Relevant Documents:AgendaOrder
Judge David R. Jones conditionally approved the Party City debtors’
disclosure statement supplement at a hearing today, after months of delay culminating in a revamped plan premised on new financial projections. While approval of the DS was uncontested, counsel for Mudrick Capital previewed the minority noteholder’s confirmation objections, including that the plan is “patently unfair on the economics.” However, the debtors reiterated that approximately 90% of their secured noteholders support the amended plan and counsel for the official unsecured creditors committee and for the prepetition ABL agent also voiced support for the debtors third amended plan at today’s hearing.
Conditional approval paves the way for the debtors to solicit or resolicit votes on their third amended plan that was filed on July 21. Specifically, holders of Class 3, prepetition ABL claims will have the opportunity to vote on the plan, and holders of Class 4 secured notes and Class 5 general unsecured claims will have the option to change their votes on the debtors’ prior plan. The amended plan alters the treatment of Class 3 prepetition ABL claims (dividing the class into two subclasses) and Class 4 secured notes claims, modifies the proposed rights offering, and replaces the DIP equitization option for backstop lenders with a noncash takeout option, among other changes.
The confirmation hearing is scheduled for Sept. 6 at 11 a.m. ET.
In opening remarks, Ken Ziman of Paul Weiss, for the debtors, described the “relatively slight pivot” embodied in the amended plan prompted by the “abrupt” decline in
financial projections, which in turn reduced the debtors’
valuation. Ziman noted however, that
the plan equity value remains unchanged at $381 million prior to the issuance of the new 2L notes. Accounting for the new 2L notes leaves an adjusted plan equity value of approximately $148.6 million, Ziman added.
In connection with the amended plan, the debtors also amended their restructuring support agreement, which Ziman noted is supported by approximately 90% of the debtors’ secured noteholders. Ziman said the debtors are “optimistic” that more than 55% of the ABL lenders will elect to have their prepetition ABL claims rolled over into a new exit facility (which would trigger the deemed repayment and refinancing of prepetition ABL claims as exit ABL facility claims). Even if less than 55% of ABL claims opt into the exit facility, Ziman continued, the debtors would still have the option to enter into a smaller exit facility with the electing ABL holders.
In other case updates, Ziman said that the debtors are “‘this close’ to retaining a new auditor,” after Ernst & Young’s
resignation on June 5.
The debtors have also reached an agreement in principle with their wholly owned, nondebtor Anagram subsidiaries, according to Ziman. The debtors
rejected their supply, shared services, and license agreements with Anagram in May, and Anagram
objected to that rejection, contending that the debtors would be “severely harmed” without the implementation of a “consensual transitional strategy.”
Adam Shpeen of Davis Polk, counsel for the ad hoc group of secured noteholders, said that the amended plan was a “tremendous achievement.” Shpeen also cautioned that there is still “a lot of wood to chop” with Anagram, in spite of progress on a transition services agreement.
Though Mudrick Capital did not formally object to the DS supplement, its counsel, Robert Novick of Kasowitz Benson Torres, previewed Mudrick’s plan confirmation objections today. Novick said that the amended plan would still dilute minority noteholders, like Mudrick, which would recover on their claims a number “that rounds to zero,” while the members of the ad hoc group would recover “close to seventy percent.” Novick pointed out that under the amended plan terms, the ad hoc group of noteholders, which now holds 100% of the DIP, is still converting the DIP “dollar for dollar into new paper” on top of 69.83% of the reorganized equity. Mudrick also questioned why softness in the debtors’ business back in March and April “means gutting EBITDA in 2026” under the amended financial projections. The plan is patently unfair on its face, Novick concluded.