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

PQ New York Inc.

May 27, 2020

New York-based and Belgium-company-owned PQ New York Inc., otherwise known to most as Le Pain Quotidien, filed for chapter 11 bankruptcy in the District of Delaware (along with 104 affiliates) to effectuate a sale of assets to LPQ USA LLC, an affiliate of Aurify Brands. Aurify Brands incubates in-house brands (e.g., Melt Shop) and harvests previously-created brands too (e.g., Five Guys Burgers and Fries). It intends to re-open no fewer than 35 of LPQ’s 98 restaurants (and, to this end, has already filed a lease rejection motion delineating which leases, subject to a negotiation between landlords and the proposed purchaser, are subject to rejection). LPQ USA LLC provided the debtors a $522k bridge loan pre-petition and roll that loan up into a $3mm post-petition DIP credit facility to fund working capital needs during the course of the cases.

This is not a pure COVID story. The debtors financial performance began to decline pre-pandemic as customer preferences shifted away from the casual dining concept towards other concepts like “grab n go.” This trend, combined with management turnover and lack of investment at the store level, led the debtors to begin exploring strategic alternatives for their European and US-based businesses in Q3 of 2019.

Let’s put some numbers around this. In 2018, the debtors had $175mm of sales and $4.4mm in EBITDA. In 2019, sales dropped to $153mm and EBITDA swung by over $20mm to -$16.8mm. Even worse? There was no hope on the horizon. With expensive leases and eroding same store sales, the debtors forecast negative EBITDA through 2023 absent a severe operational restructuring. Prior to COVID slamming the economy and shutting everything down, the debtors had already determined that a bankruptcy filing would be necessary to help negotiate lease terms with landlords, secure funding, and pursue a sale. The shutdown just postponed things for a while.

• Jurisdiction: D. of Delaware (Judge Dorsey)

• Capital Structure: $522k bridge loan

• Professionals:

  • Legal: Richards Layton & Finger PA (Mark Collins, Michael Merchant, Jason Madron, Brendan Schlauch)

  • Financial Advisor/CRO: PwC (Steven Fleming)

  • Investment Banker: SSG Advisors LLC

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Stalking Horse Purchaser: LPQ USA LLC

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Morton Branzburg)

New Chapter 11 Bankruptcy Filing - J.C. Penney Company Inc. ($JCP)

J.C. Penney Company Inc.

May 15, 2020

Let’s be clear about something right off the bat. Encino Man, Captain America and Austin Powers could all suddenly surface from being entombed in ice for decades and even THEY wouldn’t be surprised that Texas-based J.C. Penney Company Inc. (and 17 affiliates, the “debtors”) filed for chapter 11 bankruptcy.

There are a couple of ways to look at this one.

First, there’s the debtors’ way. Not one to squander a solid opportunity, the debtors dive under “COVID Cover”:

“Before the pandemic, the Company had a substantial liquidity cushion, was improving its operations, and was proactively engaging with creditors to deleverage its capital structure and extend its debt maturities to build a healthier balance sheet. Unfortunately, that progress was wiped out with the onset of COVID-19. And now, the Company is unable to maintain its upward trajectory through its “Plan for Renewal.” Moreover, following the temporary shutdown of its 846 brick-and-mortar stores, the Company is unable to responsibly pay the upcoming debt service on its over-burdened capital structure.”

The debtors note that since Jill Soltau became CEO on October 2, 2018, the debtors have been off to the races with their “Plan for Renewal” strategy. This strategy was focused on getting back to JCP’s fundamentals. It emphasized (a) offering compelling merchandise, (b) delivering an engaging experience, (c) driving traffic online and to stores (including providing buy online, pickup in store or curbside pickup — the latest in retail technology that literally everyone is doing), (d) fueling growth, and (e) developing a results-minded culture. The debtors are quick to point out that all of this smoky verbiage is leading to “meaningful progress” — something they define as “…having just achieved comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half, and successfully meeting or exceeding guidance on all key financial objectives for the 2019 fiscal year.” The debtors further highlight:

The five financial objectives were: (a) Comparable stores sales were expected to be down between 7-8% (stores sales were down 7.7%); (b) adjusted comparable store sales, which excludes the impact of the Company’s exit from major appliances and in-store furniture categories were expected to be down in a range of 5-6% (adjusted comparable store sales down 5.6%); (c) cost of goods sold, as a rate of net sales was expected to decrease 150-200 basis points (decreased approximately 210 basis points over prior year, which resulted in improved gross margin); (d) adjusted EBITDA was $583 million (a 2.6% improvement over prior year); and (e) free cash flow for fiscal year 2019 was $145 million, beating the target of positive.

Not exactly the highest bar in certain respects but, sure, progress nonetheless we suppose. The debtors point out, on multiple occasions, that prior to COVID-19, its “…projections showed sufficient liquidity to maintain operations without any restructuring transaction.” Maintain being the operative word. Everyone knows the company is in the midst of a slow death.

To prolong life, the focus has been on and remains on high-margin goods (which explains the company getting out of low-margin furniture and appliances and a renewed focus on private label), reducing inventory, and developing a new look for JCP’s stores which, interestingly, appears to focus on the “experiential” element that everyone has ballyhooed over the last several years which is now, in a COVID world, somewhat tenuous.

Which gets us to the way the market has looked at this. The numbers paint an ugly picture. Total revenues went from $12.87b in fiscal year ‘18 to $12b in ‘19. Gross margin also declined from 36% to 34%. In the LTM as of 2/1/20 (pre-COVID), revenue was looking like $11.1b. Curious. But, yeah, sure COGs decreased as has SG&A. People still aren’t walking through the doors and buying sh*t though. A fact reflected by the stock price which has done nothing aside from slowly slide downward since new management onboarded:

All of this performance has also obviously called into question the debtors’ ability to grow into its capital structure:

Here’s a more detailed look at the breakdown of unsecured funded debt:

And yet, prior to COVID, the debt stack has more or less held up. Here is the chart for JCP’s ‘23 5.875% $500mm senior secured first lien notes from the date of new management’s start to today:

Here is the chart for JCP’s ‘25 8.624% $400mm second lien notes from the date of new management’s start to today:

And here is our absolute favorite: JCP’s ‘97 7.625% $500mm senior unsecured notes:

The fact that these notes were in the 20s mere months ago is mind-boggling.

We talk a lot about how bankruptcy filings are a way to tell a story. And, here, the debtors, while not trying to hide their stretched balance sheet nor the pains of brick-and-mortar department stores with a 846-store footprint, are certainly trying to spin a positive story about management and the new strategic direction — all while highlighting that there are pockets of value here. For instance, of those 846 stores, 387 of them are owned, including 110 operating on ground leases. The private brand portfolio — acquired over decades — represents 46% of total merchandise sales. The debtors also own six of their 11 distribution centers and warehouses.

With that in mind, prior to COVID, management and their advisors were trying to be proactive about the balance sheet — primarily the term loans and first lien secured notes maturing in 2023. In Q3 ‘19, the debtors engaged with their first lien noteholders, term lenders and second lien noteholders on proposals that would, among other things, address those maturities, promote liquidity, and reduce interest expense. According to the debtors, they came close. A distressed investor was poised to purchase more than $750mm of the term loans and, in connection with a new $360mm FILO facility, launch the first step of a broader process that would have kicked maturities out a few years. In exchange, the debtors would lien up unencumbered collateral (real estate). Enter COVID. The deal went up in smoke.

There’s a new “deal” in its stead. A restructuring support agreement filed along with the bankruptcy papers contemplates a new post-reorg operating company (“New JCP”) and a new REIT which will issue new common stock and new interests, respectively. Beyond that, not much is clear from the filing: the term sheet has a ton of blanks in it:

There’s clearly a lot of work to do here. There’s also the “Market Test” element which entails, among other things, running new financing processes, pursuing potential sale/leaseback transactions, and pursuing a sale of the all or part of the debtors’ assets. If the debtors don’t have a business plan by July 14 and binding commitments for third-party financing by August 15, the debtors are required to immediately cease pursuing a plan and must instead pursue a 363 of all of their assets. Said another way, if the economy continues to decline, consumer spending doesn’t recover, and credit markets tighten up, there’s a very good chance that JCP could liquidate. Remember: retail sales sunk to a record low in April. Is that peak pain? Or will things get worse as the unemployment rate takes root? Will people shop at JC Penney if they even shop at all? There are numerous challenges here.

The debtors will use cash collateral for now and later seek approval of a $900mm DIP credit facility of which $450mm will be new money (L+11.75% continues the trend of expensive retail DIPs). It matures in 180 days, giving the debtors 6 months to get this all done.

*****

A few more notes as there are definitely clear winners and losers here.

Let’s start with the losers:

1. The Malls. It’s one thing when one department store files for bankruptcy and sheds stores. It’s an entirely different story when several of them go bankrupt at the same time and shed stores. This is going to be a bloodbath. Already, the debtors have a motion on file seeking to reject 20 leases.

2. Nike Inc. ($NKE) & Adidas ($ADDYY). Perhaps they’re covered by 503(b)(9) status or maybe they can slickster their way into critical vendor status (all for which the debtors seek $15.1mm on an interim basis and $49.6mm on a final basis). Regardless, showing up among the top creditors in both the Stage Stores Inc. bankruptcy and now the J.C. Penney bankruptcy makes for a horrible week.

3. The Geniuses Who Invested in JCP Debt that Matures in 2097. As CNBC’s Michael Santoli noted, “This JC Penney issue fell only 77 years short of maturing money-good.”

4. Bill Ackman & Ron Johnson. This.

And here are the winners:

1. The New York Times. Imperfect as it may be, their digitalization efforts allow us all to read and marvel about the life of James Cash Penney, a name that so befitting of a Quentin Tarantino movie that you can easily imagine JC chillin with Jack Dalton on some crazy Hollywood adventure. We read it with sadness as he boasts of the Golden Rule and profit-sharing. Profits alone would be nice, let alone sharing.

2. Kirkland & Ellis LLP. Seriously. These guys are smoking it and have just OWNED retail. In the past eight days alone the firm has filed Stage Stores Inc., Neiman Marcus Group LTD LLC and now JCP. It’s a department store hat trick. Zoom out from retail and add in Ultra Petroleum Corp. and Intelsat SA and these folks are lucky they’re working from home. They can’t afford to waste any billable minutes on a commute at this point.

3. Management. They’re getting what they paid for AND, consequently, they’re getting paid. No doubt Kirkland marched in there months ago and pitched/promised management that they’d secure lucrative pay packages for them if hired and … BOOM! $7.5mm to four members of management!

---

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

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Christopher Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse, Jake William Gordon) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • OpCo (JC Penney Corporation Inc.) Independent Directors: Alan Carr, Steven Panagos

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman)

  • PropCo (JCP Real Estate Holdings LLC & JC Penney Properties LLC) Independent Directors: William Transier, Heather Summerfield

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP (James Mesterharm, Deb Reiger-Paganis)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Christian Tempke, Michael Weitz)

  • Store Closing Consultant: Gordon Brothers Retail Partners LLC

  • Real Estate Consultants: B. Riley Real Estate LLC & Cushman & Wakefield US Inc.

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

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

    • Legal: Arnold & Porter Kaye Scholer

  • RCF Agent: Wells Fargo Bank NA

    • Legal: Otterbourg PC & Bracewell LLP (William Wood)

    • Financial Advisor: M-III Partners (Mo Meghli)

  • TL Agent: JPMorgan Chase Bank NA

  • Indenture Trustee: Wilmington Trust NA

  • Ad Hoc Group of Certain Term Loan Lenders & First Lien Noteholders & DIP Lenders (H/2 Capital Partners, Ares Capital Management, Silver Point Capital, KKR, Whitebox Advisors, Sculptor Capital Management, Brigade Capital Management, Apollo, Owl Creek Asset Management LP, Sixth Street Partners)

    • Legal: Milbank LLP (Dennis Dunne, Andrew Leblanc, Thomas Kreller, Brian Kinney) & Porter Hedges LLP

    • Financial Advisor: Houlihan Lokey (Saul Burian)

  • Second Lien Noteholders (GoldenTree Asset Management, Carlson, Contrarian Capital Management LLC, Littlejohn & Co.)

    • Legal: Stroock & Stroock & Lavan LLP (Kris Hansen) & Haynes and Boone LLP (Kelli Norfleet, Charles Beckham)

    • Financial Advisor: Evercore Group LLC (Roopesh Shah)

  • Large equityholder: BlackRock Inc. (13.85%)

New Chapter 11 Bankruptcy Filing - Neiman Marcus Group LTD LLC

Neiman Marcus Group LTD LLC

May 7, 2020

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

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

This case is all about “BIG.”

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

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

Big fees. More on this below.

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

Big value destruction.

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

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

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

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

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

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

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

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

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

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

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

• Capital Structure: See above.

• Professionals:

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

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

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

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

  • Independent Manager of Mariposa Intermediate Holdings LLC: Anthony Horton

    • Legal: Katten Muchin Rosenman LLP

  • Neiman Marcus Inc.

    • Legal: Latham & Watkins LLP (Jeffrey Bjork)

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

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

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

• Other Parties in Interest:

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

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

  • FILO Agent: TPG Specialty Lending Inc.

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

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

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

  • Second Lien Note Agent: Ankura Trust Company LLC

  • Third Lien Note Agent: Wilmington Trust NA

  • Unsecured Notes Indenture Trustee: UMB Bank NA

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

  • 2028 Debentures Agent: Wilmington Savings Fund Society FSB

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

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

    • Financial Advisor: Ducera Partners LLC

  • Ad Hoc Secured Noteholder Committee

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

    • Financial Advisor: Houlihan Lokey Capital Inc.

  • Large Creditor: Chanel Inc.

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

  • Large Creditor: Louis Vuitton USA Inc.

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

  • Large Creditor: Moncler USA Inc.

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

  • Marble Ridge Capital LP & Marble Ridge Master Fund LP

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

  • Mudrick Capital Management LP

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

  • Sponsor: CPP Investment Board USRE Inc.

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

  • Sponsor: Ares Capital Management

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

  • Official Committee of Unsecured Creditors

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

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

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

🍺New Chapter 11 Bankruptcy Filing - Craftworks Parent LLC🍺

Craftworks Parent LLC

3/3/20

In November 2018, four core casual dining restaurant brands were merged together when Centerbridge Partners LP — the owners of Old Chicago Pizza & Taproom, Gordon Biersch Brewery Restaurant and Rock Bottom Restaurant and Brewery (“Craftworks”) — purchased Logan’s Roadhouse.* At the time of the transaction, Craftworks had 189 corporate and franchise restaurants and Logan’s had 204. Craftworks had ‘17 revenue of $434.5mm and Logan’s had ‘17 revenue of $462.4mm. Fast forward 16 months and the combined entity is now in bankruptcy court.

The TN-based debtors currently operate or franchise 330 locations (⬇️63) and generated revenue of $720mm of revenue in 2019 (⬇️$176.9mm). It’s safe to say that this performance is not what Centerbridge had in mind when it did the transaction. Ahhhhh…synergies.

The debt coming out of the transaction shoulders much of the blame:

…the Debtors have been negatively impacted by an overleveraged capital structure and low levels of liquidity that dates back to their acquisition of Logan’s Roadhouse in November 2018.

This is what that debt looks like:

Source: First Day Declaration

Of course, the debt is only part of the story. The debtors also blame their poor performance on rising wages, increased competition, third-party delivery platforms, and high rent. You know, the usual suspects in the casual dining space. Adding to the debtors’ misery was the fact that the integration of the two companies didn’t exactly go as planned. Per the debtors:

Since the closing of the Logan’s Acquisition, the Debtors’ business has been hampered by an overleveraged balance and lack of sufficient liquidity to fund their operations, including necessary capital expenditures and investment in their restaurants. These issues were compounded by other internal and external factors, such as underperforming stores, unfavorable leases, redundant selling, general and administrative expenses and a general decline in same-store traffic and sales. The primary reasons for the underperformance were lower topline sales and deterioration in gross margin.

“Redundant selling” isn’t exactly the kind of synergies purchasers hope for. That said, there were synergistic benefits. The post-transaction debtors enjoyed approximately $12mm of labor cost reductions, $5mm of operating expense reductions and $4mm of corporate general and administrative expense reductions. The private equity operational model illustrated, ladies and gentlemen.

Except this didn’t offset optimistic modeling. Per the debtors:

The Logan’s Acquisition transaction model forecasted fiscal year 2019 revenue based on a same-store sales growth rate of 1.5% with a 72.5% gross margin; however, actual same-store sales for fiscal year 2019 declined by approximately 1.0%, resulting in a total volume-driven gross margin loss of approximately $27.0 million. In addition, occupancy expense was under-forecasted by approximately $2.0 million.

Last we checked, $29mm > $21mm. 🤓

Because of all of this, the debtors were unable to make interest payments under the pre-petition first lien credit agreement. This put Fortress in the driver’s seat. And Fortress is seizing the opportunity. The private equity shop is the debtors’ prepetition lender and they are influencing the trajectory of this case; they will provide a $143.1mm DIP (of which only $23mm is new money) and they are acting as the stalking horse purchaser of the debtors with a $138mm purchase price offer (a credit bid, no doubt). The debtors intend to pursue a dual-sale and plan process with the hope of maximizing value for the benefit of all stakeholders.**

*Yes, this is the Logan’s Roadhouse that was in bankruptcy back in 2016. In the prior bankruptcy, Logan’s closed approximately 34 locations.

**So, at least there’s something new here. It’s not everyday that you see a top SEVENTY-FIVE creditors list, most of which is chock full of landlords and unsecured noteholders (Wells Fargo Bank NA, Marblegate Special Opportunities Master Fund LP, FS KKR Capital Corp., FS Investment Corporation II, Carl Marks Strategic Opportunities Fund II LP, Carl Marks Strategic Investments LP, Kelso & Company). It doesn’t look like Marblegate will recover anything on these notes which is a shame because there are likely to be more taxi medallions for sale sometime soon.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: see above.

• Professionals:

  • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Bryan Kotliar, Peter Siddiqui, Lindsay Lersner) & Klehr Harrison Harvey Branzberg LLP (Domenic Pacitti, Michael Yurkewicz, Morton Branzburg)

  • Financial Advisor: M-III Advisory Partners LP (Colin Adams)

  • Investment Banker: Configure Partners LLC (Vin Batra, James Hadfield)

  • Real Estate Advisor: Hilco Real Estate LLC

  • Strategic Communications Advisor: Kekst CNC

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

• Other Parties in Interest:

  • First Lien & DIP Agent: Fortress Credit Co.

    • Legal: King & Spalding LLP (Austin Jowers, Michael Handler) & Hunton Andrews Kurth LLP (John Schneider) & Chipman Brown Cicero & Cole LLP (William Chipman Jr.)

  • Stalking Horse Purchaser: DBFLF CFTWE Holdings L.P. (an affiliate of Fortress Credit Co.)

  • Second Lien Agent: Wells Fargo Bank NA

    • Legal: Morgan Lewis & Bockius LLP (Jennifer Feldshur, Sula Fiszman)

  • Sponsor: Centerbridge Capital Partners

    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Andriana Georgallas, Bryan Podzius) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Jaime Luton Chapman, Jordan Sazant)

New Chapter 11 Filing - Sizmek Inc.

Sizmek Inc.

March 29, 2019

New York-based Sizmek Inc., an online advertising campaign management and distribution platform for advertisers, media agencies, and publishers, filed for bankruptcy in the Southern District of New York. The company indicates that it lost access to capital when Cerberus Business Finance LLC “…took control of the Company's bank accounts and sought to divert customer receivables…” and filed, in large part, to have access to its lenders’ cash collateral. Major creditors include players in the ad world, including Google Inc. ($GOOGL), Facebook Inc. ($FB) and AOL ($VZ)(yes, AOL is still, technically, a “player” in something).

The company is a portfolio company of private equity firm, Vector Capital, which took the company private — merely two years after its IPO — via a 2016 all-cash tender offer for the outstanding shares of common stock for $3.90/share, a 65% premium over the then-30-day weighted average trading price. Kirkland & Ellis LLP represented Vector in the transaction.* In 2017, the company made a $145mm acquisition of Rocket Fuel, another struggling adtech company. And then shortly thereafter, AdExchanger reported merely two years later that Vector was looking to divest the company.

We’ll have more on this once the docket is updated.

*Interestingly, after filing, Katten Muchin Rosenman LLP replaced Kirkland & Ellis LLP as debtors’ counsel in these cases.

• Jurisdiction: S.D. of New York (Judge )

• Capital Structure: $172mm funded debt

• Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Stephen Hessler, Marc Kieselstein, Justin Bernbrock)

  • Replacement Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio, Jerry Hall, Peter Siddiqui)

  • Board of Directors: Eugene Davis, Mark Grether, Tom Smith, Marc Heimowitz

  • Financial Advisor: FTI Consulting Inc.

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

• Other Parties in Interest:

  • Prepetition Secured Agent: Cerberus Business Finance LLC

    • Legal: Klee Tuchin Bogdanoff & Stern LLP (David Fidler, Whitman Holt, Michael Tuchin, Thomas Patterson)

  • Official Committee of Unsecured Creditors

    • Legal: Cooley LLP (Seth Van Aalten, Michael Klein, Robert Winning, Lauren Reichardt)

    • Financial Advisor: Province Inc. (Carol Cabello)

Updated 4/1/19 6:08 CT (#10)

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: See below.

• Company Professionals:

  • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

  • Financial Advisor: AlixPartners LLP

  • Investment Banker: Guggenheim Securities LLC (Durc Savini)

  • Liquidator: Gordon Brothers Group LLC

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

  • Real Estate Advisors: A&G Realty Partners

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

• Other Parties in Interest:

  • Barclays Bank PLC

    • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Citizens Bank NA

    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

  • Steinhoff International Holdings N.V

    • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

  • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

    • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

😷New Chapter 11 & CCAA Bankruptcy Filing - Aralez Pharmaceuticals US Inc.😷

Aralez Pharmaceuticals US Inc.

8/10/18

Publicly-traded Ontario-based Aralez Pharmaceuticals US Inc. ($ARLZ), a specialty pharma company focused on the development and commercialization of cardiovascular products, filed for bankruptcy to pursue sales of its main operating businesses in the US and Canada. The company will use the bankruptcy process to sell its TOPROL-XL franchise, a beta-blocker used to treat high blood pressure, chest pain and heart failure, to its secured lender, Deerfield Management Company LP, for approximately $140mm; it will also sell its VIMOVO royalties and Canadian operations to Nuvo Pharmaceuticals Inc. ($NRI) in a transaction valued at $110mm. The company purchased the former franchise in late 2016 for $175mm so a sale for $140mm is a bit of a slap in the face.

The company blames its chapter 11 filing on Amazon. Just kidding. These pharma deals are so technical and boring that we had to write that just to see if you were still paying attention.

The company REALLY blames its chapter 11 filing on a “highly competitive”pharmaceuticals market “characterized by rapidly changing markets and technology, emerging industry standards and frequent introduction of new products.” It notes:

The market is dominated by a small number of highly-concentrated global competitors, many of which boast substantially greater resources than the Company, and competition is based on, among other things, product safety, reliability, availability, and price.

The company seeks approval of a $15mm DIP credit facility provided by Deerfield.

• Jurisdiction: Southern District of New York (Judge Glenn)

• Capital Structure: $203.1mm 12.5% term loan (plus $2.7mm in PIK interest); $75.5mm 2.5% ‘22 senior convertible secured notes (plus $200k in PIK interest).

• Company Professionals:

  • Legal: Willkie Farr & Gallagher LLP (Paul V. Shalhoub, Robin Spigel, Debra C. McElligott)

  • Financial Advisor: Alvarez & Marsal Healthcare Industry Group LLC

  • Investment Banker: Moelis & Company (Barak Klein)

  • Claims Agent: Prime Clerk LLC

• Other Parties in Interest:

  • DIP Agent: Deerfield Management Company LP (Legal: Katten Muchin Rosenman LLP, Steven Reisman, Shaya Rochester, Peter Siddiqui, Paul Musser)

👗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 Bankruptcy - Vitamin World Inc.

Vitamin World Inc.  

• 9/11/17 Recap: As previously foreshadowed, the Holbrook NY-based specialty retailer in the vitamins, minerals, herbs, and supplements market with 334 mall and outlet center retail locations filed for bankruptcy to disentangle itself from legacy operational ties to prior owner NBTY Inc. and terminate various leases (52 identified so far; 45 locations have already been shuttered). Some of the locations are within malls owned by REITS, Simon Property Group, General Growth Properties, and Vornado Realty Trust. The company blames the bankruptcy filing on liquidity constraints caused by supply chain and ingredient availability issues, the struggling retail market, above market rents, and underperforming retail stores. Prepetition lender, Wells Fargo Bank NA, is providing credit during the bankruptcy cases. 
• Jurisdiction: D. of Delaware 
• Capital Structure: $14.4mm debt (Wells Fargo Bank NA), $9.5mm "Seller Note" (RE Holdings)
• Company Professionals:
  • Legal: Katten Muchin Rosenman LLP (Paige Barr, Peter Siddiqui, Allison Thompson) & (local) Saul Ewing LLP (Monique DiSabatino, Mark Minuti)
  • Financial Advisor: RAS Management Advisors LLC
  • Real Estate Advisor: RCS Real Estate Advisors
  • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
• Other Parties in Interest:
• DIP Lender: Wells Fargo Bank NA
  • Legal: Riemer Braunstein LLP (Donald Rothman) & (local) Ashby & Geddes PA (Gregory Taylor) 
• Official Committee of Unsecured Creditors (incl. Simon Property Group, General Growth Properties):
  • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Bruce Buechler, Mary Seymour) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Kevin Shaw)
  • Financial Advisor: Berkeley Research Group LLC

Updated 9/24/17

New Chapter 11 Filing - TerraVia Holdings Inc.

TerraVia Holdings Inc.

• 8/1/17 Recap: TerraVia, a publicly-traded (Nasdaq: $TVIA) "next-generation" algae-based food company based out of San Francisco filed for bankruptcy. The company has a stalking horse bidder lined up to buy it for $20mm plus certain assumed liabilities and seeks to jam this case through bankruptcy in about 6 weeks lest it run out liquidity in the process (even with a proposed $10mm DIP); it claims that more time is unnecessary given that it ran a robust marketing process pre-filing that included outreach to over 100 parties. We'll let the company economics do the rest of the talking (see below).
• Jurisdiction: (Judge Sontchi)
• Capital Structure: $144.2mm 5% '19 convertible senior subordinated notes (GLAS Trust Company LLC) & $33.475mm 6% '18 convertible senior subordinated notes (Wilmington Trust)   
• Company Professionals:
  • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Steven Szanzer, Adam Shpeen, Benjamin Kaminetzky) & (local) Richards Layton & Finger P.A. (Mark Collins, Amanda Steele)
  • Financial Advisor: 
  • Investment Banker: Rothschild & Co. (Tero Janne)
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • DIP Agent: Wilmington Savings Fund Society FSB & Ad Hoc Consortium of Holders of Convertible Senior Subordinated Debt (Gilead Capital LP, Higher Ground SICAV PLC Core Wealth Fund, Lazard Asset Management LLC, Passport Capital LLC, Wolverine Asset Management LLC, Zazove Associates LLC)
    • Legal: Brown Rudnick LLP (Robert Stark, Steven Levine, Brian Rice, Kellie Fisher) & (local) Ashby & Geddes P.A. (William Bowden, Gregory Taylor, Katharina Earle)
    • Financial Advisor: GLC Advisors & Co. LLC
  • Passport Capital
    • Legal: Shearman & Sterling LLP (Joel Moss) & (local) Drinker Biddle & Reath LLP (Patrick Jackson)
  • 6% Notes Successor Trustee: Wilmington Trust NA
    • Legal: Katten Muchin Rosenman LLP (Craig Barbarosh, Karen Dine, Jerry Hall) & (local) Morris James LLP (Eric Monzo)
  • JV Partner: Bunge Global Innovation LLC
    • Legal: Jones Day (Joshua Morse)
  • Silicon Valley Bank
    • Legal: Troutman Sanders LLP (Harris Winsberg, Stephen Roach) & (local) Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere)
  • Corbion NV
    • Legal: Baker & McKenzie LLP (Debra Dandeneau, Frank Grese) & (local) Whiteford Taylor & Preston LLC (L. Katherine Good, Aaron Stulman)

Updated 8/26/17

First Day Declaration.

New Chapter 11 Filing - Adeptus Health Inc.

Adeptus Health Inc.

• 4/19/17 Recap: Publicly-traded ($ADPT) Texas-based for-profit hospital operator filed for bankruptcy to effectuate a sale of the business to Deerfield Management Company. The company blames significant working capital needs, challenges with revenue cycle management, and reduced utilization and patient volume for its filing. Deerfield is providing the company a $45mm DIP credit facility. 
• Jurisdiction: N.D. of Texas
• Capital Structure: $212.75mm total debt. $61.9mm RCF (Bank of America), $132mm TL (A-1 and A-2, latter with Goldman Sachs Lending Partners), $13.09mm LOC (Bank of America), $7.5mm bridge loan (Deerfield Management Company)    
• Company Professionals:
  • Legal: Norton Rose Fulbright LLP (Louis Strubeck Jr., Kristian Gluck, John Schwartz, Liz Boydston, Timothy Springer)
  • Financial Advisor/CRO: FTI Consulting (Andrew Hinkelman)
  • Investment Banker: Houlihan Lokey Capital Inc.
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name for docket)
• Other Parties in Interest:
  • Deerfield Management Company LP
    • Legal: Katten Muchin Rosenman LLP (Peter Siddiqui, Paige Barr)
  • MatlinPatterson Global Opportunities Master Fund LP
    • Legal: Ropes & Gray LLP (Mark Somerstein, Keith Woffard) & (local) Porter Hedges LLP (John Higgins, Joshua Wolfshohl)
  • Wexford Spectrum Investors LLC and Debello Investors LLC
    • Legal: Winstead PC (Phillip Lamberson, Rakhee Patel, Annmarie Chiarello)
  • Healthcare Ombudsman: Daniel McMurray
    • Legal: Neubert, Pepe & Monteith PC (Mark Fishman) & (local) Quilling Selander Lownds Winslett & Moser PC (Joshua Shephard)
    • Medical Operations Advisor: Focus Management Group USA (Daniel McMurray, James Grobmyer, Angeline Bernard, Sandra Casper)
  • Official Committee of Unsecured Creditors
    • Legal: Akin Gump Strauss Hauer & Feld LLP (Sarah Link Schultz, Marty Brimmage, David Botter, Alexis Freeman)
    • Financial Advisor: CohnReznick LLP (Chad Shandler)
  • Official Committee of Equity Security Holders
    • Legal: Brown Rudnick LLP (Edward Weisfelner, Bennett Silverberg, Jeffrey Jonas) & Winstead PC (Rakhee Patel, Phil Lamberson)
    • Financial Advisor: Miller Buckfire & Co. LLC & Stifel Nicolaus & Co. (Richard Klein)

Updated 7/13/17

New Chapter 11 Filing - Rupari Holding Corp.

Rupari Holding Corp.

• 4/11/17 Recap: Private-equity owned Illinois-based manufacturer of pre-cooked and sauced pork ribs and other barbeque products under the Roma Products brand (sounds gnarley) filed for bankruptcy to effectuate a sale pursuant to Bankruptcy Code section 363 to Carl Buddig & Co. for $26 million. Love this bit: "Rupari began to encounter substantial headwinds shortly after WPP Group's investment in the business." NICE. Looks like the Wind Point Partners guys really earned that 2-and-20 with this beauty. But wait! There's more! We have the Chinese and a freaky-AF diarrhea virus to blame for the business difficulties as well. And, finally, "specific issues unrelated to its everyday operations exacerbated Rupari's challenges," - namely, a $1.2mm judgment against the company in favor of Danish Crown. This abstract description really lets the imagination run wild - we were having flashbacks to "Brick Top" from Snatch - but it was only this. Anticlimactic. 
• Jurisdiction: D. of Delaware
• Capital Structure: $67mm first lien secured debt ($23.3mm funded - Antares Capital LP), $34.9mm second lien secured debt (Wind Point Partners), $95.4mm unsecured mezzanine debt 
• Company Professionals:
  • Legal: DLA Piper (US) LLP (Richard Chesley, John Lyons, R. Craig Martin, Maris Kandestin)
  • Investment Banker: Kinetic Advisors (Sudhin Roy)
  • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access)
• Other Parties in Interest:
  • Antares Capital LP
    • Legal: Katten Muchin Rosenman LLP (John Sieger, Paul Musser) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill)
  • Official Committee of Unsecured Creditors
    • Legal: Lowenstein Sandler LLP (Bruce Nathan, Jeffrey Cohen, Wojciech Jung, MIchael Papandrea, Keara Waldron) & (local) Whiteford Taylor & Preston LLP (Christopher Samis, L. Katherine Good, Aaron Stulman)
    • Financial Advisor: CohnReznick LLP (Kevin Clancy, Jeff Manning, Roberta Probber, Mitchell Insero)

Updated 7/18/17

No, not creepy at all.