Speedcast International Ltd. has reached a settlement with its battling senior lenders, Centerbridge Partners and Black Diamond Capital Management, that clears the way for confirmation of the company's proposed reorganization plan premised on a $500 million equity investment from Centerbridge.
A hearing to confirm the plan is set for this afternoon in bankruptcy court in Houston, according to the court docket.
Among other things, under the settlement Centerbridge will purchase the term loan and revolver claims that Black Diamond holds against the company at about 24 cents on the dollar, roughly equivalent to the cash compensation Black Diamond would have seen under the proposed reorganization plan, along with an additional settlement payment in an undisclosed amount.
More specifically, Centerbridge will purchase Black Diamond's $263.1 million term loan claim for $63.22 million, and Black Diamond's $35.16 million revolver claim for $8.45 million, according to the settlement term sheet filed in the case (under the company's plan, the secured claims, totaling about $633 million, would have been allowed in an amount of $150 million at a 100% cash recovery, with the remaining $483 million deficiency claim treated as an unsecured claim that would have received shares in a litigation trust, the value of which was not calculated by the company for recovery purposes and was characterized by the company as "uncertain").
In addition, the settlement is structured so that Black Diamond will also be the sole beneficiary of a litigation trust that will be created under the reorganization to pursue claims against the company's former CEO, Peter Shaper. Court filings describing the settlement and the company's amended reorganization plan, however, were both significantly redacted, so the precise nature and value of the claims against Shaper are not disclosed.
Shaper resigned as the company's CEO on Aug. 31, 2020.
Court filings show that Black Diamond had objected to a provision of the proposed reorganization plan that would have released Shaper from liability arising out of his tenure as CEO, and Black Diamond had sought discovery from Shaper as to whether he had reached an arrangement with Centerbridge before his resignation regarding his continued employment with the company in connection with Centerbridge's proposal to acquire the company.
The company's amended reorganization plan filed on Jan. 20 specifically excludes Shaper from any releases granted by the plan, and the bankruptcy court's proposed confirmation specifically states that the bankruptcy court made "no findings of fact or conclusions of law that … [Shaper] acted in good faith, fairly, and honestly; adhered to his fiduciary duties; or otherwise complied with any duties imposed by the Bankruptcy Code or other applicable law in connection with these Chapter 11 case, the plan, or any other matter relating to the debtors' restructuring."
As reported, the company filed its proposed reorganization plan on Oct. 10, 2020, providing for the Centerbridge's equity investment in exchange for 100% of the reorganized company's equity.
That proposal, however, was opposed by Black Diamond, which had also been seeking to acquire control of the company. Both Black Diamond and Centerbridge held blocking positions in the company's senior debt, creating a standoff until the October plan broke the logjam.
The plan confirmation hearing got underway in mid-December, but given Black Diamond's blocking position in the senior debt, the outcome was far from certain. Following a status conference on Dec. 29, Black Diamond was granted additional time to submit a final competing plan sponsor proposal for the company. Black Diamond estimated it would require two weeks to complete due diligence and submit its proposal. The settlement, however, was reached before a proposal was submitted.
The settlement was first disclosed at a status conference held Jan. 14, although the terms were not disclosed at that time.
