Rockley Photonics makes pre-packaged Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., Jan. 23 – Rockley Photonics Holdings Ltd. filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the Southern District of New York to implement a pre-packaged Chapter 11 plan of reorganization.

The company said in court documents that it has incurred net losses since inception, accumulated a deficit of $552.5 million as of Sept. 30, negative cash flow from operations of $117.3 million for the nine months ended Sept. 30, and expects to continue incurring losses from operations for the foreseeable future.

In August, the company began discussions with prepetition noteholders to develop an approach to address its liquidity through raising additional capital, executing a sale transaction, or effectuating a consensual restructuring transaction.

On Sept. 30, the prepetition noteholders provided an additional $12.4 million in liquidity through some bridge notes and agreed to forbear from the exercise of rights and remedies due to events of default under the existing notes.

In October, they provided another $25.5 million in liquidity through the issuance of the super senior notes and extended the forbearance to allow the company to continue evaluating strategic alternatives.

After that, the debtor, with the assistance of investment banker Jefferies LLC and its other advisers, began a marketing process to assess any bids that might maximize the value of the company. They reached out to about 102 strategic and financial parties.

But, due to negative global economic developments, electronic device market headwinds, and because the company’s products are not fully developed, no indications of interest for the company’s technology materialized, nor were additional sources of liquidity found, the company said.

At the same time, the debtor engaged with the prepetition noteholders regarding potential in- and out-of-court recapitalization transactions. And after lengthy negotiations, the debtor and the prepetition noteholders agreed on the terms of the proposed plan.

The company said it has received overwhelming support for the restructuring by major stakeholders, including 100% of the prepetition noteholders.

Plan terms

The plan provides for a comprehensive recapitalization of the prepetition notes claims, anchored by the prepetition noteholders’ commitment to equitize their outstanding debt and fund about $35 million of new money to the debtor on the effective date, which will substantially deleverage the debtor’s capital structure, increase liquidity, and is designed to ensure the future viability of the company.

The prepetition noteholders’ commitment is divided between $20.7 million in exit financing – including the conversion of $5.08 million of allowed super senior notes claims into the exit financing – and a prepetition noteholder private placement for the purchase of $20 million of reorganized Rockley equity to increase the debtor’s liquidity.

Specifically, each holder of an allowed super senior notes claim will receive: its pro rata share and interest in a distribution of reorganized Rockley equity (subject to dilution by the management incentive plan and the prepetition noteholder private placement) which will constitute 74.65% of reorganized Rockley equity; its pro rata share of the $5.08 million of the exit financing; and the right to participate in the prepetition noteholder private placement to acquire its pro rata share of up to 74.65% of $20 million of reorganized Rockley equity at a 20% discount to agreed equity value. This is expected to lead to a recovery of 65.9% for the $90.65 million of claims.

Each holder of an allowed existing notes claim will receive: its pro rata share and interest in a distribution of reorganized Rockley equity (subject to dilution by the management incentive plan and the prepetition noteholder private placement) which will constitute 25.35% of reorganized Rockley equity; and the right to participate in the prepetition noteholder private placement to acquire its pro rata share of up to 25.35% of $20 million of reorganized Rockley equity at a 20% discount to agreed equity value. This is expected to lead to a recovery of 69.2% for the $29.31 million of claims.

Each holder of an allowed general unsecured claim will receive payment in cash plus post-petition interest, reinstatement of their claims, or other treatment leaving the claims unimpaired.

Each holder of an allowed intercompany claim will, at the debtor’s election with the consent of the prepetition noteholders, have its claim reinstated, converted to equity, or extinguished, compromised, addressed, setoff, canceled, or settled, potentially without any distribution on account of the claims.

Each holder of an allowed interest in the debtor will have its interest canceled and extinguished as of the effective date and will not receive any distribution on account of such interest.

Each holder of an allowed 510(b) claim will have its claim discharged and extinguished and will not receive or retain any property under the plan on account of such section 510(b) claim.

Only holders of super senior notes claims and existing notes claims were entitled to vote on the plan. The deadline to vote was 4 p.m. ET on Jan. 23.

Other details

To complete the restructuring, the company is seeking court approval to use cash collateral. The prepetition noteholders have consented to this, subject to some rights and protections.

In its petition, the company listed $90.88 million in assets and $120.73 million in liabilities.

No creditors were listed with claims of $1 million or more.

Pillsbury Winthrop Shaw Pittman LLP is proposed bankruptcy counsel.

Cheshire, U.K.-based Rockley Photonics specializes in the research and development of integrated silicon photonics chipsets. The Chapter 11 case number is 23-10081.

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