Wheel Pros released cleansing documents today, outlining a new money and refinancing deal struck with roughly 70% of its term loan lenders that will enhance the cash-strapped aftermarket wheel distributor’s liquidity by around USD 180m and deleverage it by about USD 137m, according to two sources familiar with the matter. In documents filed to the broader lender group, the Clearlake Capital-backed company offered the remaining 30% of its loan holders the opportunity to participate in the deal pro rata, with the new money backstopped by term lenders already committed to the deal, they added.

The fresh capital is set to come via a USD 235m SOFR+ CSA+ 887.5bps (2.5% floor) FILO due February 2028 that will carry a second-out first lien on ABL priority collateral and a first lien on TL priority collateral, the sources noted.

Under the deal, existing lenders will also fund a new S+ CSA+ 450bps first lien TL due May 2028 to enable open market purchases of the current TL, including an 85 purchase price for lenders participating in the FILO and 60 for lenders not taking part in the FILO, the sources continued. The new first lien TL will be issued at a newly-created restricted subsidiary, with proceeds funneling down to Wheel Pros via an intercompany loan pari passu to the existing TL, the sources said. In addition, the new TL will carry a secured guarantee at the company pari passu to the existing TL via a double-dip structure with a second claim on the same collateral, they noted.

Also as part of the deal, unsecured notes that were held by certain existing lenders already committed to the deal were sold for new 6.5% second lien notes due May 2028 held at the new restricted subsidiary, the sources went on.

Wheel Pros cited forecasts that absent the deal, liquidity from cash and ABL availability would decline from USD 14m in 2Q23 to negative USD 23m by 1Q24, the sources noted. Pro-forma liquidity is now expected to decline from USD 173m in 2Q23 to USD 136m in 1Q24, they said.

Akin Gump and PJT Partners are advisors to the lenders, while the company has been working with Kirkland & Ellis and Houlihan Lokey.

Wheel Pros’ existing USD 1.175bn Libor+ 450bps first lien TL due 2028 was last quoted 65.625/67.625, versus 66.019/68.433 at the start of the month, according to Markit. The term loan was quoted 70.116/72.313 on 1 May, prior to market fears that Wheel Pros could pursue a priming deal.

Its USD 365m 6.5% senior unsecured notes due 2029 last traded in size on 12 June at 33.75, according to MarketAxess. More recent odd lot trades have traded at a similar price.

A representative for Clearlake and Wheel Pros did not respond to requests for comment.

Sino-Ocean Group has yet to receive the needed unanimous consent from banks in three offshore syndicated facilities to roll over for nine months the 19 September installments already deferred from June, said two sources familiar with the matter.

In a meeting the banks held early last week with the China Life Insurance Co– and Dajia Life Insurance-backed developer, some said they were unwilling to roll, which prompted some of the other previously supportive lenders to dither, said the two sources.

The banks that said they are unwilling to roll attributed their reluctance partly to Sino-Ocean’s failure to perfect the share pledges that are supposed to be added to back the three loans as part of the rollover, said one of the two sources.

The objecting lenders are foreign banks, said the second source familiar.

Some lenders remain committed to the extension, said both sources.

As Debtwire reported on 20 June, the banks in the three loans unanimously agreed to defer to 19 September the final payment on an originally USD 800m-equivalent facility due-21 June loan as well as a June amortization each on syndicated loans due-June 2024 and due-June 2025.

The initial three-month extension was meant to provide Sino-Ocean Group with a window to finalize the further nine-month roll over of the payments – effectively to defer them by 12 months, as reported.

In exchange for the extensions, Sino-Ocean offered to provide security over its shares in the nine offshore units through which it indirectly holds all its projects, as reported.

Debtwire Par data shows that there is HKD 3.8465bn (USD 490m) and USD 70m remaining on the originally USD 800m-equivalent facility due 21 June and that Chinese banks were allocated 69.2% of the loan.

The other two loans comprise a USD 753.97m-equivalent due-June 2024 loan and a USD 712.93m-equivalent due-June 2025 loan. The sources didn’t detail how much is left on those.

Sino-Ocean also has an outstanding USD 200m club loan that closed in June 2022, for which this month’s initial amortization is also supposed to be included in the nine-month roll, as reported. The sources didn’t know the status of that extension effort.

The original lenders of the three syndicated facilities include in part HSBC, Hang Seng Bank, United Overseas Bank, Bank of China (Hong Kong), Agricultural Bank of China Hong Kong Branch and Industrial and Commercial Bank of China (Asia), as per Par data.

Sino-Ocean Group declined to comment.

Bond delays

Sino-Ocean only resumed talks with offshore lenders over the nine-month refinancing after it finally on 31 August obtained consent for a one-year term out for its CNY 2bn 4% corporate bonds due 2 August, said the first source familiar.

The developer is also struggling to pay coupons on its USD bonds. Sino-Ocean completed on 18 August a consent solicitation to defer each of its next three USD bond coupon payments for two months as well as waiving any default arising from the consent solicitations.  The three coupons were originally meant to be paid on 30 July, 4 August and 5 August.

China Life Insurance Co has fully written off its 29.59% stake in the developer, the state-owned insurer’s interim report released 23 August showed. The original investment value was CNY 11.245bn, as per the report.

Moody’s on 28 July cited expected weakened support from China Life to Sino-Ocean as a reason for downgrading the developer’s corporate family rating by one notch, to Caa2.

Chinese news outlet 36Kr reported on 1 June that Sino-Ocean Group’s two largest shareholders, China Life and Dajia Life, have established at the developer’s headquarters a joint working group with Sino-Ocean’s auditor, BDO Limited, to investigate the liquidity risk and assist in refinancing upcoming debt maturities.

Bloomberg reported on 3 July that the working group led by state-owned shareholders has engaged an adviser to conduct due diligence.

Sino-Ocean Group (China) issued a 6 July statement confirming that the two life insurers had formed a joint working group to “have a more comprehensive understanding of Sino-Ocean’s business operation”. It also said in the statement that the working group had hired a financial advisor to “provide services” for the working group, without naming the advisor.

There is great uncertainty over how Hawaiian Electric Industries (HEI) will be able to pay potential damage claims from deadly fires on Maui and upgrade its network to prevent future catastrophes, two advisory sources and a buysider said.

The Honolulu-based holding company, which owns a collection of utilities under Hawaiian Electric Company that power most of the Hawaiian islands and a savings bank, has faced mounting allegations and lawsuits over its actions before and during wildfires that swept through the town of Lahaina and other parts of Maui in early August.

The situation has drawn early comparisons to California utility PG&E’s 2019 bankruptcy following a series of deadly wildfires allegedly started by its equipment, and past disasters like the BP oil spill in the Gulf of Mexico.

This week HEI confirmed the company had engaged Guggenheim and other “experts” for advice and said it was suspending its dividend and drawing down on USD 370m in credit facilities. The company, which did not return a request for comment, has previously said it’s not planning to restructure.

The Federal Emergency Management Agency has estimated that it will cost USD 5.5bn to rebuild property damaged during the Lahaina Fire. The death toll reached 115 on Thursday and 388 people are still classified as missing.

It remains far too soon to estimate HEI’s ultimate liability from the fires, particularly given the large loss of life from the event, the sources said.

HEI’s market cap stood at USD 4bn prior to the fires and the company ended June with USD 2.6bn in long-term debt at the holding company and Hawaiian Electric. Shares have declined from over USD 36 to close Friday at USD 9.66.

HEI has highlighted to investors that there is no precedent in Hawaii for “applying inverse condemnation to a private party like an investor-owned utility,” unlike in California where at the time of PG&E’s bankruptcy, utilities could be held liable for fires started by their equipment even if they didn’t act negligently.

Eric Goodman, a partner at Brown Rudnick who specializes in mass tort bankruptcies, said in his view both negligence and the doctrine of inverse condemnation were factors in the PG&E case, adding that either can result in legal liability.

The company pleaded guilty in 2020 to 84 counts of involuntary manslaughter and a count of causing the Camp Fire. Mass tort claimants ultimately secured USD 13.5bn from PG&E.

“If you’re criminally liable, you’re probably going to lose,” said Goodman, who represented the Official Committee of Tort Claimants in the bankruptcy.

On Thursday, the County of Maui filed suit against HEI and its affiliates alleging gross negligence for failing to maintain its power lines and de-energize them in advance of warnings that the island faced high winds and favorable fire conditions. Several other lawsuits have also been filed against the company with similar allegations.

To limit liabilities, HEI could try to ring-fence liabilities to its subsidiary Maui Electric, which Hawaiian Electric Company acquired in 1968 and accounts for around 14% of the business’ revenue, said a third advisory source.

In this scenario, HEI’s stock could be worth USD 25 a share based on the book value of its other utilities and the bank, he said.

Other sources said they believed HEI will struggle to limit liability to just Maui Electric. Claimants will likely go after HEI management and look to pierce the corporate veil between subsidiaries, the buysider said.

Still, in this case, HEI’s debt could see a recovery of around 70 cents based on the assumption that damages come to around USD 5bn and liabilities are treated pari passu, the third advisory source said.

At the end of 2022, Hawaiian Electric Company’s debt stack was spread across USD 542m in special purpose revenue bonds and USD 1.15bn in senior unsecured taxable notes issued through private placements in multiple small tranches, according to SEC filings. HEI also issued a series of senior unsecured notes.

Some of the municipal bonds have traded since the fire with a USD 140m 4% revenue bond due 2037 changing hands Thursday at 63.5, according to EMMA data. The taxable notes have not traded in the past month, according to MarketAxess.

Potential damage claims from the fires are only the start of HEI’s liquidity needs, the sources said. No matter who ends up owning the assets, HEI will need to raise new capital to upgrade its grid, said the buysider, who said that as a result, HEI must walk a fine line when dealing with creditors.

“I don’t know how you raise money to pay off all the claims, plus rebuild and harden the system,” said the second advisory source who advises utilities.

The islands do not have favorable demographics to attract investment, the second advisory source noted, with the population declining for the past seven years. HEI also has limited capacity and human capital to execute upgrades, he said.

PG&E issued USD 8.9bn in debt when it emerged from bankruptcy in 2020 with USD 3.5bn of the funds raised to fund capital improvements. Years later the utility is still debating how best to operate its network to prevent fires after suspending an ineffective USD 2.5bn program to trim trees near power lines.

California helped support PG&E’s recapitalization by passing legislation to establish insurance protection for utilities in the event their equipment causes a fire in exchange for making safety improvements.

Hawaii will likely need to pass a similar law to incentivize investors to back HEI without fear of future fire liabilities, some of the sources said.

Unigel and holders of its USD 530m 8.75% 2026 have engaged in initial debt renegotiation talks, according to three sources close to the matter.

The coupon payment due 1 October is an issue the Brazilian chemical company is trying to address, the first source said. It is not clear yet if there will be a waiver from bondholders or if Unigel will pay a portion of the coupon and postpone the remainder, the same source added.

“Conversations with bondholders have started, but are still very incipient,” the second source said, noting that there is no decision on the coupon payment at this point.

Unigel is seeking to re-profile its debt, the third source close said, adding that the idea is to avoid taking the matter to court.

Creditors of the chemical company were reported to be searching for potential buyers for either the company itself or its industrial assets.

However, domestic and international bondholders are not discussing such a possibility, the first and the second sources said. “For the time being, the idea is to negotiate with the company, provided that the proposals are obviously reasonable,” the second source said.

Unigel and domestic bondholders holding 10% of the BRL 500m (USD 100m) in debentures have scheduled an online general meeting on 5 September to discuss a waiver of a covenant limiting leverage to 3.5x, a threshold probably breached in 2Q23.

The domestic holders and the company will discuss conditions to keep the debt renegotiation talks, including new terms for the first domestic bond issuance, according to a call notice published on 15 August.

Debenture holders will also vote on the possibility of market participants, and eventually its creditors, offering “new money,” so that Unigel can complete industrial plants that are under construction, according to the notice.

“The company needs new money, although it is not clear yet how much is needed,” the first source said. It is important to know, for instance, if Unigel will have access to loans from the BNDES government development bank to conclude the investments in its plants, the same source added.

The borrower intends to present a business plan that will guide debt restructuring talks with creditors.

“Unigel is a good company in a difficult moment. It has good potential, and it should attract interest from investors and other groups interested in the sector,” the third source said, citing projects such as the green hydrogen plant under construction in Brazil and the fertilizer division.

Unigel and Petrobras signed a non-disclosure agreement (NDA) to discuss a possible joint venture involving the development of opportunities in the fields of fertilizers, green hydrogen and low-carbon projects, as reported.

The company delayed the release of its 2Q23 financial results, originally scheduled for 14 August, because of the ongoing process to enhance its capital structure. The new date has not been disclosed yet.

Unigel hired Moelis & Company as financial advisor and it is advised by Felsberg Advogados and Simpson Thacher & Bartlett. An ad hoc group of Unigel bondholders hired Houlihan Lokey as a financial advisor, Munhoz Advogados and Cleary Gottlieb as legal advisors.

The group of domestic bondholders will vote on the approval of Valuation Consultoria Empresarial as financial advisor, and Lefosse Advogados as legal advisor, at the 5 September general meeting.

A spokesperson for Unigel declined to comment.

Unigel’s USD 530m 8.75% 2026 bonds traded at 39.78 on 17 August, according to MarketAxess.

Recovery prospects for unsecured claims are emerging as a hot topic in the Yellow Corp bankruptcy case on expectations that the trucking company’s secured debt will be repaid in full, said several unsecured claims traders and advisory sources.

The issuer filed for Chapter 11 in Delaware late Sunday (6 August) with USD 1.22bn in secured debt and plans to sell its large holdings of real estate and equipment through its bankruptcy process.

Debtor counsel Patrick Nash, of Kirkland & Ellis, told the Judge Craig Goldblatt during the first day hearing on Wednesday (9 August) that Yellow is “very optimistic” that sale proceeds would cover secured debt and deliver “material proceeds” for unsecured creditors.

Unsecured claims are “obviously an important constituent” in the case since Yellow doesn’t believe secured debt is the fulcrum, Nash noted. An appraisal last year valued the trucking giant’s assets at over USD 2bn, he added. Yellow’s USD 485m term loan B is quoted 90.667/92.333 on Markit.

“The debtor counsel absolutely lit up a firestorm,” said a source familiar with the matter. “There is no funded unsecured debt. It’s trade, pension and litigation claims, all of which will be fighting over value. The fulcrum is usually in the funded debt so when it’s not, it makes it fun.”

A fight is already brewing over DIP financing for the debtor. Lenders led by Apollo offered a USD 142.5m DIP loan to facilitate asset sales ahead of the filing, but rival groups have since then submitted multiple counter proposals for the DIP.

During a status conference held by the court this morning, Nash said discussions have continued to progress with at least two potential new DIP lenders—MFN Partners, a significant shareholder of both Yellow and competitor XPO Logistics, and Estes Express Lines, another major trucking company.

WARN Act debate

A key point that will determine the recovery unsecured claimants could capture is the size of the potential priority payout Yellow first makes to employees for violations under the WARN Act, several of the sources said.

Typically a minor concern in bankruptcy, the WARN Act could play a large role in the Yellow case given the company employed around 30,000 employees and abruptly terminated most of them one week prior to filing for bankruptcy.

The Teamsters union that represents 22,000 of the employees is already demanding the company support staff.

“Our members’ loss of work at Yellow was no fault of their own. They should be the first in line for real relief as bankruptcy moves forward,” said John A. Murphy, Teamsters National Freight Director, in a statement.

The WARN Act requires employers executing mass layoffs to provide at least 60 days’ notice to affected workers or provide the equivalent in pay, subject to several exceptions to the law. In a letter to the Teamsters, Yellow cited exceptions to the Act as the reason why Yellow didn’t provide advance notice.

Under the US Bankruptcy Code, employees have an up to USD 15,150 priority claim for WARN Act payments with anything above this amount treated as an unsecured claim, said one restructuring attorney.

Assuming all 30,000 employees at Yellow qualify for WARN payments, the aggregate priority claim could total more than USD 450m.

“There are people that are arguing it should be a much smaller number – it’s a big controversy,” the source familiar noted.

A favorable ruling in the Third Circuit could provide an avenue for Yellow to argue the WARN Act doesn’t apply under the “liquidating fiduciary” defense.

In the 1999 case Official Comm. of Unsecured Creditors of United Healthcare Sys. v. United Healthcare Systems, the court held that a debtor that is liquidating and not operating as a going concern isn’t subject to the WARN Act, the restructuring attorney said.

The analysis is fact specific, the source added, as shown in a ruling by Judge Goldblatt in the 2020 bankruptcy case of Art Van Furniture that the WARN Act did apply since running a going out of business sale was similar to Art Van’s pre-bankruptcy business.

At least one class action case has already been filed on behalf of employees alleging Yellow violated the federal WARN Act and state WARN Acts, some of which call for 90 days’ notice to employees.

Additional liabilities

Beyond WARN Act payouts, Yellow may face liabilities connected to terminating its participation in multiple pension plans, several of the sources said.

The company may also try to net out claims the Teamsters union may make against Yellow versus claims the company has made against the union, said the first source familiar.

In late June, Yellow filed a lawsuit against the Teamsters, alleging over USD 137m in damages for stopping the company’s efforts to improve its business. A judge later blocked Yellow’s request to prevent the Teamsters from making good on a threat to strike.

Yellow briefly turned into a meme stock in late July with shares surging from under USD 1.00 on 28 July to over USD 4.00 five days later on news that the company had terminated employees and planned to file for bankruptcy. The stock has traded down since the Chapter 11 filing with shares changing hands this afternoon at USD 1.80, for a USD 94m market cap.

Yellow did not respond to a request for comment.

The competitive auction for Volcan Compania Minera’s (B+/B2) second non-core hydroelectric asset is advancing with three bidders, a source familiar and an analyst following the company said. It will seek no less than USD 50m in proceeds from the sale, they said.

The Peruvian silver miner already agreed on the sale of the first hydroelectric asset, but parties are still discussing the final pricing, estimated between USD 35m and USD 40m, the source familiar said. Scotiabank is managing the sale of the second noncore asset, as reported.

“The first hydroelectric plant has already been sold to one client – [Volcan] is arranging the final price,” the source familiar said. “[Regarding] the other asset, Scotiabank is contracted to do a tender with three potential [bidders].”

With expected proceeds from the non-core asset sales and capex adjustments, the Peruvian miner is expected to have enough to pay amortizations due next year, as reported.

Volcan faces approximately USD 100m in syndicated loan amortizations next year. The company has been working on a variety of measures to reach cash flow break-even by year end, including a much lower capex for a key exploration project.

Volcan owns two hydroelectric generation subsidiaries, according to its 1Q23 financial report. Hidroelectrica Huanchor  operates the 19.632 MW Huanchor and 1.2 MW Tamboraque plants, and Empresa de Generacion Electrica Rio Banos, which operates the 20 MW Rucuy plant.

The Peruvian miner had previously attempted to sell its portfolio of hydroelectric plants and transmission lines, in a process run by Banco de Credito del Peru (BCP) which the company ended in November 2021. French utility company Engie and Peruvian hydroelectric plant owner Celepsa, a subsidiary of industrial corporation UNACEM, had been interested in the assets.

A Volcan representative declined to comment.

The USD 365m 4.375% 2026 bond traded 11 August at 65.79, to yield 23%, according to MarketAxess. 

Aventiv Technologies is back at the drawing board with its lenders after efforts to refinance near-term maturities – borrowed under subsidiary Securus Technologies – were met with lackluster interest, according to two sources familiar with the matter.

After months of marketing and negotiations, the Platinum Equity-owned prison telecommunications company quietly pulled its proposed refinancing deal earlier this month, causing quotes on its term loan to plummet to 80/84.5 on 7 July, from an 88.972/91.472 context earlier that week, the sources said. The USD 1.087bn Libor+ 450bps first lien term loan due 2024 was last quoted 79.947/82.475, according to Markit.

Discussions between the sponsor and lenders are still ongoing but have yet to show material progress, the sources added.

The initially proposed transaction led by Deutsche Bank comprised a four-year USD 700m first lien term loan guided at SOFR+ 600bps and a 97 OID, alongside a four-year USD 400m senior secured note offering carrying a roughly 11% yield. Proceeds were earmarked to repay the borrower’s existing USD 1.087bn first lien term loan due 2024 and USD 282.5m second lien term loan due 2025.

To bolster investor confidence and hopefully get the deal across the finish line, Platinum pledged to write an additional USD 400m equity check to support the company, on top of the roughly USD 440m it had invested previously. Despite the seemingly attractive terms, the deal failed to garner sufficient interest from investors and the deadline for commitments on the TL portion was not extended past the initial 12 May cut-off, the sources said.

Its USD 282.5m L+ 825bps second lien term loan due 2025 was last quoted 77/82.844 today, roughly unchanged from early this month.

Representatives from Securus and Platinum did not respond to requests for comment.

Acelen is expected to report EBITDA in 2023 that is well below its projections, leading the oil refinery operator to reach a high level of leverage, two sources familiar with the matter said.