New Chapter 11 Bankruptcy Filing - Neiman Marcus Group LTD LLC

Neiman Marcus Group LTD LLC

May 7, 2020

Dallas-based Neiman Marcus Group LTD LLC, Bergdorf Goodman Inc. and 22 other debtors filed for chapter 11 bankruptcy in the Southern District of Texas late this week. If anyone is seeking an explanation as to why that may be outside the obvious pandemic-related narrative, look no farther than this monstrosity:

A quick reality check: that $5b capital structure isn’t attached to an international enterprise with hundreds or thousands of stores. You know, like Forever21. Rather, that horror show backs a 68 store business (43 Neiman Marcus, 2 Bergdorf, 22 Last Call). Ah….gotta love the good ol’ $5b leveraged buyout.

This case is all about “BIG.”

Big capital structure stemming from a big LBO by two big PE funds, Ares Capital Management and CPP Investment Board USRE Inc.

Big brands with big price tags. PETITION Note: top unsecured creditors include Chanel Inc., Gucci America, Dolce and Gabbana USA Inc., Stuart Weitzman Inc., Theory LLC, Christian Louboutin, Yves Saint Laurent America Inc., Burberry USA, and more. There is also a big amount allocated towards critical vendors: $42.5mm. Nobody messes with Gucci, folks. Here’s a live shot of a representative walking out of court confident that they’ll get their money:

Big fees. More on this below.

Big, complicated — and controversial — multi-year re-designation and asset stripping transactions that were part of the debtors’ (and now non-debtors’) elaborate strategy to restructure out-of-court by kicking the can down the road. This is undoubtedly going to stir a big fight in the case. More on this below too.

Big value destruction.

Here is what will happen to the pre-petition capital structure under the proposed term sheet and restructuring support agreement filed along with the chapter 11 papers — a deal that has the support of 78% of the term lenders, 78% of the debentures, 99% of the second lien notes, 70% of the third lien notes, and 100% of the private equity sponsors:

The Asset-Based Revolving Credit Facility and FILO Facility will get out at par. There’ll be a $750mm exit facility. Beyond that? All that red constitutes heaps and heaps of value that’s now essentially an option. It’s a bet that there is a place in the future for brick-and-mortar luxury department stores. Pursuant to the deal, the “Extended Term Loans” will get the lion’s share of equity (87.5%, subject to dilution). The rest of the capital structure will get small slivers of reorganized equity. General unsecured creditors will get “their pro rata share of a cash pool.” The private equity sponsors will get wiped out but for their hoped-for liability releases.

Back to those big fees. The biggest issue for this week was the debtors’ proposed $675mm new money DIP credit facility (that comes in junior to the existing ABL in priority…in other words, no roll-up here). The DIP is essentially 13% paper chock full of fees (including a backstop fee payable in “NewCo equity” at 30% discount to plan value). One disgruntled party, Mudrick Capital Management, a holder of $144mm of the term loan, appears to have beef with Pimco and other DIP backstop parties — saying that the backstop agreement is inappropriate and the DIP fees are outrageous, likening the fee grab to a COVID hoarding mentality — and therefore felt compelled to cross-examine the debtors’ banker as to the reasonableness of it all. If you’ve ever imagined a kid suing other kids for not picking him for their dodgeball team, it would look something like this did.

And so Lazard’s testimony basically boiled down to this:

“Uh, yeah, dude, nobody knows when the economy will fully open up. The company only has $100mm of cash on the petition date. And IT’S NOT OPERATING. That money is enough for maybe 3 weeks of cash burn given that the debtors intend to continue paying rent (unlike most other retailers that have filed for bankruptcy lately). Damn pesky high-end landlords. Anyway, so we’ll burn approximately $300mm between now and when stores are projected to reopen in July/August. No operating cash flow + meaningful cash burn = risky AF lending environment. It’s unprecedented to lend into a situation with a cash burn that, while it pales in comparison to something like Uber, is pretty damn extreme. Look at the J.Crew DIP: it ain’t exactly cheap to lend in this market. There are no unencumbered assets; there certainly isn’t a way to get junior financing. And a priming fight makes no sense here given the impossibility of showing an equity cushion. So stop being an entitled little brat. There’s no obligation on anyone to cut you into the deal. And if you’re going to cry over spilled milk, take up your beef with Pimco and f*ck right off. Alternatively, you can subscribe to your pro rata portion of the DIP and enjoy all of the fees other than the backstop fee.”

The Judge was convinced that the above rationale constituted good business judgment and approved the DIP on an interim basis.

The hearing also foreshadowed another contentious issue in the case: the myTheresa situation. See, the Debtors’ position is the following: “The ‘17 MyTheresa designation as unrestricted subs + the ‘18 distribution of the myTheresa operating companies to non-debtor Neiman Marcus Group Inc. (a/k/a the “asset stripping” transaction) + a ‘19 wholesale amend-and-extend + cost-saving initiatives + comparable same store sales growth for 7 of 10 quarters + “significantly expanded margins” during the holiday period = rocket ship future growth but for the damn pandemic. On the flip side, Marble Ridge Capital LP takes the position that:

…the Debtors’ financial troubles were entirely foreseeable well before recent events. The Company has operated at leverage multiples more than twice its peers since at least 2018 (prior to the fraudulent transfers described herein). And last year’s debt restructuring increased the Company’s already unsustainable annual interest expense by more than $100 million while only reducing the Company’s debt load by $250 million leaving a fraction of adjusted EBITDA for any capital expenditures, principal repayment, taxes or one-time charges. Sadly, the Debtors’ financial distress will come as no surprise to anyone.

This ain’t gonna be pretty. Marble Ridge has already had one suit for fraudulent transfer dismissed with prejudice at the pleading stage. Now there are defamation and other claims AGAINST Marble Ridge outstanding. And subsequent suits in the NY Supreme Court. Have no fear, though, folks. There are independent managers in the mix now to perform an “independent” investigation into these transactions.

The debtors intend to have a plan on file by early June with confirmation in September. Until then, pop your popcorn folks. You can socially distance AND watch these fireworks.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Anup Sathy, Chad Husnick, Matthew Fagen, Austin Klar, Gregory Hesse, Dan Latona, Gavin Campbell, Gary Kavarsky, Mark McKane, Jeffrey Goldfine, Josh Greenblatt, Maya Ben Meir) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • Independent Managers of NMG LTD LLC: Marc Beilinson, Scott Vogel

    • Legal: Willkie Farr & Gallagher LLP (Brian Lennon, Todd Cosenza, Jennifer Hardy, Joseph Davis, Alexander Cheney)

    • Financial Advisor: Alvarez & Marsal LLC (Dennis Stogsdill)

  • Independent Manager of Mariposa Intermediate Holdings LLC: Anthony Horton

    • Legal: Katten Muchin Rosenman LLP

  • Neiman Marcus Inc.

    • Legal: Latham & Watkins LLP (Jeffrey Bjork)

  • Financial Advisor/CRO: Berkeley Research Group LLC (Mark Weinstein, Kyle Richter, Marissa Light)

  • Investment Banker: Lazard Freres & Co. LLC (Tyler Cowan)

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

• Other Parties in Interest:

  • Pre-petition ABL Agent: Deutsche Bank AG New York Branch

    • Legal: White & Case LLP (Scott Greissman, Andrew Zatz, Rashida Adams) & Gray Reed & McGraw LLP (Jason Brookner, Paul Moak, Lydia Webb)

  • FILO Agent: TPG Specialty Lending Inc.

    • Schulte Roth & Zabel LLP (Adam Harris, Abbey Walsh, G. Scott Leonard) & Jones Walker LLP (Joseph Bain)

  • Pre-petition Term Loan Agent: Credit Suisse AG Cayman Islands Branch

    • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Christopher Kelly) & Haynes and Boone LLP (Charles Beckham, Martha Wyrick)

  • Second Lien Note Agent: Ankura Trust Company LLC

  • Third Lien Note Agent: Wilmington Trust NA

  • Unsecured Notes Indenture Trustee: UMB Bank NA

    • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannal, Rachael Ringer)

  • 2028 Debentures Agent: Wilmington Savings Fund Society FSB

  • Ad Hoc Term Loan Lender Group (Davidson Kempner Capital Management LP, Pacific Investment Management Company LLC, Sixth Street Partners LLC)

    • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus) & Vinson & Elkins LLP (Harry Perrin, Kiran Vakamudi, Paul Heath, Matthew Moran, Katherine Drell Grissel)

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Secured Noteholder Committee

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Claudia Tobler, Diane Meyers, Neal Donnelly, Patricia Walsh, Jeffrey Recher) & Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Large Creditor: Chanel Inc.

    • Legal: Sheppard Mullin Richter & Hampton LLP (Justin Bernbrock, Michael Driscoll)

  • Large Creditor: Louis Vuitton USA Inc.

    • Legal: Barack Ferrazzano Kirschbaum & Nagelberg LLP (Nathan Rugg)

  • Large Creditor: Moncler USA Inc.

    • Legal: Morrison Cohen LLP (Joseph Moldovan, David Kozlowski)

  • Marble Ridge Capital LP & Marble Ridge Master Fund LP

    • Legal: Brown Rudnick LLP (Edward Weisfelner, Sigmund Wissner-Gross, Jessica Meyers, Uchechi Egeonuigwe)

  • Mudrick Capital Management LP

    • Legal: Gibson Dunn & Crutcher LLP (Michael Rosenthal, Mitchell Karlan, David Feldman, Keith Martorana, Jonathan Fortney)

  • Sponsor: CPP Investment Board USRE Inc.

    • Legal: Debevoise & Plimpton LLP (Jasmine Ball, Erica Weisgerber) & Pillsbury Winthrop Shaw Pittman LLP (Hugh Ray, William Hotze, Jason Sharp)

  • Sponsor: Ares Capital Management

    • Legal: Milbank LLP (Dennis Dunne, Thomas Kreller)

  • Official Committee of Unsecured Creditors

    • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski) & Cole Schotz PC (Daniel Rosenberg)

    • Financial Advisor: M-III Advisory Partners LP (Mohsin Meghji)

    • Valuation Expert: The Michel-Shaked Group (Israel Shaked)

🥛New Chapter 11 Filing - Southern Foods Group LLC (d/b/a Dean Foods Company)🥛

Southern Foods Group LLC (d/b/a Dean Foods Company)

November 12, 2019

In one corner: innovation. In the other corner: disruption. Dean Foods Co. $DF, the largest US supplier of milk, is struggling as a result. From back in March: https://t.co/Rk8xRVdW86 (paywall) https://t.co/TNpq1s4rzc

— 💥PETITION💥 (@petition) May 21, 2019

We’ve published these charts before here but they’re worth revisiting:

Since we’re all about the charts right now, here’s another one — perhaps the ugliest of them all:

Yup, Southern Foods Group LLC (d/b/a Dean Foods Company) has been a slow-moving train wreck for some time now. In fact, we wrote about the disruption it confronts back in March. It’s worth revisiting (we removed the paywall).

Alas, the company and a long list of subsidiaries finally filed for bankruptcy yesterday in the Texas (where things seem to be getting VERRRRRY VERRRRRY busy these days; see below ⬇️).

Once upon a time everyone had milk. Serena and Venus Williams. Dwight Howard. Mark McGuire. Tyra Banks. The Olsen twins. David Beckham. Giselle. The “Got Milk? campaign was pervasive, featuring A-listers encouraging folks to drink milk for strong bones. Things have certainly changed.

Dean Foods’ long history begins in 1925; it manufactures, markets and distributes branded and private label dairy products including milks, ice cream, creamers, etc. It distributes product to schools, QSRs like McDonald’s Inc. ($MCD), small format retailers (i.e., dollar stores and pharmacies), big box retailers like Walmart Inc. ($WMT)(which accounted for 15.3% of net sales in ‘18), and the government. Its products include, among many others, Friendly’s, Land O Lakes and Organic Valley. This company is a monster: it has 58 manufacturing facilities in 29 states, 5000 refrigerated trucks and 15,000 employees (40% of whom are covered by collective bargaining agreements). Milk, while on the decline, remains big business.

How big? Per the company:

In 2018, Dean Foods’ reported consolidated net sales of $7.755 billion, gross profit of $1.655 billion, and operating income of $(315.2) million. Through the first 6 months of 2019, Dean Foods’ reported consolidated net sales of $3.931 billion, gross profit of $753.2 million, and operating income of $(96.2) million.

Those are some serious sales. And losses. And the company also has a serious capital structure:

Milk production is a capital intensive business requiring a variety of inputs: raw milk, resin to make plastic bottles (which likely infuse all of us with dangerous chemicals, but whatevs), diesel fuel, and juice concentrates and sweeteners. Hence, high debt. So, to summarize: high costs, low(er) demand, lots of debt? No wonder this thing is in trouble.

What are the stated reasons for the company’s chapter 11 filing?

• Milk Consumption Declines. “For the past 10 years, demand has fallen approximately 2% year-over-year in North America.” This is consistent with the chart above.

• Loss of Pricing Power. Because volumes declined, economies of scale also decreased. “Delivered cost per gallon rose approximately 20.7% between 2018 and 2013 as a result of volume deleverage.” That’s vicious. Talk about a mean spiral: as volumes went down, the company couldn’t support the input volumes it had previously and therefore lost pricing power. “Dean Foods suffered a full year 2018 year-over-year decline in fluid milk volume of 5.8% following a 2017 year-over-year decline of 4.2%. Moreover, Dean Foods’ volume declines continue to outpace the overall category; while category volumes declined by approximately 4%8 year-over-year through the end of September, 2019, Dean Foods experience declines of over 11.4%.” Apparently, this impacted Dean Foods disproportionately. Any buyer looking at this has to wonder how these issues can be remedied.

• Market Share Disruption. New forms of “milk” have taken market share. “Sales of nut and plant beverages grew by 9% in 2018 and had sales of $1.6 billion, according to the Plant Based Foods Association.”

• Retail Consolidation. It doesn’t help when, say, Dollar General merges with Family Dollar. That gives the dollar stores increased leverage on price. And that’s just one example.

• “The BigBox Effect.” The biggest retailers have become increasingly private label focused and, in turn, vertically integrated. Take Walmart, for example. In 2018, the retailer opened its first U.S. food production facility in Indiana. Want to guess what kind of food? Why would we be mentioning it? This new facility amounted to a 100mm gallon loss of volume to Dean Foods.

• “The Loss Leader Effect.” We often talk about the venture-backed subsidization of commonplace lifestyle items, e.g., Uber Inc. ($UBER). Retailers have, in recent years, aggressively priced private label milk to drive foot traffic. “As retailers continue to invest in private-label milk to drive foot traffic, private label margin over milk contracted to a historic low of $1.26 in June, before falling even further to $1.24 in September.”

• Freight Costs. They’ve been up over the last few years. This is a different version of
  ”The Amazon Effect” ($AMZN).

All of these are secular issues that a balance sheet solution won’t remedy. Buyer beware. 😬🤔

So, what CAN the bankruptcy achieve? Yes, the obvious: the balance sheet. Also, there is a contingent liability of over $722.4mm that results from the company’s participation in an underfunded multi-employer pension plan. And liquidity: the bankruptcy will avail the company of a $850mm DIP credit facility. It may also allow the company to pursue a sale transaction to its long-time commercial partner and largest single raw milk vendor, Dairy Farmers of America (which is wed $172.9mm). Surely they must be aware of the secular trends and will price any offer accordingly, right? RIGHT? Either way, those ‘23 notes look like they might be about to take a bath.*

*Likewise certain trade creditors. The debtors state that that they have $555.7mm of total outstanding accounts payable and claim $257mm needs to go to critical vendors and another $189.2mm to 503(b)(9) admin claimants. That leaves a small subset of creditors due a bit more than $100mm holding the bag. This also explains the sizable DIP.

Meanwhile, one of the largest unsecured creditors is Acosta Inc., with a contingent, disputed and unliquidated claim arising out of litigation. Acosta is unlikely to recover much on this claim which is a bit ironic considering that an Acosta bankruptcy filing is imminent. Womp womp.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: see above

• Professionals:

  • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Steven Szanzer, Daniel Meyer, Nate Sokol, Alexander Bernstein, Charlotte Savino, Cameron Adamson) & Norton Rose Fulbright LLP (William Greendyke, Jason Boland, Bob Bruner, Julie Goodrich Harrison)

  • Financial Advisor: Alvarez & Marsal LLC (Jeffrey Stegenga, Brian Fox, Tom Behnke, Taylor Atwood)

  • Investment Banker: Evercore Group LLC (Bo Yi)

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

• Other Parties in Interest:

  • Receivables Securitization Agent, RCF Agent & DIP Agent: Rabobank USA

    • Legal: White & Case LLP (Scott Greissman, Philip Abelson, Elizabeth Fuld, Rashida Adams, Andrew Zatz) & Gray Reed & McGraw LLP (Jason Brookner, Lydia Webb, Amber Carson)

  • Unsecured Bond Indenture Trustee: Bank of New York Mellon NA

    • Legal: Emmett Marvin & Martin LLP (Thomas Pitta, Edward Zujkowski, Elizabeth Taraila)

  • Ad Hoc Group of 6.5% ‘23 Unsecured Noteholders: Ascribe III Investments LLC, Broadbill Investment Partners LLC, Ensign Peak Advisors Inc., Kingsferry Capital LLC, Knighthead Capital Management LLC, MILFAM Investments LLC

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Robert Britton, Douglas Keeton, Grace Hotz) & Pillsbury Winthrop LLP (Hugh Ray III, William Hotze, Jason Sharp)

  • Official Committee of Unsecured Creditors: Central States Southeast and Southwest Areas Pension Fund, The Bank of New York Mellon Trust Company NA, Pension Benefit Guaranty Corporation, Land O’ Lakes Inc., California Dairies Inc., Consolidated Container Company LP, Select Milk Producers Inc.

    • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Meredith Lahaie, Martin Brimmage, Joanna Newdeck, Julie Thompson, Patrick Chen, Madison Gardiner)

    • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns)

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

Update 1/11/20

⛽️New Chapter 22 Filing - Hilltop Energy LLC⛽️

Hilltop Energy LLC

May 16, 2019

Hilltop Energy LLC, a Dallas-based E&P company with assets in Texas, has filed for bankruptcy in the District of Delaware, its second bankruptcy in four years. The company also filed its wholly-owned subsidiary, Hilltop Asset LLC (together, the “Debtors”).

The company’s predecessor, Cubic Energy Inc., filed for bankruptcy in late 2015, confirmed a prepackaged plan of reorganization in February 2016 and never emerged from bankruptcy (due to an ongoing adversary proceeding involving the chapter 11 debtors’ CEO and prior operator). Nevertheless, pursuant to the confirmed plan, secured noteholders swapped their notes for membership interests in the reorganized Cubic Energy and 14% first priority senior secured takeback paper due 2021. This is how these chapter 22 Debtors came to be owned by Anchorage Capital Group LLC and Corbin Opportunity Fund LP. General unsecured creditors and equity otherwise got wiped out.

This is the company’s capital structure:

• $5mm Superpriority Notes + $30mm 14% First Priority Senior Secured Notes

• $$18.5mm Superpriority PIK Notes + First Priority PIK Notes

Why is the company in bankruptcy? Let’s break this down into its component parts:

The Company has been cash flow negative every year since its formation following the chapter 11 cases of Cubic and its affiliates, as the revenue generated by producing wells is not sufficient to cover operating expenses and "workover" expenses, which is maintenance capex to keep the wells flowing.

Ugh. Here we go again. Flashback to the finding in this Delaware order from February 2016:

“The valuation analysis contained in the Disclosure Statement (x) is reasonable, persuasive, credible, and accurate as of the date such analysis or evidence was prepared, presented, or proffered, (y) utilizes reasonable and appropriate methodologies and assumptions and (z) has not been controverted by other evidence.”

Source: Cubic Energy Disclosure Statement

Ok, sure. The court finding may have been right — “as of the date.” But the assumptions proved to be dramatically askew. Take, for instance, the workover expense line-item. The company indicates an aggregate $600k hit there. What does the company have to say about this now?

Although production declines are expected in the oil and gas industry, the Debtors have faced several unanticipated challenges since emerging from the Cubic Chapter 11 Cases. Since emergence, over 20% of the Debtors’ producing gas wells have stopped producing due to downhole operational and/or technical issues. During this same time period, the Debtors also invested in production uplift projects—including an estimated $4 million on workover and/or recompletion projects for three wells—but the efforts to increase production from those wells were unsuccessful. The effects of these production problems on the Debtors’ revenue have been compounded by the weak natural gas market over the past few years.

That’s quite a miss. But it’s not the only one. Significantly, the company also notes:

The Debtors’ gross production has declined from approximately 10.5 million cubic feet per day ("mmcfd"), in March 2016 to roughly 5.0 mmcfd as of the date hereof. (emphasis added)

That is what it is but it begs the question: out of whose a$$ did the company pull the assumptions behind the company’s chapter 11 projections? Per the Disclosure Statement:

Daily Production of natural gas is forecast based upon anticipated January 2016 daily production of 15,500 mcf per day and calculated on a 1% month-over-month decline curve on existing drilled and producing wells.

So, uh, we’re not math experts, but a 1% decline month-over-month doesn’t get you to 10.5 mcf per day A MERE TWO MONTHS LATER. Which begs the question: were the projections actually accurate and credible “as of the date”? This certainly seems to indicate otherwise.

Consequently, the Debtors saw an impending maturity and were like, “oh sh*t”:

Although the Debtors have been able to service their debt obligations (primarily by paying interest in the form of additional notes), over time, the yield of the Debtors' producing oil and gas wells has been and may continue to be in constant decline.

This is top notch spin. Yeah, sure, we suppose issuing PIK debt is a form of debt “service” but c’mon. Really??

Consequently, the Debtors anticipate that they will generate less revenue and cash flow and, ultimately, be unable to satisfy their debt obligations before or at maturity.

Which is in 2021. So, here we are again: cue up the CHAPTER 22!!

The prepackaged plan will give 100% of the membership interests in the reorganized debtors and $1.47mm of cash to its senior secured noteholder, eliminating the $53mm of debt. The Debtors’ prepetition operator, Rivershore, will get 55% of the equity in the Hilltop Asset.

And we’re all left to wonder whether this is just a chapter 33 waiting in the wings. According to the new projections, that’s entirely up to Rivershore’s willingness to make an equity contribution in 2021:

Source: Chapter 22 Disclosure Statement

• Jurisdiction: D of Delaware (Judge Sontchi)

• Capital Structure: $5mm superpriority senior secured notes, $30mm first priority senior secured notes, PIK notes (Wilmington Trust Company NA).

• Professionals:

  • Legal: Cole Schotz PC (Norman Pernick, J. Kate Stickles, Katherine Monica Devanney)

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

• Other Parties in Interest:

  • Senior Secured Noteholder: J.P. Morgan Securities LLC and Lender: Chase Lincoln First Commercial Corporation

    • Legal: Landis Rath & Cobb LLP (Adam Landis, Richard Cobb, Holly Smith)

  • Company Operator: Rivershore Operating LLC

    • Legal: Gray Reed & McGraw LLP (Jason Brookner, Ryan Sears)
      
      
      

New Chapter 11 Bankruptcy - Vasari LLC (d/b/a Dairy Queen)

Vasari LLC

• 10/30/17 Recap: Texas-based large franchise operator of Dairy Queen brand restaurants operating approximately 70 locations across Texas, Oklahoma and New Mexico filed for bankruptcy. Burdened under the weight of its debt, its lease obligations, and franchise fees, the company struggled to generate revenue to offset its obligations. Why? Well, somewhat surprisingly, the company doesn't immediately dive into the "restaurant excuse bin" (air-quotes) with hackneyed narratives like "bad weather," "experiential desires" and "millennials don't SNAP upside-down frozen treats." Rather, the company notes, "[t]he difficulties faced by the Debtor can largely be traded to the much publicized decline in oil prices. The decline in oil prices has severely impacted the job market for oil related jobs in regions of west Texas and east Oklahoma and has thus resulted in cross-industry declines in revenues in areas heavily dependent on oil related jobs." The company continues, "Since bouncing from a 12 year low, oil prices have begun to rebound; however, oil-related jobs have not. Without oil-related jobs, certain DQ locations will likely continue to underperform, causing a drain on the Debtor's resources." Hurricane Harvey was the cherry on top, disrupting operations in 17 locations. Now, the company intends to use bankruptcy to continue to evaluate its store footprint, shed some stores, and pursue a sale of the remaining locations. 
• Jurisdiction: N.D. of Texas (Judge Mullin)
• Capital Structure: $10.8mm debt (Cadence Bank NA), $777k PIK subordinated promissory note.    
• Company Professionals:
  • Legal: Husch Blackwell LLP (Vickie Driver, Christina Stephenson, Ryan Burgett, Alexander Terras)
  • Financial Advisor: Mastodon
  • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition/DIP Lender: Cadence Bank NA
    • Legal: Morris Manning & Martin LLP (Frank DeBorde, David Mayo) & (local) Gardere Wynne Sewell LLP (Holland O'Neil, Jason Binford)  
  • Official Committee of Unsecured Creditors
    • Legal: Gray Reed & McGraw LLP (Jason Brookner, Michael Bishop, Lydia Webb)

Updated 11/17/17