Restructuring Plan for Quicksilver: Factors to Consider

Background and Description of the Case Study

I also need an excel sheet for calculation (this is also attached as excel supplement). Oaktree is considering how to devise a restructuring plan for Quicksilver, which has just filed for Chapter 11 bankruptcy. Oaktree already owns 45% of the face amount of 2018 US Senior Secured Notes (the “Sr Secured Notes”). As described in the case, Oaktree is potentially interested in a “distress for control” investment, through which they would become the controlling equity owner of Quicksilver. In coming up with a proposed restructuring plan, Oaktree must consider: ?-

The value of the company upon completion of a restructuring (i.e. the post-bankruptcy firm value). ?-

How should each of the classes of existing (pre-bankruptcy) debtholders be treated? Should they be reinstated? Paid off in cash? Have their claims exchanged for new debt claims and/or equity in the restructured firm?

Will the post-restructuring company have sufficient liquidity to operate? ? -

What should the post-restructuring capital structure of Quicksilver look like? If new financing is needed, where can that come from? 1. List the three most important reasons (in your opinion) why Oaktree might be interested to invest further in Quicksilver, with the goal of becoming the controlling equity owner of the restructured firm (no more than 15 words each. 2. List the three most important reasons (in your opinion) why Oaktree might NOT be interested in such an investment (also no more than 15 words each). 3. What value (TEV) must be assumed as the basis for a restructuring plan under which Oaktree would be repaid at par, in other words, receive claims in the restructured firm worth the face amount of its holdings in the Sr Secured notes?

Following Exhibit  assume the following: cash is needed to fund liquidity; the same amount of ABL debt and leases must be in place post restructuring; the 2017 Euro Senior notes (face amount $220 in US dollars) are senior in priority and the 2020 US Senior Notes are junior to the Sr Secured Notes. Note – this is not asking you to calculate a value, simply to consider what value would be sufficient to repay Oaktree at par. (Enter your $ TEV) 4. Based in the information for comparables provided in Exhibit 8, do you think this valuation is realistic? 

Assume that the Euro Notes need to be refinanced with new debt financing so that they can be paid off in full. The restructured company will then have $419 in debt outstanding, before making any payments to the 2018 Secured notes or 2020 Senior Notes [this includes: $100 to fund operating losses and cover bankruptcy costs; an ABL of $61, replacement debt for the $220 Euro Notes; and $38 capital leases]. Do you believe that restructured Quicksilver can support debt above $419?

Why or why not? In addition to the Sr Secured Notes already owned, Oaktree’s investment would consist of a “Debtor in Possession Loan” (DIP loan) to the company in bankruptcy , and sponsoring a “rights offering” (p. 8 of the case). Under a rights offering, Quicksilver would give the holders of the Sr Secured Notes an opportunity to purchase new shares of equity in the restructured company, at a discount to the assumed equity value of the restructured company. If any individual holders of the Sr Secured Notes are not interested to “exercise” these rights to purchase equity, Oaktree will “backstop” the rights offering and purchase those shares, assuring that Quicksilver will raise sufficient capital to fund its reorganization plan, including repaying the DIP loan. Why or why not might the ability to backstop a rights offering be attractive to Oaktree?