/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/211222.mbx T R O U B L E D C O M P A N Y R E P O R T E R Wednesday, December 22, 2021, Vol. 25, No. 355 Headlines AVALANCHE COMPANY: Unsecureds to be Paid in Full in 48 Months DLVAM1302 NORTH: U.S. Trustee Unable to Appoint Committee INVESTFEED INC: Seeks to Hire Thomas A. Farinella as Legal Counsel JPA NO. 49 CO.: Case Summary and One Unsecured Creditor MALLETT INC: Unsecureds to get 25% of Their Claims NORDIC AVIATION: Case Summary and 30 Largest Unsec. Creditors RE-PRODECON LLC: Taps Wadsworth Garber Warner Conrardy as Counsel TALOS ENERGY: Fitch Affirms 'B-' LT IDR, Outlook Stable ZAPPELLI BODY SHOP: Case Summary & One Unsecured Creditor ********* AVALANCHE COMPANY: Unsecureds to be Paid in Full in 48 Months ------------------------------------------------------------- Avalanche Company, LLC, and secured creditors Nicholas Mechling and Christopher Mechling filed their Disclosure Statement in support of their First Amended Joint jointly proposed Plan of Reorganization. The Plan provides that before each Plan Payment becomes due, the Mechlings shall deposit to the account of the Reorganized Debtor funds sufficient to make each Plan Payment. The Mechlings anticipate that the source of these deposits shall be Intellectual Property Proceeds. Only to the extent that the Intellectual Property Proceeds received by the Mechlings is insufficient to fund the Plan Payments, the Mechlings may, but are not required to, deposit to the account of the Reorganized Debtor funds sufficient to make the balance of each Plan Payment. Each advance of funds so deposited by the Mechlings shall constitute a loan to the Reorganized Debtor. Such loan(s) may be on any terms agreed to by the Mechlings and the Reorganized Debtor. Class 3 - General Unsecured Claims. The Class 3 Allowed Claims shall bear interest at 3% per annum from and after the Effective Date, and shall be paid in 48 monthly installments. The first such installment shall be due on the later of: (i) April 1, 2022 or (ii) on the first day of the second full month after the Effective Date. The total installments shall have a Present Value, amortized at 3% per annum, equal to the amount of the Class 3 Allowed Claims as of the Effective Date. The installments are graduated in amount, with smaller installments due during the first year of Plan Payments, and increasing during the second, third and fourth years. Notwithstanding any other provision set forth in this section, no payment shall be made on account of a Class 3 Allowed Claim unless all Plan Payments owing to the Class 2 Creditor, which first became due on or before the date on which the date on which the subject Class 3 payment is to be made, have been made. The Reorganized Debtor is permitted to prepay all or a portion of the Class 3 Allowed Claims at any time and from time to time, but only if all Unclassified Claims, and the Class 2 Claim, have been Paid in Full. Class 3 is impaired. Attorney for Debtor Avalanche Company, LLC: Bruce R. Babcock 085878 4808 Santa Monica Ave. San Diego, CA 92017 Telephone: (619) 222-2661 Attorneys for Creditors Nicholas Mechling and Christopher Mechling: Dean T. Kirby, Jr. 090114 Roberta S. Robinson 099035 KIRBY & McGUINN, A P.C. 707 Broadway, Suite 1750 San Diego, California 92101-5393 Telephone: (619) 685-4000 Facsimile: (619) 685-4004 A copy of the Disclosure Statement dated December 8, 2021, is available at https://bit.ly/3Gnl4Js from PacerMonitor.com. About Avalanche Company Avalanche Company, LLC, a San Diego, Calif.-based owner of sporting goods, hobby and musical instrument stores, sought protection under Chapter 11 of the Bankruptcy Code (Bankr. S.D. Cal. Case No. 20-01229) on March 3, 2020. At the time of the filing, the Debtor disclosed assets of between $1 million and $10 million and liabilities of the same range. Judge Christopher B. Latham oversees the case. The Debtor is represented by the Law Office of Bruce R. Babcock, Esq. DLVAM1302 NORTH: U.S. Trustee Unable to Appoint Committee --------------------------------------------------------- The U.S. Trustee for Region 21, until further notice, will not appoint an official committee of unsecured creditors in the Chapter 11 case of DLVAM1302 North Shore, LLC, according to court dockets. About DLVAM1302 North Shore Anna Maria, Fla.-based DLVAM1302 North Shore, LLC filed a petition for Chapter 11 protection (Bankr. M.D. Fla. Case No. 21-05371) on Oct. 20, 2021, disclosing $1,988,681 in total assets and $1,585,279 in total liabilities. Floyd Calhoun, manager, signed the petition. Judge Catherine Peek Mcewen oversees the case. The Debtor tapped Buddy D. Ford, P.A. as legal counsel. INVESTFEED INC: Seeks to Hire Thomas A. Farinella as Legal Counsel ------------------------------------------------------------------ InvestFeed, Inc. seeks approval from the U.S. Bankruptcy Court for the Eastern District of New York to employ the Law Office of Thomas A. Farinella, PC as its legal counsel. The firm will render these legal services: (a) assist the Debtor in administering this Chapter 11 case; (b) make such motions or take such action as may be appropriate or necessary under the Bankruptcy Code; (c) represent the Debtor in prosecuting adversary proceedings to collect assets of the estate and such other actions as the Debtor deem appropriate; (d) take such steps as may be necessary for the Debtor to marshal and protect the estate's assets; (e) negotiate with the Debtor's creditors in formulating a plan of reorganization for the Debtor in this case; (f) draft and prosecute the confirmation of the Debtor's plan of reorganization in this case; and (g) render such additional services as the Debtor may require in this case. The hourly rates of the firm's counsel and staff are as follows: Attorneys $400 Clerks $200 Paraprofessionals $200 The Debtor paid the firm an initial retainer of $2,000. Thomas Farinella, Esq., a member at the Law Office of Thomas A. Farinella, disclosed in a court filing that the firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. The firm can be reached through: Thomas A. Farinella, Esq. LAW OFFICE OF THOMAS A. FARINELLA, PC 260 Madison Avenue, 8th Floor New York, NY 10016 Telephone: (917) 319-8579 Email: tf@lawtaf.com About InvestFeed Inc. InvestFeed, Inc. filed its voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code (Bankr. E.D.N.Y. Case No. 21-41025) on Apr. 19, 2021, listing under $1 million in both assets and liabilities. Judge Elizabeth S. Stong oversees the case. The Law Office of Thomas A. Farinella, PC serves as the Debtor's counsel. JPA NO. 49 CO.: Case Summary and One Unsecured Creditor ------------------------------------------------------- Debtor: JPA No. 49 Co., Ltd. Kasumigaseki Common Gate West Tower 3-2-1 Kasumigaseki Chiyoda-Ku TOKYO 100-0013 Business Description: JPA No. 49 Co., Ltd. and affiliate JPA No. 111 Co., Ltd., are Japanese corporations. JP Lease Products & Services Co. Ltd., directly owns 100% of the equity interest in the Debtors. Chapter 11 Petition Date: December 17, 2021 Court: United States Bankruptcy Court Southern District of New York Case No.: 21-12076 Debtor's Counsel: Kyle J. Ortiz Togut, Segal & Segal LLP Tel: 212-594-5000 E-mail: kortiz@teamtogut.com Estimated Assets: $100 million to $500 million Estimated Liabilities: $100 million to $500 million Teiji Ishikawa, representative director, signed the petition. List of Creditors Who Have the 20 Largest Unsecured Claims and Are Not Insiders: Entity Nature of Claim Claim Amount ------ --------------- ------------ JP Lease Product & Services Co. Kasumigaeski Common Gate West Tower 3-2-1 Kasumigaeski Chiyoda-Ku, Tokyo Japan Loan/Debt $1,461,803 A copy of the Debtor's list of 1 unsecured creditor filed together with the petition is available for free at PacerMonitor.com at: https://www.pacermonitor.com/view/MUWRV6I/JPA_No_49_Co_Ltd__nysbke-21-12076__0001.0.pdf?mcid=tGE4TAMA MALLETT INC: Unsecureds to get 25% of Their Claims -------------------------------------------------- Mallett Inc. submitted a Disclosure Statement. The Debtors assets are cash in the amount of $3,500,000, most of which constitutes the Subtenant settlement proceeds, a $100,000 security deposit held by the Landlord, and the potential right to recover New York City real property taxes paid in advance. Class 2 - General Unsecured Claims. Scheduled Claims total approximately $13,181,709, representing the Landlord's Claim of $1,278,051.00, $11,879,790 of insider general unsecured claims, and $23,868 of miscellaneous vendor debt. Payment on the Effective Date of each Class 2 Creditor's pro-rata share of the Debtor's Cash after payment of Administrative Claims, statutory fees, and Priority Claims. The Debtor estimates a 25% distribution to each claimant if all scheduled Class 4 Claims are Allowed in the amounts scheduled. Class 2 is impaired. Effective Date payments under the Plan will be paid from the Debtor's Cash on hand of approximately $3,508,346. ATTORNEYS FOR THE DEBTOR: Mark A. Frankel BACKENROTH FRANKEL & KRINSKY, LLP 800 Third Avenue New York, New York 10022 Telephone: (212) 593-1100 Facsimile: (212) 644-0544 A copy of the Disclosure Statement dated December 8, 2021, is available at https://bit.ly/3lSC16x from PacerMonitor.com. About Mallett Inc. New York-based Mallett Inc. sought protection under Chapter 11 of the Bankruptcy Code (Bankr. S.D.N.Y. Case No. 21-11619) on Sept. 15, 2021, listing $3,665,011 in assets and $13,181,708 in liabilities. The petition was signed by Graham Shircore as director. Judge James L. Garrity Jr. oversees the case. Backenroth Frankel & Krinsky, LLP is the Debtor's legal counsel. NORDIC AVIATION: Case Summary and 30 Largest Unsec. Creditors ------------------------------------------------------------- Lead Debtor: Nordic Aviation Capital Designated Activity Company Gardens International 550 Andrews Avenue, Suite 300 Limerick Ireland V94 4D83 Business Description: NAC is the industry's leading regional aircraft lessor serving almost 70 airlines in approximately 45 countries. NAC's fleet of 475 aircraft includes ATR 42, ATR 72, De Havilland Dash 8, Mitsubishi CRJ900/1000, Airbus A220 and Embraer E-Jet family aircraft. On the Web: http://www.nac.dk Chapter 11 Petition Date: December 17, 2021 Court: United States Bankruptcy Court Eastern District of Virginia Affiliates that simultaneously sought Chapter 11 protection on Dec. 17, 2021: Entity Case No. ------ -------- Nordic Aviation Capital Pte. Ltd. 21-33688 NAC Aviation 17 Limited 21-33689 NAC Aviation 20 Limited 21-33690 Nordic Aviation Capital A/S 21-33691 Additional 113 affiliates that sought Chapter 11 protection on December 19, 2021: Entity Case No. ------ -------- Nordic Aviation Capital Designated Activity Co. 21-33693 ALC ATR 426 1012, LLC 21-33696 ALC ATR 426 1018, LLC 21-33697 ALC ATR 726 1086, LLC 21-33698 ALC ATR 726 1103, LLC 21-33695 ALC ATR 726 1112, LLC 21-33701 Aldus Portfolio B Limited 21-33705 Aldus Portfolio Leasing Limited 21-33708 Argos Aviation Malta Limited 21-33712 Enclave Aviation Sweden AB 21-33719 Eagle I Limited 21-33716 Fortuna Aviation Desginated Activity Company 21-33720 Fortuna Aviation Holding Limited 21-33700 Freyja Aviation Four Ireland Limited 21-33714 Freyja Aviation One Ireland Designated Activity Company 21-33718 Freyja Aviation One Malta Limited 21-33703 Freyja Aviation Three Ireland Limited 21-33717 Freyja Aviation Two Ireland Limited 21-33721 JAG VIII LLC 21-33710 Jetscape Aviation Group Ltd. 21-33704 Jetscape Aviation Group, LLC 21-33706 Jetscape Commercial Jets Limited 21-33707 Jetscape, Inc. 21-33709 Magni Aviation One Sweden AB 21-33711 Merlano Limited 21-33713 Minerva Aviation Malta Limited 21-33715 NAC Aviation 10 Limited 21-33699 NAC Aviation 11 Limited 21-33702 NAC Aviation 12 Limited 21-33743 NAC Aviation 14 Limited 21-33745 NAC Aviation 15 Limited 21-33748 NAC Aviation 16 Limited 21-33725 NAC Aviation 17 Limited 21-33689 NAC Aviation 18 Limited 21-33731 NAC Aviation 19 Limited 21-33735 NAC Aviation 2 A/S 21-33694 NAC Aviation 2 Limited 21-33722 NAC Aviation 20 Limited 21-33690 NAC Aviation 21 Limited 21-33737 NAC Aviation 22 Limited 21-33742 NAC Aviation 23 Limited 21-33744 NAC Aviation 24 Limited 21-33746 NAC Aviation 25 Limited 21-33747 NAC Aviation 26 Limited 21-33749 NAC Aviation 27 Limited 21-33724 NAC Aviation 28 Limited 21-33726 NAC Aviation 29 Designated Activity Company 21-33727 NAC Aviation 3 A/S 21-33723 NAC Aviation 3 Limited 21-33728 NAC Aviation 30 Limited 21-33729 NAC Aviation 31 Limited 21-33730 NAC Aviation 32 Limited 21-33732 NAC Aviation 33 Limited 21-33734 NAC Aviation 34 Limited 21-33739 NAC Aviation 35 Limited 21-33740 NAC Aviation 36 Limited 21-33741 NAC Aviation 4 Limited 21-33733 NAC Aviation 6 Limited 21-33736 NAC Aviation 7 Limited 21-33738 NAC Aviation 8 Limited 21-33778 NAC Aviation Canada Inc. 21-33752 NAC Aviation Colorado 1 LLC 21-33755 NAC Aviation Colorado 2 LLC 21-33761 NAC Aviation Cyprus 1 Limited 21-33764 NAC Aviation Cyprus 2 Limited 21-33768 NAC Aviation Cyprus 3 Limited 21-33771 NAC Aviation France 1 SAS 21-33773 NAC Aviation France 5 SAS 21-33751 NAC Aviation France 6 SAS 21-33762 NAC Aviation France 7 SAS 21-33766 NAC Aviation UK 1 Limited 21-33759 NAC Aviation UK 2 Limited 21-33775 NAC Aviation UK 3 Limited 21-33774 NAC Aviation US LLC 21-33772 NAC Services China Co., Ltd 21-33770 NAC Services France SAS 21-33756 NAC Services Malta Limited 21-33750 NAC Services UK Limited 21-33753 NK Aviation Limited 21-33754 NK Leasing Limited 21-33776 Nordic Aviation Capital A/S 21-33691 Nordic Aviation Capital Inc. 21-33757 Nordic Aviation Capital Pte. Ltd. 21-33688 Nordic Aviation Contractor (Ireland) Limited 21-33758 Nordic Aviation Financing ApS 21-33760 Nordic Aviation Financing One Pte. Ltd. 21-33763 Nordic Aviation Leasing Eight Pte. Ltd. 21-33765 Nordic Aviation Leasing Eighteen Pte. Ltd. 21-33767 Nordic Aviation Leasing Eleven Pte. Ltd. 21-33769 Nordic Aviation Leasing Fifteen Pte. Ltd. 21-33792 Nordic Aviation Leasing Fourteen Pte. Ltd. 21-33795 Nordic Aviation Leasing Nine Pte. Ltd. 21-33798 Nordic Aviation Leasing Nineteen Pte. Ltd. 21-33800 Nordic Aviation Leasing Pte. Ltd. 21-33801 Nordic Aviation Leasing Seven Pte. Ltd. 21-33802 Nordic Aviation Leasing Seventeen Pte. Ltd. 21-33803 Nordic Aviation Leasing Six Pte. Ltd. 21-33804 Nordic Aviation Leasing Sixteen Pte. Ltd. 21-33805 Nordic Aviation Leasing Twelve Pte. Ltd. 21-33799 Nordic Aviation Leasing Twenty Eight Pte. Ltd 21-33788 Nordic Aviation Leasing Twenty Five Pte. Ltd. 21-33793 Nordic Aviation Leasing Twenty Four Pte. Ltd. 21-33791 Nordic Aviation Leasing Twenty Nine Pte. Ltd. 21-33797 Nordic Aviation Leasing Twenty One Pte. Ltd. 21-33785 Nordic Aviation Leasing Twenty Pte. Ltd. 21-33790 Nordic Aviation Leasing Twenty Seven Pte. Ltd 21-33794 Nordic Aviation Leasing Twenty Three Pte. Ltd 21-33796 Nordic Aviation Leasing Twenty Two Pte. Ltd 21-33777 Nordic Aviation Leasing Two Pte. Ltd. 21-33779 Nordic Aviation Services Limited 21-33780 Nordic Aviation Services US, LLC 21-33781 Tiradentes Portfolio A Limited 21-33782 Tiradentes Portfolio B Limited 21-33783 Tiradentes Portfolio C Limited 21-33784 Tiradentes Portfolio D Limited 21-33786 Tyche Aviation Designated Activity Company 21-33787 Tyche Aviation Holding Limited 21-33789 Debtors' General Bankruptcy Counsel: KIRKLAND & ELLIS LLP Debtors' Co-Bankruptcy Counsel: Michael A. Condyles KUTAK ROCK LLP Tel: 804-644-1700 E-mail: michael.condyles@kutakrock.com Debtors' financial advisor: N.M. ROTHSCHILD & SONS LIMITED Debtors' Co-corporate Counsel: LAW FIRM OF CLIFFORD CHANCE LLP Debtors' Co-corporate Counsel: LAW FIRM OF WILLIAM FRY LLP Debtors' Co-corporate Counsel: LAW FIRM OF GORRISSEN FEDERSPIEL Debtors' restructuring and tax advisor: ERNST & YOUNG LLP Debtors' Tax and Accounting Advisors: PRICEWATERHOUSECOOPERS LLP Debtors' Claims Agent: EPIQ CORPORATE RESTRUCTURING, LLC Estimated Assets: $1 billion to $10 billion Estimated Debt: $1 billion to $10 billion A copy of the list of 30 largest unsecured creditors filed together with the petition is available for free at PacerMonitor.com at: https://www.pacermonitor.com/view/SCBZDOA/Nordic_Aviation_Capital_Pte_Ltd__vaebke-21-33688__0001.0.pdf?mcid=tGE4TAMA RE-PRODECON LLC: Taps Wadsworth Garber Warner Conrardy as Counsel ----------------------------------------------------------------- RE-ProDeCon LLC seeks approval from the U.S. Bankruptcy Court for the District of Colorado to employ Wadsworth Garber Warner Conrardy, PC as its legal counsel. The firm will render these legal services: (a) prepare legal papers; (b) perform all legal services for the Debtor; and (c) represent the Debtor in any litigation which the Debtor determines is in the best interest of the estate whether in state or federal court(s). The firm received a retainer in the amount of $11,738 from the Debtor. The hourly rates of the firm's counsel and staff are as follows: David V. Wadsworth $450 Aaron A. Garber $425 David J. Warner $350 Aaron J. Conrardy $350 Lindsay S. Riley $250 Anthony Camera $200 Paralegals $125 In addition, the firm will seek reimbursement for expenses incurred. David Wadsworth, an attorney at Wadsworth Garber Warner Conrardy, disclosed in a court filing that the firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. The firm can be reached through: David V. Wadsworth, Esq. Wadsworth Garber Warner Conrardy, PC 2580 West Main Street, Suite 200 Littleton, CO 80120 Telephone: (303) 296-1999 Facsimile: (303) 296-7600 Email: dwadsworth@wgwc-law.com About RE-ProDeCon LLC RE-ProDeCon LLC filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D. Colo. Case No. 21-16027) on Dec. 13, 2021, listing $95,981 in assets and $1,225,263 in liabilities. Tatjana Twerskoi, member, signed the petition. Judge Elizabeth E. Brown oversees the case. Wadsworth Garber Warner Conrardy, PC serves as the Debtor's counsel. TALOS ENERGY: Fitch Affirms 'B-' LT IDR, Outlook Stable ------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Talos Energy Inc. (Talos) and Talos Production Inc. at 'B-'. Fitch has also affirmed the 'BB-'/'RR1' rating for the first-lien revolver and a the 'B'/'RR3' rating for Talos' senior second-lien notes. The Rating Outlook is Stable. Talos' ratings reflect its relatively small, higher margin, liquids-focused asset profile with current production in the low- to mid-60 thousand barrels of oil equivalent per day (mboepd). Oil accounts for approximately 70%+ of production, and its offshore liquids production receives premium pricing to West Texas Intermediate (WTI). The ratings also consider a neutral to slightly positive FCF profile over the forecasted period; relatively conservative balance sheet; manageable capital program; attractive exploitation and exploration inventory, and adequate liquidity. This is offset by potentially significant environmental remediation costs, relatively higher operating costs, and relatively weaker access to capital markets. KEY RATING DRIVERS Offshore E&P: Talos' focus as a smaller competitor in the offshore Gulf of Mexico results in an asset profile that is different from the typical shale-driven onshore exploration and production (E&P) issuer. Differences include relatively low asset acquisition costs, which may be offset by higher plugging and abandonment (P&A) obligations; lower decline rates; and typically, higher oil-price realizations. Challenges associated with the business model include execution risk associated with new exploration projects; substantial capital requirements; longer spud to first oil times; materially higher environmental remediation costs; the need to post significant financial assurances to third parties to guarantee remediation work; and the tail risks from hurricane activity and potential oil spills. Improving Liquidity Situation: Talos has taken actions to improve its liquidity position, including the note refinancing in late-2020 and the note add-on stock offering in early-2021. These actions allowed the company to extend maturities and reduce borrowings under the credit facility. The next note maturity is not until 2026 and the revolver matures in 2024. Fitch estimates Talos will be FCF positive over the forecasted horizon and expects excess cash to be used to reduce revolver borrowings. Although Talos was able to access both the debt and equity capital markets over the past year, Fitch notes that the bonds trade at a material discount to other energy issuers, which may limit future access. Capex Supports FCF Generation: Talos is expected to generate positive FCF based on Fitch's price deck ($67/bbl - 2022; $57/bbl - 2023; $50/bbl - long term). The low decline rate of its wells provides for enhanced capital efficiency that somewhat offsets the effects during a period of low oil prices and helps protect cash flow. The company's normalized unit economics coupled with lower capital-intensive projects, such as asset management, in-field drilling and exploitation, result in a cash flow profile that supports discretionary, exploratory capital, which may potentially transform the longer-term asset base in better commodity price environments. The capital program should support low, single-digit near-term production growth on average through the forecast, while maintaining longer term exploration upside. Substantial Decommissioning Costs: Due to the company's focus on mature offshore assets and an active M&A strategy, Talos' environmental remediation costs for P&A are elevated compared with onshore peers. Asset retirement obligations (AROs) as of Sept. 30, 2021 totaled $458 million. Fitch expects annual P&A costs of $60 million over the forecasted horizon. Fitch believes there is potential for reduced outlays to the degree the company is able to extend the lives of fields through recompletions and workovers. Hedge Program: Talos is required to hedge 60% of proved developed production on a rolling 12-month basis. Fitch believes this amount is sufficient, although would be more comfortable with a higher hedging plan until revolver borrowings were further reduced. Consistent hedging over the longer term should be positive to the credit profile, as it supports development funding and reduces cash flow risk. Carbon Capture and Storage: Talos is creating a subsidiary to explore opportunities in Carbon Capture and Storage (CC&S) and use its expertise in conventional oil and gas geology, engineering and project delivery. The company has announced a letter of intent to develop a CC&S project with Freeport LNG Development, L.P. and was awarded a second project by the state of Texas. The subsidiary would be deemed unrestricted and non-recourse to Talos debt. Management plans to fund the venture with project financing debt, although there may be some equity contributions from the parent. The venture does not benefit the restricted group's credit profile directly, but Fitch sees potential benefits in that it may assuage investor ESG concerns, provides a new growth prospect, adds diversification. Zama Project Pending: Talos' owns offshore acreage in Mexico, which includes the Zama discovery in Block 7. The company has a 35% working interest in the reservoir, which Netherland Sewell & Associates estimates has 670 million barrels of oil equivalent to (mmboe)-1,010 mmboe of recoverable resource and approximately 94% oil. On July 2, 2021, Mexico's Ministry of Energy (SENER) declared Petroleos Mexicanos (PEMEX) as the operator of Zama. Talos submitted Notices of Dispute to the Mexican Government on Sept. 3, 2021. The company is continuing to negotiate with SENER and the outcome is unclear. Fitch estimates that Talos has invested approximately $105 million into the project. Fitch does not believe this is a material credit negative given the sunk costs of the project. DERIVATION SUMMARY Talos' positioning against the Fitch-rated offshore, independent E&P sector is mixed. Third quarter production was 57 mboepd although Fitch believes current normalized production is in the low- to mid-60 mboepd excluding the impact of hurricanes. Talos' production size is smaller than similarly rated, onshore operators, such as Baytex Energy (B/Stable) at 80mboepd or 81% liquids and Callon Petroleum (B/Stable) at 100 mboepd or 83% liquids. It is materially higher than EnVen Energy (B-/Stable) with production of 20 mboepd or 88% liquids. Talos has historically managed at debt levels below 2.0 on a debt/EBITDA basis and Fitch expects this to continue in the post-pandemic forecast horizon. Despite the low leverage levels, Fitch remains concerned regarding the relatively high borrowings outstanding on the revolver, challenging access to debt capital markets although there are no near term refinancings, and smaller scale relative to other E&P issuers. The company's offshore footprint exposes it to significantly higher remediation, or P&A costs, than onshore shale-based single 'B' peers. Operational risks are also higher, given potentially adverse effects of any oil spills or hurricane activity on a company of Talos' size. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- WTI oil prices of $67/bbl in 2022, $57/bbl in 2023, and $50/bbl in the long term. -- Henry Hub natural gas prices of $3.25 per thousand cubic feet (mcf) in 2022, $2.75/mcf in 2023 and $2.50/mcf thereafter. -- Premium differentials of $1.50 to WTI through the forecast. -- Production slightly lower in 2022 due to drydocking and low, single-digit increases thereafter. -- Capex including P&A of $425 million 2022, $440 million in 2023 and $350 million in 2024. -- FCF allocated toward paydown of revolver. KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that Talos Energy, Inc. would be reorganized as a going-concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern (GC) Approach Fitch assumed a bankruptcy scenario exit EBITDA of $300 million. This estimate considers a prolonged commodity price downturn ($32/WTI and $1.65/mcf gas lows in 2023, increasing to $42/bbl WTI and $2.25/mcf gas in 2024) causing liquidity constraints and inability to access capital markets to refinance debt. The GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which Fitch bases the enterprise valuation. An EV multiple of 3.75x is applied to the GC EBITDA to calculate a post-reorganization enterprise value versus the historical energy upstream sub-sector multiple of 2.8x-5.6x for recent E&P bankruptcies, and median EV/EBITDA multiples in observed offshore transactions in the 2.0-4.0x range. The lower multiple also reflects the impact of Asset Retirement Obligations and Surety bonds. These assumptions lead to an EV of $1,125 million, greater than the liquidation valuation. Liquidation Approach The liquidation estimate reflects Fitch's view of the value of the company's E&P assets that can be realized in sale or liquidation processes conducted during a bankruptcy or insolvency proceeding and distributed to creditors. Fitch used historical transaction data for the GoM blocks on a $/bbl, $/1P, $/2P, $/acre and PDP PV-10 basis to attempt to determine a reasonable sale, based on Talos' recent M&A transactions, other recent offshore M&A transactions, and valuations from emerging, offshore bankruptcies of Fieldwood Energy, Stone Energy and Arena Energy. Fitch assumed a 25% advance rate on A/R given that in a pro-longed downturn, A/R would likely decrease. Fitch valued the oil & natural gas assets at $1,094 million. Waterfall Analysis Fitch assumed the $730 million revolving credit facility was drawn at 90% to account for downward borrowing base redeterminations as the company approaches a bankruptcy scenario. The senior secured revolver recovers at an 'RR1' level while the second lien notes recovers at an 'RR3' level. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Material reduction of the revolving credit facility through proceeds from FCF generation; -- Increased size and scale evidenced by production trending above 75mboepd-100mboepd; -- Demonstrated ability to manage P&A obligations and reduced AROs per flowing barrel or proved reserves; -- Midcycle debt/EBITDA sustained below 2.5x and FFO leverage below 3.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Loss of operational momentum, evidenced by production trending below 45mboepd; -- Reduction in liquidity due to lower bank commitments or increased revolver borrowings; -- Midcycle debt/EBITDA above 3.5x on a sustained basis and FFO leverage above 4.0x; -- Unfavorable regulatory changes, such as increased bonding requirements, or accelerated P&A spending; -- Implementation of a more aggressive growth strategy operating outside FCF; -- Inability to manage P&A obligations. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity, Clear Maturities: The second-lien notes issuance in late 2020 and early 2021 extends the next bond maturity to 2026, while reducing borrowings under the credit facility. The reserve-based loan (RBL) matures in November 2024 and Fitch believes Talos' strong asset coverage should allow for an extension. The RBL has a borrowing base of $950 million and current commitments of $730 million, and $400 million was outstanding as of Sept. 30, 2021. Fitch expects Talos will generate positive FCF over the forecasted horizon and use proceeds to further reduce the outstanding amounts on the revolver. Management stated that capital budgets would be determined on the ability to generate FCF even in commodity price declines. The company's hedging program provides some protection, but an enhanced program would provide more comfort. ISSUER PROFILE Talos Energy Inc. is a publicly traded, technically driven independent exploration and production company with operations in the U.S. Gulf of Mexico (GoM) and offshore Mexico. The company's focus in the GoM is the exploration, acquisition, exploitation and development of deep and shallow water assets near existing infrastructure. ESG CONSIDERATIONS Talos Energy Inc. and Talos Production Inc. have an ESG Relevance Score of '4' for waste and hazardous materials management/ecological impacts, due to the enterprise-wide solvency risks that an offshore oil spill poses for an E&P company. Talos Energy Inc. and Talos Production Inc. have an ESG Relevance Score of '4' for energy/management that reflects the company's cost competitiveness and financial and operational flexibility due to scale, business mix, and diversification. These factors have a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ZAPPELLI BODY SHOP: Case Summary & One Unsecured Creditor --------------------------------------------------------- Debtor: Zappelli Body Shop, Inc. d/b/a Zappelli Auto Body and Collision 4914 A Sonoma Highway Santa Rosa, CA 9540 Business Description: Zappelli Auto Body and Collision had $530,000 of gross profit on $842,600 of sales in the period Jan. 1 to Dec. 13, 2021. Net loss during the period was $67,800. Zappelli Body Shop is a "small business" debtor that is filing under Subchapter V of Chapter 11 of the Bankruptcy Code. Chapter 11 Petition Date: December 16, 2021 Court: United States Bankruptcy Court Northern District of California Case No.: 21-10510 Debtor's Counsel: Brian A. Barboza Law Offices of Brian A Barboza 131A Stony Circle, Suite 500 Santa Rosa, CA 95401 Tel: (707) 527-8553 E-mail: bbarboza@barbozaesq.com Estimated Assets: $100,000 to $500,000 Estimated Liabilities: $1 million to $10 million The petition was signed by CEO Samantha Zappelli. List of Creditors Who Have the 20 Largest Unsecured Claims and Are Not Insiders: Entity Nature of Claim Claim Amount ------ --------------- ------------ Keystone Automotive 1627 Army Court, Unit 7 Stockton, CA 95206 Supplier $3,000 A full-text copy of the petition, along with a list of one unsecured creditor, is available for free at PacerMonitor.com at: https://www.pacermonitor.com/filings/153878513 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. 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Point your Web browser to http://TCRresources.bankrupt.com/and use the e-mail address to which your TCR is delivered to login. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Jhonas Dampog, Marites Claro, Joy Agravante, Rousel Elaine Tumanda, Valerie Udtuhan, Howard C. Tolentino, Carmel Paderog, Meriam Fernandez, Joel Anthony G. Lopez, Cecil R. Villacampa, Sheryl Joy P. Olano, Psyche A. Castillon, Ivy B. Magdadaro, Carlo Fernandez, Christopher G. Patalinghug, and Peter A. Chapman, Editors. Copyright 2021. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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