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Ditech, in restructuring agreement with loan lenders, files Ch. 11 but still seeks sale

Ditech Holding Corp. on Feb. 11 filed for Chapter 11 in bankruptcy court in Manhattan to implement a restructuring support agreement that the company has entered into with holders of more than 75% of the company’s term loan, the company announced.

According to a news release this morning, “the RSA provides for a restructuring of the company’s debt while the company continues to evaluate strategic alternatives.”

According to the first-day declaration filed in the case by Gerald Lombardo, the company’s CFO, the RSA contemplates that more than $800 million of funded debt would be extinguished, with the term lenders receiving 100% of the reorganized equity in exchange, and the existing term loan restated in the amount of $400 million.

The contemplated reorganization plan does not provide for any recovery for either the company’s second-lien lenders or current equity holders, although trade claim holders, deemed essential to the company’s ongoing operations, would receive a cash distribution “in an amount equaling a certain percentage of their claim, subject to an aggregate cap,” Lombardo said.

The RSA also contemplates “an appropriately sized working capital facility” upon emergence.

According to the Lombardo declaration, the RSA also provides for the possibility of “another liquidity enhancing transaction,” stating that as a “toggle” to such a transaction, the RSA “provides for the continuation of the company’s prepetition marketing process whereby any and all bids for the company or its assets will be evaluated as a precursor to confirmation of any Chapter 11 plan of reorganization.”

According to court filings, the company’s prepetition marketing process, which began in June 2018, generated at least one potential all-company bid that was subsequently withdrawn, and two bids for the sale of certain servicing and reverse assets with subservicing retained by the company. In December 2018, however, the company decided not to pursue a sale transaction, and turned its attention to negotiating a reorganization with term loan lenders.

Specifically, Lombardo explained, in connection with its reorganization plan, the company would seek proposals for three types of deals, namely a sale transaction for all or substantially all of the company’s assets, an asset sale transaction for a portion of the company’s assets, or a master servicing transaction consisting of an agreement with an approved subservicer to service all or substantially all of the company’s mortgage servicing rights.

“Accordingly, upon completion of the marketing process, not only will the reorganization transaction be fully market tested,” Lombardo said, “the debtors will also be in the best position to compare their options against the reorganization transaction before proceeding to confirmation of their Chapter 11 plan of reorganization.”

In terms of a timeline, the company said it would file a proposed reorganization plan and disclosure statement and proposed bidding procedures by Feb. 26, obtain orders approving the disclosure statement and bidding procedures by April 2, begin an auction (if needed) by May 17, begin a reorganization plan confirmation hearing by June 6, and emerge from Chapter 11 by June 16.

Finally, Lombardo said that to address the company’s immediate working capital needs that it has secured commitments for a $1.9 billion warehouse DIP facility to refinance the company’s existing warehouse and services advance facilities.

The commitments include up to $650 million to fund the company’s origination business, up to $1 billion available to the company’s reverse mortgage servicing business, and up to $250 million available to finance advance receivables related to the company’s servicing activities.

Weil, Gotshal & Manges is the company’s legal counsel, Houlihan Lokey its investment banking debt restructuring advisor, and AlixPartners its financial advisor.

Kirkland & Ellis is acting as legal counsel to the term lenders, with FTI Consulting acting as the group’s financial advisor.- Alan Zimmerman

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