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:

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):

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.

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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 11 Bankruptcy Filing - Lucky's Market Parent Company LLC🍎

Lucky's Market Parent Company LLC

January 27, 2020

In Sunday’s Members’-only a$$-kicking briefing entitled “🔥Like No Other Newsletter🔥,” we took a deeeeeeeeep dive into the Fairway Group Holdings Corp. chapter 11 bankruptcy filing. We relegated to a mere footnote, the following:

*Two more local grocers to watch out for: Lucky’s Market (not PE-backed) and Earthfare (PE-backed). The former announced, on the heals of losing its sponsorship from Kroger Inc., that it would close 32 of 39 stores. The latter is quietly shuttering stores (e.g., Gainesville and Indianapolis). This is telling:

“Stern said Lucky's could potentially be acquired, but he said logical choices like Sprouts Farmers Market and The Fresh Market are also retrenching and not in expansion mode right now.”

The pain in grocery is pervasive.

Lucky’s Market Parent Company LLC be like:

And so the Colorado-based company and 21 affiliated entities filed for chapter 11 bankruptcy in the District of Delaware. Because, like, f*ck it: the pain in grocery IS pervasive so it might as well become a chapter 11 debtor like everyone else.

This one swims upstream. The debtors focus on affordable organic and locally-grown produce, naturally raised meats and seafood, and fresh daily prepared foods. Which, we thought, was supposed to be all the rage. “Organic for the 99%” was their mission. They even have private label goods. AND they have a millennial-pleasing “giving” element to their business: 10% of profits from private label sales are reinvested into the local communities they service. They have no unions. And they’re not even private equity owned!! Kroger Inc. ($KR) is the debtors’ secured lender and largest equity holder and, while obviously not PE bros, it seems that maybe(?) Kroger pushed the Colorado-based founders to grow too fast too soon?? In the midst of a number of grocery bankruptcies. In April 2016, they had 17 stores. The Kroger transaction took place at that time and then — BOOM! — a private equity growth mentality appears to have mysteriously overtaken the debtors. By the end of that year, the debtors’ footprint was up to 20 stores; by the end of 2017, it was 26 stores; 33 stores by the end of 2018; and 39 stores by the end of 2019. Florida was a primary focus.

The timing was pretty bad. Per the debtors:

…the Company’s expansion in Florida coincided with, among other things, increased competition in the grocery industry, including expansions from competing chains such as Sprouts Farmers Market, Fresh Thyme Farmers Market and Earth Fare. As a result, notwithstanding the growth in sales, the portfolio of Company stores was unable to achieve sustainable four-wall profitability.

Note the mention of Earth Fare ⬆️. Get ready for Dirty Dancing 2: Havana Nights gifs, people.

There’s more:

Most recently, fiscal year-to-date through January 4, 2020, the Company had approximately $22 million of store operating losses and approximately $100 million net loss. Additionally, fiscal year-to-date through the week ended January 18, 2020, the Company had a 10.6% reduction in comparable store sales versus the prior year-to-date period.

Suffice it to say, that growth strategy diiiiiiiidn’t work out so well.

And so now it’s all being unwound. The debtors began winding down 32 of their 39 stores pre-petition and, obviously, terminated plans for 19 leased but unopened locations.

Absent closure, the debtors note, they’d be on the hook for $30mm in operating losses for fiscal year ‘20. Now they’re selling furniture, fixtures and equipment from, and transferring leases of, 26 stores to third-party purchasers. They have an asset purchase agreement with Aldi for six FL locations while they continue to operate 7 locations while the marketing process progresses.

The debtors will use Kroger’s cash collateral to fund these cases.

• Jurisdiction: (Judge Dorsey)

• Capital Structure: $301.1mm secured loan (Kroger Inc.), $5.9mm New Markets Tax Credit Loan (BBIF Subsidiary CDE 3 LLC, guaranteed by Kroger Inc.)

• Professionals:

  • Legal: Polsinelli PC (Christopher Ward, Liz Boydston, Caryn Wang)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Peter J. Solomon

  • Liquidation Consultant: Great American Global Partners LLC

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

  • Independent Director: William Transier

• Other Parties in Interest:

  • Large Equityholder (55%): Kroger Inc.

    • Legal: Weil Gotshal & Manges LLP (Garrett Fail, Moshe Fink) and Richards Layton & Finger PA (Zachary Shapiro, Brett Haywood)

New Chapter 11 Filing - Marsh Supermarkets Holding LLC

Marsh Supermarkets Holding LLC

• 5/11/17 Recap: After weeks of rumors and run-up, another Sun Capital Partners portfolio company has filed for bankruptcy with the hope of selling its remaining 44 locations to a buyer. A buyer is not currently lined up. The company cited the usual reasons for the filing: (a) the increasingly competitive grocery space with mega-retailers and specialty chains crowding the market, and (b) falling produce and retail food prices. We're frankly surprised that they didn't bother to mention Amazon like everyone else. When it doubt, "Amazon Effect" it. But we digress. Anyway, it also noted that capital investment (particularly relating to technological advances) trailed big players like Kroger ($KR) and Meijer. While those players reaped the benefits of their heavy investments, Marsh could not keep up, foot traffic declined, revenue suffered, and liquidity constraints increased. This is pretty basic sh*t. 
• Jurisdiction: D. of Delaware
• Capital Structure: $60mm RCF debt ($5.2mm funded + $2.5mm LOC)(Wells Fargo Bank NA), $25.7mm June 2016 junior note, $6.3mm October 2016 junior note    
• Company Professionals:
  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Michael Nestor, Robert Poppiti Jr., Ashley Jacobs, Shane Reil)
  • Financial Advisor/CRO: Clear Thinking Group LLC (Lee Diercks, Anthony Gehringer, A.R. Williams, Thomas Burke)
  • Investment Banker: Peter J. Soloman Company (Scott Moses, Derek Pitts, Greg Grambling, Brandon Yoshimura, Dan Stolar)
  • Liquidator: Hilco Merchant Resources
    • Legal: Pepper Hamilton LLP (Douglas Hermann, Michael Custer)
  • Real Estate Advisor: Hilco Real Estate LLC (Ryan Lawlor)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Senior Lien Agent: Wells Fargo Bank NA
    • Legal: Otterbourg PC (Jonathan Helfat, Daniel Fiorillo)
  • Junior Noteholder: Marsh Group Finance LLC
    • Legal: Kirkland & Ellis LLP (James Stempel) & (local) Morris Nichols Arsht & Tunnell LLP (Curtis Miller)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Cathy Hershcopf, Seth Van Aalten, Robert Winning, Max Schlan, Sarah Carnes) & (local) Bayard PA (Justin Alberto, Erin Fay, Gregory Flasser)
    • Financial Advisor: FTI Consulting Inc. (Conor Tully)

Updated 7/12/17

New Chapter 11 Filing - Central Grocers Inc.

Central Grocers Inc.

• 5/4/17 Recap: May the Fourth be with you. Illinois-based food coop - the 7th largest in the nation - founded in, gulp, 1917, filed for bankruptcy to pursue a sale of its Strack & Wan Til stores and its distribution center (after certain creditors tried to force a bankruptcy on it). The company was initially founded with 32 supermarket owners seeking increased purchasing power through strength in numbers. Today, the coop supplies over 400 stores in the Chicago area. The coop supports its own brand, Centrella, which, being frank here, is probably value detract because nothing says "quality" like shoddy label design. That "Beef Stew" and "Chunk Pineapple" (see below) looks tasty AF, doesn't it? This makes us want to blow chunks. Seriously, though, this is another story of disruption. Disruption caused by the commodities markets, in part, with beef, chicken, eggs and dairy generally being at relatively low prices. But also disruption caused by new entrants into the grocery segment, including Walmart, Target, Costco, and dollar stores. And, of course, Amazon, which is increasingly becoming Darth Vader, even though we're pretty certain nobody we know actually uses AmazonFresh for produce and the like. But, whatever, when in doubt, blame Amazon. That's a much better excuse than 1917-style design sensibility and a classic innovator's dilemma.
• Jurisdiction: D. of Delaware (transferred to N.D. of Illinois)
• Capital Structure: $225mm '18 RCF (PNC Bank NA), $22.5mm TL (Bank of the West)  
• Company Professionals:
  • Legal: Weil (Ray Schrock, Stephen Karotkin, Sunny Singh, Daniel Gwen, Danielle Donovan) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Brett Haywood, David Queroli) & (local) McDonald Hopkins LLC (David Agay, Rion Vaughan)
  • Financial Advisor: Conway MacKenzie Inc. (Donald Harer, Alpesh Amin, Michael Musso, John Cannon, Matthew Sedigh, Daniel Johnson, Lauren Leach, Harry Bramson, Jennifer Chaing, Joseph Wirija, Michael Kulkarni, Michael Flynn)
  • Investment Banker: Peter J. Soloman Company (Derek Pitts)
  • Claims Agent: Prime Clerk LLC (*click on company name for docket)
• Other Parties in Interest:
  • PNC Bank NA
    • Legal: Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, Mark Rabinowitz, Gregory Vizza, Michael Schaedle)
  • Bank of the West
    • Legal: Thompson Coburn LLP (Mark Bossi, Victor Des Laurier, Diona Rogers)
  • Successful Bidder
    • Legal: Duane Morris LLP (Lawrence Kotler, Rosanne Ciambrone)
  • Official Committee of Unsecured Creditors
    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) Saul Ewing LLP (Mark Minuti, Lucian Murley) & (local) Arnstein & Lehr LLP (Barry Chatz, Kevin Morse, William Williams)
    • Financial Advisor: FTI Consulting Inc. (Conor Tully)

Updated 7/13/17

http://www.central-grocers.com/

New Filing - Nasty Gal Inc.

Nasty Gal Inc.

• 11/9/16 Recap: Sophia Amoruso's provocative female-fashion e-commerce retailer with two California brick-and-mortar locations collapses under the weight of its own growth, global currency effects, and the inability to tap capital markets given depressed valuations for retailers, generally, and e-commerce businesses, specifically, and files for bankruptcy to delever its balance sheet. There is no stalking horse bidder for the assets. 87% of its revenues are from e-commerce. The company had at least $65mm of venture capital funding (Index Ventures, Ron Johnson).
• Jurisdiction: C.D. of California
• Capital Structure: $15mm secured debt (Hercules Technology Growth Capital Inc.), $5mm unsecured convertible bridge loan (at 3x liquidation preference)(Stamos & Johnson Fund I, LLP)   
• Company Professionals:
  • Legal: Robins Kaplan LLP (Scott Gautier, Lorie Ball, Kevin Meek)
  • Investment Banker: Peter J. Soloman Company 
  • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name for docket)
• Other Parties in Interest:
  • Hercules Technology Growth Capital Inc.
    • Legal: Cole Schotz (Stuart Komrower, Ryan Jareck) & (local) Pachulski (Jeffrey Pomerantz, Jeffrey Dulberg)
  • Boohoo F I Limited
    • Legal: Troutman Sanders LLP (Penelope Parmes, Harris Winsberg, Stephen Roach)
  • Unsecured Creditors' Committee
    • Legal: Levene Neale Bender Yoo & Brill LLP (Gary Klausner, Todd Arnold)
    • Financial Advisor: B. Riley & Co. 

Updated 12/30/16