🙈New Chapter 11 Bankruptcy Filing - Avenue Stores LLC🙈

Avenue Stores LLC

August 16, 2019

Retail, retail, retail.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Engage an independent director to explore strategic alternatives;

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

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

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

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

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

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

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

If there is one.


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

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

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

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

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

*****Per Reuters:

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure:

  • Professionals:

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

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

    • Investment Banker: Configure Partners

    • Liquidators: Gordon Brothers and Hilco Merchant Resources LLC

    • Liquidation Consultant: Malfitano Advisors LLC

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

  • Other Parties in Interest:

    • Pre-petition & DIP Agent: PNC Bank NA

      • Legal: Blank Rome LLP (Regina Stango Kelbon)

    • Subordinated Lender: Versa Capital Management LP

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

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

SportCo Holdings Inc. (United Sporting Companies Inc.)

June 10, 2019

Callback to four previous PETITION pieces:

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

Murica!! F*#& Yeah!! 

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

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

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

More from our mock-up on Remington:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

R.I.P. Sportco.

*****

But not before you get in one last fight.

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

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

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

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

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

Of course, the debtors be like:

scoreboard.jpeg

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

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

Ultimately, THIS may sum up this situation best:

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

  • Jurisdiction: D. of Delaware (Judge Silverstein)

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

  • Professionals:

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

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

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

    • Investment Banker: Houlihan Lokey Inc.

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

  • Other Parties in Interest:

    • DIP Agent: Bank of America NA

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

    • Agent for Second Lien Lenders: Prospect Capital Corporation

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

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

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

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

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

      • Financial Advisor: Emerald Capital Advisors (John Madden)

Update 7/7/19 #115

🏥New Chapter 11 Bankruptcy Filing - Insys Therapeutics Inc.🏥

Insys Therapeutics Inc.

June 10, 2019

Within a week of a massive settlement entered into with the United States Department of Justice, Insys Therapeutics Inc. ($INSY) and six affiliates have filed for bankruptcy in the District of Delaware.* The company is a specialty pharmaceutical company that commercializes drugs and drug delivery systems for targeted therapies (read: it manufactures opioids); it has two marked products. These products, if prescribed and used in the right way, aren’t in and of themselves evil (though former management is another story). Subsys is used for cancer patients and is delivered in the (non-invasive) form of an under-the-tongue spray. Syndros is used to treat loss of appetite and anorexia associated with weight loss in people with AIDS as well as nausea and vomiting caused by anti-cancer medicine. Not one to miss out on all the latest fads, the company also apparently has cannabinoid-based formulations in its pipeline. Because, like, to the extent the company wants to pursue a sale, nothing will get investor juices flowing like cannabinoid! Will its marketing get done via Snapchat and its sales conducted via the blockchain? Maybe it ought to package its formulations with fake meat. Lit!!

All in, the company owns 94 worldwide patents and 62 patent applications with expiration dates ranging between 2022 and 2039. In other words, it does have some potentially valuable intellectual property.

The company’s synopsis of why it is now in bankruptcy court reflects the world of opioid producers today:

…the Debtors are facing extensive litigation relating to their SUBSYS® product (“Subsys”), which is a prescription opioid. As of the Petition Date, one or more of the Debtors have been named in approximately one thousand lawsuits, and the Debtors anticipate that additional lawsuits may be commenced in the future. Some of the litigation they are facing is common to all opioid manufacturers, while other claims are based on particular alleged activities of the Debtors’ former executives, many of whom either pleaded guilty to or were convicted after trial of federal criminal activity relating to such activities. The expenses and settlement costs resulting from such litigation have been substantial, consuming large portions of the Debtors’ revenue and liquidity.

At the same time, over the last few years, the Debtors’ revenues from Subsys have been declining rapidly as a result of the increased national scrutiny of prescription of opioids by healthcare professionals, the resulting high-profile political and legal actions taken against manufacturers and distributors of opioids, and the specific news relating to the former executives’ criminal activity. Moreover, although the Debtors have promising products in the pipeline, those products are not yet approved for production, require significant additional investment to bring to market, and are not expected to generate revenue in the near term. As a smaller company than some other opioid manufacturers, with over 90% of its current revenue coming from the sale of opioids, Insys could not withstand the concurrent negative impact of massive litigation costs and significant opioid revenue deterioration. These factors have caused a substantial cash drain on the company to the point where, despite the Debtors’ best efforts, they risk running out of cash in 2019. (emphasis added)

We quoted that bit at length because it captures the risk that all opioid manufacturers face today given what appears to be pervasive sales and prescription practices across the country, subsuming countless companies all seeking sales and profits often in the name of shareholder value. Which is not to say that all companies and company management teams are equal: while the jury is still out in a variety of cases, here, we know that former company management engaged in some shady-a$$ methods to enrich themselves. Per Bloomberg:

In May, Insys founder and former Chief Executive Officer John Kapoor, 75, and four former executives were convicted of engaging in a racketeering conspiracy to bribe doctors to boost off-label prescriptions of Subsys, a fentanyl spray originally intended to treat cancer pain. The executives baited doctors with sham speaker fees, lavish dinners and nightclub outings, and then duped insurers into covering the prescriptions, prosecutors said. Kapoor and the others each face a maximum of 20 years in prison and will be sentenced in September.

A pandemic of addiction in Wyoming, Oklahoma and elsewhere, powered by some corrupt-AF executives and their bottles-and-models loving doctor homies.

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The debtors filed their bankruptcy cases to (i) trigger the automatic stay, a statutorily imposed injunction that will, for the time being, halt ongoing litigation, (ii) pursue a sale of substantially all of their assets, and (iii) implement procedures designed to estimate categories of claims and impose distribution procedures via a plan of reorganization. Moreover, the debtors hope that a court-supervised proceeding in chapter 11 will provide the structure required to enter into additional settlements with other large groups of claimants.

As for current claims, there are lot (including a variety of professional services claims on account of indemnities and otherwise — a lot of lawyers are likely to have write-offs here). But the company has no funded debt and so the proceeds of any sale will, after professionals are paid, go to general unsecured creditors. First and foremost, the DOJ — on account of its allowed general unsecured claim ($243mm, but capped at a $195mm recovery inclusive of a $5mm prepetition payment). The DOJ will have to contend with, on an equal basis, other federal actions/settlements, state actions, municipal actions, and insurance, personal injury, securities and indemnity claimants. It’s a liability lovefest!

To address these liabilities, the debtors need asset value. To that end, the debtors are looking to establish a global sale process for their IP; they’re also looking at clawing back certain indemnification amounts they’ve paid over the years on behalf of their seemingly corrupt-AF former management; finally, they may pursue claims against their insurers for wrongful denial of coverage. All in, the debtors are seeking to maximize their estates for the purposes of broadening the potential pool for distribution to claimants. We’re all for that objective provided it can be done in a cost effective way — a rare accomplishment, these days, in bankruptcy.

*The stock, which had been trading at $1.31/share at market close on Friday, plummeted 51.45% on Monday upon the news of the bankruptcy filing. This prompted The Wall Street Journal’s Charley Grant to quip, “So much for efficient markets.” He continued:

Why the news took anyone by surprise, however, is more of a mystery. After all, Insys had given investors fair warning, just days after a federal jury convicted five former employees of engaging in a racketeering conspiracy to boost opioid sales. The company said in a report filed with the Securities and Exchange Commission that “it may be necessary... to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring.”

In case that hint was too subtle, investors got another one last week, when Insys agreed to settle criminal and civil claims with the Justice Department for $225 million.

He forgot to mention another sign. In March we wrote:

Opioids (Long Professional Retentions)Insys Therapeutics Inc. ($INSY) has JMP Securities pursuing a divestiture of its fentanyl sublinqual spray, Subsys. The company revealed this week that Lazard has now also been hired. Per Reuters, a company spokesperson stated:

“We engaged Lazard thereafter to advise us on our capital planning and strategic alternatives across the business. These are two independent efforts.”

What kind of independent effort? Color us suspicious.

“Color us suspicious” was not-so-subtle code for “this f*cker is going to file for bankruptcy, people.” So, to Mr. Grant’s point, it should have been abundantly clear what was going to happen to any market follower actually paying attention.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: No funded debt.

  • Professionals:

    • Legal: Weil Gotshal & Manges LLP (Gary Holtzer, Ronit Berkovich, Candace Arthur, Olga Peshko, Brenda Funk, Ramsey Scofield, Peter Isakoff ) & (local) Richards Layton & Finger PA (John Knight, Paul Heath, Amanda Steele, Zachary Schapiro)

    • Board of Directors: John McKenna, Trudy Vanhove, Rohit Vishnoi, Vaseem Mahboob, Andrew Long, Elizabeth Bohlen

    • Financial Advisor: FTI Consulting Inc.

    • Investment Banker: Lazard Freres & Co. LLC (Andrew Yearley)

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

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors (McKesson Corporation, Infirmary Health Hospitals Inc., Louisiana Health Service & Indemnity Co. d/b/a Blue Cross and Blue Shield of Louisiana, LifePoint Health Inc., Deborah Fuller, Julie Kay, James Starling Jr., Angela Mistrulli-Cantone, Lisa Mencucci)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, Mitchell Hurley, Arik Preis) & (local) Bayard PA (Justin Alberto, Erin Fay, Daniel Brogan)

    • MDL Plaintiffs

      • Legal: Brown Rudnick LLP (David Molton, Gerard Cicero, Kenneth Aulet, Chelsea Mullarney, Steven Pohl) & Blank Rome LLP (Stanley Tarr, Victoria Guilfoyle) & Gilbert LLP (Scott Gilbert, Craig Litherland, Kami Quinn, Jenna Hudson)

Update 7/7/19 #244

New Chapter 11 Filing - Keystone Tube Company LLC (A.M. Castle & Co.)

Keystone Tube Company LLC (A.M. Castle & Co.)

  • 6/18/17 Recap: Publicly-traded ($CASL) Illinois-based specialty metals distribution company with customers in some hard hit sectors of late, e.g., oil and gas, retail, mining, defense, filed a prepackaged bankruptcy case to de-lever its balance sheet. 
  • Jurisdiction: D. of Delaware 
  • Capital Structure: $112mm first lien debt (Cantor Fitzgerald Securities), $177mm
  • 18 12.75% second lien notes (US Bank NA), $22.3mm '19 5.25% convertible third lien notes (US Bank NA)     
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski, Jeffrey Pomerantz, Maxim Litvak, John Lucas, Peter Keane)
    • Financial Advisor & Investment Banker: Imperial Capital LLC (Joseph Kazanovski)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Ad Hoc Lender Committee (At Filing: Corre Partners Management LLC, Highbridge Capital Management LLC, SGF Inc., Pandora Select Partners LP, Whitebox Advisors LLC, Wolverine Asset Management Ltd.)
      • Legal (except SGF Inc.): Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Jacob Adlerstein, Michael Rudnick) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Ian Bambrick)
      • Legal (SGF Inc): Goodwin Proctor LLP (Michael Goldstein, Gregory Fox) & (local) Pepper Hamilton LLP (David Fournier, John Schanne)
      • Financial Advisor: Ducera LLC
    • Prepetition First Lien Agent: Cantor Fitzgerald Securities
      • Legal: Shipman & Goodwin LLP
    • Prepetition Indenture Trustee: US Bank NA
      • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Robert Mallard, Alessandra Glorioso)
    • Administrative Agent: PNC Bank NA
      • Legal: Goldberg Kohn Ltd (Jacob Marshall, Danielle Juhle) & (local) Blank Rome LLP (Josef Mintz)
    • Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Jody Barillare, Rachel Jaffe Mauceri)
    • Nantahala Capital Management
      • Legal: King & Spalding LLP (Arthur Steinberg) & (local) The Rosner Law Group LLC (Frederick Rosner)

Updated 7/11/17 6:22 pm

Source: First Day Declaration.

Source: First Day Declaration.

New Chapter 11 Filing - Tidewater Inc.

Tidewater Inc.

  • 5/17/17 Recap: First Gulfmark Offshore Inc., now Tidewater: the offshore shakeout is finally upon us. The New Orleans-based publicly-traded offshore operator filed for bankruptcy to effectuate an expedited 6-week prepackaged financial restructuring of the company. This story is so cliche at this point: leverage is high, oil prices are low, E&P activity is down, natural gas is up, liquidity is constrained. Cue Weil and a slew of other restructuring professionals. File bankruptcy. 
  • Jurisdiction: D. of Delaware (Shannon)
  • Capital Structure: $1.95b funded debt. $300mm TL (DNB Bank ASA) & $600mm RCF (BofA), $1.15b unsecured notes, tons of of guarantees and nonsense.    
  • Company Professionals:
    • Legal: Weil (Ray Schrock, Jill Frizzley, Alfredo Perez, Christopher Lopez, Yvanna Custodio, Andriana Georgallas) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro, Christopher De Lillo)
    • Financial Advisor: AlixPartners LLC (David Johnston, Richard Robbins, Jim Trankina, Bruce Smathers)
    • Investment Banker: Lazard (Timothy Pohl)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name for free docket)
  • Other Parties in Interest:
    • Independent Directors of the Board
      • Legal: Andrews Kurth Kenyon LLP (Robin Russell, Timothy Davidson)
    • Term Loan Agent: DNB Bank
      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Tyson Lomazow) & (local) Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti)
    • Credit Agreement Agent: Bank of America
      • Legal: Morgan Lewis & Bockius LLP (Amy Kyle, Edwin Smith, Joshua Dorchak, Matthew Ziegler) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)
    • Unofficial Noteholder Committee
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Brian Hermann, Sean Mitchell, Kellie Cairns) & (local) Blank Rome LLP (Stanley Tarr, Rick Antonoff, Barry Seidel)
    • Official Committee of Unsecured Creditors
      • Legal: Whiteford Taylor & Preston LLC
      • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns, Mark Shankweiler, Rick Wright, Jeffrey Dunn, Carolyn Passaro)
    • Official Committee of Equity Holders
      • Legal: Brown Rudnick LLP (Howard Steel, Brandon Burkart, Jeffrey Jonas, Steven Pohl) & (local) Saul Ewing LLP (Mark Minuti, Sharon Levine)
      • Financial Advisor: Miller Buckfire & Co. LLC (Matthew Rodrigue) & Stifel Nicolaus & Co. Inc.
    • Post Reorg Board of Directors (Dick Fagerstal, Steven Newman, Larry Rigdon, Randee Day, Alan Carr, Thomas Robert Bates Jr.)

Updated 7/12/17 9:07 am CT

New Chapter 11 Filing - Central Grocers Inc.

Central Grocers Inc.

  • 5/4/17 Recap: May the Fourth be with you. Illinois-based food coop - the 7th largest in the nation - founded in, gulp, 1917, filed for bankruptcy to pursue a sale of its Strack & Wan Til stores and its distribution center (after certain creditors tried to force a bankruptcy on it). The company was initially founded with 32 supermarket owners seeking increased purchasing power through strength in numbers. Today, the coop supplies over 400 stores in the Chicago area. The coop supports its own brand, Centrella, which, being frank here, is probably value detract because nothing says "quality" like shoddy label design. That "Beef Stew" and "Chunk Pineapple" (see below) looks tasty AF, doesn't it? This makes us want to blow chunks. Seriously, though, this is another story of disruption. Disruption caused by the commodities markets, in part, with beef, chicken, eggs and dairy generally being at relatively low prices. But also disruption caused by new entrants into the grocery segment, including Walmart, TargetCostco, and dollar stores. And, of course, Amazon, which is increasingly becoming Darth Vader, even though we're pretty certain nobody we know actually uses AmazonFresh for produce and the like. But, whatever, when in doubt, blame Amazon. That's a much better excuse than 1917-style design sensibility and a classic innovator's dilemma.
  • Jurisdiction: D. of Delaware (transferred to N.D. of Illinois)
  • Capital Structure: $225mm '18 RCF (PNC Bank NA), $22.5mm TL (Bank of the West)  
  • Company Professionals:
    • Legal: Weil (Ray Schrock, Stephen Karotkin, Sunny Singh, Daniel Gwen, Danielle Donovan) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Brett Haywood, David Queroli) & (local) McDonald Hopkins LLC (David Agay, Rion Vaughan)
    • Financial Advisor: Conway MacKenzie Inc. (Donald Harer, Alpesh Amin, Michael Musso, John Cannon, Matthew Sedigh, Daniel Johnson, Lauren Leach, Harry Bramson, Jennifer Chaing, Joseph Wirija, Michael Kulkarni, Michael Flynn)
    • Investment Banker: Peter J. Soloman Company (Derek Pitts)
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
  • Other Parties in Interest:
    • PNC Bank NA
      • Legal: Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, Mark Rabinowitz, Gregory Vizza, Michael Schaedle)
    • Bank of the West
      • Legal: Thompson Coburn LLP (Mark Bossi, Victor Des Laurier, Diona Rogers)
    • Successful Bidder
      • Legal: Duane Morris LLP (Lawrence Kotler, Rosanne Ciambrone)
    • Official Committee of Unsecured Creditors
      • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) Saul Ewing LLP (Mark Minuti, Lucian Murley) & (local) Arnstein & Lehr LLP (Barry Chatz, Kevin Morse, William Williams)
      • Financial Advisor: FTI Consulting Inc. (Conor Tully)

Updated 7/13/17

http://www.central-grocers.com/

http://www.central-grocers.com/

New Chapter 11 Filing - Panda Temple Power LLC

Panda Temple Power LLC

  • 4/18/17 Recap: Texas-based gas-operated merchant power generator servicing the ERCOT region filed for bankruptcy because demand projections were too robust (in the face of increasing share serviced by alternative energy sources), depressed natural gas prices crushed revenues, and a regulatory attempt to reform to a capacity market failed, among other reasons. The company had been downgraded and operating pursuant to a forbearance with its lenders. Now, the company is in bankruptcy with a restructuring support agreement that outlines the terms of a transaction that will swap the term loan for 100% of the equity in the company. The company will have a $20mm DIP in play to effectuate the transaction.
  • Jurisdiction: D. of Delaware
  • Capital Structure: $398.7mm funded '22 first lien TL (inclusive of LOC and RCF - Wilmington Trust, NA)  
  • Company Professionals:
    • Legal: Latham & Watkins LLP (Keith Simon, Annemarie Reilly, Marc Zelina) & (local) Richards Layton & Finger (John Knight, Paul Heath, Brendan Schlauch, Christopher De Lillo)
    • Investment Banker: Ducera Partners (Mark Davis)
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
  • Other Parties in Interest:
    • Ad Hoc Group of Term Lenders (Ares Capital Corporation, Avenue Capital Management II LP, Brigade Capital Management LP, Canaras Capital Management, GSO Capital Partners LP, H.I.G. WhiteHorse Capital LLC, Lord Abbett & Co. LLC, MJX Asset Management LLC, Oaktree Capital Management LP, Siemens Financial Services Inc., SOF-X Credit Holdings LLC (Starwood Credit Advisors LLC), Western Asset Management Company)
      • Legal: Stroock Stroock & Lavan LLP (Jayme Goldstein, Jonathan Canfield, Joanne Lau) & (local) Young Conaway & Stargatt LLP (Edmon Morton, Matthew Lunn, Ashley Jacobs)
      • Financial Advisor: Houlihan Lokey
    • 3M Employee Retirement Income Plan Trust
      • Legal: Blank Rome LLP (Jeffrey Rhodes, Ira Herman, Stanley Tarr)

Updated 5/3/17 

New Chapter 11 Filing - Ciber Inc.

Ciber Inc.

  • 4/10/17 Recap: Once publicly-traded Colorado-based IT staffing and consulting services company filed for bankruptcy to pursue a sale of its business to CapGemini S.A., as stalking horse bidder, for at least $50mm plus the assumption of certain liabilities. The sale is subject to a postpetition marketing process. Ciber lists Microsoft and Oracle as major corporate partners; it sells and supports both companies' product offerings. Ciber seems like the quintessential go-big-or-go-home kind of company. It fueled growth over the years with over 60 acquisitions at a cost of more than $1b, never fully integrating the new businesses. This failure to integrate led to some AWESOME results: like the time the company paid $14mm to European consultants for NEGATIVE PERFORMANCE. And we thought Wells Fargo had a monopoly on stupid bonus-based behavior. Speaking of Wells Fargo, it is the lender here and the straw that broke the camel's back was the company's inability to adhere to its Fixed Coverage Charge ratio, triggering a default under its asset-based loan. Now Wells Fargo is providing the DIP facility of $41mm to fund the cases which, by our simple mathematical calculations, amounts to $4.1mm per bankruptcy lawyer who has made a notice of appearance on behalf of the debtors already (see below).
  • Jurisdiction: D. of Delaware
  • Capital Structure: $60mm ABL (Wells Fargo Bank NA)     
  • Company Professionals:
    • Legal: Morrison & Foerster LLP (Brett Miller, Dennis Jenkins, Daniel Harris, Benjamin Butterfield, Steve Rappoport, Todd Goren) & (local) Polsinelli PC (Christopher Ward, Justin Edelson, Jarrett Vine)
    • Financial Advisor/CRO: Alvarez & Marsal LLC (Jonathan Goulding, Matt Covington, Glenn Gilmour)
    • Investment Banker: Houlihan Lokey Capital Inc. (Adam Dunayer, Michael Boone)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition & DIP Lender: Wells Fargo Bank NA
      • Legal: Goldberg Kohn Ltd. (Jeremy Downs, Jacob Marshall)
    • Stalking Horse Bidder: CapGemini SA
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Mark McDermott, Raquelle Kaye)
    • Actual Buyer: HTC Global Ventures LLC
      • Legal: Plunkett Cooney PC (Scott Lites, David Lerner)
    • Official Committee of Unsecured Creditors
      • Legal: Perkins Coie LLP (John Penn, Schuyler Carroll, Tina Moos) & (local) Shaw Fishman Glantz & Towbin LLC (Thomas Horan)
      • Financial Advisor: BDO Consulting (David Berliner)
    • Ad Hoc Group of Non-Insider Employees
      • Legal: Blank Rome LLP (Josef Mintz, John Lucian)

Updated 5/21/17 

  

New Chapter 22 Filing - Eastern Outfitters LLC

Eastern Outfitters LLC

  • 2/5/17 Recap: Seems like chapter 22 bankruptcies are the "it" thing now: everyone's doing it. Last year, Versa Capital Management bought the company in the Vestis Group bankruptcy and, now, Sports Direct looks to pick up the pieces in yet ANOTHER sale of the Bob's Stores and Eastern Mountain Sports retail properties. Top creditors include Under Armour and Google which says something about (a) why UA's growth numbers were considerably off last quarter and (b) the cost of Google SEO for companies in this internet age.
  • Jurisdiction: D. of Delaware    
  • Capital Structure: $41mm RCF (PNC Bank), $42mm TL (Sportsdirect) 
  • Company Professionals:
    • Legal: Bracewell LLP (Robert Burns, Jennifer Feldshur, David Riley, Mark Dendinger) & (local) Cole Schotz (Norman Pernick, Marion Quirk, Katharina Earle)
    • Turnaround Advisor: AlixPartners LLC (Spencer Ware, Susan Brown, Afshin Azhari)
    • Replacement Turnaround Advisor: Meru LLC (Nicholas Campbell, Timothy Meighan)
    • Financial Advisor: Lincoln Partners Advisors LLC  (Alexander Stevenson)
    • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
      • Legal: Curtis Mallet-Provost Colt & Mosle LLP (Steven Reisman) & (local) Womble Carlyle Sandridge & Rice LLP (Mark Desgrosseilliers)
    • Asset Disposition Advisor & Consultant: Malfitano Advisors LLC (Joseph Malfitano)
    • Claims Agent: KCC (*click on company name for docket)
  • Other Parties in Interest:
    • Purchaser: SportsDirect.com Retail Ltd.
      • Legal: Greenberg Traurig LLP (Nancy Mitchell, Maria DiConza)
    • First Lien Lender: PNC Bank, NA
      • Legal: Blank Rome LLP  (Regina Kelbon, Gregory Vizza)
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Richelle Kalnit, Sarah Carnes) & (local) Drinker Biddle & Reath LLP (Steven Kortanek, Patrick Johnson, Robert Malone)
      • Financial Advisor: Province Inc. (Paul Huygens, Carol Cabello, Sanjuro Kietlinski, Jin Lai Dong)

Updated 5/31/17