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 Filing - Center City Healthcare LLC (d/b/a Hahnemann University Hospital)😷

Center City Healthcare LLC

June 30, 2019

We take a break from our regularly scheduled oil and gas distress to bring you some regularly scheduled healthcare distress. That’s right: more healthcare distress. Here, Philadelphia Academic Health System LLC and 12 affiliated debtors — including two major hospitals in Philadelphia, St. Christopher’s Hospital for Children (“STC”) and Hahnemann University Hospital (“HUH”) and related physician practices — have filed for bankruptcy in Pennsyl…strike that…in the District of Delaware.* Gotta love venue!

This bankruptcy case likely marks the end of HUH, an academic medical center that (a) is the primary teaching hospital for Drexel University and (b) has been providing healthcare services since 1848.

According to the debtors, their troubles can be traced back to an August 2017 acquisition — consummated in January 2018 — of the assets (i.e., operating entities, non-debtor entities owning the real estate upon which the hospital operate, and certain receivables) from Tenet Business Services Corporation. The debtors’ primary source of funding for the acquisition was a pre-petition credit facility from Midcap Funding IV Trust.

Immediately after the sale, the debtors realized that they bought a lemon. Per the debtors:

Disputes arose between the Debtors and Tenet with regards to, among other things, the “Net Working Capital Adjustment” provided for under the parties’ Asset Sale Agreement, most notably, for overstated amounts of accounts receivable totaling approximately $21 million. The Debtors also learned that approximately $5 million of amounts received by Tenet at closing in order for it to pay certain accounts payable was never in fact paid. These issues resulted in a significant liquidity shortfall that adversely affected the Debtors’ operations almost immediately after closing of the Acquisition.

The parties are now in litigation with Tenet asserting counterclaims. Gotta hate when that happens. And that’s not the end of it:

Disputes also arose between the parties regarding the financial condition of the Debtors’ businesses, wherein the Debtors asserted that they were led to believe during due diligence process for the Acquisition that the business, as a whole, was essentially breaking even through November 2017 on an EBITDA basis. In fact, the business lost more than $6 million during its first full operational month in February 2018, and continues to experience substantial losses. The Debtors and their affiliates have asserted indemnity and fraud claims against Tenet on these grounds, which Tenet disputes.

Basically this is a hot mess. Coupled with (i) disputes with Drexel, (ii) delays in, and reduction of, payments of supplemental payments from the Commonwealth of Pennsylvania, (iii) decreased patient volumes in 2018, (iv) increased losses by certain of the physician groups, (v) material declines in outpatient procedures and surgeries; and (vi) reductions in average daily census, partly due to a reduction in average length of stay and reduced direct admissions, HUH encountered a maelstrom of negative operational issues to the tune of a pre-tax 2018 loss of approximately $69mm. STC is profitable; it, however, is dragged down by the rest of the enterprise. All in, the debtors pre-tax losses in 2018 exceeded $85mm and have not abated in 2019. Due to this piss poor financial performance, the debtors defaulted on their MidCap credit facility.

The debtors intend to use the chapter 11 process to pursue an orderly wind down of HUH while, contemporaneously, pursuing a sale of STC and the related physician practices. No stalking horse bidder is currently lined up. The debtors do, however, have a commitment from Midcap for $65mm of DIP financing, of which it appears less than $7mm will be new money.

Now is an occasion for Philly to, once again, show how tough it can be.

*SCH, HUH and their corporate parent, Philadelphia Academic Health System LLC, are all DE LLCs.

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: $38.6mm RCF & $20mm TL (Midcap Funding IV Trust)

• Professionals:

  • Legal: Saul Ewing Arnstein & Lehr LLP (Monique Bair DiSabatino, Mark Minuti, Jeffrey Hampton, Adam Isenberg, Aaron Applebaum, Jeremiah Vandermark) & Klehr Harrison Harvey Branzburg LLP

  • Financial Advisor/CRO: EisnerAmper LLP (Allen Wilen)

  • Investment Banker: SSG Advisors LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Lender ($65mm): MidCap Funding IV Trust

  • Tenet Business Services Corp.

    • Legal: Kirkland & Ellis LLP (Gregory Pesce) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones)

New Chapter 11 Filing - Nighthawk Royalties LLC

Nighthawk Royalties LLC

4/30/18

Colorado-based hydrocarbon exploration and production company filed for bankruptcy after "macroeconomic and industry distress and a failed waterflooding project" led it to trigger defaults under its senior secured credit facility with the Commonwealth Bank of Australia. The company has a signed letter of intent to sell its assets to a prospective purchaser under section 363 of the bankruptcy code. The company is also leveraging the Bankruptcy Code's automatic stay provision to prevent Fastighets AB Korpralen, a Swedish company affiliated with a former director of the debtor, from commencing shareholder litigation against the company. 

• Jurisdiction: D. of Delaware (Judge Shannon)
• Capital Structure: $21.25mm debt (Commonwealth Bank of Australia)
• Company Professionals:
  • Legal: Greenberg Traurig LLP (Mark Bloom, Paul Keenan Jr., John Dodd, Ari Newman, Dennis Meloro)
  • Investment Banker: SSG Advisors LLC
  • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
• Other Parties in Interest:
  • Major Shareholder: Fastighets AB Korpralen
    • Legal: K&L Gates LLP (Steven Caponi)

New Chapter 11 Bankruptcy - A'GACI LLC

A'GACI LLC

• 1/9/17 Recap: Texas-based fast-fashion retailer of women's apparel and accessories filed for bankruptcy because, well, retail retail retail. Happy New Year, everyone! The company's "target demographic is confident women who are comfortable with their appearance and enjoy showcasing their look." Hmmm. From that description, we would have expected graphics of models that aren't just a size 0 (see below), but we digress. The 76-store company specializes in clearance pricing discounts to ship merchandise quickly and innovate with the trends; it did $136.2mm of gross sales in the fiscal period ended 11/25. 9.4% of that was e-commerce. The company blames its bankruptcy filing on (i) "unsuccessful brick and mortar expansion efforts," (ii) the move to online shopping, (iii) difficulty with merchandising and inventory management, and (iv) weather. On that last point, 24 stores were at least temporarily closed due to hurricanes in '17 (in Texas, Florida and Puerto Rico, with two stores in PR still closed), resulting in a $7.2mm EBITDA hit for the year. The company pursued a number of operational initiatives pre-petition including rent-concession negotiations with landlords. The landlords apparently wouldn't play ball. Now twelve of them will see their leases rejected: the company has already vacated the premises effective 1/8. And a liquidation agent has been hired. In total, "at least 49 underperforming brick and mortar store locations" may be closed.  Contemporaneously with the lease review and liquidation process, the company will attempt a refinancing or sale of the company while enjoying the "breathing spell" afforded by bankruptcy. The company intends to use cash collateral to finance the case.    
• Jurisdiction: W.D. of Texas 
• Capital Structure: $10mm '18 RCF (JPMorgan Chase Bank NA), $4.265mm TL (Bank of America NA)     
• Company Professionals:
  • Legal: Haynes and Boone LLP (Ian Peck, David Staab)
  • Financial Advisor: Berkeley Research Group LLC
  • Investment Banker: SSG Advisors LLC 
  • Real Estate Agent: A&G Realty Partners LLC
  • Liquidation Agent: Gordon Brothers Retail Partners LLC
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:

Source: First Day Declaration

New Chapter 11 Filing - Peekay Acquisition LLC

Peekay Acquisition LLC

• 8/10/17 Recap: The Auburn Washington-based specialty retailer of lingerie, sexual health and wellness products with 46 locations has filed for bankruptcy after failing to find an out-of-court buyer for its 5000 SKUs of lubes, $265 vibrators, sex toys and other fun stuff. This place sounds...liberated. And while the sex retail industry is allegedly gaining acceptance - at least according to the Company's own filing - it seems that Peekay was unable or incapable of capitalizing on it given its capital structure (PETITION Note: Agent Provocateur also filed for bankruptcy this year so query whether this really is a brick-and-mortar business or whether people would really rather discreetly order their sex toys on Amazon...our money is on the latter. Prior to the internet, options were a bit more limited, we gather.). Consequently, the company's Term Loan A Lenders have consented to the use of its cash collateral and are credit bidding $31mm of their debt to acquire the company after a long and failed attempt by the Company to explore other out-of-court options (which apparently included an IPO...WTF? What would the ticker be? "SEX"? "DIK"? "ASS"? We could do this all day.). 
• Jurisdiction: D. of Delaware (Judge Shannon)
• Capital Structure: $38.2mm first lien term loan ($27mm term loan A + $8.4mm interest/fees, $14.4mm term loan B + $1.98mm interest/fees), $19mm PIK seller notes    
• Company Professionals:
  • Legal: Landis Rath & Cobb LLP (Adam Landis)
  • Financial Advisor/CRO: Traverse LLC (Albert Altro)
  • Investment Banker: SSG Advisors LLC (J. Scott Victor)
  • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
• Other Parties in Interest:
  • Term A Lenders/TLA Acquisition Corp. (Alpine Associates, Alpine Heritage LP, Alpine Heritage II LP, Alpine Heritage Offshore Fund Ltd., Chatham Capital Management IV LLC, The K2 Principal Fund LP, Tor Capital LLC, Twin Haven Special Opportunities Fund IV LP)
    • Legal: Curtis Mallet-Provost Colt & Mosle LLP (Steven Reisman, Shaya Rochester, Joshua Geller) & (local) Richards Layton & Finger PA (Mark Collins, Amanda Steele, Brendan Schlauch)
  • Official Committee of Unsecured Creditors
    • Legal: Cullen and Dykman LLP (S. Jason Teele, Nicole Stefanelli) & (local) Whiteford Taylor & Preston LLP (Christopher Samis, L. Katherine Good, Aaron Stulman, Kevin Shaw)
    • Financial Advisor: The DAK Group (Sheon Karol, Ari Fuchs, Claudia Levine)

Updated 9/5/17

New Chapter 11 Filing - Searchmetrics Inc.

Searchmetrics Inc.

• 5/8/17 Recap: This is a story about possible theft and patent litigation among search engine optimization players - the other being BrightEdge Technologies Inc. This sums it up nicely.
• Jurisdiction: D. of Delaware (Judge Sontchi)
• Company Professionals:
  • Legal: Chipman Brown Cicero & Cole LLP (William Chipman, Mark Olivere, Adam Cole)
  • Financial Advisor/CRO: EisnerAmper LLP (Wayne Weitz) 
  • Financial Advisor/Valuation Expert: SSG Advisors LLC (J. Scott Victor)
  • Claims Agent: JND Legal Administration (*click on company name above for free docket access)
• Other Parties in Interest:
  • Searchmetrics GmbH
    • Legal: DLA Piper LLP (US) (Stuart Brown, Maris Kandestin)
  • BrightEdge Technologies Inc.
    • Legal: Baker Botts LLP (Omar Alaniz, Emanuel Grillo, G. Hopkins Guy III, Jon Swenson)

Updated 7/12/17

New Chapter 11 Filing - United Road Towing Inc.

United Road Towing Inc.

• 2/6/17 Recap: These bada$$ strapping towing lads fought the law and the law won. Meaning: a $5mm judgment was rendered against the Illinois-based company for purportedly charging excessive fees and now the company has less money, mo' problems. The company filed chapter 11 to obtain cover under the automatic stay (and avoid enforcement of the judgment) and sell the company. No stalking horse bidder, however, is in tow (see what we did there?). First lien lender Wells Fargo is providing a $32.25mm DIP to fund the case.  
• Jurisdiction: D. of Delaware
• Capital Structure: $32.3mm first lien credit facility ($13.8mm out - Wells Fargo) & $17mm second lien credit facility ($19.4 claim - Medley Capital)    
• Company Professionals:
  • Legal: Winston & Strawn LLP (Daniel McGuire, Grace D'Arcy, Carrie Hardman) & (local) Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Ryan Bartley, Andrew Magaziner)
  • Financial Advisor: Getzler Henrich & Associates LLC
  • Investment Banker: SSG Advisors LLC
  • Claims Agent: Rust Consulting/Omni Bankruptcy LLC (*click on company name for docket)
• Other Parties in Interest:
  • ABL/DIP Agent: Wells Fargo NA
    • Legal: Riemer & Brownstein LLP (Steven Fox) & (local) Ashby & Geddes (Gregory Taylor)
  • Medley Capital Corporation
    • Legal: Greenberg Traurig LLP (Maria DiConza, Dennis Meloro)
  • Official Committee of Unsecured Creditors
    • Legal: Pachulski Stang Ziehl & Jones LLP
    • Financial Advisor: Gavin/Solmonese LLC

Updated 2/16/17