Relevant Document:
Backstop Procedures Motion
The Air Methods debtors filed a motion on Sunday, Oct. 29, seeking approval of backstop procedures in connection with the up to $335 million of new capital raises at the heart of the debtors’
plan. The $175 million to $200 million debt rights offering, $135 million offsetting equity rights offering and related private placement are backstopped by members of a Davis Polk-represented crossholder ad hoc group party to the restructuring support agreement underpinning the restructuring, as well as sponsor American Securities on account of its prepetition secured loan claims. Ad hoc group members are also backstopping the $80 million new-money portion of the proposed $155 million DIP facility. All prepetition lenders are eligible to participate pro rata in the DIP financing.
As discussed by debtors’ counsel at the
first day hearing, the debt and equity rights offerings would allow the debtors to refinance their business, while effectuating a total deleveraging of $1.7 billion. To accomplish the deleveraging, Class 3 prepetition secured loan claimholders and Class 7 prepetition unsecured note claimholders would exchange their debt claims for 100% and 2% of reorganized equity, respectively, subject to dilution under the plan.
As part of the plan treatment, secured loan holders would receive subscription rights to fund up to $200 million of the exit term loans and would also receive subscription rights to the $135 million equity rights offering. The debt rights offering participants would receive up to 40% of reorganized equity, subject to dilution.
The separate private placement offering, which is offset by amounts raised through the equity rights offering, counsel explained, allows electing secured loan claimants the option to “cash out” in lieu of receiving reorganized equity. The backstop motion explains that certain parties to the RSA negotiations were “unable or would strongly prefer not to receive equity or warrants” in exchange for their debt claims. Under the cashout option, holders of secured loan claims would receive cash equal to 90% of the new interests they would otherwise receive.
As explained in the DS, the distribution of reorganized equity in Air Methods is subject to procedures required by the U.S. Department of Transportation to ensure that non-U.S. citizens will not hold more than 24.9% (or potentially a higher amount if the requisite holders are citizens of a country with an “Open Skies” agreement with the U.S.) of equity in the reorganized company. The procedures require holders to furnish a citizenship disclosure in connection with the rights offerings and allow for an alternative issuance of warrants in lieu of reorganized equity.
Under the procedures, the debt right offering amount will be set in connection with a Nov. 28 liquidity test date. On that date, if the debtors’ projected liquidity is below $135 million, the debt rights offering would be increased by the amount of the shortfall, up to $200 million. If more liquidity is required to satisfy the $135 million minimum liquidity requirement, the debtors would then utilize the equity rights offering up to $135 million.
As outlined in the
term sheet for the purchase commitment and backstop agreement, or PCBA, the backstop parties would receive the following consideration:
Debt rights offering consideration:
- The debt rights offering backstop commitment premium consists of a nonrefundable premium of 11% of new interests outstanding at the plan effective date (subject to dilution under the plan), which the commitment parties may elect to receive in cash at a 10% discount to the plan equity value (defined as a $800 million total enterprise value adjusted for pro forma debt and cash held on the plan effective date); and
- Under certain circumstances a nonrefundable termination premium of cash equal to 9% of plan equity value.
Equity rights offering consideration:
- The equity rights offering backstop commitment premium consists of a nonrefundable premium of new interests equal to 10% of the equity rights offering amount at a 30% discount to plan equity value (subject to dilution under the plan); and
- Under certain circumstances a nonrefundable termination premium equal to 8% of the aggregate adjusted equity rights offering amount (assuming a $67.5 million equity rights offering amount, calculated at a 35% discount to plan equity value).
Private placement consideration:
- The private placement commitment premium consists of a nonrefundable premium of 10% of the difference between $135 million and the adjusted equity rights offering amount (subject to dilution under the plan); and
- Under certain circumstances a nonrefundable termination premium equal to 8% of the aggregate adjusted equity rights offering amount (assuming a $67.5 million equity rights offering amount, calculated at a 35% discount to plan equity value).
The PCBA also provides for expense reimbursement and grants indemnification to the commitment parties. The PCBA preserves the debtors’ rights to exercise a fiduciary out, but the termination premiums remain payable in the event the out is exercised by the debtors. The PCBA has cross termination provisions with the RSA, including the requirement that the plan be confirmed by Dec. 18.
The motion includes an executed version of the
PCBA;
omnibus procedures regarding the equity cash out option, citizenship election and rights offering elections; and the
noteholder election procedures.
The debtors propose the following timeline for the rights offering and related equity cash out offering:
- Nov. 17: rights offering record date;
- Nov. 21: hearing on bidding procedures motion;
- Nov. 22: commencement of rights offering and equity cashout option;
- Nov. 28: liquidity test date;
- Dec. 6 at 5 p.m. ET: deadline for holders to exercise subscription rights or elect the equity cashout option;
- Dec. 6 at 11:59 p.m. ET: deadline for holders of allowed prepetition secured note claims to submit citizenship declarations and registration forms;
- Dec. 7 at 11:59 p.m. ET: deadline for holders of prepetition unsecured notes claims to submit citizenship declarations and registration forms;
- Dec. 12; commitment funding notice; and
- Dec. 15 at 5 p.m. ET: commitment party financing due.
The debtors
revised their disclosure statement over the weekend with minor revisions after Judge Marvin Isgur conditionally approved the
prior version of the DS at a Friday hearing.