📺New Chapter 11 Bankruptcy Filing - MobiTV Inc.📺

MobiTV Inc.

On Monday, Emeryville, California-based MobiTV, Inc. and an affiliated debtor filed for chapter 11 bankruptcy in the District of Delaware. MobiTV is “a creative thinking technology company making TV better.” Which is funny because we’re willing to bet that literally nobody thinks about MobiTV when they think about whether they enjoy their television-watching user experience. Anyway, what that actually means is MobiTV sells a white-label software application to cable providers that allows consumers to stream programming on (i) streaming devices like Roku, Apple TV, Amazon Fire TV, XBox or (ii) a smart TV, without the need for a set-top cable box. Key customers include T-Mobile USA Inc. ($TMUS) and over 120 cable/broadband television providers to deliver content to over 300k end user subscribers. In other words, if you’re streaming HBO via T-Mobile, your experience may very well be powered by MobiTV.

MobiTV has been around since 2000 and had gone through several shifts in its fortunes and business model. In 2020, MobiTV generated $13M in revenue with an operating loss of approximately $34M. That is a long fall from grace for a company that filed for an IPO in 2011 with reported 2010 sales of $67M. At the time, MobiTV was entirely focused on providing licensed TV programming to the personal devices of customers on wireless networks with AT&T Inc. ($T), Sprint, and T-Mobile accounting for almost all of the company’s revenues. MobiTV had raised over $110M from investors like Menlo Ventures, Redpoint Ventures, Adobe Ventures, and Hearst Ventures.

But despite its rosy trajectory, MobiTV withdrew its IPO filing a few months later citing unfavorable market conditions. In hindsight, there were obviously deeper problems with the business model. Broadcast TV viewing on mobile devices failed to take off in the way the company predicted and MobiTV pivoted away from serving wireless carriers.

Its new target customer was midsize cable providers. Set-top boxes have long been at the center of consumers interactions with cable providers. But these boxes have plenty of drawbacks:

Pay-TV providers (and their consumers) are looking for a way beyond set-top boxes, which can be expensive for consumers to buy, costly to maintain for the pay-TV providers and often limited in their functionality. Their clunkiness, in fact, has made them ripe for disruption, and many now opt for lighter options like Fire TV or Apple TV to bypass those services altogether. In other words, pay-TV providers need to find other routes to providing services to customers that can compete better with the newer generation of video services. (emphasis added)

MobiTV saw the shift towards streaming devices and smart TVs and aimed to position itself as a “television as a service provider” to midsized cable providers like C Spire, DirectLink, and Citizens Fiber. These companies lack the R&D budgets of the likes of Comcast Corporation ($CMCSA) to invest in user interface and software applications in their set-top boxes. In 2017, MobiTV raised $21M from Oak Investment Partners and Ally Bank ($ALLY) (at a reported ~$400M valuation!) to develop its MobiTV ConnectTM Platform, “a product for pay TV and on-demand TV providers to stream broadcast TV and offer other services, like catch-up and recording, without the need of a set-top box.”

The idea was to capture some of the “customer ownership” that was slipping from cable set-top boxes to streaming devices and services. In 2019, MobiTV raised $50M more from Oak Investment Partners and Ally Bank as well as Cedar Grove Partners to fund further growth. At the time, MobiTV had about 90 cable providers signed up as customers.

Middlemen can make good money and at first glance it seemed like MobiTV might have been able to carve out a position for itself. MobiTV offered cable providers a small way to stem the tide of cord cutting and the proliferation of streaming services like HBO Max, Netflix Inc ($NFLX), Hulu, and the rest. As TechCrunch laid out, “The pitch that MobiTV makes to pay TV providers goes something like this:”

…set-top-box-free pay TV services gives operators a wider array of channels and potentially more flexibility in how they are provisioned. At the same time, a solution like MobiTV’s potentially lowers the total cost of ownership for providers by removing the need for the set-top boxes.

That’s not to say that some of its customers are not using both, though: they can provide a certain set of channels directly through boxes, and the MobiTV service gives them the option of having another set that are offered on top of that.

By 2020, MobiTV’s customer base had grown to about 120 midsize cable TV operators as well as legacy T-Mobile customers. Revenue was growing and its subscribers and customers bases were both increasing. So what the hell happened here? 🤔

An agnostic software solution for cable providers to capture some of the shift towards streaming? Coupled with more people stuck at home from a pandemic? If this product were ever going to work, one would think it would have been during the last year. From the First Day Declaration:

That’s the entirety of section D. Maybe we are dense but it would be interesting to know what exactly about the COVID-19 pandemic and related stay-at-home orders materially impaired the Company’s growth opportunities. Seems like that should have been good for business, no?

But we can speculate.

As every content provider has rolled out their own streaming service over the last twelve months, MobiTV was probably in the worst position in the entire television streaming value chain. On the supply side, content providers are focused on promoting their own streaming services and have little reason to give any sort of pricing concessions to a niche service provider like MobiTV. This surely kept MobiTV’s licensing costs at an elevated level.

On the demand side, consumers likely were not calling in to their cable providers demanding MobiTV considering they could get the same content with a $30 Roku, their streaming subscriptions, and their broadband bill. Cable providers apparently were willing to pay for the service, but not enough to keep the company from losing money.

After 20 years of trying to figure out what its business model was, MobiTV finally threw in the towel and management took COVID cover.

The “tell” that the business issues were more elemental than COVID? The fact that the company has been operating under a series of 17 amendments and forbearance agreements.

At the time of its Ch. 11 filing, MobiTV had ~$25M of debt obligations, owed entirely to its sole pre-petition secured lender, Ally Bank.

In 2017 Ally Bank provided MobiTV a $10M term loan as well as a $5M revolving credit facility which was fully drawn. The original maturity of these loans was February 3, 2019, but following the aforementioned amendments and forbearance agreements, the maturity date was pushed back to January 2021. To fund the business in the interim, Oak Investment Partners threw good money after bad, underwriting three Subordinated Convertible Promissory Notes on August 6, 2020 ($4mm); December 14, 2020 ($1mm); and December 30, 2020 ($0.3mm). As a condition to one of Ally Bank’s credit amendments, MobiTV engaged FTI Capital Advisors LLC to evaluate strategic alternatives. A subsequent marketing effort came up empty: the “alternatives” were non-existent.

Consequently, on January 29, 2021, MobiTV and Ally Bank entered into another amendment and forbearance. T-Mobile — the customer most reliant upon the MobiTV’s services — provided $2.5mm in bridge financing lest they upset thousands of customers right around Super Bowl time. On February 12, 2021, T-Mobile agreed to provide an additional ~$2.3mm and Ally Bank agreed to forbear until February 26, 2021.

Following negotiations with Ally Bank and T-Mobile, the interested parties concluded that a sale process should be implemented through the filing of chapter 11. An affiliate of T-Mobile, TVN Ventures, LLC, has committed to a $15mm DIP credit facility (12%), junior to the pre-existing pre-petition Ally Bank position. As of this writing, management is still seeking a stalking horse bidder to backstop the sale process.

At $13mm of revenue with an operating loss that high, there’s a very good chance that T-Mobile knows it’s buying this thing with that DIP commitment.

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Date: March 1, 2021

Jurisdiction: D. of Delaware (Judge Silverstein)

Capital Structure: $25mm funded debt

Company Professionals:

• Legal: Pachulski Stang Ziehl & Jones LLP (Debra Grassgreen, Mary Caloway, Maxim Litvak, Nina Hong, Jason Rosell)

• Financial Advisor: FTI Consulting Inc. (Chris LeWand, Catherine Moran, Chris Post, Chris Tennenbaum, Doug Edelman)

• Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

• DIP Lender: T-Mobile USA Inc. and TVN Ventures LLC

  • Legal: Alston & Bird LLP (William Sugden, Jacob Johnson) & Young Conaway Stargatt & Taylor LLP (Edmon Morton, Kenneth Enos)

• Silicon Valley Bank

  • Legal: Morrison Foerster LLP (Alexander Rheaume, Benjamin Butterfield) & Ashby & Geddes LLP (Gregory Taylor, Katharina Earle)

• Ally Bank

  • Legal: McGuireWoods LLP (Kenneth Noble, Kristin Wigness, Ha Young Chung) & Richards Layton & Finger PA (John Knight, David Queroli)

• Official Committee of Unsecured Creditors:

  • Legal: Fox Rothschild LLP (Seth Niederman, Michael Sweet, Gordon Gouveia)

🚗 New Chapter 11 Bankruptcy Filing - Techniplas LLC 🚗

Techniplas LLC

May 6, 2020

Wisconsin-based Techniplas LLC and seven affiliates (the “debtors”), producers and manufacturers of plastic components used primarily in the automotive and transportation industries, filed for bankruptcy in the District of Delaware. “The Company produces, among other things, automotive products, such as fluid and air management components, decorative and personalization products, and structural components, as well as nonautomotive products, such as power utility and electrical components and water filtration products.” After cobbling together acquisitions over the course of the decade, the debtors’ business is now global in scale and its main customers are the leading OEMs in the US, Europe and Asia; it had net sales of $475mm and a net loss of $21mm in fiscal ‘19.

A bit more about the business. The debtors’ primary operating unit, “Techniplas Core,” acts “…as a manufacturer of technically complex, niche products across a wide range of applications and end markets, including the automotive and truck, industrial, and commercial markets.” This is roughly 83% of the business. In addition, the debtors have “Techniplas Prime,” which, aside from sounding like a Transformer that may or may not have it out for the human race, acts as a matchmaker between excess manufacturing capacity and customers in need of manufacturing. Per the debtors:

Serving as a nexus between customers, including OEMs, and other manufacturing companies, Techniplas Prime acts as an extension of Techniplas Core by delivering to customers the manufacturing capabilities of its Prime Partners. This makes Techniplas Prime asset-light and creates a “win-win” scenario for customers and Prime Partners.

Interestingly, this business segment was once dubbed “The Airbnb of Auto Manufacturing,” a moniker that makes almost zero sense and completely misunderstands the Airbnb model but, yeah sure, cheap “by-association” points, homies! Per Forbes:

[Founder George] Votis saw Techniplas Prime as an e-manufacturing platform from which customers could order parts electronically according to their own specifications, and have them built by local factories with unused capacity.

Except it’s not a platform. Like, at all. Airbnb is a digital two-sided platform that brings hosts and travelers together and seemlessly connects them. Techniplas Prime…well…

…well…page not found. Airbnb may be struggling in this COVID environment but we can assure you that you’re not EVER getting a 404 when going to their site. Platform…pssssfft. The Forbes article later contradicts itself saying:

…they focused on 3-D printing and advanced manufacturing technology companies that had spare capacity available for contract operations, for which Techniplas Prime is essentially the broker.

Right. Being a broker is different than being a platform y’all. But we digress.

The debtors have a simple capital structure consisting of a $17.59mm ABL, $175mm in 10% ‘20 notes, and a $6.77mm interim financing agreement for total funded debt around $200mm. The debtors, primarily due to this capital structure, began pursuing strategic alternatives in early 2017. Both an attempted sale process and debt refinancing failed. Thereafter, the debtors explored in 2018 a term loan refinancing of the preptition notes and/or a public equity listing in London. Those, too, failed. For this, the debtors blame a downturn in the automotive market and uncertainty from Brexit (PETITION Note: we’ve been foreshadowing that declining production capacity by the major OEMs was going to rattle through the supply chain so nobody should be surprised by this revelation).

In mid-’19, an attempted sale to a strategic buyer, private equity firm The Jordan Company, kicked off but that, despite some forward-moving progress involving a note purchase agreement and an unexercised call option for 100% of the membership interests in the debtors, ultimately fell through due to the inability to refi out the pre-petition notes. Subsequent attempts — now involving ad hoc group of noteholders and Jordan — also came close but ultimately failed due to deteriorating operating performance that pre-dated OOVID. COVID merely exacerbated things. Per the debtors:

Many customers suspended or drastically reduced production, resulting in a swift drop in demand for the Debtors’ products. Additionally, many of the locations where the Company had offices and manufacturing plants worldwide issued lockdown orders and permitted only essential business to remain open in an effort to control the outbreak and protect the health and safety of the public.

All of this was too much to handle: Jordan peaced out. Liquidity increasingly became an issue and so the debtors obtained a $6.7mm super senior priority bridge financing from the ad hoc group. Indeed, the ad hoc group is stepping up big here: in addition to providing the liquidity the debtors needed to get in chapter 11, they’ve agreed to provide a DIP ($20-25mm new money with a $100mm roll-up) and serve as stalking horse bidder — offering $105mm to purchase the debtors’ international operations and three remaining US-based manufacturing facilities. The debtors hope to close the sale within 44 days of the petition date.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: See above.

• Professionals:

  • Legal: White & Case LLP (David Turetsky, Andrew Zatz, Fan He, Robbie Boone Jr., John Ramirez, Sam Lawand, Thomas MacWright) & Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff, Johnna Darby, Daniel Thompson)

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

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

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: Techniplas Acquisition Co. LLC

  • Pre-Petition ABL & DIP ABL Agent: Bank of America NA

    • Legal: Sidley Austin LLP (Dennis Twomey, Elliot Bromagen) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, David Queroli)

  • DIP Term Agent: Wilmington Savings Fund Society FSB

    • Legal: Cole Schotz PC (Daniel Geoghan, J. Kate Stickles, Patrick Reilley)

  • Indenture Trustee: US Bank NA

    • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Alessandra Glorioso)

  • Ad Hoc Noteholder Group ‘20 10% Senior Secured Notes

    • Legal: Arnold & Porter Kaye Scholer LLP (Jonathan Levine, Brian Lohan, Jeffrey Fuisz, Gerardo Mijares-Shafai)

🏈New Chapter 11 Bankruptcy Filing - Alpha Entertainment LLC (XFL) 🏈

Alpha Entertainment LLC

April 13, 2020

“This is the future. And the future moves fast.”

Whoa boy does it move fast.

Connecticut-based Alpha Entertainment LLC — the legal entity behind the XFL — is now a chapter 11 debtor, an unfortunate blemish on the creative and investment record of Vincent K. McMahon (100% Class A equityholder, 75.5% Class B) and the World Wrestling Entertainment Inc. ($WWE)(23.5% Class B equityholder). Was this idea destined to fail?

The debtor paints an unfortunate picture. This thing was doing great, they assert, until that pesky COVID-19 thing had to come in and decimate anything and everything involving crowds. They note:

Prior to the Petition Date, the XFL provided high-energy professional football, reimagined for the 21st century with many innovative elements designed to bring fans closer to the players and the game they love, during the time of year when they wanted more football. The league debuted on February 8, 2020 to immediate acclaim. Nearly 70,000 fans attended the opening weekend’s games, and more than 12 million viewers tuned in on television. Just weeks after the first XFL games were played, however, the worldwide COVID-19 pandemic forced every major American sports league to suspend, if not cancel, their seasons. On March 20, 2020, the XFL canceled the remainder of its inaugural season, costing the nascent league tens of millions of dollars in revenue.

Man, how’s that for sh*tty timing? The post-Week 1 numbers reflect some initial success. Week 2 attendance rose from approximately 70k to 76.2k and Week 3 attendance hit 81.9k. The XFL was actually showing signs of promise until, in late February, attendance took a dive down to 70.2k in Week 4 and to 64.2k in Week 5.* Were people already beginning to hunker down? Given that Seattle and St. Louis proved to be the largest markets and Washington State was the first state in the union to get pummeled by COVID, that seems fairly safe to presume.

Frankly, nobody on the PETITION team has ever watched a minute of XFL football but … to be honest … it sounds like a whole lot of degenerate fun! Quicker games? ✅ In-game access to participants on the field? ✅ Encouraged gambling? ✅ Sounds awesome. What else are we gonna watch in February? Hockey? Please. This actually sounds like it was not, actually, destined to fail. Like a startup it needed time to build a brand and grow. Absent, say, a worldwide once-every-blue-moon pandemic that literally shuts down the world economy, it might have actually made great strides to do so. Alas:

It is estimated that cancellation of the final five weeks of league’s regular season “negated approximately $27 million in fan spending on gameday-related items” such as ticket sales and food, beverage, and merchandise purchases, to say nothing of the revenue from playoff games or the lost opportunities for sponsorship revenue and brand development. With the league shuttered and no games being played (or revenue being generated), the COVID-19 pandemic left the Debtor facing near-term liquidity issues. With the duration of the pandemic uncertain and the Debtor’s operating expenses continuing unabated, the Debtor was left with few viable alternatives outside of chapter 11.

Mr. McMahon provided the company with a $9mm secured bridge loan but, once it became clear that there was no end in sight to the shutdown, he and his advisors concluded that building a bridge without knowing where the end is probably doesn’t make for good business. Per the the chapter 11 filing papers, the bankruptcy, therefore, is intended to find a buyer for the assets — which include all of the teams (this is not a franchise model), equipment and intellectual property. Revenue for the business was $14mm with a net loss of $44mm. Mr. McMahon has committed to provide a $3.5mm DIP credit facility to fund the cases/sale. Given that the debtor has several million of cash on hand, however, Judge Silverstein did not approve the DIP at the debtors’ first day hearing. Likewise, she shelved the debtor’s plan to issue refunds to season ticket holders.

No sale-related pleadings are yet on file. Per the DIP — which, again, was not approved — a sale motion is required to be on file by April 21 and a sale conducted by July 15, 2020. The debtor has already filed motions rejecting all of its player contracts and practice facility and venue use agreements. McMahon, a billionaire, is well-positioned to credit bid his debt here, wipe out all unsecured creditors, and shelve the IP for a time in the future if he wants.

*There is some question as to whether “attendance” is the proper metric given that there were suspicions that the numbers reflect tickets “distributed” rather than tickets “sold” or actual attendance. Whichever way you measure it, the St. Louis BattleHawks “had reportedly sold 45,000 tickets to their next game before the league shut down due to the coronavirus outbreak.”

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $9mm pre-petition secured note (Vince McMahon)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Matthew Lunn, Kenneth Enos, Travis Buchanan, Shane Reil, Matthew Milana)

  • Independent Manager: Drivetrain Advisors LLC (John Brecker)

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

• Other Parties in Interest:

  • Pre-Petition & DIP Lender ($3.5mm): Vince McMahon
    

💈New Chapter 11 Bankruptcy Filing - Rudy's Barbershop Holdings LLC💈

Rudy's Barbershop Holdings LLC

April 2, 2020

Just when the entire country is sheltering in place and can no longer go out to get haircuts (reviving videos of 80s fave, the Flowbee), Seattle Washington-based Rudy’s Barbershop Holdings LLC and five affiliates (the “debtors”) have filed for chapter 11 bankruptcy. The business has been hemorrhaging cash for a few years now — losing $2.275mm in ‘18 and $2.142mm in ‘19. COVID-19 was the nail in the coffin. The debtors were forced to close on March 16, eliminating the debtors’ main source of revenue. The majority of the debtors’ employees currently are furloughed, with a small subset who work at the debtors’ Microsoft Inc. ($MSFT) office campus paid through a reimbursement from Microsoft Inc.

Owned by Northwood Ventures LLC, a NY-based private equity and venture capital firm, the debtors are hoping to achieve a going concern sale in bankruptcy to Tacit Capital LLC on an expedited basis. The company has about $4.6mm of funded debt and Tacit has committed to DIP financing. For what it’s worth, we here at PETITION hope that the sale can get done with ease so that this business is saved. Things are rough out there.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Professionals:

  • Legal: Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Desgrossiers, Mark Olivere)

  • Financial Advisor: GlassRatner Advisory & Capital Group LLC (Wayne Weitz, Robert Trenk)

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

• Other Parties in Interest:

  • Sponsors: Northwood Ventures LLC & PCG-Ares Sidecar Investment LP

    • Legal: Joshua T. Klein & Gellert Scali Busenkell & Brown LLC (Michael Busenkell)

👦🏻New Chapter 11 Bankruptcy Filing - Boy Scouts of America👦🏻

Boy Scouts of America

February 18, 2020

It’s a sad state of affairs when mass tort cases overrun the bankruptcy system. Between a recent deluge of asbestos cases (e.g., ON Marine Services Company LLC, Paddock Enterprises LLC, and DBMP LLC), opioid cases (e.g., Purdue Pharma, Insys Therapeutics), global warming and negligence cases (PG&E) and sexual abuse cases (e.g., USA Gymnastics, one diocese after another), Wachtell Lipton Rosen & Katz is correct to declare “A New Era of Mass Tort Bankruptcies” in a recent client report. They recently wrote:

The use of the bankruptcy process to address mass tort liability reflects a growing recognition that chapter 11, while imperfect, provides tools for dispute resolution that are not generally available in federal or state courts.

And:

For companies that have insufficient assets to pay claims in full, bankruptcy ensures that the debtor’s limited assets are distributed equitably among claimants, including “future” claimants (those whose claims have not yet manifested). Chapter 11 can allow companies with tort liabilities to maintain operations, thereby continuing to generate funds to make payments over time, while providing a respite from defending lawsuits and a platform to negotiate settlements. Bankruptcy also provides a mechanism for centralizing the resolution of large numbers of tort claims, including through a court estimation of the aggregate liability, greatly reducing litigation costs and increasing the potential for a global settlement.

The purposes of these filings?

The wave of asbestos-related bankruptcies in the 1980s led Congress to enact Bankruptcy Code provisions to facilitate reorganization of debtors facing asbestos claims by establishing a plaintiffs’ trust funded by cash, proceeds of insurance policies, and equity in the reorganized debtor. In exchange for contributing to the trust, the debtor and other contributors receive a “channeling injunction,” which “channels” all existing and future claims to the trust. Upon resolution of the bankruptcy, such claims are brought against and paid by the trust, the debtor is discharged, and other contributors are released from further liability. While the relevant Bankruptcy Code provisions apply by their terms only to asbestos-related claims, similar mechanisms have been used (or are currently contemplated) in the bankruptcies of Takata (defective airbags), Pacific Gas & Electric (wildfire damages), and several Catholic dioceses (abuse claims).

Enter Sidley Austin LLP here. Sidley Austin is widely-credited for the notion that a channeling injunction could be deployed in the Takata chapter 11 case. It’s no wonder, then, that they’d land another major mass tort case and deploy the same playbook. Boy Scouts are well-accustomed to playbooks.

And deploy the playbook, they will.

The Boy Scouts of America are involved in 275 lawsuits currently pending in state and federal courts across the United States. They are also aware of an additional 1,400 claims that have not yet filed. Recently enacted legislation that extended the statute of limitations — passed in 17 states, including 12 in 2019 — led to a deluge of additional recently filed suits against the BSA. Consequently, the BSA spent more than $150mm on settlements and legal costs from 2017 through 2019 alone. Compounding matters, membership and donations are on the decline. BSA registered membership is down 500k since 2012. People are dropping the Boy Scouts HARD.

The BSA has filed a plan of reorganization and disclosure statement along with their customary first day papers. Where the rubber will meet the road is at the asset level. Per the BSA:

…attorneys for abuse victims believed that certain Local Councils with significant abuse liabilities have significant assets that could be used to compensate victims.

The Local Councils, however, are not debtors. There is, though, an ad hoc committee of Local Councils, the purpose of which is to allow the Local Councils to participate in negotiations about a global resolution of abuse claims. The Local Councils share insurance with the BSA and insurance, naturally, will be a huge source of recovery for abuse claimants. Claimants will also want to understand whether Local Councils are being used to shield assets from attack — a strategy exposed in this recent Wall Street Journal piece. This issue appears to be key to the bankruptcy and any potential resolution. The volunteer chair of the Local Council Committee? Richard Mason of Wachtell. Forgot to mention that one in the aforementioned client alert.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $328mm secured debt (see below)(JPMorgan)

• Professionals:

  • Legal: Sidley Austin LLP (Jessica Boelter, Alex Rovira, Andrew Propps, James Conlan, Thomas Labuda, Michael Andolina, Matthew Linder) & Morris Nichols Arsht & Tunnell LLP (Derek Abbott)

  • Financial Advisor: Alvarez & Marsal LLC (Brian Whittman)

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

Source: Disclosure Statement

New Chapter 11 Bankruptcy Filing - American Blue Ribbon Holdings LLC

American Blue Ribbon Holdings LLC

January 27, 2020

Man. The restaurant space is active AF when it comes to BK filings these days. Sysco Corporation ($SYY) must be sweating bullets. On the same day that BL Restaurants Holding LLC (Bar Louie) filed for bankruptcy and a mere week after The Krystal Company filed and less than six months after industry segment brother Perkins and Marie Callender’s filed for bankruptcy, Tennessee-based American Blue Ribbon Holdings LLC and four affiliated entities — the operators of 75 Village Inn and 22 Bakers Square family dining restaurant brands — filed for bankruptcy in the District of Delaware — the 8th significant bankruptcy filing in Delaware in 2020 (far outpacing any other jurisdiction).

This filing may come as a surprise to some. Why? Well, this August 2019 article in the Nashville Post dripped with optimism about the company’s proposed turnaround — a turnaround which included 50 pre-petition store closures. Despite these efforts, the debtors revenues were only $318mm in ‘19, a decline of $36mm.

Unlike BL Restaurants Holding LLC (Bar Louie), the debtors aren’t drowning in funded debt. In fact, they don’t have any secured debt at all. Unsecured claims total only $14mm.

They are, however, drowning due to industry-wide issues. If the factors leading to this filing sound familiar, well…they are:

• Increased competition in the restaurant business. ✅

• Increased competition from grocery stores’ expanded prepared meai offerings which, by and large, represent a much better value proposition. ✅

• Rising labor costs ($2mm hit). ✅

• Above-market rent. ✅

• Declining foot traffic due to “an increase in convenience via takeout and delivery at the expense of dine-in customers at restaurants.” DISRUPTION!! ✅

• Over-expansion. ✅

For all of these reasons, the debtors have been bleeding cash. They lost $11mm in ‘18 and $7mm in ‘19. So, sure, the turnaround was taking hold, it seems, but the $4mm in savings weren’t enough. Indeed, the debtors’ filing was precipitated due to a lack of liquidity.

The debtors will use the “breathing spell” provided by the filing to access $20mm in emergency liquidity (from their indirect ultimate majority owner, Cannae Holdings Inc. ($CNNE)) and pursue strategic options (without a banker….uh…ok, sure).

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• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: N/A

• Professionals:

  • Legal: KTBS Law LLP (Michael Tuchin, David Fidler, Jonathan Weiss, Sasha Gurvitz) & Young Conaway Stargatt & Taylor LLP (Robert Poppiti Jr.)

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

• Other Parties in Interest:

🐟New Chapter 11 Bankruptcy & CCAA Filing - Bumble Bee Parent Inc.🐟

Bumble Bee Parent Inc.

November 21, 2019

Tuna fish went from playing a role in the founding of one of the world’s largest private equity firms (Blackstone) to, in the case of Bumble Bee Parent Inc. and its affiliated debtors, another private-equity-backed (Lion Capital LLP) bankruptcy. Bumble Bee is the company behind “shelf-stable seafood” brands Bumble Bee, Brunswick, Sweet Sue, Snow’s Beach Cliff and Wild Selections (as well as a Canadian brand). It has been on a wild ride since 2017.

The bankruptcy narrative is that a plea agreement with the United States Department of Justice related to criminal charges of alleged price-fixing led to burdensome financial obligations by way of (a) a $25mm criminal fine) and (b) defense costs associated with an onslaught of subsequent civil lawsuits from direct and indirect purchasers of products claiming damages arising out of the alleged price-fixing. This overhang ultimately led to the debtors arriving at, but not quite tripping, an event of default with their term lenders in Q4 ‘18. The debtors have been operating under a series of short-term limited waivers ever since as they sought to explore strategic alternatives.

They have one. The debtors have a stalking horse purchase agreement with affiliates of FCF Co. Ltd. “for the sale of substantially all of the Company’s assets at a total implied enterprise value of up to $930.6 million, comprised of $275 million of cash, assumption of the remaining $17 million of the DOJ Fine, and the roll-over of up to $638.6 million in outstanding term loan indebtedness.” This sale will preserve the business as a going concern, preserve jobs, and provide an ongoing business partner to vendors and customers who consider the debtors to be partners.

Debtor first day bankruptcy papers are typically replete with spin and these papers are no different. In fact, necessarily so, they read like an offering memorandum. The papers discuss how the debtors provide “nutricious foods” that are “well-positioned to address a number of important consumer preferences and food trends, including shifts toward protein-rich, low-fat/low-calorie, and high Omega-3 fatty acid diets and trends towards eating multiple small or ‘snack-sized’ portions per day rather than the traditional three-square meals per day, and an overall increase in ‘snacking.’” They have the #1 or #2 market share in the shelf-stable seafood category and 41% of the US share of sales of canned albacore tuna. They also hold “approximately 13% of the U.S. share of sales of canned “light meat” tuna, approximately 12% of the share of sales in tuna pouches, approximately 71% of the U.S. share of sales in ready-to-eat tuna meals, approximately 40% of the U.S. share of sales in sardines, and approximately 16% of the U.S. share of sales in salmon.” It helps that they’re sold at virtually every major bigbox retailer, wholesale club, and grocery store. In 2018, the company had net sales of approximately $933m and adjusted EBITDA of $112.3m and the debtors’ U.S.-based operations contributed $722.2m of net sales and adjusted EBITDA of $86.3m. This is big business.

Putting aside its recent brush with the law, it also faces big market challenges. Questions persist about the safety and viability of shelf-stable seafood, particularly tuna. Indeed, there are headwinds. One sign of this may be that the Company’s overall Adjusted EBITDA has declined by approximately 20% from 2015 to 2018. We assume that, here, the EBITDA is adjusted to ex-out litigation costs.

And then there is this bonkers Wall Street Journal piece noting that consumption of canned tuna has fallen steadily compared with fresh and frozen fish. “Per capita consumption of canned tuna has dropped 42% in the three decades through 2016, according to the latest data available from the U.S. Department of Agriculture. And the downturn has continued, with sales of the fish slumping 4% by volume from 2013 to October 2018, data from market-research firm IRI show.”

This bit is off the charts: “In a country focused on convenience, canned tuna isn’t cutting it with consumers. Many can’t be bothered to open and drain the cans, or fetch utensils and dishes to eat the tuna. “A lot of millennials don’t even own can openers,” said Andy Mecs, vice president of marketing and innovation for Pittsburgh-based StarKist, a subsidiary of South Korea’s Dongwon Group.” To address this trend, the debtors have made forays into the fresh fish category. Otherwise, these challenges will play out another day. With a different owner.

A few more bankruptcy-specific points:

1. The debtors prevailed over a fee objection by the United States Trustee relating to interim access to $40mm of a proposed $80mm DIP term loan facility and immediate access to a $200mm DIP ABL. It seems that Weil Gotshal & Manges LLP, as counsel to DIP term lender Brookfield Principal Credit LLC had to give the UST a lesson in reverse-Seinfeld Logic. With lending, it is about “taking the reservation” rather than holding or using the reservation: once a debtor obtains a commitment to funds, those funds are committed and technically cannot be allocated elsewhere. The lenders argue, therefore, that fees are warranted upfront.

2. Critical vendor motions can sometimes be controversial because, naturally, everyone wants to jump the line with critical vendor designation. To get it, however, pursuant to standards set many many years ago, there’s a multi-prong test that must be satisfied. In a nutshell, the critical vendor payments are needed to prevent disruption of a debtors’ business, among other things. Here, the buyer, FCF Co Ltd., seeks critical vendor status to the tune of $51mm (out of a $77mm critical vendor ask). Some other creditors were like “Mmmmmm???” and insisted that the Judge postpone any interim payments until an official committee of unsecured creditors could be appointed. Despite protests from FCF’s counsel, Weil for the DIP lender, and the debtors, Judge Silverstein declined to rule on the motion at the hearing, highlighting the unusual nature of a prospective buyer seeking status. If they want the business, will they really walk away?

Despite these first day fireworks, this should be a relatively smooth one.

One last question it poses is this: will this be just the first of a clump of tuna-related bankruptcies? 🤔

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: see below.

• Professionals:

  • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Kelly Cornish, Claudia Tobler, Christopher Hopkins, Rich Ramirez, Aidan Synnot) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Ryan Bartley, Ashley Jacobs, Elizabeth Justison, Jared Kochenash)

  • Board of Directors: Scott Vogel, Steve Panagos

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Houlihan Lokey Inc.

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

• Other Parties in Interest:

  • ABL Agent & DIP Agent: Wells Fargo Capital Finance LLC

    • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford, Peter Burke) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Term Loan Agent & Term Loan DIP Agent: Brookfield Principal Credit LLC

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, David Griffiths, Debora Hoehne, Yehudah Buchweitz) & Richards Layton & Finger PA (Paul Heath, Zachary Shapiro, Brendan Schlauch)

💩New Chapter 11 Filing - uBiome Inc.💩

uBiome Inc.

September 4, 2019

Back in our July 4th weekend edition, we wrote the following:

#BustedTech. One year you’re on the Forbes’ 2018 Next Billion-Dollar Startups list and the next year you’re getting raided by the FBI. This is the story of uBiome, a SF-based microbiome startup. Per Forbes:

The new interim CEO of troubled microbiome startup uBiome, Curtis Solsvig, is a longtime turnaround and restructuring expert at financial advisory firm Goldin Associates and the former chief restructuring officer of failed drone startup Lily Robotics.

One man’s billion-dollar valuation is another man’s clean-up job. 

And, now, another man’s bankruptcy.

Annnd another man’s sacrifice:

The Debtor filed this Chapter 11 Case to provide an innovative business with a fresh start under new management, and to preserve approximately 100 jobs through a court-supervised sale process that is intended to maximize the value of the Debtor’s assets for the benefit of all stakeholders.

…certain business practices formulated and implemented by the Debtor’s original founders have resulted in cessation of certain aspects of the Debtor’s business, investigations by certain federal and state investigatory bodies (the “Investigations”), loss of revenue and significant potential contingent liabilities.

Godspeed founders. You just got napalmed. AGAIN.

And as they should. The debtor has been in triage for some time now.

The company empowers consumers to access analysis of their DNA/microbiomes via the use of at-home kits. Said another way, people poop in an $89.99 “explorer kit” and the company analyzes the sample through (a) a proprietary gene sequencing process and (b) a cloud-based database of microbiomes to determine what’s what in the customer’s GI system — a much less invasive discovery methodology than the gut-wrenching (pun intended) colonoscopy. The consumer receives results that provide suggestions for diet, weight control, gut inflammation, sleep disorders and non-dietary supplements. Frankly, this all sounds rather bada$$.

The company also had a clinical business. Doctors could prescribe the tests and bill the customers’ insurance. Similarly, the company launched a clinical product geared towards the analysis of vaginal swabs (i.e., STDs, HPV, gyno disorders). Together these clinical products were called “SmartX.”

Suffice it to say, this idea was big. The company’s founders leveraged the open-source results from the Human Microbiome Project (launched by the National Institutes of Health) and built something that could really make a lot of people’s lives easier. The venture capitalists saw the opportunity, and the tech media celebrated the company’s rapid capital raises and increasing valuation: $1.5mm seed in ‘14, $4.5mm in August ‘14 (led by a16z), $15.5mm Series B in October ‘16, and $83mm Series C in September ‘18. (PETITION Note: the company now says it raised $17mm in ‘16 and $59mm in ‘18, exclusive of $36.4mm of mostly-now-converted convertible notes, which means that the media appears to have been fed, or reported, wrong numbers).* Valuation? Approx $600mm.

Armed with gobs of money, the company established some valuable IP (including over 45 patents and your poop data, no joke) and commercial assets (its certified labs). On the other side of the ledger, there is $5.83mm of outstanding secured debt and $3.5mm of unsecured debt, ex-contingent liabilities including…wait for it…”[p]otential fines for civil and criminal penalties resulting from the Investigation….” Ruh roh.

The Founders implemented certain business strategies with respect to the SmartX products that were highly problematic, contained significant operational (but not scientific) flaws and, in some instances, were of questionable legality. These issues included improper insurance provider billing practices, improper use of a telemedicine physician network (known as the External Clinical Care Network), overly aggressive and potentially misleading marketing tactics, manipulation of customer upgrade testing, and improper use of customer inducements. Moreover, certain information presented to potential investors during the three rounds of capital raise my have been incorrect and/or misleading. Although uBiome believes the science and technology behind uBiome’s business model in this developing area is sound, these issues – among others – have resulted in significant legal exposure for the Debtor.

Score one for VC due diligence! The USA for the ND of California, the FBI, the DOJ and the SEC are all up in the company poop now. This investigation, much like the opioid crisis, also calls into question the ethical practices of doctors. Because we really ought not trust anybody these days.

Anyway, the company has since taken measures to right the ship. The board suspended and then sh*tcanned the founders and recruited new independents. They’ve verified that the company suffered from bad business practices rather than bad science or lab practices (Elizabeth Holmes, holla at us!!). And they’ve hired bankers to market the company’s assets (no stalking horse bidder at filing, though). The company received a commitment from early investor 8VC for a $13.83mm DIP of which $8mm in new money; it will take slightly more than 60 days to see if a buyer emerges. One selling point according to the company: it plans for its Explorer Kits to be in CVS Health Corp. ($CVS)! That’d be great if CVS planned for that too. Womp womp.

Anyway, the way bankruptcy is going these days chapter 11 probably ought to be renamed chapter 363.

*There are many reasons why d-bag startup founders hype their own raises. First, it promotes an aura of success which can help acquire new customers. Second, they love the adulation (see Elizabeth Holmes). Third, it helps with recruiting. And, fourth, the VCs must like it and use it for subsequent fundraising (given that they never correct the record).

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $5.83mm credit facility (Silicon Valley Bank)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Joseph Barry, Andrew Magaziner, Joseph Mulvihill, Jordan Sazant)

  • Board of Directors: Kimberly Scotti, L. Spencer Wells, D.J. (Jan) Baker

  • Financial Advisor/CRO: Goldin Associates LLC (Curtis

  • Investment Banker: GLC Advisors & Co LLC

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

• Other Parties in Interest:

  • DIP Agent: Silicon Valley Bank

    • Legal: Morrison & Foerster LLP (Alexander Rheaume, Todd Goren, Benjamin Butterfield) & Ashby & Geddes PA (Gregory Taylor, Katharina Earle)

  • DIP Participants: 8VC Fund I LP, 8VC Entrepreneurs Fund I LP

    • Legal: Gibson Dunn & Crutcher LLP (Matthew Williams, Eric Wise, Jason Zachary Goldstein) & Cole Schotz PC (Norman Pernick, Patrick Reilley)

🙈New Chapter 11 Bankruptcy Filing - Avenue Stores LLC🙈

Avenue Stores LLC

August 16, 2019

Retail, retail, retail.

Brutal. Absolutely B.R.U.T.A.L.

Avenue Stores LLC, a speciality women’s plus-size retailer with approximately 2,000 employees across its NJ-based HQ* and 255 leased stores,** is the latest retailer to find its way into bankruptcy court. On Friday, August 16, Avenue Stores LLC filed for chapter 11 bankruptcy in the District of Delaware. Like Dressbarn, another plus-size apparel retailer that’s in the midst of going the way of the dodo, any future iteration of the Avenue “brand” will likely exist only on the interwebs: the company intends to shutter its brick-and-mortar footprint.

What is Avenue? In addition to a select assortment of national brands, Avenue is a seller of (i) mostly “Avenue” private label apparel, (ii) intimates/swimwear and other wares under the “Loralette” brand and (iii) wide-width shoes under the “Cloudwalkers” brand. The company conducts e-commerce via “Avenue.com” and “Loralette.com.” All of this “IP” is the crux of the bankruptcy. More on this below. 

But, first, a digression: when we featured Versa Capital Management LP’s Gregory Segall in a Notice of Appearance segment back in April, we paid short shrift to the challenges of retail. We hadn’t had an investor make an NOA before and so we focused more broadly on the middle market and investing rather than Versa’s foray into retail and its ownership of Avenue Stores LLC. Nevertheless, with the benefit of 20/20 hindsight, we can now see some foreshadowing baked into Mr. Siegel’s answers — in particular, his focus on Avenue’s e-commerce business and the strategic downsizing of the brick-and-mortar footprint. Like many failed retail enterprises before it, the future — both near and long-term — of Avenue Stores is marked by these categorical distinctions. Store sales are approximately 64% of sales with e-commerce at approximately 36% (notably, he cited 33% at the time of the NOA). 

A brand founded in 1987, Avenue has had an up-and-down history. It was spun off out of Limited Brands Inc. and renamed in 1989; it IPO’d in 1992; it was then taken private in 2007. Shortly thereafter, it struggled and filed for bankruptcy in early 2012 and sold as a going-concern to an acquisition entity, Avenue Stores LLC (under a prior name), for “about $32 million.” The sale closed after all of two months in bankruptcy. The holding company that owns 100% of the membership interests in Avenue Stores LLC, the operating company, is 99%-owned by Versa Capital Management. 

Performance for the business has been bad, though the net loss isn’t off the charts like we’ve seen with other recent debtors in chapter 11 cases (or IPO candidates filing S-1s, for that matter). Indeed, the company had negative EBITDA of $886k for the first five months of 2019 on $75.3mm in sales. Nevertheless, the loss was enough for purposes of the debtors’ capital structure. The debtors are party to an asset-backed loan (“ABL”) memorialized by a credit agreement with PNC Bank NA, a lender that, lately, hasn’t been known for suffering fools. The loan is for $45mm with a $6mm first-in-last-out tranche and has a first lien on most of the debtors’ collateral. 

The thing about ABLs is that availability thereunder is subject to what’s called a “borrowing base.” A borrowing base determines how much availability there is out of the overall credit facility. Said another way, the debtors may not always have access to the full facility and therefore can’t just borrow $45mm willy-nilly; they have to comply with certain periodic tests. For instance, the value of the debtors’ inventory and receivables, among other things, must be at a certain level for availability to remain. If the value doesn’t hold up, the banks can close the spigot. If you’re a business with poor sales, slim margins, diminishing asset quality (i.e., apparel inventory), and high cash burn, you’re generally not in very good shape when it comes to these tests. With specs like those, your liquidity is probably already tight. A tightened borrowing base will merely exacerbate the problem.

Lo and behold, PNC declared the debtors in default on July 22; in turn, they imposed default interest on the debtors and initiated daily cash sweeps of the debtors’ bank accounts. Like we said. Suffer. No. Fools.*** The debtors owe $15.2mm on the facility. 

The debtors also have outstanding a subordinated secured note to the tune of $37.8mm. The note pays interest at 15% but is paid in kind.**** The lender on the note is an affiliate of Versa, and per the terms of the note, Versa had continued, at least through April 2019, to fund the business (and letters of credit for the debtors’ benefit) with millions of dollars of capital. 

If this sounds like a hot mess, well, yeah, sure, kudos. You’re clearly paying attention. It’s a dog eat dog world out there. Per the company:

The Debtors operate in an extremely competitive retail environment, facing competition from other specialty-retail stores, including Lane Bryant, Ashley Stewart, and Torrid, and mass-market retailers such as Walmart and Target, many of which are located in close proximity to Avenue stores. In addition to long-standing, traditional competitors within the plussize segment, there has been a recent influx of many other iconic fashion retail brands expanding their range of size offerings into the plus-size range, as well as a proliferation of new entrants targeting this same plus-size fashion market. Due to increased competition, the Debtors have faced significant pressure to maintain market share, which has directly and negatively affected their profitability.

Not that this is anything new. We all know this by now: competition is fierce (Stitch Fix Inc. ($SFIX), Neiman Marcus, Kohl’s Corporation ($KSS), Macy’s Inc. ($M) and others are now going after it hard), B&M sucks because leases carry higher expenses, store traffic is down, blah blah f*cking blah. The company continues:

…changes in consumer spending habits have necessitated many retailers to increase promotional activities and discounting, leading to thinner profit margins. Onerous brick-and-mortar lease terms and increased operating costs, during a period of downturn in the retail sector and deep discounting, have intensified retail losses.

Interestingly, in the face of surging U.S. retail sales in July,***** the company also notes that “a review of historic customer data indicates that Avenue customers are shopping less frequently than they once were….” They blame this on a “[s]hifts in consumer preferences” and the debtors’ emphasis on “fashion basics.” DING DING DING. No wonder customers are shopping there less frequently. “Basic” is the antithesis of Instagram-based retail these days. Basics can be purchased at any big box retailer; basics are now available via Amazon’s private label. Basics don’t create an influencer and, on the flip side, no influencer will market “basic.” Maybe Avenue could get away with “fashion basics” if it had brand-equity like SUPREME and was perceived as a luxury brand. But far from it. 

Speaking of basic, that pretty much describes the go-forward game plan. We’ll lay it out for you:

• Engage an independent director to explore strategic alternatives;

• Engage professionals (Young Conaway is legal and Berkeley Research Group as restructuring advisor and CRO)******;

• Consider whether there’s going concern value, conclude, like, basically, “nope,” and then hire a consultant******* to solicit bids from liquidators for the B&M piece and an investment banker (Configure Partners) for the IP and e-commerce business; 

• Issue WARN notices, RIF employees, and start shuttering stores (with intent to file a rejection motion on day 1 of the bankruptcy); 

• Select a stalking horse bidder for the B&M assets from the pool of interested liquidators (in this case, Gordon Brothers and Hilco Merchant Resources LLC); 

• Continue to search for a stalking horse bidder for the IP and e-commerce (at filing, there wasn’t one yet); and

• Secure DIP financing (here, $12mm from PNC) to fund the cases while the B&M liquidation transpires and the banker searches under every rock under an extremely compressed timeframe (by 9/24/19) for that e-commerce/IP buyer.******** 

So we’ll know in the next 60 days what the future is for Avenue.

If there is one.

---

*Let’s pour one out for NJ. The state’s larger retailers are having a rough go of things lately, see, e.g., Toys R Us. The 2,000 figure is updated to reflect a recent round of layoffs. 

**The debtors are located primarily in shopping malls and shopping centers, doing business in 35 states. They have a distribution center for brick-and-mortar merchandise in Troy, Ohio, and a third-party warehousing facility located in Dallas, Texas, which handles logistics for e-commerce. The Troy center is the subject of a wholly unoriginal PE-backed sale/leaseback transaction. The debtors sold the center for $11.3mm and subsequently entered into a 15-year lease with the buyer, RD Dayton LLC. We mention this because sale/leaseback transactions have been getting hyper-focus these days as a tactic-of-choice by private equity overlords to extract returns out of portfolio companies’ assets with any actual value: real property. If you’re wondering why there is very little asset value left for unsecured creditors in retail cases, sale/leaseback transactions are often a culprit. Here, it’s especially egregious because Avenue doesn’t own ANY of its stores: the entire footprint is leased.

The debtors recently closed the Ohio center and transitioned its inventory to Texas and the company already filed a motion seeking to reject this lease (Docket 15).

***This is not extraordinary. Banks do this all of the time when debtors default. A liquidity starved company is almost always toast (read: bankrupt) once this happens. 

****PIK interest means that the interest accrues in the form of additional notes and is not subject to scheduled cash payments. 

*****Per Reuters:

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

******Something tells us that the likes of FTI, A&M and AlixPartners are happy to cede the liquidating retailer market to Berkeley Research Group. 

*******This is one of the more ingenious things to come out of the restructuring market in recent years. These liquidator agreements are so unintelligible that they might as well be written in Dothraki. Hence the need for an intermediary to break out the secret decoder ring and figure out what is actually being contracted for. We don’t know: if something is so woefully incoherent that it requires a separate consultant just to interpret it, something tells us that obfuscation is a feature not a bug.

********If none is found, the liquidator will also get these assets as part of the agency agreement. 

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure:

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Andrew Magaziner, Ashley Jacobs, Allison Mielke, Betsy Feldman)

  • Financial Advisor/CRO: Berkeley Research Group (Robert Duffy)

  • Investment Banker: Configure Partners

  • Liquidators: Gordon Brothers and Hilco Merchant Resources LLC

  • Liquidation Consultant: Malfitano Advisors LLC

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

• Other Parties in Interest:

  • Pre-petition & DIP Agent: PNC Bank NA

    • Legal: Blank Rome LLP (Regina Stango Kelbon)

  • Subordinated Lender: Versa Capital Management LP

    • Legal: Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire)

🍤New Chapter 11 Bankruptcy Filing - RUI Holding Corp.🍤

RUI Holding Corp.

July 7, 2019

Back in October 2016, in the context of Sun Capital Partners’-owned Garden Fresh Restaurant Intermediate Holdings bankruptcy filing, we asked, “Are Progressives Bankrupting Restaurants?” We wrote:

Morberg's explanation for the bankruptcy went a step farther. He noted that cash flow pressures also came from increased workers' compensation costs, annual rent increases, minimum wage increases in the markets they serve, and higher health benefit costs -- a damning assessment of popular progressive initiatives making the rounds this campaign season. And certainly not a minor statement to make in a sworn declaration.  

It's unlikely that this is the last restaurant bankruptcy in the near term. Will the next one also delineate progressive policies as a root cause? It seems likely.

There have been a plethora of restaurant-related bankruptcy filings between then and now and many of them have raised rising costs as an issue. Perhaps none as blatantly, however, than Sun Capital Partners’ portfolio companies: enter RUI Holding Corp and its affiliated debtors, Restaurants Unlimited Inc. and Restaurants Unlimited Texas Inc. (the “Debtors”).

On July 7, 2019, the Sun Capital-owned Debtors filed for bankruptcy in the District of Delaware. The Debtors opened their first restaurant in 1969 and now own and operate 35 restaurants in 6 states under, among 14 others, the trade names “Clinkerdagger,” “Cutters Crabhouse,” “Maggie Bluffs,” and ”Horatio’s.” The Debtors note that each of their restaurants offer “fine dining” and “polished casual dining” “situated in iconic, scenic, high-traffic locations.” Who knew that if you want something to scream “iconic” you ought to name it Clinkerdagger?

As we’ve said time and time again, casual dining is a hot mess. Per the Debtors:

…the Company's revenue for the twelve months ended May 31, 2019, was $176 million, down 1% from the prior year. As of the Petition Date, the Company has approximately $150,000 of cash on hand and lacks access to needed liquidity other than cash flow from operations.

The Debtors have over $37.7mm of secured debt; they also owe trade $7.6mm. There are over 2000 employees, of which 168 are full-time and 50 are salaried at corporate HQ in Seattle Washington.

But enough about that stuff. Back to those damn progressives. Per the Debtors:

Over the past several years, certain changes to wage laws in the Debtors’ primary geographic locations coupled with two expansion decisions that utilized cash flow from operations resulted in increased use of cash flow from operations and borrowings and restricted liquidity. These challenges coupled with additional state-mandates that will result in an additional extraordinary wage hike in FYE 2020 in certain locations before all further wage increases are subject to increases in the CPI and the general national trend away from casual dining, led to the need to commence these chapter 11 cases.

They continue:

Over the past three years, the Company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage as follows: Seattle $9.47 to $16.00 (69%), San Francisco $11.05 to $15.59 (41%), Portland $9.25 to $12.50 (35%). As a large employer in the Seattle metro market, for instance, the Company was one of the first in the market to be forced to institute wage hikes. Currently in Seattle, smaller employers enjoy a statutory advantage of a lesser minimum wage of $1 or more through 2021, which is not available to the Company. The result of these cumulative increases was to increase the Company’s annual wage expenses by an aggregate of $10.6 million through fiscal year end 2019.

For a second we had to do a double-take just to make sure Andy Puzder wasn’t the first day declarant!

Interestingly, despite these seemingly OBVIOUS wage headwinds and the EVEN-MORE-OBVIOUS-CASUAL-DINING-CHALLENGES, these genius operators nevertheless concluded that it was prudent to open two new restaurants in Washington state “in the second half of 2017” — at a cost of $10mm. Sadly, “[s]ince opening, the anticipated foot traffic and projected sales at these locations did not materialize….” Well, hot damn! Who could’ve seen that coming?? Coupled with the wage increases, this was the death knell. PETITION Note: this really sounds like two parents on the verge of divorce deciding a baby would make everything better. Sure, macro headwinds abound but let’s siphon off cash and open up two new restaurants!! GREAT IDEA HEFE!!

The Debtors have therefore been in a perpetual state of marketing since 2016. The Debtors’ investment banker contacted 170 parties but not one entity expressed interested past basic due diligence. Clearly, they didn’t quite like what they saw. PETITION Note: we wonder whether they saw that Sun Capital extracted millions of dollars by way of dividends, leaving a carcass behind?? There’s no mention of this in the bankruptcy papers but….well…inquiring minds want to know.

The purpose of the filing is to provide a breathing spell, gain the Debtors access to liquidity (by way of a $10mm new money DIP financing commitment from their prepetition lender), and pursue a sale of the business. To prevent additional unnecessary cash burn in the meantime, the Debtors closed six unprofitable restaurants: Palomino in Indianapolis, Indiana, and Bellevue, Washington; Prime Rib & Chocolate Cake in Portland, OR; Henry’s Tavern in Plano, Texas; Stanford’s in Walnut Creek, California; and Portland Seafood Co. in Tigard, Oregon. PETITION Note: curiously, only one of these closures was in an “iconic” location that also has the progressive rate increases the Debtors took pains to highlight.

It’s worth revisiting the press release at the time of the 2007 acquisition:

Steve Stoddard, President and CEO, Restaurants Unlimited, Inc., said, “This transaction represents an exciting partnership with a skilled and experienced restauranteur that has the requisite financial resources and deep operating experience to be instrumental in strengthening our brands and building out our footprint in suitable locations.”

Riiiiight. Stoddard’s tenure with Sun Capital lasted all of two years. His successor, Norman Abdallah, lasted a year before being replaced by Scott Smith. Smith lasted a year before being replaced by Chris Harter. Harter lasted four years and was replaced by now-CEO, Jim Eschweiler.

A growing track record of bankruptcy and a revolving door in the C-suite. One might think this may be a cautionary tale to those operators in the market for PE partners.*

*Speaking of geniuses, it’s almost as if Sun Capital Partners thinks that things disappear on the internets. Google “sun capital restaurant unlimited” and you’ll see this:

Source: Google

Click through the first link and this is what you get:

Source: Sun Capital Partners

HAHAHAHAHA. WHOOPS INDEED!

THEY DELETED THAT SH*T FASTER THAN WE COULD SAY “DIVIDEND RECAP.”

---

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $37.7mm (plus $1.7mm of accrued and unpaid interest)(Fortress Credit Co LLC)

• Professionals:

  • Legal: Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Michael Yurkewicz, Sally Veghte)

  • Financial Advisor: Carl Marks Advisory Group LLC (David Bagley)

  • Investment Banker: Configure Partners LLC

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

  • Board of Directors: Stephen Cella, Jonathan Jackson, James Eschweiler

• Other Parties in Interest:

  • PE Sponsor: Sun Capital Partners Inc.

  • Prepetition Agent & DIP Agent ($10mm): Fortress Credit Co LLC

    • Legal: Hunton Andrews Kurth LLP (Tyler Brown, Justin Paget) & Gellert Scali Busenkell & Brown (Michael Busenkell)

    • Financial Advisor: Grant Thornton LLP

  • DIP Lenders: Drawbridge Special Opportunities Fund LP, NXT Capital LLC

    • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim)

Updated 7/7/19

🔫New Chapter 11 Filing - Sportco Holdings Inc. (United Sporting Companies Inc.)🔫

SportCo Holdings Inc. (United Sporting Companies Inc.)

June 10, 2019

Callback to four previous PETITION pieces:

• Is that a Gun in Your Pocket or….? (Short #MAGA!!);

• New Chapter 11 - Remington Outdoor Company;

• Who is Financing Guns? (Remington Outdoor); and

• New Chapter 11 - AcuSport Corporation.

The first one — which was a tongue-in-cheek mock First Day Declaration we wrote in advance of Remington Outdoor Company’s chapter 11 bankruptcy — is, if we do say so ourselves, AN ABSOLUTE MUST READ. The same basic narrative could apply to the recent chapter 11 bankruptcy filing of Sportco Holdings Inc., a marketer and distributor of products and accessories for hunting, which filed for bankruptcy on Monday, June 10, 2019. Sportco’s customer base consists of 20k independent retailers covering all 50 states. But back to the “MUST READ.” There are some choice bits there:

Murica!! F*#& Yeah!! 

Remington (f/k/a Freedom Group) is "Freedom Built, American Made." Because nothing says freedom like blowing sh*t up. Cue Lynyrd Skynyrd's "Free Bird." Hell, we may even sing it in court now that Toys R Ushas made that a thing. 

Our company traces its current travails to 2007 when Cerberus Capital Management LP bought Remington for $370mm (cash + assumption of debt) and immediately "loaded" the North Carolina-based company with even more debt. As of today, the company has $950mm of said debt on its balance sheet, including a $150mm asset-backed loan due June '19, a $550mm term loan B due April '19, and 7.875% $250mm 3rd lien notes due '20. Suffice it to say, the capital structure is pretty "jammed." Nothing says America like guns...and leverage. 

Indeed, this is true of Sportco too. Sportco “sports” $23mm in prepetition ABL obligations and $249.8mm in the form of a term loan. Not too shabby on the debt side, you gun nuts!

More from our mock-up on Remington:

Shortly after Cerberus purchased the company, Barack Obama became president - a fact, on its own, that many perceived as a real "blowback" to gun ownership. Little did they know. But, then, compounding matters, the Sandy Hook incident occurred and it featured Remington's Bushmaster AR-15-style rifle. Subsequently, speeches were made. Tears were shed. Big pension fund investors like CSTRS got skittish AF. And Cerberus pseudo-committed to selling the company. Many thought that this situation was going to spark "change [you] can believe in," lead to more regulation, and curtail gun sales/ownership. But everyone thought wrong. Tears are no match for lobby dollars. Suckers. 

Instead, firearm background checks have risen for at least a decade - a bullish indication for gun sales. In a sick twist of only-in-America fate, Obama's caustic tone towards gunmakers actually helped sell guns. And that is precisely what Remington needed in order to justify its burdensome capital structure and corresponding interest expense. With Hillary Clinton set to win the the election in 2016, Cerberus' convenient inability to sell was set to pay off. 

But then that "dum dum" "ramrod" Donald Trump was elected and he enthusiastically and publicly declared that he would "never, ever infringe on the right of the people to keep and bear arms."  While that's a great policy as far as we, here, at Remington are concerned, we'd rather him say that to us in private and declare in public that he's going to go door-to-door to confiscate your guns. Boom! Sales through the roof! And money money money money for the PE overlords! Who cares if you can't go see a concert in Las Vegas without fearing for your lives. Yield baby. Daddy needs a new house in Emerald Isle. 

Wait? "How would President Trump say he's going to confiscate guns and nevertheless maintain his base?" you ask. Given that he can basically say ANYTHING and maintain his base, we're not too worried about it. #MAGA!! Plus, wink wink nod nod, North Carolina. We'd all have a "barrel" of laughs over that.  

So now what? Well, "shoot." We could "burst mode" this thing, and liquidate it but what's the fun in that. After all, we still made net revenue of $603.4mm and have gross profit margins of 20.9%. Yeah, sure, those numbers are both down from $865.1mm and 27.4%, respectively, but, heck, all it'll take is a midterm election to reverse those trends baby. 

That was a pretty stellar $260mm revenue decline for Remington. Thanks Trump!! So, how did Sportco fare?

Want to quantify how scared people were that @BarackObama would take away their guns?

Per Sportco's bankruptcy filing:

Average net sales '12-'16: $885.3mm.
Net sales '17: $531.1mm.
Net sales '18: $557mm.

President Trump cost this company $300+mm in annual sales. #MAGA! pic.twitter.com/yBQOTLRFPW

— 💥PETITION💥 (@petition) June 10, 2019

Trump seems to be failing to make America great again for those who sell guns.

But don’t take our word for it. Per Sportco:

In the lead up to the 2016 presidential election, the Debtors anticipated an uptick in firearms sales historically attributable to the election of a Democratic presidential nominee. The Debtors increased their inventory to account for anticipated sales increases. In the aftermath of the unexpected Republican victory, the Debtors realized lower than expected sales figures for the 2017 and 2018 fiscal years, with higher than expected carrying costs due to the Debtors’ increased inventory. These factors contributed to the Debtors tightening liquidity and an industry-wide glut of inventory.

Whoops. Shows them for betting against the stable genius. What are these carrying costs they refer to? No gun sales = too much inventory = storage. Long warehousemen.

Compounding matters, the company’s excess inventory butted with industry-wide excess inventory sparked by “the financial distress of certain market participants.” This pressured margins further as Sportco had to discount product to push sales. This “further eroded…slim margins and contributed to…tightening liquidity.” Per the company:

Many of the Debtors’ vendors and manufacturers suffered heavy losses as a result of the Cabela’s-Bass Pro Shop merger, Dick’s Sporting Good’s pull back from the market, and the recent Gander Mountain and AcuSport bankruptcies. Those losses adversely impacted the terms and conditions on which such vendors and manufacturers were willing to extend credit to the Debtors. With respect to the Gander Mountain and AcuSport bankruptcies, the dumping of excess product into the marketplace pushed prices—and margins— even lower. The resulting tightening of credit terms eroded the Debtors’ sales and further contributed to the Debtors’ tightening liquidity.

The company also blames some usual suspects for its chapter 11 filing. First, weather. Weather ALWAYS gets a bad rap. And, of course, the debt.

Riiiiiight. About that debt. When we previously asked “Who is Financing Guns?,” the answer, in the case of Remington, was Bank of America Inc. ($BAC), Wells Fargo Inc. ($WFC) and Regions Bank Inc. ($RF). Likewise here. Those same three institutions make up the company’s ABL lender roster. We’re old enough to remember when banks paid lip service to wanting to do something about guns.

One other issue was the company’s inability to…wait for it…REALIZE CERTAIN SUPPLY CHAIN SYNERGIES after acquiring certain assets from once-bankrupt competitor AcuSport Corporation. Per the company:

The lower than anticipated increase in customer base following the AcuSport Transaction magnified the adverse effects of the market factors discussed above and resulted in a faster than expected tightening of the Debtors’ liquidity and overall deterioration of the Debtors’ financial condition.

The company then ran into issues with its pre-petition lenders and its vendors and the squeeze was on. Recognizing that time was wearing thin, the company hired Houlihan Lokey Inc. ($HLI) to market the assets. No compelling offers came, however, and the company determined that a chapter 11 filing “to pursue an orderly liquidation…was in the best interest of all stakeholders.”

R.I.P. Sportco.

*****

But not before you get in one last fight.

The glorious thing about first day papers is that they provide debtors with the opportunity to set the tone in the case. The First Day Declaration, in particular, is a narrative. A narrative told to the judge and other parties-in-interest about what was, what is, and what may be. That narrative often explains why certain other requests for relief are necessary: that is, that without them, there will be immediate and irreparable harm to the estate. The biggest one of these is typically a request for authority to tap a committed DIP credit facility and/or cash collateral to fund operations. On the flip side of that request, however, are the company’s lenders. And they often have something to say about that — objections over, say, the use of cash collateral are common.

But you don’t often see an objector re-write the entire frikken narrative and file it prior to the first hearing in the case.

Shortly after the bankruptcy filing, Prospect Capital Corporation (“PCC”), as the second lien term loan agent, unleashed an objection all over the debtors. Per PCC:

Just a few years ago, the Debtors were the largest distributor of firearms in the United States, with reported annual revenue of in excess of $770 million. Contrary to the First Day Declaration filed in these cases, the Debtors’ demise was not due to outside forces such as the “2016 presidential election,” “disruptions in the industry” and “natural disasters. Rather, as a result of dividend recapitalization transactions in 2012 and 2013, the Debtors’ equity owner, Wellspring Capital, “cashed out” in excess of $183 million. After lining their pockets with over $183 million, fiduciaries appointed by Wellspring Capital to be directors and officers of the Debtors grossly mismanaged the business and depleted all reserves necessary to weather the storms and the headwinds the business would face. In a short time, the business went from being the largest firearms distributor in the United States to being liquidated. As a result of years of mismanagement and the failure of the estates’ fiduciaries to preserve value, the Second Lien Lenders will, in all likelihood, recover only a small fraction of their $249.7 million secured loan claim. Years of mismanagement ultimately placed the Debtors in the position where they are in now….

This sh*t just got much more interesting: y’all know we love dividend recapitalizations. Anyway, PCC went on to object to the fact that this is an in-court liquidation when an out-of-court process would be, in their view, cheaper and just as effective; they also object to the debtors’ proposed budget and use of cash collateral. The upshot is that they see very little chance of recovery of their second lien loan and want to maximize value.

Of course, the debtors be like:

The numbers speak for themselves, they replied. They were $X of revenue between 2012 and 2016 and then, after Trump was elected, they’ve been $X-Y%. Plain and simple.

So where does this leave us? After some concessions from the DIP lenders and the debtors, the court approved the debtors requested DIP credit facility on an interim basis. The order preserves PCC’s rights to come back to the court with an argument related to cash collateral after the first lien lenders (read: the banks) are paid off in full (and any intercreditor agreement-imposed limitations on PCC’s ability to fight fall away).

Ultimately, THIS may sum up this situation best:

It’s genuinely difficult to pick the most villainous company in this story. Is it the company selling guns who made a big bet on people’s deepest fears and insecurities and then shit the bed? The private equity company bleeding the gun distributor dry and then running it straight into the ground? Or the other private equity company that is now mad it likely won’t get anything near what it paid out in the original loan to the distributor? Folks...let them fight.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $23.1mm ABL, $249mm term loan (Prospect Capital, Summit Partners)

• Professionals:

  • Legal: McDermott Will & Emery LLP (Timothy Walsh, Darren Azman, Riley Orloff) & (local) Polsinelli PC (Christopher Ward, Brenna Dolphin, Lindsey Suprum)

  • Board of Directors: Bradley Johnson, Alexander Carles, Justin Vorwerk

  • Financial Advisor/CRO: Winter Harbor LLC (Dalton Edgecomb)

  • Investment Banker: Houlihan Lokey Inc.

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

• Other Parties in Interest:

  • DIP Agent: Bank of America NA

    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Carrie Hardman) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele)

  • Agent for Second Lien Lenders: Prospect Capital Corporation

    • Legal: Olshan Frome Wolosky LLP (Adam Friedman, Jonathan Koevary) & (local) Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, John Lucian)

  • Prepetition ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank NA

  • Large equityholders: Wellspring Capital Partners, Summit Partners, Prospect Capital Corporation

  • Official Committee of Unsecured Creditors (Vista Outdoor Sales LLC, Magpul Industries Corporation, American Outdoor Brands Corporation, Garmin USA Inc., Fiocchi of America Inc., FN America LLC, Remington Arms Company LLC)

    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Eric Chafetz, Gabriel Olivera) & (local) Morris James LLP (Eric Monzo)

    • Financial Advisor: Emerald Capital Advisors (John Madden)

Update 7/7/19 #115

New Chapter 11 Bankruptcy Filing -- FTD Companies Inc.

FTD Companies Inc.

June 3, 2019

After the issuance of Illinois-based FTD Companies Inc’s ($FTD) most recent 10-K, everyone and their mother — well, other than maybe United Parcel Service Inc. ($UPS)* — knew that FTD was headed towards a bankruptcy court near you. It arrived.

The company is a floral and gifting company operating primarily within the United States and Canada; it (and its affiliated debtors) specializes in providing floral, specialty foods, gift and related products to consumers (direct-to-consumer), retail florists and other retail locations. The company basks in the glory of its “iconic” “Mercury Man” logo, which it alleges is “one of the most recognized logos in the world.” Seriously? Hyperbole much?🙄

Maybe…not? This, for any sort of history nerd, is actually pretty interesting:

Originally called "Florists' Telegraph Delivery Association," FTD was the world's first flowers-by-wire service and has been a leader in the floral and gifting industry for over a century. The Debtors' story began in 1910 when thirteen American retail florists agreed to exchange orders for out-of-town deliveries by telegraph, thereby eliminating prohibitively lengthy transit times that made sending flowers to friends and relatives in distant locations almost impossible. The idea revolutionized the industry, and soon independent florists all over America were telegraphing and telephoning orders to each other using the FTD network. In 1914, FTD adopted the Roman messenger god as its logo and, in 1929, copyrighted the Mercury Man® logo as the official trademark for FTD.

This company is only slightly younger than Sears (1893). And so this bankruptcy filing is a bigger deal than meets the eye. This company revolutionized flower delivery, regularly innovating and expanding its reach over its decades in business. In 1923, FTD expanded to Britain. In 1946, FTD, FTD Britain and a European clearinghouse established what is now known as Interflora to sell flowers-by-wire around the world. In 1979, the company launched an electronic system to link florists together; and in 1994, it launched its first e-commerce site. In other words, this company always tackled the “innovator’s dilemma” head on, pivoting regularly over time to seize opportunities whenever and wherever they emerged. For quite some time, this was, at least for some time, an impressive operation — seemingly always one step ahead of disruption. WE ALL LIKELY TAKE FOR GRANTED JUST HOW EASY IT IS TO DELIVER FLOWERS THESE DAYS. These guys helped make it all possible. If ever a debtor was in need of a hype man, this company is it. A read of the bankruptcy papers barely gives you a sense for the history and legacy of this company.

Interestingly, for much of its history, the company was actually a not-for-profit. That’s right: a not-for-profit. Per the company:

For the majority of its existence, FTD operated as a not-for-profit organization run by its member florists. With the florists as its core, the Debtors' legacy business provided a powerful mix of a "local," authentic, and bespoke product, broad geographic range, and a commitment to exacting standards of quality and service. Moreover, the Debtors historically were devoted to creating an optimal product for their florist network, including through investment in innovation and technology and marketing the FTD brand and the floral industry overall. As a result, florists sought out FTD membership, and the FTD brand had (and still has) significant caché in the industry.

Amazing!

So what the hell happened? Well, the blood-sucking capitalists arrived knocking. Now-defunct Perry Capital acquired FTD in 1994 (the same year that the company established its web presence) and converted the company into a for-profit corporation. In 2000, the company IPO’d and in 2008, United Online (now owned by B.Riley Financial $RILY), merged with the company in a $800mm transaction consummated just prior to the financial crisis. Then, in 2013, FTD spun off from United Online, once again becoming a publicly-traded company on the NASDAQ exchange.

Throughout the company’s evolution, it pursued a strategy of dominating the floral market via strategic acquisitions (and, in the process, drew antitrust scrutiny a handful of times). In 2006, it acquired Interflora and in 2014, it acquired Provide Commerce LLC (ProFlowers) in a $430mm cash and equity transaction. The purchase was predicated upon uniting FTD’s B2B “Florist” business (read: FTD-to-retail-florists) and B2C (read: FTD-direct-to-consumer) businesses with Provide Commerce’s B2C model in such a way that would (i) offer customers greater choice, (ii) provide the company with expanded geographic and demographic reach, and (iii) promote cross-selling possibilities. Per the company:

…FTD anticipated that the Provide Acquisition would generate significant cost synergies through efficiencies in combined operations.

Ah, synergies. Is there anything more romantic than the thought of ever-elusive synergies?

The company incurred $120-200mm of debt to finance the transaction.** You know where this is headed. If not, well, please allow the company to spell it out for you:

Though the Provide Business Units have increased the Debtors' revenue (the Provide Business Units currently contribute more than 50% of the Debtors' total revenue) … certain shifts in the market, technological changes, and improvident strategic outcomes in connection with the implementation of the Provide Acquisition combined to (a) frustrate expectations regarding the earnings of the combined entity and (b) impair the Debtors' ability to refinance near-term maturities, which has driven the Debtors' need to commence these chapter 11 cases.

That sure escalated quickly. 😬

Let’s take a moment here, however, to appreciate what the company attempted to do. In the spirit of its long-time legacy of getting out ahead of disruption, the company identified a competitor that was quickly disrupting the floral business. Per the company:

ProFlowers had entered the floral industry as a disruptor by reimagining floral delivery to consumers. Unlike the Debtors' "asset-light" B2B business model, ProFlowers took ownership of the floral inventory and fulfilled orders directly through a company-operated supply chain. By sourcing finished bouquets directly from farms, limiting product selection, pricing strategically into the consumer demand curve, and leveraging analytically-driven direct response marketing to generate large volumes at peak periods (i.e., Valentine's Day and Mother's Day), ProFlowers appealed to a broad market of consumers who wanted an efficient order process coupled with lower cost purchases.

There’s more:

In addition to these potential opportunities, FTD also viewed the Provide Acquisition as the means to strategically position itself for success within a changing industry. At the time of the Provide Acquisition, the disruptive impact of ProFlowers was perceived as a threat to traditional business models within the floral industry (and to the Florist Member Network specifically). FTD was concerned that, if it failed to adapt and embrace shifting industry paradigms, competitors would take advantage and acquire ProFlowers to FTD's detriment. Accordingly, FTD effected the Provide Acquisition.

We clown on companies all of the time for failing to heed the signs of disruption. But, that’s not actually the case here. This company was, seemingly, on its game. Where it failed, however, was with the post-acquisition integration. It’s awfully hard to realize synergies when businesses effectively run as independent entities. Per the company:

In particular, a number of key post-acquisition targets, such as (a) floral brand alignment, (b) necessary technological investments in the combined business (e.g., the consolidation of technology/ecommerce platforms), and (c) the integration of marketing and business teams, have lagged. As a result, both the Provide Commerce and the Debtors' legacy brands suffered from internal friction and suboptimal structures within the Debtors' enterprise.

And while the company failed to integrate Provide Commerce, the industry never stopped evolving. Competitors didn’t just take the acquisition as a sign that they ought to fold up their tents and relinquish the flower industry to FTD. F*ck no. To the contrary, this is where…wait for it…AMAZON INC. ($AMZN) ENTERS THE PICTURE:***

While the Debtors struggled to unify their businesses and implement the Provide Acquisition, the floral industry – and consumer expectations – continued to evolve. Following the example set by ProFlowers, other companies began to deliver farm-sourced fresh bouquets directly to customers, increasing competition in the B2C space. In addition, the expanding influence of e-commerce platforms like Amazon transformed customer expectations, particularly with respect to ease of experience and the fast, free delivery of goods. Given the perishable and delicate nature of the product, delivery and service fees were standard in the floral industry. As e-commerce companies trained consumers to expect free or nominal cost delivery, floral service fees became anathema to many customers.

Well, Amazon AND venture capital-backed floral startups (i.e., The Bouqs Company - $43mm of VC funding) that could absorb losses in the name of customer acquisition.

The company also blames a significant number of trends that we’ve covered here in PETITION for its demise. Like, for instance, increased shipping and online marketing costs (long Facebook Inc. ($FB)), low barriers to entry for other DTC businesses (long Shopify Inc. ($SHOP)), and “the growing presence of grocers and mass merchants providing low-cost floral products and chocolate-dipped strawberries during peak holidays” (long Target Inc., ($T), Walmart Inc. ($WMT), Trader Joe’s, etc.).

Collectively, market pressures contributed to declining sales and decreased order volumes, impairing the B2C businesses' ability to leverage and capitalize on scale.

In other words, (a) chocolate-dipped strawberries have no f*cking moat whatsoever and (b) as with all other things retail, this is a perfect storm story that is best explained by factors beyond just the f*cking “Amazon Effect” (the most obvious one being: a ton of debt).

Consequently, the company has been mired in a year-plus-long process of triage; it tried to cap-ex its way out of problems, but that didn’t work; it brought in new leadership but…well…you see how that turned out; it attempted to “reinvent” its user experience to combat its techie VC-backed upstart competitors with no results; and, it sought to optimize efficiencies. None of this could stem the tide of underperformance, bolster liquidity, and, ultimately, prevent debt covenant issues. The company currently has $149.4mm of secured indebtedness on its balance sheet (comprised of a $57.4mm term loan and $92mm under a revolving credit facility). The company reports approximately $72.4mm of unsecured debt owed to providers of goods and services.

In a strange fit of irony, it was the most romantic holiday of the calendar year that spelled doom for FTD. The company’s Valentine’s Day 2018 was pathetic: aggregate consumer order volume declined 5% and, even when people did use FTD, the average order size fell by 3%.

Valentine’s Day 2019 was no better. The company materially underperformed projections again. In addition to constraining liquidity further, this had the added effect of cooling any interest prospective buyers might have in the company pre-bankruptcy.

So, where are we now?

The crown jewel of the company is the company’s B2B retail business. This segment generated $150.3mm in revenue and $42.7mm in operating income in 2018. Operating margin is approximately 30%. The B2C business (including FTD.com), on the other hand, lost $4.6mm in ‘18 (on $727.9mm of revenue) and had -1% operating margin in 2018. (PETITION Note: while these numbers are in many respects abysmal, its fun to think that if they belonged, sans debt, to one of those VC-backed upstarts, they’s probably be WAY GOOD ENOUGH for the company to IPO in today’s environment…flowers-as-a-service anyone?). Clearly, there is nothing “iconic” about this brand outside of the floral network/community.

Anywho, the company is selling the company for parts. On Mary 31, the company effectuated a sale of Interflora for $59.5mm. On June 2, the company entered into an asset purchase agreement with Nexus Capital Management LP for the purchase of certain FTD assets and the ProFlowers business for $95mm. It also entered into non-binding letters of intent to sell other assets, including Shari’s Berries to Farids & Co. LLC (which is owned by the founder of Edible Arrangements LLC, the gnarliest company we’ve ever encountered when it comes to gifts.).

All of which is to say, R.I.P. FTD. We’ll be sure to send flowers. From Bouqs.

*Why are we picking on UPS? It is listed as the largest unsecured creditor to the tune of $23.2mm. Surely they’ll be clamoring for “critical vendor” status given the core function they provide to FTD’s business.

**At one point the papers say, $120mm, at another $200mm.

***We didn’t actually realize this but, yes, of course you can buy fresh flowers on Amazon.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure:

  • Secured Indebtedness:

    • $92mm Revolver

    • $57.4mm Term Loan

  • Unsecured Indebtedness

    • $72.4mm of Various Trade Claims

• Professionals:

  • Legal: Jones Day (Heather Lennox, Brad Erens, Thomas Wilson, Caitlin Cahow) & (local) Richards Layton & Finger PA (Daniel DeFranceshi, Paul Heath, Brett Haywood, Megan Kinney)

  • Financial Advisor/CRO: AlixPartners LLP (Alan Holtz, Scott Tandberg, Jason Muscovich, Job Chan, Bassaam Fawad, J.C. Chang)

  • Investment Banker: Moelis & Company & Piper Jaffray Companies

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

• Other Parties in Interest:

New Chapter 11 Bankruptcy Filing - Imerys Talc America Inc.

Imerys Talc America Inc.

February 13, 2019

Merely a week ago we wrote:

PG&E Corporation's ($PCG) recent liability-based bankruptcy filing got us thinking: what other companies are poised for a litigation-based chapter 11 bankruptcy filing? We think we have a winner. 

Imerys S.A. is a French multinational company that specializes in the production and processing of industrial minerals. Its North American operations are headquartered in Roswell, Georgia and in San Jose, California. Included among Imerys' North American operations is Imerys Talc America. The key word in all of the foregoing is "Talc." 

If only we had purchased a lottery ticket.

Within days, Imerys Talc America Inc. and two affiliated debtors indeed filed for bankruptcy in the District of Delaware. The debtors mine, process and distribute talc for use in end products used in the manufacturing of products sold by third-parties —- primarily Johnson & Johnson Inc. ($JNJ). The debtors have historically been the sole supplier of cosmetic talk to JNJ. And, in part, because of that, they’re getting sued to Kingdom Come. Approximately 14,650 individual claimants are suing the debtors alleging personal injuries caused by exposure to talc mined, processed or distributed by the debtors. The debtors note:

Although personal care/cosmetic sales make up only approximately 5% of the Debtors’ revenue, approximately 98.6% of the pending Talc Claims allege injuries based on use of cosmetic products containing talc.

Whoa. What a number!! What a disparity! Low revenues and yet high claims! What a sham! That just goes to show how absurd these claims are!!

Just kidding. That sentence means absolutely nothing: it is clearly an attempt by lawyers to ignorantly wow people with percentages that have absolutely no significance whatsoever. Who gives a sh*t whether personal care/cosmetic sales are only a small fraction of revenues? If those sales are all laced with toxic crap that are possibly causing people cancer or mesothelioma, the rest is just pixie dust. In fact, it’s possible that 100% of 1% of sales are causing cancer, is it not?

Anyway, naturally, the debtors deny those claims but defending the claims, of course, comes at a huge cost. Per the Company:

…while the Debtors have access to valuable insurance assets that they have relied on to fund their defense and appropriate settlement costs to date, the Debtors have been forced to fund certain litigation costs and settlements out of their free cash flow due to a lack of currently available coverage for certain Talc Claims, or insurers asserting defenses to coverage. The Debtors lack the financial wherewithal to litigate against the mounting Talc Claims being asserted against them in the tort system.

Well that sucks. In addition to the debtors issues obtaining insurance coverage, they’re also apparently bombarded by claimants emboldened by the recent multi-billion dollar verdict rendered against JNJ.. We previously wrote:

While certain cases are running into roadblocks, the prior verdicts call into question whether Imerys has adequate insurance coverage to address the various judgments. If not, the company is likely headed into bankruptcy court — the latest in a series of cases that will attempt to deploy bankruptcy code section 524's channeling injunction and funnel claims against a trust. 

Indeed, given issues with insurance (and JNJ refusing to indemnify the debtors as expected in certain instances), the massive verdict, AND discussions with a proposed future claims representative, the debtors concluded that a chapter 11 filing would be the best way to handle the talc-related liabilities. And indeed a channeling injunction is a core goal. Per the debtors:

The Debtors’ primary goal in filing these Chapter 11 Cases is to confirm a consensual plan of reorganization pursuant to Sections 105(a), 524(g), and 1129 of the Bankruptcy Code that channels all of the present and future Talc Claims to a trust vested with substantial assets and provides for a channeling injunction prohibiting claimants from asserting against any Debtor or non-debtor affiliate any claims arising from talc mined, produced, sold, or distributed by any of the Debtors prior to their emergence from these Chapter 11 Cases. While the Debtors dispute all liability as to the Talc Claims, the Debtors believe this approach will provide fair and equitable treatment of all stakeholders.

The comparisons to PG&E were on point.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $14.4mm inter-company payable.

• Professionals:

  • Legal: Latham & Watkins LLP (George Davis, Keith Simon, Annemarie Reilly, Richard Levy, Jeffrey Bjork, Jeffrey Mispagel, Helena Tseregounis) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele)

  • Financial Advisor: Alvarez & Marsal North America LLC

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

• Other Parties in Interst:

  • Imerys SA

    • Legal: Hughes Hubbard & Reed LLP (Christopher Kiplok, William Beausoleil, George Tsougarakis, Erin Diers) & (local) Bayard PA (Scott Cousins, Erin Fay)

  • Future Claims Representative: James L. Patton Jr.

    • Legal: Young Conaway Stargatt & Taylor LLP

    • Financial Advisor: Ankura Consulting Group LLC

New Chapter 11 Filing - Open Road Films LLC

Open Road Films LLC

9/6/18

Rough year for movie production houses. After Relativity Media and The Weinstein Company filed chapter 11 cases earlier this year, Open Road Films LLC now finds itself in bankruptcy court. The company behind Jobs, Nightcrawler and other mostly forgettable films has had a dramatic fall from grace after being acquired by current equityholder TMP Holdings from Regal Entertainment Group and AMC Entertainment merely a year ago. Though contemplated at the time of acquisition, the company was unable to secure funding to, among other things, restructure the company (in the out-of-court sense) and streamline operations. The question is why? Why couldn't the company secure funding? 

The company notes:

Among other things, increased volatility in overall film performance exacerbated investor concerns regarding the probability and predictability of studio financial success, especially outside of the major studios. This overall volatility was exacerbated by the specific underperformance of certain of the Company’s recent motion picture releases, most of which were initiated by prior management. In addition, competitive options for consumers limit interest in theatrical distribution and the traditional film business model, imposing additional pressure on companies like the Debtors, and further fueling investor skepticism.

In other words, blame Reese Witherspoon ("Home Again" flopped), Jodie Foster ("Hotel Artemis" completely bombed) and Netflix ($NFLX). 

With no incoming funding and a resultant inability to obtain a "going concern" qualification, the company defaulted on its loan with Bank of America. BofA, therefore, limited access to certain deposit accounts, all the while vendors were seeking payments. Already this drama is more interesting than "Home Again." 

The company intends to use the chapter 11 process to market and sell its assets; it does not yet have a stalking horse bidder, though FTI reports that 11 parties have submitted indications of interest. 

The top 40 general unsecured creditors list is a who's who of media elites, including "old media" firms like Viacom Inc. (owed $7mm), The Walt Disney Company (owed $5.1mm), NBCUniversal (owed $4.4mm), Turner Broadcasting System (owed $3.5mm). Other top creditors include Google, Facebook, Snap, Twitter, Amazon, Spotify, and Pandora Media. And Latham & Watkins, which appears to be getting hosed on a half million dollar legal bill. 

• Jurisdiction: D. of Delaware (Judge Silverstein)
• Capital Structure: $90.75 mm secured debt (Bank of America NA)     
• Company Professionals:
  • Legal: Klee Tuchin Bogdanoff & Stern LLP (Michael Tuchin, Jonathan Weiss, Sasha Gurvitz, Whitman Holt) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Robert Poppiti Jr., Ian Bambrick)
  • Financial Advisor/CRO: FTI Consulting Inc. (Amir Agam)
  • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Prepetition Lender: Bank of America NA
    • Legal: Paul Hastings LLP (Andrew Tenzer, Shlomo Maza) & (local) Ashby & Geddes PA (William Bowden)
  • Prepetition Creditor: East West Bank
    • Legal: Akin Gump Strauss Hauer & Feld LLP (David Staber) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
  • Prepetition Creditor: Bank Leumi USA
    • Legal: Reed Smith LLP (Marsha Houston, Christopher Rivas, Michael Sherman

👗New Chapter 11 Filing - J&M Sales Inc./National Stores Inc.👗

J&M Sales Inc./National Stores Inc.

8/6/18

Another day, another retailer in bankruptcy. Today, J&M Sales Inc., a “leading discount retailer” with $5-average-price goods in 344 stores in 22 states — operating under the names Fallas, Fallas Paredes, Fallas Discount Stores, Factory 2-U, Fallas and Anna’s Linen’s by Fallas — finds itself in bankruptcy court. The company offers value-priced merchandise, including apparel, bedding, household supplies, decor items and more; it generally supports underserved, low-income communities and can be found in power strip centers, specialty centers and downtown areas. All of its locations are leased.

The company blames (i) general retail pressures, (ii) bad weather (specifically hurricanes Harvey and Maria), (iii) a data breach (and a attendant $2mm reserve account set up by the credit card companies) and (iv) poor integration of growth acquisitions (e.g., Conway’s) for its chapter 11 filing. These company-specific factors may help explain why this company is apparently bucking the national trend of discount retail success (see, e.g., Dollar Tree).

The company intends to use the chapter 11 process to shop itself as a going concern and close at least 74 stores. The company makes no mention, however, of the extent of the sale process and there is no stalking horse bidder currently lined up. The company will seek approval of a (no new money?) $57mm DIP credit facility as well as credit support from certain “Critical Vendors” on a second and third lien basis.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $57mm ABL (Encina Business Credit LLC/Israel Discount Bank of New York), $30mm term loan (Gordon Brothers Finance Company), $13.4mm Letters of Credit, $10mm Fallas Loan

• Company Professionals:

  • Legal: Katten Muchin Roseman LLP (WIlliam Freeman, Karen Dine, Jerry Hall) & (local) Pachulski Stang Ziehl & Jones LLP (Richard Pachulski, Peter Keane)

  • Financial Advisor: SierraConstellation Partners LLC (Curt Kroll)

  • Investment Banker: Imperial Capital LLC

  • Real Estate Advisor: RCS Real Estate Advisors

  • Liquidation Agent: Hilco Merchant Resources LLC

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

• Other Parties in Interest:

  • DIP Agents: Encina Business Credit LLC (Legal: Choate Hall & Stewart LLP, Kevin Simard) & Discount Bank of New York (Legal: Otterbourg PC, Daniel Fiorillo)

New Chapter 11 Filing - ABT Molecular Imaging Inc.

ABT Molecular Imaging Inc. 

6/13/18

ABT is the designer, manufacturer and distributor of a Biomarker Generator. Our eyes glazed over just reading the filing papers on this one so we're going to outsource here, spare ourselves some time, and spare ourselves some serious boredom. 

The bottom line is that the company lost more money ($5.5mm) than it made in sales ($5.4mm). The company has $30mm of liabilities, all in, and assets with a net book value of merely $2.5mm. The disparity stems, in most respects, from the debt on the company's balance sheet. The purpose of the filing is to address the balance sheet and/or pursue a sale of the business. The company's secured lender, SWK Funding LLC, has agreed to fund a DIP credit facility over the course of the case and sponsor a sale through a chapter 11 plan if, during the bankruptcy process, the company is unable to find another suitable purchaser. 

• Jurisdiction: D of Delaware (Judge Silverstein)
• Capital Structure: $9.6mm first lien debt (SWK Funding LLC), $16.1 second lien debt (SWK Funding LLC)  
• Company Professionals:
  • Legal: Bayard PA (Justin Alberto, Erin Fay, Daniel Brogan, Greg Flasser)
  • Investment Banker:: SSG Capital Advisors LLC (J. Scott Victor, Neil Gupta, Michael Gunderson)
  • Claims Agent: Garden City Group (*click on company name above for free docket access)
• Other Parties in Interest:
  • Secured Lender: SWK Funding LLC
    • Legal: Holland & Knight LLP (Brian Smith, Brent Mcilwain) & (local) Young Conaway Stargatt & Taylor LLP 

New Chapter 11 Bankruptcy - Herald Media Holdings Inc.

Herald Media Holdings Inc.

• 12/8/17 Recap: Boston-based 170-year old legacy print news media company that owns and publishes (i) the Boston Herald and (ii) the bostonherald.com digital media site has filed for bankruptcy to effectuate an expedited 363 sale to Gatehouse Media Massachusetts I, Inc for "an all-in value of not less than $5,000,000." In a sign of the times known to literally everyone, the Company notes in its filing that "there has been an increase in news source and advertising alternatives that has continued to erode traditional print media sources of revenue. Incremental digital revenue has not been sufficient to offset the decline in print revenue." Interestingly - given that there is a lot of discussion today about the state of media and the push-pull of advertising dollars vs. subscription revenue - the company derives approximately 67% of its revenue from paid circulation (single copy sales and subscription sales) and approximately 33% from print and online advertising. Nevertheless, the company's projections reflect a nearly $3mm loss for fiscal year 2018. In an effort to combat declining revenues, the Company pursued cost-cutting initiatives (e.g., headcount reductions, outsourcing, etc.,) but no more levers remained available to pull. Indeed, "[g]iven the general economic climate for the newspaper industry and the company’s significant pension and retirement liabilities, no financing options are available for the company to continue with its current capital structure." Note that the company's top list of creditors reflects various unions under four different collective bargaining agreements (CBAs): those fixed costs aren't easy to shed outside of bankruptcy. Employee-related expenses including payroll, benefits and pension/retirement contributions account for 58% of operating expenses while production and distribution of the paper accounts for 23% of total operating expenses. Looking at those numbers, it becomes pretty obvious why this business became unsustainable. Notably, the propose sale is conditioned upon the Company rejecting all CBAs in bankruptcy so that the asset transfer is free and clear of those obligations. Gatehouse is offering a $500k DIP credit facility to fund the administration of the case.
• Jurisdiction: D. of Delaware (Judge Silverstein) 
• Company Professionals:
  • Legal: Brown Rudnick LLP (William Baldiga, Sunni Belville, Tristan Axelrod) & (local) Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Tamara Minott, Jose Bibiloni)
  • Investment Banker: Dirks Van Essen & Murray
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:

Updated 12/9/17 10:20 am CT

New Chapter 11 Filing - GST AutoLeather Inc.

GST AutoLeather Inc.

• 10/3/17 Recap: Disruption, illustrated. The automobile industry is at the beginning of a downturn marked by auto price reductions and a drop in new vehicle production. Automobile output is down 4% over the past year as automobile dealers are placing fewer manufacturing orders and dealing with excess supply. Moreover, auto OEMs are decreasing the leather content in certain new vehicles. Finally, automobiles are lasting longer and "the climbing popularity of ride-sharing services, such as Uber and Lyft...diminish consumers' needs for their own cars." Put simply, there is a demand side decline. Consequently, here, the Southfield Michigan-based supplier of leather interiors filed a freefall bankruptcy with the hope of consummating an expedited (approximately 2-month timeframe) 363 asset sale. The company has secured a $40mm DIP credit facility to fund its bankruptcy; it continues talks with its senior lenders about a stalking horse bid to purchase the company. In addition to the aforementioned macro factors, the company blames its deteriorated financial performance on (i) issues associated with certain new customer launches in Europe, (ii) supply chain issues with a critical Chinese supplier who is using leverage to extract out-of-contract economics from the company and (iii) constraints imposed by significant working capital investments to mitigate supply chain disruption to its customers (which include the likes of major auto OEMs, e.g., Audi, BMW/Mini, Daimler, Fiat Chrysler, Ford, General Motors, Hyundai, Honda, Porsche, PSA, Nissan, Kia, Toyota and Volkswagen).
• Jurisdiction: D. of Delaware (Judge Silverstein)
• Capital Structure: $24mm '19 RCF, $140mm '20 TL-B (Royal Bank of Canada), $32mm mezz debt (Triangle Capital Corp./Alcentra Capital Corp.)
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (James Sprayragen, Ryan Blaine Bennett, Michael Slade, Alexandra Schwarzman, Timothy Bow, Benjamin Rhode, Luke Ruse) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)
  • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Jonathan Hickman, Jay Herriman)
  • Investment Banker: Lazard Middle Market (Jason A. Cohen)
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Sponsor: Advantage Partners
  • Lender Group (Royal Bank of Canada, as DIP Admin Agent)
    • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford, Shlomo Maza) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Justin Rucki)
    • Financial Advisors: FTI Consulting
  • Mezzanine Lenders:
    • Legal: McGuireWoods LLP (Anne Croteau, Douglas Foley) & (local) Benesch Friedlander Coplan & Aronoff LLP (Jennifer Hoover, William Alleman Jr.)
  • Official Committee of Unsecured Creditors
    • Legal: Foley & Lardner LLP (Erika Morabito, Brittany Nelson, John Simon, Richard Bernard, Leah Eisenberg) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Kevin Shaw, Christopher Jones, David Gaffey)
    • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns, Peter Chadwick, Michelle Tran, Kevin Beard, Jay Wu)
    • Investment Banker: Configure Partners LLC (Jay Jacquin)

Updated 11/15/17 7:55 am CT

New Chapter 11 Filing - The Original Soupman Inc.

The Original Soupman, Inc.

• 6/13/17 Recap: Bankruptcy for you! Company that licensed the name and recipes of the chef who inspired the "Soup Nazi" on Seinfeld has filed for bankruptcy with a $2mm DIP credit facility to fund the case. The CFO had been indicted for tax evasion. We wonder whether the prison he goes to will have soup that lives up to the Soupman standard. Anyway, we digress. The company sells soups to and through grocery chains (6500 of them) and club stores throughout the United States; it also provides soup to the New York City School System and has six franchised restaurants, the largest of which resides on the Upper West Side. So a Nazi serves the school system. Awesome. 
• Jurisdiction: D. of Delaware (Silverstein).
• Capital Structure: $3.66mm secured debt (Hillair Capital Investments LP), $3.3mm unsecured notes.
• Company Professionals:
  • Legal: Polsinelli PC (Christopher Ward, Jarrett Vine, Jeremy Johnson)
  • Financial Advisor/CRO: Wyse Advisors LLC (Michael Wyse) 
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Lender: Soupman Lending LLC
    • Legal: Arent Fox LLP (Robert Hirsh, Beth Brownstein) & (local) Bayard PA (Justin Alberto, Erin Fay)

Updated 6/17/17

New Chapter 11 Filing - FirstRain Inc.

FirstRain, Inc.

• 6/5/17 Recap: California-based enterprise SaaS company that services Fortune 1000 companies with its software and analytics-driven apps to discover/read/discern/summarize useful insights about other companies/markets filed a prepackaged bankruptcy. The plan contemplates $7.5mm of total consideration including a $4mm DIP credit facility and the plan is to pay the DIP Lender in full, general unsecureds in full and provide the prepetition lender a partial recovery. ESW Capital LLC will own the company on the backend of the restructuring.
• Jurisdiction: D. of Delaware (Judge Silverstein)
• Capital Structure: $5.5mm secured debt (Pacific Western Bank as successor to Square 1 Bank)    
• Company Professionals:
  • Legal: The Rosner Law Group LLC (Frederick Rosner, Scott James Leonhardt)
  • Investment Banker: Atlas Technology Group LLC
  • Claims Agent: JND Legal Administration (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Lender: ESW Capital LLC
    • Legal: Haynes and Boone LLP (Trevor Hoffman, Arsalan Muhammad) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Matthew Talmo)
  • Prepetition Lender: Pacific Western Bank
    • Legal: Levy Small & Lallas (Leo Plotkin) & (local) Chipman Brown Cicero & Cole LLP (William Chipman Jr.) 

Updated 7/18/17