⚡️New Chapter 11 Bankruptcy Filing - Griddy Energy LLC⚡️

Griddy Energy LLC

Sooooooo this one was predictable. The writing was on the wall a few weeks ago and we noted in “💥Is Texas F*cked?💥,” that Griddy Energy LLC was a likely bankruptcy candidate.* On Sunday, we noted how recent PUCT/ERCOT decisions to extend the deadline “…for electric retailers to dispute the ridonkulous liabilities imposed upon them after the now-infamous Texan storm” — liabilities that already claimed Just Energy Group Inc.($JE) and Brazos Electric Power Cooperative Inc. as victims — might buy time for certain other players in the stack to figure out their futures. By then, however, it was already too late for Griddy. On February 26, 2021, ERCOT forced the mass transition of Giddy’s customers to other electricity providers.

Griddy’s whole business model was passing through wholesale pricing sans mark-up to 29,000 retail end customers in exchange for a monthly fixed fee of $9.99. Through this model, Griddy claims to have saved its customers more than $17mm since 2017. Griddy argues that at no point since its inception was its model targeted as problematic by the PUCT. PUCT, after all, granted Griddy’s license.

That all obviously changed with February’s big storm. Per the debtor:

During the winter storm in Texas in February 2021, Griddy and its customers suffered as a result of (a) inaccurate information from ERCOT about the preparedness of the electricity grid for the 2020-2021 winter season, (b) the decision by the PUCT to order electricity prices be set to $9,000 per megawatt hour (“MWh”), and (c) ERCOT’s decision to hold electricity prices at $9,000 per MWh for 32 hours after firm load shed had stopped. Prior to the PUCT order, the real-time electricity price had reached $9,000 per MWh for a total of only 3 hours since 2015. In contrast, after the PUCT order, the electricity price was set to $9,000 per MWh for 87.5 hours between February 15, 2021 and February 19, 2021.

This obviously creates a whole host of issues when, in turn, you’re only getting $9.99 per customer per month (plus other passthrough expenses) for a total of $289.7k in revenue a month. Prior to the storm, Griddy was solvent. As of the petition date, it has only $1.448mm of pre-petition debt outstanding (due to Macquarie Investments US Inc.). Griddy obviously blames the reversal of that fortune on ERCOT’s missteps and poor planning. Per the debtor:

Prior to the mid-February winter storm event, Griddy was solvent. As discussed above, the failures of ERCOT and resulting actions taken by the PUCT during the winter storm event resulted in Griddy’s loss of all of its customers and forced Griddy to file this case. The winter storm event also left Griddy in an untenable position – engage in aggressive collection actions against customers for exceedingly high prices for wholesale electricity and ancillary services (which is not its preference) and fight baseless lawsuits – or file for bankruptcy and distribute its remaining cash in an orderly manner.

Be that as it may, Griddy now owes a contingent and disputed $29mm nut to ERCOT — its largest general unsecured creditor. Its customers — who generally tend to be on the lower end of the socioeconomic spectrum — have bills far in excess of historical norm and expectation. So now what?

Griddy is basically flicking the bird to ERCOT (🖕):

In the weeks since the winter storm event, Griddy has created a chapter 11 plan whereby (i) Macquarie would compromise a portion of the remaining amount of money owed to it by Griddy for the benefit of Griddy’s other creditors, (ii) Griddy would give former customers with unpaid bills releases in exchange for such customers’ releases of Griddy and certain other parties, (iii) other general unsecured creditors would share pro rata in remaining available cash, and (iv) upon emergence, a plan administrator would take over ownership of Griddy and, in his or her discretion, pursue causes of action, whether against ERCOT for potential preference claims, fraudulent transfers or other claims related to the winter storm event, or otherwise. Griddy has filed its proposed chapter 11 plan, disclosure statement and related motions concurrently herewith. Griddy intends to seek confirmation of its proposed chapter 11 plan on as expedited basis as possible.

“Certain other parties” no doubt includes Macquarie.

All of this seems so strangely … American. Thousands of innocent people sign up for a product that they don’t fully understand most likely thinking that there are systems in place to protect them. Turns out the systems are broken: thousands of innocent people lose electricity for days and ultimately get billed up the wazoo and, naturally, nobody wants to take any responsibility for that. Lawsuits commence. Bankruptcies ripple through the area.** Meanwhile, the lenders do everything in their power to shed any and all liability risk. God bless America.

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*We said we “smell a chapter 7 filing” which, it turns out, was perhaps a bit to flippant. While the spirit of the comment is correct in that there is no future for the company as a going concern, we neglected to consider some of the benefits of a chapter 11 filing including, among other things, the sought-after releases.

**One interesting side note — given that this is a uniquely Texan fact pattern — is that it took this catastrophe to finally hour-up some Texas-based lawyers rather than enrich some Chicago or New York attorneys. Putting aside Just Energy Group Inc. (represented by Kirkland & Ellis LLP), Brazos Electric Power Cooperative Inc. is represented by Norton Rose Fulbright and Griddy is represented by Baker Botts LLP. The lender, Macquarie, is counseled by Haynes and Boone LLP and ERCOT is represented by Munsch Hardt Kopf & Harr P.C. The local folks must seriously be thinking “it’s about time.”

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Date: March 15, 2021

Jurisdiction: S.D. of Texas (Judge Isgur)

Capital Structure: $15mm Borrowing Base Facility ($1.448m outstanding)

Company Professionals:

• Legal: Baker Botts LLP (Robin Spigel, David Eastlake, Chris Newcomb, Jacob Herz)

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

Other Parties in Interest:

• Pre-petition Lender: Macquarie Investments US Inc.

  • Legal: Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

• ERCOT

  • Legal: Munsch Hardt Kopf & Harr P.C. (Kevin Lippman)

⛽️New Chapter 11 Bankruptcy Filing - Nine Point Energy Holdings Inc.⛽️

Nine Point Energy Holdings Inc.

Colorado-based Nine Point Energy Holdings Inc. (along with three affiliates, the “debtors”) is and independent oil and gas exploration and production company focused on the Williston Basin in North Dakota and Montana. It is the successor to Triangle USA Petroleum Corporation, which filed for chapter 11 bankruptcy in June 2016 and confirmed a plan in March 2017. Four years later, it’s back in bankruptcy court. 😬

Followers of E&P bankruptcies have become accustomed to disputes relating to E&P companies and their midstream gathering, transportation and processing providers. Here, Caliber Midstream Partners LP was the debtors’ largest midstream services provider — “was” being the operative word after the debtors terminated the long-term midstream services agreements on the eve of bankruptcy. The story, however, doesn’t end there.

The debtors are willing to enter into a new arrangement with Caliber going forward. It’s unclear how the new arrangement might differ from the existing arrangement because redaction, redaction, redaction. The economic terms of the contract have not been disclosed. 🤔

And so here we are with another potential “running with the land” scenario. If you’re unfamiliar with what this is, you clearly haven’t been paying attention to E&P bankruptcy cases. Just Google it and you’ll pull up probably 8928394829248929 law firm articles on the topic. As this will be a major driver in the case, it probably makes sense to refresh your recollection.

Why are the debtors in bankruptcy? All of the usual reasons, e.g., the big drop in oil prices thanks to COVID-19 and Russia/OPEC. Nothing really new there.

So what does this filing achieve? For starters, it will give the debtors an opportunity to address the Caliber contracts. Moreover, it will avail the debtors of a DIP facility from their pre-petition lenders in the amount of ~$72mm — $18mm in new money and $54mm on a rollup basis (exclusive of an additional $16.1mm roll-up to account for pre-petition secured swap obligations)(8% interest with 2% commitment fee). Finally, the pre-petition-cum-DIP-lenders have agreed to serve as the stalking horse purchaser of the debtors’ assets with a credit bid floor of $250mm.

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Date: March 15, 2021

Jurisdiction: D. of Delaware (Judge Walrath)

Capital Structure: $256.9mm credit facility, $16.1mm swap obligations

Company Professionals:

• Legal: Latham & Watkins LLP (Richard Levy, Caroline Reckler, Jonathan Gordon, George Davis, Nacif Taousse, Alistair Fatheazam, Jonathan Weichselbaum, Andrew Sorkin, Heather Waller, Amanda Rose Stanzione, Elizabeth Morris, Sohom Datta) & Young Conaway Stargatt & Taylor LLP (Michael Nestor, Kara Hammond Coyle, Ashley Jacobs, Jacob Morton)

• Board of Directors: Patrick Bartels Jr., Dominic Spencer, Frederic Brace, Gary Begeman, Alan Dawes

• Financial Advisor: AlixPartners LLP (John Castellano)

• Investment Banker: Perella Weinberg Partners LP (John Cesarz)

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

Other Parties in Interest:

• Pre-petition & DIP Agent: AB Private Credit Investors LLC

  • Legal: Proskauer Rose LLP (Charles Dale, David Hillman, Michael Mervis, Megan Volin, Paul Possinger, Jordan Sazant) & Landis Rath & Cobb LLP (Adam Landis, Kerri Mumford, Matthew Pierce)

• Ad Hoc Group of Equityholders: Shenkman Capital Management, JP Morgan Securities LLC, Canyon Capital Advisors LLC, Chambers Energy Capital

  • Legal: Willkie Farr & Gallagher LLP (Jeffrey Pawlitz, Matthew Dunn, Mark Stancil) & Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

• Midstream Counterparty: Caliber Measurement Services LLC, Caliber Midstream Fresh Water Partners LLC, and Caliber North Dakota LLC

  • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk, Tristan Sierra, Edward Soto, Lauren Alexander) & Morris Nichols Arsht & Tunnell LLP (Curtis Miller, Taylor Haga, Nader Amer)

📺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 - Stein Mart Inc. ($SMRT)

Stein Mart Inc.

Man. This story sucks. Stein Mart Inc. ($SMRT), a publicly-traded specialty off-price retailer with 281 stores across the Southeast, Texas, Arizona and California is the latest retailer to file bankruptcy (along with two affiliates).

To set the stage, imagine Han and Lando taking a fun little ride on a desert skiff. Suddenly a riot breaks out and amidst the confusion Lando falls off the skiff. Luckily, Han is able to grab Lando’s hand so that Lando doesn’t plummet into the gnarley tentacles of some strange sand beast that randomly happens to be there. As Han pulls Lando up out of reach of the beast, all of the sudden some crazy space virus flows through the airspace and smacks Han straight in the lungs. As he clutches his throat struggling to breathe, he releases Lando who consequently hurls straight down towards the beast and suffers a horrific death.

Now replace (a) Han with Kingswood Capital Management LLC, (b) Lando with Stein Mart, and (c) the “crazy space virus” with COVID-19 and you’ve basically got the story of Stein Mart’s collapse into bankruptcy court. Like many other retailers in this macro climate, Stein Mart was teetering pre-COVID. Sales have been on the decline since 2016. But then in January, Kingswood — along with an entity managed by the Chairman of the company — offered a roughly 20% premium over SMRT’s then-stock price ($0.90/share) to take Stein Mart private. Stein Mart, which had been on distressed watch lists around that time, seemed to be on the receiving end of a much-needed and wildly opportune lifeline. Of course, COVID ended that. Take a look at this mind-boggling decline in YOY performance:

Ab. So. Lutely. Brutal. Just brutal.

Kingswood agreed. Per the company:

…on April 16, 2020, the Merger Agreement was terminated prior to closing because the COVID19 pandemic forced the Company to close all of its stores and the Company was unable to satisfy the minimum liquidity closing condition in the merger agreement.

Was that the definitive end of the deal? No! The parties continued to discuss new deal parameters but then we, as a country, couldn’t get our sh*t in order. With the country averaging 1000+ deaths a day and tens of thousands of new daily COVID infections, Kingswood got skittish:

The Company has subsequently engaged in discussions with Kingswood regarding sale of the Company as a going-concern in recent months pursuant to a bankruptcy sale; however, a transaction presently appears unlikely given the COVID-19 resurgence.

The resurgence is notable because the company has a significant number of stores in Florida, Texas and California. Consequently,…

The Company’s updated financial projections, following the July resurgence of COVID-19, indicated that the Company would not have sufficient liquidity to continue operating the business in the ordinary course consistent with past practice.

So now the company is liquidating. The company projects $250mm in gross recovery from the liquidation of inventory, equipment, fixtures, leases IP and other assets. As of the petition date, it owes its senior secured lender, Wells Fargo Bank NA ($WFC), $84mm; it also owed its term lender, Gordon Brothers Finance Company, $35mm. Tack on administrative expenses for the professionals administering the case and recoveries for those creditors owed a sum total of $770mm in total liabilities begins to look a bit bleak.

*****

A couple of additional notes:

First, this company appears to have been addicted to factoring. Among the companies top six general unsecured creditors are CIT Commercial Services, Wells Fargo Trade Capital Services, and White Oak Commercial Finance.

Second, you can add SMRT to the list of companies that tapped PPP funds yet couldn’t avoid a bankruptcy filing. It received $10mm from Harvest Small Business Finance LLC.

Third, we’re back to borderline collusion among the liquidation firms. The company’s financial advisor issued RFPs to five liquidation consultants. It received two bids back: one from SB360 Capital Partners LLC and one from a Hilco Merchant Resources-led joint venture that included three — that’s right, three — competitors. Per the company:

The Debtors are of the view that in the current environment, where numerous large retailers are being simultaneously liquidated, joint venture liquidation bids are common because a single liquidation firm may not have the resources to staff and manage the entire project. (emphasis added)

Said another way, the retail industry is such an utter dumpster fire right now that liquidators simply don’t have the bandwidth to manage mandates like these on their own (or so the story goes).

While liquidation sales launch, the company will also seek to sell its leases and IP. Except…

…substantial doubt exists as to whether any buyers will be found for leases given the current depressed condition of the retail real estate market.

And they…

…do not anticipate the sale of intellectual property will produce substantial value.

Right. In case you haven’t noticed, the rubber meets the road with these retailers with the IP. That’s why there was the law suit in the Neiman Marcus matter. That’s why there was the asset stripping transaction in the J.Crew matter. But Stein Mart? IP? Brand? Hahahahaha. The company’s bankers tried selling this turd for over 2.5 years. The only buyer was Kingswood, a small LA-based PE fund with a portfolio of four companies and, well, Stein himself. The IP only had value to him. Go figure. And this is after three — yes, three — separate sale and marketing processes.

Is there a chance a buyer emerges from the shadows? Sure. Miracles happen. If not, Wells and Gordon Brothers will be fine. The professionals will get paid. The unsecured creditors will get hosed. Equity will…well forget about it. At least the equity market is finally getting these right (though reasonable minds could certainly question why the stock is trading as high as it is):

The greater likelihood is that this sucker ends in structured dismissal or a conversion to chapter 7.

It’s crazy. Eight months ago the company was headed for a new chapter. Instead the book shut closed.

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August 12, 2020

Jurisdiction: M.D. of FL (Judge Funk)

Capital Structure: see above

Company Professionals:

• Legal: Foley & Lardner LLP (Gardner Davis, John Wolfel, Neda Sharifi, Richard Guyer, Mark Wolfson, Marcus Helt)

• Financial Advisor: Clear Thinking Group (Patrick Diercks)

• Liquidators: Hilco Merchant Resources LLC, Gordon Brothers Retail Partners LLC, Great American Group LLC, Tiger Capital Group LLC, SB360 Capital Partners LLC

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

Other Parties in Interest:

• RCF Lender: Wells Fargo Bank NA

  • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Smith Hulsey & Busey (John Thomas, Stephen Busey)

🌎 New Chapter 11 Filing - Lakeland Tours LLC (d/b/a WorldStrides) 🌎

Lakeland Tours LLC (d/b/a WorldStrides)

July 20, 2020

Virginia-based Lakeland Tours LLC (d/b/a WorldStrides) and 22 affiliates (the “debtors”) filed for bankruptcy in the Southern District of New York, the latest in a relatively small group of COVID-related victims to end up in bankruptcy court. Similar to other pure-play filings (e.g., several Latin American airlines and Hertz Corporation $HTZ)), the debtors are in the travel industry; they are a provider of educational travel experiences in the US and abroad; they are the US’ largest accredited travel program serving hundreds of thousands of students and hundreds of universities annually. And they were doing well before the pandemic: in fiscal ‘19, the company generated approximately $650mm in net revenue and management projected $840mm in net revenue in ‘20. As we all know, “experiences” are all the rage these days and international student travel is far more common today than it was even five years ago (PETITION Note: seriously, folks, the company doesn’t even try to hide the social element to this … the above photo just screams “Pay us for an experience racked with non-stop selfies!). According to StudentUniverse and Skift, “[t]he student traveler represents fully one-fifth of all international arrivals in the travel industry, today. They command a market value of some $320 billion….”

A worldwide travel shutdown will obviously negatively impact that trend. And, by extension, obliterate the company’s projections. Indeed, the debtors were “decimated” by the worldwide shutdown of nonessential travel. Revenue? Lost. Future bookings? Crushed. Refund requests? Voluminous. The “negative net bookings” must have been off the charts. All in, these factors created a $200mm liquidity hole for the debtors.

This need for new capital, when coupled with the debtors’ burdensome capital structure ($768mm of funded debt), precipitated the need for a restructuring. And, alas, the debtors have a restructuring support agreement (the “RSA”) agreed to by the debtors’ prepetition secured lenders, their hedge provider and their equity sponsors, Eurazeo North America and Primavera Capital Limited. The RSA commits these consenting stakeholders to, among other things, a $200mm new capital infusion (exclusive of fees) split 50/50 between the consenting lenders and the sponsors which will roll into exit debt and equity.* Here are the highlights:

• The $100mm provided by the lenders will roll into an exit facility;

• The $150mm roll-up will roll into a second-out term loan take-back facility; and

• The $100mm provided by the equity sponsors will convert into 100% of the common stock of the reorganized debtors (subject to dilution from a management incentive plan).

• Holders of $126mm in subordinated seller notes will get wiped out along with existing equity interests.

• General unsecured creditors will ride-through paid in full.

• The major parties to the RSA will get releases under the proposed plan: creditors who vote to reject the plan will need to affirmatively opt-out of the releases.

The debtors already commenced solicitation and hope to confirm the plan on or about August 19. The post-reorg capital structure will look like this:

The above graphic is the biggest “tell” that the filing is predominantly about access to fresh capital. The deleveraging (of only $100mm) is rather secondary and inconsequential relative to the $200mm cash infusion. Which begs the question: if the debtors perform dramatically under business plan in coming years — perhaps, uh, due to a decrease in international student travel — will the company be in need of another restructuring? PETITION Note: as we write this, a talking head is pontificating on CNBC that business travel will be significantly lower in coming years than it had been — confirming the premise of this Bloomberg piece. If parents aren’t traveling for work, will they let their children travel for school?

The debtors certainly acknowledge the risks. In the “risk factors” section of their Disclosure Statement, they note that a “second wave” of COVID-19 could impact results (PETITION Note: we need to conquer the “first wave” to get to the “second wave,” but, yeah, sure.). They state:

The Debtors cannot predict when any of the various international or domestic travel restrictions will be eased or lifted. Moreover, even when travel advisories and restrictions are lifted, demand for study abroad and student travel may remain reduced for a significant length of time, and the Debtors cannot predict if and when demand will return to pre-pandemic levels. Due to the discretionary nature of educational travel spending, the Debtors’ revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased demand for educational travel, changes in booking practices and related policies by the Debtors’ competitors, all of which in turn have had, and may have in the future, a strong negative effect on the Debtors’ business. In particular, the Debtors’ bookings may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19. The Debtors’ bookings may also be impacted by continued and prolonged school closings.

And they add:

This is the first time since September 11, 2001 that the Debtors have suspended their tours, and is the first time the Debtors have completely suspended their tours for an extended period of time. As a result of these unprecedented circumstances, the Debtors are not able to predict the full impact of such a suspension. In particular, the Debtors cannot predict the impact on financial performance and cash flows required for cash refunds of fares for cancelled tours as a result of a suspension of tours if such suspensions are prolonged further than anticipated, as well as the public’s concern regarding the health and safety of travel, and related decreases in demand for travel. Depending on the length of the suspension and level of customer acceptance of future tour credits, the Debtors may be required to provide additional cash refunds for a substantial portion of the balance of deferred tours, as customers who have opted to defer tours may request a cash refund.

And so it looks like the debtors are conservatively projecting $367.9mm of revenue in fiscal year 2021, slightly more than half of what they did in ‘19. They don’t expect to revert back to projected ‘20 numbers until at least 2024. Yes, 2024.

Now, generally, projections are almost always worthless. As the debtors’ risk factors suggest here, they may be even more worthless than usual depending upon how COVID shakes out. At least management appears to be realistic here that the business will not return to pre-COVID levels for some time. Let’s hope that a vaccine comes and they’re positioned to surprise to the upside.**

_____

*$150mm of pre-petition secured debt will roll-up into the DIP.

**Houlihan Lokey pegs valuation between approximately $625mm and $745mm as of September 30, 2020.

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

• Capital Structure: $642mm RCF/TL/LOCs, $126mm subordinated seller notes

• Professionals:

  • Legal: Kirkland & Ellis LLP (Nicole Greenblatt, Jennifer Perkins, Susan Golden, Whitney Fogelberg, Kimberly Pageau, Elizabeth Jones)

  • DIrectors: Bob Gobel, Lisa Mayr (ID)

  • Financial Advisor: KPMG LLP (James Grace, Thomas Bibby)

  • Investment Banker: Houlihan Lokey Capital Inc. (Sam Handler, Stephen Spencer)

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

• Other Parties in Interest:

  • Prepetition & DIP Agent: Goldman Sachs Bank USA

    • Legal: Latham & Watkins LLP (Adam Goldberg, Hugh Murtagh)

  • Seller Noteholders: Metalmark Capital Holdings LLC & Silverhawk Capital Partners

    • Legal: Davis Polk & Wardwell LLP (Michael Davis)

  • Sponsors: Eurazeo North America & Primavera Capital Limited

    • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz) & Simpson Thacher & Bartlett LLP (Michael Torkin)

    • Financial Advisor: PJT Partners LP

  • Ad Hoc Group of Consenting Lenders

    • Legal: Gibson Dunn & Crutcher LLP (Scott Greenberg, Steven Domanowski, Jeremy Evans)

    • Financial Advisor: Rothschild & Co.

⛽️New Chapter 11 Filing - Patriot Well Solutions LLC⛽️

Patriot Well Solutions LLC

July 20, 2020

And YET ANOTHER oilfield services company in bankruptcy. Colorado-based Patriot Well Solutions LLC provides coiled tubing, nitrogen & pumping services, wireline logging and perforating services and crane services to the oil and gas industry in North Dakota, Wyoming, Colorado and Texas; it filed its chapter 11 petition in the Southern District of Texas to pursue a sale of substantially all of its assets. Backed by White Deer Energy LP II and MBH Energy Resources LLC, the company was formed in early 2016. White Deer has committed to providing a $9.4mm DIP and will serve as the company’s stalking horse purchaser.

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

• Capital Structure:

• Professionals:

  • Legal: Squire Patton Boggs LLP (Christopher Giaimo, Travis McRoberts, Kelly Singer, Jeffrey Rothleder)

  • Managers: Ben Guill, James Meneely III, Eric White, Michael Tangedahl, Robert McNally

  • Financial Advisor/CRO: Sonoran Capital Advisors (Matt Foster, Dax Murray, Ry Neri)

  • Investment Banker: Piper Sandler & Co./Simmons Energy

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

• Other Parties in Interest:

  • Pre-petition Lender, DIP Secured Lender & Stalking Horse Purchaser: White Deer Energy LP II

7/21/20 Docket #2

🍔 New Chapter 11 Bankruptcy Filing - Maines Paper & Food Service Inc. 🍔

Maines Paper & Food Service Inc.

June 10, 2020

Sooooooo…this is a different one. Maines Paper & Food Service Inc. and 12 affiliates (the “debtors”) filed for chapter 11 bankruptcy in the District of Delaware. For a company with a 100-year history — starting with the sale of “nickel candy” to local grocers on through an expansion into fountain supplies, toys and paper products in the 40s and then further expansion into foodservice in the 70s — it seems safe to say the last two years have been as active as any. Indeed, this bankruptcy filing marks the culmination of a two-year roller-coaster process.

Let’s talk about the foodservice business. The debtors operate in over 30 states; they have 10 distribution centers and 3 retail stores across the Northeastern, Midwestern and Southern regions of the US. They have two primary business units. First, their foodservice supply chains solutions unit (the “QSR Business”) provides centralized purchasing and distribution services for QSR (“quick service restaurant”) chains like Burger King ($QSR), Tim Hortons ($QSR), Wendy’s Co. ($WEN), Applebees ($DIN), IHOP ($DIN) and Chilis. For these clients, the debtors manage (i) sourcing and purchasing of food product, (ii) delivery to their distribution centers and (iii) from there, shipping to individual franchisees. They’re not a food producer; they’re not a food seller. They are as middle man as you can get.

The second segment is the logistics services business unit (the “Darden Business”) which services restaurants owned by Darden Restaurants Inc. ($DRI). This business is similar to the QSR Business but for the fact that Darden procures its own foodservice products and the debtors merely handle the logistical side of making sure that the food then gets to DRI’s many restaurant brands.

The restaurant space — as we’ve documented time and time again — has been very challenging for years. Long-time PETITION readers will recall that we’ve highlighted on multiple occasions how rising wages, labor shortages and trucking challenges were nibbling away at already-relatively-low margins. As a servicer to restaurants, the debtors, too, suffered from these issues. Per the debtors:

Even prior to the COVID-19 pandemic, the Debtors faced several years of significant operating pressures resulting from industry-wide truck driver and warehouse labor shortages. During 2018, the foodservice distribution industry specifically, and the distribution & logistics industries more generally, experienced a significant labor shortage, primarily due to the robust labor market. For the Company, these labor shortages caused delivery-related challenges and amplified expenses due to a greater reliance on independent contractors and increases in overtime and shrink cost. The Debtors took steps to identify and implement a number of cost-rationalization initiatives together with scheduled customer resignations in order to manage their costs and address these challenges. However, the cumulative effect of these operational challenges was severe: the Debtors experienced a $29.9 million pre-tax loss in 2018 and a $25.9 million pre-tax loss in 2019.

The debtors’ owners, the Maines Brothers, started waving the white flag in the summer of ‘18. They hired advisors and attempted to divest the company.

They weren’t successful. While a sale didn’t happen, the debtors and their advisors were able to recapitalize the business and otherwise shore up liquidity. At that point the company complemented its existing asset-backed revolving credit facility with a term loan (issued by a non-debtor and secured by certain real estate) and a promissory note issued to an affiliate of Darden. Moreover, the debtors were able to obtain price increases and a small cash infusion from two of its then-largest QSR Business customers (presumably QSR and DIN). These improvements set the company up for a second bite at the sale apple.

And, indeed, by February ‘20, the company received letters of intent that, combined, would have led to the sale of the business in parts. One buyer wanted the QSR Business; another the company’s NY-based corporate headquarters and the Darden Business. About a month and a half away from closing COVID-19 entered the mix.

To say that COVID-19 crushed the debtors’ business would be an understatement. Customer volumes instantly fell by up to 87%. All of the debtors’ end customers were shut down. This is the part of the aforementioned roller-coaster where the seat belt breaks and yet the car is riding up a monstrous ascent. The company’s proposed buyers balked and the PNC Bank NA ($PNC), as agent under the ABL, exercised control over the company’s cash and withdrew its support of the going concern transaction. To make matters worse, several large customers terminated their distribution agreements.

But that’s not all. Lineage Bluebird Debtco LLC, an affiliate of Lineage Foodservice Solutions LLC, saw an opportunity and seized it. Like, literally. They took out PNC in April ‘20 and commenced a partial strict foreclosure of the company’s assets. Get out those Article 9 textbooks folks. What this means is that they took title to the company’s primary assets, i.e., inventory and receivables, its corporate HQ, and other real estate. They then entered into a foreclosure agreement pursuant to which they forgave $80mm of senior secured debt under the ABL, contributed $7.5mm in cash to fund a post-foreclosure wind down in court and another $2mm to pay holders of general unsecured claims pursuant to a plan of liquidation (PETITION Note: trade debt totals over $100mm, exclusive of special first day relief). Lineage also made job offers to the ~850 Maines employees. Lineage is pushing for plan confirmation within the next 90 days which, no doubt, will include releases.

After this untimely sequence of events, it appears the releases are the best the Maines Brothers can hope for at this juncture.

*****

One other point here. In some respects this is a decent result because at least the employees get to keep their jobs. But it’s important to acknowledge the cascading effects stemming from the foreclosure of this business and subsequent consolidation into a competitor.

The most illustrative way to see this is via the debtors’ executory contract rejection motion. While it’s largely possible that a number of these contracts would not have been assumed and assigned in conjunction with the Feb ‘20 sale transactions, it’s equally plausible that many of them would have been. COVID-19 struck and all of that went out the window. In turn, now all of the business that the debtors’ contract counterparties had looks to follow. Most likely, that business is simply redundant to Lineage.

By way of illustration, the debtors are now rejecting, among other things:

• Multiple retail store leases, undoubtedly contributing to the struggles that landlords already face;

• Multiple distribution center leases … ditto above (though, we’d think distribution center leases may have a better rebound scenario);

• Several other real estate leases (i.e., cold storage centers, nurseries, farms);

• Recycling and waste treatment contracts; and

• Vehicle lease and, separately, vehicle maintenance contracts.

Multiply this throughout the economy and it’s easier to understand why the market finally corrected a bit this week after a huge euphoric run.

---

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $10.329mm RCF (Lineage), $10mm promissory note (Darden Direct Distribution Inc.), $1.7mm unsecured term note (M&T Bank)

• Professionals:

  • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, Timothy Cairns, Maxim Litvak)

  • Director: James D. Decker

  • Financial Advisor/CRO: Huron Consulting Group (John DiDonato, Mark Western, David McCormack, Abhimanyu Gupta)

  • Investment Banker:

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

• Other Parties in Interest:

  • Lineage Logistics Inc.

    • Legal: Latham & Watkins LLP (Peter Gilhuly, Nacif Taousse) & Young Conaway Stargatt & Taylor LLP (Michael Nestor)

  • Restaurant Brands International Inc.

    • Legal: Genovese Joblove & Battista PA & Chipman Brown Cicero & Cole LLP (William Chipman Jr., Mark Olivere) & Genovese Joblove & Battista PA

  • PLM Fleet LLC f/k/a MAC Trailer Leasing Inc.

    • Legal: McCarter & English LLP (Matthew Rifino)

⛽️New Chapter 11 Bankruptcy Filing - Hornbeck Offshore Services Inc. ($HOSS)⛽️

Hornbeck Offshore Services Inc.

May 19, 2020

Hornbeck Offshore Services Inc. and 13 affiliates (the “debtors”), providers of marine transportation services to petroleum exploration and production, oilfield service, offshore construction and US military customers, filed prepackaged chapter 11 bankruptcies in the Southern District of Texas. Judge Isgur and Judge Jones must be thinking “Thank G-d”: for the judges, “prepackaged” is the operative word here and a quickie case amidst some of these melting ice cubes (e.g., J.C. Penney) must be a welcome breath of fresh air.

Hornbeck is one of those companies that people have been watching ever since 2015 — mostly on account of (i) the idea that offshore drilling had become prohibitively expensive in a falling commodity price environment and (ii) thanks to years of capital-intensive vessel construction programs and vessel acquisitions, an over-levered balance sheet. The good news is that, because of those programs/acquisitions, the company is relatively well-positioned with a nimble and younger fleet (76 vessels in total) — a fact that’s surely recognized by the company’s future equity holders. The bad news is that, with this much debt, even Hornbeck couldn’t postpone the inevitable bankruptcy ad infinitum when oil is where it is. Per the company:

Despite the Company’s relative strengths in its core markets, recent industry trends have had a materially adverse impact on the offshore energy industry and on the Company in particular. While the Company is accustomed to, and built for, the cyclical nature of the oilfield services industry, the recent downturn in the industry has lasted nearly six years, much longer than any previous cycles in the deepwater era, and has put pressure on the Company’s ability to repay or refinance its significant debt obligations.

This is what the funded debt looks like:

Despite that ghastly capital structure and the unfriendly market, Hornbeck, unlike other players in the space like Tidewater Inc. and GulfMark Offshore Inc., managed to stay out of bankruptcy. To do so, it pulled every lever in the book:

• Stacking of vessels to right-size the size of the available fleet relative to demand? ✅

• Defer drydocking costs? ✅

• Onshore and offshore personnel pay cuts? ✅

• Selectively taking on assignments, avoiding long-term Ks and insurance risk? ✅

This is all great but of course there’s still that monstrosity of a balance sheet. In tandem with the operational restructuring, the company has been pursuing strategic balance sheet transactions since 2017 — some more successful than others. The most recent attempt of out-of-court exchange offers and consent solicitations was in early February and though it got a super-majority of support from holders of the ‘20 and ‘21 notes, it failed to meet the required 99% threshold to consummate the deal. On March 23, the date of the bottom of the stock market (irrelevant…just a fun fact), the company terminated the offers. After a long road over many years, bankruptcy became more of a reality.

And so here we are. With the amount of support indicated on the offers, this thing set up nicely for a prepackaged plan. Regarding the plan, there’s a whole lot going on there because of the way the exit facilities are contemplated and the fact that there are Jones Act compliance issues but suffice it to say that the plan treats the first lien lenders as the fulcrum security. The second lien lenders will get a tip and the unsecured noteholders essentially walk away with a small equity kiss and warrants. The company will require liquidity on the back end of the chapter 11 and so the plan also contemplates a $100mm rights offering in exchange for 70% of the reorganized equity.

The debtors will fund the cases via a $75mm DIP credit facility which includes $56.25 million funded by certain secured lenders and $18.75 million funded by certain unsecured noteholders.

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

• Capital Structure: $50mm ABL (Wilmington Trust NA), $350mm first lien facility (Wilmington Trust NA), $121.2mm second lien facility (Wilmington Trust NA), $224.3mm ‘20 unsecured notes, $450mm ‘21 unsecured notes

• Professionals:

  • Legal: Kirkland & Ellis LLP (Edward Sassower, Ryan Blaine Bennett, Ameneh Bordi, Debbie Farmer, Emily Flynn, Michael Lemm, Benjamin Rhode) & Jackson Walker LLP (Matthew Cavenaugh, Kristhy Peguero, Jennifer Wertz, Veronica Polnick)

  • Financial Advisor: Portage Point Partners LLC

  • Investment Banker: Guggenheim Securities LLC

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

• Other Parties in Interest:

  • DIP Agent ($75mm): Wilmington Trust NA

  • Counsel to the Consenting Secured Lenders

    • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Stephanie Massman)

  • Counsel to Consenting Unsecured Notes

    • Legal: Milbank LLP (Gerard Uzzi, Brett Goldblatt, James Ball)

  • Large equityholders: Cyrus Capital Partners LP, Fine Capital Partners LP, William Hurt Hunt Trust Estate

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 - Superior Air Charter LLC (d/b/a JetSuite Air) ✈️

Superior Air Charter LLC

April 28, 2020

Dallas-based Superior Air Charter LLC d/b/a JetSuite Air, a charter air carrier to BSDs who roll as BSDs tend to roll, filed for chapter 11 bankruptcy in the District of Delaware. Ironically, while it serviced ballers, the debtor was never a baller itself. Founded in 2009, the debtor, despite a history of over 111,000 across a fleet of eighteen planes (down to ten today*), a “nearly” impeccable safety record (🤔), and a good reputation, was “never able to operate profitably.” Demand simply never hit a level where the business could break even, a problem aggravated by the debtor’s inability to penetrate the fat-cat bankers on the East Coast — something the debtor blames on the “unreliability” of acquired aircraft. 😬

Enter COVID-19. Similar to many of the bankruptcy filings we’ve seen to date, the worldwide pandemic and corresponding shutdown proved to be the gentle push of an otherwise teetering business over the goal line into bankruptcy. Per the debtor:

Thus, the Debtor could ill afford the economic destruction that the worldwide Coronavirus (COVID-19) pandemic would come to cause across a spectrum of industries. In short, it decimated the Debtor’s operations, with potential customers no longer able or willing to seek out the Debtor’s services. Indeed, the aviation industry has been particularly hard hit in light of travel restrictions put in place across all of the states that the Debtor has traditionally served. The Debtor’s cash flows dropped by essentially 100% almost immediately after the restrictions went into place. Because the duration of the COVID-19 crisis is indeterminate, the Debtor expects demand to remain very weak for many months to come. These conditions naturally exacerbated the Debtor’s liquidity issues, and by mid-April 2020, it became apparent the Debtor had little choice but to ground its fleet and furlough most employees and crewmembers.

The debtor has no funded secured debt and approximately $16mm of unsecured debt in the form of promissory notes; it estimates approximately $75mm of general unsecured debt exclusive of breakage costs associated with rejected contracts/leases. A good percentage of that general unsecured debt relates to “suitekey customers” who purchased the ability to fly private within the debtor’s service region. Someone from Netflix Inc. ($NFLX) is listed as the largest unsecured creditor.

The debtor did attempt to tap the relief provided by the US government via the CARES Act but “found the applicable sources of funding under the CARES Act to be expressly prohibited for companies that have sought Chapter 11 protection.” In lieu of a government-provided lifeline, the debtor does have a commitment for $3.6mm of DIP financing from its pre-petition unsecured creditor, JetSuiteX Inc., and seeks to use the chapter 11 process to, more likely than not, wind-down operations and maximize value for its creditors.

*Two aircraft lessors served notices of default on the debtor prior to the petition date and retook possession of aircraft per the terms of the governing leases. The debtor also sold six planes in August 2019. Hence the reduction of the fleet from 18 to 10.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: No funded secured debt (just aircraft financing). $16.2mm unsecured promissory notes (JetSuiteX Inc.)

• Professionals:

  • Legal: Bayard PA (Evan Miller, Daniel Brogan, Sophie Macon)

  • Independent Manager: Jonathan Solursh

  • Financial Advisor/CRO: Gavin/Solmonese (Edward Gavin, Jeremy VanEtten)

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

• Other Parties in Interest:

  • DIP Lender ($3.6mm): JetSuite X Inc.

    • Legal: Vedder Price PC (Michael Edelman, Jeremiah Vandermark) & Potter Anderson Corroon LLP (Jeremy Ryan, Aaron Stulman)

⛽️New Chapter 11 Bankruptcy Filing - Diamondback Industries Inc.⛽️

Diamondback Industries Inc.

April 21, 2020

Texas-based Diamondback Industries Inc. and two affiliates (the “debtors”) filed for bankruptcy in the Northern District of Texas; they are manufacturers and sellers of disposable setting tools, power charges, and igniters used in the completion of oil and gas wells. Their wares are patent and trademark protected and appear to enjoy use by oil and gas companies engaged in drilling and well services. The debtors have managed to weather the oil and gas downturn over the last several years but the recent perfect storm brought on by the calamitous drop in oil prices + COVID-19 was too much to bear. These factors alone would have been troubling but the debtors also ran into some crippling legal troubles.

On April 3, 2020, the District Court for the Western District of Texas entered a patent judgment against the debtors that instantly dumped a $39.9mm obligation on the debtors in favor of Repeat Precision LLC. Originally, Repeat Precision LLC was the defendant in a patent license agreement dispute pursuant to which the debtors claimed breach of contract, misappropriation of trade secrets and fraudulent inducement. Repeat Precision filed counterclaims for patent infringement and tortious interference. It appears the debtors weren’t prepared for the counter-punches. The judgment was the knockout punch.

And that punch created a domino effect. The judgment triggered an event of default under the debtors’ prepetition credit agreement. This was a double-whammy: just two days before, the debtors failed to make a principal payment and breached various financial covenants under the agreement. The debtors’ lender, UMB Bank NA, did enter into a forbearance agreement with the debtors but the debtors nevertheless determined that chapter 11 cases may afford them a “breathing spell” to get their business together (and perhaps pursue a sale process). The debtors secured a $5mm DIP commitment to fund their cases.

• Jurisdiction: N.D. of Texas (Judge Morris)

• Capital Structure: $20mm funded RCF (UMB Bank NA)

• Professionals:

  • Legal: Haynes and Boone LLP (Ian Peck, David Staab, Matthew Ferris)

  • Financial Advisor/CRO: CR3 Partners LLC (Greg Baracato, Cade Kennedy)

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

• Other Parties in Interest:

  • US Bank NA

    • Legal: Bryan Cave Leighton Paisner LLP (Kyle Hirsch, Tricia Macaluso)

  • Unsecured Creditor: Repeat Precision LLC

    • Legal: Munsch Hardt Kopf & Harr PC (Davor Rukavina, Thomas Berghman)

⛽️New Chapter 11 Bankruptcy Filing - Yuma Energy Inc.⛽️

Yuma Energy Inc.

April 15, 2020

Houston-based Yuma Energy Inc. and three affiliates, oil and gas producers focused on the Rocky Mountain, Mid-Continent, Gulf Coast and West Texas regions of the US, filed chapter 11 cases in the Northern District of Texas.

There ain’t much new here worth noting given that every oil and gas company is troubled and they all sing the same tune about commodity prices post-2015. But there was one striking admission in Yuma’s bankruptcy papers that is nearly as pervasive as commodity price effects. In the company’s own words, “…the decline in the financial health of the company stemmed not only from dropping commodity prices, but more importantly with a continuing high level of G&A for a company it’s [sic] size….” That’s right: bloated G&A. It’s as prevalent in Texas as oil itself.

This case is a liquidation.

• Jurisdiction: N.D. of Texas (Judge Mullin)

• Professionals:

  • Legal: FisherBroyles LLP (H. Joseph Acosta, Lisa Powell)

  • Financial Advisor: Ankura Consulting Group (Anthony Schnur)

  • Investment Banker: Seaport Gordian Energy LLC

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

• Other Parties in Interest:

👖New Chapter 11 Bankruptcy Filing - True Religion Apparel Inc.👖

True Religion Apparel Inc.

4/14/20

TMI: we’ve had a hard enough time getting Johnny to even wear pants at all over the last few weeks let alone put on jeans. That one Zoom call where he spilled coffee on himself and jumped out of his chair emblazoned an image in our minds that we’ll need some real therapy to get over. We had to take out an enterprise Headspace account as a result. But enough about us.

To the topic at hand: True Religion Apparel Inc. Here’s the good news: True Religion and its four affiliates (the “debtors”) legged it out long enough to avoid PETITION’s dreaded Two-Year Rule violation. Any retailer that can stave off a chapter 22 bankruptcy filing for as long as True Religion did (30 months) has, in fact, achieved a “successful” restructuring in our book. That said, the brand is nevertheless back in bankruptcy court. If that logic strikes you as perverse well, yes, we admit it: the bar for bankrupted retailers is, in fact, that low.

Interestingly and somewhat counter-intuitively, there has been a dearth of retail restructuring activity during the COVID-19 strike. We went through some explanation for that here and the theme was subsequently picked up and expanded upon by the MSM: there were countless articles about how busy restructuring professionals are and yet very few filings (though there has been a lot of activity this week). Why? It’s hard for retailers to conduct GOB sales when stores aren’t open. DIP financing is harder to come by. Buyers are few and far between. Everyone is having trouble underwriting deals when it’s so difficult to gauge if and when things will return to “normal.”

True Religion couldn’t afford to wait. It has 87 retail stores. They’re closed. It’s wholesale business — dependent, of course, on other open brick-and-mortar shops — is also closed. This was an immediate 80% hit to revenue.* The company — which had posted a $50mm net loss for the TTM ended 2/1/20 (read: it was already pretty effed) — suddenly found itself facing an accelerated liquidity crisis. Stretching payables, stretching rent, furloughing employees. All of those measures were VERY short-term band-aids. A bankruptcy filing became absolutely necessary to gain access to much needed liquidity. This filing is about a DIP credit facility folks. Without it, they’d be looking at Chapter 7 liquidation. Per the debtors:

The Debtors must have access to the DIP Facilities to continue to pay essential expenses—including employee benefits, trust fund taxes and other critical operating expenditures—while they use the breathing spell provided by the Bankruptcy Code to wait out the effects of the COVID-19 pandemic and attempt to pursue a value-maximizing transaction for all stakeholders.

Critical operating expenditures? Yup, e-commerce maintenance and fulfillment, wholesale and restructuring expenses baby. The plan is to “mothball” the business and hope for a tiered reopening of stores “at the conclusion fo the COVID-19 pandemic.” In the meantime, the debtors intend to pull a Modell’s/Pier 1 and get relief from having to pay rent. This as pure of a “breathing spell” as you can get.

Back to the financing. The debtors have approximately $139mm of funded debt split between a $28.5mm asset-backed term loan (inclusive of LOCs) and a $110.5mm first lien term loan. The debtors also had access to a $28.5mm revolver subject to a “borrowing base,” as usual, but that facility wasn’t tapped. We’re guessing Crystal Financial ratcheted up reserves and didn’t leave much opportunity for drawing that money outside of a filing.

In March 2020 the debtors sought, in earnest, new financing, talking to their existing lenders and third-party lenders. They also considered the possibility of tapping funds via the recently-enacted CARES Act. They note:

In addition to the Debtors’ efforts in the private marketplace, the Debtors and their Restructuring Advisors evaluated the availability of government appropriations through the CARES Act. After careful consideration, the Debtors determined that they were not eligible for government funding, or to the extent that there was a possibility that they would be eligible, they would not be able to wait the time necessary to find out whether a loan would be available under the CARES Act. The Debtors are hopeful that future stimulus packages will target companies such as the Debtors – i.e. mid-market companies with 1000 employees that are currently in chapter 11, but that could utilize government financing when emerging from chapter 11.

New third-party financing didn’t come to fruition. Among other reasons, lenders cited “the timing, complexity and overall challenges in the retail industry in light of COVID-19.” It’s hard out there for an underwriter. Ultimately, the debtors settled on financing offered by some of its first lien term lenders.

Now, we don’t normally get too deep into DIP details but given the difficulty financing retailers today, we thought the structure merited discussion. Here’s what the debtors negotiated:

• A $29mm senior secured super-priority asset-based revolver (rollup);

• A $59.89mm senior secured super-priority delayed-draw term loan credit facility of which $8.4mm is new money, a bit over $3mm is for LOCs, and the rest constitutes a rollup of pre-petition debt.

Major equityholder and pre-petition lender Farmstead Capital Management LLC is a big player in the term loan. The DIP is subject to a “strict” 13-week budget based on a four-month case with an eye towards either a section 363 sale or a reorganization by mid-May. Seems ambitious. For obvious reasons. But Farmstead ain’t suffering no fools. Per the debtors:

…the Debtors’ lenders are unwilling to fund a contentious chapter 11 case and they have made this clear to the Debtors over the course of the negotiations. Any material delay or significant litigation during these cases will result in the Debtors’ default of its covenants and send the Debtors spiraling into a fire-sale liquidation.

Given that Farmstead is taking half of its DIP fee paid-in-kind, they may be looking to own this sucker on the backend via a credit bid. Hats off to those guys.

*The papers are not entirely clear but they appear to indicate that e-commerce “accounts for less than 26% of sales” out of $209mm or ~$54mm. Given layoffs across the country, we have to think that e-commerce fell off a cliff in February and March too. Said another way, there’s no way it could’ve generated enough revenue to keep the business afloat. Also, JP Morgan ($JPM) included the following chart in its earnings deck this week:

**We’d be remiss if we didn’t note the financial performance here. Again, the debtors highlighted a $50mm net loss in the fiscal year that just closed on February 1, 2020. Here are the financial projections that True Religion filed as part of its disclosure statement during its first chapter 11 filing:

That’s a savage miss.

• Jurisdiction: D. of Delaware (Judge Sontchi)

• Capital Structure: $28.5mm Asset-Backed Term Loan (Crystal Financial LLC), $110.5mm First Lien TL (Delaware Trust Company)

• Professionals:

  • Legal: Cole Schotz PC (Justin Alberto, Seth Van Aalten, Michael Trentin, Kate Stickles, Patrick Reilley, Taylre Janak) & Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Kevin Eide)

  • Board of Directors: Eugene Davis, Lisa Gavales, Stephen Perrella, Robert McHugh

  • Financial Advisor: Province Inc. (Michael Atkinson)

  • Real Estate Advisor: RCS Real Estate Advisors

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

• Other Parties in Interest:

  • Pre-petition ABL & DIP ABL Agent: Crystal Financial LLC

    • Legal: Choate Hall & Stewart LLP (John Ventola, Jonathan Marshall) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Pre-petition TL & DIP TL Lenders

    • Legal: Proskauer Rose LLP (Brian Rosen, Lucy Kweskin) & Young Conaway Stargatt & Taylor LLP (Jaime Luton Chapman)

  • Major equityholders: Farmstead Capital Management LLC, Waddell & Reed, Towerbrook Capital Partners, Apex Credit Partners LLC, Credit Suisse, Goldman Sachs Asset Management

🛫New Chapter 11 Bankruptcy Filing - Ravn Air Group Inc.🛫

Ravn Air Group Inc.

April 5, 2020

Ravn Air Group Inc. and seven affiliates (the “debtors”), owners and operators of aircraft providing air transportation and logistics services to passenger, mail, charter and freight markets in Alaska, filed for bankruptcy in the District of Delaware. In addition to individual passengers, the debtors service, primarily through three airlines, the oil and gas industry, the seafood industry, the mining industry and the travel and tourism industries. Substantial shareholders include private equity firms W Capital Partners and J.F. Lehman & Company.

This is a COVID-19 story. The debtors highlight the seasonal nature of their business — high costs in Qs one and four and robust business in Qs two and three. COVID-19 hit Alaska, in earnest, on March 12 when the Governor of Alaska confirmed the first case of coronavirus in Alaska on live television. There was an immediate impact: revenues decreased 80-90% YOY as passengers stopped flying and local communities sought to cease passenger flights into their region. Eight days later, the State of Alaska issued a strong advisory to all Alaskans to stop all non-essential travel. As you can imagine, all of these things coalesced to create a harsh negative cash flow scenario for Ravn.

How harsh? Merely 11 days after the initial case announcement, the debtors announced layoffs. Four days later, they announced a second round. The debtors pivoted to survival mode but all of the cost-saving measures in the world couldn’t overcome the near-total loss of revenue coming in. Efforts to find a financing solution outside of bankruptcy did not materialize. Per the debtors:

Through the month of March, the Debtors engaged in extensive negotiations with the Prepetition Secured Parties regarding the future of the Debtors and their operations, their ability to weather the COVID-19 pandemic with or without assistance (including grants and loans under the CARES Act), and the willingness of the Prepetition Secured Parties to provide bridge financing in light of the foregoing. These negotiations (as well as the discussions with government officials described below) were made all the more difficult because of the inherent uncertainty regarding how long and the extent to which the current COVID-19 operating environment will last, as well as the fact that they were conducted telephonically, rather than inperson, as a result of COVID-19.

Wait. Zoom Video Communications Inc. ($ZM) isn’t the end-all be-all savior it’s been made out to be?!? Go figure.

These debtors now also serve as Exhibit A to the argument that the federal government ought to have acted sooner to pass the Coronavirus Aid, Relief, and Economic Security Act (CARES) and put into place mechanisms for getting that much-needed capital out to the businesses that need it. The debtors add:

Separately, the Debtors also spoke with high-ranking representatives of the State of Alaska and the federal government. Unfortunately, by the end of March 2020, it became clear that any state or federal government financial assistance or other relief was not going to be available before the Debtors ran out of cash and had to suspend operations.

Eesh. Now that’s sh*tty timing. They pushed through an application on April 3, the first day to do so, but liquidity was so low that the debtors couldn’t make payroll. A bankruptcy filing, therefore, became necessary in order to nail down DIP financing to pay employee wages and, through the efforts of a skeleton crew, administer the bankruptcy cases. At the time of the actual filing, even the DIP documentation wasn’t complete.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $90.9mm RCF (BNP Paribas)

• Professionals:

  • Legal: Keller Benvenutti Kim LLP (Tobias Keller, Jane Kim, Thomas Rupp) & Blank Rome LLP (Victoria Guilfoyle, Stanley Tarr, Jose Bibiloni)

  • Financial Advisor: Conway MacKenzie LLC

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

• Other Parties in Interest:

  • Prepetition & DIP Agent: BNP Paribas

    • Legal: Winston & Strawn LLP (David Neier, Carrie Hardman) & Ashby & Geddes PA (William Bowden, Gregory Taylor)

  • Large equityholders: W Capital Partners

💈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 - Whiting Petroleum Corporation ($WLL)⛽️

Whiting Petroleum Corporation

April 1, 2020

Denver-based Whiting Petroleum Corporation ($WLL) and four affiliates (the “debtors”), independent oil-focused upstream exploration and production companies focused primarily on the North Dakota and Rocky Mountain regions, filed for bankruptcy in the Southern District of Texas. This is a story that requires an understanding of the debtors’ impressively-levered capital structure to understand what’s going on:

• $1.072b ‘23 RBL Facility (JPMorgan Chase Bank NA)(springing maturity to 12/20 if the ‘21 notes below are not paid in full by 12/20)

• $189.1mm ‘20 1.25% convertible senior unsecured notes due 2020 (Bank of New York Mellon Trust Company, N.A.)

• $773.6mm ‘21 5.75% senior unsecured notes

• $408.3mm ‘23 6.25% senior unsecured notes

• $1b ‘26 6.625% senior unsecured notes

You’ve heard us talk about the capital intensive nature of E&P companies so … yeah … the above $3.443b of debt shouldn’t come as much of a surprise to you. The company is also publicly-traded. The stock performance over the years has been far from stellar:

What’s interesting here is that EVERYONE knows that oil and gas has been a value-destructive sh*t show for years. There’s absolutely ZERO need to belabor the point. Yet. That doesn’t stop the debtors’ CRO from doing precisely that. Here, embedded in the First Day Declaration, is a chart juxtaposing a $100 investment in WLL versus a $100 investment in an S&P 500 index and a Dow Jones U.S. E&P Index:

We should also add that the spike reflected in the above chart in the 2017 timeframe isn’t on account of some stellar improvement of operating performance; rather, it reflects a November 2017 1-to-4 reverse stock split which inflated the reflected price of the shares. Just to be clear.

Notwithstanding the hellacious performance since 2014, the debtors take pains to paint a positive picture that was thrown into disarray by “drastic and unprecedented global events, including a ‘price war’ between OPEC and Russia and the macroeconomic effects of the COVID-19 pandemic….” In fact, the debtors come in HOT in the introduction to the First Day Declaration:

The Debtors ended 2019 standing on solid ground. While the Debtors had more than $1 billion in unsecured bond debt set to mature prior to December 2020, the Debtors had significant financial flexibility to restructure their capital structure. Most importantly, the Debtors began 2020 with a committed revolving credit facility that provided them with committed financing of up to $1.75 billion—more than enough liquidity to service the Debtors’ 2020 maturities and fund anticipated capital expenditure needs throughout the year. For these reasons, the Debtors secured a “clean” audit report as recently as February 27, 2020.

And to be fair, the debt was doing just fine until the middle of February. Indeed, the unsecured notes didn’t hit distressed levels until right after Valentine’s Day. Check out this freefall:

Who needs open amusement parks when you can just follow that price action?

Already focused on “liability management” (take a drink!) given the looming ‘21 notes maturity and the corresponding RBL springing maturity, the debtors’ retained professionals shifted over to restructuring talks with an ad hoc committee of noteholders. The debtors also drew down $650mm on their revolver to ensure adequate go-forward liquidity (and, cough, avoid the need for a relatively more expensive DIP credit facility). After what sounds like serious deliberation (and opposition from the ad hoc committee), the debtors also opted to forgo the $190mm maturity payment on the convertible notes due April 1.

The debtors filed the case with the framework of a restructuring support agreement (aka a term sheet). That framework would equitize the converts and the unsecured notes, giving them 97% of the equity (for now … debt is also still under consideration). Unsecured claims will be paid in full. Existing equity would receive 3% of post-reorg equity and warrants. Post-reorg management will get 8% of the post-reorg equity. In total, this would amount to the evisceration of over $2b worth of debt. 😬

Speaking of management, a lot of people were up in arms over this bit in the debtors’ Form 8-K filed to announce the bankruptcy filing and term sheet:

That’s right. A nice immediately-payable bonus to management.

Remember that story of Lehman Brothers CEO Dick Fuld getting punched the day after Lehman’s bankruptcy on a treadmill in the corporate gym?

Fees like something like that may be coming soon to $WLL headquarters... 👀

— EnergyCynic (@EnergyCynic) April 1, 2020

We’d love to hear how this ISN’T a subversion of code provisions regarding KEIPS/KERPS. Seriously, write us: petition@petition11.com. Ensure stability huh? Tell us: WHERE THE F*CK ARE THESE GUYS GOING TO GO IN THIS ENVIRONMENT? But at least they’re passing up their (WILDLY WORTHLESS) equity awards and bonus payments. FFS.

Ok, fine. Maybe there were contractual provisions that needed to be taken into account. And maybe the alternative — sh*tcanning management and rejecting the employment contracts — doesn’t fit the construct of leaving an umimpaired class of unsecured creditors. Equity is wildly out-of-the-money and getting a tip here anyway. This, therefore, is just a transfer of value from the noteholders to the management. We have to assume that the noteholders, then, were aware of this before it happened. If not, they should be pissed. And the Directors — who make between $180,000 and $305,000 a year — ought to be questioned by said noteholders about potential breaches of duties.

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

• Capital Structure:

• Professionals:

  • Legal: Kirkland & Ellis LLP (Stephen Hessler, Brian Schartz, Gregory Pesce, Anna Rotman) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Veronica Polnick)

  • CRO: Stein Advisors LLC (Jeffrey Stein)

  • Financial Advisor: Alvarez & Marsal LLC (Julie Hertzberg)

  • Investment Banker: Moelis & Company

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

• Other Parties in Interest:

  • RBL Agent: JPMorgan Chase Bank NA

  • Ad Hoc Committee of Noteholders

    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Beslisle Eaton, Michael Turkel, Omid Rahnama) & Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

    • Financial Advisor: PJT Partners LP

  • Creditor: Caliber North Dakota LLC

    • Legal: Weil Gotshal & Manges LLP (Alfredo Perez, Brenda Funk)

🍣New Chapter 11 Bankruptcy Filing - Dean & Deluca New York Inc.🍣

Dean & Deluca New York Inc.

March 31, 2020

Dean & Deluca New York Inc. hasn’t been in business in New York for well over six months so when this sucker and six affiliates (finally) filed for bankruptcy, our first reaction was, collectively, “No sh*t.” It’s somewhat ironic that it’s making a re-appearance at a time when New Yorkers are (unfortunately) clamoring for food options. But we digress.

The company has no operating retail locations; it has one remaining employee.* This reality is what’s left of a post-acquisition expansion plan gone bad where over $200mm of cash was flushed down the toilet.

For the last several months, the company has apparently been working with its two primary creditors and lenders, Pace Development Corporation and Siam Commercial Bank Public Company Limited (“SCB”), to develop a reorganization plan. No out-of-court option emerged and so now the company is in bankruptcy “to effectuate a restructuring transaction that would preserve the value of the Dean & DeLuca brand, position itself to re-open stores and rehire employees, and provide financial returns and new business opportunities to creditors.” Ummmmmm, okay.

The company received a $750k secured loan from SCB on the eve of bankruptcy. Otherwise, it has no secured debt just $295mm in unsecured debt (but was it debt, really?) and $25mm in trade debt. On the asset side, the company claims its trademark is worth $50mm (hahahahahaha). It also lists “franchise agreements and customer relationships” with a book value of $5mm, $100mm in NOLs (now we’re talking), $700k in accounts receivable and $20mm in property and equipment.

Where’s this thing go from here? Looks like Pace intends to sink more money into this thing and give it another go. G-d bless persistence.

*It still has some branded international franchisees who paid the company $1.5mm in license fees in 2019. COVID may have something to say about that happening in 2020.

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

• Capital Structure: $750k secured debt, $295mm unsecured debt

• Professionals:

  • Legal: Brown Rudnick LLP (Willam Baldiga, Bennett Silverberg, Tristan Axelrod)

  • Financial Advisor: Argus Management Corporation (Joseph Baum, Lawton Bloom)

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

• Other Parties in Interest:

  • Secured Lender: Siam Commercial Bank Public Company Limited

😷New Chapter 11 Bankruptcy Filing - MBH Highland LLC😷

MBH Highland LLC

March 29, 2020

MBH Highland LLC, MBH West Virginia LLC and MBH Health Center LLC (collectively, the “debtors”) filed for chapter 11 bankruptcy in the Middle District of Tennessee.

• Jurisdiction: M.D. of Tennessee (Judge Walker)

• Professionals:

  • Legal: Bass Berry & Sims PLC (Paul Jennings, Gene Humphreys, Glenn Rose)

  • Financial Advisor/CRO: Tortola Advisors LLC (C. Steven Moore)

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

⛽️New Chapter 11 Filing - Echo Energy Partners I LLC⛽️

Echo Energy Partners I LLC

March 24, 2020

Soooooo, this is an odd one. On March 24, 2020, Oklahoma City-based Echo Energy Partners I LLC, an independent oil and gas company — primarily natural gas from the Anadarko Basin — filed for bankruptcy in the Southern District of Texas. It was a bare bones filing. For well over a week, the docket sat empty with no real substantive pleadings filed or definitive information coming through about the case. Then, finally, over a week later, the company filed more actual first day motions and its First Day Declaration. Usually the automatic stay doesn’t apply to the debtors’ work but, yeah, sure, more power to them.

Anyway, now we know what’s up. And it’s not particularly original or interesting. The upshot? Apparently nobody wants to finance “gas-heavy, capital intensive, non-operated wells with longer production curves” in a $2.00 per million Btu environment let alone a now-sub-$2.00 per million Btu environment. The debtor, therefore, ran into severe liquidity constraints — a situation compounded by third-party operators like Continental Resources inc. ($CLR) initiating forced forfeitures of the debtor’s working interest in key wells.

What’s the plan now? Well, it ain’t looking good. The debtor has a $8.5mm DIP commitment from its pre-petition lender, Texas Capital Bank ($TCBI), and hopes to use the chapter 11 process to pursue a sale of its business.

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

• Capital Structure: $80mm RCF (Texas Capital Bank) & $165mm notes (HPS Investment Partners LLC)

• Professionals:

  • Legal: Bracewell LLP (William A. Wood III, Jason G Cohen)

  • Manager: John T. Young Jr.

  • Financial Advisor: Opportune LLP (Gregg Laswell)

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

🍦New Chapter 11 Bankruptcy Filing - Ample Hills Holdings Inc.🍦

Ample Hills Holdings Inc.

March 15, 2020

“Hey, honey. Things are really tense right now with coronavirus spreading and the market imploding. I could really use some comfort food.”

“How about some of your favorite ice cream?”

“Ooooh, yeah, that’s an excellent call. Ample Hills Creamery has some sick-a$$ flavors. In!!”

BOOM. Bankrupt. Because there can’t be any good news this week, folks.

We know what you’re thinking: the coronavirus has claimed ice cream as a victim. That nasty virus has taken our sweet SWEEEET snack, the godforsaken beast!

But no. What claimed Brooklyn-based Ample Hills — and sent it reeling into chapter 11 bankruptcy — was an off-the-rails expansion. After becoming a favorite darling of A-listers like Bob Iger and Oprah Winfrey, the company experienced a nightmare shared by every New Yorker who has ever tried to do a reno project in their apartment: extensive and ridiculous time and cost overruns. That’s right, this story is ALL TOO FAMILIAR. It’s a homeowner’s lament:

Ample Hills estimated that it would take one year to build out the Factory. In all, it took a full year and a half longer than estimated before the Factory was operational. Ample Hills’ total investment in the Factory was roughly $6.7 million, which was $2.7 million higher than its original budget. Because the Factory delays impacted Ample Hills’ expansion strategy, the Factory has not been as fully utilized as Ample Hills originally planned, which has led to continuing operating losses.

So cliche, folks, so cliche. To finish the build-out and expand shops, the company raised an $8mm Series A round in late 2017 and subsequently expanded to LA and Miami to bring its total to 16 shops in 4 states.

What, on the outside, looked like a lot of successful growth belied the reality: the factory delays were creating significant liquidity problems.

In the 52 weeks ending December 31, 2019, Ample Hills reported approximately $10.8 million in sales and gross profit of $7.5 million. At the store level, Ample Hills’ shops generated positive cash flow. On average the shops generated 15% EBIDTA in 2019. Ample Hills, however, lost approximately $6.9 million during the same period as a result of depreciation, amortization, interest expense, payroll and other operating costs associated with supporting the Factory.

Alarm bells went off. The company went searching for fresh capital but all attempts to secure additional financing fell flat. Thereafter, the company sought a strategic buyer. That, too, failed. This chapter 11 filing is meant to give the company a platform by which to find a bidder (with time funded via a limited duration use of cash collateral). Absent one surfacing, the company acknowledges that it will be left with no choice but to liquidate the business.

• Jurisdiction: E.D. of New York (Judge Lord)

• Capital Structure: $3.5mm (Flushing Bank), $1.75mm (SBA Loan), $6.4mm convertible notes

• Professionals:

  • Legal: Herrick Feinstein LLP (Stephen Selbst, Steven Smith, George Utlik, Silvia Stockman, Rachel Ginzburg)

  • Financial Advisor/CRO: Scouler Kirchhein LLC (Daniel Scouler)

  • Investment Banker: SSG Capital Advisors LLC

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

• Other Parties in Interest:

  • Lender: Flushing Bank

    • Legal: Certilman Balin Adler & Hyman LLP (Richard J. McCord)