Co-Ops Continue to Coalesce Despite Altice USA Litigation

Reporting: Harvard Zhang

A week after Optimum challenged a cooperation agreement that controls nearly its entire capital structure, investors elsewhere are undeterred and continue to discuss and sign onto co-ops.

A lender pact prepared by Gibson Dunn for secured creditors of Tronox is open to all term lenders and secured noteholders, according to sources. Creditors have 10 business days to sign up to be an initial party, the sources said. The co-op is expected to become effective soon, as reported.

Lenders to Foundever, fka Sitel, huddled with Gibson Dunn and Lazard this morning on a call to discuss a new potential co-op, as an existing one is set to expire later this month, as reported. The advisors asked lenders for their input on the brief call, according to sources. Some Foundever lenders are concerned about a repeat of what happened in Medical Solutions three months ago, where a new co-op containing a tiered system for future potential liability management exercises succeeded an old one that did not contain such a concept, the sources said.

Some market participants believe the Optimum lawsuit challenging the co-op covering its creditors may be an anomaly. The Optimum co-op covers 99% of the capital structure, which potentially forced the company side into a corner, escalating the fight and leaving it no choice but to pursue litigation and a massive drop-down and a $2 billion related financing as leverage in negotiations.

Co-ops are expected to continue to evolve as a part of the LME process, and going forward, the market may see more united fronts that cover either only requisite creditors, or that are open to all but with tiered systems baked in, according to advisors and investors.

The buy side and its advisors are also expected to continue to push back on anti-co-op language at the origination and syndication stage. Some sources see the anti-co-op language in the Optimum unsub facility’s credit agreement as the company side and its advisors showing their stance, a gesture or symbol rather than the norm that investors are willing to accept. The sources noted that the Optimum unsub facility was funded by one lender, JPMorgan, and the anti-co-op language was treated as a sacred right, but it may be more of an obligation than a protection.