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LodgeNet (LNET) Seeks Ch. 11 Bankruptcy; Arranges for Recapitalization

December 31, 2012 9:05 AM EST Send to a Friend
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LodgeNet Interactive Corporation (Nasdaq: LNET) has entered into a definitive agreement with a syndicate formed by an affiliate of Colony Capital (herein "Colony Syndicate"), a global investment firm with $38 billion in assets under management and a broad range of hospitality and media industry investments, pursuant to which the Colony Syndicate will provide $60 million of new capital to support a proposed recapitalization of the Company. In addition, the Company has received support from a steering committee of its lenders holding its debt for a multi-year extension of its existing $346 million secured credit facility.

The transaction will be implemented through an expedited Chapter 11 bankruptcy process, at the conclusion of which the Colony Syndicate would become the controlling stockholder of the Company. The plan of reorganization envisions that unsecured creditors of LodgeNet will be paid in full for any pre-petition claims at the conclusion of the Chapter 11 process.

Colony has also executed a memorandum of understanding with DIRECTV, LLC., setting forth certain terms pursuant to which LodgeNet and DIRECTV intend to operate as strategic partners within the hospitality and healthcare markets. As part of the expanded partnership between the two companies, DIRECTV will provide its world-class operational, technological and marketing capabilities to help deliver new and improved LodgeNet services to the industry.

Importantly, throughout this process, LodgeNet's current hospitality and healthcare customers will continue to receive LodgeNet's entertainment and connectivity services, as well as ongoing maintenance and support, without interruption.

Under the terms of these agreements, the Colony Syndicate will receive new common stock representing 100 percent ownership of LodgeNet. The Colony Syndicate's investment and the new credit agreement provide added financial flexibility, while Colony Capital's industry experience and DIRECTV's new contributions will ensure LodgeNet's continued market leadership as it works with customers to offer the best in-room entertainment and connectivity services available today.

The Company has also entered into a plan support agreement with a steering committee of its lenders holding its outstanding senior debt, pursuant to which the lenders have agreed to support the Colony Syndicate's transaction and the proposed amendment and extension of the credit agreement with its lenders, and to vote in favor of the Company's proposed plan of reorganization. The Company has also received a commitment for a debtor-in-possession (DIP) loan from certain of its lenders that would provide up to $15 million in financing, providing additional liquidity during this process.

In order to provide LodgeNet time to solicit votes on the proposed Chapter 11 plan, DIRECTV, HBO and the steering committee of lenders have agreed to extensions of their existing forbearance agreements.

Pursuant to the contemplated Chapter 11 filing, holders of the existing Series B Preferred Stock and common stock issued by LodgeNet Interactive will have their interests cancelled and will not receive any distributions.

The recapitalization is designed to enable a restructured LodgeNet Interactive to emerge from Chapter 11 on a standalone basis with strong cash flow and a solid balance sheet.

Key terms of the recapitalization include:

* The Colony Syndicate will invest $60 million in exchange for all of the new shares of common stock of LodgeNet Interactive;
* LodgeNet's existing Credit Agreement will be amended to provide an extension in the form of a 5-year term loan in an aggregate amount equal to (i) $346.4 million plus (ii) the amount of accrued and unpaid interest that was capitalized prior to the Closing Date;
* Based on the terms of the recently executed memorandum of understanding between Colony and DIRECTV, LodgeNet and DIRECTV will enter into a new agreement pursuant to which they will work under an expanded new strategic partnership, far exceeding the scope of the parties' current free-to-guest programming agreement, to include DIRECTV branding, programming and content, advertising, and support across all facets of operations, infrastructure and technology. This strategic partnership is expected to enhance the experience for new and existing hotel and healthcare customers, improve service capabilities and provide additional promotional options that will reduce or eliminate capital requirements within the industry.

Closing of the transaction is subject to various closing conditions, including Bankruptcy Court confirmation of a Chapter 11 Plan. Accordingly, no assurances can be given that the transaction will be consummated.

Miller Buckfire & Co. LLC, a wholly-owned subsidiary of Stifel Financial Corp., FTI Consulting, Inc. and Moorgate Securities LLC served as financial advisors to LodgeNet, Weil, Gotshal & Manges LLP acted as restructuring legal counsel and Leonard, Street and Deinard acted as corporate legal counsel to the Company. Guggenheim Securities, LLC served as financial advisor to Colony Capital, and Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP and Sullivan & Cromwell LLP provided legal counsel. Akin Gump Strauss Hauer & Feld LLP and CDG Group, LLC acted as advisors to the agent for the lenders.




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