March 28, 2023 – PacificCo Inc. and 14 affiliated debtors (dba Catalina, together “PacificCo” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case No. 23-10470 (Judge TBA). The Debtors, "a leader in shopper intelligence and highly targeted in-store, TV, radio and digital media that personalizes the shopper journey," are represented by of Weil, Gotshal & Manges LLP. Further Board authorized appointments include: (i) FTI Consulting, Inc. as financial advisors, (ii) Houlihan Lokey as investment bankers and (iii) Kurtzman Carson Consultants LLC as claims agent. NB: Weil Gotshal and FTI both advised on the earlier 2018/2019 bankruptcy.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn (funded debt of $370.4mn). Documents filed with the Court list the Debtors’ three largest named (NB: a number of the largest have identities "on file," see lead Petition) unsecured creditors as (i) Beeswax IO Corporation ($3.7mn trade claim), (ii) LTIMindtree Limited ($2.2mn trade claim ) and (iii) CMW Holdco, Inc. d/b/a 4INFO, Inc. ($1.9mn trade claim).
Filing Date Highlights
- In-Store Marketing Specialist Files for Bankruptcy (This Time a Prepack) for the Second Time in Under Five Years with $370.4mn of Funded Debt
- Cites Macroeconomic Factors (COVID-19 pandemic, surging inflation, and global supply chain disruption), Unlawful Activities of Competitor Quotient Technology, Inc. and Higher than Expected Capex for Digital Advertising Segment
- RSA has Debtors Selling Japanese Business to D Capital, Inc. Affiliate (by May 31st) and Funded Debt Reduced by 70% ($260.0mn)
- Subordinated Last-Out Lenders (Holding $224.0mn of Debt) will receive their pro rata share of 100% of the New Common Stock and General Unsecureds to be Paid in Ordinary Course
- Debtors Will Not Require DIP Financing
2019 Bankruptcy (the "Prior Cases")
In February of 2019, Catalina (then known as Checkout Holding) emerged from an earlier bankruptcy (Delaware, lead case number 18-12794) which saw it reduce its debt by 85 percent, from $1.9bn to $276.0mn, in a debt for equity restructuring (90% of equity to first lien lenders and 10% to second lien lenders before management incentive plan dilution). In a press release heralding that "exciting day for Catalina," then CEO Jerry Sokol commented: "we just became a stronger and very competitive company with solid cash flow, low debt, a healthy balance sheet and a robust digital product pipeline."
2023 Filing Date Press Release
In a press release announcing the filing, the Catalina states that it: "has reached a definitive agreement to sell its Japanese entity, Catalina Marketing Japan K.K., to Yosemite 2 K.K., which is an equity funded entity of D Capital, Inc.
In conjunction with the anticipated closing of the transaction, Catalina has entered into a restructuring support agreement (RSA) with more than 99% of its lenders to substantially reduce the company's debt.
Only Catalina's U.S. operations are part of the court-supervised financial restructuring….Catalina expects to move through this process on an expedited basis and complete the sale and balance sheet restructuring in approximately 30 days. Post-transaction, the Japanese operations will be operated independently as a wholly-owned subsidiary of Yosemite 2 K.K."
Wayne Powers, President and Chief Executive Officer of Catalina, noted: "For Catalina, these actions will allow us to move forward with significantly reduced debt and an infusion of cash to continue advancements in strategic growth areas powered by our AI-enabled data science capabilities, including advanced personalization, measurement as a service, and a portfolio of full funnel marketing solutions that are connected across channels to deliver 1:1 targeted value to consumers whether they are digitally or non-digitally engaged."
Plan/Restructuring Overview (see p.190 of Disclosure Statement for Plan Term Sheet)
The Debtors' solicitation Disclosure Statement provides: "The Debtors are commencing this Solicitation to (i) effectuate the sale of 100% of the equity interest in Catalina Marketing Japan K.K ('Catalina Japan') (the 'Catalina Japan Equity Interest') to Yosemite 2 K.K. ('Yosemite' or the 'Buyer') [This transaction to close by May 31st] and the sale of the Transferred Assets (as defined in the Purchase Agreement, or “SPA”), and all related transactions described in the Sale Transaction Documents, each in accordance with the terms of the Sale Transaction Documents (the “Sale Transaction” or “Japan Sale Transaction”), and (ii) reorganize the remainder of the Debtors’ business through a comprehensive, consensual restructuring of their balance sheet.
The Restructuring will meaningfully deleverage the Debtors’ capital structure and provide the Debtors will sufficient liquidity to support and position their go-forward business for future growth. The Debtors’ balance sheet liabilities will be reduced from approximately $370.4 million in secured debt to approximately $110.4 million in secured debt, which represents a reduction of debt on the Effective Date of over 70% relative to the Petition Date.
The Plan contemplates the issuance of the New Term Loan Facility to holders of Allowed First-Out Debt Claims and the distribution of New Common Stock to the holders of Allowed Last-Out Debt Claims, subject to dilution by the Management Incentive Plan) and no impairment to the Debtors’ other creditors. Further below is a short summary of the treatment of various creditor groups under the Plan. Greater detail on such treatment is provided later on in this Disclosure Statement."
Drilling down of treatment of key stakeholder groups/classes, the Disclosure Statement adds: "Under the terms of the Prepackaged Plan, in full and final satisfaction of their prepetition claims, the Super Priority Senior Term Loan Claims will be deemed allowed and paid in cash in full on the Effective Date, in the amount of $36 million, plus accrued and unpaid interest, fees, expenses, and other obligations, the Subordinated First-Out Lenders will receive their pro rata share of the exit financing facility under the New Term Loan Credit Agreement, which will have an aggregate principal amount of $110.4 million, plus accrued and unpaid interest, fees, expenses, and other obligations, and the Subordinated Last-Out Lenders will receive their pro rata share of 100% of the New Common Stock subject to dilution by a contemplated management incentive plan. The Prepackaged Plan additionally provides for the Japan Sale Transaction (as discussed herein), which shall be effectuated through implementation of the Prepackaged Plan and which proceeds shall be used to fund (i) distributions under the Prepackaged Plan and (ii) the Debtors’ go-forward business. Allowed general unsecured claims will be paid in the ordinary course and will be otherwise unimpaired, subject to all of the Debtors’ rights, defenses, or any other entitlements with respect thereto."
The effect of the Restructuring on the Debtors’ capital structure is summarized as follows:
Treatment of Key Anticipated Classes
- Super Priority Term Loan Facility Claims: Consisting of $36.0mn in aggregate outstanding principal amount of super priority term loans under that certain Super Priority Senior Term Loan Credit Agreement, dated as of February 27, 2023 by and among CMC, the guarantors thereunder, GLAS USA LLC (“GLAS”), as administrative agent, and the lenders thereunder from time to time, plus accrued and unpaid interest, fees, and other amounts arising and payable with
respect thereto (the “Super Priority Term Loan Facility Claims”). The Super Priority Term Loan Facility Claims shall be deemed allowed and paid in cash in full on the Effective Date, including all accrued and unpaid interest, fees, expenses, and other obligations arising, due, or owing under or in connection with the Super Priority Senior Term Loan Credit Agreement, in each case, through and including the Effective Date.
- First-Out Debt Claims: Consisting of $110.4mn in aggregate outstanding principal amount first lien, first out term loans under that certain Senior Term Loan
Credit Agreement, dated as of February 15, 2019 by and among CMC, as borrower, the guarantors party thereto, GLAS, as administrative Agent, and the lenders party thereto from time to time, plus accrued and unpaid interest, fees, and other amounts arising and payable with respect thereto (the “First-Out Debt Claims”). On the Effective Date, each holder of an allowed First-Out Debt Claim shall be entitled to receive from (and on behalf of) Catalina Parent, in full and final satisfaction of such Claim, its pro rata share of the New Term Loan Facility.
- Last-Out Debt Claims: Consisting of $224.0mn in aggregate outstanding principal amount second lien, last out term loans under the Senior Term Loan Credit
Agreement, plus accrued and unpaid interest, fees, and other amounts arising and payable with respect thereto (the “Last-Out Debt Claims”).On the Effective Date, each holder of an allowed Last-Out Debt Claim shall be entitled to receive from (and on behalf of) CMC, in full and final satisfaction of such Claim, its pro rata share of 100% of the new common stock of Catalina Parent (the “New Common Stock”) as reorganized in accordance with the Plan (“Reorganized Catalina Parent”), subject to dilution by the Management Incentive Plan.
- General Unsecured Claims: Consisting of any Claim, other than a Priority Claim, Other Secured Claim, Super Priority Term Loan Facility Claim, First-Out Debt Claim, Last-Out Debt Claim, Intercompany Claim, or any claim entitled to priority under the Bankruptcy Code or any Final Order of the Bankruptcy Court (the “General Unsecured Claims”). The legal, equitable, and contractual rights of the holders of General Unsecured Claims are unaltered by the Plan. Except to the extent that a holder of a General Unsecured Claim agrees to different treatment, on and after the Effective Date, the Debtors shall continue to pay (if allowed) or dispute each General Unsecured Claim in the ordinary course of business.
- Existing Equity Interests: All common stock and all other equity interests of any kind or nature, and any options or other derivative rights in respect thereof, of Catalina Parent issued and outstanding as of the Effective Date, whether or not transferable or fully vested.On the Effective Date, all Existing Equity Interests shall be cancelled without further action by or order of the Bankruptcy Court.
Restructuring Support Agreement
The Debtors have entered into a Restructuring Support Agreement (“the RSA,” attached at Exhibit B of Disclosure Statement) with the Super Priority Senior Term Loan Lenders, First Out Lenders, and Last Out Lenders (collectively, the “Consenting Creditors”) "to reduce the amount of debt in its capital structure and ensure a more sustainable enterprise on a goforward basis." The RSA is supported by 100% of the Super Priority Term Loan Lenders, more than 99% of the First-Out Lenders, and more than 99% of the Last-Out Lenders.
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides: "Several factors have contributed to Catalina’s need to further adjust its balance sheet after emerging from the Prior Cases. First, macroeconomic factors such as the COVID-19 pandemic, surging inflation since 2021, and global supply chain disruption – all of which were shadowed by the fear of a global recession – have put pressure on Catalina’s Retailer Network, revenue stream, and liquidity. These headwinds led the Company to engage with its key lenders in exploring strategic options to weather these headwinds and put Catalina on a path toward sustainable growth.
Second, the loss of Albertsons’s in-store print coupon business as part of the Catalina network due to unlawful activities by a competitor [ie Quotient Technology, Inc.], caused Catalina to lose current and future significant business, as well as to incur higher costs to keep existing business.
Third, Catalina is in the process of a capital-intensive effort to increase its digital footprint. While Catalina’s digital revenue streams have been increasing at a rapid pace, due to significant capital expenditures in its digital advertising segment, the economic returns on these new investments are not immediate and it will take some time before this spending is translated into profitable revenue streams. Importantly, additional liquidity and a reduced debt burden will best position the Company for future growth in completing its transformation to a digitally-focused enterprise."
"The Debtors expect that their current cash on hand, combined with revenue generated from ongoing operations, will provide sufficient liquidity to support Catalina’s business during these chapter 11 cases."
About the Debtors
According to the Debtors: “Catalina is a leader in shopper intelligence and highly targeted in-store, TV, radio and digital media that personalizes the shopper journey. Powered by the world's richest real-time shopper database, Catalina helps retailers, CPG brands and agencies optimize every stage of media planning, execution and measurement to deliver $6.1 billion in consumer value annually. Catalina has no higher priority than ensuring the privacy and security of the data entrusted to the company and maintaining consumer trust. Catalina has operations in the United States, Costa Rica, Europe and Japan.
For 40 years, Catalina has influenced shopper behavior by delivering personalized ads – at precisely the right moment. Of course, our methods have changed over the years. Today, we help CPG Brands, Retailers, and Agencies optimize at every stage of planning, execution, and measurement.“
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