JUNE 2019 Turnarounds VOLUME 33, NUMBER 6 & Workouts News for People Tracking Distressed Businesses www.TurnaroundsWorkouts.com

In This Issue: Chopper Services Co., Creditors PHI Inc. Agrees with to Work on Consensual Plan Creditors’ Committee to Toll Exclusivity by Frauline S. Abangan

Faraday Future Targets $1.25 PHI Inc., and its debtor-affiliates have agreed with the Official Committee of Billion Equity Capital Raise Unsecured Creditors appointed in their Chapter 11 cases to extend their exclusive periods to file, and solicit votes on, a plan of reorganization. Click on a title below to jump to that section The Committee had filed a motion to terminate PHI’s exclusivity. Mediation on this hotly contested matter commenced May 31, 2019, before Judge David R. Jones, Research Report: who was appointed as mediator by Judge Harlin D. Hale of the U.S. Bankruptcy Who’s Who in Hexion Holdings LLC Court for the Northern District of Texas for all issues regarding a chapter 11 plan Page 5 → or plans of reorganization in PHI’s cases. At the June 5 hearing, the Debtors, the Official Committee, Thirty Two, L.L.C., Research Report: Houlihan Lokey Capital, Inc., and Mr. Al A. Gonsoulin, the Debtors’ chief executive Who’s Who in Pernix Sleep, Inc. Continue on page 2 → Page 12 →

Special Report: Bankruptcy Tax Specialists in the Nation’s Major Law Firms EV Startup Gets $225 Million Page 14 → Bridge Funding from Birch Lake Worth Reading: The Global Bankers by Christopher Patalinghug Page 17 → Faraday&Future Inc., has unveiled a series of strategic actions designed to Special Report: support the completion and launch of its FF 91 (pronounced nine one) ‘ultra-luxury U.S. Turnaround and intelligent’ electric vehicle, continue the development of the mass-market FF 81 Restructuring Firms With for launch in 2021, and support its vendor and supply chain. European Offices Page 18 → The Los Angeles, California-based company recently struck a deal with boutique merchant bank Birch Lake Associates, LLC, that will provide the EV startup up Gnome de Plume: to $225 million in interim funding as it attempts to raise additional capital. It also Reputation Risk Comes of Age started talks with potential investors who’ve expressed interest in the company. The Page 20 → Continue on page 8 → 2 Turnarounds & Workouts JUNE 2019

PHI Inc., from page 1 and profitable global helicopter helicopter services company operating transportation services provider.” in over 45 countries. It transports officer, entered into a stipulation and Among other things, Prieto notes, crews and materials for the oil and order wherein they agreed to resolve, the Plan (i) substantially de-levers gas industry, and patients for the among other things, the Committee’s PHI, Inc.’s balance sheet; (ii) provides healthcare and emergency medical termination motion pursuant to the for the issuance of New Common services industry. terms reflected in a Settlement Plan Stock to Holders of certain secured Chief Restructuring Officer Term Sheet. and unsecured Claims; (iii) provides Robert A. Del Genio, who is also They agreed that the Debtors’ for a potential $70 million New a Senior Managing Director for exclusive periods under section Money Equity Investment through Corporate Finance and Restructuring 1121 of the Bankruptcy Code are a Rights Offering; and (iv) provides at FTI Consulting, Inc., asserts PHI’s automatically tolled for the period for the Debtors’ ability to secure a business model remains strong but during which the Term Sheet is in new asset-backed credit facility in an the company was prompted to file for effect through the date the Term Sheet amount not to exceed $150 million. Chapter 11 protection because it had or the Transaction is terminated, which The Creditors’ Committee, trouble paying its debt obligations. tolling shall survive any termination populated by (i) Delaware Trust When PHI sought Chapter 11 of the Term Sheet. Any corporate Company, as indenture trustee, (ii) protection on March 15, 2019, it restructuring professional can see Oaktree Capital Management, LP, owned 213 aircraft worldwide, leased where this is going. Those outside the (iii) Q5-R5 Trading, Ltd., (iv) Regions 17, and operated 8 customer-owned corporate restructuring community Equipment Finance Corp., and (v) aircraft. The Debtors’ prepetition debt should be confused, because that Helicopter Support, Inc., believes it obligations exceeded $700 million. gibberish is incomprehensible to can craft a better Chapter 11 Plan. The company employs approximately anybody not involved in its drafting. Representing the Official 2,218 people, and in 2018, it had an Committee, Ian T. Peck of Haynes aggregate revenue of $675 million. Committee Objects to and Boone LLP in Dallas notes In September 2013, PHI borrowed “Insider Plan” the Debtors’ proposed plan of working capital from Whitney Bank The Debtors filed a Joint Plan of reorganization provides their largest in the form of a secured revolving line Reorganization and corresponding shareholder with an exclusive option of credit aggregating $150 million. Disclosure Statement on April 1, to acquire a significant equity stake in PHI had trouble paying back the loan 2019, about two weeks following their the reorganized company. but it eventually secured refinancing bankruptcy filing. An amended plan The Committee finds it unfair that of the Whitney Loan by entering into and disclosure statement were filed Gonsoulin will have the exclusive a $130 million term loan with TTL in on May 17, 2019. option—free from competition September 2018. One of the Debtors’ lawyers, and without the benefit of market TTL is an affiliate of CEO Daniel Prieto of DLA Piper in Dallas, valuation—to receive a significant Gonsoulin, who is the beneficial relates that the Plan provides for “a stake in the reorganized company over owner of more than 70% of the comprehensive financial restructuring the objection of impaired creditors. outstanding voting power of the of the Debtors and provides much Company’s capital stock. Gonsoulin needed balance-sheet relief from PHI Prepetition Debt serves as TTL’s managing member. an unsustainable debt load, with Obligations PHI drew $130 million from the term the goal of ensuring the Debtors’ PHI is a publicly held global loan to refinance the Whitney Loan. continued existence as a successful www.TurnaroundsWorkouts.com JUNE 2019 Turnarounds & Workouts 3

PHI Inc., from page 2 them about $200,000. The Debtors These prepetition restructuring estimate that they owe approximately efforts culminated in a Joint Plan While it didn’t have financial $14 million to holders of prepetition of Reorganization and Disclosure maintenance covenants, the loan trade claims. Statement. provides TTL with a first-priority lien and security interest in all of PHI, Restructuring Initiatives Committee Seeks Inc.’s and its Guarantors’ Inventory, & Reorganization Plan Exclusivity Termination Parts and all Accounts. TTL later On September 28, 2018, the Peck pointed to the U.S. Supreme agreed to subordinate its first lien on company hired Houlihan Lokey as Court decision in Bank of America certain spare parts in exchange for financial advisor to assist in exploring Nat. Trust and Sav. Ass’n v. 203 North a second lien in certain of pledged and evaluating a broad range of LaSalle Street Partnership, 526 U.S. aircraft but only to the extent of the strategic alternatives to improve the 434, 442 (U.S. 1999), holding that diminution in value of its subordinated company’s liquidity and enhance proposing such a plan violates the lien on the spare parts. shareholder value. Bankruptcy Code and is inconsistent In January of 2019, PHI, through Just two days before the bankruptcy with the objectives of Exclusivity. In Houlihan Lokey, FTI and its filing, the Debtors borrowed $70 203 North LaSalle, Peck noted, the restructuring counsel, DLA Piper million from affiliates of Blue Torch insider did not receive the ownership LLP (US), initiated restructuring Capital LP under a term loan. The stake in the reorganized company on discussions in an effort to broker a Blue Torch Facility was fully drawn account of his existing equity interest consensual out-of-court restructuring as of the Petition Date and is secured with certain of the Noteholders who but instead the insider proposed to by a collateral package, consisting represent more than 70% in value of purchase the reorganized equity for primarily of a first lien on 90 O&G outstanding Notes. These noteholders cash. In PHI’s case, Peck continued, aircraft and spare parts, and a second formed an ad hoc committee and hired the controlling shareholder is slated lien on certain working capital assets Milbank LLP as legal counsel and to receive such stake in exchange pledged to TTL. PJT Partners LP as financial advisor for debt he recently acquired–debt Under an indenture dated March to help them with the negotiations. that could just as easily be repaid in 17, 2014, with U.S. Bank National PHI also entered into negotiations cash or new debt under any number Association as trustee, PHI, Inc. issued with its helicopter lessors about of alternative plan structures. “The 5.25% Senior Notes, on an unsecured certain burdensome financial and non- economic reality is the same. Yet, basis, in favor of certain registered monetary obligations under the leases. the Debtors have not considered any On February 13, 2019, the Board holders. On March 15, 2019, the Notes alternative plan structure that does not of Directors of PHI, Inc., created matured and the principal balance of equitize the debt,” he asserted. a special restructuring committee the Notes amounting to $500 million Peck contends that the comprising four independent became due and payable. The sole exclusiveness of the opportunity to directors, chaired by Alan Brass and interest obligation that remains unpaid acquire reorganized equity extended vice-chaired by Thomas Murphy. and due on March 15, 2019, is $13.2 Gonsoulin and Lance Bospflug, to old equity at a valuation that has million. the Company’s President and Chief not been market tested violates the Del Genio said certain outstanding Operating Officer, remain members of absolute priority rule. He adds the amounts may be due to landlords the Board but do not participate in the Debtors’ plan cannot be confirmed of real property. As for helicopter deliberations or decision-making by without a market test and, in PHI’s lessors, the Debtors estimate owing the Special Restructuring Committee. case, a market test can only be

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PHI Inc., from page 3 Company, as Indenture Trustee for the other feedback on the Debtors’ Plan. Senior Notes, joined the Creditors’ “Given these facts, terminating satisfied by terminating Exclusivity Committee in seeking termination of exclusivity makes no sense,” he says. and allowing the filing of competing the Debtors’ exclusivity. plans. Settlement Plan Term Peck also cited Judge Chapman in PHI Says Terminating Sheet In re Innkeepers USA Trust, where she Exclusivity Makes No Aside from tolling the Debtors’ refused to allow a similar transaction Sense exclusivity, the Term Sheet also when the equity holder, Apollo Predictably, PHI objected to the provided that the Thirty Two Claim Investment Corp., sought to receive Committee’s motion and its objection will be an allowed secured claim for $132.25 million and the holder will new equity under the plan. See Case was joined by TTL. receive it in cash on the Effective No. 10-13800 (SCC) [Docket No. Prieto points out that the Debtors’ Date. 776] (Bankr. S.D.N.Y. 2010) (“[S] Plan is not a “new value” plan. In The Blue Torch Claim, to the uch a brazen and offensive use of the fact, Prieto notes, the Plan does not extent allowed, will be refinanced, debtors’ Exclusivity for the benefit of seek to grant equity in the reorganized reinstated or treated in a manner an insider ‘breeds contempt’ for the debtors to old equity at all. “Instead, consistent with the Bankruptcy Code. Bankruptcy Code and our system of the only stakeholders to receive equity The Debtors and the Official laws,” Judge Chapman noted). distributions under the Plan are the Committee will jointly determine “[A]llowing the Official Debtors’ prepetition lenders—one of the appropriate classification for the Committee to propose its own plan whom also wears the separate hat of Unsecured Notes Claims, Aircraft that could go through the confirmation ‘equity holder’—and the unsecured Lessor Claims, and General Unsecured process on the same timeline as the creditors.” Claims. Allowed general unsecured Insider Plan would not be prejudicial According to the Debtors, the claims will receive their pro rata to the Debtors or their estates. To Committee is implicating the absolute share of the New Common Stock the contrary, it may well prove to be priority rule based on the identity of a Distribution. The consensual plan will include a convenience class for beneficial,” Peck said. holder, rather than the characteristics holders of general unsecured claims. The Official Committee insists of holders’ claims or interests. PHI Subordinated claims and existing that the best path forward is to allow asserts that the Committee has not met PHI interests will receive nothing. two plans to proceed to confirmation their “heavy burden” to show cause The parties also agreed that the on the same schedule in order to for terminating exclusivity. Instead, Debtors need to use their best efforts guarantee that the Debtors do not the Committee has only made “wildly to procure $225 million of Effective spend any more time in chapter 11 inaccurate (and, at times, defamatory) Date Funded Debt as soon as possible. than necessary. allegations.” Certain unsecured creditors will be “Proceeding to confirmation with Prieto challenged the Committees providing binding commitments for competing plans will have the added and the Indenture Trustee to show $75 million to ensure satisfaction of benefit of reducing uncertainty among proof instead of simply recklessly the Minimum Cash threshold. the Debtors’ creditors, customers, and impugning the reputations of the The parties will work together to contract counterparties as to whether Debtors’ board of directors as well as have a disclosure statement hearing and when a plan will be confirmed, their special restructuring committee. by June 18, the confirmation hearing without introducing unreasonable Moreover, Prieto relates, on a consensual plan by July 30, and the consensual plan effective date on complexity,” Peck asserts. the Committees and Indenture August 31. When the plan becomes The Official Committee of Equity Trustee haven’t even made any effective, Gonsoulin will be retiring as Security Holders and Delaware Trust counterproposal, commentary, or CEO and Chairman of the Board. ¤

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Who’s Who in Hexion’s Bankruptcy Cases by Carlo Fernandez ased in Columbus, Ohio, Hexion 21% over the prior year. 13.750% 1.5 Lien Notes; BInc. is a producer of thermoset At the same time, the Debtors face • $66 million of lease obligations; resins or thermosets, and a producer financial difficulties. Prior to the • $127 million of foreign local debt; of adhesive and structural resins and anticipated restructuring, the Debtors • $74 million of 9.200% Borden coatings. are over nine times levered relative Debentures; and These resins are key ingredients to their 2018 adjusted EBITDA and • $189 million of 7.875% Borden in a wide variety of industrial and face annual debt service in excess Debentures. consumer goods, where they are often of $300 million. In addition, over Parties to the RSA are holders of employed as adhesives, as coatings $2 billion of the Debtors’ prepetition 70% of the debt to be restructured, and sealants, and as intermediates for funded debt obligations mature in including 62% of the 1L Notes, 98% other chemical applications. Hexion 2020. The resulting liquidity and of 1.5L Notes, 84% of the 2L Notes, adhesives help hold together all refinancing pressures have created and 76% the Borden Debentures. manner of industrial products, from an unsustainable drag on Hexion The restructuring reduces total wind turbine blades to particle board; and its subsidiaries, requiring a funded debt by $2 billion, reducing Hexion coatings prevent corrosion on comprehensive solution. total leverage by over half, while also critical infrastructure, from bridges to Hexion Holdings LLC and 17 of its providing substantial fresh equity buildings; and Hexion intermediates subsidiaries sought protection under capital from new money equity help create products consumers rely Chapter 11 of the Bankruptcy Code participation. on every day. (Bankr. D. Del. Lead Case No. 19- The Debtors agree to propose a Plan Hexion was formed in 2005 through 10684) on April 1, 2019. that will distribute (a) to the 1L Notes the combination of Borden Chemical, After arm’s-length negotiations Claims, $1.45 billion in cash (less the Inc., Resolution Performance Products with creditor groups representing sum of adequate protection payments LLC and Resolution Specialty holders of a substantial majority of reflecting interest on the 1L Notes) Materials LLC. the prepetition debt securities, the and 72.5% of (X) the New Hexion Hexion Holdings LLC is the sole Debtors entered Chapter 11 with a common shares and (Y) the rights in member of Hexion LLC, which is the proposed restructuring memorialized the rights offering, and (b) to the 1.5L sole owner of Hexion Inc. in a restructuring support agreement. Notes Claims, the 2L Notes Claims, Hexion Inc. employs 4,000 people As of the petition date, the Debtors and the Unsecured Notes Claims around the world, including 1,300 had $3.08 billion in outstanding their pro rata share of 27.5% of (X) in the U.S. across 27 production funded debt, comprised of: the New Hexion common shares and facilities. • $297 million outstanding under a (Y) the rights in the rights offering. On a consolidated basis, Hexion and first lien ABL facility; General unsecured creditors will be its subsidiaries generated $3.8 billion • $560 million outstanding under paid in full. in revenue in 2018 and $440 million 10.375% First Lien Notes; in segment EBITDA. This represents • $1.55 billion outstanding under DEBTORS the best operational performance 6.625% First Lien Notes; Latham & Watkins LLP is since 2012, and an improvement of • $225 million outstanding under serving as the Debtors’ attorneys.

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Who’s Who in Hexion’s Bankruptcy Cases Continued from page 5

Andrew M. Parlen is one of the is provider of tax advisory and Point Capital Management LP, principal L&W attorneys working audit services to the Debtors. Greg Capital Research and Management on the engagement. Other attorneys Chester, a partner of PwC, leads the Company, Citadel Advisors LLC, assigned to the case are partners engagement. Contrarian Capital Management, George Davis and Caroline Reckler, Omni Management Group, Inc., LLC, Credit Suisse Securities and associates Hugh Murtagh and is the claims, noticing, solicitation and (USA) LLC, Davidson Kempner Jason Gott. balloting agent. Capital Management LP, Richards, Layton & Finger, Prime Clerk LLC is the DoubleLine Capital LP, Eaton P.A., is serving as the Debtors’ subscription agent in the Debtors’ Vance Management, Federated bankruptcy co-counsel and conflicts chapter 11 cases. Investment Counseling, GoldenTree counsel. The principal professionals Asset Management LP, Graham designated to represent the Debtors are FIRST LIEN GROUP Capital Management, L.P., GSO directors Mark D. Collins, Michael Akin Gump Strauss Hauer & Capital Partners LP, Heyman J. Merchant and Amanda R. Steele, Feld LLP is serving as counsel to the Enterprise LLC, Hotchkis and and associates Brendan J. Schlauch First Lien Ad Hoc Group, comprised Wiley Capital Management LLC, and Sarah E. Silveira. of holders of 1L Notes. The attorneys OSK VII, LLC, Pacific Investment Paul Weiss Rifkind Wharton & involved in the case are partners Ira Management Company LLC, Silver Garrison LLP is special financing S. Dizengoff, Philip C. Dublin, and Rock Financial LP, Sound Point and securities counsel to the Debtors. Daniel Fisher, and counsel Naomi Capital Management, LP, Tor Jeffrey D. Saferstein, a partner in the Moss. Asia Credit Master Fund LP, UBS firm, leads the engagement. Ashby & Geddes is local counsel Securities LLC, and Whitebox Moelis & Company LLC is the to the First Lien Ad Hoc Group. Advisors LLC. Debtors’ investment banker and Evercore Group LLC is the financial advisor. Zul Jamal, a financial advisor to the First Lien Ad 1.5 LIEN GROUP managing director of Moelis, leads Hoc Group. Jones Day, led by partners the engagement. The First Lien Ad Hoc Group Sidney P. Levinson and Benjamin AlixPartners LLP is the Debtors’ collectively holds $875,376,000 Rosenblum, and associate Jeremy restructuring advisor. Randall S. (56.48%) of the 6.625% First Lien D. Evans, is serving as counsel to the Eisenberg and Stephen Spitzer are Notes, $162,026,000 (51.44%) 1.5 Lien Ad Hoc Group, comprised of the managing directors responsible for of 10.000% First Lien Notes, and holders of 1.5L Notes. the overall engagement. $227,456,000 (40.62%) of 10.375% Young Conaway Stargatt & Ernst & Young LLP is the Debtors’ First Lien Notes as of April 5, 2019. Taylor LLP, led by chairman Robert tax advisors. Partner Joseph R. The members of the First Lien S. Brady and partner Edmon L. Robinson and senior manager Doug Ad Hoc Group are Angelo, Gordon Morton, is local counsel to the 1.5 Cushman lead the engagement. & Co., L.P., Aristeia Capital, Lien Ad Hoc Group. PricewaterhouseCoopers LLP L.L.C., Barclays Bank PLC, Beach Perella Weinberg Partners is the

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Who’s Who in Hexion’s Bankruptcy Cases Continued from page 6

financial advisor to the 1.5 Lien Ad The Bank of New York Mellon, the Generation Advisors, LLC, and P. Hoc Group. trustee under the Borden Debentures. Schoenfeld Asset Management LP. The members of the 1.5 Lien Group, Simpson Thacher & Bartlett which collectively own $251,060,000 LLP, led by partner Sandeep CREDITORS’ COMMITTEE of 1L Notes and $153,150,000 of 1.5L Qusba, senior counsel Katherine A. The Office of the U.S Trustee Notes as of March 31, 2019, are III McLendon, and counsel Nicholas formed an official committee of Capital Management, Balyasny Baker; and Landis Rath & Cobb unsecured creditors, presently Asset Management L.P., Brigade LLP are counsel to the administrative comprised of:(a) the Pension Capital Management LP, Nomura agent and collateral agent under Benefit Guaranty Corporation; (b) Corporate Research and Asset the Debtors’ postpetition financing Agrium US, Inc.; (c) The Bank of Management Inc., PGIM, Inc., facility. New York Mellon; (d) Mitsubishi Southpaw Credit Opportunity Gas Chemical America; (e) PVS Master Fund LP, and Wolverine CROSSOVER GROUP Chloralkali, Inc.;(f) Southern Asset Management, LLC. Milbank LLP, led by partners Chemical Corporation; (g) Dennis F. Dunne, Samuel A. Khalil Wilmington Trust; (h) Wilmington ADMIN. AGENTS and Matthew L. Brod, is counsel; Savings Fund Society; and (i) Blue Simpson Thacher & Bartlett LLP and Morris, Nichols, Arsht and Cube Operations LLC. The PBGC is counsel to JPMorgan Chase Bank, Tunnel LLP, led by partners Robert is the chair. N.A. as administrative agent and J. Dehney and Andrew R. Remming, Kramer Levin Naftalis & Frankel collateral agent under the Debtors’ is co-counsel to the Crossover Group, LLP is the committee’s lead counsel. prepetition asset-based revolving comprised of entities with holdings Kenneth H. Eckstein, a partner credit facility. across the capital structure. with the firm, leads the engagement. Reed Smith LLP, led by partner Houlihan Lokey Capital, Inc., is Other attorneys involved in the case Kurt F. Gwynne, and associate the financial advisor to the Crossover are partner Douglas Mannal and Jason D. Angelo, is representing Group. associate Rachael Ringer. Wilmington Trust, National Members of the Crossover Group Bayard P.A. is the committee’s Association, as trustee under the 1L as of April 25, 2019, are Aegon USA Delaware counsel. Directors Justin R. Notes and the 2L Notes. Investment Management, LLC, Alberto and Erin R. Fay and associate Arnold & Porter Kaye Scholer Aurelius Capital Master, Ltd., Gregory J. Flasser are the primary LLP, led by partner Jonathan Avenue Capital Management II, attorneys working on the representation. I. Levine and associate Ginger L.P., Avenue Europe International FTI Consulting Inc. is the committee’s Clements, is counsel to Wilmington Management, L.P., Benefit Street financial advisor. Samuel Star, senior Savings Fund Society, FSB, as Partners, LLC, Cyrus Capital managing director with FTI, leads the trustee under the 1.5 Lien Notes. Partners, LP, KLS Diversified engagement. Emmet, Marvin & Martin, LLP, Asset Management LLC, Loomis, JUDGE led by partners Edward P. Zujkowski Sayles & Company L.P., Monarch The Honorable Kevin Gross is the and Thomas A. Pitta, is counsel to Alternative Capital LP, New case judge. ¤

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Farady Future, from page 1 smartphones, PCs and other devices; measures. and advanced facial recognition company is working with investment technology that allows drivers and Bridge Funding banking firms Stifel Nicolaus & passengers to unlock the vehicle The Birch Lake facility, announced Co., and Miller Buckfire & Co., and without a key. It is said to be able to in late April, consists of a $75 million intends to raise $1.25 billion this year. accelerate from 0-60 miles-per-hour senior secured financing and a trust Faraday Future also has entered into in 2.39 seconds; and boasts, among of up to $150 million earmarked for a joint venture with The9 Limited, a other things, of a 130kWh battery the company’s vendors. Birch Lake Chinese mobile gaming developer, for pack that can achieve an estimated Fund Management, LP, serves as the production and sale of a Faraday range of 378 miles on the EPA cycle collateral agent. The loan is secured Future V9 model and other potential and over 700 km on the NEDC cycle, by “all of the Debtor’s assets and car models in China. and a charger that achieves 50% to all proceeds thereof,” according to These transactions were possible full charge in under 4.5 hours at 240V. a UCC financing statement dated after Faraday Future reached an It promises wireless charging in the April 30. Birch Lake also took title agreement earlier this year to future. to the company’s 900-acre APEX restructure an investment deal with Five years since its founding, the Industrial Park Property in Las Vegas, Evergrande Health Industry Group Nevada, the day prior to the UCC Ltd. Evergrande agreed to terminate The company told attendees filing. Faraday Future had acquired a previous investment contract, at the trade show it was the property in 2015 in order to build withdraw and waive all litigation and building the “first of a new a $1 billion factory for its FF 91 EV. arbitration proceedings, and release all species” and preparing Financial woes, including some from security including asset preservation to “reformat the auto its founder and CEO Jia Yueting in pledge and equity financing rights. industry”—which were exceptionally bold claims. Five years since its founding, #FirstOfTheSpecies the company—once dubbed Describing itself as a global company—once dubbed as a Tesla as a Tesla killer—has shared intelligent mobility ecosystem killer—has struggled to hit the road. struggled to hit the road. company, Faraday Future introduced Production of the FF 91 was supposed the flagship FF 91, its first production to start in 2018 and the company was vehicle, at the Consumer Electronics reported to begin delivering the first 2017, forced the company to abandon Show in Las Vegas in January 2017. batch of electric cars by the end of those development plans and shift The company told attendees at the that year. the production location to an existing trade show it was building the “first In April, Faraday Future said manufacturing facility in Hanford, of a new species” and preparing to its engineering team has made California, where tire company Pirelli “reformat the auto industry”—which steady progress to finalize FF 91 for used to operate. were exceptionally bold claims. production, with its growing fleet of In 2017, a Chinese court froze The FF 91 features autonomous pre-production vehicles being used $182 million in assets tied to Jia, driving and driverless valet parking; as a testbed for cloud-connectivity, founder of tech conglomerate LeEco, Wi-Fi connectivity; integration with software releases and other validation over unpaid loans. Jia, who also goes

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Farady Future, from page 8 million. Michael Agosta, Faraday’s financial partners, and we thank them chief financial officer, has disclosed and our employees’ perseverance by as YT Jia, was named to the debt in court documents the company owed for helping us see FF 91 to reality,” blacklist after he violated a court order suppliers more than $59 million as of Faraday Future CEO YT Jia says. by refusing to return to China to pay October 2018. “Birch Lake is pleased to partner up more than CNY470 million ($71 Under the vendor trust program, with FF at this critical juncture and is million) that he owed to Ping An looking forward to assisting FF toward Securities Group. He has since been The secured vendor trust becoming a leading manufacturer of in self-imposed exile in the U.S. In program of up to $150 million EVs in the United States, China and late 2017, he took over as Faraday has been created with Birch beyond,” says Birch Lake CEO Jack Future’s CEO following the departure Lake’s support to provide Butler. “FF’s technology, product of key executives amid a dispute with greater confidence to key strategy and unwavering commitment Jia over the company’s financing. suppliers and obtain their to its production launch of the FF 91 In March 2019, Faraday Future commitments to support are impressive.” announced it was selling the APEX the scheduled production Industrial Park as a result of “ongoing launch of FF 91. Capital-Raising Program optimization of business strategies In November last year, Faraday at [the company] including global Faraday Future will pay all past Future revealed it was collaborating reorganization, R&D resource due amounts to approximately with Stifel Nicolaus and Miller integration and a reduction of its 60% of its vendor base, including Buckfire to pursue $500 million in non-core assets.” The asking price smaller vendors who are owed less additional financing from outside was $40 million, according to a than $20,000. Larger suppliers investors. In April, the company listing at Cushman & Wakefield. A and vendors may participate in the said it has hired Houlihan Lokey as document filed with the Clark County program by exchanging unsecured independent valuation advisor and Recorder’s Office shows the deed to trade claims for trust interests that the firm has determined the value the Las Vegas land was transferred will hold a secured claim equal to all of its technology, inclusive of its to Birch Lake on April 29, and is vendor claims in the trust. Faraday intellectual property, at up to $1.25 confirmed by a report distributed by Future expects to complete the vendor billion. The Verge. repayments during 2019. Faraday Future expects its capital- According to Faraday Future, the raising programs to be completed Vendor Trust secured vendor trust program of up early in the third quarter 2019. A critical component in the Birch to $150 million has been created “Having worked closely with Lake financing is the support for a with Birch Lake’s support to provide the Faraday team to accomplish a trust program that will allow Faraday greater confidence to key suppliers complex restructuring, we are more Future to pay vendors and suppliers, and obtain their commitments to confident than ever that [Faraday] is some of which have sued the company support the scheduled production well positioned to embark on the next for payment. About a dozen lawsuits launch of FF 91. stage of its success. We are excited have been filed against the startup “FF is proud to call Birch Lake to establish this bridge financing since October 2018 seeking nearly $80 one of its strongest supporters and facility and move quickly to raise

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Farady Future, from page 9 capital into the joint venture, Faraday to a report by The Verge. As part of Future says the establishment of the the investment deal, The Verge said, the additional capital to help Faraday joint venture will help the company Season Smart became the assignee redefine mobility,” said Jim Nappo, to overcome its short-term cash flow on Faraday Future’s patents and managing director of Stifel. difficulties and support its ongoing trademarks in the United States, and

equity financing efforts. was listed as the only secured party, Joint Venture The joint venture’s expected annual or lessee, in a security agreement with The joint venture’s immediate production capacity is 300,000 cars, the company. Season Smart was objective is to exclusively and the first pre-production car is also listed as the secured party for at manufacture, market, distribute, expected to roll off the production least six of Faraday Future’s various and sell Faraday Future’s new brand line in 2020. subsidiaries on financing statements V9 model, a flagship luxury EV Shanghai-based The9 has been registered with the California model designed and developed by the listed on Nasdaq since 2004. Secretary of State, which cover “all company. Other future models could of [each subsidiary’s] assets now be created with additional agreements, owned or hereafter acquired and all according to the company. proceeds thereof.” The joint venture will serve the With The9’s first installment Through May 2018, Season Smart China market and “marks a key first of capital into the joint had provided $800 million to Faraday step for [Faraday Future] to officially venture, Faraday Future Future which it used to pay off debts. launch its dual-home-market and says the establishment of Upon taking over, Evergrande Health dual-brand strategy in both China and the joint venture will help agreed to pay the remaining $1.2 the US,” the company adds. the company to overcome billion in installments of $600 million The9 Limited (Nasdaq: NCTY) will its short-term cash flow in both 2019 and 2020. be a 50% partner in the joint venture difficulties and support its By July 2018, Faraday Future with control over certain strategic ongoing equity financing had used up the $800 million (from business operations. In exchange, efforts. Season Smart) and asked Evergrande The9 will make up to $600 million in Health for $700 million of the total capital contributions, contingent Investor Rift Settled remaining $1.2 billion investment in on the fulfillment of specified funding Evergrande Health, a subsidiary advance, according to Global Times. conditions. of Chinese property developer Evergrande Health refused to release Faraday Future’s contributions will Evergrande Group, took over as the funds, however, forcing the be in kind. Specifically, the company Faraday Future’s investor after company to commence proceedings will grant the joint venture use rights acquiring Hong Kong-based Season before the Hong Kong International to a piece of land located in China Smart Limited for $860 million Arbitration Centre in October to for luxury EV manufacturing and in June 2019. Season Smart had terminate the investment deal. an exclusive license to manufacture, committed to make $2 billion in According to Faraday Future, market, distribute and sell its new capital contributions to Faraday Evergrande Health had agreed in brand V9 model and potentially other Future in exchange for a 45% stake in July 2018 to provide the remaining select future car models in China. the startup, as well as a 95% stake in funds ahead of schedule, including With The9’s first installment of one of its Chinese affiliates, according

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Farady Future, from page 10 an aggregate consideration of $200 has been reported to have sold its $500 million of the $1.2 billion in million. headquarters in a sale-leaseback 2018, but ultimately reneged on that Also, Evergrande Health will now deal in March this year. In another promise while telling the press and hold 32% of the company’s preference report by The Verge, Faraday Future its shareholders that Evergrande’s shares. The company has a call option sold the HQ, which consists of two board was “manipulated” in reaching to purchase the 32% stake within five buildings at South Figueroa Street in the agreements. Faraday Future years at the following exercise price: Gardena, California, to a subsidiary accused Evergrande of holding the of New York-based real estate firm payments back to try to gain control • Exercise within the 1st year: Atlas Capital, which immediately and ownership over the company’s $600 million began leasing the building back to China unit and all of its IP assets, and • Exercise within the 2nd year: the company for an undisclosed attempting to prevent the company $700 million amount. Documents obtained by The from obtaining other investments or • Exercise within the 3rd year: Verge did not indicate the purchase even using its assets to obtain short- $800 million price. According to the report, one term financing, causing a serious • Exercise within the 4th year: former employee familiar with the and unexpected cash shortfall. The $920 million sale said the HQ was sold for around company added that Evergrande’s • Exercise within the 5th year: $10 million. “It could be higher,” breach in its funding obligations $1.05 billion The Verge said, noting that Faraday forced the company to take unfortunate Future took a $17 million loan against drastic measures to reduce salaries “Upon signing these new terms, the HQ in May 2018, which it has and let go of some employees. FF’s equity financing and debt since repaid, according to the lender On Jan. 2, Faraday Future financing efforts will now be able iBorrow. The company also took a announced a restructuring agreement to progress quickly,” Faraday Future $14 million “rescue loan” against the with Evergrande Health’s Season said at that time. “In terms of equity HQ in July 2017, which also has been Smart. Under the deal, the lien financing, investors from all over repaid. Faraday Future bought the placed on the company’s assets and the world have expressed interests buildings in 2014 for $13.2 million, equity financing limitations are lifted in FF, and several have already the report added. to better facilitate its future debt started discussions with FF. In terms Faraday Future was established in financing and equity financing efforts. of debt financing, FF is expected to May 2014, and is headquartered in The company will regain control of have a breakthrough due to the lift Los Angeles with R&D centers and all assets, technology, employees, of previous liens on its assets. FF offices in Silicon Valley, Beijing, management rights and related was valued at $2.45 billion before Shanghai, and Guangzhou. interests of its China subsidiary, Round A financing, and the post- Faraday Future is being advised by except for relevant assets including investment valuation is increased to Stifel Nicolaus & Co., Miller Buckfire the factory in Nansha, Guangdong $3.25 billion.” & Co., and Sidley Austin LLP. Province in China. Evergrande Health Birch Lake Fund Management is will own 100% of the shares in Sale-Leaseback being advised by Honigman LLP and Evergrande FF Holding (Hong Kong) Though not officially announced Portage Point Partners, LLC. ¤ Limited, together with other rights, at by the company, Faraday Future

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Who’s Who in Pernix Sleep’s Bankruptcy Cases by Carlo Fernandez ernix Sleep is a specialty sleep maintenance. Treximet is the Pharmaceuticals, Inc. Ppharmaceutical company only FDA-approved acute migraine Pernix Therapeutics disclosed focused on identifying, developing treatment that provides superior $274.8 million in assets and and commercializing prescription sustained pain relief through its $447.05 million in liabilities as of drugs, primarily for the United rapid release technology called RT Sept. 30, 2018. States market. It is currently Technology. Highbridge Capital Management, focused on the therapeutic areas Pernix’s common stock is LLC, signed a deal to purchase of pain and neurology. Pernix is publicly traded on the Nasdaq substantially all of the assets of the headquartered in Morristown, New Global Market under the symbol Debtors for an aggregate purchase Jersey. “PTX”. price composed of cash and credit Pernix sells three core branded Pernix Sleep, Inc., and its bid consideration of $75.6 million products: Zohydro ER with affiliates sought protection under plus the assumption of certain BeadTek, Silenor, and Treximet, Chapter 11 of the Bankruptcy Code liabilities, absent higher and better as well as a generic drug portfolio (Bankr. D. Del. Lead Case No. 19- offers. The auction was cancelled consisting of the authorized 10323) on Feb. 18, 2019. as there were no rival offers, and generic version of Treximet, The debtor-affiliates are the sale to Highbridge’s Currax dietary supplements, medical Pernix Therapeutics Holdings, Holdings LLC was completed on foods and other products. Zohydro Inc., Pernix Ireland Limited, April 30, 2019. is an extended-release opioid for Pernix Holdco 3, LLC, Pernix Under a plan filed by the Debtors, the management of severe pain, Ireland Pain Designated Activity unsecured creditors owed $85.1 which—unlike its competitors— Company, Pernix Manufacturing, million are estimated to have a does not contain acetaminophen. LLC, Pernix Therapeutics, LLC, recovery of 3% to 5%. Silenor is the only non-narcotic, Cypress Pharmaceuticals, Inc, non-scheduled and non-addictive Pernix Holdco 1, LLC, Pernix DEBTORS FDA-approved prescription sleep Holdco 2, LLC, Respicopea, Davis Polk & Wardell LLP is aid for the treatment of insomnia Inc., Macoven Pharmaceuticals, the Debtors’ bankruptcy counsel. characterized by difficulty with L.L.C., Gaine, Inc., and Hawthorn Partners Marshall S. Huebner and

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Who’s Who in Pernix Sleep’s Bankruptcy Cases Continued from page 12

Eli J. Vonnegut, and associates and claims agent. Slaugh lead the engagement. Christopher S. Robertson UNSECURED CREDITORS Province Inc. is financial and Douglas R. Keeton are the The U.S. Trustee for Region advisor to the committee. Michael attorneys involved in the case. 3 on March 1, 2019, appointed Atkinson, a managing director, Landis Rath & Cobb LLP is these creditors to serve on an leads the engagement. the Debtors’ Delaware bankruptcy official committee of unsecured James E. Huggett, a Wilmington counsel. Founding partner Adam creditors: Telemetry Securities bankruptcy attorney at Margolis G. Landis, partner Kerri K. LLC; 683 Capital Partners, LP; Edelstein, is counsel to Chad Mumford, and associates Jennifer Medicine to Go Pharmacies, Myers and Jeffrey Hartzler in their L. Cree and Nicholas E. Jenner Inc.; a certified class led byChad adversary proceeding against the are the attorneys involved in the Myers and Jeffrey Hartzler (on Debtors. cases. behalf of themselves and others Guggenheim Partners, similarly situated in Adv. No. 19- BUYER LLC, is the Debtors’ investment 50107); and Walgreen Co. Skadden, Arps, Slate, Meagher banker. Managing director Peter Akin Gump Strauss Hauer & Flom LLP, led by partner Lisa Schwaikert, senior managing & Feld LLP is serving as lead Laukitis and associates Evan director Stuart Erickson, and counsel to the committee. Partners A. Hill and Cameron M. Fee, is associate Zachary Yost are the Arik Preis and Mitchell P. Hurley, counsel to stalking horse bidder personnel assigned to the case. and associates Gary A. Ritacco, Highbridge Capital Management, Ernst & Young LLP is the and Rachelle L.T. Rubin are the a prepetition lender, noteholder, restructuring advisor and tax attorneys involved in the case. DIP lender, and purchaser of the service provider to the Debtors. Potter Anderson & Corroon Debtors’ assets. Ben Pickering, a principal of LLP is co-counsel to the E&Y, leads the E&Y team in committee. Partner Jeremy JUDGE providing services to the Debtors. W. Ryan, counsel R. Stephen The Honorable Christopher S. Prime Clerk LLC is the notice McNeill, and associate D. Ryan Sontchi is the case judge. ¤

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Bankruptcy Tax Specialists in the Nation’s Major Law Firms by Psyche A. Castillon

Senior Bankruptcy Firm Tax Partners Recent Representative Clients AKIN GUMP STRAUSS Aimee Adler Official Committees of Unsecured Creditors of Sears, Nine HAUER & FELD LLP Alison Chen West and Aegean Marine; informal groups in PG&E, Norske Washington, D.C.; New Sophie Donnithorne-Tait Skog, Sungard, Hexion, and Cobalt; and debtor FirstEnergy York; San Antonio; Dallas; Howard Jacobson Solutions Houston; and London Stuart Sinclair www.akingump.com Thomas Weir Bankruptcy Tax Attys: 21 Joshua Williams Rolf Zaiss

BROWN RUDNICK LLP Nicole Bouchard Aralez Pharmaceuticals; Beavex Holding Corporation; F Boston; Hartford, Conn.; Tracy Fisher Squared Liquidating Trust; GM Ignition Switch; Hooper London; New York; Vincent Guglielmotti Holmes; Millennium Health Liquidating Trust; Orexigen Orange County, Calif.; Barbara Kelly Therapeutics, Inc.; and Vanguard Natural Resources Paris; Providence, R.I.; and Washington, D.C. www.brownrudnick.com Bankruptcy Tax Attys: 5

CLEARY GOTTLIEB Jason Factor Banco Inbursa (M&G Chemical); bondholders of Oi Group; STEEN & HAMILTON Corey Goodman ESL Investments (Sears); Geoffrey’s (Toys R Us); Goldman LLP William McRae Sachs (Hovnanian Enterprises); lenders of Constellation New York and Washington, Oil Services; Lion Point Capital (Suniva); Tempur Sealy D.C. (Innovative Mattress Solutions); and Z Capital Partners (Real www.clearygottlieb.com Mex Restaurants) Bankruptcy Tax Attys: n/a

DAVIS POLK & William A. Curran Bank of America (Enduro Resource Partners, Harvey Gulf); WARDWELL Michael Farber Dixie Electric; FirstEnergy; JP Morgan (FullBeauty); and New York Lucy W. Farr Ultra Petroleum www.davispolk.com Rachel D. Kleinberg Bankruptcy Tax Attys: 15 Michael Mollerus David H. Schnabel

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Bankruptcy Tax Specialists in the Nation’s Major Law Firms Continued from page 14

Senior Bankruptcy Firm Tax Partners Recent Representative Clients FRIED, FRANK, HARRIS, Alan S. Kaden A group of noteholders who hold more than 80% of the SHRIVER & JACOBSON Eli Weiss debt of Fuse Media in connection with its restructuring and LLP recapitalization; Centerbridge Partners in connection with New York; Washington, multiple matters, including as new capital provider in the D.C.; London; and Frankfurt, successful comprehensive restructuring of Seadrill Limited’s Germany bank and bond debt, and with respect to its multiple series www.friedfrank.com of preferred stock in affiliates of iHeartMedia; and Permira Bankruptcy Tax Attys: 6 portfolio company Metalogix in connection with its restructuring efforts and eventual sale to Quest Software

JONES DAY Edward Kennedy Debtors M&G Chemicals, Outcome Health, and New York and Washington, Colleen Laduzinski Westmoreland MLP; investor group in Pacific Gas & D.C. Richard Nugent Electric; and creditors in Catalina Marketing, Crossmark, www.jonesday.com Candace Ridgway Bon-Ton Department Stores, David’s Bridal, Monitronics, Bankruptcy Tax Attys: 12 Dennis Rimkunas NYDJ Apparel, Preferred Sands, Savers, SolAero, Sungard Todd Wallace and Toys “R” Us Propco

KIRKLAND & ELLIS Thad Davis Aegean Marine Petroleum Network Inc.; American Tire LLP Gregory Gallagher Distributors Inc.; FullBeauty Brands Holdings Corp.; Chicago William Levy Gastar Exploration; Jones Energy Inc.; Parker Drilling Co.; www.kirkland.com Todd Maynes Vanguard Natural Resources Inc.; Westmoreland Coal Co.; Bankruptcy Tax Attys: 20 Anthony Sexton and Windstream Holdings Inc. Sara Zablotney

KRAMER LEVIN Barry Herzog First lien noteholders in the bankruptcy of Westmoreland NAFTALIS & FRANKEL Coal Company; holders of more than $2 billion in New York FirstEnergy Solutions debt in the bankruptcy of FES; holders www.kramerlevin.com of a majority of the term debt of Payless Shoes (other than Bankruptcy Tax Attys: 5 debt held by the controlling shareholder); official Committee of Unsecured Creditors of Hexion; creditors in the Toshiba bankruptcy; Brigade Capital in the bankruptcy of Nine West; ad hoc group of PREPA Bondholders in the restructuring of PREPA power revenue bonds; and group of large mutual funds in the restructuring of senior and subordinated bonds issued by the Puerto Rico Sales Tax Financing Corporation

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Bankruptcy Tax Specialists in the Nation’s Major Law Firms Continued from page 15

Senior Bankruptcy Firm Tax Partners Recent Representative Clients LATHAM & WATKINS Joseph Kronsnoble Ares Capital Corporation (Singer Sewing Company LLP Jiyeon Lee-Lim restructuring and Trident Healthcare restructuring); Chicago; Los Angeles; and Jocelyn Noll Community Choice Financial (Representing lender group in New York David Raab restructuring); DDJ Capital Management (Optima Specialty www.lw.com Samuel Weiner Steel Chapter 11 and Real Alloy Chapter 11); and Hexion Bankruptcy Tax Attys: 15 Inc. (Chapter 11)

SKADDEN, ARPS, SLATE, Kenneth Betts Bank of America (with respect to Sears Holding Corp. and MEAGHER & FLOM Edward Gonzalez Toys “R” Us, Inc.); Concordia International Corp.; Danaos New York Cliff Gross Corporation; Leucadia National Corporation (with respect to www.skadden.com Alex Jupp Global Brokerage, Inc.); Petrol Jersey Limited and subsidiary Bankruptcy Tax Attys: 21 Brian Krause Windsor Jersey (with respect to Monarch Airlines Limited); David Levy Synergy Pharmaceuticals Inc.; Talen Energy Supply, LLC; Steven Matays and Trident Holding Company, LLC David Polster Sarah Ralph David Rievman Sean Shimamoto Moshe Spinowitz Sally Thurston Gavin White

WEIL, GOTSHAL & Devon Bodoh Debtors Catalina Marketing; CTI Foods; Ditech Holding MANGES LLP Robert Frastai Corporation (f/k/a Walter Investment Management Corp.); New York Larry Gelbfish LBI Media; The NORDAM Group, Inc.; PG&E Corporation; www.weil.com Stuart Goldring Sears Holding Corporation; Tidewater; and Waypoint Bankruptcy Tax Attys: 20 Mark Hoenig Leasing; and a creditor group in Things Remembered, Inc. Joe Pari Stanley Ramsay Amy Rubin Mark Schwed Marc Silberberg Paul Wessel

www.TurnaroundsWorkouts.com JUNE 2019 Turnarounds & Workouts 17 Worth Reading

The Global Bankers financial boom, and then October 19, 1987, when markets crashed in New Author: Roy C. Smith York, London, Frankfurt, Zurich, Publisher: Beard Books Sydney, Tokyo, and Hong Kong. Much Soft cover: 405 pages of the chapter on the U.S. is devoted to List Price: $34.95 these events. Mr. Smith also examines innovative Order This Book Online Now » developments in European finance during this same period, beginning with the rise of the Eurobond market and The Global Bankers is a fascinating him. “George” learns all about merchant including the free-market reconstruction book that examines global banking banks, banques d’affaires, clearing of the London Stock Exchange and the activities as they were carried out on banks, junk bonds, and collateralized surprising resurgence of pragmatic the eve of the 1990s from its three major mortgage obligations. The greater part capitalism in socialist-leaning Europe. centers: New York, London, and Tokyo. of the book is made up of four sections He then attempts to demystify the The author, Roy C. Smith, says his goal entitled “The Internationalization of financial customs of the Japanese, and in writing the book was to “identify who American Finance,” “Crusades in stresses the interdependence of the U.S. all these busy people are who practice European Finance,” “The Floating and Japan. global banking today and what it is World of Japanese Finance,” with a Mr. Smith closes by identifying some that they do.” He is one of those busy final chapter called “Looking to the trends and “megatrends,” and with people himself, having been a partner Millenium.” some predictions and admonitions for at Goldman Sachs before moving to Mr. Smith shows how the initial the subsequent decade, the 1990s. He academia. impetus to the tremendous growth of was right on target with some of these, First published in 1989, The financial assets and instruments of the and some go far toward explaining what Global Bankers discusses the banking late 20th century was the burgeoning is happening in the markets right now. systems of the U.S., Europe, and Tokyo balance-of-payment deficits incurred About The Author separately, but always underscoring by the U.S. after World War II. Once Roy C. Smith has been on the faculty their interconnectedness. Mr. Smith the U.S. halted sales of gold reserves of the New York University Leonard traces the international development of to foreign dollar-holders and the fixed- N. Stern School of Business since the markets and highlights the principal rate foreign-exchange system was September 1987. He is the Emeritus distinctions and most important and abandoned for a floating system, Professor of Management Practice and topical features of each. financial deregulation occurred in Throughout the book, Mr. Smith many countries, and financial resources was the Kenneth Langone Professor of introduces terms and definitions flowed to attractive opportunities Entrepreneurship and Finance for 18 for the reader new to the field, but worldwide. The next big challenge years. He was a Limited Partner at never in a condescending way. (He took the form of high oil prices, and Goldman, Sachs & Co. until its public includes a useful glossary as well.) in 1979 the U.S. Federal Reserve offering in May 1999. ¤ The introduction looks at the global instituted money-supply controls, banking system from the point of with consequential high interest rates view of a fictitious but astute U.S. and acute volatility in the markets TO ORDER THIS BOOK: businessman who discovers how the for financial instruments and foreign Call: 888-563-4573 globalization of banking has extended exchange. The 1980s heralded the era Visit: www.BeardBooks.com the range of opportunities available to of the institutional investor/trader, a

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U.S. Turnaround and Restructuring Firms With European Offices

Firm Senior Professionals Recent Representative Clients ALIXPARTNERS Simon Appell Agrokor D.D.; CGG S.A.; Steinhoff International; 24 offices in the Americas, Michael Baur Tekfor Global Holdings Limited; Abraaj Growth Europe, and Asia Alastair Beveridge Markets Health Fund; Johnston Press; Kalle Tel. 44 20 7098 7400 Rainer Bizenberger Group; Fedrigoni S.p.A.; Nuova Castelli S.p.A.; www.alixpartners.com Michael Dorn Roberto Cavalli S.p.A.; and Marelli Motori S.p.A. Jan Kantowsky Laurent Petizon Lorenzo Pietromarchi Peter Saville Axel Schulte

ALVAREZ & MARSAL EUROPE Antonio Alvarez III Debenhams; Four Seasons Health Care; Hema London Adriano Bianchi Industries; Homebase; Intertoys; JD Classics; Tel. 44 20 7715 5200 Mike Corner-Jones Joannou & Paraskevaides (Overseas); Nyrstar; www.alvarezandmarsal.com Mark Firmin and Waypoint Leasing Richard Fleming Paul Kirkbright Mark Sanders Johann Stohner Stefaan Vansteenkiste

BDO Simon Michaels British Midland Regional (aka flybmi); Cope London Mark Shaw Engineering (Sales); Gaia Renewable Energy; Tel. 44 20 7486 5888 Colin Haig Goal Soccer Centres; Greenurban Technologies; www.bdo.co.uk Ed Higgs Healthcare Environmental Services; JR Travel Jeremy Willmont Ltd; Kit for Kids; Marvelle Management; Malcolm Cohen OneSelect; Oxygen Freejumping; Park Cross Mike Grime (Engineering) Ltd; Petface; Scot Properties; Sarah Rayment Slowhit; Stubbins Food Partnerships; Trojan Martha Thompson Electronics; and WTS Media Group Stuart Deacon Matthew Tait Tony Nygate

DELOITTE UK Nick Edwards 06132417 Limited; American Golf Discount London Andrew Grimstone Centre; Beta Distribution plc; Folli Follie; Gaucho Tel. 44 20 7936 3000 Phil Bowers Grill; Gourmet Burger Kitchen; Iresa; J.G. Plant; www.deloitte.com Dan Butters Netthings; Numex Foreign Exchange Corporation Debbie Young (UK) Ltd; Office Outlet; Perfect Home Finance Angela Lloyd-Taylor Ltd; The Raphael Hospital Development; Temple Stephanie McMahon Retail; and Walsham Chalet Park Henry Nicholson David Soden

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U.S. Turnaround and Restructuring Firms With European Offices Continued from page 18

Firm Senior Professionals Recent Representative Clients FTI CONSULTING Andreas Fluhrer Debenhams plc; Steinhoff International Holdings London Iain Graham NV, Slater & Gordon, Carillion, Capita, Aegean Tel. 44 20 3727 1000 Simon Granger Marine, Nyrstar, Dia and Utilitywise plc www.fticonsulting.com Chad Griffin Kevin Hewitt Paul Inglis Andrew Johnson Simon Kirkhope Michael Knott John Maloney David Morris Blanca Perea Sergio Velez Andreas Von Keitz

GRANT THORNTON Kevin Hellard Boris Berezovsky bankruptcy; Saad Investments; London Shaun O’Callaghan Stanford International Bank; Madoff Securities Tel. 44 20 7383 5100 Nick Wood International Limited; Wonga Group; Air and www.grantthornton.co.uk Chris Laverty Cargo Services; Bolts and Heeks; The Boston Hugh Dickson Quilt and Pillow Co. Ltd; Canburg Limited; Daniel Smith Clifton Quality Meats; Cuddy Recycling; Dawnus Michael Leeds Construction Holdings; Economy Energy Trading; Senthil Alagar Gibson Innovations UK; Kyen Resources UK; Trevor O’Sullivan Legsun Limited; Live-in Properties; Quatro Bradley Chadwick Venture, Tyres on The Drive; Welcare Homes; Mark McDonald Sealion Shipping Limited; Elder Care Centre; Philip Stephenson Outdoor and Cycle Concepts Ltd and Gourmet Burger Kitchen Limited

HOULIHAN LOKEY (EUROPE) Peter Marshall Abengoa (creditor-side); Agrokor (company-side); London Joseph Swanson Debenhams (creditor advisor); GHG (company- Tel. 44 20 7839 3355 Ansgar Zwick side); New Look (company-side); and Steinhoff www.hl.com Manuel Martinez-Fidalgo (creditor advisor)

www.TurnaroundsWorkouts.com 20 Turnarounds & Workouts JUNE 2019 Gnome de Plume

Reputation Risk Comes of Age by Deborah Hicks Midanek

eputation, no longer an intangible, is increasingly of other public companies, creates this expectation by Rbecoming quantified as investors win claims referring to reputation in their SEC filings as a material based on losses due to damaged reputation. In asset, and its loss as a material risk. One would think 2018, the SEC secured a $5 million settlement that these words could be omitted without much impact. from SeaWorld and its CEO because the company In addition to a duty to report material changes, such “described its reputation as one of its ‘most important disclosures also create the implicit expectation that assets,’ but it failed to disclose the adverse impact [of reputation risk will be managed or mitigated. The 3rd a recent documentary].” Meanwhile, shareholders in a Circuit Court of Appeals affirmed that board oversight derivative suit seek $320 million from the board and of such risks is part of a board’s ordinary business. The executives of Wells Fargo for breaching their fiduciary settlement on behalf of Wells Fargo for oversight failure duties and failing to effectively is expected to include disgorgement oversee “the company’s reputation of $80 million from board members Many companies risk management framework.” and executives in addition to what nevertheless continue Research conducted by Steel City investors are calling “the largest to treat reputation as a Re, which helps deploy reputation shareholder derivative recovery in marketing issue. But risk management solutions, shows history.” marketing by its nature six derivative lawsuits filed in U.S. is aspirational—it sets This experience may leave a lasting federal courts over the past nine expectations optimistically. mark against certain Wells Fargo months alleging board culpability directors with D&O insurers. It is for causing reputational harm—more not surprising that in fewer than than were filed in the entire seven years prior to that. three years following the scandals at Wells Fargo, only According to Nir Kossovsky, Steel City Re’s CEO, four of the original 15 board members remain. More “These are bright signs that reputation risk, historically interestingly, the nine who stepped down are no longer tried in the court of public opinion, is now both a serving on the 11 other public company boards they corporate and a personal matter in the court of law.” served at the time. The average annual compensation Directors, officers, and even restructuring professionals lost to these former board members: $600,000. would be wise to address this potential exposure with As I have described before in my book on The an appropriate protection strategy. Governance Revolution, regulatory and investor The SEC’s beef with Seaworld, which cost its CEO forces are converging to demand that board members $1 million in penalties and disgorgement, centered perform more diligently. In addition to the SEC’s on the fact that SeaWorld did not meet regulatory attention, the U.S. Justice Department has implemented expectation for disclosing material change to its a new prosecutorial policy: “Corporate cases often reputation. SeaWorld, along with countless numbers penalize innocent employees and shareholders without

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Reputation Risk Comes of Age Continued from page 20

effectively punishing the human beings responsible for they may find themselves in the position of having to making corrupt decisions.” Directors are increasingly explain why, having overseen companies that mention likely to be swept into the pool of alleged offenders. reputational risk repeatedly in public filings, their A less business friendly quiescence was not negligent. They administration might be more Reputation has been on also need to be sure that the corporate accepting of a proposed legislation boards’ radar screens for disclosures they are responsible for from U.S. Senator Elizabeth Warren many years. But now, it do not include marketing hyperbole. that would require CEOs to certify needs to mature from a Reputation has been on boards’ that they conducted due diligence discussion agenda item to a radar screens for many years. But now, and to affirm that no illegal conduct governance oversight and it needs to mature from a discussion action item. occurred at their company on their agenda item to a governance oversight watch. They could be criminally and action item. Boards that fail prosecuted for failing to meet that standard. to address reputational risk with a comprehensive, Many companies nevertheless continue to treat enterprise reputation risk management and governance reputation as a marketing issue. But marketing by its strategy will be leaving their companies and themselves nature is aspirational – it sets expectations optimistically. in serious peril. ¤ Ironically, these efforts at bolstering corporate image pose significant risk – setting stakeholder expectations Deborah Hicks Midanek at a level that is out of alignment with reality, thereby President of Solon Group, Inc. and author of creating reputation risk. The Governance Revolution: What Every Board Some companies and their boards are beginning Member Needs to Know, Now! to realize the danger this expectations gap poses and Contact: [email protected], are moving reputation risk under risk management 917-853-3598 departments. As with other types of risk, risk managers are empowered to analyze operations throughout the In The Next Issue... enterprise, anticipate enterprise-wide risks and mitigate them. They’re adjusting their governance processes to ● Who’s Who in Orchids Paper Products Company view reputation risk as an enterprise risk management ● Who’s Who in Trident Holding Company, LLC issue. Corporate leadership needs to establish firmly in ● Special Report: Canadian Bankruptcy Law Firms the minds of their myriad stakeholders—customers, ● Special Report: Outstanding Investment Banking employees, investors, and regulators, for example—that Firms - 2019 directors are fulfilling their oversight duties. Otherwise,

www.TurnaroundsWorkouts.com About This Publication: Turnarounds & Workouts is a newsletter for people tracking distressed businesses in the United States and Canada. Turnarounds & Workouts is published by Beard Group, Inc., Telephone: (240) 629-3300. Copyright 2019 by Beard Group, Inc. ISSN 0889-1699. All rights reserved; unauthorized reproduction strictly prohibited. Editor: Christopher Patalinghug ([email protected]). Assistant Editors: Frauline Maria S. Abangan, and Peter A. Chapman. Subscription Rate: $447 per year per firm for one recipient plus $25 per year for each additional recipient. Contact [email protected] for comments and coverage suggestions.

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