Publikációk

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DLA Piper recently acted as company’s counsel in connection with a “pre-packaged” reorganization of one of its clients, Spyrus Inc., that was successfully resolved only 37 days after the case was commenced. We believe this case highlights the satisfactory results that the pre-packaged process can have for a company in need of restructuring.

As professionals have come to realize that too much value is lost through an extended and litigious bankruptcy process, pre-packaged chapter 11 cases have become more prevalent. Prepackaged bankruptcies offer several advantages, among them certainty, lower administrative expense and a quick exit from bankruptcy. The minimal business disruption afforded by a prepackaged reorganization plan makes it an attractive alternative to the traditional “free fall” bankruptcy case.

In connection with the 2005 Amendments to the Bankruptcy Code, Congress made it easier for companies to implement a pre-packaged bankruptcy by allowing a debtor to continue post petition a solicitation of acceptances for a plan begun prepetition (11 U.S.C. § 1125(g)). Recently, DLA Piper took advantage of 1125(g) to obtain confirmation of a plan for which solicitation began prepetiton and ended post petition. DLA Piper was able to confirm a plan of reorganization for Spyrus, Inc. (In re: Terisa Systems, Inc. chapter 11 case No. 08-10462 D. Del.) merely 33 days after its chapter 11 case was commenced. To our knowledge this is the speediest successful chapter 11 case in Delaware history.

Spyrus was a prime candidate for a pre-pack because it had a discrete group of noteholder creditors and had no need for an operational restructuring. It simply needed liquidity and balance sheet restructuring. A filing was necessary because its financing efforts out of court had been blocked by a group of preferred shareholders who held veto rights over financing transactions.

The Company and the Plan

Spyrus and its affiliates are in the business of developing and selling software and other products for the electronic information security market. To develop their business and maximize the value of their patents and other intellectual property, the Spyrus companies needed a significant infusion of cash. Spyrus had been unsuccessful in its attempt to obtain necessary waivers to execute any financing out of court.

A plan was formulated that involved the conversion of existing note holder claims to equity. Funding was raised through a rights offering back-stopped by one noteholder and through debtor in possession (DIP) financing arranged through the same noteholder.

Under the Spyrus companies’ existing capital structure, their current Series B preferred interest holders (Series B holders) had the right to prevent Spyrus from engaging in a recapitalization. Any attempts to issue new equity or convert debt to equity required the approval of the Series B holders, and the Spyrus companies were unable to obtain this approval. Despite the debtors’ best efforts, the Series B holders refused to agree to any financing which would dilute their interests, regardless of the fact that, under any reasonable valuation method, the Series B holder’s interests were valueless. The Series B Holders’ refusal to permit the conversion of significant debt to equity was negatively impacting the balance sheet of the companies and limiting their growth opportunities. Spyrus determined that the most efficient way to implement the new financing was through a chapter 11 reorganization.

Spyrus commenced solicitation of acceptances and rejection from parties in interest to its plan in February 14, 2008. The ballot deadline was set at April 14, 2008. During the solicitation period, it became apparent that Spyrus required interim financing that could only be provided through the DIP.

Prior to the 2005 Amendments, if a debtor filed chapter 11 before the end of the solicitation period (or if an involuntary case was commenced against it) it would be forced to start its solicitation process from the beginning and comply with the solicitation and disclosure rules of Chapter 11. However, thanks to amended section 1125(g), Spyrus was able to continue its solicitation process uninterrupted after the filing. This change enabled Spyrus to obtain the financing it required while still accomplishing a speedy exit from bankruptcy.