RentPath files bankruptcy to implement sale and restructuring deals

By Caroline Salls

Pittsburgh, Feb. 12 – RentPath Holdings, Inc. filed Chapter 11 bankruptcy on Wednesday in the U.S. Bankruptcy Court for the District of Delaware after entering an agreement under which CoStar Group, Inc. affiliate CSGP Holdings, LLC will acquire RentPath’s business for $588 million and entering into a restructuring support agreement with holders of more than 75% of its first-lien and second-lien debt, as well as its private equity sponsors.

According to a company news release, RentPath’s operations will continue as normal throughout the sale process, including ongoing work to increase consumer traffic and grow new business segments, such as social advertising, lead management and reputation management. With the funding received as part of the Chapter 11 process, RentPath will continue to invest in marketing and product development.

“CoStar’s interest in RentPath is a testament to the value they see in what we have created, in our talented team and in the strong relationships we have built with our customers,” RentPath chief executive officer Marc Lefar said in the release. “Those will be enhanced in the combined company.”

CoStar Group founder and CEO Andrew C. Florance said in the release “By combining the companies and further investing in our growing network of marketplaces, we can better serve millions of customers by offering the best possible solutions to reach renters.”

CoStar will serve as the stalking horse bidder in a court-supervised auction and sale process. RentPath said the first-lien lenders supporting the restructuring have provided the company with a clear path to emergence while pursuing CoStar’s bid or any other higher or otherwise better offers by agreeing to backstop the sale process with a binding credit bid of their first-lien claims.

Creditor treatment

Under the restructuring support agreement, debtor-in-possession financing claims will either be paid in full in cash or converted into exit financing, depending on whether a sale to a third party or a credit bid transaction is completed.

Administrative claims, priority tax claims, and priority non-tax claims will be paid in full in cash.

Other secured claims will be reinstated or holders will be paid in full in cash or receive the collateral securing the claim.

If a sale to a third-party bidder is completed, holders of first-lien claims will receive a share of sale proceeds until paid in full in cash. If the credit bid sale is completed, these creditors will receive a share of 60% of new equity interests in the reorganized company, receive a share of the cash proceeds of any assets that are not acquired under the credit bid that constitute collateral of the first-lien claims and be entitled to participate in a new-money exit term loan B, which will entitle lenders to a share of 40% of the new equity interests.

If a second-lien condition is satisfied, holders of second-lien claims will receive distributions from a $10 million cash pool and a share of incremental sale proceeds if a third-party sale is completed and will receive the right to participate in the exit term loan B if the credit bid sale is completed. If the condition is not met, these creditors will receive a share of sale proceeds if the third-party sale is completed or no distribution if the credit bid sale is completed.

If the second-lien condition is satisfied, general unsecured claims will be paid in full. If the condition is not satisfied, these creditors will receive a share of sale proceeds if a third-party sale is completed and receive no distribution under a credit bid sale.

Holders of existing parent equity interests will receive no distribution.

DIP financing

In conjunction with the proposed sale transaction, RentPath has received a commitment for $74.1 million in DIP financing from its existing lenders, which, subject to bankruptcy court approval, will allow all RentPath sites and services to operate as usual throughout the sale process.

Royal Bank of Canada is the DIP financing agent.

The facility will mature on the earlier of Aug. 31, 2020 and the effective date of a plan of reorganization, subject to two three-month extensions.

Interest will accrue at a rate of Libor plus 700 basis points.

The company is seeking interim access to $27 million of the DIP financing.

Financials suffer

Florance said in a separate CoStar news release that “RentPath was burdened with a heavy debt load that prevented the company from making the necessary investments in building brand recognition and generating traffic from Google. As the cost of Google traffic soared, RentPath was unable to keep pace.”

CoStar said RentPath’s 2019 unaudited financials reflect revenue of roughly $227 million and adjusted EBITDA of $47 million. Total revenue declined 9% from 2018, while adjusted EBITDA declined 24% in the same period.

“Following successful conclusion of the bankruptcy process and regulatory review, we expect the acquisition to add scale to our Apartments.com business and be highly accretive to CoStar earnings once fully integrated,” CoStar Group chief financial officer Scott Wheeler said.

Debt details

According to court documents, RentPath has $100 million to $500 million in assets and $500 million to $1 billion in debt.

The company’s largest unsecured creditors are Google Inc., based in Mountain View, Calif., with a $5.05 million trade claim; Facebook, Inc., based in Menlo Park, Calif., with a $1.59 million trade claim; and Zumper, Inc. of San Francisco, with a $1.03 million trade claim.

Richards Layton & Finger, PA is representing RentPath in its Chapter 11 proceedings.

RentPath is an Atlanta-based vertical search company for apartment and home renters. The Chapter 11 case number is 20-10312.

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