PQ New York Inc.

May 27, 2020

New York-based and Belgium-company-owned PQ New York Inc., otherwise known to most as Le Pain Quotidien, filed for chapter 11 bankruptcy in the District of Delaware (along with 104 affiliates) to effectuate a sale of assets to LPQ USA LLC, an affiliate of Aurify Brands. Aurify Brands incubates in-house brands (e.g., Melt Shop) and harvests previously-created brands too (e.g., Five Guys Burgers and Fries). It intends to re-open no fewer than 35 of LPQ’s 98 restaurants (and, to this end, has already filed a lease rejection motion delineating which leases, subject to a negotiation between landlords and the proposed purchaser, are subject to rejection). LPQ USA LLC provided the debtors a $522k bridge loan pre-petition and roll that loan up into a $3mm post-petition DIP credit facility to fund working capital needs during the course of the cases.

This is not a pure COVID story. The debtors financial performance began to decline pre-pandemic as customer preferences shifted away from the casual dining concept towards other concepts like “grab n go.” This trend, combined with management turnover and lack of investment at the store level, led the debtors to begin exploring strategic alternatives for their European and US-based businesses in Q3 of 2019.

Let’s put some numbers around this. In 2018, the debtors had $175mm of sales and $4.4mm in EBITDA. In 2019, sales dropped to $153mm and EBITDA swung by over $20mm to -$16.8mm. Even worse? There was no hope on the horizon. With expensive leases and eroding same store sales, the debtors forecast negative EBITDA through 2023 absent a severe operational restructuring. Prior to COVID slamming the economy and shutting everything down, the debtors had already determined that a bankruptcy filing would be necessary to help negotiate lease terms with landlords, secure funding, and pursue a sale. The shutdown just postponed things for a while.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $522k bridge loan

• Professionals:

  • Legal: Richards Layton & Finger PA (Mark Collins, Michael Merchant, Jason Madron, Brendan Schlauch)

  • Financial Advisor/CRO: PwC (Steven Fleming)

  • Investment Banker: SSG Advisors LLC

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: LPQ USA LLC

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Morton Branzburg)