💥New Chapter 11 Bankruptcy Filing - WOM S.A.💥
Chilean telecom files chapter 11 with no meaningful DIP milestones.
We’re kicking of Q2’24 with a trip to South America!
On April 1, 2024, Santiago Chile-based WOM S.A. (“WOM” f/k/a Nextel Chile S.A.) and five affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware (Judge Owens). WOM is a telecom provider, providing mobile voice, data, and broadband services (including 5G) plus its “Fiber to the Home” broadband offering to Chilean consumers and businesses; it claims it’s the second largest mobile network operator in Chile with a total customer base of 8.5mm customers, of which 1mm are 5G wireless broadband customers; it also purports to have four-band spectrum that blankets approximately 26% of Chile.
Despite the millions of customers and expansive coverage, the debtors have had liquidity issues, many of which stem from a March ‘23 Fitch Ratings downgrade of the debtors’ US-dollar-denominated ‘24 and ‘28 unsecured notes (issued by Kenbourne Invest S.A. and collectively totaling $649mm). The downgrade brewed a perfect storm; it (i) triggered a margin call on certain derivative contracts that cost the company tens of millions of dollars between Q2’23 and Q4’23, and (ii) sparked a $50mm credit reduction of a $100mm credit facility provided by the Inter-American Investment Corporation, an affiliate of Inter-American Development Bank (the “IDB”)(which had further financing implications for the debtors). A Moody’s Investors Service downgrade in November ‘23 (following an earlier one in April ‘23) resulted in the IDB closing the credit facility altogether, diminishing access to credit and creating a repayment obligation.
As if the loss of tens of millions of dollars due to the above wasn’t enough, the debtors have been battling with the Chilean government — the parties are in an international arbitration — over the construction of cellular towers necessary for the rollout of the debtors’ 5G network.* The debtors intended to enter into sale-leaseback transactions vis-a-vis the towers (with a global tower infrastructure operator called Phoenix Tower International): the delay obviously got in the way of that plan, costing the debtors ~$25mm that they’d modeled for liquidity purposes. Yes, tens of millions (IDB) + tens of millions (margin call) + tens of millions (sale-leaseback) = heaps of liquidity gone! 😳
Which gets us back to those 24s: there’s $356mm-worth and they mature in November! These ⬆️ developments no doubt created some refinancing risk. The debtors hired Rothschild & Co. US Inc. (Marcelo Messer) to scour the markets but it became abundantly clear that an out-of-court financing was not gonna happen. Rothschild, therefore, pivoted to DIP financing to address the debtors’ increasingly dire liquidity needs.
Before we get to the DIP it probably makes sense to outline what the overall cap stack looks like. So here it is:
As you can see, in addition to the 24s and the 28s, the debtors also owe approximately $39mm on account of a securitization facility and $10.9mm on a loan from Banco Scotiabank. Furthermore, the debtors owe IDB approximately $17.5mm on account of a receivables transfer agreement. Behind all of that is approximately $337mm of unsecured debt owed to vendors, taxing authorities, employees, and other contract counterparties.
The debtors’ proposed DIP financing is a $210mm multi-draw 10% cash pay term loan facility (the “DIP”) agented by JPMorgan Chase & Co. ($JPM). The DIP here is very different from what we’ve become accustomed to seeing in bankruptcy these days: there’s no priming liens, no roll-ups, and no harsh milestones forcing an expedited case. The proceeds will be used to repay the ~$39mm owed under the EF Securitization Facility and for working capital. The debtors seek $100mm on an interim basis. Fees include (i) a 1% exit fee, (ii) a 3% unused commitment fee, (iii) a 1% maturity extension fee, and (iv) other fees that total approximately $6.4mm. The outside maturity date is July 1, 2025 with a 90-day extension built in (subject to the 1% maturity extension fee) so … uh … yeah … these guys seem to think that some of the issues with the Chilean government will take some time to sort out and seemingly plan to hibernate under US bankruptcy protection for a while. This is not something you see everyday:
In addition to Rothschild as investment banker, the debtors are represented by an army of lawyers at White & Case LLP (John Cunningham, Richard Kebrdle, Philip Abelson, Samuel Hershey, Andrew Zatz, Andrea Amulic, Lilian Marques, Claire Tuffey, Peter Strom, Doah Kim) and Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch) and Riveron Consulting LLC (Robert Wagstaff) as financial advisor. JPM is represented by Latham & Watkins LLP (James Ktsanes, Andrew Sorkin, Jeffrey Mispagel, Amy Quartarolo) and Potter Anderson & Corroon LLP (Jeremy Ryan, Brett Haywood) while an ad hoc group of WOM bondholders is represented by Dechert LLP (Allan Brilliant, Stephen Wolpert, Isaac Stevens) as legal counsel and Ducera Partners LLC as investment banker.
The debtors’ first day hearing is later today, April 2, 2024 at 11am ET.
*To add insult to injury, there are various creditors in Chile who are moving for “forced liquidation proceedings” against the company. Per the debtors first day declaration:
Chilean law permits any creditor to seek a forced liquidation proceeding against the Company if the company has failed to comply with its obligations to that creditor and the creditor has an “executive document” that evidences this obligation for the Chilean court. For example, overdue invoices can be converted to “executive documents” that allow the Company’s creditor to initiate an executive proceeding against the company and request liquidation to the Chilean court following a short ancillary proceeding that usually takes only a few weeks. Furthermore, if there are more than two ongoing executive proceedings (juicios ejecutivos) against the Company, at any given time, any creditor of the Company can request a forced liquidation, even those who do not hold executive documents.
As of the date hereof, certain of the Company’s Chilean unpaid creditors have initiated at least six ongoing executive proceedings and made at least two attempts to force the Debtors into liquidation proceedings in Chile. The Company was able to negotiate and consensually resolve such proceedings from moving forward, but the threat remains and the number of such actions against the Company may grow in the near term if the Company’s liquidity position is not immediately stabilized.
Yikes! As you might expect, then, the debtors’ docket is replete with motions dealing with foreign vendors and seeking to enforce the “worldwide automatic stay.”
Company Professionals:
Legal: White & Case LLP (John Cunningham, Richard Kebrdle, Philip Abelson, Samuel Hershey, Andrew Zatz, Andrea Amulic, Lilian Marques, Claire Tuffey, Peter Strom, Doah Kim, Jason Zakia) and Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch)
Independent Director: Timothy O’Connor
Financial Advisor: Riveron Consulting LLC (Robert Wagstaff)
Investment Banker: Rothschild & Co. US Inc. (Marcelo Messer)
Claims Agent: Kroll (Click here for free docket access)
Other Parties in Interest:
DIP Agent: JPMorgan Chase Bank NA
Legal: Latham & Watkins LLP (James Ktsanes, Andrew Sorkin, Jeffrey Mispagel, Amy Quartarolo) and Potter Anderson & Corroon LLP (Jeremy Ryan, Brett Haywood)
Ad Hoc Group of WOM Bondholders: Amundi Asset Management US Inc., Blackrock Financial Management Inc., Moneda SA Administradora General De Fondos, GLG Partners Limited
Legal: Dechert LLP (Allan Brilliant, Stephen Wolpert, Isaac Stevens, Vishan Patel, Matthew Williams, Stuart Steinberg, Michael Doluisio) and Young Conaway Stargatt & Taylor LLP (Robert Brady, Robert Poppiti Jr.)
Financial Advisor: Ducera Partners LLC
Indenture Trustee of the Senior Notes: US Bank NA
Legal: Greenberg Traurig LLP (Oscar Pinkas, Kalyan Das, T. Charlie Liu, Matyas Lich, Dennis Meloro, Anthony Clark)
Inter-American Investment Corporation
Legal: Allen & Overy LLP (Daniel Guyder, Chris Newcomb) and Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Erin Williamson)
Official Committee of Unsecured Creditors (Docket 115, as of 4/12/24):
Legal: Willkie Farr & Gallagher LLP (Brett Miller, Todd Goren, Craig Damast, James Burbage) and McDermott Will & Emery LLP (David Hurst, Kristin Going, Darren Azman)