Toys ‘R’Us files for Chapter 11 as heavy debt and online shopping switch take their toll

BY Fraser Tennant

As a result of a heavy debt load and a consumer switch toward online shopping, toy retailer giant Toys ‘R’Us has voluntarily filed for Chapter 11 bankruptcy protection in the US and Canada.

In addition to the filing in the US Bankruptcy Court for the Eastern District of Virginia in Richmond, VA, the company’s Canadian subsidiary intends to seek protection in parallel proceedings under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice.

Toys ‘R’ Us intends to use the court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth.

The company’s operations outside the US and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing and Companies’ Creditors Arrangement Act (CCAA) proceedings.

The vast majority of the approximately 1600 Toys ‘R’Us and Babies ‘R’Us stores around the world – which are mostly profitable – continue to operate as usual.

“Today marks the dawn of a new era at Toys ‘R’Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, chairman and chief executive of Toys ‘R’ Us. “Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide.”

Furthermore, the company has received a commitment for over $3bn in debtor-in-possession (DIP) financing from various lenders, including a JPMorgan-led bank syndicate and certain existing lenders, which, subject to court approval, is expected to immediately improve the financial health of Toys ‘R’ Us and support its ongoing operations during the court-supervised process.

Serving as principal legal counsel to Toys ‘R’ Us is Kirkland & Ellis LLP, while Alvarez & Marsal is serving as restructuring adviser and Lazard is serving as financial adviser.

Mr Brandon concluded: “We are confident that these are the right steps to ensure that the iconic Toys’R’Us and Babies ‘R’Us brands live on for many generations.”

News: Toys 'R' Us files for bankruptcy protection in US

Sempra and Oncor agree merger

BY Richard Summerfield

Sempra Energy is to acquire Oncor Electric Delivery Co for $18.8bn, including existing, outstanding debt of around $9.45bn, the companies have announced in a statement.

Sempra will pay cash for the company and the deal is expected to be financed by a combination of Sempra's own debt and equity, third-party equity and $3bn of expected investment-grade debt.

"Both Sempra Energy and Oncor share more than 100 years of experience operating utilities that deliver safe, reliable energy to millions of customers," said Debra L. Reed, chairman, president and CEO of Sempra Energy. "With its strong management team and long, distinguished history as Texas' leading electric provider, Oncor is an excellent strategic fit for our portfolio of utility and energy infrastructure businesses. We believe our agreement with Energy Future will help ensure that Texas utility customers continue to receive the outstanding electric service they have come to expect from Oncor and provide stability to Oncor's nearly 4000 employees."

Elliott Management is the largest creditor of bankrupt Energy Future Holdings, the majority owner of Oncor, and Elliott have backed Sempra’s bid to take over the company, spurning a rival takeover attempt by Warren Buffett. In July, Mr Buffett’s Berkshire Hathaway made a rival $18bn offer for Oncor which was rejected by the company, as well as Elliott, who argued that the offer was too low and not in creditors’ interest. 

Under the terms of the deal, Sempra Energy has committed to support Oncor's plan to invest $7.5bn of capital over a five-year period to expand and reinforce its transmission and distribution network.

Once the deal has been completed, Bob Shapard, Oncor's CEO, will become executive chairman of the Oncor board of directors and Allen Nye, currently Oncor's general counsel, will succeed Mr Shapard as Oncor's CEO. Both are set to serve on the Oncor board, which will consist of 13 directors, including seven independent directors from Texas, two from existing equity holders and two from the new Sempra Energy-led holding company.

Elliott had tried to put together its own $9.3bn bid to buy Oncor but ultimately decided to back the Sempra deal, which a spokesman said "provides substantially greater recoveries to all creditors of Energy Future than the proposed Berkshire transaction." Elliott acquired a specific class of debt worth about $60m from Fidelity Investments that gave it the power to block Berkshire’s offer.

News: Sempra Energy to buy Oncor for $9.45 billion in blow to Berkshire

Source: http://www.reuters.com/article/us-oncor-m-a-sempraenergy-idUSKCN1B1041

Knight Energy files for Chapter 11 as part of restructuring exploration

BY Fraser Tennant

In an attempt to improve its balance sheet and liquidity position, Knight Energy Holdings, LLC and its operating affiliates (including Knight Oil Tools) have voluntarily filed for Chapter 11, as well as entering into a financial restructuring support agreement.

The agreement, made in the US Bankruptcy Court for the Western District of Louisiana, Lafayette Division, is supported by secured lenders and will improve Knight Energy’s balance sheet by equitising over $175m of its existing obligations and provide for significant new capital to substantially boost its liquidity position through an exit financing facility.

Knight Energy has stated that it will continue to operate in the ordinary course of business during the Chapter 11 and restructuring proceedings and has filed various ‘first day’ motions seeking approval of relief – a $14.5m debtor-in-possession (DIP) financing facility – so as to operate with minimal impact or interruption to its valued employees, customers, vendors and other important parties.

One of the largest, privately-owned oilfield rental tool companies in the world, Knight Energy supplies a wide offering of rental equipment and services for drilling, completion and well control activities - serving a diverse base of oil and natural gas exploration & production (E&P) operators. The company was founded in 1972 by Eddy Knight and is owned today by second-generation family members.

“Like many leading oil and gas companies, we have been affected by the ongoing downturn in the market,” said the Knight family in a statement. “The company has spent considerable time since then focusing on how to best serve our customers, employees, and to maintain strong relations with our vendors and employees. In order to best position our company for the future, we felt that a financial restructuring was necessary and worked with our stakeholders to achieve a consensual plan to deleverage the company and position Knight and our employees for success.”

Heller Draper is acting as lead restructuring counsel during the Chapter 11 restructuring proceedings, with a representative from Opportune serving as Knight Energy’s chief restructuring officer. Farlie Turner has served as Knight Energy’s financial adviser.

Confident that requested relief will be granted and the company will have ample liquidity to support the business during the Chapter 11 and restructuring process, the Knight family concluded: “Together we have developed a long term strategic plan that will allow Knight to continue to be a market leader.”

News: Knight Oil Tools’ Parent Company Files For Bankruptcy

US business bankruptcies soar in Q2 2017, confirms new report

BY Fraser Tennant

US business bankruptcy activity in 2017 is continuing on an trend upward, with Q2 experiencing a 10 percent increase in filings over Q1 according to new data compiled by BankruptcyData.com.

In ‘Quarterly Report of Business Bankruptcy Filings for the Period Ending June 30, 2017’, the business bankruptcy information provider analyses Q2 and year-to-date (YTD) 2017 business bankruptcy activity and breaks down the filings by various factors, such as industry, sales volume, company size, creditor, liabilities, assets, employees, creditors and public and private filings

Reflecting on a fluctuating bankruptcy landscape, the report notes that the 2017 YTD business bankruptcy filing figure increased by 1 percent compared to the first six months of 2016, but rose 35 percent compared to the first six months of 2015. Small businesses are also shown to be making up the lion's share of all business bankruptcy filings for 2017. Companies with sales of $500,000 or less generated 56 percent of all filings during Q2 and 61 percent YTD.

In addition, although overall bankruptcy activity is rising, public company bankruptcies are down 30 percent so far in 2017; 43 public companies having filed for bankruptcy in the first six months of 2017, compared to 61 over the same period in 2016.

In terms of industry hotspots, despite a lot of attention being paid to the bankruptcy woes of the retail industry in 2017 (more than 300 retailers have filed for Chapter 11 so far this year), it is actually the energy sector that has continued to dominate, with 16 of 43 (37 percent) of public company bankruptcies coming from the oil & gas, mining and other energy sectors. Turning to location hotspots, Texas overtook New York as the state generating the highest percentage of overall business bankruptcies during Q2 2017.

“2017's US Bankruptcy Court business filing activity is shaping up as we expected, with counts at or slightly above the 2016 levels but significantly above 2015 and earlier,” states the BankruptcyData.com report. “The energy sector, though slowing down, is not out of the woods yet. We also expect retail bankruptcy levels to keep increasing as consumers continue to opt for online over brick-and-mortar purchases in this highly competitive sector that is already besieged by liquidity issues, ailing credit ratings, unfavourable borrowing terms and more.”

Against a dramatically changing corporate landscape, US business bankruptcy activity is continuing to escalate; with many more companies likely to be navigating the filing process before 2017 comes to an end.

Report: Quarterly Report of Business Bankruptcy Filings for the Period Ending June 30, 2017

Hanjin Shipping files for Chapter 15 protection

BY Richard Summerfield

South Korean shipping firm Hanjin Shipping Co Ltd has filed for Chapter 15 bankruptcy protection in the US, in an attempt to stop the company’s creditors seizing its fleet of vessels.

Hanjin, the seventh biggest shipping company in the world, filed for protection on Friday in a court in New Jersey after receiving word that its creditor banks had decided to end the financial support they were providing the company. The creditors also rejected Hanjin’s proposed restructuring deal.

The $896m worth of financial assistance Hanjin had received from its creditors had proved insufficient as the company tried to stay afloat amid volatility in the global shipping industry.

Overcapacity has had a significant impact on shipping companies the world over. In the days running up to its US filing, the company also moved to protect its assets elsewhere, filing for receivership in South Korea on Wednesday. In an attempt to secure legal protection for its ships, Hanjin has plans to pursue legal action in around 10 countries over the course of this week and later expand that to 43 jurisdictions.

As a result of the company’s bankruptcy filings, Hanjin’s vessels have been denied access to ports at a variety of locations. The number of ships that have been denied port access around the world, including in the US, has risen to 79, comprising 61 container ships and 18 bulk carriers, according to South Korea’s financial regulator. That figure includes one vessel seized in Singapore by a creditor, a company spokeswoman said. Hanjin has 141 ships, 128 of which are currently operating. In China, Japan, Singapore and India ,the company has seen 45 vessels denied access to ports. Several of Hanjin’s vessels have also been seized by creditors, including state-run Korea Development Bank.

Hanjin’s ships are currently carrying cargo worth $14.5bn belonging to some 8300 cargo owners, according to the Korea International Trade Association. The bankruptcy of a company of Hanjin’s status is notable, as it accounts for 7.8 percent of trans-Pacific trade volume for the US market. The company’s collapse marks the largest ever bankruptcy filing for a container shipper.

Hanjin’s stock has fallen around 34 percent since the company’s creditors said they were no longer supporting the firm. Given that the company’s collapse has coincided with the high seasonal demand for the shipping industry ahead of the year-end holidays, Hanjin’s bankruptcy is likely to cause a ripple effect throughout the global supply chain, and in the US retail space.

News: Hanjin Shipping filed for U.S. bankruptcy protection: WSJ