Turnarounds November 2019 Workouts

Tim Coleman Receives 2019 Harvey Miller Award

Judge Opens PG&E Case to Rival Plans

UST Lacked Authority to Appoint Committee in Medical Center’s Bankruptcy, Court Says

Research Report: Who’s Who in Sanchez Energy Corporation Page 6 →

Research Report: Who’s Who in Legacy Reserves Inc. 4 →

Special Report: The Nation’s Largest Claims Agents Page 21 →

Worth Reading: THE BIG BOARD: A History of the New York Stock Market Page 24 →

Special Report: Outstanding Turnaround Firms – 2019 Page 25 →

Gnome de Plume: Chasing Unicorns Page 33 →

In This Issue:

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News for People Tracking Distressed Businesses

November 2019VOLUME 33, NUMBER 11Turnarounds

& Workoutswww.TurnaroundsWorkouts.com

PJT Chair Recognized for Contributions to Restructuring Industryby Colin Post

Tim Coleman is a partner at financial advisory and investment bank, PJT Partners, where he is the Global Chairman of the company’s Restructuring and Special Situations Group. Tim has led a remarkable 40-year career managing high-profile bankruptcies and out-of-court restructurings that ultimately saved American jobs and rebuilt failing businesses.

Hedge Funds Fighting Over Control of PG&E Corp.by Carlo Fernandez

While Warren Buffett’s Berkshire Hathaway Energy Corp. has not indicated any interest in acquiring PG&E Corp. despite prodding by California Governor Gavin Newsom, there is still value in California’s largest utility, recent developments in bankruptcy court suggest. Two groups of multibillion-dollar hedge funds are fighting over control of the San Francisco-based power provider.

Creditors’ Panel in Coalinga Chapter 9 Case Disbandedby Frauline Abangan

Because its role was not correctly introduced, the committee of unsecured creditors in the Chapter 9 case of Coalinga Regional Medical Center found itself disbanded by the bankruptcy court.

Judge Rene Lastreto, II, of the U.S. Bankruptcy Court for the Eastern District of California granted Coalinga’s motion to vacate the committee’s appointment

Continue on page 2 →



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Tim received a BA from the University of California at Santa Barbara and an MBA from the University of Southern California, with a stint as a restaurant server in between. He began his career at Citi in 1979, where he rose to Vice President by 1992, when he left to join what at the time was a fairly new player in investment banking and asset management, Blackstone.

Tim worked for 23 years at Blackstone on a variety of restructuring and special situation assignments for companies, municipalities, creditor groups, special committees of corporate boards, corporate parents of troubled companies and acquirers of distressed assets.

As Blackstone grew into the sprawling, multibillion-dollar enterprise it is today, Tim’s team ran into new problems that prevented them from winning some assignments. Blackstone’s private equity and lending businesses were hindering the growth of its advisory arms, including restructuring and special situations.

Not only did Blackstone’s far-flung businesses create conflicts of interest, but Tim’s team ran into obstacles specific to selling restructuring advice. In an interview with Debtwire, Tim explained that in many insolvency

Tim Coleman, from page 1 cases, Blackstone had been a contender to acquire the company, but declined. So Tim, representing a company that wanted nothing to do with the business before, had to pitch people who ultimately bought it and failed to make it work. This wasn’t a conflict of interest so much as an issue of pride that Blackstone’s restructuring arm found difficult to overcome with prospects.

In 2014 Blackstone spun off its restructuring arm into the newly founded PJT Partners. In just five years, Tim has helped grow PJT Partners to become one of the top investment banks in the world with over $2 trillion in liabilities restructured in 600 distressed situations located in over 30 countries, making them the world’s leading advisory in completed restructurings in 2019.

Key bankruptcies from this year which PJT Partners has advised on include PG&E, Windstream, EP Energy, Sanchez Oil & Gas, Bristow and Legacy Reserves. Over the whole of his career, Tim has been involved in Bear Stearns, Delta Air Lines, Financial Guaranty Insurance Company, Ford Motor Company, Greece, Kaupthing (Iceland), Los Angeles Dodgers, MBIA (Re: Bank of America, Detroit, Puerto Rico and Rescap), Mohegan Sun, The Weinstein Company, Westinghouse, Xerox

Corporation and XL Capital.In addition to being honored with

the Harvey R. Miller Outstanding Achievement Award for Service to the Restructuring Industry, Tim was inducted in the Turnaround Management Associa t ion’s Turnaround Restructuring and Distressed Investing Industry Hall of Fame in 2013. Tim is an active alumni working to grow the Marshall School of Business at the University of Southern California, and occasionally lectures at Columbia University and the NYU Stern School of Business.

InterviewWe caught up with Tim in

advance of the 26th Annual Distressed Investing Conference, where he will receive the Harvey Miller Award and be interviewed by Judge James Peck.

T&W: You’ve said that the Macy’s bankruptcy was your

Tim Coleman2019 Harvey Miller

Award Recipient


NOVEMBER 2019 Turnarounds & Workouts 3


Tim Coleman, from page 2

greatest professional challenge, in large part because you were fairly new to investment banking. What was your greatest professional challenge if disregarding the landmark cases during your rise? In other words, what was your most difficult case after you were an established veteran and leader in reorganizations?

Tim Coleman: We represented MBIA in a transaction/lawsuit against Bank of America, which had recently bought CountryWide. MBIA alleged that CountryWide had defrauded MBIA in its creation of mortgages. Separately, MBIA had also written a synthetic $5 billion credit default swap (CDS) to Bank of America based on commercial mortgage-backed securities (CMBS).

As the CountryWide trials continued to move through the courts, with the most recent decisions in MBIA’s favor, the synthetic CDS [obligation] was also inching toward a trigger point.

MBIA had tried for years to resolve both issues to no avail. The negotiators were hundreds of millions of dollars apart. I was asked to get involved through a separate channel to determine if a deal was possible. Consequently, I was the lead negotiator without a client or lawyer at the table and if I failed, MBIA would be

downgraded from investment grade and would be placed into rehabilitation.

The negotiation was between Bruce Thompson, Bank of America’s Chief Financia l Officer, and myself. The New York Insurance Commissioner and his staff were also on the phone frequently, including the entire weekend during the final negotiation, as they were attempting to make a determination in real time whether or not to place MBIA into rehabilitation immediately.

It was an incredibly difficult negotiation primarily because it was one-on-one, and not only the corporation, but also the wellbeing of many hardworking employees rested on my reaching a successful outcome. Usually we work in teams with lawyers and clients, but this was the opposite – it was just me with support from my colleagues at Blackstone.

Ultimately, the outcome was a success for both firms. There was a comprehensive settlement totaling $10 billion, the key takeaways of which included:• MBIA received a net payment

of $1.7 billion, consisting of approximately $1.6 billion of cash and the $137 million principal amount of MBIA Inc.’s senior notes;

• Commutated all Bank of

America exposures, notional insured amount of $7.4 billion;

• Bank of America dismissed a pending litigation concerning the restructuring transactions announced by MBIA in February 2009 and litigation c o n c e r n i n g t h e s e n i o r debt consent solicitation representing $900 million of parent company debt;

• MBIA dismissed litigation against CountryWide relating to breaches of representations and warranties on certain securitizations;

• Bank of America received five-year warrants to purchase 9.94 million shares of MBIA common stock at a price of $9.59 per share; and

• Bank of America provided a $500 million three-year secured revolving credit to MBIA.

MBIA used the money to refund inter-company loans, allowing for a restoration of normalcy in their capital structure. Immediately following the announcement of a settlement, MBIA’s stock increased more than 42% to $14.29, creating $798 million of value, and Bank of America’s stock increased more than 3% to $12.88, creating $4.11 billion of value.

T&W: You got an early look at mortgage-backed securities, well in advance of the financial crisis of




2008 and 2009. You knew the risks and the minutia well ahead of the market, which led you to winning a lot of assignments based on that. You’ve also said that nobody can predict everything about the economy. But if you wanted to replicate that (getting ahead of the market in attaining specialized knowledge of a key problem), what area of the economy would you be studying today?

Coleman: This is the $64 billion question. Everyone is asking if, when and how a recession will start and which industries will be affected. Today, the billions of dollars invested in collateralized loan obligations (CLOs) would probably be most akin to the mortgage-backed securities crisis. CLOs are cumbersome and that has increased speculation from investors and analysts alike about what could happen to companies when their creditors are CLOs.

The trade war has hit many companies directly, and will likely impact [many] more if it continues. Certain sectors, such as energy and retail, continue to see a number of rolling industry issues, and our team at PJT has worked with several clients in each space.

T&W: In a 2015 Bloomberg interview, you said that the PROMESA statute, which gives

the U.S. territory of Puerto Rico access to bankruptcy protection, will set a precedent and lead to some sort of bankruptcy for states. But many bankruptcy lawyers bel ieve that is a nonstarter. Do you think states will have access to bankruptcy in the next 10 years?

Coleman: Many s ta tes have financial issues that may not be resolvable outside of a court proceeding. Creditors are unlikely willing to compromise debt unless all other creditors do the same. Similar to Puerto Rico, at some point, one must recognize the dilemma and find a way to solve the balance sheet and annual spending.

At the time, no one thought Title III and Title VI would be created, and it just goes to show that solutions that seem out of the realm sometimes are created when there are no other alternatives.

T&W: You’ve said that one weakness in America’s bankruptcy system is frivolous litigation from people milking the estate for fees. While you say there is an argument for keeping it this way, would any measure or change to our system be effective in curbing the most egregious abuses?

Coleman: Our American system is based on the ability

for anyone to make claims and file charges. It is the strength of the system and our democracy.

I have not seen egregious abuses, and I would note that one person’s view of frivolity is another person’s view of serious charges.

T&W: You talk a lot about the importance of integrity in this business. What experience from your youth or later in life do you attribute to valuing integrity or framing your own sense of right and wrong?

Coleman: Integrity, honesty, h a r d w o r k a n d p e r s o n a l responsibility were all lessons from childhood, taught to us by our parents’ words and deeds. There was no other option in our household.

T&W: One interesting piece of advice you give, especially to younger professionals, is to network with people your own age. Don’t spend all your time trying to get close to the big shot graybeards. But what advice would you give to other big shot graybeards? Who will you be looking to meet at Distressed Investing 2019?

Coleman: Do what you enjoy. Age is a factor, but not the only factor in career decisions. Don’t miss out on other alternatives in life just because you are pursuing what you know versus what you do not know. ¤

Tim Coleman, from page 3




Featuring Panel Discussions:

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Oversight Board Presents ... A Plan for Recovery

Valuation Committee: Estimating PG&E’s Wildfire Liability

Crisis in the Oilpatch: Danger or Opportunity for

Lenders and Distressed Investors?

...and more!

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Who’s Who in Sanchez Energy’s Bankruptcy Casesby Carlo Fernandez

Research Report

S anchez Energy Corporation (OTC Pink: SNECQ) and

its affiliates are independent exploration and production companies focused on the acquisition and development of U.S. onshore oil and natural gas resources.

Sanchez Energy is currently focused on the development of significant resource potential from the Eagle Ford Shale in South Texas, and holds other producing properties and undeveloped ac reage , i nc lud ing in t he Tuscaloosa Marine Shale (TMS) in Mississippi and Louisiana.

As of Dec. 31, 2018, SN had 325,000 net acres of oil and natural gas properties with proved reserves of 380 million barrels of oil equivalent and interests in 2,400 gross producing wells.

For the year ended Dec. 31, 2018, SN produced 79,000 barrels of oil equivalent per day (“Boe/d”), split roughly in thirds among oil, natural gas, and natural gas liquids (“NGLs”), which represented production growth of 130x since SN’s 2011 IPO, surpassed $1 billion in revenue for the first time, and reported consolidated net income of $85 million. For

the first quarter of 2019, the Debtors reported production of approximately 76,000 Boe/d, revenue of $217 million, and a net loss of $67 million.

Sanchez Energy (“SN”) was formed by certain members of the Sanchez Group in August 2011 and completed its initial public offering (“IPO”) in December 2011.

As a resul t of de l i s t ing proceedings by the NYSE, Sanchez Energy’s common stock began trading on the OTC Pink Marketplace under ticker symbol “SNEC” upon the opening of trading on Feb. 21, 2019.

Non-debtor Sanchez Oil & Gas Corporation (“SOG”) is a full-service oil and natural gas operating company privately owned by members of the Sanchez family. SOG provides general and administrative, reserve engineering, operational, and geological and geophysical services to the Debtors. All individuals comprising the Debtors’ workforce are SOG employees as the Debtors do not have any employees of their own.

The sustained decline and volatility in commodity prices have weighed heavily on the

energy industry globally and, in particular, on U.S. independent oil and natural gas producers. Overall, oil prices have fallen 50% and natural gas prices have fallen approximately 60% from their respective highs in 2014.

Sanchez Energy Corp. and 10 affiliates sought protection under Chapter 11 of the Bankruptcy Code (Bankr. S.D. Tex. Lead Case No. 19-34508) on Aug. 11, 2019.

The affiliated debtors are SN Palmetto, LLC, SN Marquis LLC, SN Cotulla Assets, LLC, SN Operating, LLC, SN TMS, LLC, SN Catarina, LLC, Rockin L Ranch Company, LLC, SN EF Maverick, LLC, SN Payables, LLC, and SN UR Holdings, LLC.

Sanchez Energy disclosed $2.160 billion in assets against $2.855 billion in liabilities as of June 30, 2019.

As of the Petition Date, the Debtors’ debt obligations consist of:

(i) borrowings of $7.9 million in principal amount and a $17.1 million issued and undrawn standby letter of credit outstanding under the first-out senior secured revolving credit facility provided by Royal Bank of Canada




(“RBC”), as administrative agent and presently the sole lender;

(ii) $500 million in principal amount of 7.25% senior secured notes due February 2023 under an indenture with Wilmington Savings Fund Society, FSB, as presumptive successor trustee, and RBC, as collateral trustee;

(iii) $600 million in principal amount of 7.75% senior unsecured notes due June 2021 under an indenture with Delaware Trust Company, as successor trustee; and

(iv) $1.15 billion in principal amount of 6.125% senior unsecured notes due January 2023 under an indenture with Delaware Trust, as successor trustee.

Although the Debtors have not reached an agreement with their stakeholders on the terms of a comprehensive restructuring transaction, the Debtors have secured $175 million of new money debtor in possession financing from the members of the Secured Notes Ad Hoc Group. The financing also provides for a roll-up of $175 million of 7.25% Senior Secured Notes, and repayment of all amounts outstanding under the First-Out Senior Secured Notes. Unsecured noteholders have

proposed an alternative financing for the Debtors.

DEBTORSAkin Gump Strauss Hauer &

Feld LLP is serving as Sanchez Energy’s lead counsel. Financial Restructuring partners Ira S. Dizengoff and James Savin, and Litigation partner Marty L. Brimmage, Jr., are the attorneys primarily assigned to the case.

Jackson Walker LLP is co-counsel and conflicts counsel to the Debtors. Partners Matthew D. Cavenaugh, Elizabeth Carol Freeman, and Jennifer F. Wertz are the attorneys primarily assigned to the case.

Alvarez & Marsal North America, LLC, is the Debtors’ restructuring advisors. Jeffery Stegenga, a managing director, leads A&M’s activities under the engagement. He is primarily assisted by managing director Jonathan Hickman and director Don Koetting.

Moelis & Company LLC is the Debtors’ financial advisor and investment banker. Bassam J. Latif, a managing director of Moelis, heads the engagement.

Gibbs & Bruns LLP is the

Debtors’ special counsel, with partners Robin Gibbs, Sam Cruse III and Brice Wilkinson, and associate Jorge Gutierrez, Jr., having the primary responsibility for providing services to the Debtor. The firm is providing legal services in connection with two separate lawsuits styled (i) Gavilan Resources LLC v. SN EF Maverick, LLC and Sanchez Energy Corporation, American Arbitration Association (Case No. 01-19-0000-5228) and (ii) Sanchez Oil & Gas Corporation, Sanchez Energy Corporation and Sanchez Production Partners LP v. Terra Energy Partners LLC, Benjamin “B.J.” Reynolds, Mark Mewshaw, and Wes Hobbs (Cause No. 201618909).

Ropes & Gray LLP, led by Business Restructuring partners Mark R. Somerstein and Andrew G. Devore, and Litigation partner Matthew L. McGinnis, is serving as special counsel to the special committee of Sanchez Energy’s board of directors. The special committee -- comprised of board members Eugene I. Davis (a former Akin Gump associate) and Adam C. Zylman -- was formed to conduct an investigation into

Who’s Who in Sanchez Energy’s Bankruptcy CasesContinued from page 6

Research Report





Research Report

and pursue, settle or otherwise resolve actual or potential claims and causes of action Sanchez Energy has or may have related to SOG, Sanchez Midstream Partners LP and their affiliates.

KPMG LLP is providing audit and tax consulting services to the Debtors. Allen S. Kekish, a certified public accountant and a partner of KPMG LLP, leads the engagement.

Prime Clerk LLC is the claims, noticing and solicitation agent.

FIRST OUT REPRESENTATIVE

Thompson & Knight LLP, led by partner Tye C. Hancock and associates Anthony F. Pirraglia and Steven J. Levitt, is counsel to Royal Bank of Canada, the administrative agent and sole lender under the first-out senior secured revolving credit facility.

SECURED BONDHOLDERSAND DIP LENDERS

Morrison & Foerster LLP, led by partners Dennis L. Jenkins and Brett H. Miller, is counsel to the ad hoc group of unaffiliated

funds, accounts, and/or managers of funds or accounts, as beneficial holders of obligations arising from or relating to the 7.25% Senior Secured First Lien Notes and as lenders under the debtor in possession facility.

Foley & Lardner LLP, led by partner John P. Melko, is local counsel to the Secured Notes Ad Hoc Group.

Evercore Group LLC. is the financial advisor to the Ad Hoc Group.

As of Sept. 13, 2019, members of the Secured Notes Ad Hoc Group are Apollo Commodities Management, LP, Capital Research and Management Company, CQS (UK) LLP, Cross Ocean Partners Management LP, Fidel i ty Management & R e s e a r c h C o m p a n y , Northwestern Mutual Investment Management Company, LLC, Orbis Investment Management Limited, and Southpaw Credit Opportunity Master Fund LP.

Majori ty, but not al l , of the Secured Noteholders are providing the DIP financing. Secured Noteholders that are not

participating in the DIP Facility, including Loomis Sayles & Company and Nut Tree Capital Management.

Arnold & Porter Kaye Scholer LLP, led by partner Jonathan I. Levine, and associate Ginger Clements, and Cole Schotz P.C., led by member Michael D. Warner, is counsel for Wilmington Savings Fund Society, FSB, the trustee under the Secured Notes and agent under the DIP Facility.

UNSECURED NOTEHOLDERS

Quinn Emanuel Urquhart & Sullivan, LLP, led by partners Patricia B. Tomasco, Christopher Porter and Benjamin I. Finestone, of counsel Daniel Holzman and Kate Scherling, and associates Devin van der Hahn and Jordan Harap, is representing the Ad Hoc Group of Unsecured Noteholders.

The Ad Hoc Group of Unsecured

Noteholders consist of certain

institutions that hold and/or manage

funds, entities and/or accounts holding

7.75% senior unsecured notes due

2021 and 6.125% senior unsecured

notes due 2023.





Research Report

As of Sept. 19, 2019, members

of the Unsecured Noteholders Ad

Hoc Group are Aetos Capital LP,

Allstate Insurance Company,

Avenue Capital Group, Bank

of America ML, Benefit Street

Partners , L.L.C. , CarVal

Investors LLC, D.E. Shaw &

Co., Franklin Advisers, Inc.,

First Trust Advisors, Loomis

Sayles & Company, L.P., New

Generation Advisors, LLC,

Nomura Securities, Nut Tree

Capital Management, LP,

PIMCO, Shenkman Capital

Management Inc. , and VR

Capital.

CREDITORS’ COMMITTEE

Henry Hobbs Jr., acting U.S.

Trustee for Region 7, on Aug.

26, 2019, formed an official

committee of unsecured creditors.

The committee members are (1)

Delaware Trust Company, as

indenture trustee, (2) Allstate

Investments, LLC, (3) Danos,

LLC, (4) Rusco Operating, LLC,

(5) Monarch Silica, LLC, (6)

Nabors Drilling Technologies

USA, Inc., and (7) McKinsey

Recovery & Transformation

Services U.S., LLC.

M i l b a n k L L P i s t h e

Committee’s counsel. Evan R.

Fleck, a partner in the Financial

Restructuring Group of Milbank,

leads the engagement.

Locke Lord LLP is co-counsel

and, to the extent necessary,

conflicts counsel to the Committee.

Philip G. Eisenberg, a partner

and bankruptcy practice group

leader in the Houston office of

Locke Lord, leads the engagement.

Other primary attorneys who

will represent the Committee

are Elizabeth Guffy and Simon

Mayer.

J e f f e r i e s L L C i s t h e

Committee’s investment banker.

Leon Szlezinger, a managing

director and joint global head of

Restructuring & Recapitalization

at Jefferies LLC, leads the

engagement.

FTI Consulting Inc. is the

Committee’s financial advisor.

Michael Cordasco, a senior

managing director with FTI

Consulting, leads the engagement.

Epiq Corporate Restructuring,

LLC, is the information agent for

the Committee.

OTHER KEY PARTIES

Haynes and Boone, LLP, is

counsel to Sanchez Oil & Gas

Corporation (“SOG”), which is

part of the Sanchez Group and a

party to shared services agreements

with the Debtors.

P a u l , We i s s , R i f k i n d ,

Wharton & Garrison LLP,

led by partners Paul Basta and

Alice Eaton, and associate Sean

A. Mitchell, and Porter Hedges

LLP, led by partners John F.

Higgins and Eric M. English,

and associate Genevieve M.

Graham, are representing GSO

Capital Partners LP and its

affiliates. GSO has interests in

SN EF UnSub, LP, a non-debtor

unrestricted subsidiary of Sanchez

Energy.

JUDGE

The Hon. Marvin Isgur is the

case judge. ¤




The Debtor had the sole right to propose a restructuring plan. But after winning support from wildfire victims and general unsecured creditors, noteholders led by activist hedge fund Elliott Management successfully won an unusual -- but not unprecedented -- court order allowing them to file a competing plan.

PG&E sought bankruptcy protection in January 2019 to address $30 billion in potential liability damages from California’s deadliest wildfires of 2017 and 2018. Now PG&E is facing fresh heat over the Kincade fire currently burning in Sonoma County, north of San Francisco, as well as criticism for cutting off electricity to hundreds of thousands of customers in a defensive move to prevent fires.

Pacific Gas & Electric has proposed a plan to exit bankruptcy that would use $34 billion in new debt and $14 billion in equity commitments to reorganize. PG&E’s plan, backed by current major shareholders, proposes to pay at least $20 billion for wildfire claims: (i) $11 billion to insurers to address insurance subrogation claims totaling $20 billion, (ii) $1 billion to a group of local governments and state agencies, and (iii) $8.4 billion to resolve other wildfire claims, including those of individual victims.

Abrams Capital, Knighthead Capital and Redwood Capital own a combined 10% stake in PG&E. In April, the three hedge funds played a big role in installing former Tennessee Valley Authority head Bill Johnson as chief executive of PG&E.

The Honorable Dennis Montali initially rejected an effort by Elliott, Apollo Capital Management and other noteholders, to pitch their own plan. But after the Ad Hoc Group of Bondholders won support from the Official Committee of Tort Claimants, Judge Montali terminated exclusivity and said a dual-track plan course going forward may facilitate negotiations for a global resolution and narrow the issues which are in legitimate dispute.

The Tort Claimants Committee, which represents individuals with claims against PG&E for wildfire damages, and the Official Committee of Unsecured Creditors have backed the noteholders’ plan. The rival plan offers more money to wildfire victims and would give debtholders control of PG&E after it emerges from bankruptcy. Noteholders propose putting $29.2 billion in new money into PG&E in exchange for new debt and a controlling equity stake. Bondholders are seeking to buy 85% of the utility’s stock for $19 billion. The bondholders’ plan would leave the current shareholders

PG&E, from page 1 with a tiny stake in PG&E once it emerges from bankruptcy.

The bondholders have offered wildfire victims about $14.5 billion for damages not covered by insurance —about $6 billion more than PG&E offered the fire victims. They have offered to match the $11 billion deal with insurance companies for the settlements they’ve made with policyholders.

Members of the Ad Hoc Committee of Unsecured Noteholders hold in excess of $10 billion of funded debt claims against the Debtors. As of Oct. 21, 2019, members of the Ad Hoc Committee are:1. Apollo Global

Management LLC2. Aurelius Capital

Management, LP3. Canyon Capital Advisors LLC4. Capital Group5. CarVal Investors, LLC6. Castle Hook Partners LP7. Citadel Advisors LLC8. Davidson Kempner Capital

Management LP9. Deutsche Bank Securities Inc.10. Diameter Capital Partners LP11. Elliott Management

Corporation12. Farallon Capital

Management, LLC13. Fir Tree Partners14. Marathon Asset Management15. Oak Hill Advisors, LP16. Oaktree Capital Management,

LP




the bondholders’ proposal would overpay the unsecured bondholders by billions of dollars while diluting the equity stake of most current shareholders down to 0.1%.

“Bondholders pay themselves what they desire, wildfire plaintiffs pay themselves what they desire, and the estate and tens of thousands of shareholders lose,” shareholders represented by Jones Day said.

As of Oct. 21, 2019, Jones Day-represented shareholders are:1. 683 Capital Partners, LP2. Anchorage Capital

Group, LLC3. BlueMountain Capital

Management, LLC4. Centerbridge Partners, LP5. CSS, LLC6. D.E. Shaw Galvanic

Portfolios, LLC, et al. 7. Empyrean Capital Partners, LP8. Fidelity Management &

Research Company9. First Pacific Advisors, LP 10. Golden Tree Asset

Management LP11. Governors Lane LP12. HBK Master Fund LP13. Latigo Partners, LP14. Meadowfin, LLC15. Monarch Alternative

Capital LP16. Newtyn Management, LLC17. Nut Tree Master Fund, LP18. Owl Creek Asset

Management, LP19. Paulson & Co., Inc.

17. Pacific Investment Management Company LLC

18. Pacific Life Insurance Company

19. P. Schoenfeld Asset Management LP

20. Sculptor Capital Investments, LLC

21. Senator Investment Group LP22. Silver Rock Financial LP23. Taconic Capital Advisors LP24. Third Point LLC25. Varde Partners, Inc.

“We are confident that our fully

funded plan of reorganization, which will satisfy all wildfire claims in full while treating all stakeholders fairly and protecting customers, is the better solution for all constituencies,” PG&E countered.

PG&E says the rival proposal is designed to unjustly enrich Elliott and the bondholders and seize control of PG&E at a substantial discount.

While the bondholders have offered $6 billion more for fire victims, PG&E said it couldn’t match the offer to fire victims without solid proof of the size of the damages. It added that, under bankruptcy law, it couldn’t risk over-paying the fire victims at the expense of another class: its own shareholders.

According to shareholders,

PG&E, from page 10 20. Pentwater Capital Management LP

21. Redwood Capital Management, LLC

22. Sachem Head Capital Management LP

23. Serengeti Asset Management LP

24. Silver Point Capital, L.P.25. Steadfast Capital

Management LP26. SteelMill Master Fund LP27. Stonehill Capital

Management LLC28. Warlander Asset

Management, LP29. Abrams Capital

Management, LP30. Knighthead Capital

Management, LLC The bondholders and fire victims,

however, said PG&E was simply trying to protect its shareholders at all costs. If the bondholders succeed, they would control the company and wipe out the investments of current shareholders.

Timeline

Time is critical in the PG&E bankruptcy. The company has until June 30, 2020, to exit bankruptcy to be able to participate in an insurance fund created by the California legislature to cushion utilities against liabilities from future mega-fires.

The parties, however, couldn’t reach a compromise, even on a




PG&E, from page 11

schedule.The Debtors have proposed that

the competing plans move forward together, and submitted a schedule that would have the disclosure statement process and solicitation begin after the conclusion of the estimation proceeding currently pending in the District Court. Proceedings to estimate wildfire liabilities commenced in the District Court before District Judge Donato and are on track for the estimation hearing to begin in mid-January 2020.

The financing commitments for the Debtor Plan require that the fire victims’ claims be estimated at less than $6.9 billion.

The bondholders asked the Court to allow them to have the rival plan considered ahead of the PG&E plan, noting that the bondholders’ plan and committed financing for the plan, is not tied to a particular result being obtained in the estimation proceeding. They want their plan to proceed to confirmation before the estimation trial, saying that the Debtor’s extended schedule would result in a confirmation hearing beginning in early June, precariously close to the June 30 deadline under AB 1054.

PG&E believes this is a strategic

ploy bondholders designed to promote their attempt to move their competing plan forward ahead of the Debtors.

“The [bondholders] are not satisfied with the termination of exclusivity; instead, the TCC and the Ad Hoc Noteholders Committee now seek to usurp exclusivity for themselves in direct contravention of section 1121 of the Bankruptcy Code,” said Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, counsel to PG&E.”

Mediator

Nine months into the case, on Oct. 28, Judge Montali appointed a mediator to work through the rival plans and come up with a compromise that would allow the utility’s reorganization to proceed.

“Certain parties are polarized; the emotions are running higher and higher, the staggering costs (economic and otherwise) are multiplying daily and very recent events that need not be repeated here but are obvious to everyone in Northern California might make a successful reorganization even more of a challenge,” Judge Montali said in his order.

“On top of that, the clock is ticking on AB 1054 while the Tubbs Fire trial looms in January and the district court estimation

hearings follow right behind in February.”

Retired judge Randall Newsome has been appointed mediator to facilitate negotiations between the competing factions.

Gov. Gavin Newsom at the end of October threatened a state takeover of the company if its investors can’t quickly agree on a plan. “My goal is to encourage those parties to achieve a swift and consensual resolution to the Chapter 11 Cases that creates a new entity, one that better reflects our California values and advances the safety transformations that are required. It is my hope that the stakeholders in PG&E will put parochial interests aside and reach a negotiated resolution in the near term. If the parties fail to reach an agreement quickly to begin this process of transformation, the state will intervene to restructure the utility. Under either scenario, the state must ensure that Californians have a utility that provides safe, reliable, and affordable power,” Gov. Newsom said in a Nov. 1 letter to the bankruptcy court.

Berkshire Hathaway’s cash pile has ballooned to $128 billion in the third quarter of 2019. Gov. Newsom has encouraged Berkshire to bid for PG&E but Buffet, whose last major deal was in January 2016, has so far been cold to the




PG&E, from page 12

proposal.San Jose Mayor Sam Liccardo,

backed by mayors of 20 other Ca l i fo rn ia c i t i e s , i n ea r ly November 2019, broached the idea of transforming PG&E from an investor-owned private utility into a customer-owned cooperative. The mayors represent 5 million customers or almost one-third of PG&E’s existing customer base.

Weil, Gotshal & Manges LLP, led by partners Stephen Karotkin and Jessica Liou, counsel Matthew Goren, associate Rachael Foust, is serving as PG&E’s legal counsel.

Keller & Benvenutti LLP, led by partners Tobias S. Keller and Jane Kim, is serving as the debtors’ co-counsel.

Lazard Freres & Co. LLC, led by Restructuring Group managing director Kenneth S. Ziman, is serving as its investment banker.

AlixPartners, LLP’s AP Services, LLC, is serving as the restructuring advisor to PG&E.

Cravath, Swaine & Moore LLP is the debtors’ corporate counsel. Kevin J. Orsini, a partner, is representing PG&E as lead trial counsel in hundreds of lawsuits filed against the company arising out of the 2017 and 2018 California wildfires.

Akin Gump Strauss Hauer

& Feld LLP, led by partners Ashley Vinson Crawford, David P. Simonds, Michael S. Stamer, Ira S. Dizengoff, and David H. Botter, is serving as counsel to the Ad Hoc Committee of Senior Unsecured Noteholders of Pacific Gas.

Proskauer Rose LLP, led by partners Martin J. Bienenstock, Brian S. Rosen, Michael A. Firestein and Lary Alan Rappaport; and associates Maja Zerjal and Steve Y. Ma, is serving as counsel to the Ad Hoc Group of Institutional Bondholders.

Milbank LLP, led by partners Dennis F. Dunne, Samuel A. Khalil, Paul S. Aronzon, Gregory A. Bray, and Thomas R. Kreller, is counsel for the Creditors’ Committee.

Baker & Hostetler LLP, led by Cecily A. Dumas, a partner in the firm’s financial restructuring group, is serving as counsel to the official committee of tort claimants, who are fire victims. Other attorneys of the firm involved in the case are Lauren T. Attard, Robert A. Julian and Eric E. Sagerman.

Stutzman Bromberg Esserman & Plifka, P.C., led by Sander L. Esserman and Cliff I. Taylor; Baron & Budd, P.C., led by Scott Summy and John Fiske; and Nuti Hart LLP, led by Christopher H. Hart and Kimberly S. Fineman, represent the public entities impacted by the wildfires.

Diemer & Wei, LLP, led by Kathryn S. Diemer, and Willkie Farr & Gallagher LLP, led by Matthew A. Feldman, Joseph G. Minias and Daniel I. Forman, represent an ad hoc group of subrogation claim holders, who hold liquidated and unliquidated insurance subrogation claims against the Debtors.

The Singleton Law Firm, APC, led by lead partner Gerald Singleton, is representing over 3,500 individuals who suffered injuries or damages in fires started by PG&E.

Corey, Luzaich, De Ghetaldi & Riddle LLP, led by Dario de Ghetaldi, Amanda L. Riddle, Steven M. Berki, and Sumble Manzoor, is representing 22 cities of the Butte Fire who have reached a settlement with PG&E in the state court system but remain unpaid.

Jones Day, led by Bruce S. Bennett, Joshua M. Mester, and James O. Johnston, is counsel to Knighthead Capital Management, LLC and other PG&E shareholders.

Irell & Manella LLP, led by Craig Varnen, Andrew J. Strabone, Michael H. Strub, Jr.; and Cleary Gottlieb Sheen & Hamilton LLP, led by Lisa Schweitzer and Margaret Schierberl are serving as counsel to shareholder BlueMountain Capital Management. ¤




Legacy Reserves Inc. (OTC: LGCYQ) is an independent

energy company engaged in the development , product ion and acquisition of oil and natural gas properties in the United States. Its current operations are focused on the horizontal development of unconventional plays in the Permian Basin and the cost-efficient management of willow-decline oil and natural gas wells in the Permian Basin, East Texas, Rocky Mountain and Mid-Continent regions.

The Company has built a diverse portfolio of oil and natural gas reserves primarily through the acquisition of producing oil and natural gas properties in established producing trends. The Company is headquartered in Midland, Texas, with regional offices in The Woodlands, Texas and Cody, Wyoming.

As of the Petition Date, the Company had 327 employees, none of whom are subject to collective bargaining agreements.

Like similar companies in this industry, the Company’s oil and natural gas operations are capital-intensive activities that require access to significant amounts of capital. An oil price environment since 2015 that has not risen to levels seen in mid-2014 and the Company’s limited access to new capital have adversely affected the Company’s business.

The Company further had liquidity constraints through borrowing base redeterminations under an RBL Credit Agreement, as well as an inability to refinance or extend the maturity of the RBL Credit Agreement beyond May 31, 2019.

Despite the Company’s efforts to navigate through the last several years of industry distress by reorganizing its corporate structure in an effort to facilitate the raising of additional capital, as well as efforts to optimize operations and reduce expenses, the Company concluded that an open market process to market its assets and refinance its maturing debt was the best path forward. Based in large part on the results of this process, the Company ultimately determined that pursuing a potential restructuring of its funded debt was necessary to address impending defaults and its $1.4 billion in aggregate funded indebtedness.

After negotiating with creditors on the t e rms o f a f inanc ia l restructuring, Legacy Reserves Inc. and 10 subsidiaries sought Chapter 11 protection (Bankr. S.D. Tex. Lead Case No. 19-33395) on June 18, 2019.

As of the bankruptcy filing, the Debtors’ funded debt is comprised of:• $563 million outstanding under a

first lien reserve based revolving credit (RBL) facility under a $1.5 billion Third Amended and

Restated Credit Agreement, dated as of April 1, 2014, with lenders and Wells Fargo Bank, N.A., as administrative agent;

• $351.2 million outstanding under a second lien term loan pursuant to a Term Loan Credit Agreement dated Oct. 25, 2019, with Cortland Capital Market Services LLC, as administrative agent, and certain funds advised or sub-advised by GSO Capital Partners LP, as lenders;

• $218.1 million outstanding under 8% senior unsecured notes due 2020 pursuant to an indenture with Wilmington Trust, National Association, as successor trustee;

• $134.2 million outstanding under 6.625% senior unsecured notes due 2021 pursuant to an indenture with Wilmington Trust as successor trustee; and

• $112.3 million outstanding under 8% convertible notes due 2023 pursuant to an indenture with Wilmington Trust as trustee and conversion agent.The Company has received

commitment for a $350 million debtor- in-possess ion (“DIP”) financing from certain of the RBL Lenders, comprised of $100 million of new capital and refinancing of $250 million in outstanding first lien obligations.

The Debtors on Nov. 6, 2019,

Who’s Who in Legacy Reserves’ Bankruptcy Casesby Carlo Fernandez

Research Report




Who’s Who in Legacy Reserves’ Bankruptcy CasesContinued from page 14

Research Report

were slated to seek confirmation of their proposed reorganization plan, which provides for a substantial deleveraging of their capital structure, with a projected reduction of over $1 billion in funded debt while also providing a recovery to creditors.

The Plan is supported by creditors that have executed the Global Restructuring Support Agreement, including the lenders under its revolving credit facility (the “RBL Lenders”), the lenders under its second lien term loan (“Second Lien Lenders), and holders of approximately 60% in amount in the aggregate of the Unsecured Notes.

The Global RSA contemplates:• $256.3 million in backstopped

equity commitments, with certain funds managed or advised by GSO as Plan Sponsor backstopping $189.9 million and affiliates of Support ing Noteholders backstopping $66.5 million;

• $500.0 million in committed exit financing from the existing RBL Lenders;

• the equitization of approximately $815.8 million of prepetition debt; and

• payment in full of the Debtors’ general unsecured creditors.Legacy Reserves’ $66.5 million

rights offering allows unsecured noteholders to purchase shares of reorganized Legacy if the class votes

to accept the company’s bankruptcy exit plan.

The key element of the Plan is the conversion of all of the Term Loan Claims into equity in the Reorganized Debtors. In addition, pursuant to the settlement embodied in the Global RSA, the Term Loan Lenders have agreed to allocate a portion of their recovery to holders of allowed general unsecured claims and holders of allowed senior notes. Senior Notes in the amount of $464.6 million (all senior notes held by holders other than Legacy Reserves LP) will be exchanged for shares allocated under the Plan. General unsecured creditors will be paid in full in cash.

Royal Bank of Canada and RBC Capital Markets are arranging the exit facility, a $500 million senior secured revolving reserve-based lending credit facility, to facilitate the Debtors’ emergence from chapter 11. The exit facility will permit the Debtors to pay off or refinance certain obligations, including the New Money DIP Claims, Refinanced DIP Claims, and RBL Claims, and provide the Reorganize Debtors sufficient liquidity at exit.

The Off ic ia l Commit tee of Unsecured Creditors has raised objections to several motions filed by the Debtors in court. It also said that the Plan is unconfirmable by providing a different treatment for

the noteholders that are rights offering backstop parties compared to those that are not.

DEBTORSSidley Austin LLP is serving as

the Debtors’ legal counsel. Attorneys providing the services are partners Duston McFaul, Bojan Guzina, and Andrew O’Neill; of counsel Charles Persons and Allison Ross Stromberg; and associates Michael Fishel, Maegan Quejada and Joe Schomberg.

Perella Weinberg Partners, along with its affiliate, Tudor Pickering Holt & Co., is acting as financial advisor for the Company. Kevin Cofsky, a partner of PWP, leads the engagement.

Alvarez & Marsal North America, LLC, is acting as restructuring advisor. Mark D. Rajcevich, a managing director of Alvarez & Marsal, leads the engagement.

Kurtzman Carson Consultants LLC is the claims, noticing and solicitation agent.

FIRST LIEN LENDERSand DIP LENDERS

RPA Advisors, LLC, is acting as financial advisor to Wells Fargo Bank, National Association, as administrative agent for the RBL Lenders, administrative agent and collateral agent for the DIP Lenders,




and sole lead arranger and sole bookrunner under the DIP facility.

Orrick Herrington & Sutcliffe LLP, led by Restructuring Group chair Raniero D’ Aversa and New York office leader Laura Metzger, is legal advisor to the supporting RBL lenders and Wells Fargo.

RBL lenders who have agreed to a cashless exchange of $2.50 of loans under the Prepetition RBL Credit Agreement for every $1.00 of new money loans under the DIP Facility are: Wells Fargo Bank, N.A., AG Energy Funding, LLC, Banc of America Credit Products, Inc., Bank of America, N.A., Barclays Bank PLC, BMO Harris Bank N.A., BP Energy Company, Citibank, N.A., Credit Agricole Corporate and Investment Bank, Cross Ocean, Fifth Third Bank, JPMorgan Chase Bank, N.A., Royal Bank of Canada, Santander Bank, N.A., Shell Trading Risk Management, LLC, Societe Generale, The Bank of Nova Scotia, U.S. Bank National Association, and West Texas National Bank.

SECOND-LIEN LENDERSand PLAN SPONSOR

Latham & Watkins LLP, led by Restructuring & Special Situations Practice chair George A. Davis, and New York partners Jonathan R. Rod and Adam J. Goldberg, is legal

advisor to GSO Capital Partners LP, the Second Lien Lender and the Plan Sponsor.

Porter Hedges LLP , led by partners John F. Higgins and Eric M. English, and associate M. Shane Johnson, is serving as local counsel to GSO and its affiliates.

PJT Partners LP is acting as financial advisor for GSO.

Arnold & Porter Kaye Scholer LLP, led by partners Christopher M. Odell and Seth J. Kleinman, senior attorney Hannah D. Sibiski, Gerardo Mijares-Shafai, is representing Cortland Capital Market Services LLC, as Prepetition Term Loan Agent.

UNSECURED NOTEHOLDERSDavis Polk & Wardwell LLP, led

by Restructuring Group partner Brian M. Resnick, Litigation group partner Elliot Moskowitz, and associates Stephen D. Piraino and Michael Pera, is acting as legal advisor to the Ad Hoc Group of Senior Noteholders.

Rapp & Krock, PC, led by senior counsel Henry Flores and Megan Brown, is the local counsel to the Ad Hoc Group.

Houlihan Lokey is acting as financial advisor for the Ad Hoc Group.

As of July 1, 2019, the members of the Ad Hoc Group of Senior

Noteholders hold $147 million in aggregate principal amount of the Notes (comprised of $64.5 million of the 2020 Notes, $61.4 million of the 2021 Notes, and $21.0 million of the 2023 Notes). The members of the Ad Hoc Group are Canyon Capital Advisors LLC, DoubleLine Income Solutions Fund, J.H. Lane Partners Master Fund, LP, JCG 2016 Holdings, LP, The John C. Goff 2010 Family Trust, John C. Goff SEP-IRA, Kulik Partners, LP, Jill Golf, Cuerno Largo Partners, LP, Goff Family Investments, LP, The Goff Family Foundation, Goff Focused strategies LLC, Wilkie Colyer, MGA Insurance Company, Inc., Pingora Partners LLC, and Robert W. Stallings.

Unsecured noteholders that are backstopping the $66.5 million rights offering for equity capital in the Debtors are Canyon-ASP Fund, L.P., Canyon Balanced Master Fund, Ltd., Canyon Dist. Opportunity Master Fund II, Canyon-SL Value Fund L.P., The Canyon Value Realization Master Fund, Canyon Blue Credit Investment Fund L.P., Canyon-EDOF (Master) L.P., Canyon-GRF Master Fund II, L.P., Canyon Dist. Opportunity Investing Fund II, Canyon NZ-DOF Investing, L.P., Canyon Value Realization MAC 18 Ltd., Canyon


Research Report





Research Report

Value Realization Fund, L.P., JCG 2016 Holdings, LP, The John C. Goff 2010 Family Trust, John C. Goff SEP-IRA, Kulik Partners, LP, Jill Goff, Cuerno Largo Partners, LP, Goff Family Investments, LP, The Goff Family Foundation, Goff Focused Strategies LLC, Wilkie Colyer, MGA Insurance Company, Inc., Pingora Partners LLC, Robert W. Stallings, DoubleLine Income Solutions Fund, J.H. Lane Partners Master Fund, LP, GSO Energy Select Opportunities Fund AIV-3, GSO Energy Partners-A LP, GSO Energy Partners-B LP, GSO Energy Partners-C LP, GSO Energy Partners-C II LP, GSO Energy Partners-D LP, GSO Palmetto Opport. Investment Partners LP, GSO CSF III AIV-3 LP, and GSO ADGM I LGCY LP.

Cole Schotz P.C., led by member Michael D. Warner, and Pryor Cashman LLP, led by partners Seth H. Lieberman and Patrick Sibley, and associate Andrew S. Richmond, are serving as counsel to Wilmington Trust, National Association, as indenture trustee under the Senior Notes.

CREDITORS’ COMMITTEEThe Office of the U.S. Trustee on

July 3, 2019, appointed an official

committee of unsecured creditors in the Chapter 11 cases. The Committee presently consists of (1) Wilmington Trust, National Association, (2) Dalton Investments, LLC, (3) John M. Dinkel, and (4) Nicholas Mumford. Wilmington Trust is the indenture trustee under the unsecured notes, and Dalton, Dinkel and Mumford hold claims on account of the 2020 notes. Paul C. Drueke, a manager of a retail brokerage branch of Stifel, Nicolaus & Co., Inc., was originally appointed as member of the Creditors Committee on account of his ownership of $2,080,000 of 2020 Senior Notes but he later resigned from the Committee following the panel’s retention of Miller Buckfire & Co., LLC and Stifel Nicolaus.

Brown Rudnick LLP is the Committee’s lead bankruptcy counsel. Partners Robert J. Stark, Jeffrey L. Jonas, and Bennett S. Silverberg, and associates Andrew M. Carty and Uchechi Egeonuig are the primary attorneys representing the Committee.

Pi l l sbury Winthrop Shaw Pittman LLP is serving as co-counsel to the Committee. Partner Hugh M. Ray, III, and senior associates Jason S. Sharp and William J. Hotze are the attorneys primarily responsible for representing the Committee.

Miller Buckfire and its affiliate

Stifel Nicolaus are serving as investment banker to the Creditors’ Committee. Richard Klein, a managing director of Miller Buckfire, leads the engagement.

FTI Consulting, Inc., is the Committee’s financial advisor. Michael Cordasco, a senior managing director of FTI, leads the engagement.

Purple Land Management, a full-service national land management firm with 11 offices around the country, was tapped by the Committee to facilitate the Committee’s investigation of the liens and security interests in the Debtors’ real estate assets securing the Debtors’ RBL facility and term loan.

EQUITY HOLDERSPolsinelli PC and Polsinelli, LLP,

led by shareholder Trey A. Monsour, principal Randye B. Soref, and associate Tanya Behnam, serve as counsel to the Official Committee of Security Holders.

As of Sept. 6, 2019, members of the Equity Committee are (1) William L. Eddleman Jr., (2) James Morrison, and (3) Stephen Tsotsoros.

JUDGEThe Hon. David R. Jones is the

case judge. ¤




Coalinga, from page 1

and disbanded the committee because the court found that the U.S. Trustee of Region 17, which appointed the committee, did not have the authority to do so.

Judge Lastreto’s order dated Oct. 2, 2019, also denied without prejudice as moot the employment applications of Smiley, Wang-Ekvall, LLP and Frandzel, Robins, Bloom and Csato, L.C.

But the court is not closing the door on a committee appointment as it continued to a later date its consideration of a creditor’s motion to appoint a committee under § 1102(a)(2) of the Bankruptcy Code.

Judge Lastreto says his decision is not meant to minimize the valuable effect committees have in Chapter 9 or 11 cases. He recognizes creditor’s committees play valuable roles in chapters 11 and 9 reorganization dramas. “They can be inconvenient antagonists for certain debtors trying to emerge at play’s end fully reorganized with new funds from a powerful secured creditor. They can be protagonists opposing strong constituencies in a herculean battle for the debtor’s existence.”

The court’s order isn’t about those roles but rather how the committee’s role was introduced.

“This decision does not criticize the parties appointed to Committee

here. The court was asked to examine a relatively uncharted area of law and apply the statutes at issue as written. The difficulty this issue presents is born not from the parties’ bad faith or poor choices, but the limits on the ability of Congress to consider every scenario when a statute is codified or amended,” Judge Lastreto explained.

Bankruptcy Filing & Committee’s Appointment

Coalinga Regional Medical Center, which had served residents of southwestern Fresno County for almost 70 years, filed a petition for relief under Chapter 9 of the Bankruptcy Code in September 2018. A few months earlier, the hospital had temporarily closed its doors buckling under the weight of pending lawsuits and cash flow problems.

“We have struggled for several years due to low reimbursement rates and declining patient census,” Sandy Beach, the Center’s board chairwoman, told The Business Journal following the Chapter 9 filing.

The U.S. Trustee filed a notice of appointment in Nov. 2018, naming Beckman Coulter, Inc., and Elitecare Medical Staffing, Inc., as members of the Unsecured Creditors’ Committee. Both creditors have claims exceeding

$200,000. The U.S. Trustee later filed an amended appointment, stating that Beckman and Elitecare were appointed to the Committee effective Dec. 21, 2018, the date the court issued the Order for Relief.

The Committee applied to retain two law firms. The Debtor objected, saying that a committee is unnecessary and it should not be compelled to pay counsel fees.

The Committee also objected to the Debtor’s proposal to lease the acute care hospital and other facilities to Coalinga Medical Center, LLC, unconvinced it was the best course of action for the Debtor. The court eventually approved this transaction.

A month later, Beckman filed its own motion asking the court to appoint an Unsecured Creditors Committee under 11 U.S.C. § 1102(a)(2) — applicable in Chapter 9 cases under Section 901(a) — which authorizes the court to appoint “additional committees” if necessary “to assure adequate representation.” Alternatively, Beckman asks the court to “ratify” the UST’s appointment of the Committee.

Almost concurrent ly, the Debtor filed a motion to vacate appointment of the Committee and to disband the Committee.

Meanwhile, the Chapter 9 case has progressed to the point





where the Debtor has filed a Plan of Adjustment and Disclosure Statement.

Debate Over U.S. Trustee’s Authority

The Debtor asserts the U.S. Trustee has no authority to appoint unsecured creditors’ committees in chapter 9 cases under 11 U.S.C. § 1102(a)(1) because this section only applies in Chapter 11 cases. The Debtor relies heavily on Judge Rhodes’ decision in In re City of Detroit, 519 B.R. 673 (Bankr. E.D. Mich. 2014), the only published decision the parties and the court found confronting the UST’s authority to appoint committees in Chapter 9 cases. The Debtor also contends that § 105(a) as implemented by Bankruptcy Rule 2020 authorizes the court to disband Committee.

Beckman argues that the UST has the authority to appoint a Committee under §§ 901 and 1102. Because § 1102 is incorporated in its entirety, Beckman insists § 1102(a)(1) is applicable in chapter 9 cases. The UST, for its part, naturally argues the same, saying that Congress intended to incorporate § 1102 in its entirety. The UST pointed out that Congress chose not to explicitly exclude § 1102(a)(1) under Section 901, which means it intended for §

1102(a)(1) to be applicable in chapter 9 cases. Both Beckman and the UST said Detroit is not persuasive.

Beckman also tells the Court that disbanding Committee is unwarranted because the Debtor cannot adequately represent the interests of the unsecured creditors. The UST goes even further, arguing that the court does not have authority to disband the Committee it appointed. The UST cited two decisions in Chapter 11 cases from the Northern District of Illinois: In re Shorebank Corp., 467 B.R. 156, 164 (Bankr. N.D. Ill. 2012), which found no power to “reconstitute” committee membership by reviewing UST actions) and In re Caesars Entm’t Operating Co., 526 B.R. 265, 269-70 (Bankr. N.D. Ill. 2015), which ruled that Section 105(a) cannot be a basis to disband a committee since court powers over committees are enumerated in §§ 1102 and 1103.

Ruling Explained“There is nothing ambiguous or

mysterious about § 1102(a)(1),” Judge Lastreto opines.

He notes that the subsection plainly states the condition to the UST’s exercise of its authority is “after the order for relief under chapter 11.” The Court points out there is no “order for relief

under chapter 11” in a chapter 9 case. Citing In re City of Detroit, 519 B.R. 673, 677 (Bankr. E.D. Mich. 2014), Judge Lastreto says that condition applies to both the UST’s mandatory “duty” to appoint a committee of creditors with unsecured claims and its discretionary authority to appoint additional committees of creditors or equity security holders as the UST deems appropriate under Section 1102(a)(1). He contends this application of the subsection is not “demonstrably at odds with the intentions of its drafters.” According to Judge Lastreto, no party has referred the court and the court has not found any authority saying it was the Code’s drafters’ intention to require the UST to unilaterally appoint an unsecured creditors’ committee or permit the UST to appoint additional committees under § 1102(a)(1) in a chapter 9 case.

The Court notes that there are many other statutory provisions that support the conclusion. Plus, there are provisions of § 1102 that are inapplicable in chapter 9 cases even though it is fully incorporated in Chapter 9. “So, there is nothing logically or legally inconsistent about a literal application of § 1102(a)(1) excluding its application in chapter 9 cases,” Judge Lastreto says.

In short, Judge Lastreto contends,





under §§ 307, 901(a), 901(b), 1102, applicable federal rules of statutory interpretation, and this court finding Detroit persuasive here, UST does not have authority under § 1102(a)(1) to appoint an unsecured creditors’ committee in a chapter 9 case. And just because the UST has a historical “practice” of appointing committees, it is not a reason to ignore statutory language, the Court notes.

Judge Las t re to says the authorities cited by Beckman and the UST failed to support the UST’s action.

The Court also contends that disbanding the committee is authorized by law. Since § 1102(a)(1) does not apply in a chapter 9 case and thus the UST was not authorized to appoint the Committee, Judge Lastretosays the Committee’s appointment was void and Committee should be disbanded. He says § 105(a) gives the court authority to order the Committee disbanded since it is necessary to carry out the provisions of title 11. Judge Lastreto concludes § 1102(a)(1) does not apply in chapter 9, and to carry out that provision as it is written, the Committee should be disbanded.

The court has determined that the Committee was not appointed under the proper procedure in a chapter 9 case. According to Judge Lastreto, neither Shorebank nor Caesars are apposite here. “Both well-reasoned decisions from the Northern District of Illinois were chapter 11 cases. Shorebank predates Detroit and does hold the court has no power under the Code to remove committee members since the power is not included in §§ 1102 or 1103. But, the issue of UST authority to appoint the committee was not part of the decision. Caesars postdates Detroit and disagrees that the Detroit court properly used § 105(a) as authority to disband the committee. But the UST unquestionably had authority to appoint the committee in Caesars. The issue was not examined because it was not necessary for the Caesars court. Besides, the Detroit court used § 105(a) as an alternative ground for disbanding the committee.”

Judge Lastreto also notes that the court is not ordering something that is precluded by the Code. The U.S. Supreme Court held in Law v. Siegel, 571 U.S. 415, 420-21, 134 S.Ct. 1188, 1194 (2014) that “[a] bankruptcy court has statutory authority to ‘issue

any order, process, or judgment that is necessary or appropriate to carry out the provisions of’ the Bankruptcy Code . . . [b]ut in exercising those statutory and inherent powers, a bankruptcy court may not contravene specific s ta tu tory provis ions .” The Supreme Court has “long held that `whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of’ the Bankruptcy Code.”

Judge Lastreto asserts there is no specific code provision that explicitly forbids the court from vacating the appointment of an unsecured creditors’ committee. Section 1102 states that the UST, not the court, shall appoint the committee. But there is no statute that forbids the court from disbanding a committee.

Riley C. Walter at Wanger Jones Helsley PC represents Coalinga Regional Medical Center.

Robin S. Tubesing is the lawyer for the Office of the U.S. Trustee while Cameron Gulden is the trial attorney for U.S. Trustee Tracy Hope Davis.

Don J. Pool at Dowling Aaron appeared on behalf of Beckman Coulter, Inc., of the Creditors’ Committee. ¤




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The Nation’s Largest Claims AgentsContinued from page 21

Special Report


GGG PARTNERS

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The Nation’s Largest Claims AgentsContinued from page 22

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Drew Lockard

Denise Kaloudis

Sheryl Betance

Barney’s New York, Z Gallerie, Sizmek,

iPic Entertainment, Elk Petroleum

Inc., Diocese of Rochester, Loot

Crate, BeavEx Holding, Cedar-Haven

Acquisition, Diesel USA, Perfect

Brow Art, Willowood USA Holdings,

Montesquieu, Inc., Giga Watt Inc.

(Chapter 11 trustee), and The News-

Gazette




Worth Readinga panic on Wall Street. The NYSE closed for ten days. A journalist wrote: “An hour before its doors were closed, the Bank of England was not more trusted.”

Despite J. P. Morgan’s virtual single-handed role in stemming the Knickerbocker Trust panic of 1907, on his death in 1913, someone wrote “We verily believe that J. Pierpont Morgan has done more harm in the world than any man who ever lived in it.” In the 1950s, Charles Merrill was instrumental in changing this attitude toward Wall Streeters. His firm, Merrill Lynch, derisively known in some quarters as “We, the People” and “The Thundering Herd,” brought Wall Street to small investors, traditionally not worth the effort for brokers.

The Big Board closes with this story. Asked by a much younger man what he thought stocks would do next, J.P. Morgan “never hesitated for a moment. He transfixed the neophyte with his sharp glance and replied, ‘They will fluctuate, young man, they will fluctuate.’ And so they will.”

About The AuthorRobert Sobel died in 1999 at the

age of 68. A professor at Hofstra University for 43 years, he was a prolific historian of American business, writing or editing more than 50 books.. ¤

First published in 1965, The Big Board was the first history of the New York stock market. It’s a story of people: their foibles and strengths, earnestness and avarice, triumphs and crash-and-burns. It’s full of entertaining anecdotes, cocktail-party trivia, and tales of love and hate between companies and investors.

Early investments in North America consisted almost exclusively of land. The few securities holders lived in cities, where informal markets grew, with most trading carried out in the street and in coffeehouses. Banking, insurance, and manufacturing activity increased only after the Revolution. In 1792, 24 prominent New York businessmen, for whom stock- and bond-trading was only a side business, met under a buttonwood tree on Wall Street and agreed to trade securities on a common commission basis. Five securities were traded: three government bonds and two bank stocks. Trading was carried out at the Tontine Coffee-House in a call market, with the president reading out a list of stocks as brokers traded each in turn.

The first half of the 19th century was heady for security trading in New York. In 1817, the Tontine gave way

to the New York Stock and Exchange Board, with a more organized and regulated system. Canal mania, which peaked in the late 1820s, attracted European funds to New York and volume soared to 100 shares a day. Soon, the railroads competed with canals for funding. In the frenzy, reckless investors bought shares in “sheer fabrications of imaginative and dishonest men,” leading an economist of the day to lament that “every monied corporation is prima facia injurious to the national wealth, and ought to be looked upon by those who have no money with jealousy and suspicion.”

Colorful figures of Wall Street included Jay Gould and Jim Fisk, who in 1869 precipitated one of the worst panics in American financial history by trying to corner the gold market. Almost lynched, the two were hauled into court, where Fisk whined, “A fellow can’t have a little innocent fun without everybody raising a halloo and going wild.” Then there was Jay Cooke, who invented the national bond drive and, practically unaided, financed the Union effort in the Civil War. In 1873, however, faulty judgment on railroad investments led to the failure of Cooke & Co. and

THE BIG BOARD: A History of the New York Stock Market

Author: Robert Sobel

Publisher: Beard Books

Soft cover: 395 pages

List Price: $34.95

Order This Book Online Now »

TO ORDER THIS BOOK:

Call: 888-563-4573 or visit www.Beardbooks.com


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Outstanding Turnaround Firms – 2019

Special Report

Firm Senior Professionals Outstanding Achievements

ALIXPARTNERS

New York

alixpartners.com

John Boken

John Castellano

Lisa Donahue

Randall Eisenberg

Holly Etlin

Alan Holtz

Eric Koza

David MacGreevey

Jim Mesterharm

Joff Mitchell

David Orlofsky

Becky Roof

Advisor or interim manager to Aegerion

Pharmaceuticals, Alta Mesa, Blackhawk Mining, CTI

Foods, Ditech, FTD, Hexion, Jack Cooper Transport,

Mission Coal, PG&E Corp., Purdue Pharma,

Sheridan, Sungard, Syncreon, Welded Construction,

Trident Unsecured Creditors Committee, and

Windstream Unsecured Creditors Committee

ALVAREZ & MARSAL

NORTH AMERICA, LLC

New York

alvarezandmarsal.com

Gary Barton

Robert A. Campagna

Mark Greenberg

Jonathan Hickman

Marc Liebman

Richard Newman

Ed Mosley

Ryan Omohundro

Laureen M. Ryan

Justin Schmaltz

Joseph J. Sciametta

CRO to Shale Support Global Holdings, LLC.

Restructuring advisor to Sanchez Energy Corporation;

PES Holdings, LLC and PES Energy, Inc.; and

Westmoreland Coal Company. Restructuring and

financial advisor to Jones Energy, Inc.; and NRG

REMA LLC, an affiliate of GenOn Energy, Inc.

Financial advisor to Stearns Holdings, LLC; White

Star Petroleum Holdings, LLC; Southcross Energy

Partners, L.P.; WMC Mortgage, LLC; Windstream

Holdings, Inc.; Imerys Talc America, Inc.; Fairway

Energy, LP; Parker Drilling Company; LBI Media,

Inc.; unsecured creditors’ committee in NORPAC

Foods and Hollander Sleep Products cases; and

examiner of Samuels Jewelers, Inc.




Outstanding Turnaround Firms – 2019Continued from page 25

Special Report


AMHERST PARTNERSBirmingham, Mich.amherstpartners.com

Sheldon StoneScott EisenbergBruce GoldsteinJames MordenBrian PhillipsShareef Simaika

Has 19 active engagements including CRO, Interim CFO, Creditor Trustee, and Financial Advisory assignments. Advised on the sale of two businesses that began as restructuring or turnaround assignments: Ritzman Pharmacy was purchased by CVS; and Beach Mold & Tool was purchased by NYX. Practice continued to grow its geographical reach -- completed assignments in five states in 2017; engaged to work on assignments in 10 states in 2018; and has assignments in 15 states, including an Interim CFO engagement for a company with global operations, to date in 2019. Launched a restructuring-focused podcast series entitled Whose Company Is It Anyway, presented by Amherst Partners and hosted by Sheldon Stone. Middle-market lender survey now on second year, doubling the number of respondents and attracting the attention of local business media.

ANKURA CONSULTING GROUP, LLCWashingtonankura.com

John FrehseRobert J. FrezzaPhilip J. GundPeter HardigenSalvatore LoBiondo, Jr.Stephen MarottaMichael MortellStan MurphyQuentin OldeScott M. PinsonnaultDavid SawyerAlex Sorokin

CRO to Mayflower Communities, Inc.; Harvey Moore and Associates, Inc. and Trial Practices, Inc.; Elk Petroleum, Inc.; Weatherly Oil & Gas, LLC; Payless Holdings LLC; and Emerge Energy Services LP. Interim chief operating officer to Furie Operating Alaska, LLC. Financial advisor to Trident Holding Company, LLC.

AURORA MANAGEMENT PARTNERS, INC.Charlotte, N.C.auroramp.com

David BakerLaura Kendall Wayne Tanner Tim TurekAlex Boerema Matthew DosseyPhil Slaght

CRO to American Home Products LLC. Federal Receiver for Timber Creek Holdings. Financial advisor to IPIC® Entertainment.





Special Report


BERKELEY RESEARCH

GROUP, LLC

Emeryville, Calif.

thinkbrg.com

Brian M. Cashman

Peter C. Chadwick

Stephen Coulombe

Robert J. Duffy

Christopher J. Kearns

Haywood Miller

Edwin N. Ordway, Jr.

Paul Shields

Mark A. Renzi

CRO to Things Remembered, Inc.; Charlotte Russe

Holding, Inc.; Fred’s, Inc.; Avenue Stores LLC; and

Taco Bueno Restaurants. Financial advisor to debtors

Hospital Acquisition LLC; Egalet Corporation;

Sugarloaf Holdings, LLC; and Verity Health System

of California, Inc.; and the unsecured creditors’

committees of Center City Healthcare, LLC; Astria

Health; Mission Coal Company, LLC; and Aralez

Pharmaceuticals.

CONWAY MACKENZIE

Birmingham, Mich.

conwaymackenzie.com

Donald S. MacKenzie

Michael S. Correra

Aurelio Garcia-Miro

Kenneth T. Latz

Michael J. Musso

Timothy B. Stallkamp

Steven R. Wybo

John T. Young, Jr.

Jeffrey Zappone

Clients include debtors Corsicana Bedding Inc.;

Hantover, Inc.; Innovative Mattress Solutions

LLC; Tweddle Group, Inc.; and Walle Corporation.

Originally hired by bank lender to Oakley Industries,

Inc., then flipped to debtor. Engaged by retailers

Kitchen Collection, LLC; and Pieology Pizzeria.

CR3 PARTNERS, LLC

Dallas

cr3partners.com

Thomas O’Donoghue Jr.

Dawn Ragan

Bill Roberts

Greg Baracato

CRO to Sovrano, LLC; Novum Pharma, LLC; and

Mid-Cities Home Medical Equipment Co., Inc.

Financial and restructuring advisor to AutoMedx,

LLC. Provided restructuring and management

services to Francis’ Drilling Fluids, Ltd.





Special Report


DEVELOPMENT

SPECIALISTS INC.

Chicago

dsiconsulting.com

William A. Brandt, Jr.

Bradley D. Sharp

Fred C. Caruso

Patrick J. O’Malley

Joseph J. Luzinski

Geoffrey L. Berman

Steven L. Victor

R. Brian Calvert

Thomas P. Jeremiassen

A. Kyle Everett

Mark T. Iammartino

Yale S. Bogen

Chapter 11 Trustee of CFG Peru Investments

Pte. Limited (Singapore); Advisor to the Tort

Committee in the Pacific Gas and Electric Company

bankruptcy; Future Claimants Representative for

USA Gymnastics; Outside Director of Daymen

Acquisition S.A. (Luxembourg); Federal Court

Receiver of 3si Systems, LLC; CRO and Financial

Advisor to Woodbridge Group; Receiver for Direct

Lending Investments, LLC; CRO and Financial

Advisor to 1 Global Capital, LLC; Federal Court

Receiver of Pandya Restaurants LLC, et al.; Financial

Advisor to National Auto Lenders, Inc.; CRO of

Total Finance AC LLC; CRO of Aéropostale, Inc., et

al.; Administrative Advisor to the Litigation Trustee

for Remington Arms; Assignee for the Benefit of

Creditors of Accuworx Holdings, Inc., et al.; Assignee

for the Benefit of Creditors of Teters Floral Products,

Inc.

FORCE 10 PARTNERS,

LLC

Newport Beach, Calif.

force10partners.com

Adam Meislik

Jeremy Rosenthal

Nicholas Rubin

Mike Vanderley

Brian Weiss

CRO to Philmar Care, LLC; and Scoobeez, Inc.

Financial advisor to Sienna Biopharmaceuticals, Inc.;

Luxent, Inc.; Broncs, Inc.; and unsecured creditors’

committee in Ruby’s Diner, Inc. Investment banker

to Rockin Artwork, LLC; and Lindley Fire Protection

Co., Inc. Sales consultant to Mesko Restaurant Group

II, Inc.





Special Report


FTI CONSULTING, INC.

New York

fticonsulting.com

Clark Ansel

Alan Boyko

Albert Conly

Michael Cordasco

Robert Del Genio

Michael Katzenstein

David Rush

Samuel Star

John Strek

Conor P. Tully

Clifford Zucker

CRO to F+W Media, Inc.; Cambrian Holding

Company, Inc.; and EP Energy Corporation.

Financial advisor and CRO to PHI, Inc.; and

Halcon Resources. Financial advisor to unsecured

creditors’ committee of Jack Cooper Ventures, Inc.;

Sanchez Energy Corporation; Legacy Reserves

Inc.; PG&E Corporation; and Senior Care Centers,

LLC. Financial advisor and forensic accountant to

Liquidating Trustee of Miami International Medical

Center, LLC; and Uplift Rx, LLC. Financial advisor

to debtors PWR Invest, LP; Perkins & Marie

Callender’s, LLC; Monitronics International, Inc.;

Cloud Peak Energy Inc.; Hexion Holdings LLC; Fuse,

LLC; Sizmek Inc.; Goodwill Industries of Southern

Nevada, Inc.; Synergy Pharmaceuticals Inc.; Oak

Rock Financial, LLC; Checkout Holding Corp.;

Waypoint Leasing Holdings Ltd.; Petroquest Energy,

Inc.; Preferred Care, Inc.; and Fusion Connect, Inc.





Special Report


GETZLER HENRICH & ASSOCIATESNew Yorkgetzlerhenrich.com

Joel GetzlerWilliam HenrichRobert GorinMarjorie E. KaufmanMark D. PodgainyMark G. SamsonDaniel PolskyDavid R. Campbell

Hired in 92 middle-market turnaround, bankruptcy, due diligence and liquidation situations in 2019, including Associated Supermarket Group; Bloomington Wholesale Garden Supply; College of New Rochelle; Diesel USA.; Duro Dyne; Firestar Diamonds; The Four Seasons restaurant; iFresh; Isolux Corsan Liquidating Trust; Live Well Financial; Mammoet-Starneth; clothing retailer Milly; Monitronics International; National Wholesale Liquidators; PakLab; Chapter 11 Trustee for William J. Focazio; Watson; WorldWise; 130-yo, international, $110M activewear manufacturer and distributor; $300M business services company; family-owned food and gift catalog and online business; tier-two global automotive supplier, with manufacturing operations in six countries; $100M distributor of kitchen gadgets and tabletop products; importer and distributor of sunglasses and readers; P/E-backed company that provides Edge security and internet data content warehousing across the globe; well-known New York-based charitable organization; medical practice partnership; P/E-backed mulch, specialty and mixed soil manufacturer; outdoor furniture manufacturer and distributor; professional trade association representing the collegiate retailing industry; $170M leading waste transportation company; publicly held $400M construction and telecommunications company; P/E-controlled specialty surgery hospital and its associated physicians’ group; and high-end women’s apparel company.





Special Report


GLASSRATNER ADVISORY & CAPITAL GROUPAtlantaglassratner.com

Ian RatnerRon GlassWayne WeitzAlan BarbeeJ. Michael IssaMarshall GladeTom BuckCarol FoxMichael ThatcherMark ShapiroTom SantoroSeth Freeman

CRO in Howell Munitions; Ruby’s Diners, Inc.; Regional Health Properties; Campbellton Graceville Hospital; Lockwood Holdings; and Pine Creek Medical Center. CRO and Financial Advisor to Inverness Village; DC Solar; and Frank Investments. CRO and Expert Witness to Point.360. Financial Advisor to Great Eastern Energy and Agera Holdings; Alliance Health; Curae Health; Premier Exhibitions; Uplift/Alliance Health; Committee in True Health; and Committee in Epic Companies, Shale Support. Assignee in the ABC of Fandor.com; and GoDigital, Inc. Receiver in Momentum Auto Group; and Fenton Motors.

HARNEY MANAGEMENT PARTNERS, LLCChicago harneypartners.com

James E. HarneyGregory S. MilliganBill PattersonKaren NicolaouThomas L. HidderMac RowlandJames G. Keane

CRO to The LaSalle Group, Inc. Business consultant to Chapter 11 Trustee of KHRL Group, LLC. Healthcare consultant to Little River Healthcare Holdings, LLC.

M-III PARTNERS, LPNew Yorkmiiipartners.com

Mohsin Y. MeghjiColin AdamsWilliam GallagherCharles H. F. GarnerBrian GriffithMartin YoungWilliam MurphyLyle BauckChris GoodMary KoryckiMatthew Manning

Hired as CRO for Sears Holdings Corporation and Barneys New York, Inc. Tapped as financial advisor to RAIT Funding, LLC.





Special Report


MORRISANDERSONChicagomorrisanderson.com

Dan DooleyMark WelchDaniel WigginsColin McClaryRob Novak

Financial advisor to Greenpoint Tactical Income Fund; Perkins and Marie Callender’s Bank Group; and Kona Grill’s Bank Group. CEO to Midwest Paper Group. CRO to Nobilis Health. Liquidating Trustee in Wellmand Dynamics and Swift Air.

OPPORTUNE LLPHoustonopportune.com

David BaggettRyan Bouley

Restructuring advisor to EdgeMarc Energy Holdings, LLC; Vanguard Natural Resources, Inc.; and Gastar Exploration Inc. Financial advisor to Halcon Resources Corporation’s Unsecured Creditors Committee. Dacarba LLC, an Opportune Company, is CRO to Burkhalter Rigging, Inc.; and financial advisor to PetroQuest Energy Unsecured Creditors’ Committee.

PHOENIX MANAGEMENT SERVICESPhiladelphiaphoenixmanagement.com

Joseph NappiBrian GleasonVince ColistraJim Fleet Michael Jacoby

CRO to New England Motor Freight, Inc.; and Hooper Holmes Inc. d/b/a Provant Health. Financial advisor to SAS Healthcare, Inc.

PORTAGE POINT PARTNERS, LLCChicagoportagepointpartners.com

Matthew Ray Thomas J. AllisonStuart Kaufman Dave Martinelli Dave QuerioSteve ShaheenMark BergerArun LambaScott CannaZach Rose

CRO to Loot Crate, Inc.; and Energold Drilling Corp. Administrator of Synergy Pharmaceuticals Inc.’s confirmed liquidation plan. Financial advisor to Total Finance Investment Inc. Restructuring advisor to DURA Automotive Systems, LLC. Board member of Outcome Health. Advised Birch Lake Fund Management LP in financing to Faraday Future.

THE CLARO GROUP, LLCChicagotheclarogroup.com

Douglas J. Brickley Financial advisor and CRO to KP Engineering, LP and KP Engineering LLC. Financial advisor to Chapter 11 Trustee of American Green Technology; and The Falls Event Center Creditors’ Committee.




W e in the restructuring world know all about

valuation. To value a company, come up with a

story, put numbers to it, and frame it in lovely complex

spreadsheets. In recent years, technology startups have

told the best stories. Uber moves men and mountains and

everything in between. Airbnb imagines a world in which

anyone and everyone belongs, wherever they are. WeWork

enables comfortable productivity for anyone anywhere.

These big stories were attached to even bigger numbers,

tough to swallow even for us pragmatic restructuring

folks who want to see plans confirmed. Uber: $68 billion;

Airbnb: $47 billion; WeWork: also $47 billion. Now these

stories are being tested with investors in public markets,

who have strangely enough proven less willing to engage

in magical thinking. Uber, has been trading 30% below

its May IPO price; Lyft is down more than 40% since its

March debut. Airbnb has wisely said it won’t risk a listing

before next year.

No company has crashed into the reality of the public

markets harder than WeWork, which shelved its IPO on

reports that its valuation could fall as low as $10 billion.

The company bravely pushed out its iconic-in-his-own-

mind CEO after investors balked at his egregious self-

dealing and mismanagement. WeWork reportedly plans

to lay off thousands of employees and halt all new lease

agreements as it looks to cut costs.

Behind each of these situations lies a common problem:

the companies lose tremendous amounts of money. This

was fine when they were playing with a circle of investors

who were happy to provide cash as long as valuations

purportedly kept climbing. Public investors, more

interested in profits and less keen on founders with outsized

sway over shareholders, are fortunately not so gullible.

Aggressive, deep-pocketed venture investors like

SoftBank have made it easier for companies to stay private

for longer, absorbing staggering amounts of capital in the

process. But these backers must cash out eventually, and

that usually requires an IPO as strategic acquirers will not

likely pay enough. When the paper gains in venture rounds

turn out to have been imaginary, later-stage investors will

be telling a different kind of tale.

And since these companies are not typically burdened

with such prosaic things as significant assets, where will

investors find a floor once the tides have turned? Not even

we story loving restructuring mavens will be able to see

value in the phantom of the unicorn. ¤

Deborah Hicks Midanek

President of Solon Group, Inc. and author of

The Governance Revolution: What Every Board

Member Needs to Know, Now!

Contact: [email protected]

Chasing Unicornsby Deborah Hicks Midanek

Gnome de Plume

In The Next Issue...

● Who’s Who in Purdue Pharma L.P.

● Who’s Who in Jack Cooper Ventures, Inc.

● Special Report: Sources of Debtor-in-

Possession Financing

● Special Report: Outstanding Restructuring

Lawyers – 2019


About This Publication:Turnarounds & Workouts is a newsletter for people tracking distressed businesses in the United States and Canada. Turnarounds & Workouts is published by Beard Group, Inc., Telephone: (240) 629-3300. Copyright 2019 by Beard Group, Inc. ISSN 0889-1699. All rights reserved; unauthorized reproduction strictly prohibited. Editor: Christopher Patalinghug ([email protected]). Assistant Editors: Frauline Maria S. Abangan, and Peter A. Chapman. Subscription Rate: $447 per year per firm for one recipient plus $25 per year for each additional recipient. Contact [email protected] for comments and coverage suggestions.

Beard Group, Inc., is a law and business publisher founded in 1986. The world’s largest law firms, financial professionals, risk managers and business consultants subscribe to our newsletter titles and resources for restructuring professionals. Beard Group, Inc., also is a leading publisher of business, law and finance books.

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