Party City gets conditional approval of disclosure statement

By Sarah Lizee

Olympia, Wash., July 31 – Party City Holdco Inc. received conditional approval of the disclosure statement for its amended Chapter 11 plan, according to an order filed Monday with the U.S. Bankruptcy Court for the Southern District of Texas.

The combined hearing on final approval of the disclosure statement and confirmation of the plan is scheduled for Sept. 6.

As previously reported, the company said the changes to the plan represent the output of extensive good-faith negotiations with affected stakeholders and enjoys the support of the informal noteholder group, which now represents about 89% of the secured notes claims, the prepetition asset-based lending agent and the official committee of unsecured creditors.

The primary modifications to the amended plan concern the following:

• Modifying the rights offering so that the subscription rights are now structured to allow participants to purchase their pro rata share of an investment package with a total purchase price of $75 million, consisting of about $75 million of new second-lien notes and 27.18% of the new common stock (subject to dilution by the management incentive plan);

• Converting the debtor-in-possession equitization option to a DIP non-cash takeout option through which the backstop DIP lenders may elect, in lieu of payment in full in cash, to convert their DIP loans into their pro rata share of up to about $149.89 million of new second-lien notes and 69.83% of new common stock (subject to dilution by the MIP), assuming all DIP backstop lenders make that election; and

• Modifying the treatment of the prepetition asset-based lending claims under the plan, given the absence of a fully funded, new-money ABL exit facility at this stage of the Chapter 11 cases.

ABL claim treatment

The amended plan classifies claims in class 3 into two sub-classes, class 3A (prepetition ABL revolver claims) and class 3B (prepetition ABL FILO claims).

Holders of class 3A claims will receive their pro rata share of takeback ABL loans, provided that, if a holder votes to accept the plan and elects to participate in the pro rata share of the ABL exit facility and the ABL exit facility trigger occurs, their claims will be deemed repaid and refinanced in full. Holders will assume a commitment with respect to the ABL exit facility equal to its commitment under the prepetition ABL facility.

Holders of class 3B claims will receive their pro rata share of the takeback FILO loans, provided that if a holder votes to accept the plan and to participate in the pro rata share of the ABL exit facility and an ABL exit facility trigger occurs, their claims will be deemed repaid and refinanced in full.

An ABL exit facility trigger will occur if holders of at least 55% of the claims in each of class 3A and class 3B vote to accept the plan, or if holders of less than 55% of the claims in either class vote to accept the plan and the debtors, with the consent of the required consenting noteholders, elect to raise the ABL exit facility with those holders of prepetition ABL claims that voted to accept the plan and elected to participate in the ABL exit facility.

ABL claimholders were previously unimpaired under the plan and weren’t entitled to vote.

Secured note claim treatment

Holders of secured notes claims will receive their pro rata share of the new common stock issued on the effective date, representing 100% of the new common stock outstanding on the effective date, subject to dilution by the new common stock issued as DIP reorganized securities, the new common stock issued in connection with the rights offering (including in partial satisfaction of the backstop commitment premium) and the MIP equity pool.

Holders will also receive subscription rights to purchase up to its pro rata share of the securities comprising the investment package.

Other terms

The plan does not change treatment for any other creditors besides those in the above classes.

As before, each holder of an allowed general unsecured claim will receive their pro rata share of the GUC recovery pool, which means the GUC trust assets less any GUC trust expenses. The GUC trust assets will include a $3.5 million cash allocation; the debtors’ rights, title and interest in the interchange litigation and interchange litigation claims, which will include the rights to recoveries in respect of such claims, other than the reorganized debtors’ interchange litigation claims allocation; and $400,000 in cash for administration of the trust.

Other secured claims and other priority claims are unimpaired.

Each holder of an allowed secured notes claim will receive its pro rata share of the new common stock, subject to dilution on account of the DIP equitization shares, any new common stock issued in connection with the equity rights offering and the management incentive plan equity pool; and subscription rights to participate in the purchase of $75 million of the new common stock offering in the equity rights offering.

Intercompany claims and interests will be reinstated or canceled.

Interests will be canceled.

Party City is a Woodcliff Lake, N.J.-based supplier of decorated party goods available at more than 800 stores and online. The company filed bankruptcy on Jan. 17, 2023 under Chapter 11 case number 23-90005.

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