Financial distress is leading to a deluge of restructuring activity and bankruptcy filings. Big pharmaceutical M&A is still in vogue. Energy and pharma M&A also made notable showings. Meanwhile, the new regulatory environment is continuing to unfold through a combination of settlements and actions from the SEC. See our Related Resources for more on the restructuring events, M&A transactions, offerings, and regulations defining today’s business law environment.

Restructuring

General Motors surprised investors when it announced that it would not need to access an additional $2 billion in bailout funds from the federal government. It was thought that the company would need the money to stay afloat through the end of the month, but this announcement offered a glimmer of hope that the Detroit automaker may be further away from filing for bankruptcy than expected.

Oil and gas company Pacific Energy Resources has filed for Chapter 11 protection with the U.S. Bankruptcy Court in Delaware. Citing the impact of the drastic decrease in the market price of oil, the company announced that it had insufficient liquidity and cash flow and would need to seek bankruptcy protection. Pacific Energy has been approved for approximately $183 million in DIP financing from an affiliate of Goldman Sachs and Silver Point Finance LLC. The company is being represented by Pachulski Stang Ziehl & Jones.

Fleetwood Enterprises, a manufacturer of housing and recreational vehicles, filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Central District of California. The company noted the severity of the current market conditions as a factor motivating it to enter into bankruptcy. In addition, it stated that it is in the process of securing DIP financing and that the bankruptcy filing will not impact its foreign or non-operating subsidiaries. The company is being represented by Gibson Dunn & Crutcher.

Supplier of plastics processing technologies Milacron, Inc. announced that it has filed for Chapter 11 bankruptcy protection in the Southern District of Ohio.  The company cited reduced sales and orders in addition to the global economic crisis as factors in its decision. Milacron has entered into a restructuring agreement with hedge funds Avenue Capital Group and DDJ Capital Management, under which it will obtain $80 million in DIP financing. The company has also received an additional $55 million DIP commitment from GE Capital Corp., which will replace the company’s pre-petition revolver. The company is being represented by Dinsmore & Shohl.

Morristown, New Jersey-based Global Outreach S.A. filed for Chapter 11 in the U.S. Bankruptcy Court for the District of New Jersey. The petition states that the company has assets between $100 million and $500 million. The debtors are being represented by the law firm of Kasen & Kasen of Cherry Hill, New Jersey.

Long distance communication carrier Primus Telecommunications Group Inc. filed for bankruptcy protection the U.S. Bankruptcy Court in the District of Delaware. In connection, it announced that it has reached agreements with various note holders on the terms of a restructuring agreement, which the company states that if approved, would improve its liquidity by reducing debt obligations by approximately $315 million.

Australia’s global investment group Babcock & Brown was forced into administration when its bondholders rejected a restructuring plan. The company owes approximately $2.2 billion to creditors. The collapse of the investment bank is Australia’s biggest casualty of the financial crisis.

Icelandic investor Baugur Group hf announced that it would be filing for bankruptcy. The company has holdings in several high end retailers in the United States and the United Kingdom, including Saks, Inc. of New York and Debenhams plc of London. Baugur Group had been attempting to restructure its debts, but an Icelandic court ruled that its debts exceeded the value of its assets by nearly $1.3 billion.

M&A

Gilead Sciences completed a deal with CV Therapeutics valued at over $1.4 billion.  Gilead’s board approved the deal which will occur through a two-step tender offer and a second-step merger.   Cooley Godward and Latham & Watkins are the acquirer’s and target’s respective counsel.

Columbian oil and gas company Ecopetrol S.A. entered into an agreement with Enbridge Inc. to purchase an additional 24.7% equity interest in Oledoducto Central S.A. for nearly $418 million.  Ecopetrol, which had been a minority shareholder, now owns a 60% majority stake.

Paper manufacturer AbitibiBowater Inc. announced that it had signed a letter of intent with Hydro-Québec to sell its 60% interest in the Manicouagan Hydroelectric Facility for over $483 million. The deal is conditioned upon the execution of a definitive agreement.

American Apparel, the clothing retailer, sold a 20 percent stake in the company to Lion Capital, a private equity firm, for $80 million. American Apparel is near default on $16 million of debt owed to SOF Investments, an affiliate of the investment arm that manages assets for the computer magnate Michael Dell. 

Penn West Energy Trust, a Canadian oil and gas royalty trust, is buying Reece Energy Exploration for C$92 million ($71.8 million), including debt. The acquisition will be accomplished through a plan of arrangement wherein each Reece share will be exchanged for 0.125 of a Penn West trust unit

Vertex Pharmaceuticals acquired the Canadian privately held firm Virochem Pharma in a stock buyout. The acquisition was structured as a share purchase transaction, pursuant to the terms of a Share Purchase Agreement by Vertex, its wholly-owned subsidiary, Vertex Pharmaceuticals (Canada) Incorporated, ViroChem, the shareholders of ViroChem, and a representative of certain of the shareholders of ViroChem.

Offerings

There were several large public debt offerings over the past week:

Valero Energy sold $1 billion of notes in two tranches.  Barclays Capital, BNP Paribas Securities and Citigroup Global Marketing were among the underwriters.  Baker Botts served as counsel for the transaction.

Halliburton sold $2 billion of notes also in two tranches.  Citigroup Global Markets Inc., Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., and Greenwich Capital Markets, Inc. were among the underwriters.  Baker Botts served as counsel for the transaction.

CVS Caremark sold $1 billion in10-year notes.   The notes were sold with a provision where any credit downgrade or change in control would trigger the company’s repurchase of the notes at 101% of their principal amount.  Barclays Capital, Banc of America Securities, and Deutsche Bank were identified as underwriters.  Davis Polk & Wardwell served as counsel to CVS.

Boeing issued $1.85 billion of notes in three tranches.  JP Morgan, UBS Securities, and Goldman Sachs & Co. were among the named initial purchasers. Shearman & Sterling and Kirkland & Ellis were the counsels for the transaction.

ING Bank issued $2 billion in bonds under the Credit Guarantee Scheme of the State of the Netherlands.  The issue is part of the agreement with the Dutch State on an Illiquid Assets Back-up Facility, in which the company will issue EUR 10 billion.    Joint Lead Managers for the issue were Bank of America / Merrill Lynch, ING Bank, JPMorgan Chase & Co and Morgan Stanley.

The FDIC’s Temporary Liquidity Guarantee Program (TLGP) continued to breathe life into the otherwise moribund financial services corporate debt markets:

US Bancorp sold $750 million of notes under the FDIC’s TLGP.  Morgan Stanley and Wachovia Securities are the co-book runners.  Squire Sanders & Dempsey served as counsel to US Bancorp.

Keycorp issued $437 million in treasury guaranteed notes.  Credit Suisse Securities (U.S.) LLC and JP Morgan Securities are co-book runners.  Squire Sanders & Dempsey served as counsel for the transaction.

Several companies made equity offerings: 

Canada-based Iamgold Corporation issued C$300125000 worth of shares priced at C$8.75.  Underwriting the issue are Canaccord Capital Corp., TD Securities, and CIBC World Markets, among others.  Dorsey & Whitney served as counsel to Iamgold, and Fasken Martineau DuMolin LLP served as the underwriters’ counsel.

Time Warner, Inc. announced the completion of its spin-off of Time Warner Cable, Inc. The move provides Time Warner with much needed cash and gets the company completely out of the media distribution business.

Palm, Inc. announced an offering of 23.125 million shares priced at $6/share.  Morgan Stanley and JP Morgan are the joint bookrunners.  Davis Polk & Wardwell served as the counsel to Palm.

Regulation

U.K. rules introduced last year allowed auditors and clients to agree to limit auditor’s liability to an amount proportionate to their role. But the Securities and Exchange Commission (SEC) has now indicated to the U.K. government that it will not accept any limited liability agreements by British companies which are also registered with it.  Both the SEC and the U.K. Department of Business, Enterprise and Regulatory Reform said they plan to continue discussing the issue. SEC opposition has focused on the negotiation required between auditors and company directors to agree on the limits of the auditor’s liability. Officials fear this compromises auditor independence – which would not be the case if the agreements were mandatory.

Merrill Lynch agreed to pay $7 million under terms of a settlement with the SEC over the use of squawk boxes, which brokers use to communicate orders and other internal communications.  Pursuant to the settlement, Merrill Lynch agreed to a censure but did not admit or deny the commission’s allegations that it violated securities laws from 2002 to 2004 for having “inadequate policies and procedures” for institutional customers’ orders made through the squawk boxes.

Several banks announced participation in the Treasury’s original bank bailout, the Capital Purchase Program (CPP):

• First Busey Corp.
• First Reliance Bancshares, Inc.
• HSBC Financial Corp.
• Discover Financial Services

Published:  March 17, 2009