TPx cancels bankruptcy auction with no qualified bids

Dive Brief:

• Managed service provider TPx canceled its sale auction after failing to find a qualified bidder, the company told the U.S. Bankruptcy Court for the Southern District of Texas on Monday. The auction would have taken place Aug. 12 as part of a court-approved Chapter 11 bankruptcy plan.
• TPx will work with its creditors through the amended restructuring support agreement established June 28. The company continues to trim a $1.1 billion debt load, having already touted $73.6 million in debtor in possession financing.
• “We are officially moving forward with a lender-led recapitalization, as the bid deadline has passed and the auction has been cancelled,” a TPx spokesperson told Channel Dive in an email. “The path forward reflects the confidence TPx's lenders have in the strength of the business, provides continuity for customers, partners and employees, and gives TPx the flexibility to accelerate its strategy and increase investments across the business.”

Dive Insight:

TPx dismissed nine bidders after an exploratory process with an investment bank last year. The possibility of an acquisition once again fell through Monday when the company said it did not receive any qualified bids by an Aug. 7 deadline. 

The proposed auction would have allowed bidders to buy all or parts of TPx, leaving open the possibility that the MSP would be stripped for parts. Barring a sale, TPx remains fully intact going forward.

The non-sale doesn’t come as a surprise to Kevin Eckhardt, deputy managing editor, legal at credit intelligence company Octus. 

“It is difficult to tell in this particular case, but the vast majority of ‘toggle’ prearranged chapter 11 plans — those that set forth a comprehensive, pre-negotiated restructuring with a simultaneous bidding process and an option to toggle to a sale if a buyer emerges — end up following the restructuring/reorganization path rather than the sale path,” Eckhardt said.

The auction is a type of “window dressing” to show that the operators have no other choice, according to Eckhardt. 

“The sale process also offers cover for management — they can say they had a fiduciary out for a sale but no buyer came forward, and therefore pursuing the plan is a reasonable exercise of business judgment” Eckhardt said. “Potential buyers know this, of course, and that has a predictable effect on the bids received, if any.”

Based on our experience with these situations, I am not at all surprised no buyer came forward for TPx. If the company knew there were real buyers out there, and the creditors really wanted the company sold rather than to pursue a restructuring, then the sale process would have played out prepetition and the case would have been filed as a straightforward liquidation/asset sale. The vast majority of cases that end in going-concern sales have a buyer ready on day one.”

The company formerly known as TelePacific Communications is left to continue ironing out obligations with lenders, many of which are technology vendors and channel partners. 

Comcast-owned Nitel told the court that TPx owes it a cure amount of $121,498 rather than a previously disclosed $49,438 related to various joint customer accounts. Creditors have until Aug. 26 to file objections to the restructuring support plan, which will be confirmed Sept. 2, according to the auction cancellation notice.

TPx’s downstream sale agents are not experiencing financial impact. 

“We are grateful to our partners and partnerships will continue as normal,” TPx told Channel Dive. “TPx is committed to supporting our channel partners, including continuing to pay commissions and working with them in the ordinary course of business.”