Term Sheet — Thursday, May 25

May 26, 2016, 2:03 PM UTC

The Walking Rider

Last December, Sen. Harry Reid tried tacking an amendment onto an omnibus spending bill that would have retroactively shielded two private equity firms ― Apollo Global Management and TPG Capital ― from junior bondholder claims related to the nightmarish bankruptcy of casino chain Caesars.

The rider would have more explicitly defined something called the Trust Indenture Act of 1939, an arcane piece of bankruptcy law that was designed to protect minority shareholders in out-of-court restructurings. A couple of recent court rulings had argued that the law should be interpreted fairly broadly, in that issuers should be prevented from not only legally impairing principal or interest payments without bondholder assent, but also from practically doing so via asset stripping and other feats of financial engineering. What Reid and Caesars wanted was to codify Congressional intent narrowly (and retroactively), arguing that the broader interpretations could empower just one or two small and disruptive bondholders to the detriment of the "held up" company, its employees, customers and other bondholders.

Reid ultimately relented, but Fortune has learned that this bill is anything but dead. Several letters are circulating through Congress right now arguing that the TIA needs amending, including one from the Chamber of Congress (dated 3/31/16) and from the Colorado Oil & Gas Association (dated 3/7/16).

There also is an unsigned letter that explicitly goes after one of Caesars' junior bondholders, Oaktree Capital Management, asserting that the investment firm (via attorneys at Milbank Tweed) preferred a narrower interpretation of TIA during what became known as the Marblegate case (in which Oaktree was a senior bondholder, and ended up on the wrong side of the judge's decision). My best guess is this letter was authored by someone close to Caesars ― even though it also speaks to a handful of recent energy company restructurings ― and basically paints Oaktree as willing to fight for whichever side of the TIA argument is paved with potential profits.

The only trouble is that Oaktree disputes the unsigned letter, with a firm spokesman telling Fortune that: (a) "Oaktree was not involved in the drafting of the brief filed by Milbank Tweed;" and (b) "Oaktree ceased to actively participate in the steering committee of term loan lenders represented by Milbank Tweed some time before the filing of the brief, and its formal termination as a member of the committee came a week or so after the filing. That termination disassociated Oaktree from the brief and Oaktree has had no involvement in the Marblegate/Education Management litigation since that time.”

It also is worth noting that Oaktree has a lot more on the line with Caesars than it did with Marblegate. That latter case related to $217 million in bonds held by Oaktree and others, while a court-appointed bankruptcy examiner recently found that Caesars could be found liable for paying out between $3.6 billion and $5.1 billion to its dissenting creditor group (largely due to Apollo-orchestrated asset-shifting that, arguably, contravened the broader interpretation of TIA).

The unsigned letter, which seems to have been widely-circulated, also pushes for expedited action:

"It is not necessary for Congress to introduce stand-alone legislation or hold public hearings when it is simply acting to overturn rogue court decisions by restoring well-established law, especially when such decisions introduce an alarming new risk to markets."

There had been some talk that the new TIA rider would get added to the Puerto Rico rescue bill, but that didn't come to pass. Maybe because that particular piece of legislation required a lot of partisan balancing, and no one wanted to complicate matters by adding an unrelated rider that would have generated headlines about bailing out a couple of giant buyout firms (yeah ― that would have trumped narratives about helping save energy sector jobs).

So advocates are looking at the limited number of remaining bills in this Congressional year, to find the best staple base. Actually reforming the corporate bankruptcy process ― the absurd length of which is why this is arguably an issue in the first place ― is, of course, not on the table.

Today in Theranos: The blood-testing startup is now facing a class action lawsuit, accusing it of consumer fraud. Theranos, via a spokeswoman, says the complaint is without merit.

It's not you... There have been four IPO pricings in the past day, including a massive $1 billion offering from a PE-backed foodservices company, plus smaller deals for a PE-backed software company, PE-backed construction materials company and a VC-backed biotech. In fact, the IPO market has been looking pretty healthy of late, except for the total lack of VC-backed tech offerings. So if you hear someone say that the unicorns, etc. aren't going public because of "the markets," they're not really being honest. This is about the companies themselves.

OKC down-round: Like any good basketball fan, I'm still rooting for a Warriors vs. Cavs finals. But if the Warriors do fall before then, there will be some pretty strong parallels to what's been going on in the Warriors-loving/bandwagon unicorn community...

Just saying: Yesterday I read a piece that at one point referenced Occupy Wall Street as a "failed movement." It's something I've seen written and said repeatedly over the years, likely because of the lack of Wall Street CEOs currently getting their hour in the yard.

Seems to me, however, that this year's presidential race has been strongly influenced by the OWS rhetoric (1% vs. 99%, etc.). Not just by Bernie Sanders (whose economic language has often been cribbed by Hillary Clinton), but also by Donald Trump. In other words, OWS may ultimately prove much more consequential than even its most ardent backers originally expected...

Chip shot: Intel Capital boss Wendell Brooks has authored a new blog post this morning that announces some new investments, and also says that some members of the team will be leaving. But the real headline is an apparent suggestion that Intel Capital is no longer planning to sell off around one-quarter of its direct portfolio via a secondary sale that could have been valued at upwards of $1 billion. He writes:

"In February, I noted we were taking a fresh look at our portfolio to ensure we were best positioned to help our companies grow beyond just financial support. That process is wrapped up, and I am happy to report I inherited a terrific portfolio... Despite what you may have read or heard, we are not planning any major changes to Intel Capital’s portfolio. While, like all investors, we’ll continue to actively manage our investments, I intend to keep and support the portfolio I inherited."

I'm trying to get some clarity on this, as I spoke yesterday with three different secondary firms that believed the process was ongoing (and all three of which had expressed interest in some, if not all, of the assets). "Middle innings," one of them said, in terms of timing.


 US Foods, an Illinois-based foodservice giant, raised $1 billion in its IPO. The company priced 44.4 million shares at $23 per share (within its $21-$24 range), for an initial market cap of approximately $4.91 billion and a total enterprise value of around $9.9 billion.

It will trade on the NYSE under ticker symbol USFD, while Goldman Sachs was listed as left lead underwriter. The company had been acquired by KKR and Clayton Dubilier & Rice for $7.1 billion in 2007. Read more.


 Snapchat has raised $1.8 billion in new equity funding, according to an SEC filing. Read more.

 Viptela, a San Jose, Calif.-based software defined wide area networking company, has raised $75 million in Series C funding at an $875 million valuation. Redline Capital led the round, and was joined by Northgate Capital and return backer Sequoia Capital. www.viptela.com

 Arrivo BioVentures, a Morrisville, N.C.-based pharma startup, has raised $49 million in VC funding. Jazz Pharmaceuticals (Nasdaq: JAZZ) led the round, and was joined by Solas BioVentures and Rex Health Ventures. www.arrivobio.com

 Lightbend, a San Francisco-based reactive app development platform, has raised $20 million in Series C funding. Intel Capital led the round, and was joined by Blue Cloud Ventures and return backers Bain Capital Ventures, Polytech Ecosystem Ventures and Shasta Ventures. Read more.

 Contentful, a Berlin-based “API-driven content management developer platform,” has raised $13 million in Series B funding. Benchmark led the round, and was joined by Trinity Ventures and return backers Balderton Capital and Point Nine Capital. www.contentful.com

 Kollective, a Sunnyvale, Calif.-based cloud-based software defined networking company, has raised $12.25 million in new VC funding from MK Capital, Pritzker Group Venture Capital, Cross Creek Capital and Hatteras Funds. www.kollective.com

 CarCo Technologies (a.k.a. Drivin), a Chicago-based online platform connecting automotive dealers with used cars inventories, has raised $7.5 million in second-round funding, according to a regulatory filing. The company previously raised $10 million at a $45 million pre-money valuation from Lightbank and Columbus Nova Technology Partners. www.drivindealer.com

 Zubie, a Charleston, S.C.-based connected-car platform and telematics provider, has raised $6 million in new VC funding. Melody Capital Partners was joined by return backers OpenAir Equity Partners, Castrol innoVentures, Comporium, Nokia Growth Partners and Magna. www.zubie.com

 ClearTax, an Indian online tax filing platform, has raised $2 million in new VC funding from FF Angel and Sequoia Capital. www.cleartax.in

 Wellth, a New York-based behavior change platform for health insurers, has raised $2 million in new VC funding. AXA Strategic Ventures led the round, and was joined by B-Fore Capital, I2BF Venture Capital, Beta Bridge Ventures and AltaIR Capital. www.wellthapp.com

 7shifts, a Canadian provider of restaurant employee scheduling software, has raised C$1.2 million in seed funding. Relay Ventures led the round, and was joined by Globalive Capital and return backers Boost VC and Tim Draper. www.7shifts.com

 OncoResponse, a Houston, Texas-based immuno-oncology antibody discovery company, has raised and undisclosed amount of new VC funding from Baxalta Inc. (NYSE: BXLT). The company has now raised a total of $12.5 million, from backers like Baxalta, ARCH Venture Partners, Canaan Partners, MD Anderson, William Marsh Rice University and Alexandria Real Estate Equities. www.oncoresponseinc.com


 Cathay Capital has sponsored a recapitalization of K’NEX Brands, a Hatfield, Penn.-based maker of construction, building and educational products for children. No financial terms were disclosed. www.knex.com

 Electrical Components International Inc., a St. Louis-based portfolio company of KPS Capital Partners, has completed its previously-announced acquisition of Whitepath Fab Tech Inc., an Ellijay, Ga.-based maker of control boxes, wire harnesses and assembly services to the HVAC industry. No financial terms were disclosed. www.ecintl.com

 IK Investment Partners has agreed to acquire a majority stake in Marle International SAS, a France-based implant contract manufacturing company, from The Carlyle Group. No financial terms were disclosed. Carlyle will retain a minority equity stake, alongside the founding Marle family. www.marle.fr

 Jones Natural Chews, a Rockford, Ill.-based maker of all-natural dog treats and chews, has raised an undisclosed amount of private equity funding from Azalea Capital. www.jonesnaturalchews.com

 Takata Corp. (Tokyo: 7312), a Japanese maker of air bags and other auto safety systems, has held restructuring and takeover talks with KKR, according to multiple reports, although the discussions appear to be preliminary. Other suitors also may have interest, with Lazard managing the process. The company’s current market cap is around $345 million. Read more.


 Acushnet Co., the Fairhaven, Mass.-based owner of golf brands like Titeist and Footjoy, is prepping for an IPO that could value the company north of $2 billion, according to Reuters. The company is currently owned by Fila Korea Ltd. and Mirae Asset Private Equity, which purchased Acushnet in 2011 for $1.23 billion. Read more.

 Cotiviti Holdings Inc., an Atlanta-based provider of payment accuracy software for the healthcare and retail sectors, raised $238 million in its IPO. The company priced 12.5 million shares at $19 per share (high end of range), for an initial market cap of approximately $1.7 billion. It will trade on the NYSE under ticker symbol COTV, while Goldman Sachs and J.P. Morgan served as lead underwriters. Cotiviti reports nearly $14 million of net income in 2015 on $541 million in revenue, compared to a $26 million loss on $441 million in revenue for 2014. It is owned by Advent Internationalwww.cotiviti.com

 Gypsum Management and Supply Inc., a Tucker, Ga.-based distributor of drywall, acoustical and other specialty building materials, raised $147 million in its IPO. The company priced 7 million shares at $21 per share (low end of range), and will trade on the NYSE under ticker symbol GMS. Barclays and Credit Suisse served as lead underwriters. AEA Investors held a 54% pre-IPO equity stake in GMS. www.gms.com

 Reata Pharmaceuticals Inc., an Irving, Texas-based developer of protein-based antioxidant inflammation modulators for serious or life-threatening diseases, raised $60.5 million in its IPO. The company priced 5.5 million shares at $11 per share ($220m initial market cap), compared to plans to sell 4 million shares at between $14 and $16 per share. It will trade on the Nasdaq under ticker symbol RETA, while Citigroup, Cowen & Co. and Piper Jaffray served as lead underwriters. Reata reports a $1.45 million net loss on around $50 million in revenue for 2015.  Pre-IPO shareholders include Abbott Labs, Cardinal Investment Company, CPMG Inc., Novo AS, StartTech Early Ventures and Kern Whalen Capital.  www.reatapharm.com


 Qualtrics, a Provo, Utah-based provider of customer experience software, has acquired Statwing, a San Francisco-based point-and-click data science tool. No financial terms were disclosed. Qualtrics has raised around $220 million in VC funding from firms like Accel, Insight Venture Partners and Sequoia Capital, while Statwing had been backed by YCombinator. www.qualtrics.com


 Apple (Nasdaq: AAPL) last year proposed an acquisition of Time Warner (NYSE: TWX), but discussions never went very far, according to the FT. Read more.

 Singapore Exchange Ltd. is in exclusive talks to acquire Baltic Exchange Ltd. for upwards of $120 million, according to the WSJ. Read more.

 Versa Media Capital LLC, a Los Angeles-based provider of production loan financing to creditors of new film and TV content, has secured a $100 million financing facility from Crayhill Capital Management. www.versamediacapital.com

 Yadkin Financial Corp. (NYSE: YDKN), a Raleigh, N.C.-based community bank with a market cap of around $1.4 billion, has hired Sandler O’Neill & Partners LP to find a buyer, according to Bloomberg. Read more.


 Apollo Global Management is raising $3.5 billion for its third fund focused on European bad debt, according to Bloomberg. Read more.

[ ] Babson Capital Management has raised more than $2 billion for its global private loan program, according to Bloomberg, and already has deployed around $900 million. Read more.

 EQT Partners has raised €566 million for a new venture capital fund focused on European technology startups. www.eqt.se

 Shamrock Capital Advisors has closed an entertainment IP rights fund with $250 million in capital commitments. www.shamrockcap.com


 Bruno Bézard, a former French Inspector General of Finance, has agreed to join Paris-based Cathay Capital as a managing partner. Read more.

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