TORONTO, Oct. 30,
2024 /CNW/ - Chesswood Group Limited
("Chesswood") (TSX: CHW) announces that on application by
the agent for its syndicate of lenders (the "Syndicate
Lenders") under its US$300
million revolving senior secured credit facility (the
"Credit Facility"), Chesswood and its subsidiaries have
become subject to creditor protection under the Companies'
Creditors Arrangement Act (Canada) (the "CCAA") in Canada pursuant to an order (the "Initial
Order") of the Ontario Superior Court of Justice (Commercial
List). The Initial Order provides for among other things, a stay of
proceedings, the approval of interim financing, and the appointment
of FTI Consulting Canada Inc. as the court appointed monitor.
Chesswood also announces that each of the members of its board
of directors (the "Board") has resigned, and that its chief
financial officer (Ivy Sun) has
resigned. It is anticipated that Chesswood's chief executive
officer (Tobias Rajchel) will
continue in his position.
History
On June 14, 2024, Chesswood
announced that it had come to its attention that it was not in
compliance with the minimum borrowing base covenants under the
Credit Facility and that it had received an initial waiver to
July 15, 2024 from the Syndicate
Lenders to pursue transactions to remedy the breach.
On July 8, 2024, Chesswood
provided an update on its Credit Facility action plan. The
update advised that a special committee of the Board (the
"Committee") (with the assistance and participation of its
financial advisor) had continued to engage in discussions and
negotiations for potential sales of key operating subsidiaries and
considerations for how best to maximize value of Chesswood's large
portfolios of receivables to ensure that the interests of
Chesswood's stakeholders were served. The update further
advised that, as a result of capital constraints, Chesswood
subsidiaries Pawnee Leasing Corporation ("Pawnee") and Rifco
National Auto Finance ("Rifco") had suspended most
origination activity. The update also advised that
Ryan Marr (Chesswood's then chief
executive officer) had resigned from his positions with Chesswood
and its subsidiaries, and that Tobias
Rajchel (Chesswood's then chief financial officer) had been
appointed president and chief executive officer and Ivy Sun (Chesswood's then controller) had been
appointed chief financial officer.
On July 16, 2024, Chesswood
announced that the Credit Facility waiver had been extended to
August 2, 2024, that it continued to
engage in co-operative discussions with the Syndicate Lenders and
that it remained focused on completing the negotiation and
settlement of definitive arrangements and documents for its Credit
Facility action plan.
On July 22, 2024, Chesswood
announced that it had determined that it would have to prepare and
file restated interim financial statements and management's
discussion and analysis ("MD&A") for the three months
ended March 31, 2024 (the "Q1
Filings") as a result of the previously announced borrowing
base calculation error and resulting breach of the Credit
Facility. Such announcement included the known expected
restatements for the Q1 Filings (including, among others, the write
down of certain – and perhaps all – intangibles, and revised going
concern and controls/procedures disclosure). The announcement
further noted that Chesswood's management was engaged in review of
the prior year borrowing base calculations and prior year financial
statements and MD&A to determine whether restatement of any of
such filings was required.
On July 30, 2024, Chesswood
announced that Daniel Wittlin had
resigned as a director. Mr. Wittlin advised that he had resigned in
order to be able to devote the necessary time to his other
operating companies, and also to better manage his potential
conflicts of interest resulting from his significant indirect
minority interests in Chesswood subsidiaries Vault Credit
Corporation and Vault Home Credit Corporation (the "Vault
Subsidiaries") and his indirect interest in a potential
purchaser of Chesswood's interests in the Vault Subsidiaries.
Chesswood also announced that it had received notice from the owner
of the "Vault" names and associated intellectual property that they
were terminating the intellectual property agreements with the
Vault Subsidiaries.
On August 6, 2024, Chesswood
provided a further update on its Credit Facility action plan. Such
update included that the Credit Facility waiver had been amended
and extended to September 16, 2024
(the "Amended Waiver"), which was intended to provide the
time for Chesswood to complete important elements of its Credit
Facility action plan. Among other things, the Amended Waiver
provided for a staged reduction in the permitted maximum
outstanding amount under the Credit Facility and required Chesswood
to complete sales during the extended waiver period of a portion of
its portfolio receivables, its interests in the Vault Subsidiaries
and its interest in the operations and certain portfolio
receivables of Pawnee. Such update also announced that
Chesswood had received notices of default from certain securitizers
under the related securitization facility agreements, although the
securitizers were not at that time purporting to exercise any
termination rights.
On August 7, 2024, Chesswood
announced that it would be unable to meet its filing deadline of
August 14, 2024 for its interim
financial statements and MD&A for the three and six months
ended June 30, 2024 (the "Q2
Filings"). The inability to complete the Q2 Filings was
primarily due to the previously disclosed requirement to restate
the Q1 Filings, and perhaps previous year filings. Chesswood
further announced that it was seeking a management cease trade
order, and noted that the Ontario Securities Commission may instead
impose an issuer failure to file cease trade order.
On August 9, 2024, Chesswood
announced that it had sold all of its interests in the Vault
Subsidiaries, marking a first step towards the execution on its
Credit Facility action plan. The announcement noted that the
Committee and the Board had considered, and were continuing to
consider, a variety of financial restructuring options and,
following their respective reviews of the terms of the Vault
Subsidiaries sale transaction, unanimously determined that such
transaction was the only reasonable option available that was
capable of satisfying the Vault Subsidiaries related condition in
the Amended Waiver. The announcement noted that the Committee
had retained RBC Capital Markets as financial advisor and Chesswood
had engaged Alvarez & Marsal to provide certain financial and
restructuring advisory services.
On August 14, 2024, Chesswood
announced that the Ontario Securities Commission had advised that
it would not be granting a management cease trade order as
previously applied for by Chesswood and would instead be issuing a
failure to file cease trade order upon Chesswood failing to make
the Q2 Filings. On August 16,
2024, Chesswood announced that the failure to file cease
trade order had been issued by the Ontario Securities
Commission.
During the more than two-month period following the sale of its
interests in the Vault Subsidiaries, Chesswood had been actively
pursuing the completion of a sale of Pawnee as a going concern,
with a significant portion of Pawnee's portfolio receivable to have
been transferred to, and retained by, another Chesswood
subsidiary. This would have fulfilled the other specific
divestiture condition in the Amended Waiver. During such period,
Chesswood also engaged in discussions for other potential
transactions involving Rifco and certain of Chesswood's other
subsidiaries. Over the ensuing weeks, Chesswood did reach
agreement in principle with an interested party for a Pawnee
transaction, but after a further several weeks of negotiations, a
transaction on acceptable terms could not be reached and the
transaction did not proceed. As a result, the Syndicate
Lenders determined that the Credit Facility action plan was no
longer actionable, and the Syndicate Lenders' waiver of events of
default under the Credity Facility terminated without further
extension.
On October 28, 2024, with the most
recent Credit Facility waiver extension having terminated and no
agreement to further extend the waiver, the Syndicate Lenders
issued demand for repayment of, and notice of intention to enforce
their security under, the Credit Facility to Chesswood and its
subsidiaries. Chesswood sees no reasonable prospect to
restructure or to orderly wind-down without ongoing Syndicate
Lender support and, in light of the amount owing under the Credit
Facility and the related security over substantially all of
Chesswood's assets, believes it best to co-operate to facilitate
the court supervised process desired by the Syndicate Lenders
(including by waiving the 10-day notice period under the notices of
intention to enforce). Chesswood's subsidiaries have also now
received termination notices from certain of their
securitizers.
Each of the members of the Board has resigned to facilitate the
application by the Syndicate Lenders for the CCAA proceeding,
including the appointment of a CCAA monitor with the authority to
exercise the powers of the Board.
Shareholders are encouraged to seek the advice of their tax
advisors with respect to their holdings of Chesswood shares.
Securities Class Action
Although no statement of claim has been served on Chesswood or
any related party, Chesswood was made aware some weeks ago that a
securities class action had been filed against Chesswood, its
former chief executive officer and its former chief financial
officer with respect to its financial reporting. Shortly after
having been made aware of the filing of such action, Chesswood was
advised that the plaintiff had requested that either such action be
withdrawn or the plaintiff be removed. The plaintiff was then
removed, and only recently such class action has been refiled with
a new plaintiff.
For further information, please visit the
Monitor's website at
http://cfcanada.fticonsulting.com/chesswood or email
chesswood@fticonsulting.com
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED
HEREIN.
SOURCE Chesswood Group Limited
