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Pharma, Retail, Energy Step Up Restructurings

By Kirk O'Neil | Published on December 31, 2018

The parade of pharmaceutical companies beginning out of court restructurings grew much larger as the year came to an end and can be expected to grow even larger in 2019 after U.S. District Judge Reed O’Connor invalidated the Affordable Care Act in a Dec. 14 ruling.

The ruling will undoubtedly be appealed by Democratic governors all the way to the U.S. Supreme Court, but in the meantime, the increased uncertainty over Obamacare will have pharmaceutical companies and other healthcare-related companies circling the wagons by way of out of court restructuring to strengthen their balance sheets to avoid Chapter 11 bankruptcy filings.

The fourth quarter of 2018 was loaded with pharmaceutical companies, retailers and energy companies launching restructurings to stay out of court.

Pharmaceutical restructurings in December were led by cancer therapy developer Hybrigenics SA‘s financing that called for investor Moonstone Investments BV injecting about $13 million of new cash into the Cambridge Mass.-headquartered biopharmaceutical group to try to save it from liquidation.

San Francisco biopharmaceutical company Achaogen Inc. launched a strategic review and restructuring in November, which could lead to a sale or merger of the company or its assets.

Acura Pharmaceuticals Inc., a specialty pharmaceutical company focusing on abuse deterrent drugs, in October secured a $1.8 million loan to refinance debt and secure working capital to keep its operations going as it seeks a licensing agreement for one of its products.

Generic pharmaceutical manufacturer Lannett Co. also in October said it may need to restructure its debt before long.

Retailers in regional malls and other shopping centers that did not meet their sales goals during the holiday season will likely be restructuring out of court to try to avoid filing Chapter 11 in 2019.

Notable retailers launching restructurings in the fourth quarter included Gymboree Group Inc. which began a strategic review in December.

Consumer beauty business Coty Inc. was restructuring its business out of court in November, while 99 Cents Only Stores LLC faced the possibility of a restructuring after Moody’s Investors Service Inc. downgraded its ratings.

New York plus-size women’s apparel retailer Fullbeauty Brands Holdings Corp. was likely heading for a restructuring after defaulting on a $345 million second-lien term loan, which led to downgrading by Moody’s and S&P Global Ratings Inc. in November.

A restructuring is likely in 2019 for e-commerce retailer Bluestem Brands Inc. after poor performance and a downgrading by S&P Global in November.

More energy companies began restructurings in the fourth quarter as oil and prices began decreasing again. West Texas Intermediate prices closed at $46.36 per barrel on Dec. 20 after reaching as much as $76.90 in the first week of October. Henry Hub natural gas prices increased to $4.70 per million Btu in November before declining to $3.69 by Dec. 20.

Exploration and production company Sanchez Energy Corp. was considering a debt restructuring in November after a ratings downgrade.

Contango Oil and Gas Co. in November refinanced a maturing revolver and evaluated strategic alternatives.

Natural gas producer Southcross Energy Partners LP in October sold assets as part of a restructuring to provide liquidity and repair its unsustainable capital structure.

Jupiter Resources Inc. was seeking restructuring deal in October after skipping an interest payment.

A number of distress factors affecting retailers, oil and gas companies and pharmaceutical companies will prompt each of these industries to continue to seek out-of-court restructurings through the remainder of the year.

Retailers will continue to restructure in 2019, as foot traffic decreases from consumers purchasing more products online from retailers led by Amazon.com Inc. (AMZN). Increased activity in internet commerce will prompt many retailers to re-examine their business models to drive more online retail traffic.

Offshore oil and gas exploration and development companies, ancillary suppliers and shipping companies will continue to deal with financial distress caused by the return of declining oil and gas prices.

Pharmaceutical companies and other healthcare companies will face financial pressures as a result of the uncertainty with the Affordable Care Act.

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