New Chapter 11 Bankruptcy Filing - Golden Eagle Entertainment $ENT

Golden Eagle Entertainment

July 22, 2020

Suffice it to say, high correlation to the airline and cruiseline industries is a credit negative these days. A few months ago Speedcast — a provider of information technology services and (largely satellite-dependent) communications solutions (i.e., cybersecurity, content solutions, data and voice apps, IoT, network systems) to customers in the cruise, energy, government and commercial maritime businesses — discovered this the hard way and free fell into bankruptcy court. There’s still no resolution of that case. Similarly, Global Eagle Entertainment Inc. ($ENT), a business that generates revenue by (i) licensing and managing media and entertainment content and providing related services to customers in the airline, maritime and other “away-from-home” nontheatrical markets, and (ii) providing satellite-based Internet access and other connectivity solutions to airlines, cruise ships and other markets, couldn’t avoid trouble once COVID-19 shutdown its core end users. No monthly recurring revenue model can save a company when its clients are effectively closed for business AND there’s $855.6mm of funded debt to service. Not to state the obvious.

Things may get worse before they get better. The company’s largest customer is Southwest Airlines Co. ($LUV) (21% of overall revenue) and it has a pretty bearish take on …

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• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $85mm RCF, $503.3mm TL, $188.7mm second lien notes, $82.5mm unsecured convertible notes.

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Madeleine Parish, Ted Dillman, Helena Tseregounis, Nicholas Messana, Eric Leon) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond, Betsy Feldman)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Greenhill & Co. Inc.

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

• Other Parties in Interest:

  • Prepetition First Lien Admin Agent & DIP Agent: Citibank NA

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Bryan Podzius)

  • Ad Hoc DIP & First Lien Lender Group: Apollo Global Management, L.P., Eaton Vance Management, Arbour Lane Capital Management, Sound Point Capital Management, Carlyle Investment Management LLC, Mudrick Capital Management, BlackRock Financial Management, Inc.

    • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Michael Cohen, Jason Goldstein) & Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, TImothy Cairns)

  • Second Lien Agent: Cortland Capital Market Services LLC

  • Second Lien Noteholders: Searchlight Capital Partners LP

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Michael Turkel, Irene Blumberg, Elizabeth Sacksteder) & Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Southwest Airlines Inc.

    • Legal: Vinson & Elkins LLP (William Wallander, Paul Heath, Robert Kimball, Matthew Struble) & Saul Ewing Arnstein & Lehr LLP (Lucian Murley)

  • AT&T Corp.

    • Legal: Arnold & Porter Kaye Scholer LLP (Brian Lohan) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Brett Turlington)

  • Terry Steiner International

    • Legal: Loeb & Loeb LLP (Daniel Besikof, Geneva Shi)

  • Telesat International Limited

    • Legal: Hodgson Russ LLP (Garry Graber)

  • Nantahala Capital Management LLC

    • Legal: King & Spalding LLP (Arthur Steinberg, Scott Davidson) & The Rosner Law Group LLC (Frederick Rosner, Jason Gibson)

💊 New Chapter 11 Bankruptcy Filing - AAC Holdings Inc. ($AACH)💊

AAC Holdings Inc.

June 20, 2020

Tasteless joke alert: if there’s one thing that we would’ve thought would benefit from COVID it would be addiction. Our expenses are WAY DOWN across the board with one exception: alcohol.

We joke about it but the sad and honest truth is that there were a lot of people who likely needed help over the last several months that were unable to get it. Overdose deaths are spiking across the country. And so we hope that people are able to (safely) find answers/help now that things are finally opening back up across most of the country. Our tastelessness aside, it really isn’t a joking matter.

Unfortunately, American Addiction Centers ($AACH) has been kicking around the bankruptcy bin for a very long time now — long before COVID struck. Everyone knew a bankruptcy filing was coming. S&P Ratings has a “D” rating on this thing; Moody’s is rocking a Caa2. The first lien term loan due 2023 was, as of last week, just a hair over 41. Suffice it to say, all the signs were out there for the Tennessee-based inpatient and outpatient provider of substance abuse services.

And so AAC has finally met its fate. The company filed for chapter 11 in the District of Delaware in a rare Saturday night filing, listing $517.4mm of total debts against $449.4mm of total assets. That is textbook insolvency right there.

The company has a commitment of $62.5mm in DIP financing from its pre-petition lenders to fund the cases, operate in the ordinary course while in bankruptcy, and pursue a marketing process for the sale of its assets; it will use the bankruptcy process to de-lever its balance sheet; it notes that there’ll be no layoffs or facility closures as a result of the filing and that the company hopes to emerge from bankruptcy within 125 days. To this end, the company has an RSA with 89% of its first lien senior lenders and more than 50% of its junior lenders.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $47mm senior lien facility, $316.6mm junior lien facility

• Professionals:

  • Legal: Greenberg Traurig LLP (David Kurzweil, Alison Elko Franklin, Dennis Meloro) & Chipman Brown Cicero & Cole LLP

  • Directors: Scott Vogel, Michael Logan

  • Financial Advisor: Carl Marks Advisors (Jette Campbell)

  • Investment Banker: Cantor Fitzgerald

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

• Other Parties in Interest:

  • DIP & Pre-Petition Agent: Ankura Trust Company LLC

New Chapter 11 Bankruptcy Filing - PQ New York Inc. (a/k/a Le Pain Quotidien)

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)

🚘 New Chapter 11 Bankruptcy Filing - Advantage Holdco Inc. (a/k/a Advantage Rent-a-Car) 🚘

Advantage Holdco Inc.

May 26, 2020

Florida-based Advantage Holdco Inc. (along with six affiliates, the “debtors”) is the second car rental business to file for chapter 11 bankruptcy in the last week. The debtors list at least $500mm in liabilities against $100mm-$500mm in assets. Rut roh. They also noted that “[a]fter any administrative expenses are paid, no funds will be available to unsecured creditors.” RUT ROH.

Get ready for the “private equity bros destroyed car rental” argument: Catalyst Capital Group Inc., a Toronto-based private equity firm, owns, through affiliates, 100% of the debtors’ equity after purchasing assets (from The Hertz Corporation as luck would have it) out of the 2014 Simply Wheelz LLC d/b/a Advantage Rent-a-Car bankruptcy and merging it with a subsequent acquisition of E-Z Rent-a-Car in 2015. As powerful as private equity firms tend to be, however, they, despite what some might think, didn’t conspire to shutdown the global economy. By extension, they didn’t have any hand in the pandemic stopping nearly all air travel — affecting, in turn, businesses like Advantage that depend on customers coming in and out of airports (much like Hertz). Nor did they have any control over people deciding not to go visit Las Vegas, Nevada — perhaps one of the gnarliest cities in the world — where Advantage also happens to have certain hotel partnerships it leverages to rent cars to people who want to say…blow sh*t up in the desert. Shocking we know! PE doesn’t control G-d.

Unlike Hertz, Advantage tends to target the leisure-discount segment of the rental car sector. Similar to Hertz, though, it generates predominantly all of its revenue from vehicle rentals (from airports mostly), ancillary products like insurance and navigation services and the wholesale disposition of automobiles previously used in the rental fleet. Sound familiar? Only so much room for creativity in this business model, broheims.

In 2019, the debtors did ~$271.5mm in revenue with $165.1mm attributable to rental and $106.4mm to the other stuff we previously noted. Which just goes to show how much of a money maker that bullsh*t insurance you always debate is.

There’s more bankruptcy Inception at play here: The Hertz Corporation ($HTZ) once owned this company but divested it to avoid antitrust scrutiny. Earlier this week, HTZ filed for bankruptcy. Not it is also involved in this bankruptcy; it is the debtors’ 11th largest general unsecured creditor. Whoops.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $30.2mm unsecured loan (Aberdeen Standard Investments Inc.)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Norman Pernick, Patrick Reilley, J. Kate Stickles)

  • Financial Advisor: Mackinac Partners (Matthew Pascucci)

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

• Other Parties in Interest:

🚚 New Chapter 11 Filing - Comcar Industries Inc. 🚚

Comcar Industries Inc.

May 17, 2020

Florida-based Comcar Industries Inc. and 31 affiliates (the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware — the latest trucking company to end up in bankruptcy court (Callback to “🚛 Dump Trucks 🚛 ,” a PETITION deep dive into the industry which included a review of Celadon Group Inc.’s chapter 11 bankruptcy filing). Comcar is a holding company with four stand-alone trucking business units ((as well as (a) logistics services, (b) supplies, parts and repairs, and (c) fleet maintenance services)). Through the bankruptcy filing, the debtors intend to effectuate a sale of all four units.

Each unit services a different part of the trucking market:

• CCC Transportation LLC (“CCC”) is a bulk bulk carrier that primarily handles construction materials;

• CT Transportation LLC (“CT”) is a flatbed carrier that specializes in construction materials;

• CTL Transportation LLC (“CTL”) is a liquid bulk chemical transporter; and

• MCT Transportation LLC (“MTL”) is a refrigerated and dry van commodities transporter.

Formed in the 1950s, the debtors grew over the years in order to provide all of these offerings. To do so, they, naturally, took on debt. Funded debt stands at $64.8mm including an ABL, a term loan, and various real estate-backed loans. Servicing the debt has been a challenge going as far back as 2014.

Trucking industry struggles have compounded matters. Per the debtors:

The trucking industry has experienced significant headwinds starting in 2019. During the first half of 2019, the $800 billion American trucking industry began to experience a recession and a reported 640 trucking companies went bankrupt. By mid-2019, the trucking freight market continued to soften. The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates. Compared to the year immediately prior, 2019 showed a steady decline in freight rates, including spot freight rates and contractual rates.

Rates weren’t the only problem. Volumes also declined.

During 2019, truck volumes decreased for nine consecutive months and the trucking industry braced itself for a decrease in demand through the third quarter of 2020. As a result, spot and contract prices, which increased thirty percent (30%) in 2018, decreased twenty percent (20%) in 2019. The decrease in truckload linehaul rates was driven by (1) spot rates that were below contract rates by unsustainably larger margins than, (2) capacity additions and (3) stalled growth in the consumer and industrial economy.

All of this hit the the top and bottom lines. In 2019, the debtors suffered a 26% YOY revenue decrease across all units. CCC got hit the most, down 44.2%. CT got hit the least. Yet even that was down 19.7%. In total, the debtors lost $25mm in 2019 and $6mm through March 27, 2020.

Luckily, as with Celadon Group Inc. previously, there is a market for these trucks. The debtors have a buyer lined up for the CT and CTL businesses for $9mm and $8.6mm, respectively. Similarly, the debtors have a buyer for the MCT business. They would like to proceed with private sales of each of these businesses stating that “…the terms offered … are materially superior to the terms that the Debtors could hope to achieve at any auctions….” Pursuant to the proposed DIP, these sales need to be consummated by the end of July.

The debtors pre-petition ABL and Term Loan lenders (which includes an affiliate of PIMCO) have committed to funding a $15mm DIP — some of which will pay down pre-petition debt, some of which ($1.33mm) will roll-up pre-petition term loans, and the rest for liquidity to fund the cases.

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• Jurisdiction: D. of Delaware (Judge Dorsey)

  1. Capital Structure: $14mm ABL (Sterling National Bank), $25.3mm Term Loan (B2 FIE VIII LLC as lender, US Bank NA as agent), $6.2mm secured real estate loan (CenterState Bank NA), $7mm CWI Real Estate Loan (Commercial Warehousing Inc.),

  2. Professionals:

     • Legal: DLA Piper US LLP (Stuart Brown, Jamila Justine Willis, Tara Nair)

     • Independent Manager: Tobias Keller

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

     • Investment Banker: Bluejay Advisors LLC

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

  3. Other Parties in Interest:

     • Prepetition ABL Agent: Sterling National Bank

       • Legal: Greenberg Traurig LLP

     • Prepetition Term Loan Agent and DIP Agent: US Bank NA

       • Legal: Seward & Kissel LLP

     • Prepetition Term Loan Lender & DIP Lender: B2 FIE VIII LLC (Pimco)

       • Legal: Latham & Watkins LLP (Jason Bosworth)

🍎New Chapter 11 Bankruptcy Filing - Lucky's Market Parent Company LLC🍎

Lucky's Market Parent Company LLC

January 27, 2020

In Sunday’s Members’-only a$$-kicking briefing entitled “🔥Like No Other Newsletter🔥,” we took a deeeeeeeeep dive into the Fairway Group Holdings Corp. chapter 11 bankruptcy filing. We relegated to a mere footnote, the following:

*Two more local grocers to watch out for: Lucky’s Market (not PE-backed) and Earthfare (PE-backed). The former announced, on the heals of losing its sponsorship from Kroger Inc., that it would close 32 of 39 stores. The latter is quietly shuttering stores (e.g., Gainesville and Indianapolis). This is telling:

“Stern said Lucky's could potentially be acquired, but he said logical choices like Sprouts Farmers Market and The Fresh Market are also retrenching and not in expansion mode right now.”

The pain in grocery is pervasive.

Lucky’s Market Parent Company LLC be like:

And so the Colorado-based company and 21 affiliated entities filed for chapter 11 bankruptcy in the District of Delaware. Because, like, f*ck it: the pain in grocery IS pervasive so it might as well become a chapter 11 debtor like everyone else.

This one swims upstream. The debtors focus on affordable organic and locally-grown produce, naturally raised meats and seafood, and fresh daily prepared foods. Which, we thought, was supposed to be all the rage. “Organic for the 99%” was their mission. They even have private label goods. AND they have a millennial-pleasing “giving” element to their business: 10% of profits from private label sales are reinvested into the local communities they service. They have no unions. And they’re not even private equity owned!! Kroger Inc. ($KR) is the debtors’ secured lender and largest equity holder and, while obviously not PE bros, it seems that maybe(?) Kroger pushed the Colorado-based founders to grow too fast too soon?? In the midst of a number of grocery bankruptcies. In April 2016, they had 17 stores. The Kroger transaction took place at that time and then — BOOM! — a private equity growth mentality appears to have mysteriously overtaken the debtors. By the end of that year, the debtors’ footprint was up to 20 stores; by the end of 2017, it was 26 stores; 33 stores by the end of 2018; and 39 stores by the end of 2019. Florida was a primary focus.

The timing was pretty bad. Per the debtors:

…the Company’s expansion in Florida coincided with, among other things, increased competition in the grocery industry, including expansions from competing chains such as Sprouts Farmers Market, Fresh Thyme Farmers Market and Earth Fare. As a result, notwithstanding the growth in sales, the portfolio of Company stores was unable to achieve sustainable four-wall profitability.

Note the mention of Earth Fare ⬆️. Get ready for Dirty Dancing 2: Havana Nights gifs, people.

There’s more:

Most recently, fiscal year-to-date through January 4, 2020, the Company had approximately $22 million of store operating losses and approximately $100 million net loss. Additionally, fiscal year-to-date through the week ended January 18, 2020, the Company had a 10.6% reduction in comparable store sales versus the prior year-to-date period.

Suffice it to say, that growth strategy diiiiiiiidn’t work out so well.

And so now it’s all being unwound. The debtors began winding down 32 of their 39 stores pre-petition and, obviously, terminated plans for 19 leased but unopened locations.

Absent closure, the debtors note, they’d be on the hook for $30mm in operating losses for fiscal year ‘20. Now they’re selling furniture, fixtures and equipment from, and transferring leases of, 26 stores to third-party purchasers. They have an asset purchase agreement with Aldi for six FL locations while they continue to operate 7 locations while the marketing process progresses.

The debtors will use Kroger’s cash collateral to fund these cases.

• Jurisdiction: (Judge Dorsey)

• Capital Structure: $301.1mm secured loan (Kroger Inc.), $5.9mm New Markets Tax Credit Loan (BBIF Subsidiary CDE 3 LLC, guaranteed by Kroger Inc.)

• Professionals:

  • Legal: Polsinelli PC (Christopher Ward, Liz Boydston, Caryn Wang)

  • Financial Advisor: Alvarez & Marsal LLC

  • Investment Banker: Peter J. Solomon

  • Liquidation Consultant: Great American Global Partners LLC

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

  • Independent Director: William Transier

• Other Parties in Interest:

  • Large Equityholder (55%): Kroger Inc.

    • Legal: Weil Gotshal & Manges LLP (Garrett Fail, Moshe Fink) and Richards Layton & Finger PA (Zachary Shapiro, Brett Haywood)

😷New Chapter 11 Bankruptcy Filing - REVA Medical Inc.😷

REVA Medical Inc.

January 14, 2020

Take cover folks: it’s raining med device bankruptcies these days.

San Diego-based REVA Medical Inc. develops bioresorbable polymer technologies for coronary artery disease, peripheral artery disease and embolization therapy. If that sounds technical, you’re right: just like every other med device company that finds its way into bankruptcy. The details of the products go right over our heads but, fortunately, the general themes are the same as far less technical debtors. In a nutshell: the company’s products are highly capital intensive and require access to equity and debt markets.

And, indeed, REVA has accessed those markets. It was publicly-traded on an Australian exchange; it also raised tens of millions ($56.8mm to be exact) by way of convertible notes; and, finally, it had access to a senior secured credit facility that looks like a whole lot like bridge financing to a bankruptcy. Indeed, on January 9, just four days prior to filing, the debtor’s gained access to an additional $4.4mm from Goldman Sachs Specialty Lending Group, L.P. which perfectly teed up a cash collateral motion (which was granted the next day). With all of that debt and “relatively minimal sales,” the debtor “has not yet generated revenue at a level sufficient to support its cost structure.” (PETITION Note: we really hope that forthcoming med device AND biopharma debtors borrow this language because it’s likely universally applicable…they can save themselves the cost of 0.2 billable hours). Compounding matters was the maturity of its first issuance of converts, putting the debtor on the hook for $25.5mm. Ruh roh.

The debtor ran into other issues. For one, the debtor’s distributor, Abbott Laboratories ($ABT), withdrew one of the debtor’s products from the market (“Absorb”) after adverse events and poor clinical trial results. Score one for ethics! Thereafter, the European Society of Cardiology published new guidelines that basically napalmed the debtor’s Absorb saying that it’s not useful/effective and might actually be harmful. Whoops!

But there’s some good news here. The debtor has a deal. The deal will erase $90mm of debt with the senior secured lenders and the holders of convertible notes receiving new equity in the reorganized (read: post-bankruptcy) company. This product will live to see another day with the hope of a major course correction.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $9.7mm senior secured credit facility (Goldman Sachs International), $25mm '14 7.54% convertible notes (matured 11/14/19)(Goldman Sachs International, Senrigan Capital Group), $47.1mm ‘17 8% convertible notes (GSI, Senrigan, Medtronic, Inc., HEC Master Fund LP, J.P. Morgan Securities plc, TIGA Trading Pty Ltd, and Saints Capital Everest LP)

• Professionals:

  • Legal: DLA Piper LLP (Thomas Califano, Stuart Brown, Jamila Willis)

  • Financial Advisor: Ernst & Young LLP

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

• Other Parties in Interest:

  • 5%+ Equityholders: Senrigan Capital Group, Goldman Sachs International, Robert Stockman, Elliott Associates, L.P, Brookside/Bain, Capital Public Equity, Cerberus Capital Management, JP Morgan, Citicorp Nominees PTY Limited, JP Morgan Nominees Australia Pty Limited, HSBC Custody Nominees (Australia) Limited –GSCO, HSBC Custody Nominees (Australia) Limited

  • Senior Secured Agent: Goldman Sachs International

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Kevin Bostel) & Richards Layton & Finger PA (Paul Heath, Zachary Shapiro, Sarah Silveira)

  • Senior Secured Lenders: MS Pace LP, Senrigan Capital Group Limited

  • Elliott Management Corporation

    • Legal: Debevoise & Plimpton LLP (Jasmine Ball) & Ashby & Geddes PA (William Bowden)