August 30, 2022
Lumileds Plans to Emerge from Chapter 11 in 60 Days
Company plans to swiftly gain financing, pay creditors and shift ownership to lenders
More details and context have emerged relating to Lumileds’ Monday petition for Chapter 11 bankruptcy protection. The prepackaged nature of the filing demonstrates that the company has been rounding up the necessary support from creditors and other stakeholders ahead of the filing and intends to have its prepackaged plan approved by the court and restructuring in motion within 60 days.
The messaging that Lumileds has been communicating to employees and business partners this week has been upbeat – framing Monday’s announcement of the Chapter 11 proceedings as a very positive day for Lumileds.
The bankruptcy filing is being described as a financial transaction that is utilizing the Chapter 11 process to affect that transaction as swiftly as possible. As we previously reported, Lumileds expects to continue operating its businesses and facilities in the ordinary course without disruption to its customers, vendors, suppliers, or employees.
Lumileds operates in 30 countries, but only the Netherlands and United States businesses are involved in the restructuring because the debt is held in the Netherlands and the credit agreements are in the United States.
Prepackaged Chapter 11 filings are designed for quick restructuring
Two challenges of successful Chapter 11 restructuring is that the proceedings often cost too much and take too long for debtors to emerge as a healthy and viable company. To shorten the in-court portion of a corporate reorganization, prepackaged filings, like Lumileds', typically require a great deal of negotiation and coordination prior to filing. This is evident in Lumileds’ filing of a 60-page proposed plan to the court that laid out all of the lending and financial levers that it plans to execute upon plan approval.
In recent years, companies like Broadvision, Atlas Resource Partners and Chaparral Energy each went from Chapter 11 petition to plan approval in less than 60 days. In 2019, the prepackaged filing by FULLBEAUTY Brands Holdings sped through the process in just four days. Lumileds reportedly started planning the bankruptcy process several months ago which will now possibly enable them to accelerate through the bankruptcy process and hit the 60-day timetable that Lumileds estimates.
Creditors are expected to get paid swiftly
Unsecured creditors, some with six- or seven-figure balances may get antsy when they learn that a company on their accounts receivable list filed for Chapter 11 bankruptcy, but Lumileds is reportedly telling its creditors that all general unsecured claims will be paid within two to three weeks, not months or years.
Current owners lose their ownership stake. Lenders become new owners.
Some stakeholders are in a much weaker position as a result of the proceeding. Most notably, the two current major shareholders, Apollo Global Management and Royal Philips, will likely be walking away empty handed. In 2017, Apollo paid $1.5 billion for an 80.1% stake in Lumileds. Royal Philips, the parent company to Philips Lighting at the time, has retained its 19.9% Lumileds stake that was once valued at $400 million.
Sources tell us that both Apollo and Royal Philips were informed about the impending restructuring and neither party is expected to oppose or object to the proceedings.
First lien lenders have a secured interest for the face value of Lumileds’ $1.7 billion in debt. The lenders will be receiving only a portion of the $1.7 billion due and will receive the balance in equity. If the plan is approved, some of the largest Lumileds shareholders will be Anchorage Capital Group, Nut Tree Capital Management, Nuveen Asset Management and Brigade Capital Management.
There could be additional next order effects that may hinder Lumileds’ business – as a recent bankruptcy could impact the company’s buying power or cause it to operate in a leaner, more efficient manner as it restructures.
Next steps
A hearing as been scheduled for today, August 30, 2022 at 2:00 p.m., before the Honorable Lisa G. Beckerman, United States Bankruptcy Judge for the Southern District of New York. She is scheduled to review a litany of motions relating to cash management, financing and employee wage payments.
