CASE PROFILE: Vice Media enters Chapter 11 protection backed by largely rolled up DIP, USD 225m stalking horse bid from prepetition lenders
15th May 2023
Vice Media filed for bankruptcy in the early hours of the morning on 15 May, with a USD 60m debtor-in-possession (DIP) financing facility, which rolls up USD 50m in prepetition term loan debt. The company also has a USD 225m stalking horse credit bid for its assets from prepetition term loan lenders.
The highly anticipated Chapter 11 petition, filed in the US Bankruptcy Court for the Southern District of New York, cited USD 1bn to USD 10bn in both assets and liabilities. A first day hearing was been scheduled for 16 May.
Vice grew rapidly from a niche magazine into a global media company focusing on content centered on news and culture, serving a largely global youth audience, Chief Restructuring Officer Frank Pometti said in his first day declaration. Vice traces its roots back to 1994, when Shane Smith, the current chairman of the board of Vice’s parent, co-founded and launched Voice of Montreal – an alternative punk focused magazine – in Canada.
Vice reaches its audience in multiple formats including editorial, digital and social video, experiential events, commercials, music videos, scripted and unscripted television, feature documentaries, and movies. It distributes content across multiple distribution channels, such as digital platforms, social platforms, advertising-based and subscription video on demand streaming services, broadcast and cable television, live events, and experiential campaigns.
Vice’s prepetition debt largely stems from term loans, including USD 417.6m outstanding under an initial secured term loan and USD 57m outstanding under 2023 multi-draw terms loans. The company also has an overdraft facility, and multiple series of notes.
Like many other companies in the media and technology sectors, Pometti said in his declaration, Vice has been cash flow negative for the last several years. As a result, it relied on external funding, raising both debt and equity capital to fuel its rapid growth and to fund expenses. Although the fundraising efforts helped finance the company’s growth, they ultimately led to the company being “burdened by a highly leveraged and unusually complex” capital structure, Pometti said.
As current market dynamics trended against the debtors, the substantial funded debt obligations, dividend requirements from various classes of preferred stock, and other non-operational expenses and obligations constrained liquidity and interfered with the ability to raise additional capital. Pometti noted that the lack of liquidity was especially problematic given ongoing capital requirements stemming from the fact that most of Vice’s businesses operate across platforms that require “near constant” adaption of new technologies, and the development of content which often takes multiple years to generate returns.
According to the declaration, the liquidity strain caused by the lack of profitability was further exacerbated late last year by the maturity of both the senior secured term loans and the senior subordinated notes. Following an unsuccessful sale process in 2022—which itself followed failed efforts to pursue a SPAC transaction in 2022—the debtors, prepetition term lenders and Fortress Credit Corp, as administrative agent, entered into a forbearance agreement on 12 December 2022. Under the agreement, the lenders and agent decided to forbear from taking enforcement actions under their credit agreement. On 27 December 2022, the debtors, term lenders and agent entered into a second temporary forbearance agreement, which further extended the standstill period and required the appointment of the CRO.
The second forbearance agreement was followed by a third on 12 January, extending the forbearance period to 12 May. The parties also entered into an incremental credit amendment to the senior secured credit agreement to allow the debtors to get up to USD 30m in new senior secured term loans. The debtors agreed to milestones that required them to initiate a new process to solicit bids to sell substantially all of their assets, and Vice’s parent was required to appoint two new independent directors (selected by the lenders) to its board of directors. The new directors, together with an existing independent board member, formed a special committee. Pometti said the forbearance period was terminated due to failure to satisfy the milestones.
Having just launched a sale process in accordance with the third forbearance agreement in January 2023, the debtors again faced a liquidity crunch. This was primarily caused by a delay in receiving a quarterly payment for the production of content for VICE World News (VWN) of about USD 34m that was due in mid-January under agreements with GMN Cayman Ltd (GMNC). Without receiving the Q1 payment, the company was forced to draw on the 2023 multi-draw term loan much sooner than expected, a move which ultimately led the debtors to need advances beyond the original commitment.
On 13 February, the debtors received a notice from GMNC of its intention to terminate a master services agreement (MSA), triggering wind-down provisions. The impact of the termination of that relationship was substantial, Pometti said. While the sale process continued, the debtors began to assess the implications of the termination of the MSA and explore options to restructure. At the same time, Vice also pursued efforts to find a replacement counterparty to the MSA. To address the loss of that agreement, the debtors determined that the best path would be to implement structural changes to mitigate the impact of the loss of the contract. That included refocusing resources in the news division in favor of its television series and documentary businesses and other digital businesses, while reorganizing its business structure to streamline its overhead.
As the company sought to begin its operational restructuring, it also relaunched a sale and marketing process and negotiated a settlement of amounts due to the debtors from GMNC arising out of its failure to make the Q1 payment and the delivery of the termination notice.
The negotiations with GMNC initially focused on an agreement for immediate payment of a full cash settlement, Pometti said, but GMNC delayed executing a signed agreement, and ultimately sought to impose new terms, and to break the agreed upon amount into multiple payments. The delay in the receipt of payments caused significant hardship to the debtors by delaying the ability to reorganize, added to the financial strain, and created a large strain on the prepetition marketing process, according to Pometti’s declaration.
On 26 April, Vice’s parent and certain debtors entered into a termination deed with GMNC and certain affiliates in which GMN Cayman HoldCo LLC (GMNH) agreed to make two payments in the aggregate amount of USD 50m. While the initial USD 30m of the termination payment was required to be paid by no later than 4 May, the debtors did not receive the payment until 9 May. The second payment of USD 20m is due by 17 July. While the debtors negotiated with GMNC over the terms of a settlement, they used the full amount of the 2023 term loans but found themselves in need of additional funding to continue to meet operating expenses. As a result, the debtors sought more advances from the term loan lenders.
Through a series of amendments, the term lenders advanced an additional USD 27m, for an aggregate total of USD 57m in 2023 term loans. The debtors used the funds to pay employees and continue the marketing process.
In the final days leading up to the case, Wipro LLC obtained a USD 9.9m judgment against Vice. Wipro obtained the judgement on 4 May, and on 5 May, it began the process of enforcing its judgment through the purported service of a restraining notice, limiting the ability of Vice to transfer or dispose of its assets, including its cash on hand.
On 10 May, Wipro served the debtors’ primary cash management bank, JPMorgan Chase Bank, with a restraining notice, seeking to impose a stay on withdrawals from Vice’s accounts at JPMorgan. At that time, there were funds in the accounts of more than enough required to satisfy the stay requirements of the restraining notice. The prepetition collateral agent sought to exercise remedies under their deposit account control agreements for all the debtors’ accounts at JPMorgan. The bank froze the Vice accounts pending a court order that clarifies the control of the funds in the accounts.
The Chapter 11 case
As laid out in the DIP and cash collateral motion, the debtors are seeking to use the funds in the JPMorgan accounts as the cash collateral of the term lenders. The freeze on the accounts has essentially shut off much of the debtors’ liquidity, according to Pometti’s declaration, and the lack of liquidity is a particular concern for the debtors.
The DIP provides for a 5:1 roll-up of the prepetition term loans. Of the USD 60m DIP, USD 10m is made up of new loans and USD 50m is the roll-up. During the interim period, USD 5m of the new money DIP would be available, and there would be a corresponding roll-up of USD 25m.
In addition to the DIP, the debtors have a stalking horse credit bid from the lenders, led by agent Fortress, totaling USD 225m.
The debtors filed a bid procedures motion, which sets up a June sale process with the following dates: