🚗 New Chapter 11 Bankruptcy Filing - Techniplas LLC 🚗

Techniplas LLC

May 6, 2020

Wisconsin-based Techniplas LLC and seven affiliates (the “debtors”), producers and manufacturers of plastic components used primarily in the automotive and transportation industries, filed for bankruptcy in the District of Delaware. “The Company produces, among other things, automotive products, such as fluid and air management components, decorative and personalization products, and structural components, as well as nonautomotive products, such as power utility and electrical components and water filtration products.” After cobbling together acquisitions over the course of the decade, the debtors’ business is now global in scale and its main customers are the leading OEMs in the US, Europe and Asia; it had net sales of $475mm and a net loss of $21mm in fiscal ‘19.

A bit more about the business. The debtors’ primary operating unit, “Techniplas Core,” acts “…as a manufacturer of technically complex, niche products across a wide range of applications and end markets, including the automotive and truck, industrial, and commercial markets.” This is roughly 83% of the business. In addition, the debtors have “Techniplas Prime,” which, aside from sounding like a Transformer that may or may not have it out for the human race, acts as a matchmaker between excess manufacturing capacity and customers in need of manufacturing. Per the debtors:

Serving as a nexus between customers, including OEMs, and other manufacturing companies, Techniplas Prime acts as an extension of Techniplas Core by delivering to customers the manufacturing capabilities of its Prime Partners. This makes Techniplas Prime asset-light and creates a “win-win” scenario for customers and Prime Partners.

Interestingly, this business segment was once dubbed “The Airbnb of Auto Manufacturing,” a moniker that makes almost zero sense and completely misunderstands the Airbnb model but, yeah sure, cheap “by-association” points, homies! Per Forbes:

[Founder George] Votis saw Techniplas Prime as an e-manufacturing platform from which customers could order parts electronically according to their own specifications, and have them built by local factories with unused capacity.

Except it’s not a platform. Like, at all. Airbnb is a digital two-sided platform that brings hosts and travelers together and seemlessly connects them. Techniplas Prime…well…

…well…page not found. Airbnb may be struggling in this COVID environment but we can assure you that you’re not EVER getting a 404 when going to their site. Platform…pssssfft. The Forbes article later contradicts itself saying:

…they focused on 3-D printing and advanced manufacturing technology companies that had spare capacity available for contract operations, for which Techniplas Prime is essentially the broker.

Right. Being a broker is different than being a platform y’all. But we digress.

The debtors have a simple capital structure consisting of a $17.59mm ABL, $175mm in 10% ‘20 notes, and a $6.77mm interim financing agreement for total funded debt around $200mm. The debtors, primarily due to this capital structure, began pursuing strategic alternatives in early 2017. Both an attempted sale process and debt refinancing failed. Thereafter, the debtors explored in 2018 a term loan refinancing of the preptition notes and/or a public equity listing in London. Those, too, failed. For this, the debtors blame a downturn in the automotive market and uncertainty from Brexit (PETITION Note: we’ve been foreshadowing that declining production capacity by the major OEMs was going to rattle through the supply chain so nobody should be surprised by this revelation).

In mid-’19, an attempted sale to a strategic buyer, private equity firm The Jordan Company, kicked off but that, despite some forward-moving progress involving a note purchase agreement and an unexercised call option for 100% of the membership interests in the debtors, ultimately fell through due to the inability to refi out the pre-petition notes. Subsequent attempts — now involving ad hoc group of noteholders and Jordan — also came close but ultimately failed due to deteriorating operating performance that pre-dated OOVID. COVID merely exacerbated things. Per the debtors:

Many customers suspended or drastically reduced production, resulting in a swift drop in demand for the Debtors’ products. Additionally, many of the locations where the Company had offices and manufacturing plants worldwide issued lockdown orders and permitted only essential business to remain open in an effort to control the outbreak and protect the health and safety of the public.

All of this was too much to handle: Jordan peaced out. Liquidity increasingly became an issue and so the debtors obtained a $6.7mm super senior priority bridge financing from the ad hoc group. Indeed, the ad hoc group is stepping up big here: in addition to providing the liquidity the debtors needed to get in chapter 11, they’ve agreed to provide a DIP ($20-25mm new money with a $100mm roll-up) and serve as stalking horse bidder — offering $105mm to purchase the debtors’ international operations and three remaining US-based manufacturing facilities. The debtors hope to close the sale within 44 days of the petition date.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: See above.

• Professionals:

  • Legal: White & Case LLP (David Turetsky, Andrew Zatz, Fan He, Robbie Boone Jr., John Ramirez, Sam Lawand, Thomas MacWright) & Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Johnna Darby, Daniel Thompson)

  • Financial Advisor/CRO: FTI Consulting Inc. (Peter Smidt, Andrew Hinkelman)

  • Investment Banker: Miller Buckfire & Co. LLC (Richard Klein)

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Techniplas Acquisition Co. LLC

  • Pre-Petition ABL & DIP ABL Agent: Bank of America NA

    • Legal: Sidley Austin LLP (Dennis Twomey, Elliot Bromagen) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, David Queroli)

  • DIP Term Agent: Wilmington Savings Fund Society FSB

    • Legal: Cole Schotz PC (Daniel Geoghan, J. Kate Stickles, Patrick Reilley)

  • Indenture Trustee: US Bank NA

    • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

  • Ad Hoc Noteholder Group ‘20 10% Senior Secured Notes

    • Legal: Arnold & Porter Kaye Scholer LLP (Jonathan Levine, Brian Lohan, Jeffrey Fuisz, Gerardo Mijares-Shafai)

🥾New Chapter 15 Bankruptcy Filing & CCAA - The Aldo Group Inc.🥾

The Aldo Group Inc.

May 7, 2020

Retail pain doesn’t respect borders. Canada-based The Aldo Group Inc. and eight (8) affiliated companies (collectively, the “Debtors”) filed petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under chapter 15 of the United States Bankruptcy Code in support of a CCAA filing in Canada.

Aldo is a shoe retailer with stores in more than 100 countries. The Group notes roughly 3,000 points of sale with 700 directly owned stores and the remainder as franchises. There are 289 stores in Canada and 429 in the US.

In terms of funded debt, the Aldo Canada has CDN$140mm outstanding. Of that amount, Aldo US is an obligor on a CDN$100mm piece. Both entities are also co-borrowers on a CDN$300mm unsecured syndicated loan. Both the Aldo Canada and Aldo US have significant outstanding amounts to trade creditors including landlords who haven’t been paid for April or May.

Operating performance has been dogsh*t long before COVID hit the scene. Per the debtors:

Over the past few years, the Aldo Corporate Group has declined in profitability and regularly reported losses. For instance, for the twelve month period ending February 1, 2020, Aldo Canada posted a net loss from operations of approximately CDN$74,800,000 and Aldo U.S. posted a net loss of approximately USD$52,800,000. Taking into consideration yearend write-offs of amounts due from subsidiaries and affiliated and write-offs of future tax benefits that were recorded as an asset, Aldo Canada posted a net loss of approximately CDN$170,300,000 and Aldo U.S. posted a net loss of approximately USD$97,300,000.

Pre-COVID, the debtors were attempting an operational restructuring designed to de-emphasize brick-and-mortar stores and prop up e-commerce, wholesale and franchise channels. You know, like, the old playbook. They were also seeking to refinance the credit facility with an ABL. The “transformation” was allegedly on track when the pandemic struck precipitating an immediate liquidity crunch. Hence, the filing.

The debtors will use the filing to evaluate its store profitability, shed leases and contracts and restructure the unsecured loans both in Canada and the US.

It seems pretty safe to say that a good number of those US stores will join the retail garbage bin much to the chagrin of landlords.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: see above.

• Professionals:

  • Legal: Hogan Lovells US LLP (Peter Ivanick, Lynn Holbert, Alex Sher, Baraka Nasari) & Morris Nichols Arsht & Tunnell LLP (Eric Schwartz, Matthew Harvey, Paige Topper)

  • Canadian Monitor: Ernst & Young Inc.

  • Investment Banker: Greenhill & Co. Canada Ltd.

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

• Other Parties in Interest:

  • Largest Unsecured Creditor: Bank of Montreal

    • Legal: Chapman and Cutler LLP (Stephen Tetro, Aaron Krieger) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

✈️ New Chapter 11 Bankruptcy Filing - Superior Air Charter LLC (d/b/a JetSuite Air) ✈️

Superior Air Charter LLC

April 28, 2020

Dallas-based Superior Air Charter LLC d/b/a JetSuite Air, a charter air carrier to BSDs who roll as BSDs tend to roll, filed for chapter 11 bankruptcy in the District of Delaware. Ironically, while it serviced ballers, the debtor was never a baller itself. Founded in 2009, the debtor, despite a history of over 111,000 across a fleet of eighteen planes (down to ten today*), a “nearly” impeccable safety record (🤔), and a good reputation, was “never able to operate profitably.” Demand simply never hit a level where the business could break even, a problem aggravated by the debtor’s inability to penetrate the fat-cat bankers on the East Coast — something the debtor blames on the “unreliability” of acquired aircraft. 😬

Enter COVID-19. Similar to many of the bankruptcy filings we’ve seen to date, the worldwide pandemic and corresponding shutdown proved to be the gentle push of an otherwise teetering business over the goal line into bankruptcy. Per the debtor:

Thus, the Debtor could ill afford the economic destruction that the worldwide Coronavirus (COVID-19) pandemic would come to cause across a spectrum of industries. In short, it decimated the Debtor’s operations, with potential customers no longer able or willing to seek out the Debtor’s services. Indeed, the aviation industry has been particularly hard hit in light of travel restrictions put in place across all of the states that the Debtor has traditionally served. The Debtor’s cash flows dropped by essentially 100% almost immediately after the restrictions went into place. Because the duration of the COVID-19 crisis is indeterminate, the Debtor expects demand to remain very weak for many months to come. These conditions naturally exacerbated the Debtor’s liquidity issues, and by mid-April 2020, it became apparent the Debtor had little choice but to ground its fleet and furlough most employees and crewmembers.

The debtor has no funded secured debt and approximately $16mm of unsecured debt in the form of promissory notes; it estimates approximately $75mm of general unsecured debt exclusive of breakage costs associated with rejected contracts/leases. A good percentage of that general unsecured debt relates to “suitekey customers” who purchased the ability to fly private within the debtor’s service region. Someone from Netflix Inc. ($NFLX) is listed as the largest unsecured creditor.

The debtor did attempt to tap the relief provided by the US government via the CARES Act but “found the applicable sources of funding under the CARES Act to be expressly prohibited for companies that have sought Chapter 11 protection.” In lieu of a government-provided lifeline, the debtor does have a commitment for $3.6mm of DIP financing from its pre-petition unsecured creditor, JetSuiteX Inc., and seeks to use the chapter 11 process to, more likely than not, wind-down operations and maximize value for its creditors.

*Two aircraft lessors served notices of default on the debtor prior to the petition date and retook possession of aircraft per the terms of the governing leases. The debtor also sold six planes in August 2019. Hence the reduction of the fleet from 18 to 10.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: No funded secured debt (just aircraft financing). $16.2mm unsecured promissory notes (JetSuiteX Inc.)

• Professionals:

  • Legal: Bayard PA (Evan Miller, Daniel Brogan, Sophie Macon)

  • Independent Manager: Jonathan Solursh

  • Financial Advisor/CRO: Gavin/Solmonese (Edward Gavin, Jeremy VanEtten)

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

• Other Parties in Interest:

  • DIP Lender ($3.6mm): JetSuite X Inc.

    • Legal: Vedder Price PC (Michael Edelman, Jeremiah Vandermark) & Potter Anderson Corroon LLP (Jeremy Ryan, Aaron Stulman)

🤖New Chapter 11 Bankruptcy Filing - BroadVision Inc. ($BVSN) 🤖

BroadVision Inc.

March 30, 2020

California-based BroadVision Inc. ($BVSN) and two affiliates (the “debtors”), developers of enterprise portal applications that (a) “enable companies to unify their e-business infrastructure” and (b) “conduct interactions and transactions with employees, partners, and customers through a personalized self-service model” filed a prepackaged chapter 11 bankruptcy in the District of Delaware over the weekend. Yeah, we have no idea what that means either. Given that the debtors reflect assets of $5.6mm, it seems we’re not alone. From what we can gather, these dudes sell some software that is one part internal business dashboard, one part CRM and B2B and B2C e-commerce, and one part publishing system.

The company has been a value destruction machine for years. In fact, the debtor has an accumulated deficit of approximately $1.3 billion since 2001 — mostly non-cash charges, but still.

The upshot here is that the company intends to effectuate a sale via a prepackaged plan of reorganization which would transfer the assets to a subsidiary (Aurea Software Inc.) of large equityholder ESW Capital LLC. ESW will fund the plan including payments to unsecured creditors, coming out with 100% of the equity interests in the reorganized company for its trouble. At the time of this writing, the more interesting thing is that the plan calls for a $4.375/share recovery for equity plus “their pro rata share of the Debtor’s cash on hand as of the effective date of the Plan (including proceeds from the sale of a block of IP addresse[s] owned by the Debtor).” Why is this interesting? Well, at the time of this writing, here is where the stock is trading:

There are only 5.1mm shares outstanding but if you could get your hands on some of that float, you’re talking a near-instant 10% recovery.* This reminds us of when Perfumania Inc. filed for bankruptcy in the middle of the Texas hurricanes and the market had a delayed reaction to the fact that equity would get paid out at a premium (PETITION Note: this is not investment advice and, more likely than not, by the time you read this on Wednesday, the gap will have closed). But we digress.

The proposed effective date is May 29, 2020 so, again, assuming you could even get your hands on some of the float, you’d have a little bit of risk with a two-month process.

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*There are some caveats. The company notes:

“…the Equity Interest Recovery may be less than $4.375 per share of Debtor Common Stock in the event that (A) the Debtor has more than 5,142,333 shares of Debtor Common Stock outstanding (including all Outstanding Shares, Restricted Stock Awards, Restricted Stock Units and Permitted Stock Options, whether or not vested) or (B) the Debtor lacks sufficient Cash (including Cash-on-Hand and proceeds from the liquidation of the IP Addresses after the Effective Date) to pay all Case-Related Claims and Expenses and repayment of amounts, if any, incurred by the Plan Sponsor in connection with funding such Case-Related Claims and Expenses….”

Two things. First, there’s a 10,000 share delta between the 5,142,333 and the actual number of shares that would be outstanding if the Permitted Stock Options are exercised at $4.70/share. It seems unlikely that these options would be exercised unless cash on hand surprises to the upside (i.e., the IP addresses fetch surprisingly high prices). Second, would you be willing to stake your bet on restructuring professionals keeping administrative expense claims down? If so, more power to you. You’ve got a 10% margin of error.

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• Jurisdiction: (Judge Sontchi)

• Capital Structure: No funded debt.

• Professionals:

  • Legal: DLA Piper LLP (R. Craig Martin, Joshua Morse)

  • Directors: James Dixon, Robert Lee, Francois Stieger

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

• Other Parties in Interest:

  • Purchaser: ESW Capital LLC

    • Legal: Goulston & Storrs PC (Trevor Hoffman) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott)

🚗New Chapter 11 Bankruptcy Filing - Pace Industries LLC🚗

Pace Industries LLC

April 12, 2020

Arkansas-based Pace Industries LLC and ten affiliates (the “debtors”) — fully-integrated suppliers and manufacturers of aluminum, zinc, and magnesium die cast and finished products in service of several industries (auto, powersports, lawn & garden, lighting & electric, appliances & industrial motors etc.) — filed fully-accepted prepackaged chapter 11 bankruptcy cases in the District of Delaware over the holiday weekend. The plan features one impaired class which voted 100% to equitize pre-petition debt.

A quick digression before we delve into what happened here. COVID-19 provides the ultimate cover for any and all businesses that file for chapter 11 over the next several months. You’re going to see all kinds of companies “clean out the junk” over earnings reports. It will be important, therefore, to parse through company messaging to determine whether they’re just massaging matters or whether, on the other hand, there were fundamental problems confronting the business prior to COVID-19 rearing its ugly head and shutting down the US economy. Where a company discloses that problems existed prior to March, there is absolutely no reason NOT to believe them. So it’s important that the collective we — newsletters writers, journalists, the twitterverse — get things right when talking about the carnage created by COVID-19.

And this case is only partially a COVID-19 story. Given the rush to sensationalize headlines and tweets, this is something we now feel compelled to note with each new bankruptcy filing. While the debtors, like everyone else, have been affected by the virus, it was not the catalyst to the debtors’ filing. The debtors have been seeking new capital sources since the summer of 2018; they initially sought an equity investment but when that couldn’t get done, the debtors shifted towards a sale and marketing process. Any and all initial interest in the debtors’ assets dissipated, however, when the debtors suffered from a poor Q4 ‘19. Interestingly, the disappointing performance was attributable to lower demand in the lighting, BBQ grill and appliance markets. To make matters worse, General Motors Inc’s ($GM) employees went on strike further compressing decreasing automobile production volumes. Moreover, the company self-inflicted some wounds: production inefficiencies relating to new products also hurt performance. Bankruptcy lawyers and advisors were hired in January — long before COVID stormed through and complicated matters further.

The debtors solicited their plan prior to their filing making this a true prepackaged plan. In other words, old school. None of this new solicitation technology; no straddle stuff. The only impaired class, the pre-petition noteholders, voted to accept the plan pursuant to which they would swap $232.1mm in notes for (i) equity in a reorganized LLC (subject to dilution from a management incentive plan AND warrants issued to the debtors’ post-petition DIP term loan lenders) and (ii) take-back term loan paper. This means the new owners will be TCW and Cerberus.

The cases feature a roll-up DIP ABL (which will ultimately be refi’d out through an exit facility) and a post-petition DIP term loan that will be refi’d out via a new term loan exit facility. The aforementioned warrants could amount to 51% of the new post-reorg equity.

This should be a quick case. The DIP terminates in 90 days from the petition date. Given that acceptance was 100% and that general unsecured creditors will be paid in full, this case should, absent other crazy externalities, be in and out of bankruptcy relatively quickly.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $92.1mm ABL, $232.1mm pre-petition notes

• Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Rachel Strickland, Debra Sinclair, Melany Cruz Burgos) & Young Conaway Stargatt & Taylor LLP (Robert Brady, Edmon Morton, Joseph Mulvihill)

  • Financial Advisor/CRO: FTI Consulting Inc. (Patrick Flynn, Johnathan Miller)

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

• Other Parties in Interest:

  • DIP Revolver Agent ($125mm): Bank of Montreal

    • Legal: McGuireWoods LLP (Wade Kennedy, Alexandra Shipley, Brian Swett) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

  • DIP Term Agent ($50mm): TCW Asset Management Company LLC

    • Legal: Schule Roth & Zabel LLP (Adam Harris, Kelly Knight) & Landis Rath & Cobb LLP (Adam Landis)

👖New Chapter 11 Bankruptcy Filing - True Religion Apparel Inc.👖

True Religion Apparel Inc.

4/14/20

TMI: we’ve had a hard enough time getting Johnny to even wear pants at all over the last few weeks let alone put on jeans. That one Zoom call where he spilled coffee on himself and jumped out of his chair emblazoned an image in our minds that we’ll need some real therapy to get over. We had to take out an enterprise Headspace account as a result. But enough about us.

To the topic at hand: True Religion Apparel Inc. Here’s the good news: True Religion and its four affiliates (the “debtors”) legged it out long enough to avoid PETITION’s dreaded Two-Year Rule violation. Any retailer that can stave off a chapter 22 bankruptcy filing for as long as True Religion did (30 months) has, in fact, achieved a “successful” restructuring in our book. That said, the brand is nevertheless back in bankruptcy court. If that logic strikes you as perverse well, yes, we admit it: the bar for bankrupted retailers is, in fact, that low.

Interestingly and somewhat counter-intuitively, there has been a dearth of retail restructuring activity during the COVID-19 strike. We went through some explanation for that here and the theme was subsequently picked up and expanded upon by the MSM: there were countless articles about how busy restructuring professionals are and yet very few filings (though there has been a lot of activity this week). Why? It’s hard for retailers to conduct GOB sales when stores aren’t open. DIP financing is harder to come by. Buyers are few and far between. Everyone is having trouble underwriting deals when it’s so difficult to gauge if and when things will return to “normal.”

True Religion couldn’t afford to wait. It has 87 retail stores. They’re closed. It’s wholesale business — dependent, of course, on other open brick-and-mortar shops — is also closed. This was an immediate 80% hit to revenue.* The company — which had posted a $50mm net loss for the TTM ended 2/1/20 (read: it was already pretty effed) — suddenly found itself facing an accelerated liquidity crisis. Stretching payables, stretching rent, furloughing employees. All of those measures were VERY short-term band-aids. A bankruptcy filing became absolutely necessary to gain access to much needed liquidity. This filing is about a DIP credit facility folks. Without it, they’d be looking at Chapter 7 liquidation. Per the debtors:

The Debtors must have access to the DIP Facilities to continue to pay essential expenses—including employee benefits, trust fund taxes and other critical operating expenditures—while they use the breathing spell provided by the Bankruptcy Code to wait out the effects of the COVID-19 pandemic and attempt to pursue a value-maximizing transaction for all stakeholders.

Critical operating expenditures? Yup, e-commerce maintenance and fulfillment, wholesale and restructuring expenses baby. The plan is to “mothball” the business and hope for a tiered reopening of stores “at the conclusion fo the COVID-19 pandemic.” In the meantime, the debtors intend to pull a Modell’s/Pier 1 and get relief from having to pay rent. This as pure of a “breathing spell” as you can get.

Back to the financing. The debtors have approximately $139mm of funded debt split between a $28.5mm asset-backed term loan (inclusive of LOCs) and a $110.5mm first lien term loan. The debtors also had access to a $28.5mm revolver subject to a “borrowing base,” as usual, but that facility wasn’t tapped. We’re guessing Crystal Financial ratcheted up reserves and didn’t leave much opportunity for drawing that money outside of a filing.

In March 2020 the debtors sought, in earnest, new financing, talking to their existing lenders and third-party lenders. They also considered the possibility of tapping funds via the recently-enacted CARES Act. They note:

In addition to the Debtors’ efforts in the private marketplace, the Debtors and their Restructuring Advisors evaluated the availability of government appropriations through the CARES Act. After careful consideration, the Debtors determined that they were not eligible for government funding, or to the extent that there was a possibility that they would be eligible, they would not be able to wait the time necessary to find out whether a loan would be available under the CARES Act. The Debtors are hopeful that future stimulus packages will target companies such as the Debtors – i.e. mid-market companies with 1000 employees that are currently in chapter 11, but that could utilize government financing when emerging from chapter 11.

New third-party financing didn’t come to fruition. Among other reasons, lenders cited “the timing, complexity and overall challenges in the retail industry in light of COVID-19.” It’s hard out there for an underwriter. Ultimately, the debtors settled on financing offered by some of its first lien term lenders.

Now, we don’t normally get too deep into DIP details but given the difficulty financing retailers today, we thought the structure merited discussion. Here’s what the debtors negotiated:

• A $29mm senior secured super-priority asset-based revolver (rollup);

• A $59.89mm senior secured super-priority delayed-draw term loan credit facility of which $8.4mm is new money, a bit over $3mm is for LOCs, and the rest constitutes a rollup of pre-petition debt.

Major equityholder and pre-petition lender Farmstead Capital Management LLC is a big player in the term loan. The DIP is subject to a “strict” 13-week budget based on a four-month case with an eye towards either a section 363 sale or a reorganization by mid-May. Seems ambitious. For obvious reasons. But Farmstead ain’t suffering no fools. Per the debtors:

…the Debtors’ lenders are unwilling to fund a contentious chapter 11 case and they have made this clear to the Debtors over the course of the negotiations. Any material delay or significant litigation during these cases will result in the Debtors’ default of its covenants and send the Debtors spiraling into a fire-sale liquidation.

Given that Farmstead is taking half of its DIP fee paid-in-kind, they may be looking to own this sucker on the backend via a credit bid. Hats off to those guys.

*The papers are not entirely clear but they appear to indicate that e-commerce “accounts for less than 26% of sales” out of $209mm or ~$54mm. Given layoffs across the country, we have to think that e-commerce fell off a cliff in February and March too. Said another way, there’s no way it could’ve generated enough revenue to keep the business afloat. Also, JP Morgan ($JPM) included the following chart in its earnings deck this week:

**We’d be remiss if we didn’t note the financial performance here. Again, the debtors highlighted a $50mm net loss in the fiscal year that just closed on February 1, 2020. Here are the financial projections that True Religion filed as part of its disclosure statement during its first chapter 11 filing:

That’s a savage miss.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $28.5mm Asset-Backed Term Loan (Crystal Financial LLC), $110.5mm First Lien TL (Delaware Trust Company)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Seth Van Aalten, Michael Trentin, Kate Stickles, Patrick Reilley, Taylre Janak) & Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Kevin Eide)

  • Board of Directors: Eugene Davis, Lisa Gavales, Stephen Perrella, Robert McHugh

  • Financial Advisor: Province Inc. (Michael Atkinson)

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Pre-petition ABL & DIP ABL Agent: Crystal Financial LLC

    • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Pre-petition TL & DIP TL Lenders

    • Legal: Proskauer Rose LLP (Brian Rosen, Lucy Kweskin) & Young Conaway Stargatt & Taylor LLP (Jaime Luton Chapman)

  • Major equityholders: Farmstead Capital Management LLC, Waddell & Reed, Towerbrook Capital Partners, Apex Credit Partners LLC, Credit Suisse, Goldman Sachs Asset Management

⚫️New Chapter 11 Bankruptcy Filing - Longview Power LLC⚫️

Longview Power LLC

April 14, 2020

First it was True Religion and now it’s West Virginia-based Longview Power LLC: looks like we’re back to Chapter 22-ville after a long time away. This prepackaged chapter 11 also brings us back to (“clean”) coal country.* #MAGA!! Longview is the owner and operator of coal-filed power generation facility in West Virginia that services the PJM region (P - Pennsylvania, J - Jersey, M - Maryland, among other states). The company generated $28.1mm of EBITDA in 2019 versus $355mm of funded debt. You can do the math on what that means in terms of leverage ratios. 😬

The company attributes the drag on EBITDA to a combination of “…the rapid expansion of natural gas production, the use of natural gas in electric power generation in recent years, and lower energy prices due to a series of unseasonably warm winters has decreased energy price.” Colder winters = higher demand. Damn global warming! The average price per megawatt for electricity sold in the region is less than that of 2018 ($17.65/mwh). Other factors hitting the demand side include proliferation of use of LED light bulbs and solar roofs. Disruption! Given these market challenges, the company turned its attention to its balance sheet with the hope of eliminating interest expense and freeing up liquidity.

Alas, this is a balance sheet restructuring. The capital structure — while arguably not de-levered meaningfully enough after the initial chapter 11 cut $675mm — is at least straight-forward and simple. Longview has a $25mm revolver, $286.5mm term loan B facility and $44.3mm in subordinated notes. The company’s lenders from the 2013 bankruptcy own the equity.

Well, it looks like this will be Groundhog Day for Longview. Certain of the pre-petition term lenders will backstop a $40mm exit term loan and will get 10% of the new common equity with warrants exercisable for 90% of the new common equity provided the lender participates in the exit facility. Another debt for equity swap. Second time’s the charm?

*The company has already built one clean coal facility with an eye towards a second facility. The company also has plans for natural-gas-fired combined cycle plants and solar panel complexes.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $25mm RCF, $286.5mm TL (Deutsche Bank Trust Company), $44.3mm subordinated notes

• Professionals:

  • Legal: Kirkland & Ellis LLP (David Seligman, Joseph Graham, Laura Krucks, Brenton Rogers, Stephen Hackney) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Financial Advisor: 3Cubed Advisory Services LLC

  • Investment Banker: Houlihan Lokey Inc.

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

• Other Parties in Interest:

  • Ad Hoc Group of Prepetition Term Lenders

    • Faegre Drinker Biddle & Reath LLP (Kaitlin MacKenzie, James Millar, Laura Appleby, Kyle Kistinger)

🏈New Chapter 11 Bankruptcy Filing - Alpha Entertainment LLC (XFL) 🏈

Alpha Entertainment LLC

April 13, 2020

“This is the future. And the future moves fast.”

Whoa boy does it move fast.

Connecticut-based Alpha Entertainment LLC — the legal entity behind the XFL — is now a chapter 11 debtor, an unfortunate blemish on the creative and investment record of Vincent K. McMahon (100% Class A equityholder, 75.5% Class B) and the World Wrestling Entertainment Inc. ($WWE)(23.5% Class B equityholder). Was this idea destined to fail?

The debtor paints an unfortunate picture. This thing was doing great, they assert, until that pesky COVID-19 thing had to come in and decimate anything and everything involving crowds. They note:

Prior to the Petition Date, the XFL provided high-energy professional football, reimagined for the 21st century with many innovative elements designed to bring fans closer to the players and the game they love, during the time of year when they wanted more football. The league debuted on February 8, 2020 to immediate acclaim. Nearly 70,000 fans attended the opening weekend’s games, and more than 12 million viewers tuned in on television. Just weeks after the first XFL games were played, however, the worldwide COVID-19 pandemic forced every major American sports league to suspend, if not cancel, their seasons. On March 20, 2020, the XFL canceled the remainder of its inaugural season, costing the nascent league tens of millions of dollars in revenue.

Man, how’s that for sh*tty timing? The post-Week 1 numbers reflect some initial success. Week 2 attendance rose from approximately 70k to 76.2k and Week 3 attendance hit 81.9k. The XFL was actually showing signs of promise until, in late February, attendance took a dive down to 70.2k in Week 4 and to 64.2k in Week 5.* Were people already beginning to hunker down? Given that Seattle and St. Louis proved to be the largest markets and Washington State was the first state in the union to get pummeled by COVID, that seems fairly safe to presume.

Frankly, nobody on the PETITION team has ever watched a minute of XFL football but … to be honest … it sounds like a whole lot of degenerate fun! Quicker games? ✅ In-game access to participants on the field? ✅ Encouraged gambling? ✅ Sounds awesome. What else are we gonna watch in February? Hockey? Please. This actually sounds like it was not, actually, destined to fail. Like a startup it needed time to build a brand and grow. Absent, say, a worldwide once-every-blue-moon pandemic that literally shuts down the world economy, it might have actually made great strides to do so. Alas:

It is estimated that cancellation of the final five weeks of league’s regular season “negated approximately $27 million in fan spending on gameday-related items” such as ticket sales and food, beverage, and merchandise purchases, to say nothing of the revenue from playoff games or the lost opportunities for sponsorship revenue and brand development. With the league shuttered and no games being played (or revenue being generated), the COVID-19 pandemic left the Debtor facing near-term liquidity issues. With the duration of the pandemic uncertain and the Debtor’s operating expenses continuing unabated, the Debtor was left with few viable alternatives outside of chapter 11.

Mr. McMahon provided the company with a $9mm secured bridge loan but, once it became clear that there was no end in sight to the shutdown, he and his advisors concluded that building a bridge without knowing where the end is probably doesn’t make for good business. Per the the chapter 11 filing papers, the bankruptcy, therefore, is intended to find a buyer for the assets — which include all of the teams (this is not a franchise model), equipment and intellectual property. Revenue for the business was $14mm with a net loss of $44mm. Mr. McMahon has committed to provide a $3.5mm DIP credit facility to fund the cases/sale. Given that the debtor has several million of cash on hand, however, Judge Silverstein did not approve the DIP at the debtors’ first day hearing. Likewise, she shelved the debtor’s plan to issue refunds to season ticket holders.

No sale-related pleadings are yet on file. Per the DIP — which, again, was not approved — a sale motion is required to be on file by April 21 and a sale conducted by July 15, 2020. The debtor has already filed motions rejecting all of its player contracts and practice facility and venue use agreements. McMahon, a billionaire, is well-positioned to credit bid his debt here, wipe out all unsecured creditors, and shelve the IP for a time in the future if he wants.

*There is some question as to whether “attendance” is the proper metric given that there were suspicions that the numbers reflect tickets “distributed” rather than tickets “sold” or actual attendance. Whichever way you measure it, the St. Louis BattleHawks “had reportedly sold 45,000 tickets to their next game before the league shut down due to the coronavirus outbreak.”

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $9mm pre-petition secured note (Vince McMahon)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Matthew Lunn, Kenneth Enos, Travis Buchanan, Shane Reil, Matthew Milana)

  • Independent Manager: Drivetrain Advisors LLC (John Brecker)

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

• Other Parties in Interest:

  • Pre-Petition & DIP Lender ($3.5mm): Vince McMahon
    

🎢New Chapter 11 Bankruptcy Filing - TZEW Holdco LLC (a/k/a Apex Parks Group LLC)🎢

Apex Parks Group LLC

April 8, 2020

California-based TZEW Holdco LLC and six affiliates (including Apex Parks Group LLC, the “debtors”) filed for bankruptcy in the District of Delaware. The debtors are Carlyle-owned family entertainment centers located in California, Florida and New Jersey. Here’s what the debtors’ website says about their business prospects:

According to a 2011 International Association of Amusement Parks survey, 25% of Americans surveyed visited an amusement park within the last 12 months, with 43 percent of Americans indicating they plan to visit in the next 12 months. Consumers have a desire to get out of the house for fun, but want their entertainment dollars to represent a good value for the entire family. In America, people visit amusement parks nearly 300 million times each year and generate more than $12 billion in revenue.

Eesh. That’s a tough read these days. 😬😷

The purpose of the filing is to eliminate debt and sell the business to their pre-petition secured lenders. Troubles have been brewing here since 2019: indeed, the debtors have been “perpetually distressed.” Per the debtors:

The Company suffered from a number of challenges leading to these chapter 11 cases, including, among others, increased industry competition and consolidation, heavy operational expenditure requirements, the seasonal nature of the business, general litigation, and irregular management turnover. In the years and months leading up to the Petition Date, the Company initiated multiple go-forward operational initiatives to increase profitability, such as implementing strategic pricing and season pass sales, redesigning food and beverage offerings, optimizing operating calendars, and generally investing in the maintenance and improvement of its locations. Despite these efforts, the Company continued to experience negative cash flows and, ultimately, an unsustainable balance sheet. In the months leading up to the Petition Date, the Company faced rapidly dwindling liquidity and, in order to maintain day-to-day operations, needed to increasingly rely on discretionary disbursements under its prepetition financing agreement.

The Disney Effect!!

Indeed, the debtors blame Disney Inc. ($DIS) and Six Flags Entertainment Corporation ($SIX) for being bigger, better, and deep-pocketed. Well, and having much better IP. Anyone looking for a bullish reason to buy DIS stock — assuming COVID-19 is a short-term issue — can see here, in the words of a competitor, why DIS’ IP strategy over the years has been solid. Per the debtors:

For example, estimates suggest that Universal Studio Orlando's first Harry Potter attraction boosted attendance by 50% over the attraction's first three years. Similarly, Disney has recently constructed Star Wars themed attractions at Walt Disney World it Orlando, Florida and Disneyland in Anaheim, California, as part of a $2 billion investment Disney has made in its theme parks. This industry competition and consolidation by major corporations in recent years has been a key driver in a string of closures of small and middle market theme parks across the country.

The debtors were in the midst of parallel-tracking their marketing process while also talking to their lenders about additional sources of liquidity. COVID-19 didn’t help matters. The debtors shut down their parks and now that people are Amazon Priming their cotton candy, the revenue spigot is off.

As you well know, interest payments are, absent waivers/forbearance from lenders, still due. The debtors owe $79mm to lender, Cerberus Business Finance LLC. An affiliate thereof will serve as stalking horse purchaser of the debtors’ assets with an eye towards the EBITDA-rich June-September period — assuming people are allowed out and are willing to go to amusement parks by then. Cerberus is also providing the DIP. In other words, Cerberus is driving the bus here. The DIP commitment requires a sale hearing no later than May 11, 2020.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $79mm (Cerberus Business Finance LLC)

• Professionals:

  • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns)

  • Independent Directors: Michael Short, Jeffrey Dane

  • Financial Advisor: Paladin Management Group LLC (Scott Avila, Jennifer Mercer)

  • Investment Banker: Imperial Capital

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

• Other Parties in Interest:

  • Administrative Agent: Cerberus Business Finance LLC

    • Legal: KTBS Law LLP (Michael Tuchin, David Fidler, Jonathan Weiss, Sasha Gurvitz) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Robert Poppitti Jr.)

  • Stalking Horse Purchaser: APX Acquisition Company LLC

  • Largest Equityholders: Benefit Street Partners & Edgewater Growth Capital Partners

😷New Chapter 11 Bankruptcy Filing - Quorum Health Corporation😷

Quorum Health Corporation

April 7, 2020

Tennessee-based Quorum Health Corporation, an operator of general acute care hospitals and outpatient healthcare facilities, filed for bankruptcy in the District of Delaware (along with a long list of affiliates). COVID-19!! Not quite. This turd has been circling around the chapter 11 bankruptcy bin for years now. The fact that it is only now filing for bankruptcy under the cloud of COVID simply serves as cover for its fundamentally unsound capital structure, its lack of integration post-spinoff and the composition of its patient base (rural and dependent upon Medicare and Medicaid). Your Nana’s acute care powered by private equity/Wall Street!

About that capital structure…we’re talking: $99mm ABL + $47mm RCF + $785.3mm in first lien loans and $400mm of senior notes for a solid total of ~$1.285b in funded debt. All of this debt was placed in connection with the debtors’ origin story: a 2015 spinoff from Community Health Systems Inc. ($CYH). Troubles began from there. The company states:

The assets the Company received in the Spin-off were not initially set up as an integrated, stand-alone enterprise and presented certain day-one integration challenges, including addressing significant geographic dispersion that resulted in a lack of scale in key markets. In addition, certain of the hospitals that the Company received in the Spin-off were underperforming….

If you’re wondering whether this spin-off might lead to fraudulent conveyance claims well, to (mis)quote Elizabeth Warren, the company’s plan of reorganization has a Trust for that. That ought to be fun.

Otherwise, this is a deleveraging transaction. The ABL and holders of first lien claims will come out whole. Likewise, general unsecured claims will ride through. The holders of the senior notes will equitize their claims and come out, prior to dilution, with 100% of the post-reorg equity. Certain lenders will write a $200mm equity check. The case is on a quick one-month timeline through which it will be funded by a $100mm DIP; therefore, come May, this hospital system will, hopefully, be ready to confront a post-COVID-19 world.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: ABL (UBS AG), RCF and Term Loan (Credit Suisse AG), $421.8mm ‘23 11.625% Senior Notes (Wilmington Savings Funds Society)

• Professionals:

  • Legal: McDermott Will & Emery LLP (Felicia Perlman, Bradley Giordano, David Hurst, Megan Preusker)

  • Financial Advisor/CRO: Alvarez & Marsal (Paul Rundell, Steve Kotarba, David Blanks, Douglas Stout

  • Investment Banker: MTS Health Partners LP

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

  • Consenting First Lien Lenders

    • Legal: Milbank LLP (Dennis Dunne, Tyson Lomazow)

    • Financial Advisor: Houlihan Lokey

  • Consenting Noteholders

    • Legal: Kirkland & Ellis LLP (Nicole Greenblatt, Steven Serajeddini)

    • Financial Advisor: Jefferies LLC

  • Major Shareholders: Mudrick Capital Management, LP, KKR & Co. Inc., York Capital Management Global Advisors LLC, Davidson Kempner Capital Management LP, and The Goldman Sachs Group Inc.

🛫New Chapter 11 Bankruptcy Filing - Ravn Air Group Inc.🛫

Ravn Air Group Inc.

April 5, 2020

Ravn Air Group Inc. and seven affiliates (the “debtors”), owners and operators of aircraft providing air transportation and logistics services to passenger, mail, charter and freight markets in Alaska, filed for bankruptcy in the District of Delaware. In addition to individual passengers, the debtors service, primarily through three airlines, the oil and gas industry, the seafood industry, the mining industry and the travel and tourism industries. Substantial shareholders include private equity firms W Capital Partners and J.F. Lehman & Company.

This is a COVID-19 story. The debtors highlight the seasonal nature of their business — high costs in Qs one and four and robust business in Qs two and three. COVID-19 hit Alaska, in earnest, on March 12 when the Governor of Alaska confirmed the first case of coronavirus in Alaska on live television. There was an immediate impact: revenues decreased 80-90% YOY as passengers stopped flying and local communities sought to cease passenger flights into their region. Eight days later, the State of Alaska issued a strong advisory to all Alaskans to stop all non-essential travel. As you can imagine, all of these things coalesced to create a harsh negative cash flow scenario for Ravn.

How harsh? Merely 11 days after the initial case announcement, the debtors announced layoffs. Four days later, they announced a second round. The debtors pivoted to survival mode but all of the cost-saving measures in the world couldn’t overcome the near-total loss of revenue coming in. Efforts to find a financing solution outside of bankruptcy did not materialize. Per the debtors:

Through the month of March, the Debtors engaged in extensive negotiations with the Prepetition Secured Parties regarding the future of the Debtors and their operations, their ability to weather the COVID-19 pandemic with or without assistance (including grants and loans under the CARES Act), and the willingness of the Prepetition Secured Parties to provide bridge financing in light of the foregoing. These negotiations (as well as the discussions with government officials described below) were made all the more difficult because of the inherent uncertainty regarding how long and the extent to which the current COVID-19 operating environment will last, as well as the fact that they were conducted telephonically, rather than inperson, as a result of COVID-19.

Wait. Zoom Video Communications Inc. ($ZM) isn’t the end-all be-all savior it’s been made out to be?!? Go figure.

These debtors now also serve as Exhibit A to the argument that the federal government ought to have acted sooner to pass the Coronavirus Aid, Relief, and Economic Security Act (CARES) and put into place mechanisms for getting that much-needed capital out to the businesses that need it. The debtors add:

Separately, the Debtors also spoke with high-ranking representatives of the State of Alaska and the federal government. Unfortunately, by the end of March 2020, it became clear that any state or federal government financial assistance or other relief was not going to be available before the Debtors ran out of cash and had to suspend operations.

Eesh. Now that’s sh*tty timing. They pushed through an application on April 3, the first day to do so, but liquidity was so low that the debtors couldn’t make payroll. A bankruptcy filing, therefore, became necessary in order to nail down DIP financing to pay employee wages and, through the efforts of a skeleton crew, administer the bankruptcy cases. At the time of the actual filing, even the DIP documentation wasn’t complete.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $90.9mm RCF (BNP Paribas)

• Professionals:

  • Legal: Keller Benvenutti Kim LLP (Tobias Keller, Jane Kim, Thomas Rupp) & Blank Rome LLP (Victoria Guilfoyle, Stanley Tarr, Jose Bibiloni)

  • Financial Advisor: Conway MacKenzie LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Agent: BNP Paribas

    • Legal: Winston & Strawn LLP (David Neier, Carrie Hardman) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Large equityholders: W Capital Partners

💈New Chapter 11 Bankruptcy Filing - Rudy's Barbershop Holdings LLC💈

Rudy's Barbershop Holdings LLC

April 2, 2020

Just when the entire country is sheltering in place and can no longer go out to get haircuts (reviving videos of 80s fave, the Flowbee), Seattle Washington-based Rudy’s Barbershop Holdings LLC and five affiliates (the “debtors”) have filed for chapter 11 bankruptcy. The business has been hemorrhaging cash for a few years now — losing $2.275mm in ‘18 and $2.142mm in ‘19. COVID-19 was the nail in the coffin. The debtors were forced to close on March 16, eliminating the debtors’ main source of revenue. The majority of the debtors’ employees currently are furloughed, with a small subset who work at the debtors’ Microsoft Inc. ($MSFT) office campus paid through a reimbursement from Microsoft Inc.

Owned by Northwood Ventures LLC, a NY-based private equity and venture capital firm, the debtors are hoping to achieve a going concern sale in bankruptcy to Tacit Capital LLC on an expedited basis. The company has about $4.6mm of funded debt and Tacit has committed to DIP financing. For what it’s worth, we here at PETITION hope that the sale can get done with ease so that this business is saved. Things are rough out there.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Professionals:

  • Legal: Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Desgrossiers, Mark Olivere)

  • Financial Advisor: GlassRatner Advisory & Capital Group LLC (Wayne Weitz, Robert Trenk)

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

• Other Parties in Interest:

  • Sponsors: Northwood Ventures LLC & PCG-Ares Sidecar Investment LP

    • Legal: Joshua T. Klein & Gellert Scali Busenkell & Brown LLC (Michael Busenkell)

🍺New Chapter 11 Bankruptcy Filing - Craftworks Parent LLC🍺

Craftworks Parent LLC

3/3/20

In November 2018, four core casual dining restaurant brands were merged together when Centerbridge Partners LP — the owners of Old Chicago Pizza & Taproom, Gordon Biersch Brewery Restaurant and Rock Bottom Restaurant and Brewery (“Craftworks”) — purchased Logan’s Roadhouse.* At the time of the transaction, Craftworks had 189 corporate and franchise restaurants and Logan’s had 204. Craftworks had ‘17 revenue of $434.5mm and Logan’s had ‘17 revenue of $462.4mm. Fast forward 16 months and the combined entity is now in bankruptcy court.

The TN-based debtors currently operate or franchise 330 locations (⬇️63) and generated revenue of $720mm of revenue in 2019 (⬇️$176.9mm). It’s safe to say that this performance is not what Centerbridge had in mind when it did the transaction. Ahhhhh…synergies.

The debt coming out of the transaction shoulders much of the blame:

…the Debtors have been negatively impacted by an overleveraged capital structure and low levels of liquidity that dates back to their acquisition of Logan’s Roadhouse in November 2018.

This is what that debt looks like:

Source: First Day Declaration

Of course, the debt is only part of the story. The debtors also blame their poor performance on rising wages, increased competition, third-party delivery platforms, and high rent. You know, the usual suspects in the casual dining space. Adding to the debtors’ misery was the fact that the integration of the two companies didn’t exactly go as planned. Per the debtors:

Since the closing of the Logan’s Acquisition, the Debtors’ business has been hampered by an overleveraged balance and lack of sufficient liquidity to fund their operations, including necessary capital expenditures and investment in their restaurants. These issues were compounded by other internal and external factors, such as underperforming stores, unfavorable leases, redundant selling, general and administrative expenses and a general decline in same-store traffic and sales. The primary reasons for the underperformance were lower topline sales and deterioration in gross margin.

“Redundant selling” isn’t exactly the kind of synergies purchasers hope for. That said, there were synergistic benefits. The post-transaction debtors enjoyed approximately $12mm of labor cost reductions, $5mm of operating expense reductions and $4mm of corporate general and administrative expense reductions. The private equity operational model illustrated, ladies and gentlemen.

Except this didn’t offset optimistic modeling. Per the debtors:

The Logan’s Acquisition transaction model forecasted fiscal year 2019 revenue based on a same-store sales growth rate of 1.5% with a 72.5% gross margin; however, actual same-store sales for fiscal year 2019 declined by approximately 1.0%, resulting in a total volume-driven gross margin loss of approximately $27.0 million. In addition, occupancy expense was under-forecasted by approximately $2.0 million.

Last we checked, $29mm > $21mm. 🤓

Because of all of this, the debtors were unable to make interest payments under the pre-petition first lien credit agreement. This put Fortress in the driver’s seat. And Fortress is seizing the opportunity. The private equity shop is the debtors’ prepetition lender and they are influencing the trajectory of this case; they will provide a $143.1mm DIP (of which only $23mm is new money) and they are acting as the stalking horse purchaser of the debtors with a $138mm purchase price offer (a credit bid, no doubt). The debtors intend to pursue a dual-sale and plan process with the hope of maximizing value for the benefit of all stakeholders.**

*Yes, this is the Logan’s Roadhouse that was in bankruptcy back in 2016. In the prior bankruptcy, Logan’s closed approximately 34 locations.

**So, at least there’s something new here. It’s not everyday that you see a top SEVENTY-FIVE creditors list, most of which is chock full of landlords and unsecured noteholders (Wells Fargo Bank NA, Marblegate Special Opportunities Master Fund LP, FS KKR Capital Corp., FS Investment Corporation II, Carl Marks Strategic Opportunities Fund II LP, Carl Marks Strategic Investments LP, Kelso & Company). It doesn’t look like Marblegate will recover anything on these notes which is a shame because there are likely to be more taxi medallions for sale sometime soon.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: see above.

• Professionals:

  • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Bryan Kotliar, Peter Siddiqui, Lindsay Lersner) & Klehr Harrison Harvey Branzberg LLP (Domenic Pacitti, Michael Yurkewicz, Morton Branzburg)

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

  • Investment Banker: Configure Partners LLC (Vin Batra, James Hadfield)

  • Real Estate Advisor: Hilco Real Estate LLC

  • Strategic Communications Advisor: Kekst CNC

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

• Other Parties in Interest:

  • First Lien & DIP Agent: Fortress Credit Co.

    • Legal: King & Spalding LLP (Austin Jowers, Michael Handler) & Hunton Andrews Kurth LLP (John Schneider) & Chipman Brown Cicero & Cole LLP (William Chipman Jr.)

  • Stalking Horse Purchaser: DBFLF CFTWE Holdings L.P. (an affiliate of Fortress Credit Co.)

  • Second Lien Agent: Wells Fargo Bank NA

    • Legal: Morgan Lewis & Bockius LLP (Jennifer Feldshur, Sula Fiszman)

  • Sponsor: Centerbridge Capital Partners

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Andriana Georgallas, Bryan Podzius) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Jaime Luton Chapman, Jordan Sazant)

😷New Chapter 11 Bankruptcy Filing - Hygea Holdings Corp.😷

Hygea Holdings Corp.

February 19, 2020

Florida-based Hygea Holdings Corp. and 32 affiliates (the “debtors”) filed for bankruptcy because…whoa boy…human capital businesses are tough. Hygea is a rollup of physician practices with a primary care physician focus; it also has a management services platform. This is basically WeWork for physicians or Substack for writers: Hygea handles the management activities in such a way that frees physicians up to do what they want to do. Which is be physicians.

The problem is that the debtors expanded too aggressively, acquiring physician practices with minimal net profit. But synergies, right? Not exactly. The debtors’ model didn’t pan out after failing to integrate the underperforming acquisitions. Poor integration fundamentally counteracts the entire point of a rollup, but whatevs. Growth!!

If only things were quite so positive. Per the debtors:

Consequently, the Debtors have been burdened with supporting a number of losing operations, that even with performance improvements will never be profitable. The operating losses of those practices, along with the associated acquisition costs, have caused a substantial drain on the Debtors’ liquidity.

This presents a problem when you have over $120mm of debt. Hence bankruptcy. The company hopes to use the bankruptcy process to solicit a buyer.

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $121mm secured debt (Bridging Income Fund LP)

• Professionals:

  • Legal: Cole Schotz PC (Michael Sirota, Felice Yudkin, Jacob Frumkin, Michael Trentin, J. Kate Stickles, Katherine Devanney, Stuart Komrower)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: 4Front Capital Partners Inc.

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

• Other Parties in Interest:

🍿New Chapter 11 Bankruptcy Filing - VIP Cinema Holdings Inc.🍿

VIP Cinema Holdings Inc.

February 18, 2020

VIP Cinema Holdings Inc. and four affiliates (the “debtors”) filed prepackaged chapter 11 bankruptcy cases in the District of Delaware; they are manufacturers of luxury seating products for movie theaters. Here’s the problem: end user customers stopped ordering their stuff. Yup, that’s right, there’s a finite market for luxury seating in movie theaters. Who knew?

Here are some of the problems this company confronted:

• They made chairs that were too good. That’s right. Too good. The chairs had a longer lifecycle than the company likely wanted. Either that or people are engaging in too much Netflixing and chilling and not enough movie-going.

• Movie theaters slowed down their renovation activities and construction of new locations. Perhaps people are engaging in too much Netflixing and chilling and not enough movie-going.

• Movie theaters reduced capital investment — mostly because they haven’t exactly performed very well themselves and have their own debt and equityholders to contend with. Also, people are engaging in too much Netflixing and chilling and not enough movie-going.

• They conquered the total addressable market, securing 70% market share with little to no room to grow thanks to all of the foregoing bulletpoints.

Are we being too flip about $NFLX? Well, don’t take our word for it. Here’s the company explaining one of the reasons why it’s in trouble:

“Continued proliferation of online streaming services and alternative viewing experiences, which has led to declining movie attendance, a poor outlook sentiment for the overall U.S. movie theatre industry and particularly put significant pressure on the stock price of AMC, a key customer for the Company.”

Because of all of the foregoing factors, the debtors triggered an event of default under their first lien credit agreement and have been in a state of forbearance with their lenders ever since — all with the hope of negotiating an out-of-court restructuring transaction.

That hope was extinguished when Odeon reduced seating orders, napalming everyone’s financial models upon which the proposed out-of-court transaction was premised. Now we’re in prepackaged bankruptcy territory with a restructuring support agreement that will shed $178mm of debt and infuses the company with a $33mm DIP credit facility — of which $13mm is new money and $20mm is a roll-up of prepetition debt. Here is the pre-petition capital structure:

The liquidity is highly necessary. The debtors are burning cash like Rick Dalton burns interlopers bursting into his Hollywood Hills mansion. The debtors filed for bankruptcy with just $1mm in liquidity remaining.

Speaking of burning cash, that’s pretty much what you can say about the $200-or-so-million that previously went into these debtors. The restructuring support agreement will (a) convert first lien loans to preferred and common equity, (b) donut the second lien claims, and (c) donut the general unsecured claimants (unless they opt-in to a release, in which case they’ll get $5k). Critical to everything is the fact that HIG Capital LLC, the existing shareholder in the company, will write a new-money check of $7mm and enter in a management services agreement with the reorganized newco. In exchange for this investment, HIG will get preferred equity and 51% of the common equity.* Everyone is going to be holding their breath for the next 6 weeks, hoping that no other large chains cancel or downsize orders. If that happens, this deal could blow up.

*Suffering PTSD from the last-minute collapse of the out-of-court deal, HIG also negotiated the ability to walk if the debtors have less than $1.5mm of available unrestricted cash on the “Exit Date.”

---

• Jurisdiction: D. of Delaware (Judge Walrath)

• Capital Structure: see above.

• Professionals:

  • Legal: Ropes & Gray LLP (Gregg Galardi, Christine Pirro Schwarzman) & Bayard PA (Erin Fay, Daniel Brogan, Gregory Flasser)

  • Independent Director: Michael Foreman

  • Financial Advisor/CRO: AlixPartners LLP (Stephen Spitzer)

  • Investment Banker: UBS Securities LLC

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

• Other Parties in Interest:

  • First Lien Agent: Wilmington Savings Fund Society FSB

    • Legal: Wilmer Cutler Pickering Hale and Dorr LLP (Andrew Goldman, Benjamin Loveland) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona II, Tamara Mann, Andrew Workman)

  • Ad Hoc Group of First Lien Lenders

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Adam Shpeen) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona II, Tamara Mann, Andrew Workman)

    • Financial Advisor: M-III Partners LP

  • Second Lien Agent & Second Lien Lenders: Oaktree Fund Administration LLC

    • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Ginsburg, Joanne Lau) and Young Conaway Stargatt & Taylor LLP (Matthew Lunn, Edmon Morton, Betsy Feldman)

  • Sponsor: HIG Capital LLC & HIG Middle Market LBO Fund II LP

    • Legal: McDermott Will & Emery LLP (Brooks Gruemmer, Jay Kapp)

👦🏻New Chapter 11 Bankruptcy Filing - Boy Scouts of America👦🏻

Boy Scouts of America

February 18, 2020

It’s a sad state of affairs when mass tort cases overrun the bankruptcy system. Between a recent deluge of asbestos cases (e.g., ON Marine Services Company LLC, Paddock Enterprises LLC, and DBMP LLC), opioid cases (e.g., Purdue Pharma, Insys Therapeutics), global warming and negligence cases (PG&E) and sexual abuse cases (e.g., USA Gymnastics, one diocese after another), Wachtell Lipton Rosen & Katz is correct to declare “A New Era of Mass Tort Bankruptcies” in a recent client report. They recently wrote:

The use of the bankruptcy process to address mass tort liability reflects a growing recognition that chapter 11, while imperfect, provides tools for dispute resolution that are not generally available in federal or state courts.

And:

For companies that have insufficient assets to pay claims in full, bankruptcy ensures that the debtor’s limited assets are distributed equitably among claimants, including “future” claimants (those whose claims have not yet manifested). Chapter 11 can allow companies with tort liabilities to maintain operations, thereby continuing to generate funds to make payments over time, while providing a respite from defending lawsuits and a platform to negotiate settlements. Bankruptcy also provides a mechanism for centralizing the resolution of large numbers of tort claims, including through a court estimation of the aggregate liability, greatly reducing litigation costs and increasing the potential for a global settlement.

The purposes of these filings?

The wave of asbestos-related bankruptcies in the 1980s led Congress to enact Bankruptcy Code provisions to facilitate reorganization of debtors facing asbestos claims by establishing a plaintiffs’ trust funded by cash, proceeds of insurance policies, and equity in the reorganized debtor. In exchange for contributing to the trust, the debtor and other contributors receive a “channeling injunction,” which “channels” all existing and future claims to the trust. Upon resolution of the bankruptcy, such claims are brought against and paid by the trust, the debtor is discharged, and other contributors are released from further liability. While the relevant Bankruptcy Code provisions apply by their terms only to asbestos-related claims, similar mechanisms have been used (or are currently contemplated) in the bankruptcies of Takata (defective airbags), Pacific Gas & Electric (wildfire damages), and several Catholic dioceses (abuse claims).

Enter Sidley Austin LLP here. Sidley Austin is widely-credited for the notion that a channeling injunction could be deployed in the Takata chapter 11 case. It’s no wonder, then, that they’d land another major mass tort case and deploy the same playbook. Boy Scouts are well-accustomed to playbooks.

And deploy the playbook, they will.

The Boy Scouts of America are involved in 275 lawsuits currently pending in state and federal courts across the United States. They are also aware of an additional 1,400 claims that have not yet filed. Recently enacted legislation that extended the statute of limitations — passed in 17 states, including 12 in 2019 — led to a deluge of additional recently filed suits against the BSA. Consequently, the BSA spent more than $150mm on settlements and legal costs from 2017 through 2019 alone. Compounding matters, membership and donations are on the decline. BSA registered membership is down 500k since 2012. People are dropping the Boy Scouts HARD.

The BSA has filed a plan of reorganization and disclosure statement along with their customary first day papers. Where the rubber will meet the road is at the asset level. Per the BSA:

…attorneys for abuse victims believed that certain Local Councils with significant abuse liabilities have significant assets that could be used to compensate victims.

The Local Councils, however, are not debtors. There is, though, an ad hoc committee of Local Councils, the purpose of which is to allow the Local Councils to participate in negotiations about a global resolution of abuse claims. The Local Councils share insurance with the BSA and insurance, naturally, will be a huge source of recovery for abuse claimants. Claimants will also want to understand whether Local Councils are being used to shield assets from attack — a strategy exposed in this recent Wall Street Journal piece. This issue appears to be key to the bankruptcy and any potential resolution. The volunteer chair of the Local Council Committee? Richard Mason of Wachtell. Forgot to mention that one in the aforementioned client alert.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $328mm secured debt (see below)(JPMorgan)

• Professionals:

  • Legal: Sidley Austin LLP (Jessica Boelter, Alex Rovira, Andrew Propps, James Conlan, Thomas Labuda, Michael Andolina, Matthew Linder) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott)

  • Financial Advisor: Alvarez & Marsal LLC (Brian Whittman)

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

Source: Disclosure Statement

New Chapter 11 Bankruptcy Filing - RentPath Holdings Inc.

RentPath Holdings Inc.

February 12, 2020

RentPath Holdings Inc. and eleven affiliated entities (the “debtors”), a digital marketing solutions enterprise that links property managers with prospective renters to simplify the residential rental experience, filed for bankruptcy in the District of Delaware. The business did $226.7mm of revenue in fiscal 2019 and had EBITDA of $46.8mm.

Where there’s money there’s competition. Where there’s competition, revenue maintenance becomes more challenging. And because of that competition, the debtors were forced to up their marketing spend and promotional activity which dented liquidity. A lack of liquidity presents some really big problems when your annual interest expense is $54.4mm on approximately $700mm of funded debt. For the math challenged, $46.8mm against approximately $700mm of funded debt means that this sucker has a leverage ratio of approximately 15. Or as President Trump would say, “It’s UUUUUUUUUUUGE.” Clearly that is unsustainable AF.

The good news is that the debtors have found themselves a potential buyer, CSGP Holdings LLC, an affiliate of CoStar Group Inc. ($CSGP), which has come forward with a $587.5mm cash bid (plus the assumption of certain liabilities) for the debtors’ assets. The debtors hope to consummate the sale pursuant to a plan of reorganization. To get there and fund the cases in the interim, the debtors obtained a fully-backstopped commitment of $74.1mm in DIP financing from certain members of the crossholder ad hoc committee and other first lien lenders.

• Jurisdiction: (Judge Shannon)

• Capital Structure: $37.95mm First Lien Revolving Facility, $479.75mm First Lien Term Loan, $170mm Second Lien Term Loan

• Professionals:

  • Legal: Weil Gotshal & Manges LLP (Ray Schrock, David Griffiths, Andriana Georgallas, Gaby Smith, Alexander Cohen, Kyle Satterfield, Justin Pitcher, Leslie Liberman, Martha Martir, Richard Slack, Amanda Burns Shulak) & Richards Layton & Finger PA (Daniel DeFrancheschi, Zachary Shapiro)

  • Independent Director: Marc Beilinson, Dhiren Fonseca

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: Moelis & Company (Zul Jamal)

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

• Other Parties in Interest:

  • DIP Agent & First Lien Agent:

    • Legal: Paul Hastings LLP (Michael Baker, Shekhar Kumar)

  • Successor Second Lien Agent: Wilmington Savings Fund Society FSB

    • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Marie Polito Hofsdal) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Crossholder Ad Hoc Committee

    • Legal: Milbank LLP (Evan Fleck, Nelly Almeida, Andrew Harmeyer) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Second Lien Ad Hoc Committee

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Philip Dublin, Rachel Biblo Block) & Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Joseph Barsalona)

  • Stalking Horse Purchaser: CSGP Holdings LLC (CoStar Group Inc.)

    • Legal: Jones Day (Daniel Moss, Nicholas Morin) & Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill)

  • Large Equityholders: Providence Equity & TPG

    • Legal: Vinson & Elkins LLP (David Meyer)

New Chapter 11 Bankruptcy Filing - Valeritas Holdings Inc. $VLRX

Valeritas Holdings Inc.

February 9, 2020

After a particularly active year in 2019 for both biopharma and biotech, we were wondering when 2020 might usher in its first case in the category. Now we have it.

New Jersey-based Valeritas Holdings Inc. ($VLRX) and three affiliates (the “debtors”) filed for bankruptcy to effectuate a sale of its Chinese-manufactured insulin delivery device (V-Go) and associates assets to Zealand Pharma A/S ($ZEAL) for $23mm in cash plus the assumption of certain liabilities.

On the surface, there’s not much new here: most of these biotech cases follow the same pattern. The debtors get to a certain stage of development and then run out of cash and try to find a strategic partner. That’s what happened here. Except the debtors also ran into a manufacturing issue. Consequently, they had to halt product delivery and take time to identify and solve for the issue, suffering a $3.5mm inventory write-off in the process. All of this scared away any potential buyers.

This is where the coronavirus comes in. Per the company:

Notwithstanding the Company’s quick response to address the manufacturing yield issue, it could not resurrect the Out of Court Process. Moreover, the yield issue unfortunately coincided with certain external factors impacting production. The CMO and the Company’s other manufacturers and suppliers in China are closed for the Lunar New Year (Chinese New Year) celebrations, which took place this year between January 27, 2020 through February 3, 2020, which was extended through February 9, 2020 by the Chinese government due to the coronavirus epidemic in China.

There’s more:

Additionally, many Chinese businesses, including the Company’s CMO, employ rural workers and, as a result, may experience production capability issues due to the uncertainty surrounding when these rural employees will return to work. All of the foregoing unanticipated delays further strained the Company’s balance sheet and truncated its financial runway, although, due to careful planning, it generally has not impacted the Company’s ability to make V-Go® available to the majority of patients to date. Specifically, these delays have impacted new production, retesting of existing V-Go® kits, and the packaging and shipping of finished goods to the United States.

Oooof. Talk about bad timing. Query whether this depressed the purchase price. 🤔

So, there you have it folks: our first coronavirus mention in US-based bankruptcy papers. We reckon it won’t be the last.

It took time but there's now a lot more focus on what I call the cascading sudden stop dynamics of the #CoronaVirus for the global #economy.
The main catalyst: More and more companies reporting big and growing supply and demand disruptions.
As an example:https://t.co/uCAzMVdwzH pic.twitter.com/OoPiR5f203

— Mohamed A. El-Erian (@elerianm) February 8, 2020

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $20mm Term Loan (Capital Royalty Group)

• Professionals:

  • Legal: DLA Piper LLP (Rachel Albanese, Maris Kandestin)

  • Financial Advisor: PricewaterhouseCoopers LLP

  • Investment Banker: Lincoln International Inc.

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

• Other Parties in Interest:

  • DIP Lender: HB Fund LLC

  • Senior Secured Lender: Capital Royalty Group

  • Stalking Horse Purchaser: Zealand Pharma A/S

🍎New Chapter 11 Bankruptcy Filing - Earth Fare Inc.🍎

Earth Fare Inc.

February 4, 2020

North Carolina-based Earth Fare Inc. is the latest grocer to descend into the Delaware bankruptcy courts, closing a horrific stretch for the grocery space in which multiple chains — including Fairway Market and Lucky’s Market — capitulated into chapter 11. Signs were out there. On January 26th, we noted that the chain was quietly closing locations, a clear indication of trouble and precursor to bankruptcy. Subsequently, The Wall Street Journal reported that the grocer had begun closing approximately 50 stores. The thing is: it has about 50 stores (across 10 states) so that effectively signaled that the company was kaput. Twenty minutes later, the company confirmed as much, issuing a press release that it would liquidate inventory at all of its stores and pursue a sale of its assets. 3,270 people appear poised to lose their jobs. It’s brutal out there, folks.* But at least sumo mandarins are back, bringing all new meaning to “get them before they’re gone.”

Earth Fare is owned, as of 2012, by Oak Hill Capital Partners III LP (72.1%) and MCP Heirloom LLC (18.76%), an ironic name given that there isn’t expected to be much left of this sucker going forward. Which means that we all should suspect yet another onslaught of “Private Equity Kills X” pieces in the media. Because, like, those have been all the rage lately. See, e.g., The New York Times and Payless, and Slate and Fairway.

So what’s the story? Well, for starters, you know you’ve got a dumpster fire on your hands when the company’s first day declaration to be entered into evidence in support of the filing is a whopping 18 pages long. Clearly the expectations here aren’t particularly optimistic.

Similar to Lucky’s Market Parent Company LLC, it appears that the company took on too much debt and expanded too much, too soon. Ah, private equity. Consequently, it has approximately $76.8mm of funded debt including a revolving credit facility held by Fifth Third Bank and Wells Fargo Bank NA and a term loan with a mysterious “Prepetition Term Loan Lender” that the company was apparently fearful of identifying by name in its papers. Like, for some reason. Like, as if, uh, we won’t find out who that sucker is who dumped $14.8mm into this horror show a mere 6 months ago. In addition to the funded debt, the company owes $60mm in trade and other unsecured obligations.

The company blames its failure on a now-standard lineup of excuses that include (i) crazy amounts of competition,** (ii) significant capex, and (iii) too much debt.

Riiiiight. Back to that debt. The company has been in a perpetual state of amend-and-extend since 2017 when, in May of that year, it secured an amendment/extension of its revolving loan maturity to April 2019. Those private equity bros who are sure to get bashed put $10mm of equity capital into the company at that point. Then in August 2018, the company entered into another amendment pushing out its maturity. In connection therewith, those private equity bros who are sure to get bashed put another $9mm of equity capital into the company. Another extension followed in April 2019 in which those private equity bros who are sure to get bashed put another $5mm of equity capital into the company. They likely would have had more fun just putting all of that money on "black” at the roulette table.

Meanwhile, the company’s efforts to refinance its debt and/or sell stalled badly. It sold 5 underperforming stores but the rest of the company’s inventory will be the responsibility of Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC to sell; the sale of its locations the responsibility of A&G Realty Partners LLC; and the sale of the company’s IP, the responsibility of Hilco Streambank. This mandate is raining liquidators!! Toss in legal, a financial advisor and a strategic communications advisor and the question is: is there anyone left to hire to wind down this company?

*Interestingly, The Charlotte Observer reported that “[t]he number of grocery stores in the [Charlotte] metro area has grown by 38% in five years,” a real head-turner of a stat.

** GroceryDive reported:

“They made some strategic mistakes expanding too far into some non-continuous markets,” Burt Flickinger, managing director of Strategic Resources Group in New York, told Grocery Dive. He said Earth Fare’s key markets “were some of the most over-stored on the Eastern seaboard.”

They also note that the pain is pervasive:

Given their large size and market overlap with Earth Fare and Lucky’s, Sprouts and Whole Foods appear to be the main beneficiaries of this round of specialty store closures, sources said. But these chains certainly don’t have it easy. Whole Foods has not returned to profitable growth under Amazon, according to that company’s quarterly earnings reports, while Sprouts’ stock has dropped with the news from Lucky’s and Earth Fare.

“It’s an unforgiving market out there,” Flickinger said.

Indeed!

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $43.33mm RCF (Fifth Third Bank), $21.67mm RCF (Wells Fargo Bank NA), $14.8mm Term Loan

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor, LLP (Pauline Morgan, M. Blake Cleary, Sean Greecher, Shane Reil)

  • Financial Advisor/CRO: FTI Consulting Inc. (Charles Goad)

  • Asset Disposition Advisor: Malfitano Advisors LLC

  • Liquidation Consultants: Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC

    • Legal: Pepper Hamilton LLP (Douglas Hermann, Marcy McLaughlin Smith)

  • Real Estate Consultant: A&G Realty Partners LLC

  • IP Consultant: Hilco Streambank

  • Strategic Communications Advisor: Paladin Management Group LLC (Jennifer Mercer)

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

• Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - API Americas Inc. (f/k/a AP Foils Inc.)

API Americas Inc.

February 2, 2020

Kansas-based (like, real Kansas-based, as in not in Missouri) API Americas Inc. and its affiliate API (USA) Holdings Limited filed for bankruptcy in the District of Delaware.* API Americas is a manufacturer of foils, laminates, and holographic materials. Among other customers, API Americas provides (i) packaging to companies in the premium drinks, confectionery, tobacco, perfume, personal care, cosmetics, and healthcare sectors and (ii) laminated paper and board products to end users focused on fine spirits, tobacco, confectionary and beauty brands. It has facilities in both Kansas and Indiana.

The debtors appear to be victims of disruption.** They note:

The Debtors have suffered from operating losses over the last couple of years, arising out of three main factors. First, the Debtors have experienced a significant drop in demand for their products, due to unfavorable market dynamics and a shift toward more environmentally sustainable products. In large part, the drop in demand is due to tobacco customers shifting to lower cost, alternative packaging and a substantial portion of the US market moving from merchant to captive.

Given the recent push towards ESG, we suspect we’ll see more debtors note “a shift towards more environmentally sustainable”-everything as a significant headwind. Interestingly, the debtors also note that operating losses are also the result of competitive pressure stemming from overcapacity in the industry. In other words, the demand side is decreasing while the supply-side seems robust. What other companies will follow the debtors into bankruptcy as a result? 🤔

We’ve been commenting here at PETITION that the consumer has been carrying the US economy for months now as certain major manufacturing and services indices have, in contrast to increasing consumer confidence and spending numbers,*** been reflecting negative warning signs about the state of the economy.**** Interestingly, the debtors highlight:

…the manufacturing sector in general has faced economic headwinds in recent months. On January 10, 2020, the New York Times reported that the Institute of Supply Management’s manufacturing index for December 2019 reflected the fastest rate of contraction since June 2009.

We repeat: what other companies will follow the debtors into bankruptcy as a result? 🤔

The debtors have $44.4mm outstanding under its ‘17 $700mm revolving credit facility with PNC Bank NA. With the consent of PNC, they’ll use cash collateral to fund the cases.

So what now? Well, it’s a bit unclear. The papers give no indication of a trajectory for the cases but an attempted sale looks likely. That said, it doesn’t appear like a banker had been engaged at the time of filing.

*Ultimate parent API Group Limited entered administration proceedings in the UK on 1/31/20.

**The debtors cite other specific reasons for its financial distress including poor integration/consolidation of facilities and capex required after the acquisition of one of its plants. These issues cost the debtors $11mm over since 2016.

***Recent consumer confidence numbers continue to be positive.

Source: The Daily Shot

**** Of course, different surveys generally reflect mixed messaging on this front. For instance, the Fed manufacturing index showed some positive signs.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $44.4mm RCF (PNC Bank NA)

• Professionals:

  • Legal: Eversheds Sutherland US LLP (Edward Christian, Mark Sherrill) & Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Monique DiSabatino)

  • Financial Advisor: Ernst & Young LLP (Briana Richards, Jon Henrich)

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

• Other Parties in Interest:

  • Prepetition Lender: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon, Stanley Tarr, Mark Rabinowitz)