Chapter 11 Used to Fix Businesses. Not Anymore, Says Weil Gotshal’s Sunny Singh

 

The U.S. bankruptcy system, designed to save struggling companies, has evolved into an implementation tool for exiting chapter 11 as quickly as possible, says Sunny Singh, a co-chair of the restructuring department at Weil, Gotshal & Manges.

Over the past 20 years, much has changed in the financial engineering often employed by parties to implement operational restructurings and fix businesses in chapter 11. These days, creditors are increasingly using these mechanisms to fast-track a bankruptcy exit.

“You look at some of these cap stacks … whether they’re coming in post-[liability management exercise], whether they’re coming in like some we have seen recently with all these [special purpose vehicle] financings … the complexity can be mind-boggling,” said Singh. “It’s just a maze.”

Singh, with deep experience leading all aspects of highly complex domestic and international restructuring matters, pointed out that in this era, there is less room to execute operational restructuring under time constraints and limited flexibility.

Today’s heavily secured capital structures leave debtors with little cash, tight milestones and lenders unwilling to fund a lengthy court stay.

“A lot of people are thinking to themselves, ‘I’m going to use chapter 11 as a tool to implement a turnover of the keys, a sale, and then fix the operations after I’ve emerged,’” said Singh.

“This is sort of a new way, not so new anymore, but an evolving way compared to 20 years ago,” he added.

Singh also touches upon administrative insolvency, which was once almost unthinkable and has now become a routine concern.

“Every case I’m on, I am so focused alongside our FAs on the weekly budget,” Singh said. “How are we going to make it through the process?”

Singh, who worked on the American Airlines restructuring between 2011 and 2013, cites it as an example where the publicly listed carrier, which filed for bankruptcy with millions in liquidity, completed an in-court merger and emerged in two years with unsecured creditors paid in full.

Still, not all is lost. Tops Supermarket is one of the examples that underwent successful operational restructuring, which allowed the company to fix leases, union agreements and pension obligations before exiting.

“We really did fix all of those operational issues to allow the company to come out on the back end and thrive,” he said. “I love to see a great restructuring like that.”

Those cases, he suggests, are becoming the exception.
 

 

U.S. Bankruptcy Law 101

The legal team published another installment of U.S. Bankruptcy Law 101, an Octus series focused on discussing fundamental U.S. bankruptcy law topics and issues. This edition examines typical chapter 11 plan releases, exculpations and injunctive relief. Read the U.S. Bankruptcy Law 101 series HERE.
 

Cornerstone OnDemand

A group of lenders to the Clearlake-backed workforce software provider under its $2 billion first lien term loan have signed a cooperative agreement with Gibson Dunn that is open to all lenders. The agreement contains a carve-out premium for certain members of the group while some lenders that have yet to join the pact are consulting with Cadwalader, Wickersham & Taft to discuss their options.

The company’s term loan due October 2028 has plummeted to an indicated price of 58, down from 75 two months prior, driven by market anxieties regarding a potential liability management exercise. Octus’ coverage of the Cornerstone OnDemand is HERE.

Summit Behavioral Health

The behavioral health provider reported earnings this week disclosing that it expects full-year 2026 adjusted EBITDA of $118 million and $645 million in revenue, below the numbers reported for last year. For the first quarter, EBITDA rose 80% to $26.1 million due to one-time state program benefits and the Patient Square Capital-backed company anticipates drawing $20 million from its RCF to address historical cash burn. The capital structure continues to face pressure following a pro-rata liability management exercise in late 2025. Octus’ coverage of the Summit Behavioral Health is HERE.

FXI Holdings

The manufacturer reported first-quarter adjusted EBITDA of $27 million, marking its lowest quarterly operating performance in four years. Operating margins at the One Rock Capital Partners-backed company were severely squeezed by raw material import tariffs and a fifth consecutive quarter of declining business volume, overshadowing a 2% lift in quarterly revenue. The company has drawn down an additional $11 million on its revolver, while its $518 million senior secured notes due 2030 recently traded at 60.75. Octus’ coverage of the FXI Holdings is HERE.

Parts Authority

First-quarter adjusted EBITDA at the Kohlberg & Co.-backed automotive parts distributor more than doubled year over year to $44.4 million on an almost 11% increase in revenue to $587 million. The company generated $26 million in free cash flow, rebounding from negative $33 million in cash flow the previous year. The company ended the quarter with total cash of $7 million and $1.3 billion in long-term debt. Octus’ coverage of the Parts Authority is HERE.

Conuma Resources

Conuma Resources recently disclosed its earnings to creditors, reporting that the privately held coal producer’s fiscal year 2025 adjusted EBITDA plummeted to negative 754,000 Canadian dollars from positive CAD 260.6 million in fiscal year 2024. Total revenue for the year contracted by 15.4% to CAD 842.5 million, with the company reporting a comprehensive net loss of negative CAD 199 million. For its fiscal fourth quarter, the company reported sales volumes increased to 1.137 million tonnes while production volume increased modestly as well to 1.117 million tonnes. Octus’ coverage of the Conuma Resources is HERE.

Houghton Mifflin

Term lenders to the learning technology company have discussed forming a united front and signing a cooperative agreement. Octus reported earlier that lender anxieties were heightened following a softer revenue outlook amid concerns about a possible liability management exercise at the Veritas Capital-sponsored company. While cost-saving initiatives stabilized recurring revenue in late 2024, ratings agencies warned at the time that high debt service and cyclical textbook adoption schedules will heavily constrain free cash flow. Octus’ coverage of the Houghton Mifflin is HERE.

TruGreen

The CD&R-backed lawn care provider is exploring a private credit refinancing of its upcoming maturities. TruGreen ended the fourth quarter with $50 million in cash and a $50 million draw on its revolver while total debt stood at $1.7 billion, pushing total leverage to approximately 7x. Moody’s Ratings recently shifted the company’s outlook to positive based on stable operational expectations, assuming that the company addresses its upcoming $1.15 billion first lien term loan maturity. Octus’ coverage of the TruGreen is HERE.

U.S. Renal Care

The dialysis clinic operator, which is backed by Bain Capital, Summit Partners and Revelstoke Capital, is evaluating a wholesale debt refinancing through either the broadly syndicated or private credit markets. Management recently told lenders that the company is well-positioned to refinance its debt in the broadly syndicated market but will also explore private credit to gauge investor appetite. The company’s first-quarter adjusted EBITDA rose 10.5% year over year to $63 million while total liquidity ended the quarter at $278 million. Total debt stood at $1.96 billion while gross leverage was 7x. Octus’ coverage of the U.S. Renal Care is HERE.
 

PetSafe Brands

An ad hoc group representing 80% of bondholders to the manufacturer of pet products has signed a cooperation agreement that includes a feature allowing sponsor CD&R to become a joinder without voting rights. The potential inclusion of CD&R into the co-op incentivizes the sponsor to buy back bonds at a premium and cut leverage while also binding the equityholder to the bondholders’ united front to reduce the risk of preferential treatment of the debt the sponsor repurchases.

The group retained Gibson Dunn as legal counsel amid the company’s deteriorating financial performance. The company’s adjusted EBITDA plunged roughly 28.6% year over year to $15 million, driving secondary trading of its 9.5% senior secured notes due 2029 down to 60.18. Octus’ coverage of the PetSafe Brands is HERE.

Heritage Grocers Group

Heritage Grocers Group is working with PJT Partners as the company continues to contend with a weak operating environment. At the same time, some lenders to the Apollo Global Management-backed specialty food retailer are being advised by Gibson Dunn.

Apollo had reportedly been exploring a sale of Heritage for approximately $1.5 billion late last year, but investors are concerned that a sale may not materialize due to various headwinds, including the impact on its workforce of increased enforcement by Immigration and Customs Enforcement. Octus’ coverage of Heritage Grocers Group is HERE.

Mega Broadband

An ad hoc group of term lenders to the company has organized with Milbank as legal advisor amid weak earnings, uncertainties around an investment by Cable One to fully own the company and feared potential balance-sheet maneuvers. This is occurring ahead of Cable One’s planned Oct. 1 acquisition of the remaining 55% equity stake in the company for $475 million to $495 million. MBI’s total net debt at the time it becomes a wholly owned subsidiary of Cable One in the fourth quarter is expected to range from $845 million to $895 million in the form of term loans maturing in November 2027.

Both MBI and Cable One reported declines in their respective adjusted EBITDA and revenue for the first quarter. Octus’ coverage of the Mega Broadband is HERE.

CDK Global Inc.

An ad hoc group of minority creditors to CDK Global represented by Cadwalader, Wickersham & Taft as legal advisor scheduled a call with the investment bank Greenhill. The minority ad hoc group was formed by certain creditors that were not treated as initial parties to a co-op agreement prepared by Gibson Dunn and Houlihan. The Brookfield Business Partners-backed software provider to auto dealerships and manufacturers is working with Weil Gotshal and PJT Partners. Octus’ coverage of CDK Global Inc. is HERE.

Precisely Software

An ad hoc group of term lenders has retained Milbank as legal advisor as the company’s efforts to refinance its capital structure via the private credit market continue to struggle. Secondary market sentiment collapsed following a massive software market selloff fueled by threats of AI disruption, causing the first lien term loan to slide from the low 90s, and it is now indicated at 76.75/78.25. The Clearlake- and TA Associates-backed data analytics business faces looming debt maturities in 2028. Octus’ coverage of the Precisely Software is HERE.
 

Trinseo plc

On May 28, specialty materials and chemicals manufacturer Trinseo plc filed for chapter 11 in the Southern District of Texas with a prepack plan that would eliminate $2 billion of prepetition funded debt and reduce annual interest expense by about $140 million. Under the plan, senior existing lenders would receive 100% of the reorganized company’s equity, holders of 2029 notes claims would receive no recovery and general unsecured creditors would be unimpaired.

The plan is supported by holders of 99.9% of Super HoldCo first lien loans (who also hold 100% of OpCo intercompany loans from the company’s 2023 double-dip transaction), 100% of RCF lenders from the company’s January 2025 exchange transactions and 57% of OpCo 2028 term loans. The restructuring faces opposition from an ad hoc group of excluded OpCo lenders led by CastleKnight, which has sued to invalidate the double-dip LME, and a group of 2029 noteholders.

At the first day hearing on May 27, Judge Christopher M. Lopez granted interim approval of two DIP facilities totaling $427.5 million and conditional approval of the DS. The judge set the confirmation hearing for July 27 at 2 p.m. ET. Octus’ Trinseo coverage is HERE.
 

First Brands Group LLC

At a hearing on May 26, Judge Christopher Lopez denied conditional approval of First Brands’ disclosure statement, which would have allowed the debtors to send a “novel and incredibly complicated” plan to creditors for voting. The judge asked parties to confer on a revised plan structure.

On May 28, First Brands also announced that it is expanding its wind-down to First Brands Group Holdings LLC and all of its debtor subsidiaries. The wind-down was previously limited to a smaller group of business units. Octus’ First Brands Group coverage is HERE.

BlockFills

Judge Thomas M. Horan approved the BlockFills’ disclosure statement at a hearing on May 28, paving the way for the debtors to solicit votes on their liquidating plan. The judge overruled an objection from the U.S. Trustee to the plan’s opt-out nondebtor releases but preserved the issue for the confirmation hearing, set for July 13 at 10 a.m. ET. Octus’ BlockFills coverage is HERE.
 

Patent Litigation Tracker

Octus published its latest Patent Litigation Update highlighting new and noteworthy patent and abbreviated new drug application litigation. Among the items discussed are the Supreme Court’s review of a Hikma appeal relating to the induced patent infringement standard for skinny-label generics, an appellate decision affirming the vacatur of a $469 million jury award to ClearPlay against DISH for patent infringement and the latest in Bausch Health’s and Amneal’s dispute over Bausch’s Xifaxan patents. Octus’ Americas Patent Litigation Update is available HERE.

Tariff Refunds

The U.S. Court of International Trade directed the U.S. government to show cause why the court should not compel U.S. Customs and Border Protection to immediately take steps to refund all IEEPA tariffs, including entries that have been “finally liquidated.” The court ordered CBP’s commissioner to provide testimony on the timeline for refunding finally liquidated tariff entries, which were excluded from the first phase of the refund process.

CBP this week disclosed that as part of the first phase, it certified $20.6 billion in refunds and accepted $85 billion of potential refunds for processing. Octus’ coverage of Tariff Policy & Impact is HERE.