By Rose Krebs

Law360 (June 16, 2020, 8:29 PM EDT) -- A Delaware judge on Tuesday gave global digital training and talent management company Skillsoft Corp. "unusual" permission to continue exclusive talks with a potential buyer as it also pursues its prepackaged plan for a Chapter 11 debt-for-equity swap with support from lenders.

During a first-day hearing held virtually, U.S. Bankruptcy Judge Mary F. Walrath signed off on Skillsoft's self-described "unusual" request to give a potential buyer certain exclusive rights, including reimbursement of $2 million in expenses if a purchase deal is reached.

"This certainly is unusual to request this at a first day [hearing]," Judge Walrath said. The judge said she was comfortable approving the request since Skillsoft's lenders have consented to the dual-track Chapter 11 process.

Skillsoft attorney Robert J. Lemons of Weil Gotshal & Manges LLP acknowledged that it was outside the norm for the company to seek approval of the "exclusivity" agreement with the potential buyer even though it already has a prepackaged Chapter 11 plan on the table with support from its lenders to restructure debt. But a "short window" of time is needed to see if a sale deal can be reached that could possibly provide a better recovery for creditors, he said. The identity of the potential buyer has not been revealed publicly.

"We simply ran out of time to try to finalize an agreement," Lemons said of negotiations before Skillsoft's Chapter 11 filing on Sunday. The company's liquidity crisis was so precarious that Skillsoft needed to file for bankruptcy in order to gain access to debtor-in-possession financing so business operations could continue, according to comments in court.

Skillsoft and multiple affiliates hit Chapter 11 on Monday, citing market changes and the COVID-19 pandemic as reasons for its trip into bankruptcy. The company, which counts 65% of the Fortune 500 as customers along with thousands of other businesses worldwide, said in an initial filing that it had been considering transformation or restructuring options for more than a year, citing overleveraged balance sheets, increased competition and changes to its markets.

"Like so many others, the company is also facing adverse near-term business consequences from the macroeconomic effects of the COVID-19 pandemic," John Frederick, Skillsoft's chief administrative officer, said in the company's Chapter 11 declaration.

Skillsoft entered Chapter 11 with a restructuring support agreement already in place with its senior and junior secured lenders. Under the prepackaged plan, first-lien creditors would receive shares of $410 million in new term loans for their nearly $1.4 billion in claims along with 96% of the reorganized company's equity. Second-lien creditors would receive 4% of the new equity and additional warrants for their $670 million in claims.

Unsecured creditors would be paid in full under the plan, while existing equity holder claims would be wiped out. Net debt would fall from about $2.1 billion to $536 million.

In a supplemental declaration Tuesday, Frederick said Skillsoft's lenders also support the company's plan to continue negotiations with the potential buyer as an alternative path in Chapter 11 in what could be a "value-maximizing option" for the debtors.

Skillsoft began marketing its businesses in October 2019, but by late April found it necessary to enter into forbearance agreements with first- and second-lien lenders that would have been due $42 million in debt and interest payments on April 30. Agreement on the restructuring support agreement with lenders was reached on June 12.

Judge Walrath on Tuesday also gave Skillsoft approval to tap into $30 million of the up to $60 million in post-petition funds being provided by a group of first-lien lenders. Approval of the rest of the funding will be considered at a future hearing.

Skillsoft has described its businesses as providing a "customized, learner-centric approach to skills development" in areas that include leadership development, business skills, technology and development, digital transformation and compliance. Its services have reached some 36 million individuals to date.

Skillsoft provides its learning content through its Percipio intelligent learning experience platform along with a talent development suite, SumTotal.

Skillsoft Corp. and its affiliates are represented by Mark D. Collins, Amanda R. Steele and Christopher M. De Lillo of Richards Layton & Finger PA and Gary T. Holtzer, Robert J. Lemons and Katherine Theresa Lewis of Weil Gotshal & Manges LLP.

The case is In re: Skillsoft Corp., case number 1:20-bk-11532, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Jeff Montgomery. Editing by Steven Edelstone.

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