By Stephanie Gleason
A group of lenders to LodgeNet--a hotel Internet and technology
provider that filed for Chapter 11 bankruptcy last year and sped
through the process in two months--are suing the reorganized
company and other lenders, saying a subsequent restructuring is
"intended to eviscerate" their rights under the company's original
bankruptcy-exit plan.
Although the lawsuit was filed with the U.S. Bankruptcy Court in
Manhattan as part of LodgeNet's original Chapter 11 case, the bulk
of the complaint involves an agreement that was negotiated months
after LodgeNet exited bankruptcy in March 2013.
Sonifi Solutions Inc., which is the name LodgeNet now uses,
again encountered financial troubles after exiting bankruptcy and
at the end of 2013 needed once more to restructure its debt,
according to the complaint filed Wednesday.
Boston-based hedge fund Mast Capital Management negotiated a
restructuring-support agreement with lenders holding 60%, or $212
million, of Sonifi's debt. The agreement provided that the lenders
that signed on would exchange three-quarters of the debt for new
priority loans, according to the complaint, and the other 25% would
be swapped for a chunk of stock that gives these lenders a lot of
voting power.
The lenders holding the rest of the debt--which includes funds
belonging to General Electric Capital Corp., Eaton Vance
Management, Landmark Partners and CIFC Corp. (CIFC)--say that this
deal gives "virtually all of [Sonifi's] value to the Participating
Lenders at the expense of the Excluded Lenders."
The complaint also alleges that the deal artificially depresses
the value of their loans, creating an opportunity for Sonifil to
purchase the debt at a deep discount.
The new restructuring violates the terms of LodgeNet's
bankruptcy-exit plan, which mandates that any changes to the plan
"apply equally" to all of the lenders, the excluded lenders said in
the complaint.
Mast has said that "it had no intention to offer the Excluded
Lenders the opportunity to participate equally" and noted that more
participation would dilute Mast and the other lenders' possible
gains in the deal, the complaint continued.
As a result, those lenders are requesting that Judge Shelley
Chapman prevent this agreement from taking effect.
Neither Mast nor Sonifi responded to request for comment
Thursday.
LodgeNet exited Chapter 11 bankruptcy on March 28, 2013, under
the control of Colony Capital LLC, which provided $60 million in
fresh capital to the company. The pre-packaged bankruptcy-exit plan
paid unsecured creditors in full, while secured creditors (which
includes both groups of lenders) received new five-year loans worth
$364 million.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Stephanie Gleason at stephanie.gleason@wsj.com
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