At Home Group’s Plan of Reorganization Would Hand Ad Hoc Group Almost All Reorganized Equity Via New-Money and Rollup DIP; Redwood to Appoint 4 Reorganized Directors to Board

At Home Group’s plan of reorganization would effectively hand the ad hoc group almost all reorganized equity as a result of funding the new-money portion of the DIP and rolling up prepetition first lien claims at a ratio of $2 million rollup loans for every $1 million of new money invested. The ad hoc group held approximately 96% of the pari first lien obligations and more than 99% of the prepetition Cayman notes obligations. The ad hoc group is also the DIP new-money tranche A’s backstop party.

The new board of directors will have four directors appointed by Redwood, one appointed by Anchorage and one appointed by Farallon, implying that these three members of the ad hoc group would hold a significant portion of the reorganized equity.

The plan of reorganization seeks to eliminate approximately $1.6 billion in funded debt and emerge with approximately $378 million borrowed under its exit ABL facility.

The debtors contemplate an Oct. 14 confirmation date and Oct. 28 effective date, according to the first day declaration.

A plan treatment table is shown below:

The debtor filed chapter 11 bankruptcy on July 16 with a restructuring support agreement, or RSA, supported by holders of 96% of prepetition first lien debt. According to the first day declaration, the RSA was negotiated by an ad hoc group of lenders initially consisting of Redwood Capital Management, Farallon Capital Advisors and Anchorage Capital Advisors. The group expanded in May, adding Silver Rock Financial, Aryeh Capital Management and Glendon Capital Management. Five additional groups signed on to the RSA prior to the petition date.

In addition to 96% of all prepetition first lien debt, the ad hoc group holds over 99% of Cayman notes.

Under the RSA, the plan of reorganization contemplates a $600 million DIP facility, consisting of a first-out $200 million tranche A new-money term loan and a second-out $400 million tranche B rollup of first lien claims. First lien claims consist of the prepetition first lien term loan claims, prepetition senior secured notes claims, prepetition Cayman notes claim, prepetition intercompany notes claims and prepetition exchange notes claims. The DIP facility would roll up on a 2:1 basis for every dollar of new money provided. All holders of pari first lien obligations (other than the intercompany noteholders) who sign the RSA may participate in funding the DIP facility on a pro rata basis, based upon their holdings of pari first lien obligations. However, 50% of the tranche A commitments would be held back for backstop parties.

The DIP term sheet notes that the $400 million tranche B rollup of first lien claims would roll up 100% of the prepetition Cayman notes obligations before any rollup of any other first lien obligations, with the understanding that the rollup does not affect or modify the order of priority between the first lien obligations. Since the ad hoc group essentially holds almost all of the prepetition first lien debt, the prepetition Cayman notes obligations would be expected to fully roll up into the DIP tranche B rollup facility, consistent with the debtors’ first day hearing presentation.

The initial DIP motion notes that the prepetition intercompany notes obligations will also be deemed repaid on a dollar-for-dollar basis with the rollup of the prepetition Cayman notes obligations.

On the plan effective date, holders of DIP claims would receive either payment in full in cash, payment in full in reorganized equity by the DIP equity conversion (98% of the reorganized equity) or other treatment which the debtors and the holders of the allowed DIP claims will have agreed upon (not disclosed at this time). However, at the debtors’ first day hearing, Nicole Greenblatt of Kirkland & Ellis, counsel to the debtors indicated the debtors are unlikely to exercise the refinancing option, meaning the DIP would convert into 98% of reorganized equity.

The At Home Group debtors received interim DIP approval that provides the debtors with access to $75 million of the $200 million new-money tranche A DIP loans and authorizes the rollup of $150 million of the $400 million tranche B rollup facility. The deadline for entry of the final DIP order is expected to be July 21, according to the milestone disclosed in the first day declaration.

The DIP new-money tranche A loans are subject to a backstop fee, an upfront fee, an exit fee and an unused facility fee that are paid-in-kind as additional DIP claims.

The first day declaration notes that on the effective date of the plan, the reorganized debtors will enter into an exit ABL facility, which proceeds will be used to refinance the prepetition ABL credit facility.

An illustrative capital structure showing prepetition and at emergence is below:

The foreign subsidiaries, where the prepetition Cayman notes were issued, are nondebtors.

Governance

According to the first day declaration, the reorganized board of directors will consist of seven members – the CEO, four directors appointed by Redwood, one appointed by Anchorage and one appointed by Farallon.

The identities of the new board of directors will be disclosed in the plan supplement.

2023 Double-Dip Uptier Exchange

Transaction

Prior to the chapter 11 filing, the At Home Group debtors consummated a double-dip uptier exchange transaction in May 2023. According to the first day declaration, the debtors completed a liability management transaction through a new-money financing and unsecured senior notes exchange for additional liquidity.

As part of the double-dip transaction, At Home Group created a new Cayman entity as a restricted subsidiary and issued $200 million of new 11.5% secured notes due 2028, which has a guarantee from the existing parent company and whose proceeds were sent back to the ParentCo through an intercompany loan. The company did not transfer any assets to the new entity, but the guarantee and the intercompany loan are both pari passu with existing secured debt.

An illustrative chart of the double-dip transaction from the debtors’ first day hearing presentation is below:

As part of the uptier exchange, unsecured noteholders exchanged $447 million of existing notes into new $412 million PIK secured toggle notes at 0% of par plus accrued interest.

Treatment of Double-Dip Claim

Both claims that originated as a result of the 2023 transaction are being recognized as part of the proposed restructuring plan. Secured claims, according to the RSA, include both the $200 million Cayman notes claims and $200 million of intercompany note claims. According to the RSA, each holder of an allowed intercompany notes claim shall receive a pro rata share of 100% of the pre-dilution reorganized equity; “provided that such holder’s recovery under the Plan shall be payable to the indenture trustee and collateral agent for the Cayman Notes for distribution to the holders of the allowed Cayman Notes Claims.”

Prepetition claim amounts are shown below, including the intercompany claims:

Since the proposed plan would hand 98% of reorganized equity to DIP lenders, post-dilution, the intercompany claim would effectively be worthless. Further, intercompany claimholders are excluded from the new-money DIP syndication, and since the proposed plan requires lenders participating in the DIP to roll up their Cayman note claims first, the intercompany note claims would be extinguished as laid out in the RSA.

According to the RSA, the intercompany note secured obligations would be deemed repaid on a dollar-for-dollar basis as the Cayman note secured obligations are rolled up into tranche B DIP loans.

The backstop group, according to the first day declaration, owns over 99% of Cayman note claims. Therefore, per the terms of the RSA, the initial $100 million of the new-money portion of the DIP held back for backstop parties would result in all $200 million of Cayman note claims rolled up into the DIP and deemed “repaid” under the RSA.