ORG GC Midco, LLC – Holding Company for Business Process Outsourcing Company GC Services Wins Confirmation of Prepackaged Plan; Expects to Emerge in Early December Minus $80mn of Funded Debt and Owned by Prepetition Secured Term Lenders | Daily Bankrupt Company Updates

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November 22, 2021 – The Court hearing the ORG GC Midco case confirmed the Debtor’s Amended Prepackaged Plan of Reorganization [Docket No. 105].

On November 21, 2021, in advance of its November 22nd Plan confirmation hearing, the Debtor filed an amended Prepackaged Plan and a related redline showing changes to the version filed on November 8, 2021 [Docket Nos. 85 and 86, respectively]; and further filed (i) a memorandum of law in support of Plan confirmation (the “Memorandum”) [Docket No. 88], (ii) a proposed confirmation order [Docket No. 89] and (iii) an amended Plan Supplement [Docket No. 97]. Most of the Plan changes were related to Plan mechanics (i.e., the role of New Holdco Sub) as detailed in the revised Restructuring Steps Memorandum (see below).

On November 8th ORG GC Midco, LLC (“ORG GC Midco” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, having Debtor began solicitation of its Prepackaged Plan on October 16th (immediately after execution of its restructuring support agreement, the “RSA”) with November 1 set as the voting deadline. The Plan’s only voting class, Class 3 (“Existing Term Loan Claims”) voted its $216.0mn of claims unanimously in favor of the Plan.

At filing, the Debtor, a non-operating intermediate holding company which generates revenue from subsidiary GC Services (a business process outsourcing, or “BPO,” company) noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. As is customary with prepackaged plans, the requirement to file Schedules A/B was waived by the Court.

Goals of the Chapter 11 Filings

According to the Disclosure Statement for the Debtor’s Prepackaged Plan of Reorganization, “GC Services’ intermediate holding company, Midco, has commenced this Chapter 11 Case to implement a pre-negotiated, comprehensive consensual restructuring (the ‘Restructuring’) of the Company’s funded indebtedness through a prepackaged plan of reorganization that will substantially de-lever the Company by reducing its funded indebtedness from approximately $210.33 million to approximately $130.54 million upon emergence.”

A filing day press release, noted: “Midco has commenced its Chapter 11 Case in accordance with a restructuring support agreement (the ‘RSA’) entered into with 100% of its secured term lenders…upon consummation of which the secured term lenders will become the new indirect owners of the Company. As of commencement of the Chapter 11 Case, and consistent with their obligations under the RSA, 100% of the secured term lenders have already voted to accept the Plan. The Chapter 11 Case and the Plan also enjoy the support of Midco’s shareholders. Importantly, the Plan provides for the payment of all general unsecured claims in full in the ordinary course of business. The Chapter 11 Case and Plan represent an essential step to improve financial stability and address outstanding debt obligations.

Midco has requested that the Plan be approved and the process completed within the next 30 days.”

Plan Overview

The Memorandum provides: “Although the business is operationally sound, the comprehensive, fully consensual restructuring contemplated by the Plan (the ‘Restructuring’) effectuates a significant de-leveraging of the Company’s capital structure. This Restructuring reflects an agreement by and between the Debtor and the Consenting Lenders pursuant to a Restructuring Support Agreement (each as defined below), which was executed following months of extensive, arm’s length negotiations. The Plan’s benefits are self-evident: (i) the Plan provides for the cancellation and discharge of the Existing Term Loans in the principal amount of approximately $185.3 million in exchange for (a) takeback first lien term loans in an aggregate amount of approximately $71 million, (b) takeback second lien term loans in an aggregate amount of approximately $29 million, and (c) preferred and common equity of the Reorganized Company; (ii) the holders of Existing ABL Facility Claims will be either (a) paid in full in connection with refinancing or (b) otherwise unimpaired; (iii) General Unsecured Claims are unimpaired and will receive full payment in the ordinary course of business; and (iv) all existing equity interests in the Debtor will be cancelled on the Effective Date. Importantly, the Plan will substantially de-lever the Company by approximately $117 million and significantly reduce the Company’s cash interest obligations.

The Debtor’s Disclosure Statement [Docket No. 6, filed on the claims agent’s website on October 16, 2021, provides, “As set forth in greater detail in the Plan, the Restructuring provides that:

  • the Existing Term Loans of approximately $210.3 million will be cancelled and discharged in exchange for
  1. takeback first lien term loans in an aggregate amount of approximately $71 million,
  2. takeback second lien term loans in an aggregate amount of approximately $29 million and
  3. preferred and common equity of the Reorganized Company.

More specifically: a. each holder of an Allowed Existing Term Loan Claim affiliated with BSP will receive (i) its pro rata share of Initial New 1L Loans, (ii) its pro rata share of New 2L Loans, (iii) its pro rata share of New Holdco Junior Preferred Equity and (iv) 100% of the New Holdco Common Equity; and b. each holder of an Allowed Existing Term Loan Claim affiliated with GS will receive (i) its pro rata share of Initial New 1L Loans (less the amount of Term DIP Claims outstanding immediately prior to the Effective Date rolled into Initial New 1L Loans), (ii) its pro rata share of New 2L Loans, (iii) 100% of the New Midco Equity, and (iv) as a result of receiving 100% of the New Midco Equity, GS will acquire an indirect interest in (A) 100% of the New Holdco Senior Preferred Equity and (B) its pro rata share of New Holdco Junior Preferred Equity, both of which shall be issued to the Reorganized Debtor; provided that prior to the Effective Date, GS may elect to have its pro rata share of the Initial 1L Loans (less the amount of Term DIP Claims outstanding immediately prior to the Effective Date rolled into Initial New 1L Loans) and/or its pro rata share of the New 2L Loans issued to the Reorganized Debtor.

  • holders of Existing ABL Facility Claims are unimpaired and, on the Effective Date, will be either (a) paid in full or (b) converted on a dollar-for-dollar basis into the Exit ABL Facility;
  • General Unsecured Claims are unimpaired and will receive payment of their claims in full in the ordinary course of business; and
  • existing equity interests in the Debtor will be cancelled on the Effective Date.”

The effects of the Restructuring can be summarized as follows: 

7. Amount outstanding under Existing ABL Facility fluctuates monthly. Amount herein is based on a notional size $25 million facility. As of the Petition Date, the amount outstanding under the Existing ABL Facility is approximately $13.1 million (including approximately $5.2 million in drawn letters of credit).
8. Amount reflects $30.0 million notional Exit ABL Facility, inclusive of $10 million L/C sublimit size of the Exit ABL. Facility contemplated to be upsized to $40.0 million, inclusive of $15 million L/C sublimit, at exit, subject to ongoing negotiations.
9. Total current funded indebtedness consists of principal amount outstanding as of the Petition Date.

The resulting corporate and capital structure following the Restructuring are as follows: 

Amended Restructuring Steps

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3 (“Existing Term Loan Claims”) is impaired and entitled to vote on the Plan. On the Effective Date, or as soon as practicable thereafter, (x) each holder of an Allowed Existing Term Loan Claim affiliated with BSP shall receive, in full and final satisfaction, settlement, release, and discharge of such Existing Term Loan Claim, (i) its Pro Rata share of Initial New 1L Loans, (ii) its Pro Rata share of New 2L Loans, (iii) its Pro Rata share of New Holdco Junior Preferred Equity, and (iv) 100% of the New Holdco Common Equity; and (y) each holder of an Allowed Existing Term Loan Claim affiliated with GS shall receive, in full and final satisfaction, settlement, release, and discharge of such Existing Term Loan Claim, (i) its Pro Rata share of Initial New 1L Loans (less the amount of Term DIP Claims outstanding immediately prior to the Effective Date rolled into Initial New 1L Loans), (ii) its Pro Rata share of New 2L Loans, (iii) 100% of the New Midco Equity, and (iv) as a result of receiving 100% of the New Midco Equity, GS will acquire an indirect interest in (A) 100% of the New Holdco Senior Preferred Equity and (B) its Pro Rata share of New Holdco Junior  Preferred Equity, both of which shall be issued to the Reorganized Debtor; provided that prior to the Effective Date, GS may elect to have its Pro Rata share of the Initial New 1L Loans (less the amount of Term DIP Claims outstanding immediately prior to the Effective Date rolled into Initial New 1L Loans) and/or its Pro Rata share of the New 2L Loans issued to the Reorganized Debtor
  • Class 5 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 7 (“Midco Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Voting Results:

On November 8th, the Debtors’ claims agent notified the Court of Plan voting results [Docket No. 23], which were as follows:

  • Class 3 (“Existing Term Loan Claims”): 20 claim holders, representing $215,954,131.04 in amount (or 100%) and 100% in number, voted in favor of the Plan.

Key Documents

The Disclosure Statement [Docket No. 6] attached the following documents:

  • Exhibit A: Plan
  • Exhibit B: Liquidation Analysis 

The Debtor filed Plan Supplements at Docket Nos. 28 and 97 which attached the following:

  • Exhibit A: New Board Disclosure [Docket No. 28]
  • Exhibit B: New Holdco Limited Liability Company Agreement [Docket No. 97]
  • Exhibit C: New Holdco Sub Limited Liability Company Agreement [Docket No. 97]
  • Exhibit D: Restructuring Transaction Steps [Docket No. 97]
  • Exhibit E: Schedule of Rejected Contracts [Docket No. 28]
  • Exhibit F: New 1L Facility [Docket No. 97]
  • Exhibit G: New 2L Facility [Docket No. 97]
  • Exhibit G: Exit ABL Facility [Docket No. 97]

The Declaration in support of first day filings [Docket No. 3] attached the following documents:

  • Exhibit A: Restructuring Support Agreement
  • Exhibit B: Settlement and Release Agreement

The Debtor’s Plan [Docket No. 7] attached the following documents:

  • Exhibit A: Restructuring Support Agreement
  • Exhibit B: Disclosure Statement
  • Exhibit C: LLC Agreement
  • Exhibit D: New 1L Facility Agreement
  • Exhibit E: New 2L Facility Agreement
  • Exhibit F: Term DIP Facility Agreement
  • Exhibit G: Joinder Agreement

Events Leading to the Chapter 11 Filing

The Disclosure Statement explains, “Although the business is operationally sound, the Company is significantly over-levered. For Fiscal 2020, the Company reported approximately $15 million of adjusted EBITDA (on a consolidated 52-week basis) versus approximately $218 million of total funded debt, including accrued and unpaid interest — implying leverage of approximately 14.5x EBITDA.

In the fall of 2019, the Company began struggling to comply with certain of its financial covenants under the Existing Term Loan Credit Agreement. In November 2019, the Company retained Robert Wagstaff of Riveron Management Services LLC, f/k/a Conway MacKenzie Management Services, LLC (‘Riveron’) and appointed him as Chief Restructuring Officer (‘CRO’) to assist the Company in evaluating strategic options to right-size its balance sheet and provide financial and operational leadership to the Company as it embarked on a potential restructuring process.

In January 2020, the Company failed to make a regularly scheduled interest payment due under the Existing Term Loan Credit Agreement, triggering an event of default with respect to the Existing Term Loan Credit Agreement and a cross-default with respect to the Existing ABL Facility Agreement. On April 24, 2020, the Debtor, certain of the Non-Debtor GCS Parties, and Holdings, entered into forbearance agreements with the Existing Term Loan Facility Agent, each of the Existing Term Lenders and the Existing ABL Facility Agent, which forbearance agreements expired on July 14, 2020.

On September 16, 2020, the Existing Term Loan Facility Agent delivered to the Debtor, among others, a Notice of Exercise of Rights and Remedies After Default, which, among other things, notified the Debtor, among other parties, of the Existing Term Loan Facility Agent’s decision to exercise rights under the Proxy and Power of Attorney (as defined in the Pledge and Security Agreement). On September 18, 2020, the Existing Term Loan Facility Agent executed and delivered a written consent (the ‘September 18 Written Consent’), in the name of and on behalf of Holdings, pursuant to the Proxy and Power of Attorney and the Existing Term Loan Facility Agent’s exercise of rights thereunder, pursuant to which, in accordance with Section 3.9 of the former Limited Liability Company Agreement of Midco (the ‘Former ORG GC Midco Operating Agreement’) and Section 18-302(d) of the Delaware Limited Liability Company Act, each person that was formerly serving as a manager of Midco was removed as a manager and the current three (3) person Board of independent Managers was appointed. Pursuant to the September 18 Written Consent, the Former ORG GC Midco Operating Agreement was also amended and restated in its entirety and the Amended and Restated Limited Liability Company Agreement of ORG GC Midco, LLC, effective as of September 18, 2020 (the ‘A&R ORG GC Midco Operating Agreement’), was adopted.

In October 2020, the Company retained Weil, Gotshal & Manges LLP as counsel (‘Weil’) to assist the Company in negotiating and implementing a deleveraging transaction. With Weil and Riveron’s assistance, the Company began to meaningfully engage with its Existing Term Lenders, the Existing ABL Lenders and the Sponsor regarding the terms of a potential restructuring transaction.

On November 30, 2020, the Debtor and certain of the other Non-Debtor GCS Parties entered into forbearance agreements with the Existing Term Lenders and the Existing ABL Facility Agent. Since that time, the Company has been operating under a series of extensions to those forbearance agreements as the Company assessed its strategic options and attempted to negotiate a consensual resolution of its capital structure concerns.

The Company’s precarious financial position compared to its competitors, many of which have already undergone their own balance sheet restructurings in the past 12-18 months, has begun to negatively impact the Company’s ability to attract and retain customers, as well as prevent the Company from making certain technology and/or system upgrades necessary to ensure the Company is in compliance with requirements imposed by certain regulatory and licensing authorities.

After several months of good faith, arm’s length negotiations with the Consenting Lenders, on October 16, 2021, the Debtor, the Non-Debtor GCS Parties, and the Consenting Lenders entered into the Restructuring Support Agreement, annexed to the Plan as Exhibit A. The Company’s Existing ABL Lenders have agreed to allow GC Services to continue to access the Existing ABL Facility through the consummation of the Restructuring through the Debtor’s Chapter 11 Case, at which point the Existing ABL Facility will either be refinanced or converted into the Exit ABL Facility.”

Prepetition Indebtedness

As of the date of this Disclosure Statement, the Company’s capital structure consists of approximately $210.3 million in funded debt, with respect to which the Debtor is obligated as a borrower. The Debtor’s obligations are summarized below:

  • Prepetition Term Loan Facility. The Debtor is party to a July 2017 finance agreement governing a “Prepetition Term Loan Facility” by and among Midco and certain of its affiliates, as borrowers, with BSP Agency, LLC (an affiliate of Benefit Street Partners), as administrative agent and collateral agent. As of the Petition Date, the aggregate principal amount outstanding under the Prepetition Term Loan Facility was approximately $185.3mn. Obligations under the Prepetition Term Loan Facility are secured by a first priority lien on the Term Priority Collateral.
  •  Prepetition ABL Facility. The Debtor maintains a revolving line of credit under a July 2017 credit agreement governing a “Prepetition ABL Facility” by and among GC Services Limited Partnership and certain of its affiliates, as borrowers, with JPMorgan Chase Bank N.A., as administrative agent. As of the Petition date, the aggregate amount outstanding under the Prepetition ABL Facility is approximately $13.1mn which will be converted into outstanding principal amounts under the Exit ABL Facility or paid in full in connection with refinancing the Prepetition ABL Facility with a new lender upon consummation of the Restructuring. The Company’s obligations under the Prepetition ABL Facility are secured by a first priority lien on the ABL Priority Collateral and a second priority lien on the Term Priority Collateral.

About the Debtor

According to the Debtor: “Midco is a non-operating intermediate holding company. Its primary source of revenue is derived through its second-tier subsidiary and operating company, GC Services.

Founded by Jerold B. Katz, GC Services opened its doors for business in October 1957 as a small, one-man business process outsourcing (‘BPO’) agency with one client and one employee (the founder) providing third party accounts receivable management services. It was during these early formative years that GC Services pioneered the use of automated systems that maximize the efficiency, productivity and cost-effectiveness of the accounts receivable management process. Through a dedicated approach to providing quality service and excellent results, GC Services moved into the forefront of the BPO industry.

As client needs changed, GC Services evolved and expanded in the 1980s to offer first party accounts receivable collection services. Soon after, GC Services further expanded its service offerings by creating a separate teleservices division that could meet a full range of customer care needs, eventually becoming the nation’s oldest and one of the largest privately owned business process outsourcing providers with approximately 6,000 employees and numerous call centers located across the United States and in Manila, Philippines.

In late 2015, investment funds managed by the Austin-based private equity firm, Owner Resource Group, LLC (‘ORG’ and collectively with its affiliates that own Interests, directly or indirectly, in the Debtor, including Holdings (as defined below) the ‘Sponsor’), acquired a controlling interest in the Company from the Katz family.”

Corporate Structure Chart

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