🎭 New Chapter 11 Bankruptcy Filing - Rubie's Costume Company Inc. 🎭

Rubie’s Costume Company Inc.

April 30, 2020

Star Wars. Marvel’s Avengers. Stranger Things. You’d think any business associated with this hot IP would be killing it. And yet it seems that even the Black Panther is susceptible to poor business fundamentals in a disrupted retail environment.

New York-based Rubie’s Costume Company Inc. and five affiliates (the “debtors”) — designers, manufacturers and distributors of costumes and related accessories — filed for bankruptcy in the Eastern District of New York. The debtors have non-exclusive licenses with the likes of Disney Inc. ($DIS), Lucasfilm, Marvel and others as well as non-licensed costumes for all of your not-just-Halloween costume needs (nobody is judging, people). They sell via 4 costume stores in New York, online, and wholesale channels; they count Target Inc. ($TGT), Walmart Inc. ($WMT), Amazon Inc. ($AMZN) and Party City Holdco Inc. ($PRTY) as distribution channels (the latter, itself, in trouble).

The debtors note that operating performance has been on the decline for years, attributing this primarily to “[i]ndependent customers hav[ing] declined and the average order per existing customer also ha[ving] declined.” Disruption! The small mom and pop costume shops are getting smoked while the bigbox retailers who have more leverage over pricing take over. We’re willing to bet that even Party City will attribute its recent travails to the rise of the bigbox retailer coupled with “The Amazon Effect.” The debtors highlight:

For the fiscal year ending December 31, 2018 (“FY 2018”) net sales and Adjusted EBITDA were approximately $310 million and $2 million, respectively. As a result of the decline in independent customers, for fiscal year ending December 31, 2019 (“FY 2019”), the Company generated net sales and Adjusted EBITDA of approximately $268 million ($42 million decline) and $3 million ($5 million decline), respectively.

The debtors also have over $47mm of secured debt outstanding under its pre-petition credit agreement with lenders such as HSBC Bank USA NA, Bank of America NA, Wells Fargo Bank NA, JP Morgan Chase Bank NA, TD Bank NA, and Citibank NA (the “Bank Group”). Operating under a series of forbearance agreements, the debtors have been engaged in an operational cost-cutting process since 2019.

Forbearances (accompanied, of course, with enhanced collateral packages and fees) and cost-cutting can only get you so far, of course. With COVID-19 hitting, the debtors suffered from a liquidity crunch. After all, we’re not hearing much about Zoom-costume-parties. The Bank Group has apparently taken a look at the debtors’ business prospects and said, “no way, Jose.” Per the debtors:

…the COVID crisis has had an impact on the Debtors’ ability to obtain new financing from the Bank Group. The Bank Group has declined to provide continued financing and the Debtors’ efforts to obtain replacement financing on an asset based lending structure have been slowed by the crisis.

Indeed, Wells Fargo Bank NA pulled out of refi discussions — a move consistent with Wells’ recent savagely escapist approach with respect to retail.

It advised the Debtors that its decision was based on the conditions in the global lending market due to the COVID-19 crisis and internal restrictions on its current lending, and was not a reflection on the Debtors’ creditworthiness.

Yeah, maybe.

The Debtors demonstrated the viability of their business to the Banks in a number of ways including through the business plan implemented over the last year with the assistance of BDO, the continued value of their inventory which exceeds the debt owed to the Banks and even most recently the fact that major national account clients placed firm orders for the Halloween season.

While we don’t find this particularly convincing either, Wells didn’t really need a pretense to bail out of retail these days.

Anyway, here we are. Without the refinancing, the debtors are in bankruptcy court seeking the use of cash collateral while they use the bankruptcy process to find a new source of capital.

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

• Capital Structure: $46.7mm RCF

• Professionals:

  • Legal: Togut Segal & Segal LLP (Frank Oswald, Brian Moore) & Meyer Suozzi English & Klein PC (Edward LoBello, Howard Kleinberg, Jordan Weiss)

  • Financial Advisor: BDO USA LLP

  • Investment Banker: SSG Capital Advisors LLC

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

• Other Parties in Interest:

  • Pre-petition Agent: HSBC

    • Legal: Phillips Lytle LLP (William Brown)

New Chapter 11 Filing - Orion Healthcare Corp.

Orion Healthcare Corp.

3/16/18

You don't see this as the preface to a bankruptcy filing every day:

"...the Debtors are the victims of a large, complex, and brazen fraud that was subject to a complex and deliberate concealment effort perpetrated by their former management that was years in the making. After acquiring several of their businesses, the Debtors’ former CEO, Parmjit “Paul” Parmar (“Parmar,” who previously owned the company) took Constellation Healthcare Technologies, Inc., the parent company of the Debtors (and itself a Debtor), public on the London AIM and then proceeded to raise additional equity for additional acquisitions, many of which are believed to be largely or entirely fictitious. The Debtors borrowed approximately $130 million in debt in connection with a go-private transaction, the majority of which is believed to have been paid to Parmar (as a shareholder, through entities under his control), which is a financial burden the Debtors simply cannot sustain. The Debtors borrowed such funds based upon financials recently discovered by the Debtors’ new management and their professionals to be largely fictitious and involving numerous sham companies and fabricated transactions, revenues, and customers. The Debtors have commenced these chapter 11 cases to (i) market and sell their assets, (ii) wind down certain of their businesses, and (iii) to enable them to ultimately pursue claims against the individuals that put the Debtors in this position for the benefit of all their creditors."

Salacious. 

Orion Healthcare Corp. is in the business of (a) outsourced revenue cycle management (“RCM”) for physician practices, (b) physician practice management, (c) group purchasing services for physician practices, and (d) an independent practice association services, which is organized and directed by physicians in private practice to negotiate contracts with insurance companies on their behalf while such physicians remain independent and which also provides other services to such physician practices. The various businesses were cobbled together after a series of acquisitions. 

Constellation Healthcare LLC, a non-debtor, is an investment vehicle owned by Parmar and set up for the purpose of acquiring Orion back in 2013. Thereafter, the assets were transferred to a vehicle set up to be the holding company of the enterprise and subsequently listed on the London Stock Exchange's Alternative Investments Market. After that, the company went on an acquisition spree, picking up five new businesses. The company also hit the secondary market twice to finance the transactions. As if that isn't enough tomfoolery, the company then engaged in a take private transaction pursuant to which the sponsor contributed $82.5 million of cash as equity and the company obtained $130 million in financing from lenders. The company also issued unsecured promissory notes to its shareholders to the tune of $39.6 million. 

Parmar resigned from the company in September 2017 and, subsequently, the company has been engaged in a large forensic investigation that purports to have uncovered multiple fraudulent transactions while the company was publicly listed, including fabricated customer lists and associated revenue (which, naturally, would have the effect of jacking up valuation and violating reps and warranties, presumably, to the lenders). Moreover, it is alleged that there were a variety of sham acquisitions that had the effect of unjustly enriching Parmar to the detriment of the now-over-levered company.

In light of all of this - as well as the unsustainable debt on the balance sheet and other issues such as the lack of integration between business lines and various litigation - the company filed for bankruptcy. The purpose of the filing is to market and sell some of the business, wind down certain of the businesses, and pursue claims against a coterie of allegedly fraudulent m*therf*ckers. 

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

• Capital Structure: $159.3mm senior term loan, revolving loan and bridge loan (Bank of America NA)

• Company Professionals:

  • Legal: DLA Piper (US) LLP (Richard Chesley, Thomas Califano, Rachel Nanes)

  • Legal (Conflicts Counsel): Hahn & Hessen LLP

  • Financial Advisor/CRO: FTI Consulting Inc. (Timothy Dragelin)

  • Investment Banker: Houlihan Lokey Capital Inc. (Bradley Jordan, Dave Salemi, Andrew Redmond, Ethan Kopp, Jack Foster)

  • Independent Director: Robert Rosenberg

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

• Other Parties in Interest:

  • Prepetition Agent & DIP Agent ($7.5mm): Bank of America NA

    • Legal: Moore & Van Allen PLLC (James Langdon, Zachary Smith, David Eades, Gabriel Mathless)

  • Parmjit Singh Parmar (and affiliated non-Debtor entities

    • Legal: Windels Marx Lane & Mittendorf LLP (Charles Simpson)

  • Official Committee of Unsecured Creditors (JQ 1 Associates LLC, Christine Cohen, Kolb Radiology P.C.)

    • Legal: Pachulski Stang Ziehl & Jones LLP (Ilan Scharf, Richard Mikels, Maxim Litvak)

    • Financial Advisor: CBIZ NY (Charles Berk, David Greenblatt, Sharmeen Khan, Patrick Donnelly, Michal Sudo)

Updated 11/28/18