Biggest U.S. Chapter 11 Bankruptcies 2017: SeaDrill, Toys “R” Us, Avaya

U.S. Bankruptcies in 2017
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Oil and Gas Companies Dominate 2017 List of Biggest Bankruptcies in United States

Despite assertions that the U.S. economy is firing on all cylinders, the economic environment continues to be challenging. Whether it’s retail, finance, energy, or any other sector, 2017 has been a difficult year, and an alarming number of American businesses have filed for Chapter 11 bankruptcy protection. On that note, today we’re going to look at some of the biggest U.S. Chapter 11 bankruptcies in 2017.

The total assets of the top 10 U.S. companies to file for bankruptcy in 2017 so far tops $60.0 billion, with the oil and gas sector dominating the list. Some of the most notable bankruptcies to happen in 2017 include SeaDrill Ltd (NYSE:SDRL), Toys “R” Us, Inc., and Avaya Inc.

Biggest U.S. Chapter 11 Bankruptcies 2017

SeaDrill Files Chapter 11 Bankruptcy, Announces Restructuring

Thanks to low oil prices, record inventories, production cutbacks, and serious cost-cutting measures, it was only a matter of time until Seadrill, one of the world’s largest offshore drilling companies, began to feel the pinch.

In a move that was long anticipated, Seadrill announced in September that it filed for Chapter 11 bankruptcy protection. The company did so after it secured an agreement from nearly all of its secured bank lenders to support a plan to inject $1.0 billion of new capital into the company. The bad news is that existing shareholders got the shaft.

Seadrill, with assets of almost $21.7 billion, is the largest bankruptcy to happen so far in 2017. The company said that filing for bankruptcy is part of its new restructuring plan, during which the company will continue to operate as normal.

Seadrill, which is controlled by billionaire ship owner John Fredriksen, worked with its creditors for 18 months to restructure the company’s nearly $10.0 billion in debt.

The proposal will see the company get just over $1.0 billion in new capital, comprised of $860.0 million of secured notes and $200.0 million of equity. Holders of $2.3 billion in bonds will be offered 15% of post-restructuring equity. Meanwhile, existing shareholders get just two percent of post-restructuring equity.

Shareholders who have held on to SeaDrill stock over the last few years have seen their holdings crumble. Since 2014, SeaDrill’s shares have lost more than 99% of their value. In 2014, the company was trading near $40.00 per share; now the company is trading for about $0.30.

Toys “R” Us Files Chapter 11 Bankruptcy as e-Commerce Impacts Business

Toys “R” Us, the giant toy retailer, filed for Chapter 11 bankruptcy protection in mid-September. The company made the move in order to pay down about $5.0 billion in debt that it owes as a result of a leveraged buyout in 2015. Chapter 11 protection also allows the retailer to restructure $400.0 million in debt that’s due in 2018 and another $1.7 billion that’s due in 2019—and then renegotiate the rest.

The retailer has struggled to compete in the crowded marketplace since it was taken private in 2005 in a deal worth $6.6 billion. Toys “R” Us has faced fierce competition from traditional competitors like Target Corporation (NYSE:TGT) and Wal-Mart Stores Inc (NYSE:WMT) and online behemoth Amazon.com, Inc. (NASDAQ:AMZN).

Toys “R” Us said in a statement that it received a commitment from some lenders (including a JPMorgan Chase & Co. (NYSE:JPM)-led syndicate) of more than $3.0 billion in debtor-in-possession financing. The company said it would “immediately improve the Company’s financial health and support its ongoing operations during the court-supervised process.”

Restructuring the debt will allow Toys “R” Us to revamp its operations, including improving its web site and revamping Babies “R” Us.

The bankruptcy filing comes at a critical juncture for the toy and game seller. Toys “R” Us generates most of its revenue during the fourth quarter; during the 2016 holiday season, the company made 40% of its annual sales.

With assets of $6.9 billion, there were concerns that the retailer may not be able to pay down its debts, which would result in empty shelves in the critical fourth quarter. That would, of course, further exacerbate the situation.

Its operations outside of the U.S. and Canada, including 255 licensed stores and a joint venture partnership in Asia, are not part of the bankruptcy filing.

Avaya’s Chapter 11 Bankruptcy Protection Filing

Avaya Inc., a privately held telecommunications company, kicked off 2017 by filing for chapter 11 bankruptcy protection in order to lighten its $6.3-billion debt load. The Santa Clara, California-based company was facing challenges in trying to transition to software and services from a business focused on hardware. It also faced a setback when it failed to sell its call center business in 2016.

On top of that, Avaya struggled with pension obligations; its hourly workers’ plan was underfunded by $660.0 million, and its salaried workers’ plan was underfunded by more than $1.2 billion.

After announcing that it had filed for Chapter 11 protection, Avaya said it was not going to sell its call center business. The company said it was more important to focus on its debt, and that selling the call center would not maximize value for its customers or creditors.

The company’s woes stem from an $8.2-billion buyout in 2007 by private equity firms TPG Capital Management, L.P. and Silver Lake Partners. The company had $600.0 million due in October and annual interest expenses of more than $400.0 million.

Avaya noted in January that it had obtained a $725.0-million debtor-in-possession. The company said the financing, combined with the company’s cash from operations, would provide sufficient liquidity during the Chapter 11 process in order to support its continuing business operations.

In August, Avaya said it had backing from debt-holders who hold more than half of its $4.38-billion first-lien debt, and a settlement with the Pension Benefit Guaranty Corporation (PBGC) to terminate its underfunded salaried employee pension plan.

The agreements could cut more than $3.0 billion from the $6.3 billion in debt that Avaya had when it entered bankruptcy procedures in January. It will also pay the PBGC $300.0 million and give it 7.5% of the stock in the reorganized Avaya, in return for transferring obligations for the salaried plan to the PBGC.

The reorganized Avaya will still be responsible for maintaining its pension plan for hourly employees.

Tidewater Chapter 11 Bankruptcy, Restructuring Plans

Oil and gas services company Tidewater Inc. (NYSE:TDW) announced in May that it had entered into a voluntary restructuring agreement with its lenders. The New Orleans-based company was able to reach support of both senior note holders and revolving credit facility lenders.

With assets of almost $5.0 billion, Avaya is the fourth-largest U.S. company by assets to file for Chapter 11 bankruptcy protection in 2017.

According to the restructuring plan, lenders received $225.0 million in cash, common stock representing 95% of the value of the pro forma common equity in reorganized Tidewater, and new eight percent fixed-rate secured notes due in 2022.

Existing shares of Tidewater common stock were cancelled, and existing common stockholders of the company will receive common stock representing five percent of the pro forma common equity in reorganized Tidewater, Series A six-year warrants to purchase 7.5% of the pro forma equity in reorganized Tidewater (valued at approximately $1.7 billion), and Series B six-year warrants to purchase 7.5% of the pro forma equity in reorganized Tidewater (valued at approximately $2.02 billion).

Tidewater remained listed on the New York Stock Exchange during the restructuring process.

In July, Tidewater announced that it had emerged from bankruptcy after successfully completing its reorganization efforts. Through the bankruptcy proceedings, Tidewater was able to eliminate $1.6 billion of debt and reduce annual interest and operating lease expenses by $73.0 million.

“The company believes that its substantially deleveraged balance sheet positions it for long-term success for the benefit of all of its stakeholders,” said Tidewater in a statement.

Wholesale Electricity Provider GenOn Energy Files for Bankruptcy

Fifth on the list of the biggest bankruptcies in the United States in 2017 by assets ($4.86 billion), is GenOn Energy, Inc., which is owned by NRG Energy Inc (NYSE:NRG). On June 14, GenOn business filed for bankruptcy.

GenOn was acquired by NRG in 2012 for $1.7 billion. GenOn owns and operates 32 power generation facilities across eight states, mostly in the Mid-Atlantic. The company has total production capacity of approximately 15,294 megawatts and generates roughly 66% of its electricity from natural gas.

While the acquisition created the largest competitive generator in the U.S., it was also burdened by mounting debts.

Princeton, New Jersey-based GenOn filed for Chapter 11 bankruptcy to erase $1.8 billion in debt and to settle accusations that NRG Energy used GenOn as its piggy bank, improperly siphoning off more than $520.0 million from its subsidiary.

GenOn, which struggled with weak electricity prices, will be restructured as a standalone business. The bankruptcy plan will transfer ownership and control of GenOn to its creditors. The plan will also release NRG from liability in exchange for a $261.3-million cash payment, up from a previous offer of $243.0 million.

NRG will also provide GenOn with a $330.0-million cash-funded letter of credit to support GenOn’s needs while under bankruptcy protection.

First NBC Bank Files for Chapter 11 Bankruptcy and Is Acquired by Whitney Bank

The parent company of First NBC Bank Holding Company (OTCMKTS:FNBCQ) filed for bankruptcy protection in May, just two weeks after federal and state regulators seized the bank in what is being called the costliest American bank failure since the depths of the financial crisis in 2010.

The Chapter 11 filing noted that First NBC Bank had fewer than 50 creditors, collectively owed $65.0 million. The company also said it had assets worth just $6.0 million. Creditors that were owed the most include Angel Oak Capital Advisors ($13.5 million), HoldCo Opportunities Fund II LP ($8.0 million), Cincinnati Financial Corporation (NASDAQ:CINF) ($6.0 million), and Federated Mutual Insurance Company ($5.0 million each).

The collapse of First NBC Bank cost the Federal Deposit Insurance Corporation approximately $1.0 billion. No customers of First NBC Bank lost any money as a result of the collapse. Before the bankruptcy filing, the company said it had assets of almost $4.9 billion.

After being seized, First NBC Bank was acquired by Hancock Holding Company (NASDAQ:HBHC), the parent company of Whitney Bank. The deal included $1.6 billion in deposits and $1.0 billion in assets, including $600.0 million in cash.

This was not First NBC’s first dealing with Whitney. Earlier in 2017, First NBC sold nine branches and $1.3 billion in loans (and $200.0 million in cash) to Hancock to shore up its shaky finances. As a result of the sale, First NBC also closed 10 South Louisiana branches, mostly to eliminate locations that overlapped as a result of the deal.

Memorial Production Partners LP Files for Chapter 11

Memorial Production Partners LP (NASDAQ:MEMP), an upstream master limited partnership (MLP), filed for Chapter 11 protection in January 2017. The move was not a big surprise. In December, the Houston-based MLP said it reached agreements with some of its debt-holders on a restructuring plan, and that it expected to file for reorganization under Chapter 11 in the coming week.

During the restructuring, the energy company was looking to slash more than $1.3 billion in debt and give noteholders 98% of common equity interest in the restructured company. Noteholders could also elect to receive an additional cash payment of up to $24.6 million.

Memorial Production Partners will receive two percent of the reorganized equity and five-year warrants to purchase an additional eight percent.

Ahead of the restructuring, Memorial took steps to repay about $190.0 million in debt under its revolving credit facility by monetizing some of its hedge positions.

In May, it was announced that Memorial had emerged from bankruptcy protection and had changed its name to Amplify Energy Corp (OTCMKTS:AMPY).

In a statement, the company said it had eliminated more than $1.3 billion in debt and expected to have around $430.0 million in total debt outstanding and about $14.0 million in cash on hand.

Vanguard Natural Resources Inc Chapter 11 Bankruptcy

Vanguard Natural Resources Inc (OTCMKTS:VNRSQ), another upstream oil and gas MLP, filed for Chapter 11 protection in February, in an effort to restructure itself after being routed by low energy prices. With total assets of $2.7 billion, Vanguard is the eighth-biggest bankruptcy in 2017 based on value.

Over the past few years, as commodity prices collapsed, more than 260 oil producers, service companies, and midstream firms have filed for bankruptcy, with a combined $125.0 billion in debt.

Under restructuring, Vanguard expects to raise $275.0 million to support efforts to eliminate $708.0 million in debt.

The company also received $50.0 million debtor-in-possession financing that it said would provide sufficient liquidity during the restructuring to continue with business as usual.

Despite paying off $500.0 million in debt in 2016, the company’s finances were burdened by years of persistently low commodity prices and a tightened regulatory environment for senior debt providers.

In early August, Vanguard emerged from Chapter 11 proceedings. The natural gas producer cut $820.0 million in debt and acquired an $850.0-million revolving line of credit. The company now has $936.0 million in outstanding debt and $17.0 million cash on hand.

Vanguard has 1.4 trillion cubic feet of natural gas in proven reserves. Natural gas accounted for 66% of the total, oil 18%, and natural gas liquids 16%.

Homer City Chapter 11 Reorganization

Homer City Generation LP filed for bankruptcy on January 11, 2017. The power station operator, which owns three coal-fired electrical power plants, said that the reorganization would help it eliminate $600.0 million of debt.  

The reorganization plan was supported by about 86% of the MLP secured noteholders. Homer City is the ninth-biggest bankruptcy in 2017, based on an asset value of $2.03 billion.

The voluntary filing has been expected for months. The company tried to sell a power plant, but debt-holders rejected several offers. Instead, Homer City opted for reorganization (for the second time in five years). GE Capital (part of General Electric Company (NYSE:GE)) rescued Homer City from bankruptcy in 2012.

This past June, Homer City emerged from its second bankruptcy, but it still has a long way to go. It is running well below half capacity, layoffs are underway, and debt-holders are looking for someone to buy it. Anyone.

A power plant valued at $1.8 billion back in the 1990s might not sell for even $400.0 million today. The energy that coal-fired power plants produce can’t compete with cheap, abundant renewable power and natural gas.

Bonanza Creek Energy Announces Bankruptcy

Bonanza Creek Energy, Inc. (NYSE:BCEI) and seven of its affiliates filed for Chapter 11 bankruptcy on January 4, 2017. Bonanza has proposed a restructuring plan that will terminate more than $865.0 million in debt in exchange for 95.5% of equity in the newly reorganized Bonanza Creek Energy and the chance to participate in a rights offering to raise an additional $200.0 million in new equity.

It wasn’t all good news though. The company said it will cancel existing stock when it exits Chapter 11 protection, but shareholders can split 4.5% of its new equity and three-year warrants to acquire up to 7.5% of the reorganized company, if they pledge not to sue.

Bonanza, which drills for oil in Colorado and Arkansas, had been facing a cash crunch. In February 2015, it sold about $210.0 million of new shares for around $26.00 apiece. The company’s cash had dwindled from $181.0 million in 2014 to less than $3.0 million one year later.

The company said it would use the proceeds to pay the $33.0 million balance of its line of credit and use the rest for drilling. It didn’t work out as planned. In May 2016, Bonanza said that its lenders had cut its credit line by more than half, leaving it $88.0 million overdrawn.

In its January filing, Bonanza disclosed debts of $1.14 billion and assets of $1.22 billion.

On April 28, Bonanza Creek Energy announced that it successfully emerged from Chapter 11 protection. At the time, its cash balance was approximately $65.0 million. The company also issued 1.7 million three-year warrants, with a strike price of $71.23 per share.

Bonanza Creek Energy said it planned to resume drilling activity in summer 2017, with the intent of operating a one-rig program for the remainder of the year.

Final Word on U.S. Bankruptcies in 2017

This year has been busy when it comes to bankruptcies in America. Over the first nine months, 28,849 businesses have filed for bankruptcy; that works out to 152 filings per day. In 2016, the average number was 151 per day; in 2015, it was 119; in 2014, it was 139.

Even though stocks are at record levels and consumer confidence is rising, soft economic data suggests that the U.S. economy is not as strong as many think it is. Suffice it to say, the rise in U.S. bankruptcies will continue for the rest of 2017. The big question is, will the number of businesses filing for bankruptcy gain momentum in 2018?

 

Sources

SDRL – Seadrill Announces Comprehensive Restructuring Plan to Be Implemented with Prearranged Chapter 11 Cases,” SeaDrill Ltd, September 12, 2017.

Toys“R”Us, Inc. Commences Court-Supervised Processes To Implement Financial Restructuring,” Toys “R” Us, Inc., September 18, 2017.

Avaya Inc. Files for Chapter 11 Protection,” Avaya Inc., January 19, 2017.

Avaya Announces Plan Support Agreement,” Avaya Inc., August 7, 2017.

Tidewater Announces Entry Into Restructuring Support Agreement With Certain Lenders And Noteholders,” Tidewater Inc., May 12, 2017.

Tidewater Successfully Completes Financial Restructuring And Emerges From Chapter 11 Bankruptcy,” Tidewater Inc., July 31, 2017.

GenOn Energy Files for Chapter 11 Bankruptcy Protection,” The Wall Street Journal, June 14, 2017.

NRG Energy’s GenOn unit files for bankruptcy,” Reuters, June 14, 2017.

Form 8-K First NBC Bank Holding Company,” U.S. Securities and Exchange Commission, May 11, 2017.

First NBC Bank fails, ordered closed; will be absorbed by Whitney Bank,”  The New Orleans Advocate, April 28, 2017.

Whitney officials hang new sign on former First NBC branch in Metairie, just 300 feet from a Whitney branch,” The New Orleans Advocate, May 10, 2017.

Memorial Production Partners LP Reaches Plan Support Agreement with Lenders on Comprehensive Financial Restructuring to Deleverage Balance Sheet,” Amplify Energy Corp, January 13, 2017.

Memorial Production Partners LP Announces Plan Support Agreement and Agreement-in-Principle on Comprehensive Financial Restructuring to Deleverage Balance Sheet,” Amplify Energy Corp, December 23, 2016.

Memorial Production Partners Successfully Completes Financial Restructuring,” Amplify Energy Corp, May 4, 2017.

Vanguard Natural Resources, LLC Files for Chapter 11 Protection,” Vanguard Natural Resources Inc, February 2, 2017.

Vanguard Natural Resources, LLC Successfully Completes Financial Restructuring,” Vanguard Natural Resources Inc, August 1, 2017.

Houston’s Vanguard Natural Resources emerges from Ch. 11 bankruptcy,” Chron, August 2, 2017.

Homer City power plant files for bankruptcy, will reorganize,” Pittsburgh Post-Gazette, January 11, 2017.

Homer City power plant, out of bankruptcy, still needs an overhaul,” Pittsburgh Post-Gazette, June 15, 2017.

Coal country is finding little relief in Trump’s climate actions,” Los Angeles Times, October 15, 2017.

Disclosure Statement for Debtors’ Joint Prepackaged Plan Of Reorganization Under Chapter 11 Of The Bankruptcy Code,” United States Bankruptcy Court for the District of Delaware, December 23, 2016.

Bonanza Creek Bankruptcy Means Losses for Investors in 2015 Stock Offering,” The Wall Street Journal, January 4, 2017.

Investors Are Buying Stocks and Bonds From Energy Producers Amid Oil Price Drop,” The Wall Street Journal, March 9, 2015.

Bonanza in Tailspin as Credit Noose Tightens,” The Wall Street Journal, May 24, 2016.

Bonanza Creek Energy Successfully Completes Prepackaged Financial Restructuring; Emerges From Chapter 11; Announces New Board of Directors,” Bonanza Creek Energy, Inc, April 28, 2017.

September 2017 Bankruptcy Statistics – State and District,” American Bankruptcy Institute, last accessed October 19, 2017.

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