GGP’s fully di-luted common stock or 9.9% of the common stock issued on the effective date of a reorganization plan, court filings show. Similarly,

ION Media has the option to either pay back its DIP in cash or convert the facil-ity into a 62.5% equity stake upon exiting bankruptcy.

That such equity conversions have crept into DIP agreements this year is a

sign of the times. The conversion gives debtors something extra to offer in ex-change for the DIP and also helps them avoid raising more cash in unfavorable markets to pay down the loan upon exit-ing bankruptcy.

But for those on the bottom of bankruptcy’s pecking order, such as unsecured creditors, the inno-vation can increasingly take them out of the money, especially with valuations down virtually across the board.

Equity conversions in DIP agreements are “really not favored by the court because they come to the disadvantage of prepetition creditors who were hoping for some of the equity value,” Bar-ragate says. “You’re taking some-thing off the table [for the junior creditors], and courts are gener-ally reluctant” to approve them.

Cohen says equity conver-sions in DIP loans are a product of debtors’ inability to raise tra-ditional third-party financing in bankruptcy. Much like dollar-for-dollar rollups, he does not expect to regularly see such features in DIPs as credit markets improve.

“We’re at the front end of what I think will be a very good part of the cycle,” says Cohen, who expects to see “a wave” of exit fi-nancings in 2010.

That surge, already building, would be welcome news to debt-ors and DIP lenders alike. Barra-gate says that absent a function-ing exit financing market, debtors with no light at the end of the tunnel will continue to be hard pressed in raising third-party DIP financing.

That, of course, would leave traditional banks to fill the void as they’ve done for the better part of 2009.

Says Barragate of mainstream banks dominating the DIP lend-ing landscape: “It’s become sort of a fact of life.” n� —John Blakeley

NEXT CHAPTER YEAR IN REVIEWNEXT CHAPTER YEAR IN REVIEW

< PREVIOUS

Corporate debtors got a government bailout as G-men drove bankruptcy financing with unmatched velocity. The U.S. Department of the Treasury took the checkered flag as the most powerful “new money” DIP lender in 2009 through Nov. 15.

Treasury pumped $28.1 billion of high-octane financial fuel into two stalled automakers, Chrysler LLC and Gener-al Motors Corp. The government of Canada rode shotgun on the car company deals, with its Export Development Canada vehicle churning out $10.2 billion in new-money volume.

Chasing the federal funds rate, from the private sec-tor, were Bank of America Corp., Citigroup Inc. and UBS AG. Merrill Lynch Capital Corp.’s $812.5 million injection into insolvent Lyondell Chemical Co. was the engine that propelled BofA into third place, which revved up 24 trans-actions worth $2 billion. Citi, meanwhile, provided $1.6 bil-lion through five deals. UBS rounded out the top five with seven deals valued at $945 million. —Neil Malcolm

Department of finance

Top “new money” DIp lenDersJan. 1–Nov. 15, 2009

Rank Lender *No. of

commitmentsNew-money

volume ($mill.)

1 U.S. Department of the Treasury 2 $28,094.0

2 Export Development Canada 2 10,166.0

3 Bank of America Corp. 24 1,968.1

4 Citigroup Inc. 5 1,588.5

5 UBS AG 7 945.0

6 Goldman Sachs Group Inc. 2 832.5

7 General Electric Co. 15 640.9

8 J.P. Morgan Chase & Co. 8 634.9

9 Deutsche Bank AG 6 587.7

10 Wells Fargo & Co. 22 409.6

Source: pipeline.thedeal.com*Includes commitments by affiliates or units




Broadstripe LLC $15.0 100.0% 1/2/09

Recycled Paper Greetings Inc. 10.0 100.0 1/2/09

Interlake Material Handling Inc. 41.5 15.6 1/5/09

Smitty’s Building Supply Inc. 10.5 47.0 1/5/09

Lyondell Chemical Co. 8,500.0 38.2 1/6/09

Lyondell Chemical Co. 100.0 100.0 1/7/09

Clearwater Natural Resources LP 10.0 100.0 1/7/09

MGP Auburn Gresham LLC 0.8 100.0 1/9/09

Retail Pro Inc. 1.3 100.0 1/10/09

Merisant Worldwide Inc. 20.0 100.0 1/11/09

Tronox Inc. 125.0 100.0 1/12/09

Apex Silver Mines Ltd. 35.0 100.0 1/12/09

Shane Co. 10.5 100.0 1/12/09

Tarragon Corp. 6.3 100.0 1/12/09

Think Global AS 5.7 100.0 1/13/09

Gottschalks Inc. 125.0 100.0 1/14/09

Wadley Regional Medical Center 3.5 100.0 1/14/09

VeraSun Energy Corp. 110.6 27.7 1/15/09

Pecus ARG Holding Inc. 71.5 6.7 1/15/09

Marine Drive Properties Ltd. 2.1 100.0 1/15/09

Propex Inc. 65.0 100.0 1/16/09

Hartmarx Corp. 160.0 0.0 1/23/09

HPG International Inc. 1.2 100.0 1/23/09

Smurfit-Stone Container Corp. 750.0 100.0 1/26/09

Rock Well Petroleum Inc. 5.0 100.0 1/26/09

TallyGenicom LP 29.2 14.2 1/27/09

Millennium Transit Services LLC 0.2 100.0 1/27/09

Equity Media Holdings Corp. 58.0 20.7 1/28/09

Brighter Minds Media LLC 3.5 0.0 1/29/09

Renew Energy LLC 2.5 100.0 1/30/09

Global Aircraft Solutions Inc. 1.0 100.0 1/30/09

Agriprocessors Inc. 25.0 67.8 1/30/09

Ernie Haire Ford Inc. 1.0 100.0 2/3/09

Spectrum Brands Inc. 235.0 31.9 2/3/09

Right Start Acquisition Co. 2.5 100.0 2/3/09

Innovatier Inc. 0.2 100.0 2/3/09

ManagedStorage International Inc. 32.9 0.0 2/4/09

On-Site Sourcing Inc. 38.8 100.0 2/5/09

Bruno’s Supermarkets LLC 6.7 50.8 2/5/09

Fortunoff Holdings LLC 80.0 100.0 2/5/09


Fluid Routing Solutions Intermediate Holding Corp. 12.0 100.0 2/6/09

Contech U.S. LLC 7.2 100.0 2/6/09

Bruno’s Supermarkets LLC 4.0 100.0 2/6/09

Debtor Commitment ($mill.)

% new money

Filing date Debtor Commitment

($mill.)% new money

Filing date

Crescent Oil Co. $3.3 100.0% 2/7/09

S & K Famous Brands Inc. 13.0 42.3 2/9/09

Caritas Health Care Inc. 19.6 100.0 2/10/09

SkyMark Holdings Inc. 1.7 100.0 2/11/09

Foothills Texas Inc. 2.5 100.0 2/11/09

Pliant Corp. 75.0 100.0 2/11/09

IdentiPHI Inc. 0.5 100.0 2/11/09

Aleris International Inc. 1,615.9 42.8 2/12/09

Nailite International Inc. 3.0 100.0 2/13/09

Pacifica of the Valley Corp. 24.6 0.0 2/17/09

Cascade Grain 2.0 0.0 2/17/09

Forward Foods LLC 4.0 100.0 2/17/09

Flying J Inc. 11.5 100.0 2/18/09

Foamex International Inc. 95.0 59.0 2/18/09

WL Homes LLC 30.9 74.1 2/19/09

Terra Nostra Resources Corp. 0.1 0.0 2/19/09

Smurfit-Stone Container Corp. 0.4 100.0 2/20/09

Blue Note Caribou Mining 0.8 100.0 2/20/09

Ritz Camera Centers Inc. 85.0 35.9 2/22/09

Philadelphia Newspapers LLC 25.0 100.0 2/22/09

Pasadera Country Club LLC 1.2 100.0 2/24/09

Everything But Water LLC 11.0 100.0 2/25/09

Ittierre SpA 38.3 100.0 2/25/09

We Recycle! Inc. 0.0 100.0 2/25/09

Summitt Logistics & Brokerage LLC 4.2 100.0 3/2/09

SLS International Inc. 0.6 100.0 3/3/09

Autobacs Strauss Inc. 20.0 100.0 3/3/09

Tahera Diamond Corp. 0.4 100.0 3/3/09

Jameson House Properties Ltd. 4.7 100.0 3/4/09

G.I. Joe’s Holding Corp. 51.2 8.2 3/4/09

Magna Entertainment Corp. 62.5 100.0 3/5/09

Solstice LLC 1.3 100.0 3/5/09

Pacific Energy Resources Ltd. 182.7 21.9 3/8/09

St. Mary’s Hospital 20.0 55.0 3/9/09

We Recycle! Inc. 0.5 100.0 3/9/09

Milacron Inc. 135.0 29.6 3/10/09

Tahera Diamond Corp. 3.9 100.0 3/10/09

Ghost Town Partners LLC 0.5 100.0 3/11/09

North American Scientific Inc. 1.0 100.0 3/11/09

Strasburg-Jarvis Inc. 5.1 3.2 3/11/09

Scottsdale Auto Salon LLC 0.3 100.0 3/11/09

Biltrite Rubber (1984) Inc. 1.5 100.0 3/12/09

Appalachian Oil Co. 3.4 100.0 3/12/09

Qimonda Richmond LLC 60.0 100.0 3/13/09

Fresh Funds “new money” debtor-in-possession financing Jan. 1–Nov. 15, 2009





Amerlink Ltd. $0.2 100.0% 3/16/09

Drug Fair Group Inc. 40.0 0.0 3/18/09

Fairchild Corp. 23.0 13.0 3/18/09

Fairchild Corp. 4.0 100.0 3/18/09

Chemtura Corp. 400.0 78.4 3/18/09

Greenbrier Hotel Corp. 19.0 100.0 3/19/09

Extreme Retail (Canada) Inc. 0.5 100.0 3/19/09

Sportsman’s Warehouse Inc. 85.0 100.0 3/20/09

T H Agriculture & Nutrition LLC 6.0 100.0 3/20/09

Varig Logistica SA 7.5 100.0 3/20/09

MMC Precision Holdings Corp. 20.0 16.6 3/22/09

Bi-Lo LLC 125.0 36.0 3/23/09

Active Wallace Group Inc. 3.4 0.0 3/23/09

Fleetwood Enterprises Inc. 80.0 22.9 3/24/09

Dial-A-Mattress Operating Corp. 0.9 83.3 3/25/09

Innovation Luggage Inc. 0.4 14.3 3/26/09

DM Industries Ltd. 10.0 0.0 3/27/09


Meadowcraft Inc. 58.0 8.3 3/28/09

Fairmont Resort Properties Ltd. 0.4 100.0 3/30/09

Zounds Inc. 1.0 100.0 3/30/09

Medical Intelligence Technologies Inc. 0.6 100.0 3/31/09

TVI Inc. 19.0 100.0 4/1/09

BT Tires Group Holding LLC 27.9 10.8 4/2/09

Zohar Waterworks LLC 3.4 100.0 4/2/09

Palmdale Hills Property LLC 1.8 100.0 4/2/09

St. Lawrence Homes Inc. 0.2 100.0 4/3/09

Jane & Co. 5.1 19.6 4/6/09

Transmeridian Exploration Inc. 0.7 100.0 4/6/09

Indalex Holdings Finance Inc. 86.0 15.8 4/7/09

Strategic Resource Acquisition Corp. 0.1 100.0 4/7/09

Aventine Renewable Energy Holdings Inc. 30.0 100.0 4/7/09

Tempe Land Co. LLC 43.3 100.0 4/7/09

Ultra Stores Inc. 30.0 69.7 4/9/09


Flying J Inc. 20.0 100.0 4/13/09

Noble International Ltd. 9.7 100.0 4/15/09

General Growth Properties Inc. 400.0 100.0 4/16/09

AbitibiBowater Inc. 360.0 100.0 4/16/09

AbitibiBowater Inc. 210.0 0.0 4/16/09

Denison Foods LLC 0.3 100.0 4/17/09

Dayton Superior Corp. 165.0 21.2 4/19/09

Sterling Mining Co. 1.0 100.0 4/20/09

Red Top Rentals Inc. 2.6 100.0 4/20/09

Humboldt Creamery LLC $3.0 100.0% 4/21/09

Wingspeed Corp. 1.0 100.0 4/21/09

Albidon Ltd. 8.8 100.0 4/23/09

Tekoil & Gas Corp. 23.0 100.0 4/23/09

Fairmont Resort Properties Ltd. 4.6 100.0 4/24/09

Daufuskie Island Properties LLC 1.5 100.0 4/24/09

St. Lawrence Homes Inc. 0.8 100.0 4/24/09

American Community Newspapers LLC 5.0 0.0 4/27/09

Source Interlink Cos. 385.0 58.4 4/27/09

Phoenix MC Inc. 1.4 100.0 4/27/09

Sheldon Good & Co. Auctions Northeast LLC 2.0 100.0 4/29/09

Mark IV Industries Inc. 90.0 100.0 4/30/09

Chrysler LLC 4,960.0 100.0 5/1/09

Crown Village Farm LLC 5.0 100.0 5/1/09

Abitibi-Consolidated Inc. 100.0 100.0 5/1/09

Waterworks Inc. 7.5 100.0 5/3/09

Dewey Ranch Hockey LLC 17.0 100.0 5/5/09

Norwood Promotional Products Holdings Inc. 30.0 59.0 5/5/09

Bachrach Acquisition LLC 6.5 100.0 5/5/09

Lisbon Valley Mining Co. LLC 18.1 100.0 5/5/09

Medico Labs Inc. 0.1 0.0 5/6/09

AGT Crunch Acquisition LLC 6.0 100.0 5/6/09

Stock Building Supply Holdings LLC 100.0 100.0 5/6/09

Crucible Materials Corp. 69.4 0.0 5/6/09

General Growth Properties Inc. 400.0 100.0 5/6/09

Forticell Bioscience Inc. 0.6 100.0 5/7/09

F.T. Silfies Inc. 11.9 20.0 5/7/09

Sencorp 29.8 22.7 5/8/09

Badanco Acquisition LLC 16.0 53.1 5/11/09

Roma Foods of Oklahoma Inc. 2.5 80.0 5/11/09

Diplomat Construction Inc. 0.2 100.0 5/11/09

Hayes Lemmerz International Inc. 200.0 50.0 5/12/09

Energytec Inc. 1.5 100.0 5/13/09

Chardon Rubber Co. 3.4 0.0 5/15/09

Chardon Rubber Co. 0.3 0.0 5/15/09

Fatburger Restaurants of California Inc. 2.2 100.0 5/15/09

Pacific Ethanol Holding Co. LLC 40.0 50.0 5/17/09

Petrorig I Pte Ltd. 5.0 100.0 5/17/09

TXCO Resources Inc. 32.0 100.0 5/17/09

J.G. Wentworth LLC 10.0 46.5 5/19/09

Ion Media Networks Inc. 150.0 100.0 5/19/09

Terra Nostra Resources Corp. 0.2 0.0 5/21/09

Mahalo Energy (USA) Inc. 2.0 0.0 5/21/09

Al Baskin Co. 2.0 100.0 5/21/09


% new money


($mill.)% new money

Filing date






Rosseau Resort Developments Inc. $12.8 0.0% 5/22/09

Anchor Blue Retail Group Inc. 20.0 0.0 5/27/09

Metaldyne Corp. 18.5 100.0 5/28/09

Particle Drilling Technologies Inc. 1.6 100.0 5/30/09

Caraustar Industries Inc. 75.0 100.0 5/31/09

General Motors Corp. 33,300.0 100.0 6/1/09

Butler International Inc. 30.0 32.8 6/1/09

Genmar Holdings Inc. 50.0 28.1 6/2/09

Prospect Homes of Richmond Inc. 1.6 100.0 6/2/09

DTZ Rockwood Inc. 0.4 100.0 6/3/09

DTZ Rockwood Inc. 0.4 100.0 6/3/09

Pilgrim’s Pride Corp. 18.0 100.0 6/5/09

Goodcrane Corp. 0.6 100.0 6/5/09

Berean Christian Stores Inc. 2.0 100.0 6/9/09

Nova Holding Clinton County LLC 2.0 0.0 6/9/09

Crescent Resources LLC 110.0 100.0 6/10/09

Hendricks Furniture Co. 2.5 100.0 6/10/09

Heidtman Mining LLC 0.6 100.0 6/12/09

Isolagen Inc. 2.5 100.0 6/15/09

W.C. Wood Corp. 0.4 100.0 6/16/09

Building Materials Holding Corp. 80.0 0.0 6/16/09

Eddie Bauer Holdings Inc. 100.0 48.8 6/17/09

Critical Access Health Services Corp. 4.0 100.0 6/17/09

Fraser Papers Inc. 20.0 100.0 6/18/09



Quelle GmbH 70.0 100.0 6/24/09

TXP Corp. 0.5 100.0 6/24/09

G & S Metal Consultants Inc. 15.6 0.0 6/24/09

Trilogy Development Co. LLC 0.8 100.0 6/25/09

Nexient Learning Inc. 0.9 100.0 6/26/09

Bison Buildings Holdings Inc. 25.0 41.7 6/28/09

TXP Corp. 0.5 100.0 6/29/09

Pumpkin Patch LLC 3.0 100.0 6/29/09

Grede Foundries Inc. 55.0 82.3 6/30/09

Crabtree & Evelyn Ltd. 40.0 100.0 7/1/09

Henry Dunay Designs Inc. 0.1 100.0 7/2/09

Grede Foundries Inc. 20.0 100.0 7/2/09

Adaltis Inc. 2.6 100.0 7/3/09

Evident Technologies Inc. 2.7 50.0 7/6/09

Kainos Partners Holdings Co. LLC 1.5 55.8 7/6/09

Lear Corp. 500.0 100.0 7/7/09

Global Safety Textiles Holdings LLC 25.0 100.0 7/7/09

International Metals & Chemicals Group LP 1.0 0.0 7/7/09

CCS Medical Inc. 10.0 100.0 7/8/09

LaVigne Inc. $0.1 100.0% 7/9/09

Cabrini Medical Center 5.0 0.0 7/9/09

Golfers’ Warehouse Inc. 1.5 1.3 7/9/09

Electroglas Inc. 2.0 0.0 7/9/09

TH Properties LP 3.0 100.0 7/9/09

Clayton Construction Co. Ltd. 1.2 100.0 7/9/09


Pro-Health LLC 6.0 100.0 7/10/09

November 2005 Land Investors LLC 8.0 100.0 7/10/09

Bashas’ Inc. 45.0 0.0 7/12/09

J.L. French Automotive Castings Inc. 15.0 100.0 7/13/09

RathGibson Inc. 80.0 25.0 7/13/09

NV Broadcasting LLC 28.0 100.0 7/13/09

Flying J Inc. 100.0 100.0 7/14/09

Santa Fe Holding Co. 4.0 100.0 7/15/09

Enos Lane Farm Properties LLC 0.1 100.0 7/16/09

Biopure Corp. 0.5 100.0 7/16/09

Lang Holdings Inc. 16.0 100.0 7/16/09


West Hawk Energy USA LLC 1.8 100.0 7/20/09

O2Diesel Corp. 0.4 53.5 7/21/09

Champion Motor Group Inc. 6.0 100.0 7/22/09

Lavatec Inc. 1.0 100.0 7/24/09

QSGI Inc. 0.5 100.0 7/24/09

Arclin US Holdings Inc. 25.0 100.0 7/27/09

Stant Corp. 11.0 100.0 7/27/09

Applied Solar Inc. 1.5 0.0 7/28/09

Station Casinos Inc. 150.0 100.0 7/28/09

ProtoStar Ltd. 17.0 100.0 7/29/09

ProtoStar Ltd. 6.0 100.0 7/29/09

Rainbows United Inc. 1.5 100.0 7/30/09

Element Aluminum LLC 0.5 100.0 7/31/09

GPS Industires Inc. 1.3 100.0 7/31/09

East Cameron Partners LP 4.0 0.0 8/1/09

Robert Manufacturing Co. 0.9 100.0 8/2/09

Cooper-Standard Automotive Holdings Inc. 200.0 100.0 8/3/09

Shermag Inc. 2.8 100.0 8/3/09

Hill Country Galleria LP 3.7 100.0 8/3/09


Solstice LLC 1.5 100.0 8/4/09

Solstice LLC 3.0 100.0 8/4/09

Evergreen Transportation Inc. 5.0 0.0 8/4/09

Aerisa Inc. 0.2 100.0 8/4/09

Stinson Petroleum Co. 5.0 100.0 8/4/09



% new money


($mill.)% new money

Filing date






Altra Nebraska LLC $0.6 0.0% 8/13/09

SkyPower Corp. 15.0 0.0 8/13/09

Tango Grill Inc. 0.1 100.0 8/17/09

Avery Environmental Services Inc. 0.2 0.0 8/17/09

Global Charter Services Ltd. 0.5 100.0 8/19/09

Chiyoda America Inc. 1.7 100.0 8/19/09

Bender Shipbuilding & Repair Co. 5.0 100.0 8/19/09

Beech Tree Corp. 0.3 100.0 8/19/09

Sunra Coffee LLC 0.6 100.0 8/21/09

Opus South Corp. 4.4 100.0 8/24/09

Reader’s Digest Association Inc. 150.0 100.0 8/24/09

Cabi Downtown Inc. 2.0 100.0 8/25/09

South Louisiana Ethanol LLC 0.1 100.0 8/25/09

FormTech Industries LLC 8.5 100.0 8/26/09

Johnson Broadcasting Inc. 3.0 100.0 8/27/09

7677 East Berry Avenue Associates LLP 15.0 100.0 8/28/09


Commercial Capital Inc. 20.0 100.0 8/28/09

Nukote International Inc. 26.0 15.4 9/1/09

Cynergy Data LLC 25.0 100.0 9/1/09

Cynergy Data LLC 7.5 100.0 9/1/09

Alternative Distribution Systems Inc. 3.3 0.0 9/2/09

Friar Tuck Inn of the Catskills Inc. 0.6 100.0 9/2/09

GigaBeam Corp. 1.0 0.0 9/2/09

Archangel Diamond Corp. 0.4 100.0 9/3/09

Maxtech Manufacturing Inc. 1.9 0.0 9/8/09

PNG Ventures Inc. 2.0 0.0 9/9/09

Georgetown Golf Club Inc. 0.2 100.0 9/11/09

Tana Seybert LLC 6.4 15.6 9/11/09

Downey Regional Medical Center-Hospital Inc. 15.0 100.0 9/14/09

Perpetua-Burr Oak Holdings of Illinois Inc. 0.3 100.0 9/14/09

Lakota Resources Inc. 0.6 100.0 9/14/09

Barzel Industries Inc. 30.0 38.5 9/15/09

Aurora Oil & Gas Corp. 3.0 100.0 9/17/09

Sandab Communications LP 0.5 100.0 9/23/09

CMR Mortgage Fund II LP 6.0 100.0 9/23/09

Velocity Express Corp. 14.0 46.4 9/24/09

Action Motors Corp. 0.1 100.0 9/25/09

Schwing America Inc. 4.6 100.0 9/28/09

Vectrix Corp. 0.3 100.0 9/28/09

Jolt Co. 1.0 100.0 9/28/09

Coastal Plains Pork LLC 1.0 100.0 9/28/09

PS America Inc. 2.6 100.0 9/30/09

PTC Alliance Corp. 15.0 100.0 10/1/09

Fountain Powerboat Industries Inc. 1.5 100.0 10/1/09

Questex Media Group Inc. $15.0 100.0% 10/5/09

iGourmet LLC 0.2 100.0 10/5/09

Canwest Global Communications Corp. 94.4 0.0 10/6/09

PDCC Development LLC 0.3 100.0 10/7/09

7677 East Berry Avenue Associates LLP 30.0 100.0 10/7/09

Accuride Corp. 50.0 100.0 10/8/09

True Temper Sports Inc. 90.0 11.1 10/8/09


One Twenty Nine LLC 0.8 100.0 10/8/09

Tavern on the Green LP 6.5 7.7 10/8/09

Bender Shipbuilding & Repair Co. 6.0 100.0 10/12/09

Whittaker Builders Inc. 1.0 100.0 10/15/09

PJC Technologies Inc. 3.0 0.0 10/19/09

Taylor, Bean & Whitaker Mortgage Corp. 25.0 100.0 10/21/09

Erickson Retirement Communities LLC 20.0 100.0 10/22/09

LDG South LLC 8.4 100.0 10/23/09

LDG South LLC 0.3 100.0 10/23/09

Arena Football League LLC 0.5 100.0 10/23/09

Metcalf Paving Co. 0.1 100.0 10/23/09

FairPoint Communications Inc. 75.0 100.0 10/26/09

Express Energy Services Operating LP 20.0 100.0 10/27/09

Visteon Corp. 150.0 100.0 10/28/09

CanArgo Energy Corp. 1.2 100.0 10/28/09

All Land Investments LLC 0.1 100.0 10/29/09

Recticel Interiors North America LLC 10.0 100.0 10/29/09

CIT Group Inc. 500.0 100.0 11/1/09

ART Advanced Research Technologies Inc. 1.1 100.0 11/2/09


Lazy Days RV Center Inc. 65.0 66.2 11/5/09

CrimeCog Technologies Inc. 0.7 0.0 11/6/09

Coharie Hog Farm Inc. 1.5 100.0 11/6/09

Teton Energy Corp. 0.8 0.0 11/8/09

Gemcraft Homes Inc. 5.0 100.0 11/9/09

Wilkes Bashford Co. 0.7 100.0 11/9/09

NutraCea Corp. 6.8 47.1 11/10/09

Sea Launch Co. LLC 12.5 100.0 11/10/09

Premium Protein Products LLC 0.3 100.0 11/10/09

Michael Day Enterprises Inc. 10.5 0.0 11/10/09



South Texas Oil Co. 1.5 100.0 11/12/09

Amelia Island Co. 5.0 100.0 11/13/09

Standard Forwarding Co. 1.0 100.0 11/13/09

YL West 87th Holdings I LLC 30.0 100.0 11/13/09

Champion Enterprises Inc. 80.0 50.0 11/15/09


% new money


($mill.)% new money

Filing date


Total DIP: $59.7 BILL. Total new money: $50.4 BILL. % new money: 84.4% Source: pipeline.thedeal.com




D ebtor-in-possession loans often get much of the publicity in bank-ruptcy, as in most cases a compa-

ny will hold off filing for Chapter 11 until it can get one and then trumpet the com-mitment. But as the recession spawned an outright financing crisis in late 2008 and early 2009, exit financings garnered just as much of the spotlight.

Indeed, once the economy went south, many debtors found themselves in a pan-icked state: trapped in bankruptcy and un-able to get the financing needed to escape. But a few things about the exit financing market have become clear at year’s end.

First, the market has become more ro-bust, with debtors now having a multitude of potential lenders compared with the last quarter of 2008. Second, lenders have loosened the purse strings a bit, with bank-ruptcy pros noting that pricing on financ-ings has dipped. And third, while debtors these days have found it a bit easier to cob-ble together enough financing to bust out of Chapter 11, those loans also have started to contain more new money than they did at the onset of 2009—a trend those in the industry feel will continue.

Talk to bankruptcy attorneys about the crisis in the fallout of the Lehman Broth-ers Holdings Inc. crash, and they will likely tell you that for any company filing for Chapter 11 in the fourth quarter of 2008 or early 2009, exit financing was likely a pipe dream. Even DIP financing—among the most short-term and lower-risk invest-ments—was hard to come by.

“There is a world of difference between the beginning of the year and now,” says Jay Goffman, the co-head of Skadden, Arps, Slate, Meagher & Flom LLP’s global restructuring group. “What you saw last fall was all the normal buyers for [exit financing debt], such as hedge funds and private equity funds—none of them were buying anything new. Every one of them panicked, so the whole lending process came to a grinding halt.”

One investment banking source who requested anonymity recalls trying to ob-tain DIP financing for an ethanol plant op-erator in January and being unable to find a taker despite contacting more than 50 “reputable” sources.

“Everyone was on cash collateral,” the banker says. Because debtors were using what typically is a short-term solution, “you need to have an asset sale as opposed to doing [a Chapter 11 plan and] exit loan.”

According to pipeline.thedeal.com (see table, page 32), the exit financing market was nearly frozen at the start of the year, with only five debtors in January and six in February securing commitments for loans, notes, swaps for new debt, equity infusions or rights offerings of equity. In comparison, 12 debtors in September and 14 in October obtained commitments.

In early 2009, “It was hard to find a situation where someone who wasn’t al-ready in the deal wasn’t spearheading the [DIP or exit] financing, either for defensive purposes or strategic purposes,” says Ste-ven Levine, the leader of Brown Rudnick LLP’s finance practice group.

Bankruptcy pros point to two key fund-ings early in the year as signs that the in-vestment community had started to get back into exit financings. The first was Quebecor World (USA) Inc.’s $800 million exit loan from lenders led by Credit Su-isse Securities (USA) LLC. The Feb. 22 fi-nancing was not only the largest of the year to that point—and by a wide margin—but it also contained $260 million in new money (also the most substantial) and, one source contends, was some 75% oversubscribed.

Another example of the thaw came from Charter Communications Inc.’s financing package. Though the cable com-pany only recently closed on the funding and emerged from Chapter 11 on Nov. 30, Charter locked up the terms of a commit-ment for as much as $2 billion in equity from bondholders in March—a total that eventually came in at roughly $1.6 billion.

(The company also issued $1.77 billion in new notes to replace old note debt, giving Charter $3.37 billion in exit financing.)

Skadden’s Goffman, who represented Vulcan Inc., the investment vehicle of Charter chairman and controlling share-holder Paul Allen, says Charter’s financing is “a good example of the fact that lending institutions and funds are feeling better about the market, better about the econo-my, and the funds they sell the debt to have come back to the marketplace.”

Indeed, that change is reflected in the type of lenders that have been providing exit financing. The shift that has come—and that, Goffman says, will become more evident next year—is an increase in the amount of both new money in financings and the amount of outside sources taking part in them. (See page 31 for more on the top new-money exit lenders in 2009.)

The investment banking source recalls, for example, seeing the same “three or four” lenders involved in just about every exit financing deal. That recollection is il-lustrated by the sheer amount of financings that came from prepetition and DIP lend-ing groups. Of the 93 distinct commitments from lenders through Nov. 15, roughly half were offered by prepetition lenders. In ad-dition, major traditional lenders J.P. Mor-gan Chase & Co. ($4.62 billion), Bank of America Corp. ($1.65 billion), Wells Fargo & Co. ($1.5 billion), General Elec-tric Co. ($1.27 billion) and Credit Suisse ($905.25 million) provided the most exit financing for the period.

Only two financings that closed in the first four months of the year—those given to Wellman Inc. and Yellowstone Moun-tain Club LLC—came from lenders that were neither a prepetition lender nor a DIP lender. By comparison, 13 such financings took place between July and November.

What constitutes progress, however, continues to vary on a case-by-case basis.

Time to fly

CONTINUED >

The exit financing market loosened as 2009 progressed, with commitments and participants increasing, prices dropping




Brown Rudnick’s Levine recalls, for ex-ample, working on the then-pending bank-ruptcy of middle-market retailer Walking Co., where the key parties discussed the terms of not only DIP financing but also exit financing.

“In the last couple of years, those con-versations tended to be struggles where the lender would be acknowledging that in their mind, the company had no real prospects for reorganization and would be pushing the company towards a liqui-dation,” he says. “It’s [specific] to this par-ticular retailer, but it’s a sign that things are changing.”

Another broader change bankruptcy pros point out is a markdown in the pric-ing of exit financings. Levine explains that this is evident in the Six Flags Inc. bank-ruptcy. Levine, who represents the official committee of unsecured creditors, notes that Six Flags entered bankruptcy June 13 with prepetition lenders ready to provide a $600 million term loan priced at either LIBOR plus 700 basis points or prime plus 750 basis points. That loan, later included in a July 22 reorganization plan filed by lead debtor Premier Interna-tional Holdings Inc., has not sur-vived further revisions.

Instead, the latest version of the term loan, now $650 million, is priced at LIBOR plus 425 basis points, with a 2% floor, and has “lots of banks very interested” in signing up for it, he says. (A $150 million revolver shares the same interest rate.)

Overall, according to pipeline.thedeal.com, maximum spreads on exit financings have dropped from 1,650 points over LIBOR in the first half of the year to 1,200 points over LIBOR in the second half through Nov. 15. Similarly, the highest spread above prime has dropped from 1,550 in the first half to 1,100 in the second.

As for the types of financings provided, while most are of the

traditional variety, Skadden’s Goffman believes that a tool showing up sparingly in the tables—rights offerings—is on the verge of becoming much more prominent. Just nine commitments through Nov. 15 included a rights offering as a component, and none of them were even officially planned—let alone consummated—until mid-March, with Tropicana Entertain-ment LLC’s twin reorganization plans. A plan for certain Tropicana debtors includ-ed a $75 million rights offering, and the plan for the remaining debtors called for a rights offering of unspecified size as well. Both were confirmed May 5.

But Goffman says that a number of rights offerings are on their way in 2010.

“A lot of the deals that are being done now [have] some form of rights offering tied in with debt financing,” he says.

Certainly, the merits of rights offerings appear to be debatable. Brown Rudnick’s Levine, for example, says that if a company can afford to sustain debt at a comfortable

level, he might prefer that as opposed to bringing in new investors through a rights offering. The investment banking source is more blunt, believing it to be “silly” to hold one coming right out of bankruptcy court.

“If you’re really ready to be public again, go public in a year,” he says. “They always seem a little forced to me.”

Goffman, however, views rights offer-ings much more positively.

“It’s better to have less debt and more cushion built into operations in case your base projections don’t turn out,” he says. “When you’re trying to raise debt financ-ing, it’s a lot easier to sell bonds in the mar-ketplace if someone is putting their money where their mouth is [and buying equity]. It sends the right message.”

One message this year’s exit financings convey is a lack of new money. Again, many believe that as the economy rebounds, in-vestors will start to buy debt of emerging companies. In 2009, however, new money in exit loans accounted for just 25.7% of the

total commitments.To be sure, there remains the

perhaps special case of General Motors Corp., which has a nearly $8.25 billion exit financing com-mitment, according to pipeline.thedeal.com, or more than 25% of the total for the year. Motors Liquidation Co.—the estate of the carmaker, commonly called old GM—has a $1.18 billion wind-down facility, and the new Gen-eral Motors Co. assumed roughly $7.08 billion in DIP debt when it acquired the debtor’s opera-tions. As the loans are entirely old money, they drag the percentage of new money for all exit financings downward. Even if the GM debt were completely wiped out of the table, however, the figure would only jump to 35.7%—further evi-dence that if the shift bankruptcy pros are projecting comes to pass, it stands to completely revamp the tables next year.

In the end, that can only mean good things for debtors and their attorneys. n —Ben Fidler

< PREVIOUS

J.P. Morgan Chase & Co. is flying high. The bank alighted at the top of the new-money exit financing league table with a lofty $1 billion in volume on 10 deals. The $820.9 million cargo J.P. Morgan provided auto parts maker Lear Corp. represented its largest transaction. —Neil Malcolm

Lear jet

Source: pipeline.thedeal.com*Includes commitments by affiliates or units

Top “new money” exiT lendersJan. 1–Nov. 15, 2009

Lender * No. ofcommitments

New-moneyvolume ($mill.)

1 J.P. Morgan Chase & Co. 10 $1,007.2

2 Bank of America Corp. 5 605.7

3 Apollo Investment Corp. 3 341.8

4 Credit Suisse Group 3 288.9

5 Barclays plc 4 281.7

6 General Electric Co. 7 275.0

7 FMR LLC 2 228.8

8 Oaktree Capital Management LP 2 183.1




Antioch Co. $4.0 0.0% 1/7/09

Key Plastics LLC 25.0 100.0 1/29/09

Pittsburgh Corning Corp. 12.0 0.0 1/29/09

Gwenco Inc. 2.0 0.0 1/29/09

Wellman Inc. 35.0 100.0 1/31/09

Yellowstone Mountain Club LLC 75.0 100.0 2/3/09

Cross Lake Minerals Ltd. 1.3 0.0 2/3/09

Buffets Inc. 304.3 0.0 2/9/09

BearingPoint Inc. 402.0 5.3 2/18/09


Quebecor World (USA) Inc. 800.0 32.5 2/22/09

Comfort Co. 33.0 0.0 3/5/09

Waterbrook Peninsula LLC 1.0 100.0 3/10/09

Tropicana Entertainment LLC 75.0 100.0 3/11/09


Arbios Systems Inc. 1.0 100.0 3/19/09

Motor Coach Industries International Inc. 230.0 100.0 3/20/09

Charter Communications Inc. 3,370.0 47.5 3/27/09

Smitty’s Building Supply Inc. 14.5 27.6 4/3/09

Solution Technology International Inc. 1.0 100.0 4/3/09

Special Devices Inc. 15.0 100.0 4/8/09

Special Devices Inc. 16.5 100.0 4/8/09

Brotman Medical Center Inc. 6.0 100.0 4/14/09

Utah 7000 LLC 40.0 100.0 4/20/09




Stock Building Supply Holdings LLC 125.0 100.0 5/6/09

Tricom SA 25.5 100.0 5/7/09

LandSource Communities Development LLC 280.0 100.0 5/13/09

SemGroup LP 800.0 31.3 5/15/09

AFC Acquisition Corp. 1.0 100.0 5/28/09

Caraustar Industries Inc. 75.0 0.0 5/31/09

East Cameron Partners LP 35.0 100.0 6/3/09

Bally Total Fitness Corp. 89.0 43.8 6/10/09



Journal Register Co. 75.0 0.0 6/18/09


Metromedia Steakhouses Co. LP 19.8 23.6 6/19/09


Lisbon Valley Mining Co. LLC 2.4 100.0 6/23/09

Creative Loafing Inc. 1.0 100.0 6/30/09

General Motors Corp. 8,247.5 0.0 7/3/09

Tricom SA 7.0 100.0 7/8/09

NV Broadcasting LLC 28.0 0.0 7/13/09

Pomare Ltd. 2.0 100.0 7/15/09

WCI Communities Inc. 560.0 0.0 7/17/09

LandSource Communities Development LLC 13.0 100.0 7/20/09

Dayton Superior Corp. 326.0 34.6 7/24/09

Ultra Stores Inc. 30.0 0.0 7/28/09

Sportsman’s Warehouse Inc. $50.0 70.0% 7/30/09

Beaudry RV Co. 12.5 44.0 7/31/09

Trump Entertainment Resorts Inc. 113.9 100.0 8/3/09

Mecachrome International Inc. 89.0 100.0 8/4/09

CommerceConnect Media Holdings Inc. 65.0 7.7 8/4/09

Pilgrim’s Pride Corp. 500.0 2.2 8/4/09

Pilgrim’s Pride Corp. 1,150.0 0.0 8/4/09

Trump Entertainment Resorts Inc. 225.0 100.0 8/4/09

Kirk Corp. 3.5 100.0 8/14/09

Kirk Corp. 0.5 100.0 8/14/09

Pliant Corp. 193.0 100.0 8/17/09

Chiyoda America Inc. 8.4 100.0 8/19/09

Z Gallerie Inc. 22.0 100.0 8/19/09

Reader’s Digest Association Inc. 150.0 0.0 8/24/09

Amaravathi LP 2.0 100.0 8/24/09

MagnaChip Semiconductor Finance Co. 35.0 100.0 8/25/09

Think Global AS 47.0 100.0 8/27/09

Baseline Oil & Gas Corp. 30.0 16.7 8/28/09

Hawaiian Telcom Communications Inc. 300.0 0.0 8/28/09

Hawaiian Telcom Communications Inc. 50.0 100.0 8/28/09

TVI Corp. 16.0 0.0 8/31/09

Archangel Diamond Corp. 1.3 70.4 9/3/09

PNG Ventures Inc. 5.5 0.0 9/9/09



Palmdale Hills Property LLC 5.0 100.0 9/16/09

Star Tribune Holdings Corp. 100.0 0.0 9/17/09

Energy Partners Ltd. 25.0 100.0 9/21/09

Energy Partners Ltd. 125.0 100.0 9/21/09

Arclin US Holdings Inc. 60.0 100.0 9/21/09

Crusader Energy Group Inc. 30.0 100.0 9/22/09

Nukote International Inc. 35.0 100.0 9/23/09

Rhodes Cos. LLC 50.0 0.0 9/25/09

MagnaChip Semiconductor Finance Co. 61.8 0.0 9/25/09

Flying J Inc. (Big West Oil LLC) 435.0 100.0 9/29/09

Building Materials Holding Corp. 103.5 100.0 10/1/09


Bi-Lo LLC 349.1 56.4 10/5/09

Aurora Oil & Gas Corp. 45.0 100.0 10/7/09


Accuride Corp. 140.0 100.0 10/8/09

Z Gallerie Inc. 2.0 100.0 10/8/09

BioBased Technologies LLC 4.3 100.0 10/9/09

Fremont General Corp. 24.0 100.0 10/13/09

NTK Holdings Inc. 1,000.0 0.0 10/21/09

Lear Corp. 600.0 100.0 10/23/09

DBSD North America Inc. 52.8 100.0 10/26/09

Eurofresh Inc. 35.0 100.0 10/28/09

Idearc Inc. 2,750.0 0.0 10/30/09

Lear Corp. 550.0 100.0 11/2/09

Lazy Days RV Center Inc. 65.0 0.0 11/5/09

Premier International Holdings Inc. 1,400.0 53.6 11/7/09


% new money


($mill.)% new money

Filing date

FLIGHT CAPITAL “new money” exit financing Jan. 1–Nov. 15, 2009

Total exit: $29.5 BILL. Total new money: $7.6 BILL. % new money: 25.7% Source: pipeline.thedeal.com




F or private equity-backed bank-ruptcies in 2009, the story, as it was in so many other areas, was

liquidity.Cheap and available debt fueled many

of the leveraged buyouts that later went bust, and a modest improvement in li-quidity curtailed filings as the year pro-gressed.

Some 103 PE portfolio companies en-tered bankruptcy protection this year through Nov. 15, from greeting card com-pany Recycled Paper Greetings Inc. on Jan. 2 to upstate New York retail chain Patrick Hackett Hardware Co. on Nov. 10. (See table, pages 35 to 37.)

Companies overleveraged from their PE buyouts in the final boom years of 2006 and 2007, when debt was easy and cheap, faced the music this year as their business assumptions didn’t pan out in the credit crisis.

Twenty-seven of the PE deals that went bust this year were done in 2007, and 22 were done in 2006. As a result, the two years account for more than 47% of the buyouts that landed in bankruptcy. A further 17 PE deals that were forced into bankruptcy in 2009 took place in 2005 and 11 in 2004, according to pipeline.thedeal.com.

Seventeen of the buyouts gone bust were announced in 2003 or earlier, while nine had their roots in 2008 or this year.

“It is not a coincidence” that many of the deals took place in 2006 and 2007, says financial adviser Scott Peltz of RSM McGladrey Inc. “There was a significant amount of liquidity and debt available.”

According to bankruptcy and restruc-turing adviser Andrew Horrocks of Moe-lis & Co. LLC, in 2006 and 2007, “the debt financing markets were so conducive to buyout funds that they could borrow sig-nificant amounts of money at low costs. It was an accepted market practice to have leverage levels on companies that turned out to be unsustainable.”

“The terms associated with the debt were highly favorable to the borrowers,” Horrocks adds. As an example, he points to lenders frequently not demanding cov-enant protection on their debt.

One example of a company crumbling under its debt was casino operator Sta-tion Casinos Inc., owned by Colony Capital LLC and members of the found-ing Fertitta family. Colony Capital, Sta-tion chairman and CEO Frank J. Fertitta III and former vice chairman and presi-dent Lorenzo J. Fertitta acquired the Las Vegas company in an $8.8 billion buyout, first announced in 2006. Station, how-ever, couldn’t maintain its debt when the economy tanked and filed for Chapter 11 protection on July 28.

A drop-off in revenue as consumer spending slumped was responsible for the hardest-hit industries—retail, media, automotive, and consumer and house-hold products—bankruptcy attorney Brett Barragate at Jones Day says.

Several PE-backed media companies—including Yucaipa Cos. LLC-owned Source Interlink Cos.; NV Broadcast-ing LLC, whose equity was held by Ar-lington Capital Partners LP when it went bankrupt; and Alta Communica-tions-owned Bluewater Broadcasting Co. LLC—were among the casualties this year.

In another example, newspaper pub-lisher Star Tribune Co. filed for bank-ruptcy protection Jan. 15. Equity owner Avista Capital Partners was wiped out when the company exited Chapter 11 on Sept. 28, after the debtor swapped its $393 million in secured debt led by Credit Su-isse Group’s Cayman Islands branch for 95% of its reorganized stock.

Senior managing director Scott Winn of Zolfo Cooper LLC, however, says he sees the list of industries forced to file for bankruptcy protection as all over the map. “It’s a greater function of what the [PE] deal looked like than how the indus-

try was doing,” the bankruptcy adviser says.

When a PE firm has a portfolio com-pany go bankrupt, it sometimes already has recovered a portion or all of its mon-ey through dividend recapitalizations. In such a move, a company incurs new debt to pay a dividend to private investors or shareholders.

Whether that has happened depends on how old the deal is, Winn says—the newer the deal is, the less likely it is that an LBO sponsor has taken its money off the table.

But even if the PE firm has recovered its investment, Winn says, bankruptcy can still hurt because the equity holders never know what sort of causes of action creditors might try to use against the firm as a negotiation tool. He adds that PE firms also try to avoid having the black mark left by bankruptcy on their portfo-lios.

Out of the PE-backed bankruptcies in 2009, Sun Capital Partners Inc. had the most, with eight portfolio compa-nies filing for bankruptcy. H.I.G. Capital LLC and distressed-debt affiliate Bayside Capital Inc. were next with four portfolio companies in total entering bankruptcy protection, and affiliates of CVC Capital Partners Ltd., Goldman Sachs Group Inc. and Lone Star Funds each were in-volved in three filings.

An inside source with deep knowl-edge of the turnaround investment in-dustry, who asked not to be named, says Sun Capital buys fragile companies, with about 40% losing money and the remain-der being unhealthy companies.

The source also notes that Sun Capital buys a lot of companies, and the percent-age that eventually go bankrupt is well within the PE norm of 10% to 15%.

PE-backed bankruptcies as a whole started with a bang in 2009, with 40 in the

Buyout, boom

CONTINUED >

Some 103 private equity-backed companies exploded into bankruptcy in 2009, but the filings slowed as the year wore on




first quarter and 30 in the second quarter, but as the year dragged on, filings slowed down to 22 in the third quarter and just 11 in the fourth as of Nov. 15, according to pipeline.thedeal.com.

Since then, however, six more portfo-lio companies have filed for bankruptcy: mattress maker Simmons Bedding Co., owned by Thomas H. Lee Partners LP; Cravey, Green & Whalen Inc.’s Arch Aluminum & Glass Co.; Quad-C Man-agement Inc.-controlled lighting fixture maker QHB Holdings LLC; bookseller Borders (UK) Ltd., a portfolio company of Valco Capital Partners; building prod-ucts maker Ames Holding Corp., con-trolled by Aurora Capital Group; and plumbing supplies maker Jones Stephens Corp., owned by Cortec Group Inc.

Several factors have led to the slow-down, restructuring professionals say.

Jones Day’s Barragate believes it’s due to a “miraculous recovery of the loan market and the high-yield bond market.” The latter has allowed distressed compa-nies to issue new bonds or refinance ex-isting bonds.

Since companies are now able to re-finance or extend the maturity of their debt, the rate of bankruptcies has fallen, Barragate adds.

Peltz says that while there has been some improvement in the economy and liquidity, firms are willing to hold off on bankruptcies in the hope that the econ-omy improves further and things will get better.

PE firms are letting their portfolio companies “limp along because there are few viable exit strategies today,” Peltz says, adding that firms are looking for im-provements in the economy as well as the flow of capital and values.

Zolfo Cooper’s Winn points out that there is little upside to a filing for a PE firm. Entering bankruptcy is always the last resort and something that the equity holders try to avoid, he says.

Portfolio companies are only put into bankruptcy protection when the alter-native for the PE firm is to continue to

support a company that is failing, Winn says, adding that the equity holder would much rather amend the portfolio com-pany’s debt or do an out-of-court restruc-turing than file for bankruptcy—actions that are on the table more often now than at the beginning of 2009.

PE firms “would rather do something out of sight ... than publicly,” he says. “Amendments and extensions [allow the PE firm to keep] kicking the can down the road and putting the problem off to an-other day in the hope that there will be a recovery and the [portfolio company]

can grow back into their balance sheet on some level.”

Moelis’ Horrocks agrees PE firms will put off dealing with a problem as long as they can. “If a company has a broken bal-ance sheet but no covenant issues or no maturities, there is no incentive for eq-uity investors to step forward and fix the problem if time might bail them out,” he says.

Lenders and equity holders often have different ideas about when a company’s problems should be dealt with. Lend-ers want the issues solved quickly before there is a further destruction of value, while equity holders want to wait, hoping that things will rebound, Horrocks says.

“Dealing with the problem crystallizes the valuation of the business at that mo-ment in time. If you own the equity and you don’t have to crystallize the loss right now, why not wait?” Horrocks asks.

And when the debt is covenant-lite, as in many deals struck at the top of the

market, lenders can’t force equity holders to deal with the problem.

In these covenant-lite deals, “lenders gave up the only hammer that they had to force equity to come to the table. The companies are overleveraged, and the creditors can’t do anything but worry,” Horrocks says.

A second source, who asked not to be named, points to several overleveraged covenant-lite deals whose performance is way off in this cycle, such as Free-scale Semiconductor Inc., owned by Blackstone Group LP; Kohlberg Kravis Roberts & Co.’s First Data Corp.; and auto parts maker Allison Transmission Inc., owned by Carlyle Group and Onex Corp.

The debt in these deals lacks tradi-tional covenants, so lenders have no way of forcing equity holders to come to the table to restructure their debt, the source says.

There is one final reason, however, that PE-backed filings have slowed down.

The first source says PE firms may be holding off on bankruptcy filings because they are raising money for new funds. Instead of taking on the bad publicity of a filing, firms instead amend and extend the debt of their portfolio companies so they can live another day.

Winn agrees that one of the reasons PE firms may be avoiding bankruptcy is to facilitate fundraising, but he adds that the only reason portfolio companies can avoid bankruptcy is because their own-ers are able to amend their debt outside of bankruptcy.

The slowdown is “not because the PE funds are raising money right now, but because they are hoping to raise money and would rather not have a loss in their current portfolio, if they can wait to incur that until after they fundraise,” Horrocks says.

“Many of the PE firms that plan to fundraise are targeting to raise funds in the next 12 to 24 months,” he concludes. “There is a bias out there that if they can put off a loss in the current portfolio, it would be wise to do that.” n

—Jamie Mason

< PREVIOUS

PE firms are only putting portfolio companies into

bankruptcy protection when the alternative is

to continue to support a company

that is failing.




Recycled Paper Greetings Inc. Monitor Clipper Partners LLC 11/11/05 1/2/09

Interlake Material Handling Inc. Wynnchurch Capital Ltd. 12/28/07 1/5/09

Waterford Wedgwood plc Lazard Alternative Investments LLC/Corporate Partners II 3/6/06 1/5/09

Merisant Worldwide Inc. MSD Capital LP, Pegasus Capital Advisors LP 2/3/00 1/9/09

Star Tribune Holdings Corp. Avista Capital Partners LP 3/5/07 1/15/09

Specialty Motors Group Holding Corp. (Von Weise Corp.) Sun Capital Partners Inc. 12/4/07 1/16/09

Wall Homes Inc. Jen Partners LLC, Warburg Pincus LLC 4/14/05 1/19/09

Blooming Marvellous Ltd. Arev Securities hf 8/26/07 1/28/09

Edscha AG Carlyle Group 11/12/02 2/2/09

Right Start Acquisition Co. Hancock Park Associates 12/24/03 2/3/09

Maerklin Holding GmbH Goldman Sachs Group Inc., Kingsbridge Capital Advisors 3/20/06 2/4/09

Bruno’s Supermarkets LLC Lone Star Funds 12/23/04 2/5/09

Fortunoff Holdings LLC NRDC Equity Partners LLC 2/4/08 2/5/09

Fluid Routing Solutions Intermediate Holding Corp. Sun Capital Partners Inc. 5/15/07 2/6/09

Appalachian Oil Co. Titan Global Holdings Inc. 5/2/06 2/9/09

Barton-Cotton Inc. American Capital Strategies Ltd. 9/6/07 2/9/09

Muzak Holdings LLC Abry Partners LLC 2/1/99 2/10/09

Aleris International Inc. Texas Pacific Group 8/8/06 2/12/09

Forward Foods LLC Emigrant Capital Corp. 9/18/06 2/17/09

Everything But Water LLC Bear Growth Capital Partners LP 8/31/06 2/25/09

Regal Jets LLC (JetDirect Aviation Inc.) Brantley Partners, HSBC Capital (USA) Inc., AIG Global Investment Group 4/20/06 2/25/09

Parts Holding; Autodis (Autodistribution SA) Investcorp 1/6/06 3/2/09

Robbins Bros. Corp. (William Pitt Inc.) Weston Presidio, Dorset Capital Management LLC 1/4/05 3/3/09

G.I. Joe’s Holding Corp. Gryphon Investors 1/25/07 3/4/09

Lambertson Truex LLC (Samsonite Corp.) Bain Capital LLC, CVC Capital Partners Ltd., Ontario Teachers’ Pension Plan 7/5/07 3/5/09

Plastal Holding AB Nordic Capital 12/21/04 3/5/09

Sunset Aviation Inc. (JetDirect Aviation Inc.) Brantley Partners, HSBC Capital (USA) Inc., AIG Global Investment Group 6/7/07 3/6/09

GCP CT School Acquisition LLC (Connecticut School of Broadcasting Inc.) DLJ Growth Capital Partners 1/12/06 3/6/09

Milacron Inc. Bayside Capital Inc. 10/3/07 3/10/09

Masonite Corp. Kohlberg Kravis Roberts & Co. LP 12/22/04 3/16/09

Drug Fair Group Inc. Sun Capital Partners Inc. 12/5/05 3/18/09

Sportsman’s Warehouse Inc. Seidler Equity Partners 11/28/08 3/20/09

Indalex Holdings Finance Inc. Sun Capital Partners Inc. 9/19/05 3/20/09

MMC Precision Holdings Corp. Brazos Private Equity Partners LLC 3/23/06 3/22/09

Bi-Lo LLC Lone Star Funds 12/23/04 3/23/09

Lost Leverage private equity-backed bankruptcies Jan. 1–Nov. 15, 2009

Debtor PE firm Buyout ann. date

Bankruptcy filing date





Rileys Ltd. Greenhill Capital Partners, J.O. Hambro Capital Management Group Ltd. 7/30/07 3/25/09

F.T. Silfies Inc. Quantum Equity Partners LLC 8/1/05 3/25/09

Kampa AG Triton Beteiligungsberatung GmbH 11/2/06 3/25/09

Varig Logistica SA MatlinPatterson LLC 1/11/06 3/31/09

USI Senior Holdings Inc. (United Subcontractors Inc.) Wind Point Partners 9/30/04 3/31/09

Castle Holdco 4 Ltd. (Countrywide plc) Apollo Management LP, Oaktree Capital Management LP 2/21/07 4/2/09

Zohar Waterworks LLC Patriarch Partners LLC 8/30/05 4/2/09

BT Tires Group Holding LLC (Big 10 Tire Stores Inc.) Sun Capital Partners Inc. 11/28/06 4/2/09

Signature Aluminum Inc. H.I.G. Capital LLC 12/29/05 4/3/09

Jane & Co. Stone Canyon Venture Partners LP, Walnut Private Equity Fund LP 2/27/04 4/6/09

Katz International Coasters GmbH CBR Management GmbH; EquiVest I Fund 11/1/05 4/14/09

DWW Deutsche Woolworth GmbH & Co. OHG Argyll Partners Ltd. 10/31/07 4/14/09

Dayton Superior Corp. Odyssey Investment Partners LLC 1/19/00 4/19/09

Eurofresh Inc. Bruckmann, Rosser, Sherrill & Co. LLC 12/31/01 4/21/09

Source Interlink Cos. (Primedia Enthusiast Media Inc.) Yucaipa Cos. LLC 5/14/07 4/27/09

Victor Oolitic Stone Co. Audax Group LP 8/25/05 4/28/09

Chrysler LLC Cerberus Capital Management LP 5/14/07 4/30/09

Mark IV Industries Inc. Sun Capital Partners Inc. 1/2/08 4/30/09

Accredited Home Lenders Holding Co. Lone Star Funds 6/4/07 5/1/09

Thornburg Mortgage Inc. MatlinPatterson LLC 3/27/08 5/1/09

AGT Crunch Acquisition LLC (Crunch Fitness International Inc.) Angelo, Gordon & Co. 1/20/06 5/6/09

Riviera Group Pty Ltd. GIC Special Investments Pte Ltd., Gresham Private Equity, Ironbridge Pty Ltd. 10/11/02 5/7/09

White Energy Inc. Ares Management LLC 7/7/06 5/7/09

Gandi Innovations Ltd. TA Associates Inc. 9/14/07 5/8/09

Roma Foods of Oklahoma Inc. (Eateries Inc.) Hestia Holdings LLC 12/31/06 5/11/09

J.G. Wentworth LLC JLL Partners Inc. 7/25/05 5/19/09

Anchor Blue Retail Group Inc. Sun Capital Partners Inc. 6/1/03 5/27/09

Metaldyne Corp. RHJ International SA 9/1/06 5/28/09

Consolidated Bedding Inc. (Spring Air) American Capital Ltd., H.I.G. Capital LLC 7/17/07 5/29/09

HSF Holding Inc. (Hawaii Superferry Inc.) J.F. Lehman & Co., Norwest Equity Partners 11/2/05 5/30/09

Nukote International Inc. Richmont Capital Partners I LP 10/25/00 6/3/09

Berean Christian Stores LLC JMH Capital 8/2/06 6/9/09

MagnaChip Semiconductor Finance Co.Citigroup Venture Capital Equity Partners LP, CVC Asia Pacific Ltd., Francisco Partners LP

1/13/04 6/12/09

MIG Inc. (Metromedia International Group Inc.) CaucusCom Ventures LP, Compound Capital Ltd., Salford Capital Partners Inc. 8/22/07 6/18/09








Bodilsen AS EQT Opportunity Fund 11/2/06 6/23/09

CCS Medical Inc. Warburg Pincus LLC 10/3/05 7/9/09

NV Broadcasting LLC Arlington Capital Partners LP 9/19/02 7/13/09

RathGibson Inc. DLJ Merchant Banking Partners LP 4/30/07 7/13/09

Lang Holdings Inc. (Lang Cos. LLC) Catterton Partners 11/20/03 7/16/09

Wilton Holdings Inc. GTCR Golder Rauner LLC 7/20/07 7/17/09

Ambassador Media Group LLC Navigator Equity Partners LLC 8/30/02 7/24/09

Stant Corp. H.I.G. Capital LLC 6/19/08 7/27/09

Arclin US Holdings Inc.; Arclin Canada Ltd. (Dynea North America) Teachers’ Private Capital (Ontario Teachers’ Pension Plan) 11/21/06 7/27/09

Station Casinos Inc. Colony Capital LLC 12/2/06 7/28/09

Eyedea SA Green Recovery SAS 1/22/07 7/28/09

Mrs. John L. Strong & Co. LLC Circle Peak Capital LLC 10/7/08 7/31/09

Cooper-Standard Automotive Holdings Inc. Cypress Group LLC; Goldman Sachs Credit Partners LP 9/17/04 8/3/09

CommerceConnect Media Holdings Inc. (Cygnus Business Media Inc.) Abry Partners LLC 5/23/00 8/3/09

SkyPower Corp. Lehman Brothers Private Equity 6/11/07 8/13/09

Starfire Systems Inc. Palladium Equity Partners LLC 7/11/07 8/13/09

Ellen Tracy Inc. Radius Partners LLC, Windsong Brands LLC 4/10/08 8/14/09

Reader’s Digest Association Inc. GoldenTree Asset Management LP, GSO Capital Partners, J. Rothschild Group, Magnetar Capital, Merrill Lynch Capital Corp., Ripplewood Holdings LLC

11/16/06 8/24/09

Bluewater Broadcasting Co. LLC Alta Communications 4/30/03 8/24/09

Freedom Communications Holdings Inc. Blackstone Group LP, Providence Equity Partners Inc. 5/19/04 9/1/09

Alternative Distribution Systems Inc. Code Hennessy & Simmons LLC., William Blair Mezzanine Capital Fund II LP 9/9/99 9/2/09

Samsonite Company Stores LLC CVC Capital Partners Ltd. 7/5/07 9/2/09

Velocity Express Corp. TH Lee Putnam Ventures 5/31/00 9/24/09

Questex Media Group Inc. Audax Group LP 5/23/05 10/5/09

True Temper Sports Inc. Gilbert Global Equity Partners 2/2/04 10/8/09

Accuride Corp. Sun Capital Partners Inc. 2/27/09 10/8/09

Ascend Media Holdings LLC CCMP Capital Advisors LLC, Veronis Suhler Stevenson LLC 2002/2003 10/15/09

Stallion Oilfield Services Ltd. Carlyle Group, Riverstone Holdings LLC 2/3/05 10/19/09

NTK Holdings Inc. (Nortek Inc.) Thomas H. Lee Partners LP 7/15/04 10/21/09

Capmark Financial Group Inc. Goldman Sachs Capital Partners LP, Kohlberg Kravis Roberts & Co. 8/3/05 10/25/09

Express Energy Services Operating LP Macquarie Group Ltd., Wachovia Capital Partners 6/24/08 10/27/09

First Quench Retailing Ltd. (Thresher Group) Vision Capital LLP 6/12/07 10/29/09

Panolam Holdings Co. Genstar Capital LP, Sterling Group LP 8/25/05 11/4/09

Patrick Hackett Hardware Co. Seaway Valley Capital Corp. 7/20/07 11/10/09








C redit starvation has affected all industries in the past two years, but venture capital-backed com-

panies, with few tangible assets, were par-ticularly ravaged in 2009, with most of the bloodied opting to liquidate.

According to pipeline.thedeal.com, some 40 VC-backed bankruptcies were filed in 2009 through Nov. 15 (see table, pages 40 to 41), and of the 35 in the U.S., 22 of them, or 63%, entered Chapter 7 liqui-dation. For all of 2008, there were only 17 VC-backed bankruptcies.

“Without the infusion of capital and the assurance of future profitability, a liq-uidation, as opposed to a reorganization, is more likely,” says Roger P. Glovsky of Lex-ington, Mass., law firm Indigo Venture Law Offices, which provides counsel to entrepreneurs and high-tech businesses.

Since VC-backed companies are “idea companies,” they rely solely on the strength of their innovations and tend to be more vulnerable because they don’t have tangi-ble assets, says Ron Silverman of New York law firm Bingham McCutchen LLP.

“VC-backed companies are often start-ups in really early stages,” Silverman explains. “When things work well, the rewards are really terrific. If they don’t work, there is much less in the way of as-sets or contracts or anything to reorganize around. There’s nothing else to do but to shut it down.”

Companies in the biotechnology/phar-maceuticals, medical devices and Internet commerce sectors are most vulnerable to economic downturns, Glovsky says.

The data proves Glovsky right. Of the 124 industries and subindustries tracked by pipeline.thedeal.com, those three subsec-tors had the highest rates of bankruptcy.

“These are all technology-based indus-tries with high-risk, long-term research and development [needs but] no short-term exit strategies,” Glovsky says. “These high-risk deals are less attractive when capital sources are limited and the exit op-

portunities are pushed further out.” He also feels that many VC-backed

companies had planned on obtaining later rounds of financing that ultimately didn’t materialize because of the economic slump. “With the capital markets constricted, the chance of a near-term public offering or acquisition is much less,” Glovsky adds.

In the Internet commerce sector, three companies (n2N Commerce Inc., Home Decor Products Inc. and Elephant Phar-macy Inc.) sought Chapter 7 protection, while one (Home Bistro Foods Inc.) filed for Chapter 11 and another (Smartfundit.com Ltd.) petitioned for administration in the U.K.

Elephant Pharmacy, a Berkeley, Calif., health and wellness retailer, said it filed for Chapter 7 on Feb. 10 because it couldn’t raise the capital to continue operating. The company had received $36 million in ven-ture capital financing from Arthur Rubin-feld, Bay Area Equity Fund, CVS Corp., David Hadley and Tudor Investment Corp. between 2004 and 2006. N2N Com-merce, which received $30 million in VC funding from General Catalyst Partners and Limited Brands Inc. in 2007, was forced into Chapter 11 on July 13 by credi-tors with roughly $6.8 million in claims.

Of the five VC-backed medical device companies that failed this year, four sought Chapter 7 (Therative Inc., Rubicor Med-ical Inc., Innovative Spinal Technologies Inc. and OmniSonics Medical Technolo-gies Inc.) while one filed for Chapter 11 (VivoMetrics Inc.). Innovative Spinal had raised $57 million in VC funding from J.P. Morgan Partners LLC, First Round Cap-ital and Frontier Management Group between 2005 and 2008, but its CFO, John B. Henneman III, has said that his Boston company filed for liquidation simply be-cause it ran out of money. In September, it sold itself to Integra LifeSciences Corp. for $9.25 million.

The number of insolvencies hitting the biotechnology/pharmaceuticals sector was

hardly surprising. A report issued in Janu-ary by the Biotechnology Industry Organi-zation indicated that only 10% of the 370 public U.S. biotech companies had positive income and that 180 had less than a year of cash remaining.

Six bankruptcies were filed in the sub-industry, worst among all industry and subindustry groups. Five companies filed for Chapter 7 (Altus Pharmaceuticals Inc., Argolyn Bioscience Inc., Dynogen Pharmaceuticals Inc., Protein Sciences Corp. and Cogentus Pharmaceuticals Inc.), while one filed for administration in the U.K. (York Pharma plc).

Plenty of other subsectors experienced at least one VC-backed bankruptcy, among them alternative energy (Greenline In-dustries Inc.), diversified manufacturing (Luna Innovations Inc.), homebuilding (Wall Homes Inc.), music (Muzak Hold-ings LLC), nanotechnology (NanoDynam-ics Inc.), semiconductors (Aviza Technol-ogy Inc.), telecommunications (ProtoStar Ltd.), telecommunications equipment (ThinkEngine Networks Inc.), informa-tion technology (Portaga Inc.), computer hardware and software (Ortega InfoSys-tems Inc.), digital entertainment (Ra-dioscape Ltd. and SeeqPod Inc.), leisure (Travelworm Inc.), electronics (Ugobe Inc. and DeepStreem Technologies Ltd.) and new media (Joost UK Ltd., Espre So-lutions Inc. and BroadRamp Inc.).

Some VC-backed companies took a cheaper route to liquidation than Chap-ter 7. An assignment for the benefit of creditors, or ABC, proceeding saves bank-ruptcy court costs since an assignee is ap-pointed by a company to assume control of its rights, titles and interests. Those as-sets are then liquidated and distributed to creditors. A 60-day window is given for the company to solicit the approval of the assignee’s appointment from its creditors. Among the VC-backed companies tak-

Venturing into the abyss

CONTINUED >

More than three dozen venture capital-backed companies filed for bankruptcy, with most due to disappear altogether



deals don’t come easy in difficult markets.finding them just got easier.

Source and track auctions, bankruptcies, financings, DIPs and M&A deals with the deal pipeline.

Using the Find A Deal search feature, you’re one click away from more than 60,000 deals

across 30 industries, updated daily by our global editorial staff.

The deal dashboard for your business is at http://pipeline.thedeal.com

To get a demonstration, contact Michael Crosby at 212-313-9325 or [email protected]


ing the ABC route were New York-based Mohen Inc., an ad-supported music and video download service that shut down in March and did business as SpiralFrog, and Redwood City, Calif.-based NebuAd Inc., an online behavioral tracking startup.

Outside the U.S., only one insolvent VC-backed company, online video sharing ser-vices provider Joost, appears to have liqui-dated. Four others sought administration in the U.K. with plans to sell themselves. One, York Pharma, was sold in August.

There is more hope for after 2009, ac-cording to accounting firm Deloitte & Touche LLP. In a report, Deloitte noted that investors have been slowing down their level of investments in VC funds and shifting to later-stage and existing portfolio companies, but the firm also revealed that a majority of VC investors believe that it is currently a better time to invest in promis-

ing entrepreneurial companies. Some 53% of U.S. investors felt it was a “terrific” time; 61% of their U.K. counterparts felt the same way.

“The current recession is not stopping venture capitalists from looking for the best investment opportunities in order to produce the best possible returns for their investors—regardless of borders,” the re-port asserted.

More encouraging is Deloitte’s finding that 50% or more of the VC investors in Eu-rope, the Americas, the U.K., Israel and the Asia Pacific region plan on boosting their investments over the next three years.

Even the level of VC-backed bankrupt-cies in the medical device and equipment industries isn’t scaring those investors off. In Deloitte’s study, 27% of the U.S. inves-tors in the field would increase their fund-ing over the next three years, while 62% of those investors would hold their funding at the same level in the same time period.

The situation in the semiconductor industry is much less sanguine, however. Deloitte reported that 56% of U.S. inves-tors are expected to decrease their venture funding within the next three years. The maturity of the telecom sector has also led 36% of U.S. investors to decide to pull back on future funding.

Indigo Venture’s Glovsky feels that, in today’s tough economic times, VC funds should look to invest in companies with strong customer demand in a recessionary environment and companies that can be fi-nanced through a single round of funding.

“If multiple rounds of financing are needed, there is a risk that the capital mar-kets will continue to be constrained and second or third rounds of financing will not be available,” he explains. “If success depends on development of new technol-ogy, new markets or distribution channels, or raising capital, those deals will be less attractive to VCs.” n —Carolyn Okomo

< PREVIOUS


http://pipeline.thedeal.com



Ortega InfoSystems Inc. Computer hardware and software Harbinger Venture Management, Sycamore Ventures Pte Ltd. 12/5/02 $11.8 1/12/09

ThinkEngine Networks Inc. Telecom equipment Prism Venture Partners, VantagePoint Venture Partners 2/13/01 15.0 1/14/09

Portaga Inc. LeisureAscend Venture Group LLC, Cove Harbor Partners, First Round Capital

8/15/06 5.8 1/16/09

Cogentus Pharmaceuticals Inc. Biotechnology and pharmaceuticalsApothecary Capital LLC, Keffi Group Ltd., Pinnacle Ventures, Prospect Venture Partners, Ridgeback Capital Management LLC

12/21/07 62.5 1/16/09

Wall Homes Inc. Homebuilding Jen Partners LLC, Warburg Pincus LLC 4/14/05 50.0 1/19/09

BroadRamp Inc. New media Venture Vest II 4/26/06 5.0 1/23/09

Espre Solutions Inc. New media StreamTraX Visual Communication Technologies Inc. 9/29/05 15.0 1/30/09

ManagedStorage International Inc. Information technology servicesGreat Hill Partners LLC, J.P. Morgan Chase & Co., Tudor Ventures

1/16/03 22.0 2/4/09

Muzak Holdings LLC MusicBank America Capital Investors, New York Life Capital Partners, Northwestern Mutual Financial Network

10/20/00 85.0 2/10/09

Elephant Pharmacy Inc. Internet commerceArthur Rubinfeld, Bay Area Equity Fund, CVS Corp., David Hadley, Tudor Investment Corp.

11/16/04; 09/12/06

36.0 2/10/09

Recordant Inc. Computer hardware and software Kodiak Venture Partners 2/13/06 3.0 2/10/09

Dynogen Pharmaceuticals Inc. Biotechnology and pharmaceuticals

A. M. Pappas & Associates LLC, HealthCare Ventures LLC, Oxford Bioscience Partners, Abingworth Management Ltd., Atlas Venture, Medica Venture Partners, Schroder Ventures Life Sciences, Wellcome Trust

4/20/04; 11/13/02

55.7 2/23/09

Home Bistro Foods Inc. Internet commerceCEI Ventures Inc., New York Community Investment Co. LLC, Sustainable Jobs Fund LP

9/11/03 1.5 3/20/09

Mohen Inc. (SpiralFrog Inc.) Digital Entertainment Undisclosed investors12/28/07; 04/19/06

10.9 3/20/09

OmniSonics Medical Technologies Inc. Medical devices

Canaan Partners, Domain Associates LLC, GE Asset Management Inc., Hambrecht & Quist Capital Management LLC, New England Partners Capital LP, Prism Venture Partners, Johnson & Johnson Development Corp.

10/9/03; 5/30/01; 7/18/00

52.7 3/23/09

Home Decor Products Inc. Internet commerceKinderhook Partners LP, Seymour Holtzman, 3i Venture Capital, Comcast Interactive Capital, Liberty Associated Partners LP

7/19/05; 12/20/06

72.1 3/27/09

SeeqPod Inc. Digital entertainment Undisclosed investors 4/30/08 7.0 3/30/09

Ugobe Inc. ElectronicsRose Tech Ventures LLC, First Round Capital, Frontier Management Group, Band of Angels Fund, Hiyield Venture Capital

5/31/06; 10/31/06; 6/10/08

23.3 4/17/09

Radioscape Ltd. Digital entertainmentAtlas Venture, Royal Bank Ventures Ltd., Scottish Equity Partners Ltd., Texas Instruments Inc., Yasuda Enterprise Development Co. Ltd., iGlobe Partners Inc.

12/10/01; 04/11/02

25.2 4/30/09

Debtor Sector InvestorFunding

dateVolume ($mill.)

Filing date

Misadventure capital venture capital-backed bankruptcies Jan. 1–Nov. 15, 2009





Innovative Spinal Technologies Inc. Medical devicesJ.P. Morgan Partners LLC, MPM Capital LP, OrbiMed Advisors LLC

8/3/05; 09/30/08

57.0 5/15/09

NebuAd Inc. New media Menlo Ventures; Sierra Ventures 9/25/07 20.5 5/15/09

Hammerhead Systems Inc. Networking hardware and softwareApex Venture Partners, Enterprise Partners Venture Capital, FirstMark Capital, Foundation Capital, Mayfield, Silver Creek Ventures

08/02/07; 01/31/06; 01/27/04

73.0 5/21/09

Nevis Networks Inc. Networking hardware and software Nokia Venture Partners 5/13/04 10.0 5/26/09

Smartfundit.com Ltd. Internet commerce BayTech Venture Capital Beratungs GmbH 12/4/08 4.1 5/26/09

Aviza Technology Inc. Semiconductors VantagePoint Venture Partners 10/17/03 50.0 6/9/09

DeepStream Technologies Ltd. ElectronicsDoughty Hanson Technology Ventures, Welsh Assembly Government

9/27/04 17.9 6/12/09

Protein Sciences Corp. Biotechnology and pharmaceuticals Nosan Corp. 11/13/01; 01/08/02

3.0 6/22/09

Argolyn Bioscience Inc. Biotechnology and pharmaceuticals Intersouth Partners, Quaker BioVentures Inc. 6/27/07 15.8 7/6/09

Rubicor Medical Inc. Medical devicesITX International Equity Corp., Rubicor Inc. (management), Safeguard Scientifics Inc.

8/28/06 30.0 7/10/09

n2N Commerce Inc. Internet commerce General Catalyst Partners, Limited Brands Inc. 2/5/07 30.0 7/13/09

Luna Innovations Inc. (Luna Technologies Inc.)

ElectronicsColumbia Capital, Envest Ventures I, Novak Biddle Venture Partners, Soundview Technology, Southwest One LLC, Virginia Tech

4/23/03 3.5 7/17/09

NanoDynamics Inc. Nanotech Undisclosed investors 7/28/04 12.0 7/27/09

York Pharma plc Biotechnology and pharmaceuticals Undisclosed investors 9/19/05 9.0 7/28/09

ProtoStar Ltd. TelecommunicationsNew Enterprise Associates, SpaceVest Capital, RedShift Ventures, VantagePoint Venture Partners

11/17/06; 09/13/06; 03/15/05

90.0 7/29/09

Greenline Industries Inc. Alternative energy Leaf Clean Energy Co. 4/8/08 20.0 8/7/09

Travelworm Inc. Leisure Cedar Street Group, Wasserstein Venture Capital 2/6/04 NA 8/13/09

Therative Inc. Medical devicesBand of Angels Fund, Bessemer Venture Partners, Foundation Capital, RWI Ventures

5/17/07 9.0 8/20/09

Joost UK Ltd. (Joost NV) New mediaIndex Ventures, Li Ka Shing Foundation, Sequoia Capital, Viacom Inc.

5/11/07 45.0 10/2/09

VivoMetrics Inc. Medical devicesCSFB Private Equity, CyberFund LLC, Hammer Capital Management Inc.

8/21/00 0.0 10/16/09

Altus Pharmaceuticals Inc. Biotechnology and pharmaceuticals

BankInvest Group, China Development Industrial Bank Inc., Clariden Bank, CMEA Ventures, Hotung Group, Nomura International plc, Nomura Phase4 Ventures Ltd., Palladian Group, U.S. Venture Partners, Warburg Pincus LLC

05/26/04; 12/27/01

66.0 11/11/09


Debtor Sector InvestorFunding

dateVolume ($mill.)

Filing date

Misadventure capital venture capital-backed bankruptcies Jan. 1–Nov. 15, 2009


thedaily deal thursday december 17 2009 bankruptcy … · 2009-12-16 · debtor: meridian...

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