🔫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 - Orchids Paper Products Company🚽

Orchids Paper Products Company

April 1, 2019

We first wrote about Orchids Paper Products Company ($TIS) back in November 2018 in “🚽More Trouble in Paper-Ville (Short A$$-Wipes)🚽.” It is a piece worth revisiting because it sums up the situation rather nicely. We wrote:

Orchids Paper Products Company ($TIS) is a Okahoma-based producer of bulk tissue paper which is later converted into finished products like paper towels, toilet paper and paper napkins; it sells its products for use in the “at home” market under private label to dollar stores, discount retailers and grocery stores. Its largest customers include the likes of Dollar General Corp. ($DG)Walmart Inc. ($WMT) and Family Dollar/Dollar Tree, which, combined, account for over 60% of the company’s sales. Given the rise of the dollar stores and discount retailers and the rise in private label generally, you’d think that this company would be killing it. Spoiler alert: it’s not. In fact, it is, by definition, insolvent.

And:

This company doesn’t produce enough toilet paper to wipe away this sh*tfest. See you in bankruptcy court.

And that’s precisely where they (and affiliates) are now — in the District of Delaware.

And the story hasn’t really changed: the debtors still struggle from operational issues related to their facilities, too much competition (causing margin compression and loss of pricing power), rising input costs, and customer defections. To make matters worse, given the debtors’ deteriorating financial position, raw materials suppliers reduced credit terms given the debtors’ public reporting of its troubles. Consequently, virtually all of the debtors’ financial metrics got smoked. Gross profit? Smoked. Cash flow? Smoked. Net income? Smoooooooked.

Speaking of “smooooooked,” the company twice notes its termination of their investment banker, Guggenheim Securities. Bankers get replaced all of the time: not entirely sure why they felt the need to make such an issue of it here. That said, Guggenheim apparently marketed the company for months without finding a prospective buyer that would clear the debt. The company, therefore, hired Houlihan Lokey ($HL) to market the company. The result? They couldn’t find a buyer that would clear the debt. Nothing like paying a new banker AND presumably paying some sort of tail to your old banker just to end up with your pre-petition secured lender as your stalking horse bidder (and DIP lender)! Sheesh.

As we said, “[t]his company doesn’t produce enough toilet paper to wipe away this sh*tfest.”

  • Jurisdiction: (Judge Walrath)

  • Capital Structure: $187.3mm RCF/TL (Ankura Trust Company, L.L.C.), $11.1mm New Market Tax Loan

  • Professionals:

    • Legal: Polsinelli PC (Christopher Ward, Shanti Katona, Jerry Switzer Jr.)

    • Board of Directors: Steven Berlin, John Guttilla, Douglas Hailey, Elaine MacDonald, Mark Ravich, Jeffrey Schoen

    • Financial Advisor: Deloitte Transactions and Business Analytics LLP (Richard Infantino)

    • Investment Banker: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • Large Equityholder: BML Investment Partners LP

    • Prepetition RCF Admin Agent: Ankura Trust Company

    • DIP Admin Agent: Black Diamond Commercial Finance LLC

    • DIP Lender: Orchids Investment LLC

      • Legal: Winston & Strawn LLP (Daniel McGuire) & (local) Fox Rothschild LLP (Seth Niederman)

    • Stalking Horse Bidder

      • Legal: Skadden Arps Slate Meagher & Flom LLP (Kimberly Debeers, Ron Meisler)

    • Official Committee of Unsecured Creditors

      • Legal: Lowenstein Sandler LLP (Mary Seymour) & CKR Law (David Banker)

Updated 5/18

New Chapter 11 Bankruptcy Filing - Senior Care Centers LLC

Senior Care Centers LLC

December 4, 2018

Ok, we take it back. We’ve been saying how healthcare distress was overhyped in the beginning of the year and now a mini-wave of healthcare-related bankruptcy filings has hit dockets across the country. It’s cool: we don’t take it personally.

Here, Senior Care Centers LLC and its bazillion affiliated debtors, filed for bankruptcy in the Northern District of Texas. The debtors are one of the largest skilling nursing services providers in the US, providing care for approximately 9k patients in Texas and Louisiana. They operate 97 skilled nursing facilities, 9 assisted living facilities and 6 hospice facilities. The company notes:

Like much of the healthcare sector, the operators of skilled nursing facilities (“SNFs”) are and have been experiencing significant challenges and financial distress in recent years. The challenges faced by the Debtors are similar to those experienced by other SNF operators and widespread within the skilled nursing industry. The Debtors faced increasing financial pressure in 2017 and 2018 cause by, among other things, declining reimbursement rates, difficulties in collecting accounts receivable, declining census, and occupancy rates, increasing lease obligations, tightening terms with various trade creditors, and a significantly reduced working capital loan facility. All of these factors have combined to negatively impact the Debtors’ operations.

Getting more specific, the company adds:

Since 2017, the Company experienced significant liquidity constraints caused by, among other things: (a) increasing rent and “above-market” leases with various Landlords; (b) declining performance within the current portfolio for a variety of industry-wide developments; (c) tightening terms with various trade creditors; and (d) declining census. The Company has struggled to respond to liquidity issues for several months. In July of 2018, Administrative Agent began establishing Borrowing Base reserves, resulting in reduced availability under the Credit Facility.

The immediate cause for the filing of these Chapter 11 Cases was due to liquidity issues resulting from reduced Borrowing Base availability. This problem was compounded when certain of the Debtors’ landlords issued termination and/or default notices (the “Landlord Notices”).

Certain vendors demanded modification to payment terms, which restricted or eliminated the Company’s trade credit. Moreover, relationships with current and prospective Employees and Patients have been affected by the uncertainty. For example, several recent candidates have rescinded their offers to join the Company and expressed concern regarding the Company’s financial stability.

That story should sound wildly familiar by now.

Of significance, however, is the company’s relationship with Sabra Health Care REIT Inc. ($SBRA), which is one of the major landlords who issued termination/default notices (over which there is some dispute as to whether they were subsequently withdrawn). Sabra owns CCP which is the debtors’ second lien lender. More importantly, Sabra is the landlord on approximately 40 of the debtors’ facilities. The debtors owe Sabra $31.78mm in unpaid rent, common area maintenance charges and taxes.

Interestingly, Sabra’s own commentary about the debtors’ situation probably didn’t help matters much. On its Q3 earnings call on November 6, Sabra said a number of things about the debtors’ inability to pay rent, a potential sale of the debtors, its efforts to obtain financing, and management’s skittishness about any go-forward transaction that would endanger their jobs. On that last point, Sabra indicated that it was discussing go-forward options directly with the debtors’ board as a result. The debtors’ various constituents could obvious see/hear these comments and react accordingly.

But the Sabra commentary also demonstrates how difficult the current environment is for SNFs right now. Some big takeaways from their earnings call:

  • It is reducing its exposure to Texas, its largest state, “which also happen to be the one state where there is an oversupply of skilled nursing beds in a number of markets due to new product. And Texas also has one of the weakest Medicaid systems in the country.” (PETITION Note: scour the Googles for other SNFs highly indexed to Texas for future distressed/bankruptcy candidates).

  • Skilled operators (read: private equity) are in acquisition mode and, therefore, pricing is high even for product that isn’t of the highest quality. (PETITION Note: “too much money chasing too few deals.” This should, theoretically, bode well for the debtors’ proposed sale, if so). Sabra’s CEO Rick Matros said, “we're not seeing much good skill product and I really believe that that's a function of the skilled operators are buying everything all of us are selling, but they're not putting reasonable assets on the market because everybody sees the light at the end of the tunnel both in terms of the demographic in terms of decreasing supply and in terms of the positive benefits of PDPM reimbursements system that’s going go into effect next October.

  • Smaller SNFs will succumb to bankruptcy. Matros added, “My guess is over the course of the next year particularly with the mom-and-pops, we'll probably see more products come to market as a number of the smaller providers determine that they don't have the wherewithal or the desire to go through the transition that is going to be required to go through to be successful post-PDPM.

In other words, there should be a healthy amount of M&A and distressed activity in the near future in the SNF space.

Anyway, back to the debtors: they hope to use the automatic stay provided by the filing to transition underperforming facilities to new operators in coordination with its landlords and sell their profitable facilities. They will use cash collateral to fund the cases.

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

  • Funded Capital Structure: $33.06mm RCF, $9.53mm HUD RCF, $4.3mm CCP (second lien) Loan   

  • Company Professionals:

    • Legal: Polsnielli PC (Jeremy Johnson, Trey Monsour, Stephen Astringer, Nicholas Griebel)

    • Conflicts Legal: Huntons Andrews Kurth LLP

    • CRO & Financial Advisor: Newbridge Management LLC (Kevin O’Halloran) & BDO USA LLP

    • Communications Consultants: Sitrick and Company

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

  • Other Parties in Interest:

    • Large Creditor: Sabra Health Care Reit, Inc.

    • Sponsor: Silver Star Investments LLC

    • Admin Agent & Lender: CIBC Bank USA

      • Legal: Duane Morris LLP (John Weiss, Rosanne Ciambrone) & (local) Haynes and Boone LLP (Stephen Pezanosky, Matthew Ferris)

New Chapter 11 Filing - Tintri Inc.

Tintri Inc.

7/10/18

On June 23 in "#BustedTech (Short Busted IPOs…cough…DOMO), we wrote the following: 

Tintri Inc., a publicly-traded ($TNTR) Delaware-incorporated and Mountain View California based provider of enterprise cloud and all-flash and hybrid storage systems appears to be on the brink of bankruptcy. There's no way any strategic buyer agrees to buy this thing without a 363 comfort order. 
In an SEC filing filed on Friday, the company noted:

"The company is currently in breach of certain covenants under its credit facilities and likely does not have sufficient liquidity to continue its operations beyond June 30, 2018."

Furthermore, 

"Based on the company’s current cash projections, and regardless of whether its lenders were to choose to accelerate the repayment of the company’s indebtedness under its credit facilities, the company likely does not have sufficient liquidity to continue its operations beyond June 30, 2018. The company continues to evaluate its strategic options, including a sale of the company. Even if the company is able to secure a strategic transaction, there is a significant possibility that the company may file for bankruptcy protection, which could result in a complete loss of shareholders’ investment."

And yesterday the company's CEO resigned from the company. All of this an ignominious end for a company that IPO'd almost exactly a year ago. Check out this chart:
Source: Yahoo! Finance

Source: Yahoo! Finance

Nothing like a $7 launch, a slight post-IPO uptick, and then a crash and burn. This should be a warning sign for anyone taking a look at Domo — another company that looks like it is exploring an IPO for liquidity to stay afloat. But we digress. 
The company's capital structure consists of a $15.4mm '19 revolving credit facility with Silicon Valley Bank, a $50mm '19 facility with TriplePoint Capital LLC, and $25mm of 8% convertible notes. Revenues increased YOY from $86mm in fiscal 2016 to $125.1mm in fiscal 2017 to $125.9mm in fiscal 2018. The net loss, however, also moved up and right: from $101mm to $105.8mm to $157.7mm. The company clearly has a liquidity ("net cash") covenant issue (remember those?). Accordingly, the company fired 20% of its global workforce (~90 people) in March (a follow-on to a 10% reduction in Q3 '17). The venture capital firms that funded the company — Lightspeed Venture Partners among them — appear to be long gone. Silver Lake Group LLC and NEA Management Company LLC, unfortunately, are not; they still own a good amount of the company.
"Isn't cloud storage supposed to be all the rage," you ask? Yeah, sure, but these guys seem to generate product revenue largely from sales of all-flash and hybrid storage systems (and stand-alone software licenses). They're mainly in the "intensely competitive IT infrastructure market," sparring with the likes of Dell EMCIBM and VMware. So, yeah, good luck with that.
*****

Alas, the company has filed for bankruptcy. This bit about the company's financial position offers up an explanation why -- in turn serving as a cautionary tale for investors in IPOs of companies that have massive burn rates:

"The company's revenue increased from $86 million in fisca1 2016 to $125.1 million in fiscal 2017, and to $125.9 million in fiscal 2018, representing year-over-year growth of 45% and 1 %, respectively. The company's net loss was $101.0 million, $105.8 million, and $157.7 million in fiscal 2016, 2017, and 2018, respectively. Total assets decreased from $158.1 million as of the end of fiscal 2016 to $104.9 million as of the end of fiscal 2017, and to $76.2 million as of the end of fiscal 2018, representing year-over-year change of 34% and 27%, respectively. The company attributed flat revenue growth in fiscal 2018 in part due to delayed and reduced purchases of products as a result of customer concerns about Tintri's financial condition, as well as a shift in its product mix toward lower-priced products, offset somewhat by increased support and maintenance revenue from its growing installed customer base. Ultimately, the company's sales levels have not experienced a level of growth sufficient to address its cash burn rate and sustain its business."

With trends like those, it's no surprise that the IPO generated less capital than the company expected. More from the company:

"Tintri's orders for new products declined, it lost a few key customers and, consequently, its declining revenues led to the company's difficulties in meeting day-to-day expenses, as well as long-term debt obligations. A few months after its IPO, in December 2017, Tintri announced that it was in the process of considering strategic options and had retained investment bank advisors to assist it in this process."

As we previously noted, "[t]here's no way any strategic buyer agrees to buy this thing without a 363 comfort order." And that is precisely the path that the company seeks to take. In its filing, the company indicated that it plans to file a motion seeking approval of the sale of its assets and bid procedures shortly. The filing is meant to provide the company with a chance to continue its efforts to sell the company as a going concern. Alternatively, it will look to sell its IP and liquidate. Triplepoint has agreed to provide a $5.4mm DIP credit facility to fund the process.  Savage.  

Meanwhile, today's chart (at time of publication):

Source: Yahoo! Finance

 

  • Jurisdiction: D. of Delaware (Judge Carey)
  • Capital Structure: $4.7mm RCF (Silicon Valley Bank), $56mm term loan (TriplePoint Capital LLC), $25mm '19 convertible notes.     
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Henry Kevane, John Fiero, John Lucas, Colin Robinson)
    • Financial Advisor: Berkeley Research Group LLC (Robert Duffy)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • First Lien Lender: Silicon Valley Bank
      • Legal: Riemer & Brownstein LLP (Donald Rothman, Paul Samson, Alexander Rheaume, Steven Fox) & (local) Ashby & Geddes PA (Gregory Taylor)
    • Second Lien Lender: TriplePoint Capital LLC
      • Legal: McDermott Will & Emery LLP (TImothy Walsh, Riley Orloff, Gary Rosenbaum) & (local) Polsinelli PC (Christopher Ward, Jeremy Johnson, Stephen Astringer)
    • Proposed Purchaser: DataDirect Networks Inc.
      • Legal: Manatt Phelps & Phillips LLP (Blase Dillingham, Alan Noskow) & (local) Richards Layton & Finger PA (John Knight)

Updated 7/12/18 at 2:09 CT

New Chapter 11 Filing - EBH Topco LLC (a/k/a Element Behavioral Health Inc.)

EBH Topco LLC (a/k/a Element Behavioral Health Inc.)

5/23/18 

Behavioral health services and residential drug and alcohol addition treatment provider in 13 treatment centers across 8 states filed for bankruptcy. If that sounds boring: it's because it is. Which would explain why the Wall Street Journal felt compelled to drop in that its also the facility that treated Britney Spears and Lindsay Lohan. SEO just shot through the roof. Anyway, the company stated,

While the Company has had ongoing financial difficulties, the overall census of the facilities and revenue has declined since 2017. The decline in out-of-network admissions, lower reimbursement rates by insurance providers and the decline in the average length of stay were all contributing factors to the financial losses of the Company. While the Company attempted to increase census through ongoing marketing efforts of its in-house sales team and internet advertising, the increased cost of these efforts did not result in the increase in revenue to improve the financial results of the Company and offset the Company’s cash burn. Financial performance for the fiscal year 2017 was $103.7 million in revenue, $129.6 million in expenses, and EBITDA of $(25.9) million with a total net income/(loss) of $(51.2) million.

Given that the company started in 2008 and then pursued an acquisition-based growth strategy, it seems like they didn't underwrite to current conditions. Ouch. 

Just a few weeks ago, Project Build Behavioral Health, LLC purchased the first lien paper and after an initial buyer of the assets fell through, agreed to be the company' stalking horse bidder in bankruptcy subject to an expedited sale process (the sale hearing is slated for late June); it intends to credit bid its debt. The company has a proposed $14.2 million DIP credit facility lined up to fund the cases. 

  • Jurisdiction: D. of Delaware (Judge Shannon)
  • Capital Structure: $76mm '19 first lien term loan and revolver debt (Madison Capital Funding LLC), $29mm '20 second lien term loan (Cortland Capital Market Services LLC)
  • Company Professionals:
    • Legal: Polsinelli PC (Christopher Ward, Shani Katona, Stephen Astringer, Jeremy Johnson)
    • CRO/Financial Advisor: Alvarez & Marsal LLC (Martin McGahan)
    • Investment Banker: Houlihan Lokey Capital Inc.
    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Lender/Stalking Horse Bidder: Project Build Behavioral Health, LLC
      • Legal: McDonald Hopkins LLC (David Agay, Scott Opincar, Michael Kaczka) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott)
    • Ad Hoc Group of Second Lien Lenders
      • Legal: Morrison & Foerster LLP (Jonathan Levine, Daniel Harris)
    • Equity sponsors: NEA, Frazier Healthcare Ventures, Formation Capital

New Chapter 11 Filing - Jet Midwest Group LLC

2/26/18

Kansas City-based seller and lessor of commercial aircraft and engines has filed for bankruptcy. 

  • Jurisdiction: DofDelaware (Judge Carey)
  • Capital Structure: $17.5mm debt     
  • Company Professionals:
    • Legal: Polsinelli PC (Christopher Ward, Shanti Katona, Randye Soref)
    • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Official Committee of Unsecured Creditors: None.
  • Secured Lender: Jet Midwest International Co., Ltd.
    • Legal: Dorsey & Whitney LLP (Eric Lopez Shnabel, Robert Mallard, Alessandra Glorioso, Richard Silberberg, Geoffrey Sant, Eric Epstein)

New Chapter 11 Filing - Firestar Diamond Inc.

2/26/18

Company of billionaire Nirav Modi has filed for bankruptcy in the United States. He is currently in the midst of India's biggest-ever bank scam. Indian state-run Punjab National Bank uncovered fraudulent transactions in one its branches and notes that the fraudulent transactions could be around $2 billion. 

  • Jurisdiction: S.D. of New York
  • Capital Structure: $mm debt     
  • Company Professionals:
    • Legal: Klestadt Winters Jureller Southard LLP (Ian Winters, Sean Southard, Stephanie Sweeney)
    • Restructuring Advisor/CRO: Getzler Henrich & Associates LLC (Mark Samson)
    • Financial Advisor: Marks Paneth LLP (Howard Hoff) 
    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Creditor: Israel Discount Bank of New York
      • Legal: Troutman Sanders LLP (Brett Goodman, Harris Winsberg, Matthew Brooks)
    • Creditor: Punjab National Bank
      • Legal: Cleary Gottlieb Steen & Hamilton LLP (Sean O'Neal, James Bromley)
    • Creditor: J.C. Penney Corporation
      • Legal: Polsinelli PC (Christopher Ward, Jeremy Johnson) 

New Chapter 11 Bankruptcy - PhaseRX Inc. ($PZRX)

PhaseRX Inc.

  • 12/11/17 Recap: Seattle-based and once-VC-backed publicly-traded ($PZRX) biopharma company focused on therapeutics developed to treat enzyme deficiencies in the liver via intracellular enzyme replacement therapy (after a pivot from from focusing on the treatment of liver cancer) filed for bankruptcy. The company seeks a sale through bankruptcy. 
  • Jurisdiction: D. of Delaware (Judge Sontchi)
  • Capital Structure: $500k promissory note (Titan Multi-Strategy Fund Ltd.), $16.2mm 8% convertible notes, $4mm 5% term loan, $5.1mm secured loan (Hercules Capital Inc.)
  • Company Professionals:
    • Legal: Polsinelli PC (Christopher Ward, Shanti Katona, Nicholas Griebel)
    • Investment Banker: Cowen & Company 
    • Claims Agent: Donlin Recano & Co. Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Large Equityholders/Venture Capital: (Arch Venture Fund VII LP, 5AM Ventures, Savoy Therapeutics Corp., Versant Venture Capital III LP)
    • Hercules Capital Inc. 
      • Legal: Cole Schotz PC (Patrick Reilley, Stuart Komrower)

Updated 12/12/17

New Chapter 11 Filing - The Original Soupman Inc.

The Original Soupman, Inc.

  • 6/13/17 Recap: Bankruptcy for you! Company that licensed the name and recipes of the chef who inspired the "Soup Nazi" on Seinfeld has filed for bankruptcy with a $2mm DIP credit facility to fund the case. The CFO had been indicted for tax evasion. We wonder whether the prison he goes to will have soup that lives up to the Soupman standard. Anyway, we digress. The company sells soups to and through grocery chains (6500 of them) and club stores throughout the United States; it also provides soup to the New York City School System and has six franchised restaurants, the largest of which resides on the Upper West Side. So a Nazi serves the school system. Awesome. 
  • Jurisdiction: D. of Delaware (Silverstein).
  • Capital Structure: $3.66mm secured debt (Hillair Capital Investments LP), $3.3mm unsecured notes.
  • Company Professionals:
    • Legal: Polsinelli PC (Christopher Ward, Jarrett Vine, Jeremy Johnson)
    • Financial Advisor/CRO: Wyse Advisors LLC (Michael Wyse) 
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Lender: Soupman Lending LLC
      • Legal: Arent Fox LLP (Robert Hirsh, Beth Brownstein) & (local) Bayard PA (Justin Alberto, Erin Fay)

Updated 6/17/17

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 11 & CCAA Filing - Payless Shoesource Inc.

Payless Shoesource Inc.

  • 4/4/17 Recap: Private equity backed Kansas-based discount footwear retailer with over 4000 stores filed for bankruptcy because, well, right, it's a private equity backed retailer. Golden Gate Capital and Blum Capital Partners are the sponsors and we've previously covered their methods, uh, we mean "value-add" proposition. We probably won't even bother to read the filing documents because we're 98.9% confident they say the same sh*t every other retail case has said, e.g., poor e-commerce...blah blah...Amazon...blah blah...mall-based retail...blah blah...bad weather...blah blah...Showtime's Billions sucks...wait, what?...whatever, it does (who cares if that's relevant?)...millennial shopping habits...blah blah...bleeding top line and depressed comp store sales...blah blah...dividend recaps...blah blah blah. Apparently the retailer is going to close nearly 400 stores while it attempts to reorganize around what remains - all in accordance to a plan support agreement that the company has entered into with 2/3 of its term loan lenders and with the support of a $385mm DIP facility (of which $80mm is new money). Meanwhile, we'll see what kind of cascading effect this will have on (a) China's manufacturing sector which, apparently, has seen significant stretching of payables (up to 100 days) - a fact evidenced by the top 50 creditors list, and (b) our lovely "A" malls (notably, Simon Property Group made a notice of appearance before the first day pleadings were even completely filed). Finally, the CEO dropped the fact that the new business plan will focus on, among other things, "omnichannel expansion" and since that is the retail buzzword/phrase of the moment, we guess there's really nothing to see here: all will be fine. 
  • 4/6/17 Update: We read the documents and, generally speaking, everything we said above applies. Two other factors apparently worth mentioning as causes for the filing: inventory management issues (compounded by the West Coast port strikes) and foreign exchange issues.
  • Jurisdiction: E.D. of Missouri
  • Capital Structure: $300 ABL ($187mm out - Wells Fargo), $520mm '21 TL ($506mm out), $145mm '22 second lien TL (Morgan Stanley Senior Funding Inc.)    
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Nicole Greenblatt, William Guerrieri, Christine Pirro, Jessica Kuppersmith) & (local) Armstrong Teasdale LLP (Steven Cousins, Erin Edelman) & (Canadian counsel) Osler Hoskin & Harcourt LLP 
    • Legal to Independent Director: Munger Tolles & Olson LLP (Thomas Walper, Seth Goldman, Kevin Allred)
    • Financial Advisor: Alvarez & Marsal North America LLC (Robert Campagna)
    • Investment Banker: Guggenheim Securities LLC (Morgan Suckow)
    • Real Estate: RCS Real Estate Advisors (Ivan Friedman)
    • Liquidators: Great American Group LLC & Tiger Capital Group LLC
    • Claims Agent: Prime Clerk LLC (*click on company name above for free court docket)
  • Other Parties in Interest:
    • Ad Hoc Committee of First Lien Term Lenders (Alden Global Opportunities Master Fund, Credit Suisse Asset Management, GSO Capital Partners, Hawkeye Capital Management, Invesco Senior Secured Management, Octagon Credit Investors LLC, AIC Finance, Axar Capital Management)
      • Legal: King & Spalding LLP (Michael Rupe, Christopher Boies, Jeffrey Pawlitz, Austin Jowers, Michael Handler)
      • Financial Advisor: Houlihan Lokey Capital Inc.
    • DIP ABL Agent: Wells Fargo Bank NA
      • Legal: Choate Hall & Stewart LLP (Kevin Simard, Douglas Gooding, Jonathan Marshall) & (local) Thompson Coburn LLP (Mark Bossi)
    • First Lien Agent & DIP TL Agent: Morgan Stanley Senior Funding Inc. & Cortland Products Corp.
      • Legal: Norton Rose Fulbright US LLP (Stephen Castro, David Rosenzweig, Danielle Ledford, Tim Walsh)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (Robert Feinstein, Jeffrey Pomerantz, Bradford Sandler) & (local) Polsinelli PC (Matthew Layfield, Christopher Ward, Shanti Katona)
      • Financial Advisor: Province Inc.

Updated 4/18/17

New Chapter 11 Filing - California Proton Treatment Center

California Proton Treatment Center

  • 3/1/17 Recap: The San Diego-based proton radiation treatment center is the latest treatment center to file for bankruptcy. It opened in February '14 and managed to be very successful...at bleeding cash from the get-go. Now, the company hopes to achieve a sale in bankruptcy with the help of a $32mm DIP credit facility (of which only half is new money). 
  • Jurisdiction: D. of Delaware
  • Capital Structure: ~$180mm first lien debt (ORIX Capital Markets)    
  • Company Professionals:
    • Legal: Locke Lorde LLP (David Wirt, Aaron Smith, Phillip Nelson, Brian Raynor) & (local) Polsinelli PC (Christopher Ward, Justin Edelson)
    • Financial Advisor: Carl Marks Advisory Group (J. Jette Campbell)
  • Other Parties in Interest:
    • ORIX Capital Markets
      • Legal: Milbank Tweed Hadley & McCloy (Gregory Bray, Haig Maghakian) & (local) Richards Layton & Finger (Mark Collins, Brett Haywood)

Updated 3/2/17

New Chapter 11 Bankruptcy Filing - Limited Stores Company LLC

Limited Stores Company LLC

  • 1/17/17 Recap: Sun Capital owned multi-channel retailer with 250 locations (down from a peak of 750) filed for bankruptcy to continue its Hilco-assisted liquidation and sell its IP and e-commerce channel for a proposed ~$25.5mm sum to Sycamore Partners. Looks like some "A Malls" owned by Simon Property Group and GGP Limited Partnership just got nicked.  
  • Jurisdiction: D. of Delaware
  • Capital Structure: $50mm RCF (unfunded, BofA), $13.4 TL (Cerberus Business Finance LLC)   
  • Company Professionals:
    • Legal: Klehr Harrison Harvey Branzburg LLP (Domenic Pacitti, Michael Yurkewicz)
    • Financial Advisor: RAS Management Advisors LLC (Timothy Boates)
    • Investment Banker: Guggenheim Securities LLC (Durc Savini, Ryan Mash, Michael Gottlieb, Ben Loveland, Justin Kundrat, Grace Dai)
    • Sponsor: Sun Capital Partners Inc.
    • Claims Agent: Donlin Recano (*click on company name for docket)
  • Other Parties in Interest:
    • Cerberus Business Finance LLC
      • Legal: Klee Tuchin Bogdanoff & Stern LLP (Michael Tuchin, David Fidler, Jonathan Weiss)
    • Sycamore Partners
      • Legal: Kirkland & Ellis LLP (James Stempel)
    • TradeGlobal LLC
      • Legal: Squire Patton Boggs (US) LLP (Elliot Smith) & (local) Polsinelli PC (Christopher Ward)
    • Official Committee of Unsecured Creditors
      • Legal: Kelley Drye & Warren LLP (Jason Adams, James Carr, James Shickich, Kristin Elliott) & Pachulski Stang Ziehl & Jones LLP (Bradford Sandler, James O'Neill)
      • Financial Advisor: CBIZ Accounting Tax and Advisory of New York (Esther DuVal)

Updated 3/30/17