Modular Space files pre-packaged bankruptcy, inks restructuring deal

By Caroline Salls

Pittsburgh, Dec. 21 – Modular Space Corp. made a pre-packaged Chapter 11 bankruptcy filing Wednesday in the U.S. Bankruptcy Court for the District of Delaware to implement a financial restructuring agreement reached with its lenders and bondholders and an equity sponsor.

In addition, one Modular Space affiliate initiated a proceeding under the Companies’ Creditors Arrangement Act in Canada to implement the restructuring.

Restructuring terms

According to a company news release, the restructuring will eliminate roughly $400 million of debt from Modular Space’s balance sheet, provide $90 million of new equity capital from the bondholders via a rights offering and include a new $719 million credit facility to be provided by the existing asset-based lenders.

This transaction is supported by all of the lenders, 78% of the holders of the company’s 10¼% senior secured second-lien notes due 2019 and Modular Space’s primary equityholder.

Under the company’s pre-packaged plan of reorganization, all trade creditors will be paid in full and on time, and employee wages and benefits will be paid in full in the ordinary course without interruption.

Customer orders will be fulfilled consistent with past practice without delay or disruption.

Noteholders will receive substantially all of the common stock in the reorganized company in exchange for existing claims for outstanding principal and accrued interest.

Existing equityholders will retain a small equity interest in the reorganized company.

Rights offering

Modular Space said the equity interests received by the noteholders and existing equityholders will be significantly diluted by the equity interests issued in connection with the rights offering.

Under the rights offering, noteholders may subscribe to purchase an additional 18.32 million shares of equity in the reorganized entity.

In exchange for their agreement to backstop the rights offering, some members of an informal noteholder group would receive a backstop fee equal to 5%, or 915,875 shares, of the equity offered in the rights offering

“This is a positive action for ModSpace,” president and chief executive officer Charles Paquin said in the release. “Through this, we will de-lever our balance sheet and provide an infusion of new capital upon which to grow.”

The restructuring is expected to be completed by the end of February.

DIP financing

In conjunction with the bankruptcy filing, the company said it received debtor-in-possession financing commitments from its existing lenders that will fund Modular Space’s operations during the Chapter 11 and CCAA cases.

The $768 million in financing will be comprised of a $568 million revolving line of credit for the U.S. borrowers and up to $200 million in revolving loans and letters of credit for Canadian borrowers.

The DIP financing package also includes a roll-up in the amount of unpaid principal balance and other obligations of the U.S. borrowers to its U.S. term lenders.

Bank of America, NA is the DIP financing agent.

The DIP financing will mature on Feb. 28.

Interest will accrue at a rate of either the Base rate plus 350 basis points or Libor plus 450 bps.

“Over the last 12 months the company has explored a variety of financial, operational and strategic initiatives, including a merger that was determined not to be in the best interest of the company and its stakeholders,” Paquin said in the release.

“These activities have placed an additional burden on the organization, and I believe that our team has done a great job managing through the circumstances.

“We will now have a strong balance sheet that complements our outstanding operation and industry-leading market position.”

Debt details

According to court documents, Modular Space has $1 billion to $10 billion in both assets and debt. Specifically, the company said it had $984.2 million of outstanding long-term debt and $37.7 of accrued interest as of Wednesday.

The company did not list any unsecured creditors with claims of $1 million or more.

Cleary Gottlieb Steen & Hamilton LLP is acting as legal counsel for the company; Lazard Middle Market LLC and Lazard Freres & Co. LLC are acting as the company’s investment bankers, and Zolfo Cooper is the company’s financial adviser. Dechert LLP is acting as legal counsel and Moelis & Company LLC is acting as financial adviser to an informal group of noteholders.

Berwyn, Pa.-based Modular Space sells and services modular space structures and storage containers. The Chapter 11 case number is 16-12825.

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