11/6/17 Recap: Another retailer finds its way in bankruptcy court. Here, the company has 93 retail women's clothing stores in California, Nevada, Texas, Arizona and Florida. The company claims, in its bankruptcy papers, to "offer the hottest trendy clothing, shoes, accessories and more at discounted prices...." Which, naturally, begs the question: well then why the hell did it file for bankruptcy? Well, naturally, the company answers this question in its bankruptcy papers and its the now-typical litany of retail excuses: (i) "increased industry discounting" (read: price and margin compression), (ii) "online penetration" (read: e-commerce), and (iii) "shifts in consumer spending away from 'fast fashion' and toward services and experiences (read: Snapchat...okay, maybe NOT Snapchat...but...millennials!) - all of which have contributed to cash flow pressures and liquidity problems. We make light but this story really is becoming pandemic. And the story includes the closure of 55 brick-and-mortar locations, 311 lost jobs, and decreased pay for those who kept their jobs. To stay alive, the company continues to negotiate with landlords and pursue operational expense reductions. The company will operate using Wells Fargo Bank's cash collateral while it tries to figure out a reorganization plan. Notably, the service list includes representatives of General Growth Properties Inc. ($GGP) and Simon Property Group ($SPG). Nothing to see here.
Jurisdiction: C.D. of California (Judge Wallace)
Capital Structure: $915k secured debt (Wells Fargo Bank NA)
10/18/17 Recap: Back in 2015, Ignite Restaurant Group offloaded Romano's Macaroni Grill to RedRock Partners LLC in an attempt to bolster its liquidity and avoid bankruptcy. It failed: the company filed for bankruptcy earlier this year (case summary here). Perhaps that had something to do with the fact that the sale was for a measly $8mm, "a price akin to dumping your unwanted junk on Craigslist." Now, Romano's Macaroni Grill has filed for bankruptcy to restructure its balance sheet and further an operational restructuring, including dealing with lessor damage claims arising out of terminated leases (the company closed 37 company-operated locations in 2017; it has 93 company-owned restaurants remaining exclusive of non-debtor franchises). The company blames its chapter 11 filing on (i) the inability to generate sufficient cashflow, sales and margin to cover operating expenses let alone service its debt (TTM EBITDA as of 8/17 was -$12mm), and (ii) increased costs for both commodities and labor. We note that this provision in the company's bankruptcy papers is indicative of a larger trend befalling the casual dining segment: "The Debtors’ operations and financial performance have been adversely affected by a number of economic factors, but perhaps most notably by an overall downturn for the casual dining industry. The preferences of such customers have shifted to cheaper, faster alternatives. On the other end of the spectrum, there is a trend among younger customers to spend their disposable income at non-chain “experience-driven” restaurants, even if slightly more expensive." In other words, this bankruptcy is partly Evan Spiegel (Snapchat, $SNAP) and Kevin Systrom's (Instagram, $FB) fault. The company has a restructuring support agreement with its major stakeholders to pursue a dual-track bankruptcy via a plan of reorganization and a potential sale upon the hiring of an investment banker (heads up: bankers!!). The company has secured a junior $5mm DIP credit facility from Raven Capital Management LLC. P.S. Nothing to see here for the REITS: Simon Property Group has made a notice of appearance in the matter.
Jurisdiction: D. of Delaware (Judge Walrath)
Capital Structure: $12mm RCF (Bank of Colorado), $2.5mm TL (Bank of Colorado), $3.5mm LOC (Bank of Colorado), $5mm Funding Loan
Company Professionals:
Legal: Gibson Dunn & Crutcher LLP (Jeffrey Krause, Michael Neumeister, Emily Speak, Brittany Schmeltz) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Edmon Morton, Ryan Bartley, Elizabeth Justison)
