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SunEdison Yieldco and Appaloosa Agree to Settle Litigation

TerraForm Power Inc., a yieldco founded and controlled by bankrupt clean-energy giant SunEdison Inc., agreed to settle a lawsuit filed by billionaire David Tepper’s Appaloosa Management LP, Bloomberg News reported today. As part of the settlement, TerraForm agreed to segregate its information technology systems from SunEdison and appoint an additional independent director to its board, it said yesterday. It also said it would grant TerraForm Chief Operating Officer Thomas Studebaker — or a successor in that role — responsibility for its “ordinary course commercial operations” subject to the authority of interim Chief Executive Officer Peter Blackmore. TerraForm, an owner of operating wind and solar farms, has failed to file its 2015 annual report, and has attributed the delays to SunEdison’s struggles. SunEdison, which attributed its own delayed report to “deficient information technology controls” from its reporting system, has provided the systems its yieldcos rely on to complete reports. In January, Appaloosa sued to block SunEdison’s planned $1.9 billion purchase of rooftop solar company Vivint Solar Inc. Under the deal, TerraForm would have bought Vivint assets. The Vivint deal collapsed in March, a little more than a month before SunEdison filed for bankruptcy.

Caesars Entertainment to Emerge from Chapter 11

Apollo Global Management and TPG Capital will give up most of their stake in Caesars Entertainment to help it emerge from chapter 11 protection, the New York Times reported today. The complicated agreement, announced yesterday, settles a long-running battle between the private equity firms and a host of creditors. Under the terms of the deal, Apollo and TPG will hand over their $950 million stake in Caesars Entertainment’s parent company, which is publicly traded and not in bankruptcy protection. (They will retain a smaller stake in Caesars Entertainment through their holdings in another affiliate.) More senior creditors will also give up some of what they are owed. Over all, creditors will own 70 percent of Caesars when it emerges from chapter 11 protection. Shareholders in the still-public parent company will own 6 percent in the newly reorganized company.

Analysis: Lenders Can Only Watch as Covenant-Lite Debt Strips Influence

Lenders to struggling shoe chain Nine West have watched the company’s debt soar to more than 20 times earnings, and there’s little they can do about it. Unfortunately for them, that’s exactly what they signed up for, Bloomberg News reported today. Nine West’s debt is “covenant-lite,” meaning it carries minimal protections for lenders should the company falter and little obligation to explain if something goes wrong. There are no limits on how much debt the company can hold relative to its earnings, and the only required disclosures are annual and quarterly reports, according to S&P Global Ratings analysts. The absence of specific metrics to meet or tests to pass leaves creditors with virtually no power to force answers from their borrower or changes in its behavior. It’s an example — a warning, some analysts would say — of what creditors can expect as they trade away traditional debt protections for extra yield. With past covenant-lite deals like Nine West and Weight Watchers International Inc. now causing headaches for their lenders, credit analysts and investors say that they’re seeing similarly loose terms more frequently on new loans and bonds. Just 35 percent of new leveraged loans issued in 2016’s first half had traditional covenants that require regular financial check-ups, compared with 100 percent in 2010, according to Xtract Research, which analyzes debt packages. Read more

Don’t miss tomorrow’s ABI Workshop “Turnaround Lending 2016” for a market update for turnaround and restructuring lending. The program will also feature two panels, addressing a wide range of topics, including regulated and compliance issues impacting lenders. Register to attend in person or for a live web stream!

Wells Fargo Claws Back Millions From CEO After Scandal

Wells Fargo & Co. Chairman and Chief Executive John Stumpf will forfeit $41 million for the bank’s burgeoning sales scandal, marking one of the biggest rebukes to the head of a major U.S. financial institution, the Wall Street Journal reported today. The bank’s board moved to rescind pay for Stumpf and former community-banking head Carrie Tolstedt ahead of a hearing tomorrow of the House Financial Services Committee. Wells Fargo’s board said Tolstedt, who oversaw retail banking during bad behavior there, will forfeit unvested equity awards valued at $19 million. The board said that she won’t exercise “outstanding options” during an investigation into the bank’s sales practices. Tolstedt has also left the bank, earlier than her planned Dec. 31 retirement.

Analysis: Peabody Bankruptcy Sets Up Battle Between Distressed-Debt Hedge Funds

As Peabody Energy Inc. stumbled toward bankruptcy last year, its Wall Street adviser raised a red flag for management: Two powerful and litigious distressed-debt hedge funds held Peabody bonds, Bloomberg News reported today. “Both are bomb throwers and we should be very suspicious,” wrote Tyler Cowan, a restructuring expert at Lazard Ltd. Six months later, in April, the world’s largest private-sector coal company was in bankruptcy. The two New York hedge funds — Paul Singer’s Elliott Management Corp. and Mark Brodsky’s Aurelius Capital Management — soon became embroiled in a bitter $1 billion dispute as they sought to extract a bigger share of Peabody’s assets. In court filings, including emails and handwritten notes by Peabody executives, Elliott and Aurelius are shown to have privately lobbied management to make the accounting change that would shift $1 billion in collateral to benefit themselves and other holders of around $4 billion in unsecured bonds. The lenders led by Citigroup Inc., an agent to $2.8 billion in secured debt, contend that those assets rightly belong to them. Peabody caved to the demands of the hedge funds in their effort to “drive up their own recovery at the expense” of the secured creditors, Citibank says in court filings. Franklin Resources Inc., with 21 percent of one tranche of the debt, is among the biggest secured lenders.

Supreme Court Declines Financier's Bid to Block SEC Action

The U.S. Supreme Court yesterday rejected a request by Lynn Tilton, the New York financier accused by the Securities and Exchange Commission of defrauding investors, to put on hold an SEC enforcement action as she challenges the agency's in-house judicial proceeding against her, Reuters reported. The Court's action means that Tilton will face an Oct. 24 hearing before an SEC administrative law judge over whether she and her firm, Patriarch Partners, hid the poor performance of assets underlying her Zohar collateralized loan obligation funds, and collected nearly $200 million in improper fees. Tilton has said that SEC administrative proceedings are unfair to defendants like her, and that the means by which presiding judges are appointed violates the U.S. Constitution. In a June ruling, the New York-based U.S. Court of Appeals for the Second Circuit rejected her challenge to the process, saying it was premature because the SEC had not finished its administrative case, and thus the court where she sued lacked jurisdiction. Tilton and Patriarch sued the SEC again in Manhattan federal court on Sept. 9, seeking to prevent the commission from pursuing in-house enforcement actions.

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