Hello Scott,
To answer your question directly, there will be no equity shares available, nor will your shares be moved into the new organization after the deal is completed.
Here’s the reason. The secured term loan lenders have a $449.5 million claim against Orchard Acquisition and the other term loan obligors. The holding companies (i.e., the Partnership and the PubCo) have no independent assets other than their respective equity interests in subsidiaries. Therefore, no value should flow up for distribution to holders of interests in the Partnership or PubCo unless and until the term loan lenders are paid in full.
The term loan lenders will be impaired under the proposed restructuring and will recover far less than the face amount of their claims. Nevertheless, after hard fought and intense negotiations, the term lenders agreed to provide for a distribution of 4.5% of the equity in the reorganized company, or 4.5% of $145 million in cash, up to a maximum of $5.7 million, or a mix thereof, to holders of interests in the Partnership. The Partnership interest holders include the company’s existing equity sponsors as well as the PubCo, which holds 55.4% of the Partnership interests and is the Partnership’s managing member. Therefore, PubCo is entitled to 55.4% of the 4.5% equity being made available to Partnership interest holders.
PubCo itself has various stakeholders, including certain entities that are parties to a tax receivable agreement (the “TRA claimants”) and public equity holders. The TRA provides that upon a chapter 11 filing of PubCo, an early termination payment under the TRA will be due and owing by PubCo. The claim under the TRA is a general unsecured claim against PubCo. The public equity holders have an interest in PubCo which is junior to all unsecured claims against PubCo, including the claims of the TRA claimants. The Bankruptcy Code’s “absolute priority rule” requires that (absent consent of the senior claimants) all claims be paid in full before junior equity interests are entitled to a recovery. Here, the TRA claimants will be considerably impaired, and there is no value remaining unfortunately to flow up to public equity holders.
So, the bottom line is that there just wasn’t enough recover to go around.
Sincerely,
Erik
