Fusion Connect files plan with reorganization and sale alternatives

By Caroline Salls

Pittsburgh, July 3 – Fusion Connect, Inc. filed a plan of reorganization and related disclosure statement Tuesday with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, the company said it filed bankruptcy to implement a restructuring support agreement with lenders holding more than 66.67% of the outstanding principal amount of its first-lien loans.

Fusion said the restructuring support agreement outlines a clear path forward to significantly deleverage its balance sheet, leading to a potential significant reduction in interest expense, which would allow for more investment in enhanced customer experience, product innovation and infrastructure.

As part of the restructuring, Fusion said it would use the protections of Chapter 11 to efficiently maximize the value of its business through a sale process that will include existing lenders and potential new investors.

According to the disclosure statement, as part of a reorganization transaction, the Fusion Connect debtors will enter into a new exit facility of up to $125 million, the proceeds of which will be used to refinance the company’s debtor-in-possession facility, pay exit costs and capitalize the balance sheet.

Holders of first-lien claims will receive their share of a first-lien lender equity distribution, provided that the distribution will be made in accordance with the terms of an equity allocation mechanism, less any new equity interests or special warrants distributable to other classes. The first-lien lenders will also receive the proceeds of a new first-lien credit facility and cash or other proceeds, if any, from the sale of the debtors’ Canadian business.

Holders of second-lien claims and general unsecured claims will either receive no distribution or receive their share of a percentage of the new equity interests and/or special warrants.

Parent equity interests will be extinguished.

After the plan effective date, reorganized Fusion Connect will adopt a post-emergence management incentive plan under which up to 10% of the new equity interests will be reserved for issuance.

As an alternative, if Fusion Connect completes a sale transaction, holders of first-lien claims will receive a share of net cash proceeds or a beneficial interest in a wind-down company until they are paid in full in cash.

Holders of second-lien claims would also receive a share of net cash proceeds or a beneficial interest in the wind-down company after first-lien claims have been paid in full, and holders of general unsecured claims will receive the same treatment after both first-lien and second-lien claims have been paid in full.

Parent equity interests would still be extinguished if a sale is completed.

Fusion is a New York-based cloud services provider. The company filed bankruptcy on June 3 under Chapter 11 case number 19-11811.

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