Using Chapter 11 For An Operational Turnaround

Technology, Media & TelecomPerformance Improvement

130M

Annual Sales

48M

Debt

Lightyear Network Solutions, Louisville Kentucky

Challenge

Reseller of voice and data services to the middle market. $130 million in annual sales. $48 million bank debt.

  • Company was insolvent and losing $(6) million of EBITDA.
  • Over $300 million in total secured and unsecured liabilities.
  • Declining revenues of $120 million and burning cash at an alarming rate.
  • Excess industry capacity squeezing profit margins.
  • Bank debt clearly impaired with Senior Lenders pressuring Company to sell out to a major vendor via a 363 sale.
  • Lenders prepared to provide DIP financing in exchange for the sale.

Solution

  • MorrisAnderson retained as CRO and after independent assessment determined that this transaction was not in the best interest of all stakeholders as it did not maximize their potential value. Additionally, MorrisAnderson determined that there was high risk in the ability of the potential stalking horse bidder to close the deal.
  • Presented a turnaround plan to secured bank lenders whereby a slight increase in new capital would allow them to lower their losses, per projections vs. what the stalking horse bidder was likely to do in lieu of executing a sale.
  • The secured bank debt was approximately $48 million, and after reviewing the Turnaround Plan Lenders agreed to increase it up to $60 million.

Results

  • Filed a planned and consensual Chapter 11 with DIP financing from the secured pre-petition bank lenders and no stalking horse bidder.
  • Changed the business model to focus on higher profit services and to eliminate millions in cost structure.
  • Developed and negotiated a Plan of Reorganization that ended up compromising non-productive liabilities such that the controlling shareholder maintained his pre-petition equity ownership post confirmation without additional capital investment.
  • Secured lenders provided the exit financing and recovered all their investment plus significant fees about 15 months post confirmation, a result that the bank lenders and pre-petition equity had not anticipated.