December 1, 2022 – The Court hearing the GWG Holdings cases has extended (for a fourth time) the periods during which the Initial Debtors (the DLP Debtors joining the Initial Debtors in bankruptcy on October 31st and not needing extensions) have an exclusive right to file a Chapter 11 Plan and solicit acceptances thereof, through and including December 1, 2022 and February 14, 2023, respectively [Docket No. 1146]. Absent the requested relief, the Plan filing and solicitation periods were scheduled to expire on November 15, 2022, and January 14, 2023, respectively.
In their Novermber 8th requesting motion, the Debtors noted that they had made "substantial progress" including by "sending Vida a notice of their intent to…[file] a motion to enter into a $630 million debtor-in-possession financing with Vida." That motion was indeed filed, and on December 1st the Court approved a $630.0mn replacement DIP financing arrangements with Vida (which we cover separately).
The result of further recent progress (the motion refers to it as "momentous") will enhance the Debtors' cautious optimism as to the prospects of a consensual Plan, the Debtors motion having underscored the fragility of their relationship with bondholders: "the Debtors and the Bondholder Committee have exchanged draft proposals for a chapter 11 plan, which are significantly more aligned than in prior proposals, making the chances for a plan supported by both parties a very real possibility….The Debtors submit that this brief extension will allow the Debtors time to further engage in discussions with stakeholders, including the Bondholder Committee, build on the progress the parties have made to date, and work towards a consensual chapter 11 plan."
At what was a fraught hearing, Judge Isgur at one point apologized for losing his temper after "his own frustration came out" as to "very hard" case that has left him (and his powers as a bankruptcy judge) "stretched" and that was before a 10-minute outburst by a clearly unhappy individual bondholder further tested his nerves and led to a recessed hearing.
On April 20, 2022, GWG Holdings, Inc.* and two affiliated debtors (Nasdaq: GWGH; together “GWG” or the “Debtors”) filed for Chapter 11 noting estimated assets of $3,490,196,000 and estimated liabilities of $2,063,192,000. At filing, the Debtors stated as to the need to seek bankruptcy shelter: “due to a liquidity crisis precipitated by external factors outside of the Debtors’ control — principally a temporary and presently ongoing inability to access liquidity from the capital markets beginning in April 2021 and related regulatory issues related to GWGH’s securities filings — the Debtors have been forced to seek the protections of chapter 11 of the Bankruptcy Code…”
*Through GWGH’s subsidiary, GWG Life, LLC, GWGH owns and manages a diverse portfolio of life insurance policies that, as of September 30, 2021, included $1.8 billion in face value of life insurance policy benefits.
On July 19th, the Court hearing the GWG Holdings cases issued a final order authorizing the Debtors to access $65.0mn of replacement debtor-in-possession (“DIP”) financing being provided by Chapford SMA Partnership, L.P. That final DIP order followed an April 20th filing in which the Debtors noted that new DIP lender Chapford SMA would “step into the shoes” of their then existing DIP lender and that the replacement DIP financing came with “indisputably stronger” financial and non-financial terms [Docket No. 491].
On October 31st, the Debtors were joined in bankruptcy by the DLP Debtors, three affiliated entities which had not earlier filed for bankruptcy and which held life additional insurance portfolios. On October 31st, the Debtors also filed a motion seeking replacement DIP financing from an affiliate of VIDA, the proceeds of which would be used, inter alia, to repay in full the Chapford SMA DIP.
On December 1st further to approval of the "Vida Option," the Court hearing the GWG Holdings cases issued a final order authorizing the Debtors to enter into a $630.0mn replacement debtor-in-possession (“DIP”) financing agreement (the “Replacement DIP Facility”) to be provided by Vida Insurance Credit Opportunity Fund III GP, LLC and/or its affiliate(s) (“Vida” or the “DIP Lender”), The Replacement DIP Facility is comprised of (a) a $590.0mn term loan (the “Replacement DIP Term Loan”) and (b) a $40.0mn revolving credit facility (the “Replacement DIP Revolving Facility”) with the Replacement DIP Facility eventually converting to a similarly structured exit facility which is to be considered at a separate hearing. As discussed further below, the proceeds of the Replacement DIP Facility will be used, inter alia, to repay in full the Chapford SMA DIP.
* The "Vida Option" is the option to pursue a refinancing of the Debtors life insurance portfolios, with those portfolios now expanded to include life insurance policies held by three additional Debtors (each filing for bankruptcy protection on October 31st and now administered with the "Initial GWC" Debtors, the "DLP Debtors"). A declaration filed in support of the Chapter 11 filings of the DLP Debtors [Docket No. 976] provides: "In October 2022, the Debtors were faced with a binary choice to maximize the value of the Policy Portfolio, which resided outside the Chapter 11 Cases prior to the DLP Petition Date: (i) exercise an option to sell the Policy Portfolio (the 'Chapford Sale Option') under the existing debtor-in-possession financing facility with Chapford SMA Partnership, L.P. (the 'Chapford DIP Facility') or (ii) exercise an option to refinance the Policy Portfolio with VICOF III Acquisition, LLC, an affiliate of Vida Capital, Inc. (the 'Vida Option'). Both the Chapford Sale Option [Dkt. No. 871] and the Vida Option [Dkt. No. 865, Exhibit 1] required the commencement of the DLP Cases by no later than October 31, 2022 as a condition precedent. In short, regardless as to whether the Chapford Sale Option or the Vida Option was exercised, the DLP Debtors must have commenced chapter 11 proceedings on October 31, 2022."
The Extension Motion
The motion [Docket No. 1035] notes, “Despite only a week transpiring since the last motion to extend exclusivity was filed, the Debtors have made substantial progress in their chapter 11 plan process.
First, the Debtors have taken the steps necessary to exercise the Vida financing option by sending Vida a notice of their intent to do so and filing a motion to enter into a $630 million debtor-in-possession financing with Vida that will not only provide funding to complete the chapter 11 plan filing, solicitation and confirmation process but that will also provide exit financing critical to the chapter 11 plan the Debtors are formulating.
Second, the DLP Debtors filed their chapter 11 petitions, a necessary prerequisite to the Vida financing and successfully obtained relief at their ‘first day’ hearing on November 2, 2022, including obtaining approval for the consensual use of their respective lenders’ cash collateral.
Third, and perhaps most significantly, the Debtors and the Bondholder Committee have exchanged draft proposals for a chapter 11 plan, which are significantly more aligned than in prior proposals, making the chances for a plan supported by both parties a very real possibility.
To advance these discussions with the Bondholder Committee and other key stakeholders and allow meaningful progress to continue to be made prior to the filing of a chapter 11 plan, the Debtors, with the consent of the Bondholder Committee, seek an eight (8) day extension of the Exclusivity Periods. The Debtors submit that this brief extension will allow the Debtors time to further engage in discussions with stakeholders, including the Bondholder Committee, build on the progress the parties have made to date, and work towards a consensual chapter 11 plan.”
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