Lumileds Holding B.V. – Global Lighting Solutions Leader Seeks Approval of Up To $275mn ($133mn Interim) in New Money DIP Financing from First Lien Prepetition Lenders

August 29, 2022 – The Debtors requested Court authority to: (i) access up to $275.0mn in new money, debtor-in-possession (“DIP”) financing from certain of their prepetition lenders (ie, the Ad Hoc Term Loan Lender Group which holds 67% of the outstanding obligations under the Debtors' Prepetition Credit Agreement) and (ii) use cash collateral [Docket No. 4].

The DIP financing is comprised of two tranches: (a) $175.0mn, of which (i) $133.0mn is to be funded upon entry of an interim DIP order and (ii) $42.0mn to be funded seven business days following the execution of the RSA when the DIP solicitation period closes (collectively, the “Initial Funding”), and (b) $100.0mn to be funded upon entry of a final DIP order (the “Delayed Draw DIP Facility”), if the Debtors fail to secure the continuation of the Receivables Factoring Facility with Crédit Agricole Leasing & Factoring S.A.

On August 29, 2022, Lumileds Holding B.V. and nine affiliated debtors (together, “Lumileds” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn (although note $1.72bn of funded debt for consolidated Debtors below).

The Debtors'  DIP motion [Docket No. 4] states: “In late April 2022, the Company launched a process to explore strategic alternatives. The Company, with the assistance of the Advisors and at the direction of the Restructuring Committee, has aggressively pursued various initiatives and engaged in extensive arm’s-length negotiations with an ad hoc group of secured lenders (the ‘Ad Hoc Term Loan Lender Group’). These negotiations culminated in a comprehensive restructuring, the terms of which are memorialized in the Restructuring Support Agreement, which, in addition to providing for the reduction of the Debtors’ funded debt by $1.3B, also secures postpetition financing comprised of (a) the DIP Term Loan Facility in an aggregate principal amount of $175 million under to be funded upon entry of the Proposed Interim Order, and (b) the Delayed Draw DIP Facility in an aggregate principal amount of $100 million to be funded if the Debtors do not secure the benefits of the Receivables Factoring Facility.

The DIP Facility will provide the Debtors with liquidity to fund the Debtors’ global business operations and to pay administrative expenses during the contemplated time period of these Chapter 11 Cases. The Debtors will use the proceeds of the DIP Facility to, among other things, honor employee wages and benefits, procure goods and services, and fund general and corporate operating needs and the administration of these Chapter 11 Cases, in each case in accordance with a budget agreed to by the Debtors and the DIP Lenders (the ‘Approved DIP Budget’), subject to permitted variances. Importantly, the Debtors have been managing liquidity on a prepetition basis by working with their vendors on payment terms so the injection of capital on an interim basis is critical to stabilize this multinational enterprise. Moreover, access to the proposed DIP Facility will send a clear signal to the Debtors’ customers, vendors, and employees that their operations can and will continue on a business-as-usual basis. Further, the coupling of the DIP Facility with the Restructuring Support Agreement provides assurance that the Debtors will have the liquidity necessary to emerge as a stronger, appropriately-capitalized company.

Without immediate access to the DIP Facility, the Debtors’ will lack sufficient liquidity to operate, and their businesses will lose value as a result. Indeed, as of the Petition Date, the Debtors have only $6.6 million cash on hand. As such, absent the relief requested in this Motion, the Debtors’ liquidity will run out, the Debtors’ operations will stall or otherwise be compromised and the Debtors will likely face liquidation in the short term. The proposed DIP Facility, however, will enable the Debtors to preserve the going concern value of their businesses for the benefit of the stakeholders of the Debtors’ estates, including the Prepetition Lenders who are set to become the owners of the Reorganized Company, while at the same time permitting the Debtors to deleverage their balance sheet.”

Key Terms of the DIP Facility

• Borrower: Bright Bidco, a private limited liability company incorporated under the laws of the Netherlands.
• Guarantors: Each of the Loan Parties identified as guarantors under the DIP Loan Agreement, which include the Debtor DIP Guarantors, and the following non-Debtor affiliates: Lumileds Germany GmbH, Lumileds Singapore Pte. Ltd., Lumileds Korea Ltd., Lumileds Hong Kong Co. Ltd., and Lumileds Poland S.A.; provided, that if Milestone included in section 5.14(c) of the DIP Loan Agreement is not satisfied within forty-five (45) days of the Petition Date, then, upon request of the Required DIP Lenders and subject to permissibility under local law, additional guarantors shall be joined to the DIP Facility as soon as reasonably practicable.
• DIP Lenders: In addition to the Backstop Parties, all lenders (the “Prepetition Lenders”) holding outstanding term loans and/or revolving loans under the First Lien Credit Agreement, dated as of June 30, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Prepetition Credit Agreement”) who are party to the Restructuring Support Agreement by the Subscription Deadline (as defined in the Restructuring Term Sheet to which this Term Sheet is appended (the “Restructuring Term Sheet”)) shall be offered the right to participate in an amount up to 70% of the DIP Facility (the “Prepetition Loan Allocation”) on a ratable basis based on the outstanding funded loans under the Prepetition Credit Agreement held by such Prepetition Lender (all such participating Prepetition Lenders, including the Backstop Parties, the “DIP Lenders” and each, a “DIP Lender”).
• Backstop Parties:
  • Anchorage Collateral Management, L.L.C.
  • Avenue Global Dislocation Opportunities Fund, L.P.
  • Blackstone Liquid Credit Strategies LLC
  • Brigade Capital Management, LP
  • Cerberus Corporate Credit Fund, L.P.
  • CIFC Asset Management LLC
  • Credit Suisse Loan Funding LLC
  • Deutsche Bank Securities Inc.
  • Eaton Vance Management
  • MJX Asset Management LLC
  • Nut Tree Capital Management, LP
  • Nuveen Asset Management, LLC
  • Pictet Asset Management Limited
  • Sound Point Capital Management, LP
  • Vibrant Capital Partners, Inc
  • Voya Investment Management Co. LLC
• DIP Agent: Deutsche Bank.
• Commitment: Up to $275.0mn comprised of two tranches: (a) $175.0mn, of which (i) $133.0mn is to be funded upon entry of an interim DIP order and (ii) $42.0mn to be funded seven business days following the execution of the RSA when the DIP solicitation period closes (collectively, the “Initial Funding”), and (b) $100.0mn to be funded upon entry of a final DIP order (the “Delayed Draw DIP Facility”), if the Debtors fail to secure the continuation of the Receivables Factoring Facility with Crédit Agricole Leasing & Factoring S.A.
• New Money: $275.0mn
• Roll-Up: N/A
• Maturity Date: Unless converted to the Exit Facility (as defined in the Restructuring Support Agreement), all obligations under the DIP Loan Documents will be due and payable in full in cash on the earliest of:

1. the date that is six months after the Closing Date (as defined below);
2. if the Proposed Final Order has not been entered by this Court or if an applicable Milestone (as defined below) has not been met, the date of such applicable Milestone (as defined below);
3. the date of acceleration of the DIP Loans and the termination of the DIP Lenders’ commitments under the DIP Facility pursuant to the terms of the DIP Loan Agreement;
4. the date this Court orders a conversion of these Chapter 11 Cases to a chapter 7 liquidation or the dismissal of the chapter 11 case of any Debtor; or (v) the effective date of the Plan.

• Closing Date: The date following satisfaction or waiver by the DIP Agent and the Required Lenders of the relevant conditions precedent to the closing of the DIP Facility, which shall include entry by this Court of the Proposed Interim Order authorizing and approving the DIP Facility and the transactions contemplated thereby (the “Closing Date”).
• Interest Rate: Interest on the outstanding principal amount of all DIP Loans shall accrue at a rate per annum equal to SOFR (secured overnight financing rate) (subject to a 100 basis point floor) plus 800 basis points per annum or Base (subject to a 100 basis point floor) Rate plus 700 basis points per annum, at the option of the Borrower.
• Default Interest: During the continuance of an Event of Default, the DIP Loans will bear interest at an additional 2.00% per annum and any overdue amounts (including overdue interest and fees) will bear interest at the applicable non-default interest rate plus an additional 2.00% per annum. Default interest shall be payable in cash on demand.
• Use of Proceeds: The DIP Loans shall be used, in accordance with the Approved DIP Budget (subject to permitted variances):

1. to pay reasonable and documented transaction costs, fees and expenses that are incurred in connection with the Chapter 11 Cases;
2. for working capital and general corporate purposes of the Loan Parties, and subject to the DIP Budget, and other limitations to be reasonably agreed consistent with the operating needs of such subsidiaries, their direct and indirect subsidiaries;
3. to make payments required in connection with the Receivables Factoring Facility; and
4. to make adequate protection payments as set forth in the section below entitled “Adequate Protection.”

• Fees: The Borrower agrees to pay the following fees:
  • Backstop Fee: In exchange for their commitment to fund the entire amount of the New Money Commitment, the Backstop Parties shall receive a fee of 10.5% of the New Common Equity (as defined in the Restructuring Support Agreement (subject to dilution under or further described in the Restructuring Support Agreement)) (the “Backstop Fee”), the payment of which shall be in accordance with the terms and conditions, and subject to confirmation of the Joint Prepackaged Plan.
  • Participation Fee: The DIP Lenders shall be entitled to receive a Participation Fee, payable on a pro rata basis, equal to 36.7% in New Common Equity (subject to dilution under or further described in the Restructuring Support Agreement) (the “Participation Fee”), the payment of which shall be in accordance with the terms and conditions, and subject to confirmation of the Joint Prepackaged Plan.
  • Exit Commitment Fee: The DIP Lenders shall be entitled to receive an Exit Commitment Fee, payable on a pro rata basis, equal to 10.5% of the New Common Equity (subject to dilution under or further described in the Restructuring Support Agreement) (the “Exit Commitment Fee”), the payment of which shall be in accordance with the terms and conditions, and subject to confirmation of the Joint Prepackaged Plan.
• Milestones: The DIP Loan Agreement will include certain milestones (the “Milestones”) related to these Chapter 11 Cases, including the following:

1. Deadline for entry of Proposed Interim Order that is acceptable the DIP Agent and to the DIP Lenders holding at least 50.1% of the outstanding unused commitments and term loans under the DIP Facility (the “Requisite DIP Lenders”): five (5) days following the Petition Date;
2. Deadline for entry of Proposed Final Order that is acceptable to the DIP Agent the Requisite DIP Lenders: thirty (30) days following the Petition Date;
3. Deadline for entry by this Court of a combined order confirming a plan of reorganization that is acceptable to the Requisite DIP Lenders (an “Acceptable Plan”) and approving the disclosure statement with respect to the Acceptable Plan: forty-five (45) days following the Petition Date; and
4. Deadline for consummation of the acceptable Plan: sixty-five (65) days following the Petition Date.

Marketing Efforts

In a declaration in support of the DIP motion [Docket No. 6], Elliot Ross, Investment Banker of the firm Evercore Group L.L.C, on behalf of the Debtors states, “Since mid-June, the Debtors and their advisors have engaged in arm’s length, good faith discussions with the Ad Hoc Term Loan Lender Group, who today collectively own over 67% of the outstanding obligations under the Prepetition Credit Agreement. The primary goal of those discussions, and of these Chapter 11 Cases, was to restructure the Debtors’ balance sheet and inject the Debtors with ample and much-needed liquidity.

In late June, following management presentations and the commencement of due diligence by the advisors to the Ad Hoc Term Loan Lender Group (the ‘Lender Advisors’), the Debtors, through their advisors, provided the Lender Advisors with an initial term sheet focused primarily on an out-of-court restructuring, which set the pillars on which the overall restructuring support agreement (‘RSA’) rests. In addition to introducing the need for new money to be injected into the Company, the term sheet included the proposed terms to equitize the vast majority of the Prepetition First Lien Facilities and the amount of deleveraging required to achieve a sustainable capital structure. Subsequently, in July 2022, the Debtors, through their advisors, followed up on the initial term sheet with an analysis of (a) the debt capacity of the go-forward business and (b) the total new capital required, including the capital needed for (i) an out-of-court restructuring and (ii) an in-court restructuring, the latter of which included both the sizing for postpetition financing and exit financing.

Throughout mid-June and July, the Debtors, through their advisors, actively engaged with the Lender Advisors to explain and negotiate the rationale underpinning the Debtors’ proposal with a focus on achieving two primary objectives: (a) a substantial deleveraging of the balance sheet in line with the Company’s go-forward limited debt capacity and (b) a sufficient capital infusion to rescue the business and enable the Company to operate in accordance with the business plan. Accomplishing these objectives involved making exceptional asks to the Prepetition Lenders. In particular, it required lenders to commit to providing a substantial amount of capital (especially relative to the estimated value of the Company) on a highly expedited timeline, in the face of severe recent business degradation all while agreeing to significantly impair their claims and accept a substantial amount of their recovery in equity. Achieving such concessions required sharing of extensive and iterative analyses to justify and quantify the fundamental aspects of the deal and involved substantial negotiations around the terms of both the postpetition financing and the overall transaction.

As the Debtors’ liquidity continued to deteriorate, it become clear to the Debtors and their advisors that there was not sufficient time to reach an out-of-court deal with a requisite amount of Prepetition Lenders. As such, while simultaneously negotiating the terms of the postpetition financing and potential restructuring strategies, the Debtors and the Ad Hoc Term Loan Lender Group also began parallel discussions regarding emergency bridge financing to fund the Debtors’ operations and provide the runway to reach an out-of-court deal. This process was laden with numerous complexities (not least of which was the fact that nearly all but two obligors under the Prepetition First Lien Facilities are located outside the United States, complicating the execution of such a financing under several legal regimes) and ultimately proved difficult to achieve, and the Debtors pivoted to focus fully on effectuating a near-term liquidity solution and restructuring transaction through a chapter 11 plan of reorganization.

The parties continued to negotiate the terms of an in-court transaction (including the required postpetition financing related thereto) and in August, the Ad Hoc Term Loan Lender Group provided a term sheet that provided the Debtors a comprehensive solution—addressing the amount of postpetition financing, exit financing, pro forma liquidity, and deleveraging required. Having reached agreement on these key items, the Debtors and Ad Hoc Term Loan Lender Group turned their focus on rapidly negotiating the details of the DIP Facility and overall restructuring.

These negotiations eventually culminated in a mutual agreement between the Debtors and the Ad Hoc Term Loan Lender Group regarding the terms and conditions of the RSA, a core component of which is the provision of a super-priority, priming secured debtor-inpossession term loan facility that will provide up to $275 million of new money, which is comprised of two tranches: (a) $175 million, of which (i) $133 million to be funded upon entry of the Interim DIP Order and (ii) $42 million to be funded seven (7) business days following the execution of the RSA when the DIP solicitation period closes (collectively, the ‘Initial Funding’), and (b) $100 million to be funded upon entry of the Final DIP Order (the ‘Delayed Draw DIP Facility’), if the Debtors fail to secure the continuation of the Receivables Factoring Facility with Crédit Agricole Leasing & Factoring S.A. (‘Crédit Agricole’).

Importantly, this DIP Facility was not negotiated in a vacuum, but as an in-court bridge financing to provide the Debtors with the runway to implement a comprehensive restructuring. In reaching agreement on the DIP Facility, the Debtors obtained support—from lenders holding a critical 67% of outstanding debt under the Prepetition First Lien Facility— through an RSA that contemplates such lenders extinguishing approximately $1.6 billion, or over 90%, of their debt.

Critically, the Backstop Parties and DIP Lenders have agreed to payment of their fees entirely in equity of the reorganized Debtors, which satisfied the Debtors’ goals of retaining balance sheet capital. The Backstop Parties and the DIP Lenders have also critically agreed to allow the funds they are advancing through the DIP Facility to be used to pay general unsecured creditors (‘GUCs’) in full during the pendency of the cases, despite agreeing to a transaction that significantly impairs their prepetition claims, which are senior in priority to the GUCs.

In particular, I understand from the Company’s Chief Financial Officer that the Debtors intend to immediately use approximately $47 million of the first draw of the DIP Facility to pay off past-due vendor payables. Additionally, the Debtors intend to use the first draw of the DIP Facility to ensure timely payment of vendor payments of approximately $49 million, including to foreign vendors, that will become due within the next two weeks.”

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $1.7bn in aggregate debt outstanding as summarized below:

Proposed Budget

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