Altice, Arini, David Jones, and Mercer

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Passing along a few key restructuring and credit news from the last few days.

Farallon is suing Altice over a €3.2bn intercompany loan and a €5.78bn stake it says was moved beyond creditors' reach. Arini's flagship fund is down more than 30% after selling over $2bn of debt, David Jones has entered administration after 188 years, and Mercer has support from holders of more than 87% of its notes for a prepackaged Chapter 11 with a $400mm rights offering.

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Two Farallon Capital Management funds just sued Altice International, alleging the group moved billions of euros beyond creditors' reach, in violation of their debt agreements. Sepia Investors and Florentis Investors filed their lawsuits on Thursday.

The complaint is challenging five transactions that occurred over several years, including one inter-company loan to Altice Luxembourg, which amounted to €3.2bn. They also claimed they were disadvantaged by Altice Luxembourg transferring its stake in Altice France to another group for little to no consideration. They believe the stake, valued at €5.78bn, should have been used to repay the intercompany loan to Altice International.

Similarly, earlier this month, many of Altice's largest creditors formed a litigation committee to file a lawsuit and renegotiate a debt restructuring with Altice while trying to seek priority over other creditors. In their filings, Farallon said they only seek relief for named plaintiffs; however, in public statements, they have claimed to be seeking relief for the broader creditor group.

Arini Capital Management's flagship hedge fund has lost more than 30% this year as declining bond prices and margin calls force the London-based investment manager to reduce its distressed-credit positions. According to the Financial Times, traders estimate that Arini has sold more than $2bn in face-value debt over the past week.

Founded in 2021 by former Credit Suisse trader Hamza Lemssouguer, Arini has grown into a $22bn alternative asset manager, with approximately $7bn in its flagship fund. Much of its success came from taking large, leveraged positions in distressed corporate debt, but several of those investments have come under significant pressure. Among its largest exposures is approximately $2bn in debt issued by Apollo-backed Brightspeed, which is preparing for a potential Chapter 11 filing. Arini also holds positions in Altice International and Aston Martin.

As the value of its investments has declined, banks providing leverage have issued margin calls, requiring Arini to raise cash. The firm has reportedly sold debt in companies including Merlin Entertainments, Claritev and Sabre, while also reducing more complex credit derivatives positions. Arini secured $1.5bn in new investor commitments in October, although only a portion had been deployed at the beginning of the month.

Find here an hour-long presentation by the firm’s founder.

Australian department store David Jones has entered voluntary administration after 188 years in business, following the breakdown of negotiations with landlords over unpaid rent and plans to reduce its store network. The retailer, which is owned by private equity firm Anchorage Capital Partners, operates approximately 38 stores across Australia and New Zealand and employs around 6,000 people.

Anchorage acquired David Jones from South Africa's Woolworths Holdings in 2023 for a reported A$100mm, a substantial discount to the A$2.1bn Woolworths paid for the business in 2014. Since then, declining sales, rising operating costs and expensive retail leases have continued to put pressure on the company. Its largest landlord, Scentre Group, which operates Westfield shopping centres, reported that David Jones had not paid rent since September 30.

The company's directors have appointed McGrathNicol as voluntary administrators, while secured lender Hilco Capital has appointed FTI Consulting as receivers and managers. The receivers will oversee ongoing operations as the administrators seek offers for a recapitalization or sale of the business. The company will continue trading during the process, although store closures and a substantial reduction in its retail footprint remain likely.

BMW is looking to combat diminished demand for its cars in the Chinese market by accelerating the rollout of its newer model, Neue Klasse, while phasing out older models faster. In such a competitive industry, the BMW CEO is hoping that consumers will have strong uptake for the newer Neue Klasse model, allowing BMW to compete with the likes of Tesla Inc. and Chinese companies like Xiaomi Corp.

In order to reach this transformation, BMW needs to cut costs, which they plan to do so by implementing AI in their factory floors and at their Munich headquarters to cut costs, as well as shedding 8,000 jobs globally. The goal is for the reorganization to be completed by mid-2027.

Their current forecast range for the automotive segment's profit margin is -0.5% to 0.5%, down from the prior range of 1-3%. However, by the start of 2030, BMW is aiming to return to its long-term auto margin target of 8-10%, and they are targeting an improvement of up to 5% as soon as 2028.

Alternative asset manager ZCG is facing financial pressure as several of its portfolio companies struggle with declining earnings and significant debt obligations. According to The Wall Street Journal, the firm manages more than $8bn in assets, while its portfolio businesses carry approximately $2bn in debt.

ZCG has also borrowed roughly $500mm from Axos Bank, using equity interests in its portfolio companies as collateral. One of its most troubled investments is casino operator Affinity Gaming, whose annual earnings have fallen from more than $110mm in 2021 to approximately $40mm in the year through June 2026. Affinity's 2027 bonds have traded below 50 cents on the dollar.

Other portfolio companies have experienced business closures and operational setbacks. The SEC is reportedly examining ZCG, although the firm has characterized the review as routine and disputes aspects of the reporting. The situation highlights the financial pressure sponsors can face when both portfolio-company debt and borrowing secured by portfolio equity become difficult to support.

Mercer International Inc. has entered into restructuring support agreements with holders of more than 87% of its 12.875% senior notes due in 2028 and 5.125% senior notes due in 2029, alongside holders of most of its common stock. The company is planning to file a prepackaged Chapter 11 case in Texas.

Mercer missed its October 1st interest payment on its senior notes due in 2028 and was able to extend its grace period to 90 days on October 30th. The company is anticipating that operations will continue despite the restructuring. Houlihan Lokey Inc., Alvarez & Marsal LLC, Latham & Watkins LLP, and Sangra Moller are advising Mercer, while Ducera Partners LLC and Paul Weiss are advising the ad hoc noteholder group.

As part of the recapitalization, there will be a fully backstopped $400mm rights offering for $420mm of new senior secured notes and $325mm of convertible preferred stock. Mercer will also establish new revolving credit facilities, which will total $300mm.

Cerca Trova Restaurant just filed for Chapter 11 bankruptcy. Once one of the largest Outback Steakhouse franchisees, they cited rising food costs, increased labor expenses, and declining customer traffic as the reason for their bankruptcy.

Court documents indicate that they have struggled, especially since the COVID-19 pandemic, with their debt increasing from $269mm in late 2020 to $449mm today. They have a proposed deal to sell their assets to Outback's parent company, Bloomin' Brands, for $26.3mm, unless a higher offer presents itself during the bankruptcy case.

Like Cerca Trova, many other restaurant franchises have been struggling. Earlier this year, Wendy's largest franchisees also filed for bankruptcy. Moreover, Red Lobster's post-Chapter 11 turnaround has continued to be scrutinized. The stress within the restaurant industry has been caused by a variety of factors, including a drop in traffic following the pandemic and Americans eating out less.

As always, I am here to help. Do not hesitate to reply to this email with any questions on recruiting, restructuring, or anything else.

Best,
Rx

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