Loyalty Ventures files plan, seeks April 27 confirmation hearing

By Sarah Lizee

Olympia, Wash., March 20 – Loyalty Ventures Inc. filed a Chapter 11 plan and disclosure statement on Friday with the U.S. Bankruptcy Court for the Southern District of Texas.

As a reminder, on March 10, Loyalty Ventures and some of its subsidiaries filed Chapter 11 petitions, and subsidiary LoyaltyOne, Co. sought protection under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice.

In 2021, Alliance Data Systems Corp., now Bread Financial Holdings, Inc., caused entities that operate the debtors’ BrandLoyalty business and the Air Miles reward program to spin off from Alliance and form a new corporate structure with Loyalty Ventures as the ultimate parent.

Alliance required Loyalty Ventures to take on debt in connection with the spinoff, including a $175 million term loan A, a $500 million term loan B and a $150 million revolver with Bank of America, NA as administrative and collateral agent.

Loyalty Ventures said it has faced several operational challenges since the spinoff.

Bank of Montreal plans to acquire LoyaltyOne's Air Miles reward program business, with the deal being subject to more favorable offers and other customary closing conditions.

Meanwhile, Loyalty Ventures has entered into a transaction support agreement with lenders holding over 72% of loan claims.

Under the transaction support agreement, the debtors are seeking to consummate a Chapter 11 plan that will address the debt under their credit agreement and facilitate the pursuit of claims against Bread for harm resulting from the spinoff.

The plan will include formation of a liquidating trust to hold, investigate and pursue claims and causes of action against the Bread parties.

The plan provides for payment of all convenience claims in full. These claims are unsecured, non-priority claims allowed in the amount of $1.5 million or less per claim. The total amount of these claims is not likely to exceed $5 million.

Only two classes are entitled to vote on the plan. The first is comprised of all claims asserted by the lenders, and the second is comprised of unsecured, non-priority claims allowed in an amount in excess of $1.5 million. The debtors are currently unaware of any unsecured, non-priority claims that would be asserted in an amount in excess of $1.5 million, other than potential claims that may be asserted by Bread.

To the extent that Bread elects to assert claims against the debtors in connection with the plan process, the debtors anticipate objecting to those claims.

The plan contemplates that lenders would receive the cash proceeds of any collateral securing the loan claims on account of the portion of the loan claims that is determined to be secured. Lender claims that are otherwise determined to be deficiency claims, together with holders of allowed unsecured, non-priority claims in excess of $1.5 million, if any, would receive their ratable share of interests in the liquidating trust, provided that Bread would not be permitted to share in the proceeds of any recoveries obtained from it if it were otherwise determined to hold an allowed claim.

The liquidating trust interests would otherwise entitle holders of the interests to share in any proceeds recovered by the liquidating trust after all amounts incurred under an intercompany DIP credit facility have been repaid unless otherwise agreed to by the relevant parties.

Finally, the plan provides for the release of some of the consenting lenders in exchange for their consent to the sale process contemplated to take place in the proposed CCAA proceeding (under which the consenting lenders have agreed not to credit bid), the sale of the BrandLoyalty business and the release of liens and claims in connection with the sale, the priming of their prepetition liens and claims by both the $70 million CCAA DIP facility and the related intercompany DIP facility, and the distribution of contingent litigation interests in full and final satisfaction of their claims against the debtor entities.

Loyalty Ventures said that, through these consents and commitments to support the Air Miles and BrandLoyalty sales, the consenting lenders have enabled the company to preserve potentially hundreds of jobs and allowed both businesses to continue as going concerns.

The company is hoping for an April 27 combined hearing on final approval of the disclosure statement and confirmation of the plan, with solicitation starting within three days from conditional approval of the disclosure statement.

Loyalty Ventures is a Dallas-based operator of consumer rewards programs. The company filed Chapter 11 bankruptcy on March 10 under case number 23-90111.

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