Cyxtera Technologies, which voluntarily filed for Chapter 11 bankruptcy relief on June 4, 2023, was granted a court order on June 29, 2023, by the U.S. Bankruptcy Court for the District of New Jersey, authorizing a series of steps to sell or attract investment in the new equity interests issued by the reorganized company. The process involves setting up marketing, auction, and bidding procedures aimed at identifying the highest or most beneficial offers, with the ultimate goal of maximizing value for its first lien lenders.
For a more comprehensive background of the current situation, refer to Dgtl Infra’s initial analysis provided in the article Cyxtera Technologies – Chapter 11 Bankruptcy Filing In-Depth.
Cyxtera’s Potential Sale Transaction – Process Overview
In March 2023, Cyxtera initiated a marketing process, led by investment banker Guggenheim Securities, with the aim of identifying third parties interested in a potential sale transaction. Simultaneously, the company was engaged in negotiations with first lien lenders to facilitate a comprehensive restructuring transaction.
On May 4, 2023, Cyxtera and the first lien lenders agreed to a dual-track process. This plan explored both recapitalizing the company by equitizing the first lien indebtedness and completing the marketing process to determine whether higher or better transactions could be consummated.
Potential Purchasers and Bids
More than 75 potential partners were contacted to gauge their interest in acquiring either some or all of Cyxtera’s assets. Of these, 37 signed non-disclosure agreements (NDAs), and 6 submitted non-binding letters of intent (LOIs).
Cyxtera is now continuing this process to attract as many high-quality bids as possible. In doing so, if an offer superior to a recapitalization transaction (namely, a debt-for-equity exchange) is identified, the company can switch to that option.
Bidding Schedule and Procedures
Cyxtera is following a schedule to finalize its marketing efforts, with a focus on minimizing administrative expenses and business disruption. The deadline for confirming whether to approve a sale transaction is set for no later than September 22, 2023.
The bidding procedures create further opportunities to market the sale of Cyxtera’s assets, receive additional bids, and, if necessary, hold an auction. This strategy aims to garner additional interest and secure the highest recovery possible for all stakeholders.
More specifically, Cyxtera has outlined the following schedule for the marketing process:
|Stalking Horse Deadline||Deadline by which Cyxtera may choose a Stalking Horse Bidder||August 16, 2023, at 5:00 pm EST|
|Final Bid Deadline||Deadline by which all binding bids must be actually received||August 18, 2023, at 5:00 pm EST|
|Auction||Date and time of the auction, if one is needed, held at the offices of Kirkland & Ellis||August 30, 2023, at 10:00 am EST|
|Notice of Successful Bidder||Cyxtera will file on the docket a notice identifying the successful bidder, assets, and key terms of the agreement||After the conclusion of the auction (if necessary)|
|Court Confirms Results||Court will consider whether to confirm the results of the auction and whether to approve the sale transaction||No later than September 22, 2023|
Sale Process and Selection
Cyxtera’s bidding procedures detail how interested parties can access due diligence materials, how bids are qualified, how an auction is conducted, and how the successful bidder is selected. Deadlines in Cyxtera’s bidding procedures are set to balance the need to provide adequate notice with the necessity for an efficient sale process.
The bidding procedures include a public announcement of the auction, requirements for potential bidders and qualified bids, options for stalking horse bid protections, and the possibility of modifying the bid procedures. For instance, each bid must be accompanied by a cash deposit equivalent to 10% of the aggregate purchase price of the bid.
To participate in the bidding process, interested parties are required to coordinate with Cyxtera’s investment banker (Guggenheim Securities), its legal counsel (Kirkland & Ellis), and the legal counsel representing the ad hoc group of first lien lenders (Gibson, Dunn & Crutcher).
- Guggenheim Securities: Ronen Bojmel, Josh Mendelsohn, and Andrew Goodman
- Kirkland & Ellis: Christopher Marcus and Derek Hunter
- Gibson, Dunn & Crutcher: Scott Greenberg, Steven Domanowski, and Stephen Silverman
Stalking Horse Bidders and Protections
Cyxtera has the discretion to select one or more acceptable bidders, known as stalking horse bidders, for an auction if multiple qualified bids are received. This selection, however, is optional and must be made in consultation with the first lien lenders, as well as the official committee of unsecured creditors, which is chaired by CBRE Investment Management.
A stalking horse bidder would set a floor for further bidding, potentially increasing the consideration received in exchange for Cyxtera’s assets. This would be beneficial to the company’s estates.
Should a stalking horse agreement be reached, Cyxtera has court approval to offer bid protections to any potential stalking horse bidder. These protections include a breakup fee and expense reimbursement, each up to 3% of the proposed purchase price.
Secured creditors of Cyxtera have the right to “credit bid” in this Chapter 11 bankruptcy process. This allows a secured creditor to bid at the bankruptcy auction, using the debt owed to them as credit instead of cash. This right is crucial for secured creditors, as it ensures they can protect their interests in the assets securing their claims. Ultimately, credit bidding can discourage low bids, as secured creditors have the ability to bid up to the full value of their claim.