Related documents:��

Zips Car Wash��is looking for a quick stay in chapter 11 after lining up a pre-negotiated plan of reorganization that sets up a debt-for-equity swap with its secured lenders and reduces the company’s funded debt load by $279mn.

The Atlantic Street Capital-backed chain, which grew from two locations in 2004 to 260 at the petition date, enters bankruptcy with just $1mn in cash on hand. Zips has $82.5mn in debtor-in-possession (DIP) financing that requires it to secure plan confirmation by April 11.

The US Bankruptcy Court for the Southern District of Texas has not yet assigned a judge to the case or scheduled a first-day hearing to consider the DIP and other operational motions.

The business��

Founded in 2004 with just two locations in Arkansas, Zips massively scaled up its operations from 2015 to 2019 through a spree of 40 acquisitions.

The company generates revenue through a pay-per-wash model at a rate of $12 to $30 per wash, along with its Unlimited Wash Club, a monthly wash subscription service with a mobile application. The wash club has 625,000 members. As of the petition date, the company had 260 locations and 1,800 employees.

Atlantic Street Capital bought a majority share of the company’s equity in 2020 and funded the company with equity financing rounds totaling $152.5mn over the next two years. Atlantic acquired the company’s remaining equity in 2022. Through its car-wash acquisitions, the company’s revenue rose to $345mn in 2022��from $13mn in 2015 to $150mn in 2020.

Source: First-day declaration��

Beyond the equity financing, Zips in 2016 entered a secured term loan agreement with various lenders and Brightwood Loan Services as agent. At the petition date, Zips owed $653.9mn on the term loan.

Source: First-day declaration��

The company also owes millions to general unsecured creditors. The largest unsecured creditor, Sonny’s Enterprise, is the company’s primary supplier of chemicals, equipment, maintenance services and training programs, according to court filings.

The road to chapter 11��

Zips’ debt has become expensive due to rising interest rates over the past few years, with annual cash interest expense spiking to $93mn per year from $59mn, according to the first-day declaration of Chief Transformation Officer Kevin Nystrom. The need to throw more cash at debt service limited cash flow and hurt Zips’ ability to complete further M&A deals.

Zips cites general macroeconomic headwinds for its financial troubles, including inflation, labor shortages, softened discretionary consumer spending and a burdensome lease portfolio. The company also faces a competitive market, with nearly 1,000 new car washes having opened over the past half decade, Nystrom said.

Despite negotiating savings with its vendors and launching a program to refurbish its locations, Zips continued to struggle in the face of its larger balance-sheet issues, including the maturity of its term loan at the end of 2024. The company reached out to Atlantic and its lenders, and Atlantic agreed to provide another $30mn in equity financing while lenders consented to an extension of the loan maturity to March 1, 2025.

Zips brought in Evercore Group in early 2024 to explore refinancing, but it was unable to find a deal and proceeded to hire Kirkland & Ellis and AlixPartners in the summer of 2024 to explore strategic alternatives. After hiring Hilco Real Estate late in the year, Zips lined up a sale of its Orlando, Florida, assets to��El Car Wash��for $58.5mn. The company plans to close that sale during the chapter 11 case.

The lender talks evolved into a pre-negotiated chapter 11 plan of reorganization, and facing a liquidity crisis, Zips filed for chapter 11 on Feb. 5.

The restructuring��

The company’s prepetition lenders have agreed to fund the case with $82.5mn in DIP financing, consisting of $30mn in new money and a rollup of prepetition term loan debt.

The plan of reorganization, backed by 100% of the company’s lenders and its shareholders, proposes to slash the funded debt load by $279mn while cutting millions of dollars in lease liabilities. Zips would reload its balance sheet with a new $150mn HoldCo facility, $225mn OpCo facility and $15mn revolver.

General unsecured creditors would receive no recovery. Atlantic is set to receive a release of claims for pre-bankruptcy actions under the plan.

The DIP sets a series of milestones for the case, including an April 11 deadline to secure plan confirmation.

Pat Holohan��
patrick.holohan@levfininsights.com
+1 917 654 0337

The post US Post Petition: Zips Car Wash lines up speedy chapter 11 to implement debt-for-equity swap, wipe out unsecureds appeared first on ���׶���Ƶ.

Data on distressed debt exchanges (DDE), a type of LME that is given tightly-defined terms by the ratings agencies, shows that just over two-thirds of defaults came in this form, according to��.

It’s the highest level in Europe since at least 2015,��, apart from a spike in 2021 during the COVID pandemic, and the highest����since 2009.

The US reflects what is happening in Europe, with DDEs and out-of-court restructurings now more commonplace than bankruptcies. In 2024 they made up ~��defaulted issuers tracked by Fitch, up from 57% of 69 issuers in 2023.

The difference between Europe and the US, however, is that more than 50% of the US DDEs/restructurings identified by Fitch in 2024 in the US were of the more aggressive type, labelled liability management transaction or LMT, compared with 33% in 2023. These LMTs involve “uptier priming, coercive elements, or change in collateral value”, Fitch writes.

In Europe, the rating agencies have not split out the LMEs that could be classed as coercive priming-type deals. But market participants agree there was only a handful of these more aggressive deals last year, including�������Ի���.

European LMEs in contrast have remained a broad brush of predominately more benign deals. They have used “maturity extensions, perhaps PIK-ing a portion of the debt, or bifurcating into an opco/holdco structure”, said one restructuring advisor, adding: “We have had few exemplar uptiering J Crew type deals.”

Threat of hardball

Advisors say the threat that more coercive-style deals may flow over from the US has played a part in the growth of more mundane LMEs in Europe last year.

“I think the focus on coercive LMEs has made people more aware that sponsors can play more hardball than they may historically have done, which may have contributed to leverage on the sponsor side in the negotiations,” said a second restructuring advisor.

In some cases, this has resulted in sponsors getting better terms in an A&E than they would otherwise have done – making it an attractive option.

The focus on LMEs is certainly pushing corporates to be more proactive in addressing their capital structures more generally, agreed a third restructuring advisor.

“Companies don’t wait until they can’t repay and are really staring at the barrel,” he said. “They are more willing to entertain those ideas earlier if they are attractively priced or reasonable.”

Rates and repeats

But ultimately, advisors say, the surge of European LMEs in 2024 is a function of the rapid increase in rates mixed with looming 2026 maturities, while the expectation that rates were coming down again meant borrowers reached for a quick-fix solution.

“A lot of companies got caught out by the invasion of Ukraine – it upended things and so they found themselves somewhat upside down and staring at upcoming maturities and realised they would have to keep the plates stable,” said the first advisor.

The LME gave them breathing space to sell assets and delever or simply wait for rates to fall, increase debt capacity and solve some of the issues they were facing. Investors were willing to give this space “where a more straight-forward refinancing was not available”, he said.

These deals were just the “regular wave of restructuring-lite type deals”, he said, which have perhaps also grown in volume because the market “is bigger and more sophisticated and proactive”.

These light-touch restructurings are set to continue since rates will stay elevated even with near-term cuts, compared with where they were before the 2022 hike cycle.

But a lot of these quick-fix deals won’t solve the issue, with many of these names likely to redefault, the first advisor said. They go through the initial distressed exchange and default – then are temporarily upgraded to CCC – before sinking back into default territory around 18 months later, he adds.

The third advisor said: “It gets you through this year but what about next year?”

Sandrine Bradley
sandrine.bradley@levfininsights.com
+44 (0)20 3530 1824

The post EMEA Insight: LMEs made up over two-thirds of defaults in Europe in 2024 appeared first on ���׶���Ƶ.

On the heels of the announcement, common stock fell around 8% after hours to $10.57 for a market cap of $9.9bn.

The issuer’s $750mn 8.125% unsecured notes due 2029 last traded above par today. The��$872.3mn 4.8% unsecured notes due 2044 last traded 75.25, up from 74.75 on Jan. 28, according to trade data.

The��retail pharmacy company’s cash flow is expected to dip into negative territory during fiscal 2025 amid unfavorable��reimbursement dynamics, as well as softer consumer demand with increased competition. Opioid litigation settlement costs add another layer of risk to the balance sheet, which features $4.6bn of bond and loan maturities for 2025 and 2026, not including the undrawn $2.25bn revolver due next year, as���������.

The company was recently hit by a new opioid lawsuit��, claiming the pharmacy chain operator knowingly filled unlawful prescriptions, further exacerbating the opioid epidemic in the US.

The full press release reads:��

DEERFIELD, Ill., Jan. 30, 2025 – Walgreens Boots Alliance, Inc. (Nasdaq: WBA) today announced that its board of directors is suspending the company’s cash dividend historically paid to stockholders on a quarterly basis, as management continues to evaluate and refine its capital allocation policy consistent with the company’s broader long-term turnaround efforts.

This change in capital allocation is aimed at strengthening WBA’s balance sheet by reducing debt over time and improving free cash flow, as the company works toward achieving a retail��pharmacy-led��turnaround underpinned by a sustainable economic model. The company’s cash needs over the next several years, including with respect to litigation and debt refinancing, were important considerations as part of the decision to suspend the dividend.

WBA leadership remains focused on successfully executing against its strategic priorities and maintaining financial discipline, which it believes will deliver sustained value creation over the long term.

The post US/EMEA Special Situations: Walgreens suspends dividends appeared first on ���׶���Ƶ.

Related documents:��

The Container Store��has secured court approval of its chapter 11 plan, which hands over control of its equity to the lenders on its debtor-in-possession (DIP) financing.

Judge Alfredo Perez of the US Bankruptcy Court for the Southern District of Texas confirmed the plan at a hearing on Friday afternoon (Jan. 24).

The specialty retail chain����with a prepackaged plan of reorganization backed by 90% of its lenders. The plan set up a quick 35-day timeline to confirmation.

The company funded the case with a DIP that provided $40mn in new money and rolled up $75mn in prepetition term loans. The company also had a DIP that provided additional liquidity on its $80mn asset-based loan. All of the DIP financing converts to exit loans under the plan, giving the DIP lenders 64% of the reorganized company’s equity. All����had the right to participate in the financing.

The plan also converts $163mn in prepetition loans to equity, subject to dilution by the DIP conversion.

Source: First-day declaration

Under the plan, the company repaid all $26mn in unsecured trade debt and $11mn in lease obligations.

Pat Holohan������������

+1 917 654 0337

The post US Bankruptcy: The Container Store gets confirmation of plan of reorganization, handing equity to DIP lenders appeared first on ���׶���Ƶ.

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