Fusion Connect, Inc.

About

“Fusion Connect, Inc. provides integrated cloud solutions to small, medium, and large businesses. Its proprietary service platform enables the integration of solutions in the cloud, including cloud voice and unified communications, contact center, cloud connectivity, and cloud computing, as well as additional cloud services, such as storage and security. The company serves associations, governments, contact centers, and healthcare and legal industries. Fusion Connect, Inc. is based in New York, New York”.-Bloomberg

Corporate Highlights

6/3/2019: Company files Chapter 11. 

4/20/2019: Company accepts to be de-listed from NASDAQ.

4/3/2019: In an 8-K filing the Company indicated a Chapter 11 filing was possible.

The actual amount of necessary financial restatements will not be known until all audit work is completed, but FSNN currently estimates restatements of $2.3M-$3M for FY 2017, $3.4M-$4.1M for the September 2018 quarter and $1.7M-$2.3M for the June 2018 quarter.

BDC Credit Reporter View

6/11/2019:  Although Fusion Connect has filed for bankruptcy and tentatively agreed the terms of a restructuring plan with its lenders, there is also a sales process underway. At this stage we can’t determine what the ultimate fate of the $18mn in BDC advances – which may have gown with DIP financing – will be, and whether the first lien debt will be converted into equity and on what terms, or be repaid by a new owner, and what percentage. What is clear, though, is that neither BDC involved will be booking any investment income for a time and that – eventually – some sort of loss will be booked.  With the benefit of hindsight, it’s disconcerting  how short the period was between when CMFN and GARS booked these loans and when the borrower defaulted.

4/11/2019:  The Company’s fortunes have taken a sudden and surprising downturn. Fusion Connect is almost certain to file Chapter 11 in the very near future. We are downgrading the Company from Performing Status to Under-Performing, and a CCR 4 rating, which indicates the likelihood of loss is greater than that of full recovery. A first review of the latest available financial statements, which date back to September 2018, show a very large amount of debt on an unprofitable business with modest revenues. In bankruptcy there is no guarantee that the senior secured debt will be repaid in full. In fact, we expect some sort of write-off will be necessary.

Highlights

6/12/2019: Post Chapter 11 restructuring meeting.

Pursuant to the restructuring support agreement, the ad hoc group of lenders also backstopped Fusion’s debtor-in-possession financing facility in the aggregate principal amount of $59.5 million, which consists of $39.5 million of new money term loans.

6/3/2019: Company files Chapter 11. 

4/15/2019: Enters into Forbearance Agreement with senior lenders.

“…Fusion is continuing to operate its business as usual and is providing its customers and partners with outstanding service while it completes a review of various strategic options to preserve the value of its business and solidify its financial footing. The Forbearance Agreement is specifically designed to allow the Company, its first and second lien lenders, and their respective legal and financial advisors to continue their ongoing active discussions to evaluate these various alternatives for the Company’s capital structure and financial position. The Company continues to pay suppliers and is funding current operations on an ongoing basis.

Fusion will update stakeholders further when the Company’s Board of Directors has approved a specific alternative or transaction or otherwise determined that further disclosure is appropriate or legally required.

The Company has retained FTI Consulting and PJT Partners, Inc. as its financial advisors and Weil, Gotshal & Manges LLP as its legal advisor to assist the Company in analyzing and evaluating its various alternatives with respect to its capital structure”.

4/3/2019: Company admits to have failed to make required debt payments:

 “failed to make $7 million in loan payments and had not filed its annual report on time. The company’s 8-K filing late Tuesday disclosed the default and annual report filing delay. Fusion said non-payment of the installments constitutes an “immediate event of default” under its credit agreement. It also said it has been informed by some lenders that they intend to declare all amounts borrowed to be immediately due and payable. Should such acceleration occur, this would also result in an event of default under the second lien credit agreement, according to the filing.

“As a result of the foregoing, the company intends to seek forbearances from its lenders and intends to enter into discussions with its lenders regarding a restructuring of its debt obligations through an out-of-court agreement,” it said. “If such discussions are unsuccessful, the company may seek protection under chapter 11 of the U.S. Bankruptcy Code and, in the case of certain of the company’s subsidiaries, the Canadian Companies’ Creditors Arrangement Act.”

Fusion was engaged in discussions with Holcombe T. Green Jr., its majority stockholder and vice chairman of its board of directors, to secure additional liquidity through a capital infusion; however, Fusion has been unable to secure such capital infusion from the stockholder”.

IVQ 2018: CMFN and GARS first lien debt have an aggregate cost of $18mn and are discounted only 1%.

IIIQ 2018: CMFIN purchases $11.8mn position in 2023 debt.

IIQ 2018: GARS initiates lending to the Company with $7.4mn position in 2023 senior secured loan.