OSG Group files pre-packaged Chapter 11 deal

October 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

October 2022 Issue

In August, billing and marketing firm OSG Group Holdings filed for Chapter 11 protection with a plan to trim around $134m in debt from its balance sheet.

The New Jersey-based company entered bankruptcy with $824m in debt, and has proposed a restructuring plan that would cut the overall debt load to $690.3m and allow the company to emerge from Chapter 11 by the end of August.

The company filed for bankruptcy protection in the US Bankruptcy Court in Wilmington, Delaware. OSG is owned by private equity investor Aquiline Financial Services Fund III, employs more than 4700 people worldwide and has about 6000 clients, according to court papers.

According to court documents, the proposed restructuring would honour the debt of junior creditors and transfer the company’s equity to its creditors. Aquiline Capital Partners will retain a portion of the company’s equity resulting from loans extended to the company prior to bankruptcy.

At the time of the filing, OSG had $2.3m in cash and will finance its bankruptcy case with a $25m loan from existing junior lenders. According to court documents, part of the loan will be converted into equity shares instead of being paid in cash.

However, the US Department of Justice’s bankruptcy watchdog objected to OSG’s proposed timeline, saying it did not give enough notice to creditors who could be affected by the bankruptcy, including equity shareholders and UK-based employees, as well as pension plans funded by OSG.

Under the terms of the company’s restructuring plan, OSG has secured a $25.4m debtor in possession (DIP) facility, of which $15m will be in the form of new money DIP term loans, which will convert into new equity investment in exchange for the issuance of 28.8 percent of the new convertible preferred equity, and just over $1.8m in principal amount of new mezzanine debt loans in respect of accrued interest on the rolled-up DIP term loans.

The plan will also see the conversion of approximately $157.9m of existing second lien claims to new mezzanine debt loans and 100 percent of the reorganised common equity, subject to dilution by the management incentive plan and the conversion of new convertible preferred equity. The plan also provides for the payment in full or reinstatement of all general unsecured claims.

According to OSG’s filing, the company’s shift to a digital strategy over the last decade, and particularly since the outbreak of the coronavirus (COVID-19) pandemic, as well as declining demand and pricing pressures, have forced the company to take on new complementary services such as digital technologies, which have required significant investment in technology, equipment and people, which, in turn, has increased costs for the company and impacted near-term liquidity and financial results.

OSG also suffered as a result of the “unfavourable ‘systematic’ factors” currently affecting businesses globally, according to court filings. Specifically, OSG notes that its businesses have been acutely impacted by cost inflation in the form of rising costs for necessary materials such as paper and envelopes, which, it notes, cannot always be passed on to its clients as a result of the company’s fixed price contracts.

Furthermore, in May 2021 the company experienced a malware attack which prevented it from providing services to several clients for a number of weeks. This forced OSG to shift production volume to meet key deadlines, resulting in additional missed deadlines or service-level targets and leading certain clients to shift their needs to competitors. The company noted that the attack ultimately led to a $30m decline in revenue.

OSG also stated that much of its equipment is at or nearing the end of its useful life, and investment is needed to sustain and grow its operations and revenue.

Richard Summerfield