🍤New Chapter 11 Bankruptcy Filing - RUI Holding Corp.🍤

RUI Holding Corp.

July 7, 2019

Back in October 2016, in the context of Sun Capital Partners’-owned Garden Fresh Restaurant Intermediate Holdings bankruptcy filing, we asked, “Are Progressives Bankrupting Restaurants?” We wrote:

Morberg's explanation for the bankruptcy went a step farther. He noted that cash flow pressures also came from increased workers' compensation costs, annual rent increases, minimum wage increases in the markets they serve, and higher health benefit costs -- a damning assessment of popular progressive initiatives making the rounds this campaign season. And certainly not a minor statement to make in a sworn declaration.  

It's unlikely that this is the last restaurant bankruptcy in the near term. Will the next one also delineate progressive policies as a root cause? It seems likely.

There have been a plethora of restaurant-related bankruptcy filings between then and now and many of them have raised rising costs as an issue. Perhaps none as blatantly, however, than Sun Capital Partners’ portfolio companies: enter RUI Holding Corp and its affiliated debtors, Restaurants Unlimited Inc. and Restaurants Unlimited Texas Inc. (the “Debtors”).

On July 7, 2019, the Sun Capital-owned Debtors filed for bankruptcy in the District of Delaware. The Debtors opened their first restaurant in 1969 and now own and operate 35 restaurants in 6 states under, among 14 others, the trade names “Clinkerdagger,” “Cutters Crabhouse,” “Maggie Bluffs,” and ”Horatio’s.” The Debtors note that each of their restaurants offer “fine dining” and “polished casual dining” “situated in iconic, scenic, high-traffic locations.” Who knew that if you want something to scream “iconic” you ought to name it Clinkerdagger?

As we’ve said time and time again, casual dining is a hot mess. Per the Debtors:

…the Company's revenue for the twelve months ended May 31, 2019, was $176 million, down 1% from the prior year. As of the Petition Date, the Company has approximately $150,000 of cash on hand and lacks access to needed liquidity other than cash flow from operations.

The Debtors have over $37.7mm of secured debt; they also owe trade $7.6mm. There are over 2000 employees, of which 168 are full-time and 50 are salaried at corporate HQ in Seattle Washington.

But enough about that stuff. Back to those damn progressives. Per the Debtors:

Over the past several years, certain changes to wage laws in the Debtors’ primary geographic locations coupled with two expansion decisions that utilized cash flow from operations resulted in increased use of cash flow from operations and borrowings and restricted liquidity. These challenges coupled with additional state-mandates that will result in an additional extraordinary wage hike in FYE 2020 in certain locations before all further wage increases are subject to increases in the CPI and the general national trend away from casual dining, led to the need to commence these chapter 11 cases.

They continue:

Over the past three years, the Company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage as follows: Seattle $9.47 to $16.00 (69%), San Francisco $11.05 to $15.59 (41%), Portland $9.25 to $12.50 (35%). As a large employer in the Seattle metro market, for instance, the Company was one of the first in the market to be forced to institute wage hikes. Currently in Seattle, smaller employers enjoy a statutory advantage of a lesser minimum wage of $1 or more through 2021, which is not available to the Company. The result of these cumulative increases was to increase the Company’s annual wage expenses by an aggregate of $10.6 million through fiscal year end 2019.

For a second we had to do a double-take just to make sure Andy Puzder wasn’t the first day declarant!

Interestingly, despite these seemingly OBVIOUS wage headwinds and the EVEN-MORE-OBVIOUS-CASUAL-DINING-CHALLENGES, these genius operators nevertheless concluded that it was prudent to open two new restaurants in Washington state “in the second half of 2017” — at a cost of $10mm. Sadly, “[s]ince opening, the anticipated foot traffic and projected sales at these locations did not materialize….” Well, hot damn! Who could’ve seen that coming?? Coupled with the wage increases, this was the death knell. PETITION Note: this really sounds like two parents on the verge of divorce deciding a baby would make everything better. Sure, macro headwinds abound but let’s siphon off cash and open up two new restaurants!! GREAT IDEA HEFE!!

The Debtors have therefore been in a perpetual state of marketing since 2016. The Debtors’ investment banker contacted 170 parties but not one entity expressed interested past basic due diligence. Clearly, they didn’t quite like what they saw. PETITION Note: we wonder whether they saw that Sun Capital extracted millions of dollars by way of dividends, leaving a carcass behind?? There’s no mention of this in the bankruptcy papers but….well…inquiring minds want to know.

The purpose of the filing is to provide a breathing spell, gain the Debtors access to liquidity (by way of a $10mm new money DIP financing commitment from their prepetition lender), and pursue a sale of the business. To prevent additional unnecessary cash burn in the meantime, the Debtors closed six unprofitable restaurants: Palomino in Indianapolis, Indiana, and Bellevue, Washington; Prime Rib & Chocolate Cake in Portland, OR; Henry’s Tavern in Plano, Texas; Stanford’s in Walnut Creek, California; and Portland Seafood Co. in Tigard, Oregon. PETITION Note: curiously, only one of these closures was in an “iconic” location that also has the progressive rate increases the Debtors took pains to highlight.

It’s worth revisiting the press release at the time of the 2007 acquisition:

Steve Stoddard, President and CEO, Restaurants Unlimited, Inc., said, “This transaction represents an exciting partnership with a skilled and experienced restauranteur that has the requisite financial resources and deep operating experience to be instrumental in strengthening our brands and building out our footprint in suitable locations.”

Riiiiight. Stoddard’s tenure with Sun Capital lasted all of two years. His successor, Norman Abdallah, lasted a year before being replaced by Scott Smith. Smith lasted a year before being replaced by Chris Harter. Harter lasted four years and was replaced by now-CEO, Jim Eschweiler.

A growing track record of bankruptcy and a revolving door in the C-suite. One might think this may be a cautionary tale to those operators in the market for PE partners.*

*Speaking of geniuses, it’s almost as if Sun Capital Partners thinks that things disappear on the internets. Google “sun capital restaurant unlimited” and you’ll see this:

Source: Google

Source: Google

Click through the first link and this is what you get:

Source: Sun Capital Partners

Source: Sun Capital Partners

HAHAHAHAHA. WHOOPS INDEED!

THEY DELETED THAT SH*T FASTER THAN WE COULD SAY “DIVIDEND RECAP.”


  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: $37.7mm (plus $1.7mm of accrued and unpaid interest)(Fortress Credit Co LLC)

  • Professionals:

    • Legal: Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Michael Yurkewicz, Sally Veghte)

    • Financial Advisor: Carl Marks Advisory Group LLC (David Bagley)

    • Investment Banker: Configure Partners LLC

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

    • Board of Directors: Stephen Cella, Jonathan Jackson, James Eschweiler

  • Other Parties in Interest:

    • PE Sponsor: Sun Capital Partners Inc.

    • Prepetition Agent & DIP Agent ($10mm): Fortress Credit Co LLC

      • Legal: Hunton Andrews Kurth LLP (Tyler Brown, Justin Paget) & Gellert Scali Busenkell & Brown (Michael Busenkell)

      • Financial Advisor: Grant Thornton LLP

    • DIP Lenders: Drawbridge Special Opportunities Fund LP, NXT Capital LLC

      • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim)

Updated 7/7/19

😷New Chapter 11 Filing - Center City Healthcare LLC (d/b/a Hahnemann University Hospital)😷

Center City Healthcare LLC

June 30, 2019

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

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

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

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

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

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

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

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

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

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

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

  • Jurisdiction: D. of Delaware (Judge Gross)

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

  • Professionals:

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

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

    • Investment Banker: SSG Advisors LLC

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

  • Other Parties in Interest:

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

    • Tenet Business Services Corp.

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

🔋New Chapter 11 Bankruptcy Filing - 1515 GEEnergy Holding Co. LLC🔋

1515 GEEnergy Holding Co. LLC

February 14, 2019

Though it took a backseat to the overall oil and gas downturn of a few years ago, the power market has also experienced its share of distress and bankruptcy of late: Illinois Power, ExGen Texas Power, Panda Temple Power, FirstEnergy, Westinghouse, and GenOn are just a few of the power companies that found themselves in a bankruptcy court. Now we can add 1515-Geenergy Holding Co. LLC and BBPC, LLC d/b/a Great Eastern Energy, providers of (i) natural gas and electricity to customers in New York, New Jersey and Massachusetts and (ii) electricity to customers in Connecticut, to the list. (together, the “Debtors”).

What we love about bankruptcy filings is that, unbeknownst to many, they often provide a pithy overview of an industry that is highly informative without getting too into the weeds. Indeed, in the Debtors chapter 11 papers, they provide a solid history of the decades-long process of deregulated power provision. In summary (and per the debtors):

  • In 1978, Congress passed the Public Utility Regulatory Policies Act (“PURPA”), which laid the groundwork for deregulation and competition by opening wholesale power markets to non-utility producers of electricity.

  • Following this, in the 80s and 90s, state legislatures passed laws designed to allow competitive retail sale and supply in the nat gas markets.

  • Congress passed the Energy Policy Act of 1992 which specifically promoted greater competition in the bulk power market. This began to de-monopolize the utility industry by allowing independent power producers equal access to the utilities’ transmission grid.

  • By 1996, FERC implemented Orders 888 and 889, which were intended to remove impediments to competition in wholesale trade and bring more efficient lower-cost power to the nation’s electricity customers.

  • President George W. Bush later signed into law the Energy Policy Act of 2005, which decreased limitations on utility companies’ ability to merge or be owned by financial holdings / non-utility companies. This led to a wave of mergers and consolidation within the utility industry.

  • Today, more than 20 states have at least partially deregulated electricity markets whereby energy customers may choose between their incumbent local utility and an array of independent, competitive suppliers. This is commonly referred to as a “deregulated” or “competitive” power market.

All of this, of course, created opportunity for entrepreneurs looking to take advantage of newly opened markets. That’s where the Debtors come in. BBPC started serving nat gas to customers in 2000, leveraging its relationships with various commodity supply companies, pipelines and local utility companies for the purchase, delivery and distribution of power and natural gas to their customers. The debtors acquire customers via various marketing channels, including, among other things, an indirect sales team, a network of hundreds of independent brokers. The debtors have approximately 49k commercial customers and 5k residential customers.

So, why is the company now in bankruptcy? Per the Company:

The competitive retail electric power industry is characterized by high degrees of both fragmentation, competition, and customer attrition because power providers compete primarily on price and have little else available to differentiate their products and services. Particularly in years with high volatility in weather and energy prices, customers paying high electricity and gas bills will tend to seek out other competitive retail electric providers, resulting in higher attrition rates. Also, larger independent retail energy providers have been active in acquiring customer books of their competitors.

More than that, though, is the fact that customers are no longer f*cking idiots about how they get electric and gas service. Indeed, the company notes that they are “becoming more and more sophisticated.” It’s amazing what competition and the democratization of information that’s attendant thereto can do for consumers. With more options and pricing plans to choose from, the debtors have been feeling the effects of price compression. Moreover, this bankruptcy is Google’s damn fault. Per the company:

Small consumers are also using energy-efficient appliances and devices, adopting green building technologies, and taking other actions that help protect the environment, but also lower demand for energy products.

All of these factors converged to decrease the Debtors’ revenue and cause them to default on certain of their obligations.

We’re serious. Among the PETITION team, we own a number of Nest and other smart energy-efficient devices.

Anyway, all of this led to the debtors defaulting under their ~$60mm prepetition credit agreement with Macquarie Investments US Inc., which, after several months of forbearances meant to give the debtors an opportunity to refi out Macquarie and/or sell the company, expired under their own terms. Needless to say, the debtors weren’t successful and have filed the chapter 11 to prevent Macquarie from exercising remedies and afford themselves an opportunity to pursue a sale of substantially all of their assets.


  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: ~$60mm secured credit facility (Macquarie Investments US Inc.) + $30.6mm in collateralized LOCs.

  • Professionals:

    • Legal: Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Dominic Pacitti, Michael Yurkewicz) & (local) McLaughlin & Stern LLP (Steven Newburgh)

    • Financial Advisor: GlassRatner Advisory & Capital Group LLC

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

  • Other Professionals:

New Chapter 11 Bankruptcy Filing - Novum Pharma LLC

Novum Pharma LLC

February 3, 2019

Another day, another pharma company that has filed for bankruptcy. Curious, too: we don’t recall seeing any restructuring professionals predicting that pharma would be the hot restructuring industry of choice. But we digress.

Here, Chicago-based Novum Pharma LLC, a special pharmaceutical company which owns and manufactures a portfolio of topical dermatology products, filed for bankruptcy in the District of Delaware. The company’s bankruptcy papers are interesting in that they provide a solid overview of the distribution channel for pharma products from the manufacturer to the end user. Disgruntled with all of the players taking a piece of revenues along the way, Novum Pharma attempted to disrupt the status quo by deployment of an alternative business model. Clearly it didn’t achieve the result it had hoped for.

Per the company, here’s how the “traditional” distribution channel typically works:

Source: PETITION LLC

Source: PETITION LLC

As you can see, the PBMs have a significant amount of leverage on account of their ability to determine which pharmaceuticals will be covered by insurance and which won’t. As a result, the company attempted its alternative. This model was predicated upon the concepts of “enhanced patient access” and “hassle free” access. It doesn’t appear that the company achieved that. Here’s how it would work:

Once the healthcare professional writes a script, the patient could get their prescription through one of three ways:

  1. Via a nationwide network of specialty pharmacies like Cardinal Health 105 Inc., a specialty pharmacy division of Cardinal Health Inc., that the company sells its products to and that have agreed to comply with the company’s guidelines;

  2. If 105 Inc. or the other specialty pharmacies cannot fill the prescription because a PBM denied coverage or otherwise, the pharmacy could transfer the prescription to a “consignment hub,” which is a specialty pharmacy that stocks the Debtor’s products on a consignment or bailment basis and will fill a prescription for a nominal fee (paid by the Debtor); or

  3. If a patient seeks to fill the prescription at a pharmacy that doesn’t participate in the company’s network and the PBM denies coverage, the patient will receive the drug for free.

As you might imagine, prescribing physicians are encouraged to provide patients with a hotline number where, no doubt, patients, are encouraged to go route #1. Why? Because the company earns revenue from the specialty pharmacies (read: from Cardinal Health). But, per the company:

In contrast, when a prescription is filled by a pharmacy, the Debtor expends funds to facilitate the transaction. In particular, when a healthcare plan covers some or all of the cost of a Dermatology Product prescription, the Debtor, through its Co-Pay Vendors, pays the amount that is not covered by the healthcare plan. Alternatively, when a healthcare plan rejects a Dermatology Product prescription, the Debtor facilitates the transfer of that prescription to one of its consignment hubs so that the prescription can be filled and mailed to the patient, at no cost to the patient.

Anyone else see the problem with all of this?!? Don’t know about you, but the added friction of calling a hotline and finding some random specialty pharmacy rather than going to the neighborhood CVS is far from “hassle free.”

All of these gymnastics created a company with $19.4mm in assets, the lion’s share of which is its intellectual property. In addition, there are some consulting and sales support contracts and A/R. On the liability side of the balance sheet, the company has $15.2mm due and owing on a secured basis to lender RGP Pharmacap LLC (at a prime plus 9.75% or 14% interest rate, payable in monthly principal installments), and $2.8mm in lease obligations that are secured, in part, by a $500k letter of credit issued by The Huntington National Bank.

Per the company, among the factors that precipitated the company’s bankruptcy were…

…among other things, (i) manufacturing hurdles leading to production delays and product “stock-outs”; (ii) a dispute with Cardinal and CVS regarding the price at which the Dermatology Products can be returned to the Debtor; (iii) managed care actions leading to increased prescription rejection rates for the Dermatology Products; and (iv) market dilution and decreased total prescriptions due to unauthorized generic alternatives being introduced into the market.

In response, the company implemented cost-cutting measures like outsourcing its “back office” function, downsizing its sales force and entering into a more cost-effective lease. But these measures didn’t address the fundamental business challenges confronting the company. The company continued:

The Debtor’s historically low prescription approval rates, compounded by (i) the Debtor’s persistent manufacturing issues which directly damaged the Debtor’s business because the Debtor’s sales force was unable to distribute sample products during a critical product growth period and HCPs were forced to prescribe alternative medications, (ii) the Debtor’s working capital shortages stemming in part from the Cardinal/CVS product return dispute and (iii) generic drug competition (which the Debtor believes is unlawful), led the Debtor to the inevitable conclusion that its business was no longer sustainable and that a restructuring and refinancing of the business would be necessary.

The chapter 11 filing is meant to preserve the company’s assets and provide it with a forum through which to conduct a bankruptcy sale process of the dermatology products to maximize value for the company’s creditors. Based on the various disputes the company has with Cardinal/CVS, there may be some litigation here for an as-of-yet-unformed Creditors’ Committee to pursue as well.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: $15.2mm of secured debt, $2.8mm in lease obligations

  • Company Professionals:

    • Legal: Cole Schotz PA (David Hurst, Patrick Reilley, Jacob Frumkin)

    • Independent Director: Thomas J. Allison

    • Financial Advisor: CR3 Partners LLC (Thomas O’Donoghue, Layne Deutscher, Cynthia Chan)

    • Investment Banker: Teneo Capital (Chris Boguslaski)

    • Claims Agent: KCC (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Official Committee of Unsecured Creditors

      • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy) & (local) Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Richard Beck, Sally Veghte)

      • Financial Advisors: Goldin Associates LLC (Gary Polkowitz)

Updated 3/9/19

New Chapter 11 Filing - VER Technologies Holdco LLC

VER Technologies Holdco LLC

4/4/18

VER Technologies, a Los Angeles-based provider of for-rent production equipment and engineering support for live and taped television, cinema, live events and broadcast media has filed for chapter 11 bankruptcy in the District of Delaware. We hadn't heard of these guys before and we're guessing that, unless you live in Los Feliz or Silverlake, you haven't either. Suffice it to say that they're they guys behind the guy, so to speak. Recent broadcast work included the 2018 Super Bowl broadcast (eat it Brady); they also serve over 350 live music customers per year including the Biebs and the band-formerly-known-as-Coldplay-now-called-the-Chainsmokers. 

In some respects, this is a story about attempted avoidance of disruption leading to disruption. The company initially specialized in rentals with no equipment customization but, with time, opted to expand its product and service offerings to include customization. This endeavor, however, proved capital intensive to the point where the company exceeded $270 million on its prepetition asset-backed lending facility. This triggered cash sweeps to the company's bank which proved to further constrain liquidity. This sparked a need for an operational and balance sheet restructuring to maximize cash and get the company to the point of a potential transaction.

In other respects, this is another leveraged buy-out that saddled the target company with a wee bit too much debt. Moreover, the company seems to have undertaken a number of ill-advised or ill-executed operational initiatives that, ultimately, undercut revenue. It happens. 

Now the company -- supported by a restructuring support agreement with its lenders (including funds managed by GSO Capital Partners) -- hopes to facilitate a pre-negotiated merger with an entity controlled by Production Resource Group LLCl ("PRG"). PRG is a Jordan Company-owned provider of entertainment and event technology solutions. Naturally, the term lenders will also own a portion of the reorganized company. Per the term sheet, PRG will get 72% preferred and 80% common; the term lenders will get the delta. The reorganized company will still have a meaningful amount of debt on its balance sheet with a proposed new (unquantified) first lien term loan and a $435 million new second lien term loan. 

The company has secured a proposed $364.7 million DIP credit facility ($300mm ABL, $64.7mm Term Loan, of which $50mm is new money) to support its time in bankruptcy. The company seeks to be in and out of bankruptcy court in approximately 115 days. 

  • Jurisdiction: D. of Delaware (Judge Gross)
  • Capital Structure: $296.3mm ABL Facility (Bank of America NA), $424.2mm term loan (GSO Capital Partners LP/Wilmington Trust NA), $14mm FILO loan, $18.75mm New FTF Inc. Note, $7.5mm Catterton Notes.  
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Ryan Blaine Bennett, Christine Pirro, Jamie Netznik) & (local) Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Morton Branzburg)
    • Financial Advisor/CRO: AlixPartners LLC (Lawrence Young, Stephen Spitzer, Bradley Hunter, Christopher Blacker, James Guyton, Brad Hall)
    • Investment Banker: PJT Partners LP (Nick Leone)
    • Strategic Communications: Joele Frank
    • Independent Director: Eugene Davis
      • Legal: Kramer Levin Naftalis Frankel LLP (Philip Bentley)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition ABL Agent and DIP ABL Agent:
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Shana Elberg, Christopher Dressel, Anthony Clark, Robert Weber, Cameron Fee)
      • Financial Advisor: Perella Weinberg Partners
    • DIP Term Loan Agent: Wilmington Trust NA
      • Legal: Alston & Bird LLP (Jason Solomon)
    • Supporting Term Loan Lenders: GSO Capital Partners, ABR Reinsurance Ltd., Consumer Program Administrators Inc., Irving LLC
      • Legal: Morgan Lewis & Bockius LLP (Frederick Eisenbeigler, Andrew Gallo, Christopher Carter) & Richards Layton & Finger PA (Mark Collins, Amanda Steele, Joseph Barsalona)
    • 12% Subordinated Noteholder:
      • Legal: King & Spalding LLP (Jeffrey Pawlitz, Michael Handler)
    • Indenture Trustee FTF Note:
      • Legal: Robins Kaplan LLP (Howard Weg, Michael Delaney)
    • Production Resource Group LLC
      • Legal: Greenberg Traurig LLP (Todd Bowen) & Morrison Cohen LLP (Joseph Moldovan, Robert Dakis)
    • Wells Fargo NA
      • Legal: Otterbourg PC (Andrew Kramer)
    • Official Committee of Unsecured Creditors
      • Legal: SulmeyerKupetz PC (Alan Tippie, Mark Horoupian, Victor Sahn, David Kupetz) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman, Kevin Hroblak)
      • Financial Advisor: Province Inc. (Carol Cabello) 

Updated 5/19/18

New Chapter 11 Bankruptcy - Charming Charlie Holdings Inc.

Charming Charlie Holdings Inc.

  • 12/11/17 Recap: A mere two weeks before Christmas, another retailer falls into bankruptcy, capping a 2017 retail bloodbath. Here, the Houston-based specialty retailer focused on colorful fashion jewelry, handbags, apparel, gifts, and beauty products follows a long line of retailers into bankruptcy court. In doing so, it demonstrates that the "treasure hunt" experienced often touted as a plus for discount retailers like T.J. Maxx ($TJX), doesn't always hold; it also shows that the difficulties apparent in women's specialty retail are demography-agnostic (here, the core audience is women ages 35-55 - in contrast to, say, rue21). The company blames (i) "adverse macro-trends" and (ii) operational shortfalls, e.g., merchandising miscalculations, lack of inventory, an overly broad vendor base), for its underperformance and reduced sales. EBITDA declined 75% "in the last several fiscal years." 75-effing-percent! With a limited amount of money available under its revolving credit facility and even less cash on hand, "Charming Charlie is out of cash to responsibly operate its business." Ouch. Rough timing. Only subject to a restructuring would lenders support the company; accordingly, the company has entered into a restructuring support agreement with 80% of the term lenders which includes a $20mm new-money cash infusion via a DIP credit facility (the facility includes, in total, a $35mm ABL and a $60mm TL...so yes, a proposed roll-up of $75mm of prepetition debt into a DIP). The company has also commenced the closure of 100 of its 370 stores, a meaningful reduction in its brick-and-mortar footprint (PETITION NOTE: the usual array of landlords, i.e., General Growth Properties ($GGP), have made a notice of appearance). Note the carefully crafted language the company deploys in its initial filing, "The Debtors anticipate 276 go-forward locations following the first round of store closures." Key words, "FIRST ROUND." In other words, the ~100 stores the company notes that it is closing (and that it seeks to retain Hilco for) may just be the beginning. While the company leaves the door open for a sale, the current agreement contemplates the equitization of the term loan (with added equity weight to those providing DIP financing) and a post-emergence debt load of $85mm. 
  • Some other takeaways:
    • (1) the fashion industry has suffered a 15% downturn in fashion jewelry sales (and the company experienced a disproportionate 22% decline itself),
    • (2) vendors and factorers continue to be aggressive with constrictive trade terms and protect their turf (similar here to Toys R Us),
    • (3) Kirkland & Ellis LLP appears to effectively deploy its network to populate Boards of Directors (here, one of the independents appointed to the Board in July 2017 has ties to Gymboree and Toys R Us, two Kirkland clients),
    • (4) Guggenheim's efforts to sell this hot mess were unsuccessful pre-petition (query whether they'll have better luck post-petition...we doubt it),
    • (5) recall the words "first round" when you consider that even landlords for locations that remain open will be squeezed as the company seeks "to amend lease terms to reduce occupancy costs and obtain rent abatements for the first quarter of 2018," 
    • (6) this restructuring will lead to some supply chain pain as the company streamlines the vendor base down to 80 from 175, and
    • (7) its hard out there for a pimp (in this case: Charlie Chanaratsopon "vacated" his role as CEO and an interim CEO has taken the helm). 
  • Jurisdiction: D. of Delaware (Judge Sontchi)
  • Capital Structure: $22mm '20 ABL (Bank of America NA), $132mm '19 TL (Wilmington Savings Trust)  
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Joshua Sussberg, Christopher Greco, Aparna Yemamandra, Rebecca Blake Chaikin, Michael Esser, Anna Rotman) & (local) Klehr Harrison Harvey Branzburg LLP (Dominic Pacitti, Michael Yurkewicz, Morton Branzburg)
    • Financial Advisor: AlixPartners LLC
    • Investment Banker: Guggenheim Securities LLC (Stuart Erickson)
    • Liquidation Agent: HIlco Merchant Resources LLC (Ian Fredericks)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP ABL Agent/Prepetition ABL Agent: Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Robert Barry, Julia Frost-Davies, Amelia Joiner) & (local) Richards Layton & Finger PC (Mark Collins, David Queroli)
    • Ad Hoc Group of Term Loan Lenders
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Saferstein, Adam Denhoff, Sharad Thaper) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Shane Reil)

12/13/17

New Chapter 11 Bankruptcy - Appvion Inc.

Appvion Inc.

  • 10/2/17 Recap: The 100+-year old Appleton Wisconsin-based manufacturer of specialty coated paper has filed for bankruptcy. The company operates in two segments, the thermal paper segment and the carbonless paper segment. The thermal paper segment, on the surface, seems like it would be the most susceptible segment to technological disruption. It is used in four principal end markets: 1) point-of-sale for retail receipts and coupons (PETITION Note: you could understand why this would seemingly be in decline with Square and other P.O.S. stations now emailing receipts - not to mention more and more retail being done online); 2) label products for shipping, warehousing, medical and clean-room supplies (PETITION Query: perhaps the shipping labels offsets the paper receipts?); 3) tags and tickets for airline/baggage applications, events and transportation tickets, lottery and gaming applications (PETITION Note: one of us bought a baseball a scannable paperless ticket the other day from Stubhub...hmmm); and 4) printer, calculator and chart paper for engineering, industrial and medical diagnostic charts. The thermal paper segment is 60% of the company's net sales and has enjoyed annual average growth rates between 1-3%. Somewhat shockingly. PETITION Note: We would have liked to have seen those four sub-segments separated out. Meanwhile, the carbonless paper segment accounts for the other 40% of net sales; it produces coated paper products for design and print applications. The paper is used in a variety of end markets including government, retail, financial, insurance and manufacturing. This segment has been in structural decline since 1994, down approximately 7-11% annually due to the rise of new technologies in digital laser, inkjet and thermal printers. Oh, and electronic communications: the company just throws that in their bankruptcy papers like it's an afterthought. In other words, government and corporations are relying more on email than on the printed page which, duh, obviously impacts this segment. The company owns there manufacturing plants and leases three warehouses; it also has 915 union employees - owed $112.6mm in obligations - who probably ought to get ready to get bent (they are represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the “USW”). The company blames the chapter 11 filing on negative industry trends, an unsustainable degree of balance sheet leverage, inability to adequately address near-term maturities and rapidly deteriorating liquidity. Liquidity became even more of an issue after the company issued a "going concern" warning and received an S&P credit downgrade - two things that obviously made suppliers skittish and resulted in demands for disadvantageous trade terms. Recognizing decreased liquidity, the company appears to have taken as much cost out of the business as it can which, from the looks of the company's papers, may be artificially inflating the numbers on the thermal side in the face of technological innovation. PETITION Note: the assumptions the bankers concoct for this side of the business ought to be watched very carefully. Somewhat surprisingly, despite a full slate of advisors and months of lead-up to the filing, this is a classic free-fall into bankruptcy: there doesn't appear to be any restructuring support agreement with the lenders whatsoever. There is, however, a proposed $325.2mm DIP credit facility which would include $85mm of new money and a $240.2mm rollup of pre-petition money (in other words, the full amount of pre-petition TL & RCF monies outstanding, ex-interest). Nothing like being senior in the cap stack. Final PETITION Note: anyone think this will be the last paper-related bankruptcy in, say, the next 12 months? This is starting to look like 2007 all over again...
  • Jurisdiction: D. of Delaware
  • Capital Structure: $335mm first lien TL & $100 RCF ($240.8mm outstanding included accrued/unpaid interest), $250mm '20 9% second lien senior notes, $24mm A/R securitization, $6mm Industrial Development Bonds, $500k TL with the State of Ohio
  • Company Professionals:
    • Legal: DLA Piper (US) LLP (Richard Chesley, Stuart Brown, Jamila Willis, Kaitlin Edelman)
    • Financial Advisor/CRO: AlixPartners LLP (Alan Holtz, Pilar Tarry, Nathan Kramer)
    • Investment Banker: Guggenheim Securities LLC (Ronen Bojmel)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Strategic Communications Consultant: Finsbury LLC
  • Other Parties in Interest:
    • DIP Admin Agent: Wilmington Trust, NA
      • Legal: Covington & Burling LLP (Ronald Hewitt) & (local) Pepper Hamilton LLP (David Fournier)
    • DIP Lenders
      • Legal: O'Melveny & Myers LLP (George Davis, Daniel Shamah, Matthew Kremer, Jennifer Taylor) & (local) Richards Layton & Finger P.A. (Mark Collins, Michael Merchant, Brett Haywood)
    • Prepetition Credit Agreement Admin Agent: Jefferies Finance LLC
      • Legal: Jones Day (Scott Greenberg, Brad Erens) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns)
    • Key Bank National Association
      • Legal: Reed Smith LLP (Peter Clark II, Jennifer Knox, Emily Devan)
    • Fifth Third Bank
      • Legal: Vedder Price PC (Michael Eidelman, Michael Edelman) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, R. Stephen McNeill, D. Ryan Slaugh)
    • Ad Hoc Committee of Holders of the 9% '20 Second Lien Senior Secured Notes (ADK Capital LLC, ALJ Capital Management LLC, Archer Capital Management LP, Armory Advisors LLC, Barings LLC, Mackenzie Investments, MAK Capital One LLC, Nomura Corporate Research and Assset Management, Riva Ridge Master Fund Ltd., Rotation Capital Management LP, Scott's Cove Management LLC)
      • Legal: Stroock Stroock & Lavan LLP (Jayme Goldstein, Samantha Martin) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)
    • Second Lien Senior Secured Notes Indenture Trustee: US Bank NA
      • Legal: Foley & Lardner LLP (Richard Bernard, Derek Wright, Mark Prager)
    • Official Committee of Unsecured Creditors
      • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Jeffrey Prol, Wojciech Jung) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz, Morton Branzburg, Sally Veghte)

Updated 10/26/17

New Chapter 11 Filing - True Religion Apparel Inc.

True Religion Apparel Inc.

  • 7/5/17 Recap: Another private equity backed retailer files for bankruptcy. Here, the "brand that is globally recognized for innovative, trendsetting denim jeans and apparel" has a fast-tracked prepackaged deal with its lenders and private equity sponsor to shed approximately 72% of its debt and continue its operational restructuring (read: more store closures). The Manhattan Beach California 128-store retailer (down after closing 30 stores worldwide) blamed a (i) "a macro consumer shift away from brick-and-mortar to online retail channels," (ii) a decline in the premium denim market segment in the fashion industry and corresponding rise of athleisure, (iii) fast fashion, (iv) the rise in competitive discounting to make up for lost foot traffic and sales, and (v) an over-levered balance sheet. We believe that the decline is primarily attributable to cheesy AF bedazzled and bejeweled jeans with heinous a$$-designs and stitching that no one other than the cast of the Jersey Shore would want to be caught dead in. Its initial claim-to-fame is its "iconic and trademarked" horsesh*t symbol...we mean, "iconic and trademarked horseshoe symbol." Seriously, how is True Religion ONLY #15 on this list of "50 Men's Fashion Trends That Never Should Have Happened"? We're truly asking. Anyway, the de-levered and operationally stream-lined company hopes to restructure around a business plan predicated upon a global e-commerce expansion, increased licensing, deployment of pop-up outlet stores, an expansion of its "Last Stitch" line, and other shenanigans in an attempt to keep this ugly brand from filing for Chapter 22 after the holiday season. On an aside, the pop-up strategy is interesting: the company notes that the outlet concept has been profitable, primarily because they are based on short-term 18-month-or-less leases with "little downside" for the company. Yikes, landlords. The company further noted that the conversion of True Religion locations to "Last Stitch" branded locations has been successful. Curious. Doesn't this signal that the True Religion brand is, uh, kinda worth f*ck all and the company's success is dependent upon shying away from it? Hmmm. 
  • Jurisdiction: D. of Delaware (Sontchi)
  • Capital Structure: $60mm ABL (Deutsche Bank AG New York Branch), $400mm first lien TL (Delaware Trust Company, as successor to Deutsche Bank AG New York Branch), $85mm second lien TL (Wilmington Trust National Association, as successor to Deutsche Bank AG New York Branch)
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, David Bertenthal, James O'Neill)
    • Financial Advisor: Maeva Group LLC (Harry Wilson)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Sponsor: Towerbrook Capital Partners LP
      • Legal: Wachtell Lipton Rosen & Katz LLP (Joshua Feltman, Emil Kleinhaus) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Daniel Butz)
    • Ad Hoc Group of Lenders (Apex Credit Partners LLC, Farmstead Capital Management LLC, Goldman Sachs Asset Management LP, Investcorp Credit Management US LLP, Palmer Square Capital Management LLC, Southpaw Asset Management LP, Waddell & Reed Investment Management Company and Ivy Investment Management Company, 
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Arik Preis, Allison Miller, Jason Rubin, Yochun Katie Lee) & (local) Ashby & Geddes PA (Karen Skomorucha Owens, Stacy Newman)
      • Financial Advisor: Moelis & Company LLP
      • DIP Lender: Citizens Bank NA 
        • Legal: Morgan Lewis & Bockius LLP (Robert A.J. Barry, Julia Frost-Davies, Christopher Carter) & (local) Reed Smith LLP (Kurt Gwynne, Emily Devan)
      • Official Committee of Unsecured Creditors
        • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Max Schlan, Lauren Reichardt) & (local) Klehr Harrison Harvey Branzburg LLP (Michael Yurkewicz, Sally Veghte)
        • Financial Advisor: Province Inc. (Peter Kravitz)

Updated 8/8/17

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