STG Logistics, a provider of “port-to-door services” and shipping solutions, entered Chapter 11 12 January with a restructuring support agreement (RSA) with shareholders Wind Point Partners AAV II and Reception Oaktree Aggregator and certain of its affiliates, an ad hoc group of STG Distribution lenders and certain other lenders holding STG Distribution loans.

Members of the ad hoc group of holders of STG Logistics’ term and revolving loans, led by Antares Capital, control 88.6% of the first-out term loans 60.1% of the second-out term loans. Antares Capital Advisors holds the largest chunk of debt in the second-out term loans, with a USD 92.1m position. Of the first-out term loan debt, Fortress Credit Advisors holds the largest tranche, at about USD 36.9m.

The following table discloses the group members and their holdings.

The debtors entered Chapter 11 with over USD 1.1bn in funded debt, which is summarized in the following table.

The RSA

Pursuant to the RSA, the parties agreed to a Chapter 11 plan that will equitize all or a portion of the DIP financing claims (discussed below), the FLFO term loan claims, and the FLSO term loan claims – i.e., a recapitalization transaction. However, the plan will also include an option to toggle to one or more sales of all, substantially all, or a portion of the debtors’ assets or reorganized equity interests  – i.e., a sale transaction. The RSA provides for a toggle to a sale of the debtors’ assets to the highest bidder, which may include a credit bid submitted by the DIP lenders and/or the “Required First-Out Lenders,” which is defined in the underlying credit agreement – not in the RSA.

Because, according to STG’s Chief Financial Officer Tyler Holtgreven, the debtors only had approximately USD 34m in unrestricted cash on hand on the petition date, they propose to fund the case with a USD 294m delayed draw priming DIP term loan facility that includes USD 150m in new money and a roll-up of approximately USD 144m of the FLFO and FLSO term loan debt. Wilmington Savings Fund Society is the agent on the DIP facility, which is being provided by holders of FLFO and FLSO term loans who elect to participate.

On the plan’s effective date, if the recapitalization transaction occurs, (i) holders of FLFO term loan claims who elect to participate will exchange certain of those claims for takeback term loans in amounts discussed below and (ii) the debtors will enter into an exit RCF facility with certain holders of FLFO RCF claims.

Distributions

In terms of recoveries, creditor treatment varies depending on whether the company pursues the recapitalization transaction or a sale.

Equipment financing claims, which total approximately USD 97m, are claims under equipment lease agreements between the debtors and certain banks and finance companies pursuant to which the debtors lease equipment for a definite term. If a recapitalization occurs, creditors holding these claims will receive takeback debt (Takeback Equipment Financing Debt) pertaining to their collateral. If a sale occurs, they will receive either a return of their collateral or their pro rata distribution of cash minus (i) an amount to be agreed on by the required consenting FLFO term lenders (i.e., FLFO term lenders that signed on to the RSA) and the debtors to fund the estimated fees, costs, and expenses necessary to administer and wind down, including sufficient funds for payment of administrative expense costs, (ii) the RCF Cash Account,[1] and (iii) the Sale Payment Amount,[2] if any. Such amount is referred to as the Net Distributable Cash.

Treatment of creditors holding FLFO RCF claims will further depend on whether such creditors commit to provide an exit RCF commitment under the exit RCF facility by signing on to the RSA (thereby becoming a “Committed RCF Holder”). The exit RCF facility refers to a revolving credit facility that the applicable post effective date debtors will enter into on the effective date if the recapitalization transaction is consummated. If a recapitalization transaction occurs, Committed RCF Holders will receive the “Committed RCF Treatment,” which means, (i) the deemed issuance under the exit RCF facility of any outstanding and undrawn letters of credit issued by such creditor under the FLFO RCF facility, (ii) the issuance to such creditor of revolving loans under the exit RCF facility in an amount equal to the outstanding revolving loans and letter of credit obligations (other than with respect to any outstanding and undrawn letters of credit) owed to such creditor, (iii) the distribution to such creditor of its share of any cash received by any company from the beneficiary of any letter of credit after a draw thereunder in excess of the obligations of the company to such beneficiary (which will replenish capacity under the exit RCF facility) and (iv) to the extent the letters of credit and revolving loans described in clause (i) would otherwise result in such creditor having aggregate exposure under the exit RCF facility on the effective date that exceeds its exit RCF commitment, such creditor will be entitled to repayment or cash collateralization in an amount equal to such excess, in each case on terms and conditions acceptable to the required Consenting FLFO RCF lenders.

If a sale occurs, Committed RCF Holders will either be repaid or receive cash collateralization from the RCF cash account in accordance with certain protections, which must be included in any order approving the DIP financing, including among other things, that all funds held in the RCF cash account (i) will be subject to a first priority, automatically perfected lien in favor of such creditors to secure their FLFO RCF claims, and (ii) may not be used to fund the wind down of the estate or the carve out or otherwise available for any use or purpose other than the repayment or cash collateralization of the beneficiary’s FLFO RCF claims.

Holders of FLFO RCF claims who are not Committed RCF Holders will receive treatment in accordance with, and pro rata to, the FLFO term loan claims.

On the effective date, if a recapitalization occurs, the reorganized debtors will issue a USD 100m term loan facility (plus the principal amount of the exit RCF facility) that will refinance certain of the FLFO term loan claims, which are primarily held by the ad hoc lender group, – i.e., the takeback term loans. Creditors holding FLFO term loan claims will receive, if a recapitalization occurs, their pro rata share of takeback term loans, subject to the Allocation Condition,[3] and 40% of the equity of the reorganized debtor, subject to dilution from up to 10% of the equity of the reorganized STG Distribution (referred to as reorganized equity) on a fully diluted basis, that will be set aside for distribution under the management incentive plan (MIP Equity).

If a sale occurs, creditors holding FLFO term loan claims will receive their pro rata distributions of Net Distributable Cash following the FLFO Payment.

In the event of a recapitalization transaction, holders of Reception Purchaser first lien claims will receive their pro rata share of the takeback term loans, subject to the Allocation Condition. If a sale occurs, they will receive their pro rata distribution of Net Distributable Cash attributable to their collateral, subject to the Allocation Condition. Although the RSA does not define the claims that would fall within this class, we note that the Reception Purchaser RCF and term loans are secured by a first lien on substantially al of the assets of the Reception Purchaser loan parties. Reception Purchaser is one of the Chapter 11 debtors. The following corporate organization chart attached as an exhibit to Holtgreven’s declaration sets forth Reception Purchaser’s place in the company’s structure.

Holders of FLSO term loan claims will receive their pro rata share of 2.5% of the reorganized equity, subject to dilution by the MIP Equity if a recapitalization occurs, or if a sale occurs, following the FLSO Payment (defined above in FN 2), their pro rata distribution of the Net Distributable Cash, subject to payment in full in cash of the FLFO term loan claims and subject to the terms of the STG Distribution Credit Agreement entered into as of 3 October 2024.

Holders of FLTO term loan claims will be wiped out if a recapitalization transaction occurs, but in the event the debtors pursue a sale, they will receive their pro rata distribution of Net Distributable Cash, subject to full payment in cash of the FLSO term loan claims and subject to the terms of the STG Distribution Credit Agreement .

If the requisite number and amount of holders of FLSO term loan claims in Class 5 vote to accept the plan (this is referenced as the Second Out Condition), holders of auto liability claims (which are not expressly defined), will be left unimpaired if a recapitalization occurs. In the event of a sale, they will be given their pro rata distribution of Net Distributable Cash, subject to payment in full in cash of the FLTO term loan claims. The RSA does not specify what holders of auto liability claims will receive if Class 5 does not vote to accept the plan.

General unsecured creditors also would be wiped out if a recapitalization transaction occurs but have the prospect of a recovery under a sale scenario. If a sale occurs, they will receive their pro rata share of the Net Distributable Assets if the FLTO term loan claims are paid in full in cash. Given their bleak recovery prospects, we would expect any unsecured creditors committee (which has not yet been formed) to actively investigate the debtors’ books and records, including  potential causes of action, to determine whether there is any value to be gained for unsecured creditors.

Shareholders also will be wiped out in the event of a recapitalization transaction. If a sale occurs, they will be entitled to receive their pro rata share of the Net Distributable Cash only after payment in full of any claims arising from rescission of, or damages arising from, the purchase or sale of a security of a debtor. Creditors holding those claims, referred to as section 501(b) claims, are set to be wiped out under a recapitalization scenario and, under a sale scenario, ) receive their pro rata distribution of Net Distributable Cash, subject to payment in full of all general unsecured claims and auto liability claims.

On the effective date, if the recapitalization transaction occurs, DIP lenders will receive (i) on account of new money DIP claims, 57.5% of the reorganized equity (subject to dilution by the MIP Equity), (ii) on account of first out roll-up DIP claims, if any, treatment consistent with the FLFO claims, and (iii) on account of second out roll-up DIP claims, if any, treatment consistent with the FLSO term loan claims. If a sale transaction occurs, DIP lenders’ treatment will be set forth in the sale order. The RSA further provides that any sale order must provide that, immediately upon the sale closing, DIP claims must be paid in full in cash.

As a result of the distributions discussed above, members of the ad hoc lender group are poised to hold most of the reorganized equity if the debtors pursue a recapitalization transaction.

Additional RSA provisions

The RSA provides that various parties will receive non-debtor releases under the plan, including the parties that signed on to the RSA, the prepetition agents, the DIP lenders and the agent under the DIP loan.

The RSA also contains a series of milestones, including a 13 March bid, a 20 March auction, and a sale hearing on or about 28 March. The RSA milestones also require the debtors to (i) file a motion seeking approval of a disclosure statement no later than 14 days following the petition date, and (ii) obtain approval of such motion within 75 days of the petition date. Other milestones require that a confirmation order be entered within 115 days of the petition date and that the plan becomes effective within 125 days of the effective date.

LME litigation

Arguably the most notable provision of the RSA is the “Litigation Condition.” This condition concerns litigation commenced by Axos Financial and Siemens Financial Services, in which they challenge a dropdown and double dip transaction that, they argue, violated sacred rights provisions of the credit agreement. Axos and Siemens filed their complaint in the New York State Supreme Court against STG Distribution and certain of its affiliates, various lenders that participated in the 2024 liability management exercise (LME) at issue, and Antares Capital, which acted as administrative agent while certain of its affiliates that participated in the LME.

As the Debtwire legal analyst team discussed, the various defendant groups moved to dismiss multiple counts of the complaint on a number of grounds. On 3 January, Justice Anar Rathod Patel denied most of their dismissal requests, dealing a blow to STG Distribution and participating lenders. All members of the ad hoc group have been named as participating lenders in the complaint. STG appealed her ruling on 7 January.

According to the Litigation Condition, in order for the contemplated Chapter 11 plan to become effective, the bankruptcy court must have “to the maximum extent allowable by applicable law” issued a judgment, ruling, finding or other determination, that is reasonably acceptable to the required consenting FLFO term lenders (i.e., FLFO term lenders that are parties to the RSA holding at least 66.67% of the aggregate outstanding principal amount of FLFO term loans held by FLFO term lenders that are parties to the RSA), denying, dismissing, or otherwise adverse to the relief sought by Axos and Siemens in the litigation or otherwise determining that the LME fully complied with the governing credit agreement and any other relevant documentation and does not give rise to any claims related thereto.

While the state court litigation likely will be stayed as a result of the Chapter 11 filing, the debtors have not yet commenced an adversary proceeding seeking such a ruling from the bankruptcy court. Given the RSA milestone requiring that a confirmation order be entered within 115 days of the bankruptcy filing, we would expect that the debtors would commence an adversary proceeding seeking a ruling that would satisfy the Litigation Condition as soon as possible.

Judge Mark Edward Hall of the US Bankruptcy Court for the District of New Jersey held a first day hearing  on 13 January and, as Debtwire reported, approved the DIP financing on an interim basis over the objections of a number of parties, including Axos and Siemens.

Related Links:

Restructuring Support Agreement
Case Profile
Debtwire Dockets: STG Logistics, Inc
Debtwire Restructuring Database: STG Logistics, Inc

Prior to joining Debtwire, Sara was a law clerk to two judges in the United States Bankruptcy Court, S.D.N.Y. and practiced in the Financial Restructuring Group at Clifford Chance, where she represented financial institutions (as secured and unsecured creditors, defendants in adversary proceedings, and participants in DIP financings) in high-profile restructurings. She also represented foreign representatives in Chapter 15 cross-border cases.

This article should not be relied upon to make investment decisions. Furthermore, this article is not intended and should not be construed as legal advice. ION Analytics does not provide any legal advice, and clients should consult with their own legal counsel for matters requiring legal advice. All information is sourced from either the public domain, ION Analytics data or intelligence, and ION Analytics cannot and does not verify or guarantee the adequacy, accuracy or completeness of any source document. No representation is made that it is current, complete or accurate. The information herein is not intended to be used as a basis for investing and does not constitute an offer to buy or sell any securities or investment strategy. The information herein is for informational purposes only and ION Analytics accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. 

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[1] In exchange for providing the exit RCF commitments, the STG parties will establish, in a manner acceptable to the required consenting FLFO RCF lenders, a restricted segregated cash account equal to 100% of the principal amount of the letter of credit exposure of the committed RCF holders, totaling approximately USD 25m assuming 100% of FLFO RCF holders are committed RCF holders. These funds, referred to as the RCF Cash Account, will be held by the debtors in trust for the sole benefit of the committed RCF holders.

[2] The RSA provides that any sale order must, unless otherwise consented to by the required consenting FLFO term lenders and any other consenting lender, among other things, provide, immediately upon closing of such sale for, among other things, (i) payment in full in cash of the DIP Claims (DIP Payment), (ii) to the extent the proceeds of the sale following the DIP Payment exceed the amount of FLFO term loan claims, payment in full in cash of the FLFO term loan claims (the FLFO Payment) or, to the extent the proceeds of the sale following the DIP Payment do not exceed the amount of FLFO term loan claims, payment in cash of the FLFO term loan claims on terms reasonably acceptable to the required consenting FLFO term lenders, (ii) to the extent the sale proceeds following the DIP Payment and FLFO Payment exceed the amount of FLSO term loan claims, payment in full in cash of the FLSO term loan claims or, to the extent the proceeds of the sale following the DIP Payment and FLFO Payment do not exceed the amount of FLSO term loan claims, payment in cash of the FLSO term loan claims on terms reasonably acceptable to the required consenting FLSO term lenders (the FLSO Payment and together with the DIP Payment and the FLFO Payment, the Sale Payment Amount).

[3] The RSA provides that it is a condition precedent to a plan becoming effective that such plan must provide for an allocation of value as between the STG Distribution LLC debtor silo and the Reception Purchaser, LLC debtor silo that is acceptable to each of the debtors and the required consenting FLFO term lenders that includes, without limitation, full value for the intercompany notes claims and the STG Distribution guaranty claims. This is referred to as the Allocation Condition.