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Highland Capital Management, L.P. – Files Fourth (and then Fifth) Amended Plan and Related Disclosure Statement

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November 20, 2020 – The Debtors filed their Fourth Amended Plan of Reorganization and a related Disclosure Statement [Docket Nos. 1450 and 1453, respectively], and separately filed interim and cumulative redlines showing changes to the versions of those documents filed on October 25th (2nd Amended Plan) and November 13, 2020 (Third Amended Plan) [Docket Nos. 1451, 1452, 1454 and 1455, respectively]. 

The most recent amendments (those between the third and fourth amended Plans) include the removal of language noting the opposition of the Debtors' Official Committee of Unsecured Creditors (the "Committee").

[Update] On November 24th, the Debtors filed a Fifth Amended Plan of Reorganization and related Disclosure Statement [Docket Nos. 1472 and 1473, respectively; NB: blacklines were not filed concurrently]. Also on November 24th, the Court hearing the Highland Capital Management cases approved (i) the adequacy of the Debtors’ Disclosure Statement, (ii) proposed Plan solicitation and voting procedures and (iii) a timetable culminating in a January 13, 2020 Plan confirmation hearing [Docket No. 1476].

Summary of the Plan

The Disclosure Statement [Docket No. 1384] reads: “The Plan represents a significant achievement for the Debtor. As discussed herein, the Plan provides that the Claimant Trust will receive the majority of the Debtor’s assets, including Causes of Action. The assets being transferred to the Claimant Trust are referred to, collectively, as the Claimant Trust Assets. The Claimant Trust will – for the benefit of the Claimant Trust Beneficiaries – monetize the Claimant Trust Assets, pursue the Causes of Action and work to conclude the various lawsuits and litigation claims pending against the Estate.

The Plan also provides for the reorganization of the Debtor. This will be accomplished by the cancellation of the Debtor’s current Equity Interests, which consist of partnership interests held by The Dugaboy Investment Trust; the Hunter Mountain Investment Trust (‘Hunter Mountain’); Mark Okada, personally and through family trusts; and Strand, the Debtor’s general partner. 

On the Effective Date, the Debtor or the Reorganized Debtor, as applicable, will issue new Class A Limited Partnership Interests to (i) the Claimant Trust, as limited partner, and (ii) New GP LLC, as general partner, and will admit (a) the Claimant Trust as the limited partner of the Reorganized Debtor, and (b) New GP LLC as the general partner of the Reorganized Debtor. The Claimant Trust, as limited partner, will ratify New GP LLC’s appointment as general partner of the Reorganized Debtor. The Reorganized Debtor will be managed by the Claimant Trust, as the managing member of New GP LLC.

The Reorganized Debtor will oversee the monetization of the Reorganized Debtor Assets, which consist of, among other Assets, the management of the Managed Funds. The net proceeds from the Reorganized Debtor Assets will ultimately be distributed to the Claimant Trust and available for distribution to the Claimant Trust Beneficiaries.”

The following is an overview of certain other material terms of the Plan:

  • Allowed Priority Non-Tax Claims will be paid in full;
  • Allowed Retained Employee Claims will be Reinstated;
  • Allowed Convenience Claims will receive the lesser of (i) 85% of their Allowed Claim or (ii) such Holder’s Pro Rata share of the Convenience Claims Cash Pool (i.e., $13,150,000). Holders of Convenience Claims can elect the treatment provided to General Unsecured Claims by making the GUC Election on their Ballots. [The Convenience Claims Cash Pool was increased from $12.75mn under the Second Amended Plan];
  • Allowed General Unsecured Claims and Allowed Subordinated Claims will receive their Pro Rata share of Claimant Trust Interests. The Claimant Trust Interests distributed to Allowed General Unsecured Claims will be senior to those distributed to Allowed Subordinated Claims as set forth in the Claimant Trust Agreement. Holders of General Unsecured Claims that are liquidated as of the Confirmation Date can elect the treatment provided to Convenience Class Election by reducing their Claims to $1,000,000 and making the Convenience Class Election on their Ballots; and
  • Allowed Class B/C Limited Partnership Interests and Allowed Class A Limited Partnership Interests will receive their Pro Rata share of the Contingent Claimant Trust Interests.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

  • Class 1 (“Jefferies Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
  • Class 2 (“Frontier Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $5.2mn and the estimated recovery is 100%. Each Holder of a Class 2 Claim will receive (A) Cash in an amount equal to all accrued but unpaid interest on the Frontier Claim through and including the Effective Date and (B) the New Frontier Note. The Holder of a Class 2 Claim will retain the Liens securing its Class 2 Claim as of the Effective Date until full and final payment of such Class 2 Claim is made as provided herein.
    • The New Frontier Note will include: (i) an extension of the maturity date to December 31, 2022; (ii) quarterly interest only payments; (iii) a payment on the New Frontier Note equal to fifty percent of the outstanding principal on December 31, 2021, if the New Frontier Note is not paid in full on or prior to such date; (iv) mandatory prepayments from the proceeds of the sale of any collateral securing the New Frontier Note; and (v) the payment of fees and expenses incurred in negotiating the terms of the New Frontier Note.
  • Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $551,116 and the estimated recovery is 100%.
  • Class 4 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $16,489 and the estimated recovery is 100%.
  • Class 5 (“Retained Employee Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 0%.
  • Class 6 (“PTO Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1,181,886 and the estimated recovery is 100%.
  • Class 7 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $12,064,333 and the estimated recovery is 85%. On or as soon as reasonably practicable after the later of (i) the Initial Distribution Date if such Class 7 Claim is Allowed on the Effective Date or (ii) the date on which such Class 7 Claim becomes an Allowed Class 7 Claim, each Holder of a Class 7 Claim will receive (1) the treatment provided to Holders of Class 8 General Unsecured Claims if the Holder of such Class 7 Claim makes the GUC Election or (2) an amount in Cash equal to the lesser of (a) 85% of the Allowed amount of such Holder’s Class 7 Claim or (b) such Holder’s Pro Rata share of the Convenience Claims Cash Pool.
  • Class 8 (“General Unsecured Claims [4]”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $180,442,199 and the estimated recovery is 85.31%. Each Holder of a Class 8 Claim shall receive (i) its Pro Rata share of the Claimant Trust Interests, (ii) such other less favorable treatment as to which such Holder and the Claimant Trustee shall have agreed upon in writing or (iii) the treatment provided to Holders of Class 7 Convenience Claims if the Holder of such Class 8 General Unsecured Claim makes the Convenience Class Election. Notwithstanding anything to the contrary herein, after the Effective Date and subject to the other provisions of the Plan, the Debtor, the Reorganized Debtor and the Claimant Trust, as applicable, will have and will retain any and all rights and defenses under bankruptcy or non-bankruptcy law that the Debtor had with respect to any General Unsecured Claim, except with respect to any General Unsecured Claim Allowed by Final Order of the Bankruptcy Court.
  • Class 9 (“Subordinated Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is Undetermined and the estimated recovery is Undetermined. Each Holder of a Class 9 Claim shall receive either (i) the treatment provided to Class 8 Claims or (ii) if such Class 9 Claim is subordinated to the Convenience Claims and General Unsecured Claims pursuant to 11 U.S.C. § 510 or Final Order of the Bankruptcy Court, its Pro Rata share of the Subordinated Claimant Trust Interests or (ii) such other less favorable treatment as to which such Holder and the Claimant Trustee shall have agreed upon in writing. Notwithstanding anything to the contrary herein, after the Effective Date and subject to the other provisions of the Plan, the Debtor, the Reorganized Debtor, and the Claimant Trust, as applicable, will have and will retain any and all rights and defenses under bankruptcy or non-bankruptcy law that the Debtor had with respect to any Subordinated Claim, except with respect to any Subordinated Claim Allowed by Final Order of the Bankruptcy Court.
  • Class 10 (“Class B/C Limited Partnership Interests”) is impaired and entitled to vote on the Plan. The aggregate amount of interests is N/A and the estimated recovery is Undetermined. Each Holder of a Class 10 Claim shall receive (i) its Pro Rata share of the Contingent Claimant Trust Interests or (ii) such other less favorable treatment as to which such Holder and the Claimant Trustee shall have agreed upon in writing. Notwithstanding anything to the contrary herein, after the Effective Date and subject to the other provisions of the Plan, the Debtor, the Reorganized Debtor and the Claimant Trust, as applicable, will have and will retain any and all rights and defenses under bankruptcy or non-bankruptcy law that the Debtor had with respect to any Class B/C Limited Partnership Interest Claim, except with respect to any Class B/C Limited Partnership Interest Claim Allowed by Final Order of the Bankruptcy Court.
  • Class 11 (“Class A Limited Partnership Interests”) is impaired and entitled to vote on the Plan. The aggregate amount of interests is N/A and the estimated recovery is Undetermined. Each Holder of a Class 11 Claim shall receive (i) its Pro Rata share of the Contingent Claimant Trust Interests or (ii) such other less favorable treatment as to which such Holder and the Claimant Trustee shall have agreed upon in writing. Notwithstanding anything to the contrary herein, after the Effective Date and subject to the other provisions of the Plan, the Debtor, the Reorganized Debtor and the Claimant Trust, as applicable, will have and will retain any and all rights and defenses under bankruptcy or non-bankruptcy law that the Debtor had with respect to any Class A Limited Partnership Interest, except with respect to any Class A Limited Partnership Interest Allowed by Final Order of the Bankruptcy Court.

Key Documents

The following exhibits were attached to the Fourth Amended Disclosure Statement [Docket No. 1453]:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Organizational Chart of the Debtor
  • Exhibit C: Liquidation Analysis/Financial Projections

Liquidation Analysis (See Exhibit C to Disclosure Statement [Docket No. 1384] for Notes)

About the Debtor

HCMLP is an SEC-registered investment adviser on Highland Capital Management’s multibillion-dollar global alternative investment platform. The Highland platform was established in 1993 with an initial focus in alternative credit. A pioneer in the leveraged loan market, Highland helped advance the market’s development and expand investor access to the loan asset class. Highland has evolved over its more than 25-year history, building on its credit expertise and value-based approach to expand into other asset classes. Today, Highland operates a diverse investment platform, serving both institutional and retail investors worldwide. In addition to high-yield credit, Highland’s investment capabilities include public equities, real estate, private equity and special situations, structured credit, and sector- and region-specific verticals built around specialized teams. Highland is headquartered in Dallas, Texas and maintains offices in Buenos Aires, Rio de Janeiro, Singapore, and Seoul.

Corporate Structure Chart [See Exhibit B at Docket No. 1080]

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