Sonnenschein has handled numerous forms of distressed M&A transactions for bidders, sellers, lenders and other parties.
The following section highlights some of the representations on distressed merger and acquisition transactions both in Chapter 11 cases and non-Chapter 11 contexts handled by attorneys in Sonnenschein’s Bankruptcy and Reorganization Practice. Forms of such transactions include:
- stalking horse Section 363 asset purchases
- open auction Section 363 asset purchases
- processes to become the plan sponsor for a Chapter 11 plan
- terminating exclusivity and sponsoring rival plan or co-sponsoring rival plan with official committee or other key creditor party
- UCC Article 9 foreclosure sales
- real estate foreclosure sales
- purchases of debt pre-foreclosure or during bankruptcy towards a credit bid or other transaction
- assignee for the benefit of creditors sales
- deed in lieu transactions
- acquisition in conjunction with composition of creditors
- out of court distressed asset transactions
Industries include retailers/wholesalers, broadcasting, telecom, manufacturing, energy, utilities, mining, intellectual property, service businesses and health care.
Issues we have analyzed and addressed include:
- successor liability under common and tort law
- tax successor liability principles and transfer taxes
- ERISA successor liability principles
- NRLB, labor and employment successor liability and union recognition principles
- WARN Act liabilities
- bulk sales or similar notification laws
- setoff and recoupment
- preservation and assignability of material contracts, leases, intellectual property licenses and governmental permits or licenses
- commercial reasonableness of sales under the UCC
- fraudulent transfer challenge risks post-closing
- voluntary or involuntary bankruptcy risks and inpacts pre or post-closing of transaction
- legacy employee, pension and health care liabilities of seller
- historical environmental issues
- ongoing environmental compliance issues
- asbestos and other mass tort claims
- assignability and ability to benefit from seller’s insurance coverage
- impact of changes of control provisions
- effectively retitling assets and getting recording offices and governmental agencies to recognize the transfer
- settling or foreclosing out mechanics, materialmen, warehouseman and similar liens, including those purporting to be incurred pre-transaction and related back but asserted post-closing
- mezzanine loan transactions and standstills with property level lenders and creditors
- exclusivity and lock-ups
- bidding protections, break-up fees and expense reimbursements
- extending bid deadlines or challenging bid process rules or failure to cooperate with potential bids
- extent and nature of “free and clear” sale orders, including enforcement of same post-closing of the transaction and the underlying seller’s bankruptcy case
Chapter 11 Matters
Examples of our distressed M&A representations include:
NewComm Wireless Services, Inc. (P.R.)
We represented NewComm Wireless Services, Inc., a wireless communications company, as debtor and debtor-in-possession in its Chapter 11 case. NewComm owns and operates a cellular telephone network in Puerto Rico with approximately 90,000 subscribers. Its Chapter 11 case is among the largest ever filed in that district. Sonnenschein professionals filed the case with an interrelated transaction consisting of: (i) a $38 million DIP financing facility, (ii) an asset purchase agreement for approximately $110 million, and (iii) a $17 million network upgrade and buildout. Section 363 auction was held that resulted in $40 million in overbidding. This allowed confirmation of a plan that paid general unsecured creditors in full. Prior to the auction, the unsecured creditors risked little or no recovery of their claims. Equity holders and the subordinated claims also received distributions under the plan.
Digital Teleport, Inc. (ED Mo.)
We represented the Chapter 11 debtor and its affiliates in this case. The company’s main business is high-bandwidth fiberoptic networks that transmit information from main trunk lines to local service providers in the Midwest. Early in the case, the debtor shed a series of agreements pertaining to the usage of dark fiber. Generally, Sonnenschein was able to obtain waivers of rejection damage claims. Certain non-core fiber routes were sold to third parties. Also important to the case were material issues with rights of way agreements with state departments of transportation and local municipalities. The business ultimately was sold as a going concern to an affiliate of CenturyTel and a distribution of approximately 90 cents on the dollar was paid to unsecured creditors.
Handy Andy Home Improvement Centers, Inc. (ND Ill.)
After failing to find a business model to successfully compete with “big box” retailers, such as Home Depot, retail hardware chain Handy Andy engaged Sonnenschein to represent it in a liquidation of its assets through an orderly Chapter 11 proceeding. This case included an auction of undermarket leaseholds that had value assignable to third parties.
Sonoran Energy, Inc. (SD Tex.)
We represented this oil and gas producer in its Chapter 11 case in Dallas, Texas. Two going concern sales of the Debtor’s main fields in Louisiana and west Texas have been approved in the case.
Philip Services Corp. (SD Tex.)
We represented Philip Services Corp and over 40 related debtors in their Chapter 11 cases. Prior to proposing a plan of reorganization, an auction was held for the right to be the “plan sponsor” who would fund the bankruptcy exit and acquire control. We address environmental union and pension issues to facilitate a free and clear sale at maximum value.
Westpoint Stevens (SD N.Y.)
We represented the prevailing bidder in its acquisition of these textile businesses. Both the prevailing and competing bid were submitted in the form of equity in a newco which would acquire the assets pursuant to a Section 363 sale. We worked on subsequent appeals and litigation.
Custom Shop Corp. (Del.)
Sonnenschein represented Custom Shop, a chain of specialty clothing stores, in its Chapter 11 cases. During the first month of the case, Custom Shop was successfully sold as a going concern, under Section 363. Sonnenschein also structured a transaction in which the stalking horse bidder purchased the secured lenders’ position pre-petition and provided DIP financing through the sale of assets.
General Time Corp. (ND Ga.)
We represented Salton as the successful bidder for the Big Ben and Westclox intellectual property in this Section 363 sale.
Preserve at Woodland Harbor (ND Ill.)
We represented the debtors, who owned arsenic-contaminated and undeveloped land in Southeastern Michigan. We assisted them with using the bankruptcy process to remediate the property and to effectuate a marketing process and sale of assets pursuant to Section 363 of the Bankruptcy Code.
Steve Zimmer Paige (D Utah)
We represented the acquirer in this Chapter 7 case involving multi-year complex litigation to obtain the domain name “freecreditscore.com”
Non-Bankruptcy Matters
Onsite Access LLC (SD N.Y.)
We represented a purchaser of substantial and valuable fiberoptic telecommunications infrastructures from the debtor in this Chapter 11 case. These transactions included negotiating related customer service contracts. There was significant post closing appellate and Delaware Chancery court litigation regarding this transaction.
Stiffel Lamps
We represented the purchaser for the Stiffel Lamps intellectual property out of an assignment for the benefit of creditors.
Transmission Repair Company
We represented the purchaser of substantially all the assets of the transmission repair facility from an assignee for the benefit of crecitors.
Sourcelink
We represented the borrower in a transaction where the potential acquirer first acquired the secured bank debt and then foreclosed on that debt under UCC Article 9.
Successor Liablity
We have counseled potential purchasers on potential successor liability claims under federal and state laws.
