Multiple creditors are fighting a pitched battle over the Chapter 11 bankruptcy plan worked out between Gibson Brands and their major debt holders and submitted to the Bankruptcy Court. Some of this was to be expected, as there was a large pool of unsecured creditors who did not participate in the pre-bankruptcy negotiations. But now, even one of the secured creditors – a power player in their own right – has turned on the other secured creditors, joining in with the unsecured creditors and potentially jeopardizing the whole plan, according to a report by the Nashville Post.
See what all the fighting is about…
Initially, we had reported that one large unsecured creditor – Philips – was likely to make their presence known, as the initial plan filed by the company with the court, favored the large secured bondholders. The nice tidy package they had put together for the court, would result in these bondholders ultimately converting their debt to equity, becoming the majority owners in the surviving entity.
Not factored in any meaningful way were the unsecured creditors, such as Philips, who came out with guns blazing. To some degree, that was predictable. What was not predictable though, was the tact that these creditors took, questioning the tactics the company used to sell itself to other potential buyers pre-bankruptcy…suggesting their efforts were insufficient.
Was the Claimed Past Effort to Sell Gibson Just a ‘Ruse’
The creditors began to question whether there may have been some bad faith in that effort. In fact, it was suggested that perhaps the efforts described to sell the company may have been just a ruse. The unsecured creditors were joined by a division of another private equity kingpin – the Blackstone Group – who collectively have decried Gibson’s effort to sell the company was flawed according to the report. As a result, this flawed plan, these creditors say, is “patently unconfirmable” as it “impermissibly favors insiders, equity holders, and the [KKR-led secured bondholders].”
GSO Capital Partners is the division of Blackstone Group that was originally part of the secured creditor group, but pulled away to join in with the unsecured creditors. GSO has some sway in this matter, both because of the reputation of the firm and the fact that it loaned Gibson $130 million in 2017. GSO says that Gibson’s sale efforts earlier were “designed to manufacture evidence of market indifference and ultimately hand the Debtors’ business to the KKR Group.’ GSO also noted that Gibson executives have on multiple occasions described “multiple other potential offers” in board presentations…that is, before they filed for bankruptcy.
The Court Should Force a Sale for a Better Deal
Even though GSO has requested copies of those other offers, the company has not produced any up to now. In a filing, the creditor said, “GSO supports a sale process here because, unlike in many Chapter 11 cases, there is actual evidence of interest from credible third-party bidders who may be willing to purchase the company at a much higher valuation than the one current posited.”
These insurgent creditors are requesting the court postpone deciding on Gibson’s plan and, preferably, to force the company to scour the market for possible buyers. GSO has even offered to provide bridge financing to give the company time to sell itself to third party buyers.
Gibson Execs, We Tried But Nobody Bought
Gibson executives reiterated what they said in their original bankruptcy filing, where they revealed that the company had contacted 58 parties to discuss a sale, recapitalization, or some other type of transaction. Of those 58 entities, 27 signed non-disclosure agreements to take a closer look at both the Gibson musical instrument division and the consumer electronics division. And out of all of that, no deals were forthcoming.