LodgeNet files pre-packaged bankruptcy case to implement Colony deal

By Caroline Salls

Pittsburgh, Jan. 28 - LodgeNet Interactive Corp. made a pre-packaged Chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of New York on Jan. 27 to implement a recapitalization under which a syndicate of investors led by Colony Capital will invest $60 million in LodgeNet, according to a company news release.

LodgeNet said its business operations will continue in the normal course throughout this process, and current hospitality and health-care customers will continue to receive services without interruption.

Under the terms of the pre-packaged plan, LodgeNet's existing lenders will provide for a multi-year extension of its existing senior debt, and unsecured creditors will be paid in full in cash for any pre-bankruptcy claims.

In addition, holders of the company's existing series B preferred stock and common stock will have their interests cancelled and will not receive any distributions.

On the plan effective date, reorganized LodgeNet Interactive will issue warrants to acquire new common stock to entities and in amounts determined by Col-L Acquisition, LLC for a purchase price of $5,000. Upon exercise, the stock purchased will represent 27.5% of the outstanding new common stock.

In addition, the purchasers or their representative's designees also may purchase any number of additional shares of new common stock at a price determined in the investment agreement, up to a total additional purchase price of $30 million.

DirecTV agreement

As previously reported, Colony has executed a memorandum of understanding with DirecTV, LLC, setting the terms under which LodgeNet and DirecTV intend to operate as strategic partners within the hospitality and health-care markets.

As part of the expanded partnership between the two companies, LodgeNet said DirecTV will provide operational, technological and marketing capabilities to help deliver new and improved LodgeNet services to the industry.

LodgeNet said the Colony syndicate's investment and the new credit agreement provide added financial flexibility, while Colony Capital's industry experience and DirecTV's new contributions will ensure LodgeNet's continued market leadership.

"Our recapitalization is advancing on schedule," LodgeNet co-chief executive officers Frank Elsenbast and James Naro said in the release.

"Thanks to the overwhelming support we've received from our lenders and suppliers, and with the solid commitment of Colony Capital and an expanded strategic partnership with DirecTV, we anticipate being able to complete this process on an expedited basis, and to emerge with the capacity to launch new and exciting products that will benefit both our hospitality and health-care customers."

Recapitalization terms

Key terms of the recapitalization include the following:

• The Colony syndicate will invest $60 million in exchange for all of the new shares of common stock of LodgeNet Interactive;

• LodgeNet's existing credit agreement will be amended to provide an extension in the form of a five-year term loan in an amount equal to $346.4 million plus the amount of accrued and unpaid interest that was capitalized before the closing date, minus the original principal amount of a term B loan, as well as a seven-year term B loan of up to $125 million; and

• LodgeNet and DirecTV will enter into a new agreement under which they will work under an expanded new strategic partnership to include DirecTV branding, programming and content, advertising and support across all facets of operations, infrastructure and technology.

LodgeNet said this strategic partnership is expected to enhance the experience for new and existing hotel and health-care customers, improve service capabilities and provide additional promotional options that will reduce or eliminate capital requirements within the industry.

LodgeNet said it has secured overwhelming support from its lenders, having received lenders' votes in excess of the amounts needed for the court to approve the plan.

LodgeNet said it expects to complete its restructuring within 60 days.

DIP financing

The company said it also negotiated a debtor-in-possession facility from some of its existing lenders, which will make funds available to satisfy the customary obligations of LodgeNet's business during the course of the restructuring process.

According to an 8-K filed with the Securities and Exchange Commission, the DIP credit agreement provides for up to $30 million in non-amortizing term loans, comprised of a $15 million delayed-draw term loan facility and a dollar-for-dollar roll-up of loans of each lender and/or its affiliates under a pre-bankruptcy credit agreement up to the commitment amount of each lender.

LodgeNet said $5 million of the $15 million term loan facility will be available in a single drawing on any business day between the fifth and 10th business days after the closing of the credit agreement and an additional up to $10 million principal amount plus any undrawn portion of the first available amount will be available in up to two drawings on any business day between the fifth and 15th business days after entry of the final order.

The term loans will bear interest, at the company's option, at Base rate plus 600 basis points or Libor plus 700 bps with a 150 bps Libor floor.

The roll-up loans will continue to bear interest at the rates provided under the pre-bankruptcy credit agreement.

The DIP facility will mature on earliest of July 26, the earlier of 30 days after the entry of an interim order or the date the interim order expires if a final order has not been entered, the closing of a sale of all or substantially all of the company's assets or equity, the effective date of a plan of reorganization and acceleration of the loans.

If a plan support and lock-up agreement has not been terminated as of the maturity date, instead of repayment in cash on that date, the roll-up loans will be deemed to be outstanding under the terms of an exit credit facility and paid in accordance with that facility.

Debt details

According to court documents, LodgeNet had $291.75 million in total assets and $448.73 million of total debt as of Sept. 30.

The company's largest unsecured creditors include the following:

• DirecTV, based in El Segundo, Calif., with a $24.48 million trade claim;

• Lions Gate Films Inc. of Santa Monica, Calif., with a $2.16 million trade claim;

• Universal Pay Television of Universal City, Calif., with a $2.02 million trade claim;

• Home Box Office, Inc., based in New York, with a $1.75 million trade claim;

• Warner Home Video of New York, with a $1.44 million trade claim;

• Columbia/Sony Pictures Home Entertainment of Culver City, Calif., with a $1.36 million trade claim;

• Twentieth Century Fox of New York, with a $1.18 million trade claim; and

• Nomadix Inc. of Wilmington, Del., with a $1.11 million trade claim.

Defaults triggered

The company said in the 8-K that the bankruptcy filing constituted an event of default or otherwise triggered the acceleration of repayment obligations under a number of pre-bankruptcy instruments and agreements related to LodgeNet and its subsidiaries.

LodgeNet said a total of $346.4 million in principal amount was accelerated under its pre-bankruptcy credit agreement.

Any efforts by creditors to enforce the repayment obligations are stayed by the bankruptcy filing, the 8-K said.

Miller Buckfire & Co. LLC, FTI Consulting, Inc. and Moorgate Securities LLC served as financial advisers to LodgeNet; Weil, Gotshal & Manges LLP acted as restructuring legal counsel, and Leonard, Street and Deinard acted as corporate legal counsel to the company.

LodgeNet is a Sioux Falls, S.D.-based provider of interactive media and connectivity services to hospitality and healthcare businesses. The Chapter 11 case number is 13-10238.

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