💈New Chapter 11 Bankruptcy Filing - Creative Hairdressers Inc.💈

Creative Hairdressers Inc.

April 23, 2020

Creative Hairdressers Inc., otherwise known to many as “Hair Cuttery,” filed for bankruptcy earlier this week in the District of Maryland; it is an independent family-owned chain of hair salons with 800 locations across approximately 15 states; it was also a $40mm revenue business in fiscal year 2019 (ended September ‘19).

While its revenues are impressive, the company faced intensified competition in the industry that took a toll on operating performance. Accordingly, months prior to this filing, it reduced its footprint by closing underperforming stores, refocused services around hot areas (i.e., hair coloring) and changed its professional commission structure. These changes were beginning to have a positive impact. Nevertheless, the company tripped a covenant default with its secured lender which triggered a year-long sale process that ultimately proved unsuccessful. The company’s original founders, the Ratners, subsequently sank money into the business for working capital to keep the business afloat.

And then COVID-19 hit. Forced closures precipitated an immediate liquidity crisis and the company had no choice but to furlough its employees. Liquidity drained to near zero and the Ratners again stepped up with a $4mm pledge to the company’s pre-petition lenders, HC Salon Holdings Inc. Employees, however, were left hanging as liquidity proved insufficient to cover the last payroll prior to closure.

Speaking of stepping up, HC Salon Holdings Inc. has agreed to purchase substantially all of the company’s assets; it will assume liabilities, credit bid its debt, and pay cash amounts necessary to wind down the remainder of the business. HC Salon also committed to a $40.675mm DIP (which is primarily a roll-up … $5mm is new money) and agreed to the use of its cash collateral. An immediate use of these DIP proceeds would be to true-up the employees who were — due to the extenuating circumstances — shafted prior to the filing.

Three more things to note:

First, the company hopes to wrap up the sale by the end of May with the closing scheduled to be held at the Maryland offices of DLA Piper US LLP, counsel to the credit bidder. The company is actually based in Virginia, though its affiliate, Ratner Companies LLC, is Maryland-based. So, there’s nothing particularly shady about venue held in Maryland. This did make us wonder though: is there any chance that venue considerations will be somewhat influenced by COVID-19 and where states lift restrictions? We’re guessing generally ‘no’ because the law will dictate venue as usual but we could see instances on the margins where parties in interest consider alternative venues with the hope of getting parties together, getting due diligence done, and maximizing value. We’ll see.

And, second, the company is intends to use the latest bankruptcy technology: the “Mothball Motion" where it asks the bankruptcy court to use its wide discretionary authority under section 105 of the Bankruptcy Code to limit post-petition rent payments to landlords, adjourn non-essential motions, and more. This is the new IT thing in bankruptcy cases, people. Let’s see how long it lasts now that certain states are starting to loosen restrictions.

Finally, the company has already filed a motion seeking to reject 49 leases. Prior to filing, it obtained rent concessions for approximately 100 leases. The world of hurt that is about to shake out in commercial real estate is going to be interesting to watch.

• Jurisdiction: D. of Maryland (Judge Catliota)

• Capital Structure: $36.4mm (+ $4.1mm LOC)(HC Salon Holdings Inc.)

• Professionals:

  • Legal: Shapiro Sher Guinot & Sandler (Joel Sher, Richard Goldberg, Daniel Zeller, Anastasia McCusker)

  • Financial Advisor: Carl Marks Advisory Group LLC (Marc Pfefferle)

  • Real Estate Advisor: A&G Realty Partners LLC

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

• Other Parties in Interest:

  • Pre-Petition Lender & Stalking Horse Purchaser: HC Salon Holdings Inc.

    • Legal: DLA Piper US LLP (Richard Chesley, Jamila Justine Willis)

🤖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 - 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 Filing - SD Charlotte LLC🍔

SD Charlotte LLC

February 7, 2020

SD Charlotte LLC and four affiliates (the “debtors”) filed for bankruptcy on Friday in the Western District of North Carolina. While these are smaller cases than we typically cover here in PETITION, the filing is representative of continued distress in the restaurant space. Why? SD Charlotte LLC is the owner and operator of 73 Sonic Drive-In restaurants, an affiliate is the owner and operator of 14 MOD Pizza restaurants, and another affiliate is the owner and operator of three Fuzzy’s Taco Shop restaurants. In total, the debtors employ 1,900 people and have, as the above numbers might suggest, a large presence in the south east, predominantly in North Carolina.

It’s important to note that the debtors do not indicate that their filing is the result of the various factors we’ve seen in other restaurant filings, i.e., increasing wages, poor leases, VC-backed food delivery services, etc. We can assume, though, that given significant liquidity issues arising almost immediately after the principal franchised the restaurants, that some of these factors were in play. The main issue, however, was the debtors’ debt burden: the debtors appear to have taken on too much debt and expanded too quickly in a difficult environment for restaurants; they have $22.3mm of pre-petition secured debt — a figure that the debtors acknowledge, in their filing, exceeds the value of the debtors’ assets. Ruh roh. 😬

Liquidity has been an issue for the debtors from their inception in 2017. In late 2018, the debtors had to turn to “factors” for liquidity. What the bloody hell is a “factor”? Glad you asked…

A factoring counter-party offers upfront cash payments for future receivables. Said another way, a factor will pay a discounted cash price today and take on the risk of non-payment in exchange for greater cash payments in the near future. To protect, their interest in those future receivables, the factors should obtain a security interest in those receivables and take the proper steps to record those security interests.* The debtors entered into at least at least 10 such agreements in an attempt to stave off the inevitable.

While factoring can be a viable source of emergency liquidity for struggling companies, the terms can be highly punitive. Note:

…the Debtors sold no less than $7,988,325 of future accounts receivable to the MCA Parties in exchange for cash payments in an amount not less than $5,880,000, less fees and certain expenses. These records indicate that the MCA Parties purchased the Debtors’ future accounts receivable at significant discounts, charged high fees and had the ability to debit the Debtors’ deposit accounts directly. The depletion of the Debtors’ liquidity attributable to obligations under the MCA Agreements, coupled with the seasonal downturn in the Sonic Drive-In restaurants, left the Debtors’ cash flow position untenable.

Carry the one, add the two…yeah, that’s a pretty solid discount to par value: a bit over 25%. Think about that: the debtors’ need for liquidity was so dire that they agreed to give away approximately 25 cents on every dollar that would enter their accounts because they didn’t have the luxury of time to wait for those receivables to come in. Private equity firms and others are often dubbed “vultures” but factors have a very interesting role to play here too.

And so the debtors were so low on cash that they ultimately had to get a bridge loan from their franchisor, SRI Holding Company (Sonic). The bridge loan will rollup into a DIP credit facility agreement which, with the pre-petition secured lenders’ consent, will prime the pre-petition secured debt. The DIP credit facility will finance the debtors’ cases and give the debtors some breathing room to pursue a 363 asset sale that will clear out the pre-petition debt and eliminate any and all uncertainty relating to the factoring agreements.

One final point here: it is highly unlikely that a sale will generate enough proceeds to clear both the DIP credit facility and the pre-petition secured debt. This means that general unsecured creditors will get the royal effing. Given all of the pain in restaurant and grocery chains, this begs the question: how much supply chain pain is there out there right now? Food distributors? Packagers? We reckon quite a bit.

*Here there is some question as to whether certain of the factoring agreement counterparties filed UCC-1 financing statements which may put into dispute the validity of their said security interest in those receivables. Any official committee of unsecured creditors will take great interest in whether UCC-1s have been recorded though it likely won’t matter given the value of the assets and the likely superceding security interests held by the prepetition secured lender.

• Jurisdiction: W.D. of North Carolina (Judge Beyer)

• Capital Structure: $450k Bridge Loan (SRI Holding Company), $22.3mm (Bridge Funding Group Inc.)

• Professionals:

  • Legal: Moore Van Allen PLLC (Zachary Smith, Gabriel Mathless, Hillary Crabtree, Joanne Wu, James Langdon) & JD Thompson Law (Linda Simpson)

  • Independent Director: Finley Group (Matthew Smith)

  • Financial Advisor/CRO: Meru LLC (Brian Rosenthal, Alissia Bell)

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

• Other Parties in Interest:

  • DIP Lender: SRI Holding Company, SRI Operating Company, Sonic Franchising LLC and Sonic Industries LLC

    • Legal: DLA Piper US LLP (Daniel Simon, Davi Avraham) & Robinson Bradshaw & Hinson PA (David Schilli)

😷New Chapter 11 Filing - Tarrant County Senior Living Center Inc. 😷

Tarrant County Senior Living Center Inc.

November 5, 2019

Callback to earlier this year, in February, when we reported on the chapter 11 bankruptcy filing of SQLC Senior Living Center at Corpus Christi Inc. (d/b/a Mirador). Mirador — a Texas nonprofit — owned and operated a 228-unit CCRC, comprised of 125 independent living residences, 44 assisted living residences, 18 memory care residences, and 4 skilled nursing residences. It filed for bankruptcy because, among other things, it didn’t have the occupancy level — and, by extension, revenue — to satisfy its debts (owed to UMB Bank NA and others). The company used the bankruptcy process to effectuate a sale pursuant to Bankruptcy Code section 363.

We concluded our review of the situation as follows:

One last point here: considering that we now have two CCRC bankruptcies in the last two weeks and both are operated by SQLC, we’d be remiss if we didn’t highlight that SQLC also operates four other CCRCs: (a) Northwest Senior Housing Corporation d/b/a Edgemere; (b) Buckingham Senior Living Community, Inc. d/b/a The Buckingham; (c) Barton Creek Senior Living Center, Inc. d/b/a Querencia at Barton Creek; and (d) Tarrant County Senior Living Center, Inc. d/b/a The Stayton at Museum Way. With 33% of its CCRCs currently in BK, it seems that — for the restructuring professionals among you — these other SQLC facilities may be worth a quick look/inquiry.

You’re welcome. We called that from 9 months away.

Forth Worth Texas-based Tarrant County Senior Living Center Inc. filed a prepackaged bankruptcy case in the Northern District of Texas. The not-for-profit corporation has 188 independent living apartment-style residences, 42 residential-style assisted living suites, 20 memory support assist living suites and a skilled nursing facility with 46 beds. The facility is nearly completely occupied across the board with the weakest link being the independent living segment at 6.4% vacancy.

Pursuant to the Plan, only the holders of bond claims are impaired and entitled to vote. In other words, the bonds will take a haircut — and they’ve overwhelmingly voted in favor of said haircut — while general unsecured claimants and executory contract counter-parties ride through as if nothing even happened.

Nana won’t even notice this sucker filed for bankruptcy.

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

• Capital Structure:

• Professionals:

  • Legal: DLA Piper LLP (Thomas Califano, Rachel Nanes, Andrew Zollinger)

  • Financial Advisor/CRO: Ankura Consulting (Louis Robichaux)

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

• Other Parties in Interest:

  • UMB Bank NA

    • Legal: Mintz Levin Cohn Ferris Glovsky and Popeo PC (Daniel Bleck, Charles Azano)

🚁New Chapter 11 Bankruptcy Filing - PHI Inc.🚁

PHI Inc.

March 15, 2019

It’s pretty rare to see a company affected by macro factors in two industries. And, yet, Louisiana-based PHI Inc. ($PHI) and four affiliates filed for bankruptcy in the Northern District of Texas, marking the fourth bankruptcy fallout in the helicopter services space following Waypoint Leasing, Erickson Incorporated and CHC Group. The company is a leading provider of transportation services to both the oil and gas industry (including, for example, Shell Oil Company, BP America Production Company, ExxonMobil Production Co., ConocoPhillips Company, ENI Petroleum and the recently-bankrupt Fieldwood Energy) and the medical services industry. It operates 238 aircraft, 213 which are company-owned and 119 of which are dedicated to oil and gas operations and 111 of which are dedicated to medical services. The company generated $675mm in revenue in 2018 — with much of that revenue coming from fixed-term contracts.

The company strongly asserts that operational failures are not a cause of its bankruptcy — a clear cut message to the market which might otherwise be concerned about safety and reliability. The issue here, the company notes, is the balance sheet, especially a March 15 2019 maturity of the company’s $500mm in unsecured notes. Despite alleged efforts to address this maturity with the company’s (fresh out of the womb) secured term loan holder and an ad hoc group of unsecured noteholders, the company was unable to do so.

The broader issue, however, is that the industry may be ripe for consolidation. Back in 2017, the company acquired the offshore business of HNZ Group Inc. This transaction expanded the company’s capacity to more international geographies. But given the dearth of offshore oil and gas production activity of late and intense competition in the space, there might be a need for more industry-wide M&A. The company notes:

As a result of this prolonged cyclical downturn in the industry, oil and gas exploration projects have been reduced significantly by the Company’s customers. Indeed, many customers have significantly reduced the number of helicopters used for their operations and have utilized this time instead to drive major changes in their offshore businesses, which have in turn drastically reduced revenues to PHI’s O&G business segment in the Gulf of Mexico. And while the price of crude oil slowly began to recover in 2018, the volatility in the market continues to drive uncertainty and negatively impact the scope and volume of services requested from service providers such as PHI.

This is simple supply and demand:

The effect of the downturn in the oil and gas industry has been felt by nearly all companies in the helicopter service industry. The downturn created an oversaturation of helicopters in the market, significantly impacting service companies’ utilization and yields. Indeed, this domino effect on the industry has required helicopter operators, like their customers, to initiate their own cost-cutting measures, including reducing fleet size and requesting rental reductions on leased aircraft.

Had these issues been isolated to the oil and gas space, the company would not have been in as bad shape considering that 38% of its revenue is attributable to medical services. But that segment also experienced trouble on account of…:

…weather-related issues and delays, changes in labor costs, and an increase in patients covered by Medicare and Medicaid (as opposed to commercial insurers), which resulted in slower and reduced collections, given that reimbursement rates from public insurance are significantly lower than those from commercial insurers or self-pay.

Compounding matters are laws and regulations that prohibit the debtors from refusing service to patients who are unable to pay. This creates an inherently risky business model dynamic. And it hindered company efforts to sell the business line to pay down debt.

Taken together, these issues are challenging enough. Tack on $700mm of debt, the inability to refi out its maturity, AND the inability to corral lenders to agree on a consensual deleveraging (which included a failed tender offer) and you have yet another freefall helicopter bankruptcy. Now the company will leverage the bankruptcy “breathing spell” and lower voting thresholds provided by the Bankruptcy Code to come to an agreement with its lenders on a plan of reorganization.

*****

That is, if agreement can be had. Suffice it to say, things were far from consensual in the lead up to (and at) the first day hearing in the case. To point, the Delaware Trust Companyas trustee for the senior unsecured notes, filed an objection to the company’s CASH MANAGEMENT motion because…well…there is no DIP Motion to object to. “Why is that,” you ask? Good question…

The debtors levered up their balance sheet in the lead-up to PHI’s well-known maturity. The debtors replaced their ABL in September with the $130mm term loan provided by Al Gonsoulin, the company’s CEO, Board Chairman and controlling shareholder. Thereafter — and by “thereafter,” we mean TWO DAYS BEFORE THE BANKRUPTCY FILING — the company layered another $70mm of secured debt onto the company, encumbering previously unencumbered aircraft and granting Mr. Gonsoulin a second lien. This is some savage balance sheet wizardry that has the effect of (a) priming the unsecured creditors and likely meaningfully affecting their recoveries and (b) securing Mr. Gonsoulin’s future with the company (and economic upside). Making matters worse, the trustee argues that the company made no real effort to shop the financing nor actively engage with the ad hoc committee of noteholders on the terms of a financing or restructuring; it doesn’t dispute, however, that the company had $70mm of availability under its indenture.

So what happened next? Over the course of a two day hearing, witnesses offered testimony about the pre-petition negotiations and financing process (or lack thereof) — again, in the context of a cash management motion. We love when sh*t gets creative! The lawyers for the company and the trustee hurled accusations and threats, the CEO was called a “patriot” (how, even if true, that is applicable to this context is anyone’s guess), and, ultimately, the judge didn’t care one iota about any of the trustee’s witness testimony and blessed the debtors’ motion subject to the company providing the trustee with weekly financial reporting. In other words, while this routine first day hearing was anything but, the result was par for the course.

Expect more fireworks as the case proceeds. Prospective counsel to the eventual official committee of unsecured creditors is salivating as we speak.

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

• Capital Structure: $130mm ‘20 senior secured term loan (Thirty Two LLC), $70mm secured term loan (Blue Torch Capital LP), $500 million ‘19 unsecured 5.25% senior notes

• Professionals:

  • Legal: DLA Piper US LLP (Daniel Prieto, Thomas Califano, Daniel Simon, David Avraham, Tara Nair)

  • Legal (corporate): Jones Walker LLP

  • Financial Advisor: FTI Consulting Inc. (Robert Del Genio, Michael Healy)

  • Investment Banker: Houlihan Lokey Capital Inc.

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

• Other Parties in Interest:

  • Prepetition TL & DIP Lender: Blue Torch Capital LP

  • Ad Hoc Committee of unsecured noteholders & Delaware Trust Company as Trustee for Senior Notes

    • Legal: Milbank LLP (Andrew LeBlanc, Dennis Dunne, Samuel Khalil) & (local) Norton Rose Fulbright US LLP (Louis Strubeck Jr., Greg Wilkes)

    • Financial Advisor: PJT Partners LP (Michael Genereaux)

  • Indenture trustee under the 5.25% Senior Notes due 2019 (Delaware Trust Company)

  • Thirty Two LLC

  • Official Committee of Unsecured Creditors (Delaware Trust Company, Oaktree Capital Management LP, Q5-R5 Trading Ltd., Regions Equipment Finance Corp., Helicopter Support Inc.)

    • Legal:

  • Official Committee of Equity Security Holders

    • Legal: Levene Neale Bender Yoo & Brill LLP (David Golubnik, Eve Karasik) & (local) Gray Reed & McGraw LLP (Jason Brookner)

    • Financial Advisor: Imperial Capital LLC (David Burns)

New Chapter 11 Bankruptcy Filing - Consolidated Infrastructure Group Inc.

Consolidated Infrastructure Group Inc. 

January 30, 2019

Nebraska-based Consolidated Infrastructure Group Inc. filed for bankruptcy last week in the District of Delaware; it provides underground utility and damage prevention services to players in the underground construction, digging and maintenance space. It serves or served large telecom and utility companies, such as AT&T, Cox Communications, and Comcast. it also currently has contracts with the Northern Indiana Public Service Company, the City of Davenport in Iowa and with ONE Gas Inc. 

The company has little in the way of assets and liabilities. Relating to the former, the company has the above-noted contracts, a $3mm receivable from AT&T, some intellectual property and interests in insurance policies. Liabilities include two letters of credit, and a small unsecured advance by prepetition equityholder and now-postpetition DIP lender ($3mm), Parallel149, a private equity firm. 

The company has been embroiled in drama since its inception in 2016. It was formed by former employees of USIC LLC, a much-larger competitor, and the two have been locked up in litigation relating to, among other things, breach of contract (non-compete). 

The company filed for bankruptcy to pursue a going concern 363 sale and liquidating plan. It also hopes to recover the AT&T receivable. Finally, it also contends that a sale of the contracts would avoid a public safety crisis in the communities where the company's contracts are located. 

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $mm debt     

• Company Professionals:

  • Legal: Richards Layton & Finger PA (Daniel DeFranceshi, Russell Silberglied, Paul Heath, Zachary Shapiro)

  • Financial Advisor: Gavin/Solmonese LLC

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

• Other Parties in Interest:

  • Parallel149

    • Legal: DLA Piper LLP (Richard Chesley, Jade Williams, Jamila Justine Willis, R. Craig Martin, Maris Kandestin)

😷New Chapter 11 Bankruptcy Filing - Mayflower Communities Inc. (d/b/a The Barrington of Carmel)😷

Mayflower Communities Inc. (d/b/a The Barrington of Carmel)

January 30, 2019

Mayflower Communities, Inc. (d/b/a The Barrington of Carmel), a non-profit senior living retirement community of 271 units in the State of Indiana, filed for bankruptcy in the Northern District of Texas earlier this week. As a continuing care retirement community (“CCRC”), Barrington provides a battery of services to its residents ranging from recreational activities to assisted living, memory support, skilled nursing, and rehabilitation. Residents can get apartment homes on site.

The business model, however, is…well, interesting. Per the Company:

CCRCs, however, are often operationally and financially complex. More specifically, CCRCs can be challenging to operate because they require the maintenance of a broad range of services to seniors in varying stages of the aging process. Additionally, CCRCs require a steady flow of new residents in order to maintain day-to-day operations and to remain current on financial obligations, including, most importantly, obligations to current and former residents.

New residents = new revenue, which is also needed to meet debt obligations and comply with resident refund obligations.

Revenue comes from entrance fees ranging from approximately $316k to $650k, monthly serve fees from $2,800 to $7,600, and other per diem fees for skilled nursing, optional services fees and unit upgrade fees. In exchange, however, Barrington takes on a significant commitment. Per the company:

Unlike a pure rental retirement community, whereby a resident pays monthly fees for services (which fees may increase as the resident’s needs change), the Continuing Care Contract is a life care residency contract whereby a resident will pay an Entrance Fee and fixed monthly fees for Barrington’s commitment to provide life care services for the duration of the resident’s life, regardless of whether (i) the resident’s needs change over time which may require additional services to be provided by Barrington, or (ii) the costs of providing such services increase for Barrington. Significantly, Barrington’s commitment to provide life care services continue even if the resident’s financial condition deteriorates and is unable to continue to make its payments.

Non-profit, indeed. That sounds like a recipe for fiscal disaster.

The company reported $96.5mm in assets and $151.9mm in liabilities, including oversight fees owed to its management company, $52.4mm in resident refund obligations, $92.7mm (plus accrued interest) of long-term municipal bond obligations and $4.1mm of subordinated note obligations.

The aforementioned debt is a big problem. Compounding matters is the fact that the senior housing market in the geographic vicinity is “very competitive” which led to rental price and, by extension, margin, compression. Lower-than-projected revenues combined with the debt led to Barrington defaulting on its municipal bond obligations back in November. Consequently, the Bond Trustee commenced a receivership action. To forestall the Bond Trustee’s subsequent efforts to, among other things, displace the board and sole member, pursue a sale of the facility, and potentially reject continuing care contracts, the company filed for bankruptcy wherein it will leverage the “automatic stay” and “potentially pursue a sale of the Facility.”

• Jurisdiction: N.D. of Texas

• Company Professionals:

  • Legal: DLA Piper LLP (Thomas Califano, Rachel Nanes, Andrew Zollinger)

  • Financial Advisor/CRO: Ankura Consulting LLC (Louis Robichaux IV) & Larx Advisors Inc.

  • Investment Banker: Cushman & Wakefield U.S., Inc.

  • Claims Agent: Donlin Recano & Company (*click on company name above for free docket access)

• Other Parties in Interest:

😷New Chapter 11 Bankruptcy Filing - Promise Healthcare Group LLC😷

Promise Healthcare Group LLC

November 5, 2018

Most professionals predicted at the start of 2018 that healthcare would be an active industry for restructuring activity. Instead, there’s only been a few cases here and there — nothing to really stand out from the crowd in terms of volume. And, so just when we’re on the verge of declaring that prediction utterly and emphatically wrong, here is Promise Healthcare Group LLC and its affiliated debtors — another short-term and long-term acute care and nursing facility operator in bankruptcy court (with DLA Piper and FTI Consulting in tow, a seemingly regular occurrence these days in sizable healthcare matters).

Why is another large acute care operator in bankruptcy? The debtors blame the usual deplorables, i.e., reimbursement rate declines, capital-intensive and ultimately-abandoned new business projects, underperforming facilities, and an “unsustainable balance sheet.” Consequently, it undertook performance improvement measures, including the closure of two facilities and the sh*tcanning of 147 full-time equivalent employees. This, collectively, freed up a total of $13.5mm but vendors had begun squeezing the company in such a way that this amount, alone, wasn’t enough to cash flow to sustain the debtors.

The debtors intend to (i) sell non-core assets and real estate to payoff certain secured creditors (including one in Silver Lake, Los Angeles, to the L.A. Downtown Medical Center for $84.15mm) and (ii) otherwise market and sell substantially all of the rest of their assets or, if an equity sponsor emerges, restructure. They intend to do this within six months (anyone want to take the under?). The company has a $85mm DIP commitment ($20mm new money) to fund the process.

• Jurisdiction: D. of Delaware

• Capital Structure: $61.6mm Revolver, $15mm TL debt, $200mm intercompany debt (two loans)

• Company Professionals:

  • Legal: Waller Lansden Dortch & Davis LLP (John Tishler, Katie Stenberg, Blake Roth, Tyler Layne) & (local) DLA Piper LLP (Stuart Brown, Kaitlin MacKenzie Edelman, Erik Stier, Matthew Sarna)

  • CRO/Financial Advisor: FTI Consulting Inc. (Andrew Hinkelman, Jennifer Byrne, Chris Goff)

  • Investment Banker: Houlihan Lokey Capital Inc. (Andrew Turnbull, Matthew Ryan, Scott Kremeier, Moyo Mamora, Brian Marks, Marc Epstein, Conor Dorgan) and MTS Health Partners LP (Jay Shiland)

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

• Other Parties in Interest:

  • Prepetition Administrative Agent: Wells Fargo Bank NA

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

  • Healthcare Services Group Inc.

    • Legal: Stevens & Lee P.C. (Joseph Huston Jr., Evan Coren, Robert Lapowsky)

  • Stalking Horse Purchaser: Select Medical Corporation

    • Legal: Dechert LLP (Brian Greer, Stephen Leitzell, Jonathan Stott) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Sean Greecher)

  • Official Committee of Unsecured Creditors (HEB Ababa, Ronaldoe Guiterrez and Yolanda Penney, Cardinal Health, Wound Care Management LLC d/b/a MEDCENTRIS, Freedom Medical Inc., Morrison Management Specialists Inc., Efficient Management Resources Systems Inc., Surgical Program Development)

    • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy, Rachel Brennan) & (local) Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Alan Kornfeld, Bradford Sandler, Maxim Litvak, Colin Robinson)

    • Financial Advisor: Province Inc. (Edward Kim, Paul Huygens, Carol Cabello, Jorge Gonzalez, Carlos Lovera, Paul Navid)

Updated 3/9/18

New Chapter 11 Filing - The Bon-Ton Stores Inc.

The Bon-Ton Stores Inc.

• 2/4/18 Recap: See here. 
• Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $339mm Tranche A RCF (Bank of America), $150 Tranche A-1 Term Loan, $350mm second lien notes (Wells Fargo Bank NA)     
• Company Professionals:
  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Kelley Cornish, Elizabeth McColm, Claudia Tobler, Alexander Woolverton, Michael Colarossi, Diane Meyers, Moses Silverman) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Elizabeth Justison)
  • Financial Advisor: AlixPartners LLC (Holly Etlin, Carrianne Basler, Jim Guglielmo, John Creighton, Ben Chesters, Jamie Strohl, Mitch Chubinsky, Thomas Cole, Daniel Law) 
  • Investment Banker: PJT Partners LP (Steven Zelin, James Baird, Jon Walter, Vinit Kothary, Sartag Aujla)
  • Real Estate Advisor: A&G Realty Partners LLC
  • Intellectual Property Disposition Consultant: Hilco IP Services (David Peress)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Bank of America NA
    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Joiner) & Richards Layton & Finger PA (Mark Collins, Joseph Barsalona)
  • Second Lien Noteholders: Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; Cetus Capital LLC; Contrarian Capital Management LLC; and Wolverine Asset Management, LLC
    • Legal: Jones Day (Bruce Bennett, Joshua Mester, Sidney Levinson, Genna Ghaul, Charles Whittman-Todd) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
  • Official Committee of Unsecured Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Robert Feinstein, Bradford Sandler)
    • Financial Advisor: Zolfo Cooper LLC (David MacGreevey)
  • Prospective Buyer: DW Partners LP
    • Legal: DLA Piper LLP (Stuart Brown, R. Craig Martin, Jason Angelo, Richard Chesley, John Lyons, Oksana Rosaluk)

Updated 4/10/18