🎭 New Chapter 11 Bankruptcy Filing - Rubie's Costume Company Inc. 🎭

Rubie’s Costume Company Inc.

April 30, 2020

Star Wars. Marvel’s Avengers. Stranger Things. You’d think any business associated with this hot IP would be killing it. And yet it seems that even the Black Panther is susceptible to poor business fundamentals in a disrupted retail environment.

New York-based Rubie’s Costume Company Inc. and five affiliates (the “debtors”) — designers, manufacturers and distributors of costumes and related accessories — filed for bankruptcy in the Eastern District of New York. The debtors have non-exclusive licenses with the likes of Disney Inc. ($DIS), Lucasfilm, Marvel and others as well as non-licensed costumes for all of your not-just-Halloween costume needs (nobody is judging, people). They sell via 4 costume stores in New York, online, and wholesale channels; they count Target Inc. ($TGT), Walmart Inc. ($WMT), Amazon Inc. ($AMZN) and Party City Holdco Inc. ($PRTY) as distribution channels (the latter, itself, in trouble).

The debtors note that operating performance has been on the decline for years, attributing this primarily to “[i]ndependent customers hav[ing] declined and the average order per existing customer also ha[ving] declined.” Disruption! The small mom and pop costume shops are getting smoked while the bigbox retailers who have more leverage over pricing take over. We’re willing to bet that even Party City will attribute its recent travails to the rise of the bigbox retailer coupled with “The Amazon Effect.” The debtors highlight:

For the fiscal year ending December 31, 2018 (“FY 2018”) net sales and Adjusted EBITDA were approximately $310 million and $2 million, respectively. As a result of the decline in independent customers, for fiscal year ending December 31, 2019 (“FY 2019”), the Company generated net sales and Adjusted EBITDA of approximately $268 million ($42 million decline) and $3 million ($5 million decline), respectively.

The debtors also have over $47mm of secured debt outstanding under its pre-petition credit agreement with lenders such as HSBC Bank USA NA, Bank of America NA, Wells Fargo Bank NA, JP Morgan Chase Bank NA, TD Bank NA, and Citibank NA (the “Bank Group”). Operating under a series of forbearance agreements, the debtors have been engaged in an operational cost-cutting process since 2019.

Forbearances (accompanied, of course, with enhanced collateral packages and fees) and cost-cutting can only get you so far, of course. With COVID-19 hitting, the debtors suffered from a liquidity crunch. After all, we’re not hearing much about Zoom-costume-parties. The Bank Group has apparently taken a look at the debtors’ business prospects and said, “no way, Jose.” Per the debtors:

…the COVID crisis has had an impact on the Debtors’ ability to obtain new financing from the Bank Group. The Bank Group has declined to provide continued financing and the Debtors’ efforts to obtain replacement financing on an asset based lending structure have been slowed by the crisis.

Indeed, Wells Fargo Bank NA pulled out of refi discussions — a move consistent with Wells’ recent savagely escapist approach with respect to retail.

It advised the Debtors that its decision was based on the conditions in the global lending market due to the COVID-19 crisis and internal restrictions on its current lending, and was not a reflection on the Debtors’ creditworthiness.

Yeah, maybe.

The Debtors demonstrated the viability of their business to the Banks in a number of ways including through the business plan implemented over the last year with the assistance of BDO, the continued value of their inventory which exceeds the debt owed to the Banks and even most recently the fact that major national account clients placed firm orders for the Halloween season.

While we don’t find this particularly convincing either, Wells didn’t really need a pretense to bail out of retail these days.

Anyway, here we are. Without the refinancing, the debtors are in bankruptcy court seeking the use of cash collateral while they use the bankruptcy process to find a new source of capital.

• Jurisdiction: E.D. of New York (Judge Trust)

• Capital Structure: $46.7mm RCF

• Professionals:

  • Legal: Togut Segal & Segal LLP (Frank Oswald, Brian Moore) & Meyer Suozzi English & Klein PC (Edward LoBello, Howard Kleinberg, Jordan Weiss)

  • Financial Advisor: BDO USA LLP

  • Investment Banker: SSG Capital Advisors LLC

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

• Other Parties in Interest:

  • Pre-petition Agent: HSBC

    • Legal: Phillips Lytle LLP (William Brown)

New Chapter 11 Bankruptcy Filing - Senior Care Centers LLC

Senior Care Centers LLC

December 4, 2018

Ok, we take it back. We’ve been saying how healthcare distress was overhyped in the beginning of the year and now a mini-wave of healthcare-related bankruptcy filings has hit dockets across the country. It’s cool: we don’t take it personally.

Here, Senior Care Centers LLC and its bazillion affiliated debtors, filed for bankruptcy in the Northern District of Texas. The debtors are one of the largest skilling nursing services providers in the US, providing care for approximately 9k patients in Texas and Louisiana. They operate 97 skilled nursing facilities, 9 assisted living facilities and 6 hospice facilities. The company notes:

Like much of the healthcare sector, the operators of skilled nursing facilities (“SNFs”) are and have been experiencing significant challenges and financial distress in recent years. The challenges faced by the Debtors are similar to those experienced by other SNF operators and widespread within the skilled nursing industry. The Debtors faced increasing financial pressure in 2017 and 2018 cause by, among other things, declining reimbursement rates, difficulties in collecting accounts receivable, declining census, and occupancy rates, increasing lease obligations, tightening terms with various trade creditors, and a significantly reduced working capital loan facility. All of these factors have combined to negatively impact the Debtors’ operations.

Getting more specific, the company adds:

Since 2017, the Company experienced significant liquidity constraints caused by, among other things: (a) increasing rent and “above-market” leases with various Landlords; (b) declining performance within the current portfolio for a variety of industry-wide developments; (c) tightening terms with various trade creditors; and (d) declining census. The Company has struggled to respond to liquidity issues for several months. In July of 2018, Administrative Agent began establishing Borrowing Base reserves, resulting in reduced availability under the Credit Facility.

The immediate cause for the filing of these Chapter 11 Cases was due to liquidity issues resulting from reduced Borrowing Base availability. This problem was compounded when certain of the Debtors’ landlords issued termination and/or default notices (the “Landlord Notices”).

Certain vendors demanded modification to payment terms, which restricted or eliminated the Company’s trade credit. Moreover, relationships with current and prospective Employees and Patients have been affected by the uncertainty. For example, several recent candidates have rescinded their offers to join the Company and expressed concern regarding the Company’s financial stability.

That story should sound wildly familiar by now.

Of significance, however, is the company’s relationship with Sabra Health Care REIT Inc. ($SBRA), which is one of the major landlords who issued termination/default notices (over which there is some dispute as to whether they were subsequently withdrawn). Sabra owns CCP which is the debtors’ second lien lender. More importantly, Sabra is the landlord on approximately 40 of the debtors’ facilities. The debtors owe Sabra $31.78mm in unpaid rent, common area maintenance charges and taxes.

Interestingly, Sabra’s own commentary about the debtors’ situation probably didn’t help matters much. On its Q3 earnings call on November 6, Sabra said a number of things about the debtors’ inability to pay rent, a potential sale of the debtors, its efforts to obtain financing, and management’s skittishness about any go-forward transaction that would endanger their jobs. On that last point, Sabra indicated that it was discussing go-forward options directly with the debtors’ board as a result. The debtors’ various constituents could obvious see/hear these comments and react accordingly.

But the Sabra commentary also demonstrates how difficult the current environment is for SNFs right now. Some big takeaways from their earnings call:

• It is reducing its exposure to Texas, its largest state, “which also happen to be the one state where there is an oversupply of skilled nursing beds in a number of markets due to new product. And Texas also has one of the weakest Medicaid systems in the country.” (PETITION Note: scour the Googles for other SNFs highly indexed to Texas for future distressed/bankruptcy candidates).

• Skilled operators (read: private equity) are in acquisition mode and, therefore, pricing is high even for product that isn’t of the highest quality. (PETITION Note: “too much money chasing too few deals.” This should, theoretically, bode well for the debtors’ proposed sale, if so). Sabra’s CEO Rick Matros said, “we're not seeing much good skill product and I really believe that that's a function of the skilled operators are buying everything all of us are selling, but they're not putting reasonable assets on the market because everybody sees the light at the end of the tunnel both in terms of the demographic in terms of decreasing supply and in terms of the positive benefits of PDPM reimbursements system that’s going go into effect next October.”

• Smaller SNFs will succumb to bankruptcy. Matros added, “My guess is over the course of the next year particularly with the mom-and-pops, we'll probably see more products come to market as a number of the smaller providers determine that they don't have the wherewithal or the desire to go through the transition that is going to be required to go through to be successful post-PDPM.”

In other words, there should be a healthy amount of M&A and distressed activity in the near future in the SNF space.

Anyway, back to the debtors: they hope to use the automatic stay provided by the filing to transition underperforming facilities to new operators in coordination with its landlords and sell their profitable facilities. They will use cash collateral to fund the cases.

• Jurisdiction: N.D. of Texas (Judge Houser)

• Funded Capital Structure: $33.06mm RCF, $9.53mm HUD RCF, $4.3mm CCP (second lien) Loan   

• Company Professionals:

  • Legal: Polsnielli PC (Jeremy Johnson, Trey Monsour, Stephen Astringer, Nicholas Griebel)

  • Conflicts Legal: Huntons Andrews Kurth LLP

  • CRO & Financial Advisor: Newbridge Management LLC (Kevin O’Halloran) & BDO USA LLP

  • Communications Consultants: Sitrick and Company

  • Claims Agent: Omni Management Group LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Large Creditor: Sabra Health Care Reit, Inc.

  • Sponsor: Silver Star Investments LLC

  • Admin Agent & Lender: CIBC Bank USA

    • Legal: Duane Morris LLP (John Weiss, Rosanne Ciambrone) & (local) Haynes and Boone LLP (Stephen Pezanosky, Matthew Ferris)

New Chapter 11 Bankruptcy Filing - FR Dixie Holdings Corp.

FR Dixie Holdings Corp.

November 2, 2018

Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.

For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.”

The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:

Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.

Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.

• Jurisdiction: D. of Delaware

• Capital Structure: $19.6mm revolver, $267.4mm TL (Wilmington Trust NA), $8mm unsecured loans    

• Company Professionals:

  • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Kathrine McLendon, Edward Linden, David Baruch) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Sean Beach, Elizabeth Justison, Tara Pakrouh)

  • Financial Advisor: BDO USA LLP

  • Investment Banker: PJT Partners LP (Peter Laurinaitis, Joseph Fallon)

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

• Other Parties in Interest:

  • Ad Hoc Group of Prepetition Secured Lenders

    • Legal: Davis Polk & Wardwell LLP & (local) Morris Nichols Arsht & Tunnell LLP

    • Financial Advisor: Ankura Consulting Group

Updated 11/2 7:45am CT

New Chapter 11 Filing - Ciber Inc.

Ciber Inc.

• 4/10/17 Recap: Once publicly-traded Colorado-based IT staffing and consulting services company filed for bankruptcy to pursue a sale of its business to CapGemini S.A., as stalking horse bidder, for at least $50mm plus the assumption of certain liabilities. The sale is subject to a postpetition marketing process. Ciber lists Microsoft and Oracle as major corporate partners; it sells and supports both companies' product offerings. Ciber seems like the quintessential go-big-or-go-home kind of company. It fueled growth over the years with over 60 acquisitions at a cost of more than $1b, never fully integrating the new businesses. This failure to integrate led to some AWESOME results: like the time the company paid $14mm to European consultants for NEGATIVE PERFORMANCE. And we thought Wells Fargo had a monopoly on stupid bonus-based behavior. Speaking of Wells Fargo, it is the lender here and the straw that broke the camel's back was the company's inability to adhere to its Fixed Coverage Charge ratio, triggering a default under its asset-based loan. Now Wells Fargo is providing the DIP facility of $41mm to fund the cases which, by our simple mathematical calculations, amounts to $4.1mm per bankruptcy lawyer who has made a notice of appearance on behalf of the debtors already (see below).
• Jurisdiction: D. of Delaware
• Capital Structure: $60mm ABL (Wells Fargo Bank NA)     
• Company Professionals:
  • Legal: Morrison & Foerster LLP (Brett Miller, Dennis Jenkins, Daniel Harris, Benjamin Butterfield, Steve Rappoport, Todd Goren) & (local) Polsinelli PC (Christopher Ward, Justin Edelson, Jarrett Vine)
  • Financial Advisor/CRO: Alvarez & Marsal LLC (Jonathan Goulding, Matt Covington, Glenn Gilmour)
  • Investment Banker: Houlihan Lokey Capital Inc. (Adam Dunayer, Michael Boone)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition & DIP Lender: Wells Fargo Bank NA
    • Legal: Goldberg Kohn Ltd. (Jeremy Downs, Jacob Marshall)
  • Stalking Horse Bidder: CapGemini SA
    • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Mark McDermott, Raquelle Kaye)
  • Actual Buyer: HTC Global Ventures LLC
    • Legal: Plunkett Cooney PC (Scott Lites, David Lerner)
  • Official Committee of Unsecured Creditors
    • Legal: Perkins Coie LLP (John Penn, Schuyler Carroll, Tina Moos) & (local) Shaw Fishman Glantz & Towbin LLC (Thomas Horan)
    • Financial Advisor: BDO Consulting (David Berliner)
  • Ad Hoc Group of Non-Insider Employees
    • Legal: Blank Rome LLP (Josef Mintz, John Lucian)

Updated 5/21/17 

New Filing - Scout Media Holdings Inc.

Scout Media Holdings Inc.

• 12/8/16 Recap: Digital sports media company files a responsive chapter 11 to an earlier involuntary filing with an unsustainable balance sheet and various litigations listed as the causes. There's some juicy inferences here about the former CEO perhaps not adhering to his fiduciary duties as they relate to uses of liquidity. The filing supports attempts to sell the business and/or wind-down the business in an orderly manner with the support of a $6.2mm DIP Facility.
• Jurisdiction: D. of Delaware
• Capital Structure: $11mm first lien debt (Multiplier Capital LP), $11.6mm second lien secured bridge loans.     
• Company Professionals:
  • Legal: Womble Carlyle Sandridge & Rice LLP (Matthew Ward, Nicholas Verna, Morgan Patterson, Ericka Johnson)
  • Financial Advisor: Sherwood Partners Inc. (Andrew De Camara)
  • Claims Agent: Epiq Bankruptcy Solutions LLC
• Other Parties in Interest:
  • DIP & First Lien Lender: Multiplier Capital LP 
    • Legal: Levy Small & Lallas (Leo Plotkin) & Chipman Brown Cicero & Cole (William Chapman Jr.)
  • Official Committee of Unsecured Creditors
    • Legal: Kelley Drye & Warren LLP (James Carr, Jason Adams)
    • Financial Advisor: BDO Consulting LLP (Michelle Michaelis)

Updated 1/21/17.