New Chapter 11 Bankruptcy Filing - Avadim Health Inc.

North Carolina-based Avadim Health Inc. and four affiliates (together, the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware over the Memorial Day holiday. The “vertically integrated healthcare and wellness company” intends to “expeditiously complete a third-party sale of substantially all of the Company’s assets” to their pre-petition secured lenders (Hayfin Services LLP), who have agreed not only to serve as stalking horse purchaser but DIP lenders.

Historically, the debtors have sold topical products like pre-saturated towelettes, foaming, spray and other products B2B to acute care hospitals, nursing homes, and long-term care facilities. In 2016, nine years after their founding, the debtors expanded to B2C, unleashing their products in over 47k pharmacy locations and later adding its own website and an Amazon Inc. ($AMZN) presence to the mix. Between ‘17 and ‘19, the debtors’ annual net revenues popped from $10.8mm to $45.8mm.

On the liability side of the ledger, the debtors historically used debt, private placements of equity, convertible notes and revenues to fund ops. The capital structure includes:

  • $79.6mm term loan;

  • $22mm senior secured notes;

  • $6.4mm 6% unsecured convertible notes; and

  • $2.01mm 1% unsecured PPP loan due 4/22.

The company also owes $4.8mm pursuant to a settlement agreement tied to a patent dispute.

Remember those rising revenues? Yeah, well, that’s all fine and good unless it’s entirely offset by significant selling and marketing expenses and excess inventory build-up because not as many institutions want your product than you modeled out. This bit is brutal:

The Company’s sales related expenses resulted in limited free cash flow to fund other operating expenses, debt service, and investment in new products. In particular, the Company ramped up significant media/marketing expenditures and built up inventory in anticipation of its previously planned early 2020 IPO; however, that IPO never materialized.

Oh, wait, it gets worse:

Notwithstanding spending tens of millions of dollars over the past decade to build the Company’s brand, the Company has been unsuccessful in reaching profitability.

Ok, sorry, folks, but when we think of “brand” we think of LVMH, the parent company of luxury brands like Dior, Louis Vuitton, and Tiffany. In other words, a company with a market cap over 320b Euro which, earlier this month, made Bernard Arnault the richest person in the world (yes, over Jeff Bezos and Elon Musk). We DON’T think of “Theraworx Protect” (the debtors’ immune health line), Theraworx Protect U-Pak (the urinary health line) or Combat One (for soldier and first responder readiness). And we DEFINITELY don’t think of a company that lost $49.5mm $34.8mm and $53.6mm in ‘18, ‘19 and ‘20 respectively.

Apparently neither does the market. The IPO failed. Thereafter, the company initiated a strategic alternatives review that came up empty (with marketing taking place from March ‘20 through October ‘20 … poor timing). This is when the army of restructuring pros got involved, including independent directors on a “Restructuring Committee,” a CRO and some bankers for good measure. All roads, however, led back to the pre-petition secured lenders owed more than $102mm in principal amounts under the term loan and the secured notes. Apparently nobody else wanted to hop aboard a ship that (a) “[o]ver the past few years … [has] been perpetually distressed, constantly facing liquidity crunches and incurring defaults under the [term loan]” and (b) had to enter into “seven amendments to their [term loan] since June 2019, increasing the principal amount available to the Debtors, expanding interest obligations owed to the lenders, and extending maturities.

So, uh, why would anyone else want to get in on this?!?

As noted above, they don’t. The pre-petition lenders, on the other hand, are in a solid position to make a grab for valuable tax attributes and net operating losses!

MIDAVA HOLDINGS 3, INC. is the new entity formed by the pre-petition lenders to serve as stalking horse. The proposed DIP is $7.156mm at L+12%.

The debtors are represented by Chapman and Cutler LLP (Larry Halperin, Joon Hong) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns) as legal counsel, Carl Marks Advisors (Keith Daniels) as financial advisor and CRO, SSG Capital Advisors LLC as banker and Omni Agent Solutions as claims agent. Hayfin is represented by Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius, Rachael Foust) & Richards Layton & Finger PA (Paul Heath, Zachary Shapiro, Cavid Queroli).

The first day hearing is scheduled for later this morning at 11am ET.


Date: May 31, 2021

Jurisdiction: D. of Delaware (Judge Goldblatt)

Capital Structure: see above

Company Professionals:

  • Legal: Chapman and Cutler LLP (Larry Halperin, Joon Hong) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns)

  • Board of Directors: Dewey Andrew, Linda McGoldrick, Charles Owen III, Steven Panagos, Karan Rai, James Rosati, Stephen Woody

  • Financial Advisor/CRO: Carl Marks Advisors (Keith Daniels)

  • Investment Banker: SSG Capital Advisors LLC

  • Claims Agent: Omni Agent Solutions (Click here for free docket access)

Other Parties in Interest:

  • Term Loan Agent: Hayfin Services LLP

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius, Rachael Foust) & Richards Layton & Finger PA (Paul Heath, Zachary Shapiro, Cavid Queroli)

🚨New Chapter 11 Bankruptcy Filing - Secure Home Holdings LLC🚨

The market continues to puke out companies that were in trouble prior to COVID-19. Here we have Pennsylvania-based Secure Home Holdings LLC (and four affiliates, the “debtors”). The debtors are behind My Alarm Center, a national provider of, among other things, residential and commercial security systems, home automation systems, and smoke and carbon monoxide detectors.Revenues stem primarily from alarm monitoring contracts in addition to services and installations. In 2020, revenues from the former came to ~$88mm while the latter drummed up ~$7mm.

So? What gives? The debtors struggled with projected covenant defaults as far back as late 2019. Those “projected” defaults ultimately became “actual” defaults and the debtors hired Raymond James & Associates Inc. ($RJF) to pursue either a sale or refinancing transaction. But then … Covid.

We’ve obviously talked a lot about how the pandemic has affected businesses that require customers to come to them. Relatively speaking, we’ve paid short shrift to businesses that rely upon employees to visit and interact with customers. Mostly because we haven’t seen that many of them file even though it stands to reason that there’s probably a meaningful amount of distress there. Or, as we pointed out on Sunday, there would have been were it not for the CARES Act (indeed, the debtors obtained $6.8mm from the PPP program).

Here though:

Historically, a significant portion of the Debtors’ customer contracts resulted from door-to-door sales activity and in-home installations, but these activities came to an abrupt halt with the onset of the pandemic and mandatory state-wide stay-at-home orders. Although restrictions have partially eased in many locales, the Debtors’ door-to-door sales and in-home installations continue to be lower than pre-pandemic levels.

Makes sense. Given how people were Cloroxing their fruits and vegetables, it’s no shocker that customers weren’t all-too-amenable to home visits.

Which creates a vicious cycle. To get customers more comfortable, the debtors had to make investments and, to survive, alter the way it does business:

At the same time, the Debtors have faced increased costs directly related to COVID-19, including maintaining personal protective equipment for employees, additional cleaning required for offices and vehicles, transitioning their workforce to remote working, additional communications with customers, and additional overtime costs as employees were asked to cover for others who could not continue to work.

So while there were no easy operational answers, the balance sheet remained an issue. The pandemic scared off two potential purchasers of certain assets — something that might have provided much needed liquidity and stave off debt defaults. No dice:

…as a result of the current economic environment, disruption within the home security industry, and the decision by two of the Debtors’ major lenders to exit all home security loans, the Debtors defaulted under both of their credit agreements. These defaults left the Debtors unable to draw on their revolving credit facility. The Debtors also lack significant cash reserves.

Interestingly, the debtors don’t elaborate on what they mean by “disruption within the home security industry,” but, luckily, this is ground we’ve covered before; therefore, color us unsurprised that there’s skittishness amongst the lender set.

As for the defaults, they occurred in May 2020. That’s right, nearly 12 months ago. Thereafter, the debtors engaged restructuring pros (including a lender-mandated CRO) and have been negotiating with their lenders and pursuing strategic alternatives ever since. Per the debtors:

The forbearance agreements were amended and extended multiple times to permit these processes and negotiations to continue.

That’s the pandemic in a nutshell. The lenders exercised remedies and declared a default but then … well, then … they worked with the debtors for an extremely long time to get to this juncture. During this time, the debtors obtained a letter of intent that contemplated a sale transaction but that avenue closed once the buyer was unable to obtain financing. The debtors, then, had to pivot to an alternative.

The culmination of that pivot is the debtors’ proposed plan of reorganization and DIP financing. The plan contemplates doling out equity ownership to the first lien lenders led by funds affiliated with Invesco. Invesco and the other first lien lenders (which includes First Midwest Bank and CIT Bank NA), will also provide a $30mm DIP ($15mm new money). Interestingly, the plan delineates that the first lien lenders are undersecured; the plan allows a first lien claim of not less than $95mm (of the $197mm funded), leaving, after accounting for the DIP roll-up too, a pretty hefty unsecured deficiency claim (hence why funds affiliated with Invesco are scattered throughout the debtors’ list of top unsecured creditors filed along with the petition). This also explains why the second lien creditors — represented by agent, Goldman Sachs Speciality Lending Group LP — are an impaired class recovering bupkis (PETITION Note: well, bupkis other than a $1mm fee + $200k legal expense reimbursement in connection with consent to the priming DIP); they too are deficiency claims. Upon emergence, the implied plan enterprise value will be $145mm, as follows:

Source: Debtors’ Disclosure Statement

Source: Debtors’ Disclosure Statement

✈️ New Chapter 11 Bankruptcy Filing - AeroCentury Corp. ($ACY) ✈️

California-based AeroCentury Corp. ($ACY) and two affiliates (together, the “debtors”) filed chapter 11 bankruptcy cases on Monday March 29, 2021 in the District of Delaware. The debtors are in the business of investing in mid-life regional turboprop and jet aircraft equipment and then turning around and leasing that equipment to foreign and domestic regional air carriers. Their portfolio consists of thirteen aircraft, six of which are held under operating leases, two under financing leases, and five held for sale in whole or as parts. If this general type of business sounds familiar, well, congratulations, you’ve been paying attention: over the last few weeks, we’ve been highlighting the challenges that aircraft finance businesses have faced due to COVID-19 primarily in the context of Nordic Aviation (hereherehere and here).

COVID-19 did no favors for the debtors either. The debtors experienced an 85% decrease in YOY revenue in Q320; they had generated $43.6mm in revenue in FY19. That hurts when thrown against ~$83mm of pre-petition first lien debt due in 2023 (exclusive of debt held on certain non-debtor special purpose entities backing individual aircraft).

Of course, there were problems pre-pandemic. In fact, the debtors have been in a perpetual state of forbearance with their agent bank, MUFG Union Bank NA ($MUFG), and their lenders since October 28, 2019. Not that you could tell from the looks of this chart:

Source: Koyfin

Source: Koyfin

Anywho, pre-COVID, the debtors’ banker, B. Riley Securities Inc. ($RILY), was out to market on a dual track, soliciting bids for a sale of the debtors’ assets on one hand, while also pursuing a capital raise on the other. The bankruptcy will apparently take the first path.

The debtors march into bankruptcy court with a stalking horse agreement in place with Drake Asset Management Jersey Limited, which purchased all of the debt held by the debtors’ lenders in October 2020. Drake will credit bid $83.5mm; it did not negotiate a break-up fee or expense reimbursement so anyone bullish on an airline turnaround is apparently more than welcome to enter the fray with little to no impediments (well, other than than credit bid amount). Given that RILY has been marketing the debtors for what seems like an eternity now, the debtors hope to push the sale process expeditiously, completing the process in approximately 50 days.

Date: March 29, 2021

Jurisdiction: D. of Delaware (Judge Dorsey)

Capital Structure: $83mm of funded debt

Company Professionals:

  • Legal: Morrison & Foerster LLP (Lorenzo Marinuzzi, Erica Richards) & Young Conaway Stargatt & Taylor LLP (Joseph Barry, Ryan Bartley, Joseph Mulvihill, S. Alexander Faris)

  • Investment Banker: B. Riley Securities Inc. (Adam Rosen)

  • Claims Agent: KCC (Click here for free docket access)

Other Parties in Interest:

  • RCF Agent: MUFG Union Bank NA

⚡️New Chapter 11 Bankruptcy Filing - Griddy Energy LLC⚡️

Griddy Energy LLC

Sooooooo this one was predictable. The writing was on the wall a few weeks ago and we noted in “💥Is Texas F*cked?💥,” that Griddy Energy LLC was a likely bankruptcy candidate.* On Sunday, we noted how recent PUCT/ERCOT decisions to extend the deadline “…for electric retailers to dispute the ridonkulous liabilities imposed upon them after the now-infamous Texan storm” — liabilities that already claimed Just Energy Group Inc.($JE) and Brazos Electric Power Cooperative Inc. as victimsmight buy time for certain other players in the stack to figure out their futures. By then, however, it was already too late for Griddy. On February 26, 2021, ERCOT forced the mass transition of Giddy’s customers to other electricity providers.

Griddy’s whole business model was passing through wholesale pricing sans mark-up to 29,000 retail end customers in exchange for a monthly fixed fee of $9.99. Through this model, Griddy claims to have saved its customers more than $17mm since 2017. Griddy argues that at no point since its inception was its model targeted as problematic by the PUCT. PUCT, after all, granted Griddy’s license.

That all obviously changed with February’s big storm. Per the debtor:

During the winter storm in Texas in February 2021, Griddy and its customers suffered as a result of (a) inaccurate information from ERCOT about the preparedness of the electricity grid for the 2020-2021 winter season, (b) the decision by the PUCT to order electricity prices be set to $9,000 per megawatt hour (“MWh”), and (c) ERCOT’s decision to hold electricity prices at $9,000 per MWh for 32 hours after firm load shed had stopped. Prior to the PUCT order, the real-time electricity price had reached $9,000 per MWh for a total of only 3 hours since 2015. In contrast, after the PUCT order, the electricity price was set to $9,000 per MWh for 87.5 hours between February 15, 2021 and February 19, 2021.

This obviously creates a whole host of issues when, in turn, you’re only getting $9.99 per customer per month (plus other passthrough expenses) for a total of $289.7k in revenue a month. Prior to the storm, Griddy was solvent. As of the petition date, it has only $1.448mm of pre-petition debt outstanding (due to Macquarie Investments US Inc.). Griddy obviously blames the reversal of that fortune on ERCOT’s missteps and poor planning. Per the debtor:

Prior to the mid-February winter storm event, Griddy was solvent. As discussed above, the failures of ERCOT and resulting actions taken by the PUCT during the winter storm event resulted in Griddy’s loss of all of its customers and forced Griddy to file this case. The winter storm event also left Griddy in an untenable position – engage in aggressive collection actions against customers for exceedingly high prices for wholesale electricity and ancillary services (which is not its preference) and fight baseless lawsuits – or file for bankruptcy and distribute its remaining cash in an orderly manner.

Be that as it may, Griddy now owes a contingent and disputed $29mm nut to ERCOT — its largest general unsecured creditor. Its customers — who generally tend to be on the lower end of the socioeconomic spectrum — have bills far in excess of historical norm and expectation. So now what?

Griddy is basically flicking the bird to ERCOT (🖕):

In the weeks since the winter storm event, Griddy has created a chapter 11 plan whereby (i) Macquarie would compromise a portion of the remaining amount of money owed to it by Griddy for the benefit of Griddy’s other creditors, (ii) Griddy would give former customers with unpaid bills releases in exchange for such customers’ releases of Griddy and certain other parties, (iii) other general unsecured creditors would share pro rata in remaining available cash, and (iv) upon emergence, a plan administrator would take over ownership of Griddy and, in his or her discretion, pursue causes of action, whether against ERCOT for potential preference claims, fraudulent transfers or other claims related to the winter storm event, or otherwise. Griddy has filed its proposed chapter 11 plan, disclosure statement and related motions concurrently herewith. Griddy intends to seek confirmation of its proposed chapter 11 plan on as expedited basis as possible.

“Certain other parties” no doubt includes Macquarie.

All of this seems so strangely … American. Thousands of innocent people sign up for a product that they don’t fully understand most likely thinking that there are systems in place to protect them. Turns out the systems are broken: thousands of innocent people lose electricity for days and ultimately get billed up the wazoo and, naturally, nobody wants to take any responsibility for that. Lawsuits commence. Bankruptcies ripple through the area.** Meanwhile, the lenders do everything in their power to shed any and all liability risk. God bless America.


*We said we “smell a chapter 7 filing” which, it turns out, was perhaps a bit to flippant. While the spirit of the comment is correct in that there is no future for the company as a going concern, we neglected to consider some of the benefits of a chapter 11 filing including, among other things, the sought-after releases.

**One interesting side note — given that this is a uniquely Texan fact pattern — is that it took this catastrophe to finally hour-up some Texas-based lawyers rather than enrich some Chicago or New York attorneys. Putting aside Just Energy Group Inc. (represented by Kirkland & Ellis LLP), Brazos Electric Power Cooperative Inc. is represented by Norton Rose Fulbright and Griddy is represented by Baker Botts LLP. The lender, Macquarie, is counseled by Haynes and Boone LLP and ERCOT is represented by Munsch Hardt Kopf & Harr P.C. The local folks must seriously be thinking “it’s about time.”


Date: March 15, 2021

Jurisdiction: S.D. of Texas (Judge Isgur)

Capital Structure: $15mm Borrowing Base Facility ($1.448m outstanding)

Company Professionals:

  • Legal: Baker Botts LLP (Robin Spigel, David Eastlake, Chris Newcomb, Jacob Herz)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • Pre-petition Lender: Macquarie Investments US Inc.

    • Legal: Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

  • ERCOT

    • Legal: Munsch Hardt Kopf & Harr P.C. (Kevin Lippman)

⛽️New Chapter 11 Bankruptcy Filing - Nine Point Energy Holdings Inc.⛽️

Nine Point Energy Holdings Inc.

Colorado-based Nine Point Energy Holdings Inc. (along with three affiliates, the “debtors”) is and independent oil and gas exploration and production company focused on the Williston Basin in North Dakota and Montana. It is the successor to Triangle USA Petroleum Corporation, which filed for chapter 11 bankruptcy in June 2016 and confirmed a plan in March 2017. Four years later, it’s back in bankruptcy court. 😬

Followers of E&P bankruptcies have become accustomed to disputes relating to E&P companies and their midstream gathering, transportation and processing providers. Here, Caliber Midstream Partners LP was the debtors’ largest midstream services provider — “was” being the operative word after the debtors terminated the long-term midstream services agreements on the eve of bankruptcy. The story, however, doesn’t end there.

The debtors are willing to enter into a new arrangement with Caliber going forward. It’s unclear how the new arrangement might differ from the existing arrangement because redaction, redaction, redaction. The economic terms of the contract have not been disclosed. 🤔

And so here we are with another potential “running with the land” scenario. If you’re unfamiliar with what this is, you clearly haven’t been paying attention to E&P bankruptcy cases. Just Google it and you’ll pull up probably 8928394829248929 law firm articles on the topic. As this will be a major driver in the case, it probably makes sense to refresh your recollection.

Why are the debtors in bankruptcy? All of the usual reasons, e.g., the big drop in oil prices thanks to COVID-19 and Russia/OPEC. Nothing really new there.

So what does this filing achieve? For starters, it will give the debtors an opportunity to address the Caliber contracts. Moreover, it will avail the debtors of a DIP facility from their pre-petition lenders in the amount of ~$72mm — $18mm in new money and $54mm on a rollup basis (exclusive of an additional $16.1mm roll-up to account for pre-petition secured swap obligations)(8% interest with 2% commitment fee). Finally, the pre-petition-cum-DIP-lenders have agreed to serve as the stalking horse purchaser of the debtors’ assets with a credit bid floor of $250mm.


Date: March 15, 2021

Jurisdiction: D. of Delaware (Judge Walrath)

Capital Structure: $256.9mm credit facility, $16.1mm swap obligations

Company Professionals:

  • Legal: Latham & Watkins LLP (Richard Levy, Caroline Reckler, Jonathan Gordon, George Davis, Nacif Taousse, Alistair Fatheazam, Jonathan Weichselbaum, Andrew Sorkin, Heather Waller, Amanda Rose Stanzione, Elizabeth Morris, Sohom Datta) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond Coyle, Ashley Jacobs, Jacob Morton)

  • Board of Directors: Patrick Bartels Jr., Dominic Spencer, Frederic Brace, Gary Begeman, Alan Dawes

  • Financial Advisor: AlixPartners LLP (John Castellano)

  • Investment Banker: Perella Weinberg Partners LP (John Cesarz)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • Pre-petition & DIP Agent: AB Private Credit Investors LLC

    • Legal: Proskauer Rose LLP (Charles Dale, David Hillman, Michael Mervis, Megan Volin, Paul Possinger, Jordan Sazant) & Landis Rath & Cobb LLP (Adam Landis, Kerri Mumford, Matthew Pierce)

  • Ad Hoc Group of Equityholders: Shenkman Capital Management, JP Morgan Securities LLC, Canyon Capital Advisors LLC, Chambers Energy Capital

    • Legal: Willkie Farr & Gallagher LLP (Jeffrey Pawlitz, Matthew Dunn, Mark Stancil) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • Midstream Counterparty: Caliber Measurement Services LLC, Caliber Midstream Fresh Water Partners LLC, and Caliber North Dakota LLC

    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk, Tristan Sierra, Edward Soto, Lauren Alexander) & Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Taylor Haga, Nader Amer)

📺New Chapter 11 Bankruptcy Filing - MobiTV Inc.📺

MobiTV Inc.

On Monday, Emeryville, California-based MobiTV, Inc. and an affiliated debtor filed for chapter 11 bankruptcy in the District of Delaware. MobiTV is “a creative thinking technology company making TV better.” Which is funny because we’re willing to bet that literally nobody thinks about MobiTV when they think about whether they enjoy their television-watching user experience. Anyway, what that actually means is MobiTV sells a white-label software application to cable providers that allows consumers to stream programming on (i) streaming devices like Roku, Apple TV, Amazon Fire TV, XBox or (ii) a smart TV, without the need for a set-top cable box. Key customers include T-Mobile USA Inc. ($TMUS) and over 120 cable/broadband television providers to deliver content to over 300k end user subscribers. In other words, if you’re streaming HBO via T-Mobile, your experience may very well be powered by MobiTV.

MobiTV has been around since 2000 and had gone through several shifts in its fortunes and business model. In 2020, MobiTV generated $13M in revenue with an operating loss of approximately $34M. That is a long fall from grace for a company that filed for an IPO in 2011 with reported 2010 sales of $67M. At the time, MobiTV was entirely focused on providing licensed TV programming to the personal devices of customers on wireless networks with AT&T Inc. ($T)Sprint, and T-Mobile accounting for almost all of the company’s revenues. MobiTV had raised over $110M from investors like Menlo VenturesRedpoint VenturesAdobe Ventures, and Hearst Ventures.

But despite its rosy trajectory, MobiTV withdrew its IPO filing a few months later citing unfavorable market conditions. In hindsight, there were obviously deeper problems with the business model. Broadcast TV viewing on mobile devices failed to take off in the way the company predicted and MobiTV pivoted away from serving wireless carriers.

Its new target customer was midsize cable providers. Set-top boxes have long been at the center of consumers interactions with cable providers. But these boxes have plenty of drawbacks:

Pay-TV providers (and their consumers) are looking for a way beyond set-top boxes, which can be expensive for consumers to buy, costly to maintain for the pay-TV providers and often limited in their functionality. Their clunkiness, in fact, has made them ripe for disruption, and many now opt for lighter options like Fire TV or Apple TV to bypass those services altogether. In other words, pay-TV providers need to find other routes to providing services to customers that can compete better with the newer generation of video services. (emphasis added)

MobiTV saw the shift towards streaming devices and smart TVs and aimed to position itself as a “television as a service provider” to midsized cable providers like C SpireDirectLink, and Citizens Fiber. These companies lack the R&D budgets of the likes of Comcast Corporation ($CMCSA) to invest in user interface and software applications in their set-top boxes. In 2017, MobiTV raised $21M from Oak Investment Partners and Ally Bank ($ALLY) (at a reported ~$400M valuation!) to develop its MobiTV ConnectTM Platform, “a product for pay TV and on-demand TV providers to stream broadcast TV and offer other services, like catch-up and recording, without the need of a set-top box.

The idea was to capture some of the “customer ownership” that was slipping from cable set-top boxes to streaming devices and services. In 2019, MobiTV raised $50M more from Oak Investment Partners and Ally Bank as well as Cedar Grove Partners to fund further growth. At the time, MobiTV had about 90 cable providers signed up as customers.

Middlemen can make good money and at first glance it seemed like MobiTV might have been able to carve out a position for itself. MobiTV offered cable providers a small way to stem the tide of cord cutting and the proliferation of streaming services like HBO MaxNetflix Inc ($NFLX)Hulu, and the rest. As TechCrunch laid out, “The pitch that MobiTV makes to pay TV providers goes something like this:”

…set-top-box-free pay TV services gives operators a wider array of channels and potentially more flexibility in how they are provisioned. At the same time, a solution like MobiTV’s potentially lowers the total cost of ownership for providers by removing the need for the set-top boxes.

That’s not to say that some of its customers are not using both, though: they can provide a certain set of channels directly through boxes, and the MobiTV service gives them the option of having another set that are offered on top of that.

By 2020, MobiTV’s customer base had grown to about 120 midsize cable TV operators as well as legacy T-Mobile customers. Revenue was growing and its subscribers and customers bases were both increasing. So what the hell happened here? 🤔

An agnostic software solution for cable providers to capture some of the shift towards streaming? Coupled with more people stuck at home from a pandemic? If this product were ever going to work, one would think it would have been during the last year. From the First Day Declaration:

That’s the entirety of section D. Maybe we are dense but it would be interesting to know what exactly about the COVID-19 pandemic and related stay-at-home orders materially impaired the Company’s growth opportunities. Seems like that should have been good for business, no?

But we can speculate.

As every content provider has rolled out their own streaming service over the last twelve months, MobiTV was probably in the worst position in the entire television streaming value chain. On the supply side, content providers are focused on promoting their own streaming services and have little reason to give any sort of pricing concessions to a niche service provider like MobiTV. This surely kept MobiTV’s licensing costs at an elevated level.

On the demand side, consumers likely were not calling in to their cable providers demanding MobiTV considering they could get the same content with a $30 Roku, their streaming subscriptions, and their broadband bill. Cable providers apparently were willing to pay for the service, but not enough to keep the company from losing money.

After 20 years of trying to figure out what its business model was, MobiTV finally threw in the towel and management took COVID cover.

The “tell” that the business issues were more elemental than COVID? The fact that the company has been operating under a series of 17 amendments and forbearance agreements.

At the time of its Ch. 11 filing, MobiTV had ~$25M of debt obligations, owed entirely to its sole pre-petition secured lender, Ally Bank.

In 2017 Ally Bank provided MobiTV a $10M term loan as well as a $5M revolving credit facility which was fully drawn. The original maturity of these loans was February 3, 2019, but following the aforementioned amendments and forbearance agreements, the maturity date was pushed back to January 2021. To fund the business in the interim, Oak Investment Partners threw good money after bad, underwriting three Subordinated Convertible Promissory Notes on August 6, 2020 ($4mm); December 14, 2020 ($1mm); and December 30, 2020 ($0.3mm). As a condition to one of Ally Bank’s credit amendments, MobiTV engaged FTI Capital Advisors LLC to evaluate strategic alternatives. A subsequent marketing effort came up empty: the “alternatives” were non-existent.

Consequently, on January 29, 2021, MobiTV and Ally Bank entered into another amendment and forbearance. T-Mobile — the customer most reliant upon the MobiTV’s services — provided $2.5mm in bridge financing lest they upset thousands of customers right around Super Bowl time. On February 12, 2021, T-Mobile agreed to provide an additional ~$2.3mm and Ally Bank agreed to forbear until February 26, 2021.

Following negotiations with Ally Bank and T-Mobile, the interested parties concluded that a sale process should be implemented through the filing of chapter 11. An affiliate of T-Mobile, TVN Ventures, LLC, has committed to a $15mm DIP credit facility (12%), junior to the pre-existing pre-petition Ally Bank position. As of this writing, management is still seeking a stalking horse bidder to backstop the sale process.

At $13mm of revenue with an operating loss that high, there’s a very good chance that T-Mobile knows it’s buying this thing with that DIP commitment.


Date: March 1, 2021

Jurisdiction: D. of Delaware (Judge Silverstein)

Capital Structure: $25mm funded debt

Company Professionals:

  • Legal: Pachulski Stang Ziehl & Jones LLP (Debra Grassgreen, Mary Caloway, Maxim Litvak, Nina Hong, Jason Rosell)

  • Financial Advisor: FTI Consulting Inc. (Chris LeWand, Catherine Moran, Chris Post, Chris Tennenbaum, Doug Edelman)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • DIP Lender: T-Mobile USA Inc. and TVN Ventures LLC

    • Legal: Alston & Bird LLP (William Sugden, Jacob Johnson) & Young Conaway Stargatt & Taylor LLP (Edmon Morton, Kenneth Enos)

  • Silicon Valley Bank

    • Legal: Morrison Foerster LLP (Alexander Rheaume, Benjamin Butterfield) & Ashby & Geddes LLP (Gregory Taylor, Katharina Earle)

  • Ally Bank

    • Legal: McGuireWoods LLP (Kenneth Noble, Kristin Wigness, Ha Young Chung) & Richards Layton & Finger PA (John Knight, David Queroli)

  • Official Committee of Unsecured Creditors:

    • Legal: Fox Rothschild LLP (Seth Niederman, Michael Sweet, Gordon Gouveia)

🚜New Chapter 11 Bankruptcy Filing - Tea Olive I LLC (d/b/a Stock+Field)🚜

Tea Olive I LLC (d/b/a Stock+Field)

The #retailapocalypse is indiscriminate. Sometimes it likes to take down big prey like J.C. Penney or J. Crew but other times it just wants to snag some low hanging fruit via the path of least resistance. That means that a number of retailers those of us in our bubbles in major coastal cities have maybe never heard of will find their way into a bankruptcy court. And a bankruptcy court outside of Delaware or Texas no less.

Like Tea Olive I LLC (d/b/a Stock+Field) for instance. The Minnesota-based “farm, home and outdoor retailer” operates 25 stores across the mid-West. It only sells “a small amount of products…online.” While that’s obviously pretty lame, this place seems like a smorgasbord of fun: in one fell swoop you can go in and pick up, among other things, some dog food, a kayak, some beekeeping equipment, some lawn fertilizer, workwear and apparel, a grill, paint, a new HVAC unit, auto parts, food, toys and firearms! A Christmas bonanza, this place must be! Earl Jr. can get himself a little toy gun while Big Earl can get himself a grenade launcher and AR-15. Everybody wins!

Well, not everybody. Unfortunately, the place is liquidating, a sad post-holidays result for the 1,000 full and part-time employees that work there.

In 2018, the debtor did $176mm of revenue and adjusted EBITDA of $5.1mm. In 2019, to differentiate itself from other unrelated “Big R” entities in the US, the debtor changed its name from “Big R Stores” to “Stock+Field” expecting some short-term drops in performance but expecting those drops to be mere blips on the road to a stronger future. And, in fact, the company did suffer a small drop in performance: it did $173.9mm in revenue and $1.6mm in adjusted EBITDA. 2020 was supposed to be the year.

Spoiler alert: it wasn’t. Not for literally anybody on the planet (well, other than maybe Elon Musk, Joseph Biden, fans of Brexit…ah…you get the idea…there are exceptions to literally everything). Per the company:

In the beginning of 2020, the Debtor continued its rebranding efforts and expected the business to grow throughout the year. However, the Covid-19 pandemic unexpectedly upset all expectations for 2020. All of the Debtor’s 25 stores were open under strict capacity and operating hour restrictions due to the pandemic. Additionally, the pandemic itself has altered the shopping behaviors of the Debtor’s consumers, with some customers not feeling comfortable entering physical stores to shop. While the Debtor sells some products online, the majority of its products are sold solely in stores.

😬Apparently they didn’t get the omni-channel memo. For fiscal year 2020, therefore, the debtor estimates $141.5mm in revenue and -$2.2mm in adjusted EBITDA. Consequently, the company hired restructuring professionals to pursue a financing options and/or a sale. But had no luck. The company then hired Tiger Capital Group to pursue liquidation. Get ready for…

The debtor owes $29.7mm to its senior secured lender, CIT Northbridge Credit LLC pursuant to a credit agreement entered into in early March 2020. Query how seriously the various parties were taking COVID-19 given the timing. Still, the debtor estimates its inventory value to be $45.6mm and it also has $734k of A/R and prepaid assets against $26.5mm in trade debt (inclusive of approximately $1mm in 503(b)(9) claims).* The size of general unsecured creditor recoveries — certain to be less than 100% — will definitely depend on whether there are shoppers out there who are willing to risk contracting COVID-19 simply to hit the bid on that alleged $45.6mm in inventory value.

One question that also arises with retail cases is what happens with gift cards? It appears the debtor intends to honor outstanding gift cards until February 8, 2021. Hurry out, y’all, and get yourself some new toys and firearms just in time for the Civil War.

*For the uninitiated, the Bankruptcy Code provides that suppliers of goods delivered to a debtor in the ordinary course of business in the 20 days prior to a petition date be allowed as administrative expenses.


PETITION is a digital media company that provides curated content, analysis and commentary about distressed investing, bankruptcy and restructuring. We discuss disruption from the vantage point of the disrupted. For “all-access” to our content, lease visit us here.


Date: January 10, 2020

Jurisdiction: D. of Minnesota (Judge Fisher)

Capital Structure: $29.7mm funded secured debt (Second Avenue Capital Partners LLC)

Company Professionals:

  • Legal: Fredrikson & Byron PA (Clinton Cutler, James Brand, Steven Kinsella, Samuel Andre)

  • Restructuring Advisor: Clear Thinking Group (Michael Wesley)

  • Liquidator: Tiger Capital Group LLC

  • Investment Banker: Steeplechase Advisors LLC (James Cullen, Dan O’Rourke, David Burke, Nate Anderson, Eddie Doherty, Amy Rose)

  • Claims Agent: Donlin Recano (Click here for free docket access)

Other Parties in Interest:

  • Secured Loan Agent: Second Avenue Capital Partners LLC

  • Secured Lender: CIT Northbridge Credit LLC

    • Legal: Riemer & Braunstein LLP (Steven Fox)

New Chapter 11 Bankruptcy Filing - RGN-Group Holdings LLC (d/b/a Regus)

RGN-Group Holdings LLC

We have yet to really see it run through the system but there’s no doubt in our minds that there is a commercial real estate and commercial mortgage-backed security massacre on the horizon. The hospitality sector, in particular, ought to be on the receiving end of a pretty harsh shellacking. More on this in a future edition of PETITION.

For now, the most high profile CRE activity we’ve seen thus far is the trickle of Regus locations that have filed for bankruptcy. Regus is an on-demand and co-working company with 1000 locations across the United States and Canada. Set up as special purpose entities with individual leases, the structure is such that IWG Plc f/k/a Regus Corporation (OTCMKTS: $IWGFF) serves as both ultimate parent and lender but isn’t a guarantor or obligor under any of the downstream leases.* This non-recourse structure allows for individual Regus locations to plop into bankruptcy — all with an eye towards working out lease concessions or turning over — without taking down the entirety of the enterprise.**

The first outpost, RGN-Columbus IV LLC, filed for bankruptcy in Delaware back on July 30. Since then, sixteen additional Regus affiliates have filed with the most recent ones descending upon Delaware last week: RGN-Philadelphia IX LLC, RGN-Chevy Chase I LLC, RGN-Los Angeles XXV LLC, RGN-San Jose IX LLC, RGN-New York XXXIX and RGN-Denver XVI LLC. All of the cases filed under Subchapter V of chapter 11 of the bankruptcy code (though, thanks to the addition of more locations, the case has been re-designated under Chapter 11).***

The description of the overall business model is precious:

IWG’s business model begins with entry into long-term non-residential real property leases (each, a “Lease”) with property owners (each, a “Landlord”) that provide the Company unoccupied office space (the “Centers”). Based on significant market research on potential client needs in local markets and the unique requirements of their existing clients, IWG engineers each of the Centers to meet the architectural style, service, space, and amenity needs of those individuals, companies, and organizations who will contract for use of subportions of the Centers. IWG markets its Centers under an umbrella of different brand names, each tailored to appeal to different types of clients and those clients’ specialized needs. These clients (the “Occupants”) enter into short-term licenses (each, an “Occupancy Agreement”) to use portions of the Centers, which are customizable as to duration, configuration, services, and amenities. When operating successfully, a Center’s Occupants’ license payments (“Occupancy Fees”) will exceed the combined cost of the underlying long-term lease, management cost, and operating expenses of the Center. (emphasis added)

It’s the “when operating successfully” part that always bewildered watchers of the co-working business model generally. After all, it was easy to see the mass expansion of co-working spaces amidst the longest bull run in market history. Indeed, Regus apparently had “Good first half performance overall given COVID-19 impact in Q2.” The question was: what happens in a downturn? The answer? You start to see the model when it operates unsuccessfully. In this scenario, occupancy rates dip lower than expected. Prior geographic expansion begins to look irresponsible. Pricing declines to attract new sales and renewals. And current occupants begin to stretch their payables.**** In total, it ain’t pretty. By way of example, take a look at some of the numbers:*****

Source: PETITION, Chapter 11 Petitions

Source: PETITION, Chapter 11 Petitions

But while the operating performance of those select locations may be ugly AF, the structure bakes in this possibility and isolates the cancer. Aside from the landlords, the locations have virtually no creditors.

  • Each debtor location is an obligor pursuant to a senior secured loan agreement with Regus making for an intercompany obligation. There’s no other funded debt.

  • The debtors are otherwise subject to a management agreement with non-debtor Regus Management Group LLC (“RMG”) pursuant to which each debtor is obligated to reimburse RMG for gross expenses incurred directly by RMG in performing management services plug a 5.5% vig on gross revenues.

  • The debtors are also subject to an equipment lease agreement with debtor RGN-Group Holdings LLC. Under this agreement the debtors are obligated for the original cost of fixtures, furniture and equipment plus a margin fee.

  • As if those agreements didn’t siphon off enough revenue, the debtors are also subject to franchise agreements pursuant to which the debtors have the right to operate an IWG business format in their respective locations and use certain business support services, advice and IT in exchange for a monthly 12% vig on gross revenue.

Given most of the debtors’ obligations are intercompany in nature, what did Regus do? It tried to stick it to its landlords. Duh.

Like so many other companies navigating these troubled times, the Company instituted a variety of comprehensive actions to reduce costs and improve cash flow and liquidity, including the deferral of rent payments and engagement with Landlords to negotiate forbearances, temporary accommodations, and, where possible, permanent modifications to the various Leases to bring them in line with the COVID-19-adjusted market realities so as to permit the Company to continue operating Centers at those respective locations despite the uncertainty when the pandemic will subside and when (and indeed, whether) the U.S. will return to something resembling the pre-pandemic “business as usual.”

Certain landlords, of course, played ball. That helped lessen Regus’ funding burden in the US. But, of course, others didn’t. Indeed, various landlords sent default/eviction notices. Hence the aforementioned bankruptcy filings:

…the Debtors commenced their Chapter 11 Cases to prevent the forfeiture of the Lease Holder Debtors’ Leases, and to preserve all Debtors’ ability to operate their respective businesses—thereby, importantly, protecting the Occupants of the Lease Holder Debtors’ Centers from any disruption to their businesses. I expect that the “breathing spell” from Landlords’ collection efforts that will be afforded by the chapter 11 process will allow the Debtors, and the Company more broadly, to more fully explore the possibility of restructuring their various contractual obligations in order to put the Company’s North American portfolio on a surer footing going forward, so as to allow the Debtors to emerge from this process stronger and more viable than when they went in. If these restructuring efforts prove unsuccessful, the Lease Holder Debtors intend to utilize the procedures available to them under the Bankruptcy Code to (i) orderly wind down the operation of the applicable Centers (including, to the extent necessary, the removal of the FF&E from the leased premises, and to the extent possible, transition of the Occupants to other locations), (ii) liquidate the amounts due to the Landlords under their respective Leases and guarantees, as well as amounts due to the Debtors’ affiliates under their respective agreements, and (iii) to make distributions to creditors in accordance with their respective priorities under the Bankruptcy Code and applicable law.

Said another way: this is gonna be a landlord/tenant battle. Regus has offered to provide $17.5mm of DIP financing to give the debtors time to negotiate with their landlords. To the extent those negotiations (continue to) fail, the debtors will no doubt begin to reject leases left and right.

*****

They likely won’t be alone. Per The Wall Street Journal:

The world’s biggest coworking companies are starting to close money-losing locations across the globe, signaling an end to years of expansion in what had been one of real estate’s hottest sectors.

The retreat reflects an effort to slash costs at a time when the coronavirus is reducing demand for office space, and perhaps for years to come. It also shows how bigger coworking firms, in a race to sign as many leases as possible and grab market share, overexpanded and became saddled with debt and expensive leases.

The share of coworking spaces that have closed is still small. In the first half of the year, closures accounted for just 1.5% of the space occupied by flexible-office companies in the 20 biggest U.S. markets, according to CBRE Group Inc.

Knotel, for instance, seems to be making a habit of getting sued for unpaid rent. Query whether we’re at the tip of the iceberg for co-working distress.


*Other debtor entities, however, like RGN-Group Holdings LLC, RGN-National Business Centers LLC and H Work LLC do sometimes act as guarantors. Hence their bankruptcy filings. RGN-Group Holdings LLC isn’t a lease holder; rather, it owns all of the furniture, fixtures, equipment and other personal property and leases it all fo the respective SPE centers across the US pursuant to Equipment Lease Agreements.

**The nuance of this structure was constantly lost in the furor over WeWork back when WeWork was a thing that people actually cared about. Since we’re on the topic of WeWork, we suppose we ought to explain the video above. WeWork’s eccentric founder, Adam Neumann, was on record saying that he thought WeWork would thrive during a downturn due to its flexible structure — a point that has obviously been disproven by what’s transpired over the past few months. That said, and to be fair, he clearly didn’t have “social distancing” in mind when he hypothesized that result.

***We wrote about Subchapter V last month in the context of Desigual’s bankruptcy filing. We said:

Luckily for a lot of businesses, the Small Business Reorganization Act (SBRA and a/k/a Subchapter V) went into effect in February. Coupled with amended provisions in the CARES Act, the SBRA will make it easier for a lot of smaller businesses to restructure because:

It established a higher threshold ($7.5mm vs. $2.7mm) to qualify which means more businesses will be able to leverage the streamlined SBRA process to restructure. Previously, businesses over that cap couldn’t utilize Subchapter V which made any shot at reorganization via bankruptcy far too expensive for smaller businesses. The only alternative was dissolution and liquidation.

Debtors under SBRA can spread a payment plan for creditors over 3-5 years. Debtors get the benefit of the payments spread out over time and creditors can potentially recover more. Aiding this is the fact that admin expenses also get paid over time and debts are not discharged until all plan payments are fulfilled.

A plan must be filed within 90 days. The shorter time frame also contains cost.

A trustee must be appointed and effectively takes the place of a UCC which may only be formed on showing of cause.

Companies are taking advantage of this.

****It probably stands to reason that various client programs the debtors typically depend upon are less likely to generate results under this scenario. The debtors nevertheless filed a motion seeking to continue these programs. They include (a) rebate programs for occupants who spend over a certain annual amount, (b) occupancy agreement promotions such as discounts, reduced rent costs, one or more months of free rent, etc., and (c) occupant referral fees. Suffice it to say, occupants likely aren’t referring in many other occupants during COVID. Consequently, the debtors ultimately withdrew this motion. All of this brings up another criticism of WeWork: what, exactly, is a co-working space’s moat? As justification for these programs, the debtors say:

The Lease Holders operate in a very competitive and dynamic market and with many competitors for the same customers. The loss of one or more Occupants could significantly impact the Debtors’ profitability, and therefore, the Client Programs require timely coordination on the part of the Lease Holders to ensure the maximum generation of customer agreement profits and brand awareness during this restructuring.

Case and point.

*****These numbers are YTD for the period ended June 30, 2020.


For more commentary and analysis about distressed investing, restructuring and/or bankruptcy, please visit us here.


Dates:

RGN-Columbus IV LLC (July 30, 2020)

RGN-Chapel Hill II LLC (August 2, 2020)

RGN-Chicago XVI LLC (August 3, 2020)

RGN-Fort Lauderdale III LLC (August 8, 2020)

RGN-Group Holdings LLC (August 17, 2020)

H Work, LLC (August 17, 2020)

RGN-National Business Centers LLC (August 17, 2020)

RGN-Lehi LLC (August 27, 2020)

RGN-Lehi II LLC (August 27, 2020)

RGN Atlanta XXXV LLC (August 29, 2020)

RGN-Arlington VI LLC (August 30, 2020)

RGN-Chevy Chase I LLC (September 2, 2020)

RGN-Philadelphia IX LLC (September 2, 2020)

RGN-Denver XVI LLC (September 3, 2020)

RGN-New York XXXIX (September 3, 2020)

RGN-Los Angeles XXV LLC (September 3, 2020)

RGN-San Jose IX LLC (September 4, 2020)

Jurisdiction: D. of Delaware (Judge Shannon)

Capital Structure: N/A

Company Professionals:

  • Legal: Faegre Drinker Biddle & Reath LLP (James Conlan, Mike Gustafson, Patrick Jackson, Ian Bambrick, Jay Jaffe)

  • Financial Advisor: AlixPartners LLP (Stephen Spitzer)

  • Restructuring Advisor/Chief Restructuring Officer: Duff & Phelps LLC (James Feltman)

  • Claims Agent: Epiq Corporate Restructuring LLC (Click here for free docket access)

  • Subschapter V Trustee: Gibbons PC (Natasha Songonuga)

Other Parties in Interest:

  • Regus Corporation, Regus Management Group, LLC and Franchise International GmbH

    • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, James Hughes Jr., Joseph Barry, Justin Duda, Ryan Hart)

  • Starwood Capital Group

    • White & Case LLP (Harrison Denman, John Ramirez) & Potter Anderson & Corroon LLP (Christopher Samis, Aaron Stulman)

New Chapter 11 Bankruptcy Filing - Stein Mart Inc. ($SMRT)

Stein Mart Inc.

Man. This story sucks. Stein Mart Inc. ($SMRT), a publicly-traded specialty off-price retailer with 281 stores across the Southeast, Texas, Arizona and California is the latest retailer to file bankruptcy (along with two affiliates).

To set the stage, imagine Han and Lando taking a fun little ride on a desert skiff. Suddenly a riot breaks out and amidst the confusion Lando falls off the skiff. Luckily, Han is able to grab Lando’s hand so that Lando doesn’t plummet into the gnarley tentacles of some strange sand beast that randomly happens to be there. As Han pulls Lando up out of reach of the beast, all of the sudden some crazy space virus flows through the airspace and smacks Han straight in the lungs. As he clutches his throat struggling to breathe, he releases Lando who consequently hurls straight down towards the beast and suffers a horrific death.

Now replace (a) Han with Kingswood Capital Management LLC, (b) Lando with Stein Mart, and (c) the “crazy space virus” with COVID-19 and you’ve basically got the story of Stein Mart’s collapse into bankruptcy court. Like many other retailers in this macro climate, Stein Mart was teetering pre-COVID. Sales have been on the decline since 2016. But then in January, Kingswood — along with an entity managed by the Chairman of the company — offered a roughly 20% premium over SMRT’s then-stock price ($0.90/share) to take Stein Mart private. Stein Mart, which had been on distressed watch lists around that time, seemed to be on the receiving end of a much-needed and wildly opportune lifeline. Of course, COVID ended that. Take a look at this mind-boggling decline in YOY performance:

Screen Shot 2020-08-14 at 11.11.32 AM.png

Ab. So. Lutely. Brutal. Just brutal.

Kingswood agreed. Per the company:

…on April 16, 2020, the Merger Agreement was terminated prior to closing because the COVID19 pandemic forced the Company to close all of its stores and the Company was unable to satisfy the minimum liquidity closing condition in the merger agreement.

Was that the definitive end of the deal? No! The parties continued to discuss new deal parameters but then we, as a country, couldn’t get our sh*t in order. With the country averaging 1000+ deaths a day and tens of thousands of new daily COVID infections, Kingswood got skittish:

The Company has subsequently engaged in discussions with Kingswood regarding sale of the Company as a going-concern in recent months pursuant to a bankruptcy sale; however, a transaction presently appears unlikely given the COVID-19 resurgence.

The resurgence is notable because the company has a significant number of stores in Florida, Texas and California. Consequently,…

The Company’s updated financial projections, following the July resurgence of COVID-19, indicated that the Company would not have sufficient liquidity to continue operating the business in the ordinary course consistent with past practice.

So now the company is liquidating. The company projects $250mm in gross recovery from the liquidation of inventory, equipment, fixtures, leases IP and other assets. As of the petition date, it owes its senior secured lender, Wells Fargo Bank NA ($WFC), $84mm; it also owed its term lender, Gordon Brothers Finance Company, $35mm. Tack on administrative expenses for the professionals administering the case and recoveries for those creditors owed a sum total of $770mm in total liabilities begins to look a bit bleak.

*****

A couple of additional notes:

First, this company appears to have been addicted to factoring. Among the companies top six general unsecured creditors are CIT Commercial Services, Wells Fargo Trade Capital Services, and White Oak Commercial Finance.

Second, you can add SMRT to the list of companies that tapped PPP funds yet couldn’t avoid a bankruptcy filing. It received $10mm from Harvest Small Business Finance LLC.

Third, we’re back to borderline collusion among the liquidation firms. The company’s financial advisor issued RFPs to five liquidation consultants. It received two bids back: one from SB360 Capital Partners LLC and one from a Hilco Merchant Resources-led joint venture that included three — that’s right, three — competitors. Per the company:

The Debtors are of the view that in the current environment, where numerous large retailers are being simultaneously liquidated, joint venture liquidation bids are common because a single liquidation firm may not have the resources to staff and manage the entire project. (emphasis added)

Said another way, the retail industry is such an utter dumpster fire right now that liquidators simply don’t have the bandwidth to manage mandates like these on their own (or so the story goes).

While liquidation sales launch, the company will also seek to sell its leases and IP. Except…

…substantial doubt exists as to whether any buyers will be found for leases given the current depressed condition of the retail real estate market.

And they…

…do not anticipate the sale of intellectual property will produce substantial value.

Right. In case you haven’t noticed, the rubber meets the road with these retailers with the IP. That’s why there was the law suit in the Neiman Marcus matter. That’s why there was the asset stripping transaction in the J.Crew matter. But Stein Mart? IP? Brand? Hahahahaha. The company’s bankers tried selling this turd for over 2.5 years. The only buyer was Kingswood, a small LA-based PE fund with a portfolio of four companies and, well, Stein himself. The IP only had value to him. Go figure. And this is after three — yes, three — separate sale and marketing processes.

Is there a chance a buyer emerges from the shadows? Sure. Miracles happen. If not, Wells and Gordon Brothers will be fine. The professionals will get paid. The unsecured creditors will get hosed. Equity will…well forget about it. At least the equity market is finally getting these right (though reasonable minds could certainly question why the stock is trading as high as it is):

Screen Shot 2020-08-14 at 11.12.13 AM.png

The greater likelihood is that this sucker ends in structured dismissal or a conversion to chapter 7.

It’s crazy. Eight months ago the company was headed for a new chapter. Instead the book shut closed.


August 12, 2020

Jurisdiction: M.D. of FL (Judge Funk)

Capital Structure: see above

Company Professionals:

  • Legal: Foley & Lardner LLP (Gardner Davis, John Wolfel, Neda Sharifi, Richard Guyer, Mark Wolfson, Marcus Helt)

  • Financial Advisor: Clear Thinking Group (Patrick Diercks)

  • Liquidators: Hilco Merchant Resources LLC, Gordon Brothers Retail Partners LLC, Great American Group LLC, Tiger Capital Group LLC, SB360 Capital Partners LLC

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • RCF Lender: Wells Fargo Bank NA

    • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Smith Hulsey & Busey (John Thomas, Stephen Busey)

🔥New Chapter 22 Bankruptcy Filing - Remington Outdoor Company Inc.🔥

Remington Outdoor Company

July 27, 2020

To read our summary of the case, please go here.


Jurisdiction: N.D. of Alabama (Judge Jessup)

Company Professionals:

  • Legal: O’Melveny & Myers LLP (Nancy Mitchell, Stephen Warren, Karen Rinehart, Diana Perez, Jennifer Taylor) & Burr & Forman LLP (Derek Meek, Hanna Lahr)

  • Post-Reorg Board of Directors: Anthony Acitelli, Alex Zyngier, George Wurtz III, G.M. McCarroll, Ron Coburn, Ken D’Arcy, Gene Davis)

  • Legal to Restructuring Committee: Akin Gump Strauss Hauer & Feld LLP (Sarah Schultz)

  • Financial Advisor: M-III Advisory Partners LP (Colin Adams)

  • Investment Banker: Ducera Partners LLC (Bradley Meyer)

  • Claims Agent: Prime Clerk (*Click on case name above for free docket access)

Other Parties in Interest:

  • Priority Term Loan Lender: Whitebox Advisors LLC

    • Legal: Brown Rudnick LLP (Andreas Andromalos) & Balch & Bingham LLP (Jeremy Retherford)

  • Priority Term Loan Agent: Cantor Fitzgerald Securities

    • Christian & Small LLP (Daniel Sparks, Bill Bensinger)

  • FILO Lender: Franklin Advisors Inc.

    • Legal: Pillsbury Winthrop Shaw Pittman LLP (Joshua Morse, Andrew Alfano) & Christian & Small LLP (Daniel Sparks, Bill Bensinger)

  • FILO Term Loan Agent: Ankura Trust Company

    • Legal: Davis Polk & Wardwell LLP (Donald Bernstein, Joanna McDonald) & Hand Arendall Harrison Sale LLC (Benjamin Goldman)

  • Largest Equityholders (in order): Cede & Co., Schultze Master Fund, Antora Peak Credit Opportunities, BMR Funding LLC, Whitebox Asymmetric Partners LP, Whitebox Multi Strategy Partners LP, JNL Series TR - JNL/PPM America, Rockwall CDO II Ltd., Greenbriar CLO Ltd., SG-Financial LLC, W.R. Stephens Jr. Trust A., Eastland CLO Ltd., JMP Credit Advisors CLO IV Ltd., Stratford CLO Ltd., Westchester CLO Ltd., JMP Credit Advisors CLO III(R) Ltd., Voya CLO 2015-1 Ltd., Voya CLO 2014-4 Ltd., Voya CLO 2014-2 Ltd., Voya CLO 2013-3 Ltd., Voya CLO 2013-1 Ltd., Eastspring Investments US Bank Loan, PPM Grayhawk CLO Ltd., Commonwealth Fixed Interest Fund 17, National Railroad Retirement, Cantor Fitzgerald & Co.

⛽️New Chapter 11 Bankruptcy Filing - Rosehill Resources Inc. ($ROSE)⛽️

Rosehill Resources Inc. ($ROSE)

July 27, 2020

Stop us if you’ve heard this before: Rosehill Resources Inc. ($ROSE), a Texas-based independent E&P company focused, via a fellow-debtor operating company, Rosehill Operating Company LLC (“ROC”), on the Permian Basin (and, more specifically, the Delaware Basin), filed for bankruptcy because of the usual suspects that literally every oil and gas company blames. Seriously, it’s like everyone is just copying and pasting Arya Stark’s hitlist at this point: “Vladimir Putin, Mohammad Bin Salman Al Saud, COVID-19, the competition, too much debt, etc. etc.” Never mind: we’ll stop ourselves. We’ve all heard this before. Many. MANY. Times.

Speaking of the debt, here is what the capital structure looks like and this is what will happen to it pursuant to the prepackaged plan of reorganization that’s already on file:

©️PETITION LLC

©️PETITION LLC

That should be pretty self-explanatory but there are a few things to highlight:

  • The $235mm exit RBL actually represents a decreased borrowing base. The original RCF had a maximum commitment of $500mm with a most recent borrowing base of $340mm. That borrowing base amount created a deficiency/liability the company struggled — when coupled with service obligations related to the RCF, secured notes and preferred stock — to make.

  • The DIP will run at 8% PIK which is better than the 10% cash pay under the secured notes.

In terms of operations, Rosehill operates or owns working interests in 133 oil and gas wells of which 128 are producing or are capable of production. And here’s what that production looks like:

Screen Shot 2020-07-27 at 4.40.44 PM.png

Is that interesting? Not particularly. We include only to demonstrate that we’re not the only ones who are capable of highly unfortunate and irritating typographical errors. More interesting is the fact that Rosehill earned $302.3mm in revenue in ‘19 against $239mm of operating expense. Revenue was basically flat from ‘18 whereas the company’s operating expense increased. On the plus side, the company had some favorable hedge agreements in place which, upon monetization, resulted in $87.6mm in proceeds that the company ultimately used to paydown its RCF immediately prior to the filing. Actually, who are we kidding? That’s not particularly interesting either.

Given how boring this bankruptcy is, the last thing we’ll mention — again because we and the entire world of finance seems to be obsessed with the topic — is that the company emanated out of … wait for it … wait for it … a SPAC!! While the company was originally incorporated in 2015 as a SPAC under the name KLR Energy Acquisition Corporation — sponsored by the KLR Group’s Edward Kovalik, Stephen Lee and Reid Rubinstein — the business corporation that ultimately became Rosehill Resources Inc. occurred in April 2017.

The rest, as they say, is now history. Perhaps we should start taking a running tally: new SPAC IPOs vs. old SPACs that have now filed for chapter 11 bankruptcy!

  • Jurisdiction: S.D. of Texas (Judge Jones)

  • Capital Structure: $226.5mm RCF, $106.1mm second lien secured notes,

  • Professionals:

    • Legal: Gibson Dunn & Crutcher LLP (David Feldman, Matthew Kelsey, Dylan Cassidy, Hillary Holmes, Shalla Prichard, Michael Neumeister, Ashtyn Hemendinger) & Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

    • Financial Advisor: Opportune LLP

    • Investment Banker: Jefferies Group LLC (Jeffrey Finger)

    • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Admin Agent: JPMorgan Chase Bank NA

      • Legal: White & Case LLP (Mark Holmes) & Bracewell LLP (Jason Cohen)

    • Admin Agent to the Secured Note Purchase Agreement: US Bank NA

      • Legal: Shipman & Goodwin LLP (Kimberly Cohen, Robert Borden)

    • Second Lien Noteholders & Series B Preferred Stockholderes & Majority DIP Lenders: EIG Management Company LLC

      • Legal: Kirkland & Ellis LLP (Chad Husnick, Christopher Koenig, Mary Kogut Brawley) & Zack A. Clement PLLC (Zach Clement)

    • Tax Receivable Claimant & Preferred and Common Stockholder: Tema Oil & Gas Company

      • Legal: McDermott Will & Emery LLP (James Kapp III, Brandon White, Nathan Coco, Fred Levenson, Michael Boykins)


🔥 New Chapter 11 Bankruptcy Filing - IMH Financial Corporation 🔥

IMH Financial Corporation

July 23, 2020

So this is a smaller one but it’s not retail and it’s not oil and gas and so, f*ck it, we’re digging in purely for the sake of diversification. So, what is it? IMH Financial Corporation is a real estate investment holding company with assets consisting of (i) the MacArthur Place Hotel & Spa in Sonoma California (which looks “lit” by the way…intentional word choice, read below), (ii) thousands of undeveloped acreage and related water rights outside of Albuquerque New Mexico (sounds super practical for, like, an apocalyptic scenario like, say, a global pandemic that kills tens of thousands of people), (iii) other real estate assets (discussed below) and (iv) a boat load of tax attributes due to years of money losing endeavors ($475mm and $280mm federal and state NOLs, respectively). The company has no funded secured or unsecured debt (outside of a small PPP loan that it believes qualifies for forgiveness). Other unsecured debt consists of mostly professional service providers (e.g., law firms). This case is primarily about …

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  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: No secured debt.

  • Professionals:

    • Legal: Snell & Wilmer LLP (Christopher Bayley, Steven Jerome, Benjamin Reeves, Jill Perella, James Florentine, Molly Kjartanson) & Ashby & Geddes PA (William Bowden, Gregory Taylor, Benjamin Keenan, Stacy Newman, Katharina Earle)

    • Special Committee Legal: Holland & Knight LLP (Lori Wittman, W. Keith Fendrick)

    • Investment Banker: Miller Buckfire (James Doak)

    • Claims Agent: Donlin Recano & Co., Inc. (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Preferred Equity Holder, DIP Lender, Exit Lender & Post-Reorg EquityHolder: JPMorgan Chase Funding Inc.

      • Legal: Hahn & Hessen LLP (Jeffrey Schwartz, Joshua Divack) & Landis Rath & Cobb LLP (Adam Landis, Richard Cobb, Matthew Pierce)

    • Preferred Equity Holder: Juniper Realty Partners LLC

      • Legal: Munger Tolles & Olson LLP (David Lee)

👰🏾New Chapter 11 Bankruptcy Filing - Occasion Brands LLC 👰🏾

Occasion Brands LLC

July 22, 2020

Occasion Brands LLC is owner and operator of three e-commerce properties that hock dresses for proms, homecomings, weddings, and other special occasions; it owns promgirl.com, simplydresses.com, and KleinfeldBridalParty.com. The company is owned by a lower middle market private equity shop called Milestone Partners. Thanks primarily to promgirl.com, the business generated gross revenue over $50mm in both ‘18 and ‘19.

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  • Jurisdiction: S.D. of New York (Judge Bernstein)

  • Capital Structure: $1.5mm of secured indebtedness via promissory notes (Milestone Partners), $2.5mm Allure promissory note, $1.325mm PPP (JPMorgan Chase Bank NA)

  • Professionals:

    • Legal: Sills Cummis & Gross PC (S. Jason Teele, Daniel Harris)

    • Financial Advisor: Insight Partners LLC (Robert Nolan)

    • Claims Agent: Omni Agent Solutions LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - Golden Eagle Entertainment $ENT

Golden Eagle Entertainment

July 22, 2020

Suffice it to say, high correlation to the airline and cruiseline industries is a credit negative these days. A few months ago Speedcast — a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses — discovered this the hard way and free fell into bankruptcy court. There’s still no resolution of that case. Similarly, Global Eagle Entertainment Inc. ($ENT), a business that generates revenue by (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other “away-from-home” nontheatrical markets, and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets, couldn’t avoid trouble once COVID-19 shutdown its core end users. No monthly recurring revenue model can save a company when its clients are effectively closed for business AND there’s $855.6mm of funded debt to service. Not to state the obvious.

Things may get worse before they get better. The company’s largest customer is Southwest Airlines Co. ($LUV) (21% of overall revenue) and it has a pretty bearish take on …

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  • Jurisdiction: D. of Delaware (Judge Dorsey)

  • Capital Structure: $85mm RCF, $503.3mm TL, $188.7mm second lien notes, $82.5mm unsecured convertible notes.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Madeleine Parish, Ted Dillman, Helena Tseregounis, Nicholas Messana, Eric Leon) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond, Betsy Feldman)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Greenhill & Co. Inc.

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Prepetition First Lien Admin Agent & DIP Agent: Citibank NA

      • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius)

    • Ad Hoc DIP & First Lien Lender Group: Apollo Global Management, L.P., Eaton Vance Management, Arbour Lane Capital Management, Sound Point Capital Management, Carlyle Investment Management LLC, Mudrick Capital Management, BlackRock Financial Management, Inc.

      • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Michael Cohen, Jason Goldstein) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

    • Second Lien Agent: Cortland Capital Market Services LLC

    • Second Lien Noteholders: Searchlight Capital Partners LP

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Michael Turkel, Irene Blumberg, Elizabeth Sacksteder) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

    • Southwest Airlines Inc.

      • Legal: Vinson & Elkins LLP (William Wallander, Paul Heath, Robert Kimball, Matthew Struble) & Saul Ewing Arnstein & Lehr LLP (Lucian Murley)

    • AT&T Corp.

      • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Brett Turlington)

    • Terry Steiner International

      • Legal: Loeb & Loeb LLP (Daniel Besikof, Geneva Shi)

    • Telesat International Limited

      • Legal: Hodgson Russ LLP (Garry Graber)

    • Nantahala Capital Management LLC

      • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

New Chapter 11 Bankruptcy Filing - Briggs & Stratton Corporation ($BGG)

Briggs & Stratton Corporation

July 20, 2020

You may not know of Briggs & Stratton Corporation ($BGG) but it’s likely that you’ve used one of its products. Its small gasoline engines are used in outdoor power equipment like lawn mowers, and it designs, manufactures and markets power generation, pressure washer, lawn and garden, turf care and job site products. Its engines even power go-karts! It offers a variety of different brands and its products are in 100 countries around the world.

The company has a rich history. In Wisconsin circa 1908, inventor Stephen Briggs and investor Harold Stratton co-founded what, two years later, would be an auto and auto parts manufacturer incorporated as Briggs & Stratton. The two men added small gasoline engines to their product suite, powering early washing machines and reel mowers. The company went public in 1928. For decades thereafter, the business ventured into agricultural and military applications (producing generators for the WWII effort), ultimately revolutionizing the first lightweight aluminum engine in 1953. The post-War suburbian boom helped fuel the company’s growth in the 50s and 60s. Lots of lawns to mow! The company has iterated a lot since then: it no longer produces auto components, for instance. The core business is currently focused around two segments: engines (primarily sold to OEMs of lawn and garden equipment) and products (i.e., outdoor power equipment, job site products, etc.).

Unfortunately, a rich history doesn’t insulate companies from distress — a lesson that many long-standing companies have learned lately as the bankruptcy bin fills to the brim with companies with 100+ year histories (see, also, BJ Services LLC, Brooks Brothers Group, RTW Retailwinds, Congoleum Corporation). Alas, the company and four affiliates (the “debtors”) also could not avoid chapter 11, filing early Monday in the Eastern District of Missouri, and citing (i) cautious ordering patterns from channel partners, (ii) weather, (iii) Sears’ demise and bankruptcy (bankruptcy dominos!!), (iv) consumer preference shifts, and (v) China, for its troubles. With approximately $200mm of notes maturing at year end (Dec) and a springing maturity of 9/15/20 if the notes are still outstanding by then, the debtors, to top things off, faced real challenges related to the balance sheet.

Because of all of the aforementioned factors, the debtors implemented a “strategic repositioning plan” that included shutting plants, laying off workers, suspending employee benefits (including underfunded and unfunded pensions), lowering capital and discretionary spending, eliminating a shareholder dividend and suspending a share repurchase program. COVID-19, as we’ve seen over and over again, got in the way of these efforts. “The preliminary estimate of the sales decline caused by the pandemic for the fiscal fourth quarter was $157 million and for the fiscal year was $197 million.” 😬

The good news is that the debtors have a buyer in the wings. Bucephalus Buyer LLC, a dramatically-named affiliate of KPS Capital Partners LP entered into a stalking horse purchase agreement with the debtors pursuant to which it would buy the debtors’ assets and equity interests in non-debtor subsidiaries for $550m in cash plus the assumption of certain liabilities. To fund this process (and take out the ABL in full), the debtors obtained (i) a commitment from prepetition ABL lender, JPMorgan Chase Bank NA, for a $412.5mm DIP ABL (L+3.5%), (ii) a commitment from KPS for a $265mm DIP Term Loan facility (L+7%) and (iii) consent to use the ABL lenders’ cash collateral. The DIP agreement mandates that a qualified sale order be entered by the bankruptcy court no later than September 24, 2020 (subject to caveats that would push the date out to December 31, 2020).

  • Jurisdiction: E.D. of Missouri (Judge Schermer)

  • Capital Structure: $260.4mm North American ABL, $53mm LOCs, $12.4mm Swiss ABL (JP Morgan Chase Bank NA), 202.7mm unsecured notes (Wilmington Trust NA)

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Ronit Berkovich, Debora Hoehne, Martha Martir, Andrew Citron, Edward Soto, Janiel Jodi-Ann Myers, Lauren Alexander, Corey Berman) & Carmody MacDonald PC (Robert Eggmann, Christopher Lawhorn, Danielle Suberi, Thomas Riske, Lindsay Leible Combs, Angela Drumm)

    • Financial Advisor: EY (Jeffrey Ficks)

    • Investment Banker: Houlihan Lokey Capital Inc. (Reid Snellenbarger, Jeffrey Lewis)

    • Claims Agent: KCC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Prepetition & DIP Agent ($677.5mm): JPMorgan Chase Bank NA

      • Legal: Latham & Watkins LLP (Peter Knight, Jonathan Gordon)

    • Stalking Horse Purchaser ($550mm): Bucephalus Buyer, LLC (KPS Capital Partners LP)

      • Legal: Kirkland & Ellis LLP (Chad Husnick, Gregory Pesce, Claire Stephens, Guy Macarol) & Armstrong Teasdale LLP (Richard Engel)

    • Ad Hoc Group of Noteholders

      • Legal: Gibson Dunn & Crutcher LLP

      • Financial Advisor: Imperial Capital LLC

🌎 New Chapter 11 Filing - Lakeland Tours LLC (d/b/a WorldStrides) 🌎

Virginia-based Lakeland Tours LLC (d/b/a WorldStrides) and 22 affiliates (the “debtors”) filed for bankruptcy in the Southern District of New York, the latest in a relatively small group of COVID-related victims to end up in bankruptcy court. Similar to other pure-play filings (e.g., several Latin American airlines and Hertz Corporation $HTZ)), the debtors are in the travel industry; they are a provider of educational travel experiences in the US and abroad; they are the US’ largest accredited travel program serving hundreds of thousands of students and hundreds of universities annually. And they were doing well before the pandemic: in fiscal ‘19, the company generated approximately $650mm in net revenue and management projected $840mm in net revenue in ‘20. As we all know, “experiences” are all the rage these days and international student travel is far more common today than it was even five years ago (PETITION Note: seriously, folks, the company doesn’t even try to hide the social element to this … the above photo just screams “Pay us for an experience racked with non-stop selfies!). According to StudentUniverse and Skift, “[t]he student traveler represents fully one-fifth of all international arrivals in the travel industry, today. They command a market value of some $320 billion….

A worldwide travel shutdown will obviously negatively impact that trend. And, by extension, obliterate the company’s projections. Indeed, the debtors were “decimated” by the worldwide shutdown of nonessential travel. Revenue? Lost. Future bookings? Crushed. Refund requests? Voluminous. The “negative net bookings” must have been off the charts. All in, these factors created a $200mm liquidity hole for the debtors.

This need for new capital, when coupled with the debtors’ burdensome capital structure ($768mm of funded debt), precipitated the need for a restructuring. And, alas, the debtors have a restructuring support agreement (the “RSA”) agreed to by the debtors’ prepetition secured lenders, their hedge provider and their equity sponsors, Eurazeo North America and Primavera Capital Limited. The RSA commits these consenting stakeholders to, among other things, a $200mm new capital infusion (exclusive of fees) split 50/50 between the consenting lenders and the sponsors which will roll into exit debt and equity.* Here are the highlights:

  • The $100mm provided by the lenders will roll into an exit facility;

  • The $150mm roll-up will roll into a second-out term loan take-back facility; and

  • The $100mm provided by the equity sponsors will convert into 100% of the common stock of the reorganized debtors (subject to dilution from a management incentive plan).

  • Holders of $126mm in subordinated seller notes will get wiped out along with existing equity interests.

  • General unsecured creditors will ride-through paid in full.

  • The major parties to the RSA will get releases under the proposed plan: creditors who vote to reject the plan will need to affirmatively opt-out of the releases.

The debtors already commenced solicitation and hope to confirm the plan on or about August 19. The post-reorg capital structure will look like this:

Screen Shot 2020-07-21 at 11.33.25 AM.png

The above graphic is the biggest “tell” that the filing is predominantly about access to fresh capital. The deleveraging (of only $100mm) is rather secondary and inconsequential relative to the $200mm cash infusion. Which begs the question: if the debtors perform dramatically under business plan in coming years — perhaps, uh, due to a decrease in international student travel — will the company be in need of another restructuring? PETITION Note: as we write this, a talking head is pontificating on CNBC that business travel will be significantly lower in coming years than it had been — confirming the premise of this Bloomberg piece. If parents aren’t traveling for work, will they let their children travel for school?

The debtors certainly acknowledge the risks. In the “risk factors” section of their Disclosure Statement, they note that a “second wave” of COVID-19 could impact results (PETITION Note: we need to conquer the “first wave” to get to the “second wave,” but, yeah, sure.). They state:

The Debtors cannot predict when any of the various international or domestic travel restrictions will be eased or lifted. Moreover, even when travel advisories and restrictions are lifted, demand for study abroad and student travel may remain reduced for a significant length of time, and the Debtors cannot predict if and when demand will return to pre-pandemic levels. Due to the discretionary nature of educational travel spending, the Debtors’ revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased demand for educational travel, changes in booking practices and related policies by the Debtors’ competitors, all of which in turn have had, and may have in the future, a strong negative effect on the Debtors’ business. In particular, the Debtors’ bookings may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19. The Debtors’ bookings may also be impacted by continued and prolonged school closings.

And they add:

This is the first time since September 11, 2001 that the Debtors have suspended their tours, and is the first time the Debtors have completely suspended their tours for an extended period of time. As a result of these unprecedented circumstances, the Debtors are not able to predict the full impact of such a suspension. In particular, the Debtors cannot predict the impact on financial performance and cash flows required for cash refunds of fares for cancelled tours as a result of a suspension of tours if such suspensions are prolonged further than anticipated, as well as the public’s concern regarding the health and safety of travel, and related decreases in demand for travel. Depending on the length of the suspension and level of customer acceptance of future tour credits, the Debtors may be required to provide additional cash refunds for a substantial portion of the balance of deferred tours, as customers who have opted to defer tours may request a cash refund.

And so it looks like the debtors are conservatively projecting $367.9mm of revenue in fiscal year 2021, slightly more than half of what they did in ‘19. They don’t expect to revert back to projected ‘20 numbers until at least 2024. Yes, 2024.

Screen Shot 2020-07-21 at 1.28.26 PM.png

Now, generally, projections are almost always worthless. As the debtors’ risk factors suggest here, they may be even more worthless than usual depending upon how COVID shakes out. At least management appears to be realistic here that the business will not return to pre-COVID levels for some time. Let’s hope that a vaccine comes and they’re positioned to surprise to the upside.**

_____

*$150mm of pre-petition secured debt will roll-up into the DIP.

**Houlihan Lokey pegs valuation between approximately $625mm and $745mm as of September 30, 2020.


  • Jurisdiction: S.D. of New York (Judge Garrity)

  • Capital Structure: $642mm RCF/TL/LOCs, $126mm subordinated seller notes

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Nicole Greenblatt, Jennifer Perkins, Susan Golden, Whitney Fogelberg, Kimberly Pageau, Elizabeth Jones)

    • DIrectors: Bob Gobel, Lisa Mayr (ID)

    • Financial Advisor: KPMG LLP (James Grace, Thomas Bibby)

    • Investment Banker: Houlihan Lokey Capital Inc. (Sam Handler, Stephen Spencer)

    • Claims Agent: Stretto (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Prepetition & DIP Agent: Goldman Sachs Bank USA

      • Legal: Latham & Watkins LLP (Adam Goldberg, Hugh Murtagh)

    • Seller Noteholders: Metalmark Capital Holdings LLC & Silverhawk Capital Partners

      • Legal: Davis Polk & Wardwell LLP (Michael Davis)

    • Sponsors: Eurazeo North America & Primavera Capital Limited

      • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz) & Simpson Thacher & Bartlett LLP (Michael Torkin)

      • Financial Advisor: PJT Partners LP

    • Ad Hoc Group of Consenting Lenders

      • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Steven Domanowski, Jeremy Evans)

      • Financial Advisor: Rothschild & Co.

⛽️New Chapter 11 Filing - Patriot Well Solutions LLC⛽️

Patriot Well Solutions LLC

July 20, 2020

And YET ANOTHER oilfield services company in bankruptcy. Colorado-based Patriot Well Solutions LLC provides coiled tubing, nitrogen & pumping services, wireline logging and perforating services and crane services to the oil and gas industry in North Dakota, Wyoming, Colorado and Texas; it filed its chapter 11 petition in the Southern District of Texas to pursue a sale of substantially all of its assets. Backed by White Deer Energy LP II and MBH Energy Resources LLC, the company was formed in early 2016. White Deer has committed to providing a $9.4mm DIP and will serve as the company’s stalking horse purchaser.

  • Jurisdiction: S.D. of Texas (Judge )

  • Capital Structure:

  • Professionals:

    • Legal: Squire Patton Boggs LLP (Christopher Giaimo, Travis McRoberts, Kelly Singer, Jeffrey Rothleder)

    • Managers: Ben Guill, James Meneely III, Eric White, Michael Tangedahl, Robert McNally

    • Financial Advisor/CRO: Sonoran Capital Advisors (Matt Foster, Dax Murray, Ry Neri)

    • Investment Banker: Piper Sandler & Co./Simmons Energy

    • Claims Agent: Stretto (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Pre-petition Lender, DIP Secured Lender & Stalking Horse Purchaser: White Deer Energy LP II

7/21/20 Docket #2

⛽️ New Chapter 11 Bankruptcy Filing - Permian Holdco 1 Inc.

Permian Holdco 1 Inc.

July 19, 2020

Permian Holdco 1 Inc. and three affiliates (the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware. We know. It’s shocking. How in hell could a manufacturer of above-ground wellsite fluid containment and processing systems for oil and gas E&P companies be in trouble?!? The debtors’ pre-pretition lender will serve as DIP lender ($5mm) and stalking horse purchaser, credit bidding the DIP and prepetition credit facility amount ($28.6mm) as appropriate/necessary. Riveting stuff.

  • Jurisdiction: D. of DE (Judge Walrath)

  • Capital Structure: $28.6mm RCF & TL (New Mountain), $19.435mm unsecured promissory notes

  • Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Robert Poppiti Jr., Joseph Mulvihill, Jordan Sazant)

    • Financial Advisor/CRO: CM Advisory LLC (Chris Maier)

    • Investment Banker: Seaport Gordian Energy LLC

    • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

🇲🇽 New Chapter 11 Bankruptcy Filing - Grupo Famsa S.A.B. de C.V. 🇲🇽

Grupo Famsa S.A.B. de C.V.

June 26, 2020

This may very well be the most boring bankruptcy case of all time.

Grupo Famsa S.A.B. de C.V., a Mexican retailer and personal lender with 22 stores and 29 personal loan branches in the states of Texas and Illinois (in addition to 379 stores in Mexico), filed a prepackaged chapter 11 bankruptcy case in the Southern District of New York to basically just refi out a whopping $59.1mm of 7.25% senior notes that were due on June 1 2020. These 2020 notes constitute a remaining stub piece that didn’t participate in an October 2019 exchange offer. In that transaction, the then-outstanding 2020 notes were exchanged for 9.75% senior secured notes due 2024. $80.9mm tendered into that offer. The $59.1mm at issue here … uh … well, clearly … did not.

Holders of the 2020 notes who vote in favor of the plan will get new Series A notes in the same principal amount plus interest and cash in an amount of $10 per $1,000 principal amount of 2020 notes. These Series A notes will pay 10.25% interest and mature in December ‘23.

Those who reject the plan will receive new Series B notes in the same principal amount equal to what they hold (read: no cash payment). The Series B notes accrue interest at 9.75% and mature in December ‘24. All other potential claims against the debtor will be reinstated or unimpaired.

The upshot? It paid to holdout! Those who support the plan and get the Series A notes will get the same principal amount of notes, a higher rate and have shorter duration risk. Well played.

  • Jurisdiction: S.D. of New York (Judge Chapman)

  • Professionals:

    • Legal: Paul Hastings LLP (Pedro Jimenez, Shlomo Maza, Derek Cash)

    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)

🧀 New Chapter 11 Bankruptcy Filing - CEC Entertainment Inc. 🧀

CEC Entertainment Inc.

June 24, 2020

For our rundown, please go here.

  • Jurisdiction: S.D. of Texas (Judge Isgur)

  • Capital Structure: $1.089b funded debt ($760mm TL, $108 RCF, $6mm LOC, $215.7mm notes)

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Alfredo Perez, Andrew Citron, Rachael Foust, Scott Bowling)

    • Board of Directors: David McKillips, Andrew Jhawar, Naveen Shahani, Allen Weiss, Peter Brown, Paul Aronzon

    • Financial Advisor: FTI Consulting Inc. (Chad Coben)

    • Investment Banker: PJT Partners LP (Jamie O’Connell)

    • Real Estate Advisor: Hilco Real Estate LLC

    • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

  • Other Parties in Interest:

    • PE Sponsor: Queso Holdings Inc./AP VIII CEC Holdings, L.P. (Apollo)

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP

    • First Lien Credit Agreement Agent: Credit Suisse AG, Cayman Islands Branch

      • Legal: Davis Polk & Wardwell LLP (Eli Vonnegut) & Rapp & Krock PC (Henry Flores, Kenneth Krock)

    • Ad Hoc Group of First Lien Lenders: American Money Management Corp, Arbour Lane Capital Management, Arena Capital Advisors LLC, Ares Management LLC, Bank of Montreal, BlueMountain Capital Management, Carlson Capital LP, Catalur Capital Management LP, Citibank NA, Credit Suisse AG, Deutsche Bank New York, Fidelity Management & Research Co., Fortress Investment Group LLC, GS Capital Partners LP, Hill Path Capital, Indaba Capital Fund LP, ICG Debt Advisors, Jefferies Financ LLC, J.H. Lane Partners Master Fund LP, Monarch Alternative Capital LP, MSD Capital LP, MSD Partners LP, Octagon Credit Investors LLC, Par Four Investment Management LLC, RFG-Clover LLC, Second Lien LLC, UBS AG, Wazee Street Capital Management, Western Asset Management Company LLC, WhiteStar Asset Management, ZAIS Group LLC

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Jason Rubin, Marty Brimmage Jr., Lacy Lawrence)

    • Indenture Trustee: Wilmington Trust NA

      • Legal: Reed Smith LLP (Kurt Gwynne, Jason Angelo)

    • Ad Hoc Group of ‘22 8% Senior Noteholders (Longfellow Investment Management Co. LLC, Prudential Financial Inc., Resource Credit Income Fund, Westchester Capital Management)

      • Legal: King & Spalding LLP (Matthew Warren, Lindsey Henrikson, Michael Rupe)

      • Financial Advisor: Ducera Partners LLC

    • Official Committee of Unsecured Creditors: Wilmington Trust NA, The Coca-Cola Company, National Retail Properties, Performance Food Group, Washington Prime Group, NCR Corporation, Index Promotions

      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel & Womble Bond Dickinson LLP (Matthew Ward)

7/17/20 Dkt. 352.