New Chapter 11 Filing - Hexion Holdings LLC

Hexion Holdings LLC

April 1, 2019

What we appreciate that and, we hope thanks to PETITION, others will eventually come to appreciate, is that there is a lot to learn from the special corporate law, investment banking, advisory, and investing niche labeled “restructuring” and “distressed investing.” Here, Ohio-based Hexion Holdings LLC is a company that probably touches our lives in ways that most people have no knowledge of: it produces resins that “are key ingredients in a wide variety of industrial and consumer goods, where they are often employed as adhesives, as coatings and sealants, and as intermediates for other chemical applications.” These adhesives are used in wind turbines and particle board; their coatings prevent corrosion on bridges and buildings. You can imagine a scenario where, if Washington D.C. can ever get its act together and get an infrastructure bill done, Hexion will have a significant influx of revenue.

Not that revenue is an issue now. It generated $3.8b in 2018, churning out $440mm of EBITDA. And operational performance is on the upswing, having improved 21% YOY. So what’s the problem? In short, the balance sheet is a hot mess.* Per the company:

“…the Debtors face financial difficulties. Prior to the anticipated restructuring, the Debtors are over nine times levered relative to their 2018 adjusted EBITDA and face annual debt service in excess of $300 million. In addition, over $2 billion of the Debtors’ prepetition funded debt obligations mature in 2020. The resulting liquidity and refinancing pressures have created an unsustainable drag on the Debtors and, by extension, their Non-Debtor Affiliates, requiring a comprehensive solution.”

This is what that capital structure looks like:

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(PETITION Note: if you’re wondering what the eff is a 1.5 lien note, well, welcome to the party pal. These notes are a construct of a frothy high-yield market and constructive readings of credit docs. They were issued in 2017 to discharge maturing notes. The holders thereof enjoy higher priority on collateral than the second lien notes and other junior creditors below, but slot in beneath the first lien notes).

Anyway, to remedy this issue, the company has entered into a support agreement “that enjoys the support of creditors holding a majority of the debt to be restructured, including majorities within every tier of the capital structure.” The agreement would reduce total funded debt by $2b by: (a) giving the first lien noteholders $1.45b in cash (less adequate protection payments reflecting interest on their loans), and 72.5% of new common stock and rights to participate in the rights offering at a significant discount to a total enterprise value of $3.1b; and (b) the 1.5 lien noteholders, the second lien noteholders and the unsecured noteholders 27.5% of the new common stock and rights to participate in the rights offering. The case will be funded by a $700mm DIP credit facility.

*Interestingly, Hexion is a derivative victim of the oil and gas downturn. In 2014, the company was selling resin coated sand to oil and gas businesses to the tune of 8% of sales and 28% of segment EBITDA. By 2016, segment EBITDA dropped by approximately $150mm, a sizable loss that couldn’t be offset by other business units.

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: See above.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Andrew Parlan, Hugh Murtagh, Caroline Reckler, Jason Gott, Lisa Lansio, Blake Denton, Andrew Sorkin, Christopher Harris) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele, Brendan Schlauch)

    • Managers: Samuel Feinstein, William Joyce, Robert Kaslow-Ramos, George F. Knight III, Geoffrey Manna, Craig Rogerson, Marvin Schlanger, Lee Stewart

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Moelis & Company LLC

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

  • Other Parties in Interest:

    • Ad Hoc Group of First Lien Noteholders

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Daniel Fisher, Naomi Moss)

      • Financial Advisor: Evercore Group LLC

    • Ad Hoc Group of Crossover Noteholdres

      • Legal: Milbank LLP (Samuel Khalil, Matthew Brod)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Ad Hoc Group of 1.5 Lien Noteholders

      • Legal: Jones Day (Sidney Levinson, Jeremy Evans)

    • Pre-petition RCF Agent & Post-petition DIP Agent ($350mm): JPMorgan Chase Bank NA

      • Legal: Simpson Thacher & Bartlett LLP

    • Trustee under the First Lien Notes and the Second Lien Notes: Wilmington Trust NA

    • Trustee of 1.5 Lien Notes: Wilmington Savings Fund Society FSB

      • Legal: Arnold & Porter Kaye Scholer LLP

    • Trustee of Borden Indentures: The Bank of New York Mellon

    • Sponsor: Apollo

    • Official Committee of Unsecured Creditors

      • Legal: Kramer Levin Naftalis & Frankel LLP (Kenneth Eckstein, Douglas Mannal, Rachael Ringer) & (local) Bayard PA (Scott Cousins, Erin Fay, Gregory Flasser)

Updated:

New Chapter 11 Bankruptcy Filing - Imerys Talc America Inc.

Imerys Talc America Inc.

February 13, 2019

Merely a week ago we wrote:

PG&E Corporation's ($PCG) recent liability-based bankruptcy filing got us thinking: what other companies are poised for a litigation-based chapter 11 bankruptcy filing? We think we have a winner. 

Imerys S.A. is a French multinational company that specializes in the production and processing of industrial minerals. Its North American operations are headquartered in Roswell, Georgia and in San Jose, California. Included among Imerys' North American operations is Imerys Talc America. The key word in all of the foregoing is "Talc." 

If only we had purchased a lottery ticket.

Within days, Imerys Talc America Inc. and two affiliated debtors indeed filed for bankruptcy in the District of Delaware. The debtors mine, process and distribute talc for use in end products used in the manufacturing of products sold by third-parties —- primarily Johnson & Johnson Inc. ($JNJ). The debtors have historically been the sole supplier of cosmetic talk to JNJ. And, in part, because of that, they’re getting sued to Kingdom Come. Approximately 14,650 individual claimants are suing the debtors alleging personal injuries caused by exposure to talc mined, processed or distributed by the debtors. The debtors note:

Although personal care/cosmetic sales make up only approximately 5% of the Debtors’ revenue, approximately 98.6% of the pending Talc Claims allege injuries based on use of cosmetic products containing talc.

Whoa. What a number!! What a disparity! Low revenues and yet high claims! What a sham! That just goes to show how absurd these claims are!!

Just kidding. That sentence means absolutely nothing: it is clearly an attempt by lawyers to ignorantly wow people with percentages that have absolutely no significance whatsoever. Who gives a sh*t whether personal care/cosmetic sales are only a small fraction of revenues? If those sales are all laced with toxic crap that are possibly causing people cancer or mesothelioma, the rest is just pixie dust. In fact, it’s possible that 100% of 1% of sales are causing cancer, is it not?

Anyway, naturally, the debtors deny those claims but defending the claims, of course, comes at a huge cost. Per the Company:

…while the Debtors have access to valuable insurance assets that they have relied on to fund their defense and appropriate settlement costs to date, the Debtors have been forced to fund certain litigation costs and settlements out of their free cash flow due to a lack of currently available coverage for certain Talc Claims, or insurers asserting defenses to coverage. The Debtors lack the financial wherewithal to litigate against the mounting Talc Claims being asserted against them in the tort system.

Well that sucks. In addition to the debtors issues obtaining insurance coverage, they’re also apparently bombarded by claimants emboldened by the recent multi-billion dollar verdict rendered against JNJ.. We previously wrote:

While certain cases are running into roadblocks, the prior verdicts call into question whether Imerys has adequate insurance coverage to address the various judgments. If not, the company is likely headed into bankruptcy court — the latest in a series of cases that will attempt to deploy bankruptcy code section 524's channeling injunction and funnel claims against a trust. 

Indeed, given issues with insurance (and JNJ refusing to indemnify the debtors as expected in certain instances), the massive verdict, AND discussions with a proposed future claims representative, the debtors concluded that a chapter 11 filing would be the best way to handle the talc-related liabilities. And indeed a channeling injunction is a core goal. Per the debtors:

The Debtors’ primary goal in filing these Chapter 11 Cases is to confirm a consensual plan of reorganization pursuant to Sections 105(a), 524(g), and 1129 of the Bankruptcy Code that channels all of the present and future Talc Claims to a trust vested with substantial assets and provides for a channeling injunction prohibiting claimants from asserting against any Debtor or non-debtor affiliate any claims arising from talc mined, produced, sold, or distributed by any of the Debtors prior to their emergence from these Chapter 11 Cases. While the Debtors dispute all liability as to the Talc Claims, the Debtors believe this approach will provide fair and equitable treatment of all stakeholders.

The comparisons to PG&E were on point.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: $14.4mm inter-company payable.

  • Professionals:

    • Legal: Latham & Watkins LLP (George Davis, Keith Simon, Annemarie Reilly, Richard Levy, Jeffrey Bjork, Jeffrey Mispagel, Helena Tseregounis) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Amanda Steele)

    • Financial Advisor: Alvarez & Marsal North America LLC

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

  • Other Parties in Interst:

    • Imerys SA

      • Legal: Hughes Hubbard & Reed LLP (Christopher Kiplok, William Beausoleil, George Tsougarakis, Erin Diers) & (local) Bayard PA (Scott Cousins, Erin Fay)

    • Future Claims Representative: James L. Patton Jr.

      • Legal: Young Conaway Stargatt & Taylor LLP

      • Financial Advisor: Ankura Consulting Group LLC

New Chapter 11 Bankruptcy Filing - Things Remembered Inc.

Things Remembered Inc.

2/6/19

This has been a rough week for "out-of-court" restructurings in the retail space. On the heals of Charlotte Russe's collapse into bankruptcy after an attempted out-of-court solution, Things Remembered Inc. filed for bankruptcy in the District of Delaware on February 6, 2019. We recently wrote about Things Remembered here. Let's dig in a bit more. 

The 53-year old retailer filed with a stalking horse purchaser, Ensco Properties LLC, in line to purchase, subject to a tight 30-day timeframe, a subset of the company's store footprint and direct-sales business. The company writes in the most Trumpian-fashion imaginable:

"Although stores not acquired will need to close, the going-concern sale wills save hundreds of jobs and potentially many more and provide an improved, and significantly less risky, recovery to stakeholders." What does "potentially many more" mean? Don't they know how many people are employed at the locations being sold as well as corporate support? Seems like a Trumpian ad lib of corresponding inexactitude. But, whatever. 

What caused the need for bankruptcy?

"Like many other retailers, the Company has suffered from adverse macro-trends, as well as certain microeconomic operational challenges. Faced with these challenges, the Company initiated multiple go-forward operational initiatives to increase brick-and-mortar profitability, such as store modernization through elimination of paper forms and the addition of iPads to streamline the personalization and sale process, and by shuttering a number of underperforming locations. The Company also sought to bolster the Debtors’ online-direct sale business, including aggressive marketing to loyal customers to facilitate sales through online channels, attracting new customers via an expanded partnership with Amazon, and increasing service capabilities for the business-to-business customer segment."

Read that paragraph and then tell us that retail management teams (and their expensive advisors) have any real clue how to combat the ails confronting retail. Elimination of paper forms? Ipads? Seriously? Sure, the rest sounds sensible and comes right out of today's standard retail playbook, i.e., shutter stores, bolster online capabilities, leverage Amazon's distribution, tapping into "loyal customers," etc. We're surprised they didn't mention AR/VR, Blockchain, "experiential retail," pop-ups, advertising on scooters, loyalty programs, and all of the other trite retail-isms we've heard ad nauseum (despite no one actually proving whether any or all of those things actually drive revenue). 

The rest of the story is crazy familiar by this point. The "challenging operating environment" confronting brick-and-mortar and mall-based retail, specifically, led to missed sales targets and depressed profitability. Naturally there were operational issues that compounded matters and, attention Lenore Estrada (INSERT LINK), "…vendors have begun to place pressure on the supply chain cost structure by delaying or cancelling shipments until receiving payment." Insert cash on delivery terms here. Because that's what they should do when a customer is mid-flush. 

Anyway, shocker: negative cash flows persisted. Consequently, the company and its professionals commenced a marketing process that landed Enesco as stalking horse bidder. Enesco has committed to acquiring the direct-sales business (which constitutes 26% of all sales in 2018 and includes the e-commerce website, hq, fulfillment and distribution center in Ohio and related assets) and approximately 128 stores (subject to addition or subtraction, but a floor set at 50 store minimum). Store closings of approximately 220 stores and 30 kiosks commenced pre-petition. A joint venture between Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC is leading that effort (which again begs the question as to how Gymboree is the only recent retailer that required the services of four "liquidators"). The purchase price is $17.5mm (subject to post-closing adjustments). $17.5mm is hardly memorable. That said, the company did have negative $4mm EBITDA so, uh, yeeeeeaaaaah. 

$18.7mm '19 revolving credit facility (Cortland Capital Markets Services LLC); $124.9mm 12% '20 TL. 

The capital structure represents the result of an August 30, 2016 out-of-court exchange that, let's be honest here, didn't do much other than incrementally lessen the debt burden, kick the can down the road and get some professionals paid. If this sounds familiar, it's because it's not all that different than Charlotte Russe in those respects. 

  • Jurisdiction: D. of Delaware (Judge Gross)

  • Capital Structure: $mm debt     

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (Christopher Greco, Derek Hunger, Angela Snell, Spencer Winters, Catherine Jun, Scott Vail, Mark McKane) & (local) Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Kimberly Brown, Matthew Pierce)

    • Legal (Canada): Davies Ward Phillips & Vineberg LLP

    • Financial Advisor/CRO: Berkeley Research Group LLC (Robert Duffy, Brett Witherell)

    • Investment Bank: Stifel Nicolaus & Co. Inc. and Miller Buckfire & Co. LLC (James Doak)

    • Liquidators: Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC

      • Legal: Pepper Hamilton LLP (Douglas Herman, Marcy McLaughlin)

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

  • Other Parties in Interest:

    • Stalking Horse Purchaser: Enesco Properties LLC  (Balmoral Funds LLC)

      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Maxim Litvak, Joseph Mulvihill)

    • Lender: Cortland Capital Market Services LLC

      • Legal: Weil Gotshal & Manges LLP (David Griffiths, Lisa Lansio) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

    • Sponsor: KKR & Co.

    • Official Committee of Unsecured Creditors (Jewelry Concepts Inc., Gravotech Inc., Chu Kwun Kee Metal Manufactory, Brookfield Property REIT, Inc., Simon Property Group LP)

      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Kristin Elliott, Lauren Schlussel) & (local) Connolly Gallagher (N. Christopher Griffiths, Shaun Michael Kelly)

      • Financial Advisor: Province Inc. (Carol Cabello, Sanjuro Kietlinski, Jorge Gonzalez, Michael Martini)

New Chapter 11 Bankruptcy Filing - Consolidated Infrastructure Group Inc.

Consolidated Infrastructure Group Inc. 

January 30, 2019

Nebraska-based Consolidated Infrastructure Group Inc. filed for bankruptcy last week in the District of Delaware; it provides underground utility and damage prevention services to players in the underground construction, digging and maintenance space. It serves or served large telecom and utility companies, such as AT&T, Cox Communications, and Comcast. it also currently has contracts with the Northern Indiana Public Service Company, the City of Davenport in Iowa and with ONE Gas Inc

The company has little in the way of assets and liabilities. Relating to the former, the company has the above-noted contracts, a $3mm receivable from AT&T, some intellectual property and interests in insurance policies. Liabilities include two letters of credit, and a small unsecured advance by prepetition equityholder and now-postpetition DIP lender ($3mm), Parallel149, a private equity firm. 

The company has been embroiled in drama since its inception in 2016. It was formed by former employees of USIC LLC, a much-larger competitor, and the two have been locked up in litigation relating to, among other things, breach of contract (non-compete). 

The company filed for bankruptcy to pursue a going concern 363 sale and liquidating plan. It also hopes to recover the AT&T receivable. Finally, it also contends that a sale of the contracts would avoid a public safety crisis in the communities where the company's contracts are located. 

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $mm debt     

  • Company Professionals:

    • Legal: Richards Layton & Finger PA (Daniel DeFranceshi, Russell Silberglied, Paul Heath, Zachary Shapiro)

    • Financial Advisor: Gavin/Solmonese LLC

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

  • Other Parties in Interest:

    • Parallel149

      • Legal: DLA Piper LLP (Richard Chesley, Jade Williams, Jamila Justine Willis, R. Craig Martin, Maris Kandestin)

New Chapter 11 Bankruptcy Filing - LBI Media Inc.

LBI Media Inc.

November 21, 2018

Happy Thanksgiving y’all!! LBI Media Inc. and several affiliates FINALLY filed for bankruptcy today in the District of Delaware after years of questions about its financial health. The company is a privately held minority-owned Spanish-language broadcaster that owns or licenses 27 Spanish-language television and radio stations in the largest US markets; it services the largest media markets in the nation, including Los Angeles, New York City, Chicago, Miami, Houston and Dallas. It is also a victim of disruption.

The company notes that it has “faced the market pressures that have broadly affected U.S. television and radio broadcasters, including the 2008 recession and the diversion of advertising spend by companies to digital media.” Insert Facebook Inc. ($FB) here. That’s not all, though, of course: the company is also hampered by “a substantial debt load and corresponding interest expense obligations” which has stunted LBI’s financial performance, ability to invest and grow, and liquidity.

To address this situation, the company obtained an investment from its now-DIP lender, HPS Investment Partners, in April 2018 for a new first lien credit facility. This provided the company with much needed liquidity and, in turn, briefly extended the company’s runway out of bankruptcy court. The “make-whole” provision attached to the facility, however, became the subject of much controversy and an ad hoc group of second lien noteholders sued in New York state court for an injunction to hinder the transaction. Ultimately, the state court denied the noteholders.

But…but…the noteholders persisted. And this, apparently, left a bitter taste in the mouth’s of company management (and its counsel). Junior Noteholders, meet bus. 🚌🚌 The company notes:

Following the closing of the transaction, LBI sought to continue its growth efforts. However, such efforts were weakened by the Junior Noteholder Group, which continued to litigate against the Company, its founder and CEO, and HPS, the Company’s sole senior lender. The Junior Noteholder Group commenced multiple lawsuits, and threatened several more, distracting management from operations. These actions and threats not only hindered the Debtors’ efforts to improve their operations, but certain actions, including seeking to enjoin the first lien financing, risked pushing LBI into a precipitous freefall bankruptcy.

When coupled with the Debtors’ tightening liquidity (which was exacerbated by the expense of the Junior Noteholder Group litigation), the Junior Noteholder Group’s actions made it substantially more difficult for LBI to achieve the growth it had hoped for, and the Company determined that a comprehensive reorganization may be necessary.

Thereafter, settlement talks with the Junior Noteholders proved unsuccessful and, now, therefore, the company marches into bankruptcy court with a Restructuring Support Agreement (“RSA”) in hand with HPS whereby, subject to a “fiduciary out,” HPS will serve as (prearranged but hardly set in stone) Plan sponsor and swap its $233mm first lien senior secured notes for a majority equity interest in the company. The Plan — which at the time of this writing isn’t on the docket yet — reportedly provides for recoveries for other “supporting” constituencies. What’s that we hear? IT’S A (DEATH) TRAP!?!

(PETITION NOTE: for the uninitiated, a “death trap plan” is an inartful term for when the Debtor proposes and the senior lenders allows a recovery to trickle down the “priority waterfall” to junior lenders but only on account of said junior lenders’ support of, or vote for, the proposed Plan. In essence, its consideration for dispensing with “holdup value.” A “fiduciary out” gives the Debtor flexibility to, despite the RSA, agree to an alternative transaction that bests the HPS transaction without penalty or the need to pay a “break-up fee.”).

The plan provides the company with 75-day period to run a marketing process. While the company will market the company to potential strategic and financial investors, it is also making overtures to the Junior Noteholders to take out HPS’ claim(s) (without needing to satisfy the make-whole) and become the Plan sponsor such that it could walk away with 100% equity in the company.

All of which is to say: don’t let the terms “RSA” and “Plan” fool you. This is far from a consensual case being presented to the Bankruptcy Court Judge wrapped up in a shiny bow. The Junior Noteholders have been fighting the company and HPS for months: there is no reason to suspect that that will stop now merely because the company is a chapter 11 debtor.

  • Jurisdiction: D. of Delaware (Judge Lane)

  • Capital Structure: $233mm 10% ‘23 senior secured notes, $262mm 11.5/13.5 ‘20 PIK toggle second priority secured notes, $27.95mm 11% ‘22 PIK unsecured Intermediate senior Holdco notes (TMI Trust Company), $8.46mm 11% ‘17 unsecured Holdco notes (U.S. Bank NA)    

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Garrett Fail, David J. Cohen) & (local) Richards Layton & Finger PA (Daniel DeFranceschi)

    • Board of Directors: Jose Liberman, Lenard Liberman, Winter Horton, Rockard Delgadillo, Peter Connoy, Neal Goldman

    • Financial Advisor: Alvarez & Marsal North America LLC

    • Investment Banker: Guggenheim Securities LLC

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

  • Other Parties in Interest:

    • Prepetition First Lien & DIP Lender: HPS Investment Partners LLC ($38mm)

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Paul Basta, Jeffrey Safferstein, Sarah Harnett) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary)

    • First Lien Trustee: Wilmington Savings Fund Society FSB

      • Legal: Morrison & Foerster (Jonathan Levine) & (local) Ashby & Geddes PA (William Bowden)

    • Collateral Trustee for First Lien Notes: Credit Suisse AG

      • Legal: Locke Lorde LLP (Juliane Dziobak)

    • Ad Hoc Group of (Junior) Second Lien Noteholders

      • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland)

    • Ad Hoc Group of Holdco Noteholders

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

Updated 11/21/18 at 8:27 CT

😷New Chapter 11 Bankruptcy Filing - Promise Healthcare Group LLC😷

Promise Healthcare Group LLC

November 5, 2018

Most professionals predicted at the start of 2018 that healthcare would be an active industry for restructuring activity. Instead, there’s only been a few cases here and there — nothing to really stand out from the crowd in terms of volume. And, so just when we’re on the verge of declaring that prediction utterly and emphatically wrong, here is Promise Healthcare Group LLC and its affiliated debtors — another short-term and long-term acute care and nursing facility operator in bankruptcy court (with DLA Piper and FTI Consulting in tow, a seemingly regular occurrence these days in sizable healthcare matters).

Why is another large acute care operator in bankruptcy? The debtors blame the usual deplorables, i.e., reimbursement rate declines, capital-intensive and ultimately-abandoned new business projects, underperforming facilities, and an “unsustainable balance sheet.” Consequently, it undertook performance improvement measures, including the closure of two facilities and the sh*tcanning of 147 full-time equivalent employees. This, collectively, freed up a total of $13.5mm but vendors had begun squeezing the company in such a way that this amount, alone, wasn’t enough to cash flow to sustain the debtors.

The debtors intend to (i) sell non-core assets and real estate to payoff certain secured creditors (including one in Silver Lake, Los Angeles, to the L.A. Downtown Medical Center for $84.15mm) and (ii) otherwise market and sell substantially all of the rest of their assets or, if an equity sponsor emerges, restructure. They intend to do this within six months (anyone want to take the under?). The company has a $85mm DIP commitment ($20mm new money) to fund the process.

  • Jurisdiction: D. of Delaware

  • Capital Structure: $61.6mm Revolver, $15mm TL debt, $200mm intercompany debt (two loans)

  • Company Professionals:

    • Legal: Waller Lansden Dortch & Davis LLP (John Tishler, Katie Stenberg, Blake Roth, Tyler Layne) & (local) DLA Piper LLP (Stuart Brown, Kaitlin MacKenzie Edelman, Erik Stier, Matthew Sarna)

    • CRO/Financial Advisor: FTI Consulting Inc. (Andrew Hinkelman, Jennifer Byrne, Chris Goff)

    • Investment Banker: Houlihan Lokey Capital Inc. (Andrew Turnbull, Matthew Ryan, Scott Kremeier, Moyo Mamora, Brian Marks, Marc Epstein, Conor Dorgan) and MTS Health Partners LP (Jay Shiland)

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

  • Other Parties in Interest:

    • Prepetition Administrative Agent: Wells Fargo Bank NA

      • Legal: McGuireWoods LLP (Brian Swett, Alexandra Shipley) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, David Queroli)

    • Healthcare Services Group Inc.

      • Legal: Stevens & Lee P.C. (Joseph Huston Jr., Evan Coren, Robert Lapowsky)

    • Stalking Horse Purchaser: Select Medical Corporation

      • Legal: Dechert LLP (Brian Greer, Stephen Leitzell, Jonathan Stott) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Sean Greecher)

    • Official Committee of Unsecured Creditors (HEB Ababa, Ronaldoe Guiterrez and Yolanda Penney, Cardinal Health, Wound Care Management LLC d/b/a MEDCENTRIS, Freedom Medical Inc., Morrison Management Specialists Inc., Efficient Management Resources Systems Inc., Surgical Program Development)

      • Legal: Sills Cummis & Gross P.C. (Andrew Sherman, Boris Mankovetskiy, Rachel Brennan) & (local) Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Alan Kornfeld, Bradford Sandler, Maxim Litvak, Colin Robinson)

      • Financial Advisor: Province Inc. (Edward Kim, Paul Huygens, Carol Cabello, Jorge Gonzalez, Carlos Lovera, Paul Navid)

Updated 3/9/18

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: See below.

  • Company Professionals:

    • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Guggenheim Securities LLC (Durc Savini)

    • Liquidator: Gordon Brothers Group LLC

      • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

    • Real Estate Advisors: A&G Realty Partners

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

  • Other Parties in Interest:

    • Barclays Bank PLC

      • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Citizens Bank NA

      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Steinhoff International Holdings N.V

      • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

    • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

      • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

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🚗New Chapter 11 Bankruptcy Filing - ATD Corporation🚗

ATD Corporation

10/4/18

Recap: Please see here.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: See below.

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Chad Husnick, Spencer Winters, Joshua Greenblatt, Jacob Johnston, Mark McKane, Jaimie Fedell, Andre Guiulfo) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Jones, Timothy Cairns, Joseph Mulvihill)

    • Financial Advisor: AlixPartners LLP (James Mesterharm)

    • Investment Banker: Moelis & Co. (Adam Keil)

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

  • Other Parties in Interest:

    • Term Lender Committee

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Aidan Synnott, Jacob Adlerstein, Michael Turkel, David Giller, Oksana Lashko, Eugene Park, Jacqueline Rubin) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Andrew Magaziner)

      • Financial Advisor: Houlihan Lokey

    • DIP Agent and Pre-Petition ABL Agent (Bank of America)

      • Legal: Parker Hudson Rainer & Dobbs LLP (C. Edward Dobbs, Eric W. Anderson, James S. Rankin Jr., Jack C. Basham) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele, Brendan Schlauch)

    • DIP FILO Lenders & Consenting Noteholders

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss) & (local) Pepper Hamilton LLP (Evelyn Meltzer, Kenneth Listwak)

      • Financial Advisor: PJT Partners

    • Indenture Trustee: Ankura Trust Company LLC

      • Legal: King & Spalding LLP (Jeffrey Pawlitz, David Zubricki, Jared Zajec) & (local) Chipman Brown Cicero & Cole, LLP (William E. Chipman, Jr., Mark D. Olivere)

    • Michelin North America Inc.

      • Legal: Nelson Mullins Riley & Scarborough LLP (George B. Cauthen, Jody A. Bedenbaugh, Shane Ramsey) & (local) Bayard PA (Justin Alberto, Evan Miller)

    • Cooper Tire & Rubber Company

      • Legal: Jones Day (Timothy Hoffmann) & (local) Potter Anderson & Corroon LLP (Jeremy Ryan, D. Ryan Slaugh)

    • Sponsor: Ares Management

      • Legal: Milbank Tweed Hadley & McCloy LLP (Paul Aronzon, Thomas Kreller, Adam Moses)

    • Sponsor: TPG Capital

      • Legal: Weil Gotshal & Manges LLP (Ryan Dahl, Natasha Hwangpo)

Screen Shot 2018-10-05 at 5.21.43 PM.png

New Chapter 11 Filing - Brookstone Holdings Corp.

Wellness, Entertainment & Travel Retailer Now Bankrupt

Brookstone Holdings Corp.

8/2/16

Source: Brookstone.com

Source: Brookstone.com

Almost exactly a month ago we asked “Is Brookstone Headed for Chapter 22? and wrote the following:

Go to Brookstone’s website for “Gift Ideas” and “Cool Gadgets” and then tell us you have any doubt. We especially liked the pop-up asking us to sign up for promotional materials one second after landing; we didn’t even get a chance to see what the company sells before it was selling us on a flooded email inbox. Someone please hire them a designer.

On Friday, Reuters reported that the company has hired Gibson Dunn & Crutcher LLP(remember them?) to explore its restructuring options. What’s the issue? Well, retail. Need there be any further explanation?

The company has roughly 120 stores (20 are in airports), approximately $45mm of debt and a Chinese sponsor in Sanpower Group Co Ltd.

This is a big change from when it first filed for bankruptcy in April 2014. At the time of that filing, the company had 242 stores and approximately $240mm in debt. The company blamed its over-levered capital structure for its inability to address its post-recession challenges. It doesn’t appear to have the same excuse now.

Upon emergence, it reportedly still had 240 stores. Clearly the company ought to have used the initial bankruptcy for more of an operational fix in addition to its balance sheet restructuring. While this could be a costly mistake, the company’s sponsor is a bit of a wild card here: Chinese sponsors tend to be more disinclined to chapter 11 proceedings than American counterparts. Will they write an equity check then?

Well, we now have our definitive answers. Yes. The company filed for bankruptcy earlier today. And whether Sanpower was disinclined to file or not, well…it’s in bankruptcy. And, it will not, at least not as of now, be writing an equity check.

The New Hampshire-based company describes itself as “a product development company and multichannel retailer that offer a number of highly distinctive and uniquely designed products. The Brookstone brand is strongly associated with cutting-edge innovation, superior quality, and sleek and elegant design.” Which is precisely why we plastered a “videocassette” emoji in our title. Because that description comports 100% with the way we view the brand. But we digress.

The company has clearly engaged in some downsizing since emerging from bankruptcy a few years ago; it notes that it currently operates 137 retail stores across 40 states with 102 of those stores located in malls and 35 in airports; it also carries 700 SKUs, the majority of which fall in one of three product categories (wellness, entertainment and travel). It sells across four product channels: mall retail, airport retail, e-commerce (brookstone.com and Amazon.com), and wholesale (including TV shopping which, we believe, means home shopping network sort of stuff). For fiscal year 2017, the company had net sales of $264mm and negative EBITDA was $60mm. For the first half of 2018, net sales were $74mm and negative EBITDA was $29mm. Annualize that first number and you’re looking at a pretty precipitous drop in revenue!

The company highlights the juxtaposition between its mall and retail sales channels. Whereas the former generated ‘17 net sales of $137.9mm and negative EBITDA of $30mm, the latter generated net sales of $37.7mm and “adjusted” EBITDA of $1.4mm. We haven’t seen the numbers but we’re guessing the adjustment takes this statement into account:

Moreover, the net sales and adjusted EBITDA figures do not tell the whole story with respect to the productivity of the Airport retail outlets. As described further below, supply chain issues have limited the sales potential that would otherwise be captured with a healthy network of suppliers. The Debtors believe that through the bankruptcy they can correct the supply chain issues and allow the airport stores to greatly increase their profitability.

🤔🤔 Seeing a lot of adjustments on the basis of “belief” these days.

Likewise, the company claims that aberrational externalities affected its e-commerce operations as well. There, the company claims $55.2mm in net sales and negative adjusted EBITDA of $1mm. The company believes that the discontinuation of its catalog mailings had a detrimental impact on its e-commerce (and store retail) numbers. It notes:

As with the airport retail segment, the net sales and adjusted EBITDA associated with the Debtors’ ecommerce segment is not reflective of its true potential due to supply chain difficulties. In addition, and as described further below, technology issues and a turnover of senior level management at the e-commerce segment led to underperformance at a segment that should be performing at a significantly higher level. The Debtors believe that the bankruptcy filing will afford the Debtors the opportunity to right the operational defects that have artificially stymied the overall profitability that should be incumbent to the Debtors’ online presence.

Finally, the company claims its wholesale business has a lot of demand and has been under-utilized due to the same supply chain issues affecting its other channels.

In other words, when we said earlier that “[c]learly the company ought to have used the initial bankruptcy for more of an operational fix,” we hit the nail on the head. The company notes:

Following the 2014 Bankruptcy, sales continued to lag almost immediately. For the years ended 2014 and 2015, net sales were pegged at approximately $420 million and $389 million respectively, while adjusted EBITDA was booked at negative $38 million and negative $24 million respectively. While a number of factors contributed to the underperformance, sourcing of products and supply chain difficulties were the major drivers.

But of course there’s an overall macro overlay here too:

The drop in net sales in 2016 and 2017 was further exacerbated by the decline in the mall model as a means for consumers to buy products of the type sold by Brookstone. During this time, foot traffic at mall locations decreased drastically, as consumers continued to seek out products online as a replacement for traditional brick and mortar shopping.

The company’s e-commerce efforts could not pick up the slack. It blames leadership changes, a new platform (and a loss of data and indexing that resulted), and the discontinuation of the hard copy catalog for this. The company notes:

Because the catalogs were directly responsible for a significant portion of the web traffic on the Debtors’ e-commerce site, the negative impact on the Debtors’ online sales was dramatic.

Anyone who thinks that e-commerce can survive independent of paper mailings ought to re-read that sentence. It also explains the fifteen Bonobos catalogs we get every week and the 829-pound Restoration Hardware calalog we receive every quarter. Remember the buzzword of the year: “multi-channel.” Case and point.

To make this already (too) long story short, Sanpower kept sinking money into this sinking ship until it finally decided that it was just throwing good money after bad. Callback to July when we said they’re disinclined to chapter 11…well, lighting millions of dollars on fire will make you a little more inclined. 💥💥

Powered by a $30mm DIP credit facility (not all new money: some will be used to refi out the ABL) from its prepetition (read: pre-bankruptcy) lenders, the company intends to use the bankruptcy filing to execute an orderly store closing process and market and sell the business. This is clearly why it went to great lengths to pretty up its e-commerce, mall and wholesale businesses in its narrative. Still, the company has been marketing the business for a month and, thus far, there are no biters. Per the agreement with its DIP lenders, the company has until September 2018 to effectuate its sale process. You read that right: a company that bled out over a period of years has two months on life support.

Major creditors include Chinese manufacturers and, as you might expect, the usual array of landlords, General Growth Properties ($GGP)Simon Property Group Inc. ($SPG), and Macerich Co. ($MAC). Given the positioning of the respective businesses, we wouldn’t expect much of a mall business to survive here regardless of whether a buyer emerges.

  • Jurisdiction: D. of Delaware (Judge Shannon)

  • Capital Structure: $70mm ABL Revolver (Wells Fargo NA) & $15mm Term Loan (Gordon Brothers Finance Company), $10mm second lien notes (Wilmington Trust), $39.4mm Sanpower Secured Notes, $46.6mm Sanpower Unsecured Notes

  • Company Professionals:

    • Legal: Gibson Dunn & Crutcher LLP (David Feldman, Matthew Kelsey, Matthew Williams, Keith Martorana, Jason Zachary Goldstein) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Andrew Magaziner)

    • Financial Advisor: Berkeley Research Group LLC

    • Investment Banker: GLC Advisors & Co. (Soren Reynertson)

    • Liquidator Consultants: Gordon Brothers Retail Partners LLC & Hilco Merchant Resources LLC

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

  • Other Parties in Interest:

    • DIP Agent: Wells Fargo NA (Morgan Lewis & Bockius LLP, Glenn Siegel, Christopher Carter & Burr & Forman LLP, J. Cory Falgowski)

    • DIP Term Agent: Gordon Brothers Finance Company (Choate Hall & Stewart, Kevin Simard, Jonathan Marshall & Richards Layton & Finger PA, John Knight)

    • Indenture Trustee: Wilmington Trust NA

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 - Color Spot Holdings Inc.

Color Spot Holdings Inc.

5/29/18

Sometimes distress comes from unexpected places. On Tuesday, Color Spot Holdings Inc., a "leading" grower and distributor of quality live plants in the western and southwestern United States filed for bankruptcy. The company's products include bedding plants, e.g., (i) annuals, perennials and poinsettas and other holiday plants (70% of revenue) and (ii) flowering and ornamental shrubs (30% of revenue).

In its First Day Declaration, the company noted:

"In 2016 and 2017, the Debtors had sales of about $268 million and $248 million, respectively. The Debtors’ industry is expanding due to, among other things, an ongoing focus by consumers on caring for their yards and outdoor spaces, favorable demographic shifts, and increasing housing stock. The Debtors are poised to capture upside from this industry growth." 

Curiously that expansion and growth didn't point to expanded and grown sales. And that is despite having a heavyhitter client list, including The Home Depot ($HD), Lowe's Companies, Inc. ($LOW), Costco ($COST), Target ($T), and Walmart ($WMT). And this is despite the company's internal logistics infrastructure which includes 75% of product distribution handled by its internal fleet. This shields the company from rising trucking costs which, as PETITION has noted elsewhere, is more and more of an issue for a variety of businesses. 

To fund its highly seasonal business, the company is a party to three different credit facilities, some components of which applied (cough, usurious) interest rates at 12+%. This is a big part of the problem. In addition, we like to joke a lot about how every business under the sun blames weather for its poor earnings reports. Here, though, it truly makes sense. Indeed, the company blames the long California draught and Texan storms in 2015 and 2017 for significant operational issues. Apparently, the company also experienced declining customer service as it grew. It's hard to get good help these days, it seems. 

Consequently, the company has been in the midst of an operational restructuring; it has closed 33% of its nurseries and fixed its product mix. It has also been seeking a buyer. No stalking horse buyer is lined up, however, and the expressions of interest that the company has obtained don't appear likely to cover the Wells Fargo-funded debt. Consequently, the company intends to use bankruptcy to pursue an expedited sale process supported by the use of cash collateral with the hope of improving upon the prepetition interest and setting the business and its new owners up for success in the upcoming season. By late July, we'll know whether they were successful. 

  • Jurisdiction: D. of Delaware (Judge Silverstein)
  • Capital Structure: $117.5mm debt     
  • Company Professionals:
    • Legal: Young Conaway Stargatt & Taylor LLP (M. Blake Cleary, Ryan Bartley, Sean Greecher, Jaime Luton Chapman, Betsy Feldman)
    • Investment Banker: Raymond James & Associates Inc.
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Lender: Wells Fargo Bank NA
      • Legal: Pillsbury Winthrop Shaw & Pittman LLP (Matthew Walker, M. David Minnick) & (local) Richards Layton & Finger PA (John Knight, Brendan Schaluch)
    • Capital Farm Credit, FLCA
    • Black Diamond Commercial Finance, L.L.C.

New Chapter 11 Filing - The Rockport Company LLC

The Rockport Company LLC

5/14/18

The Rockport Company LLC, a Massachusetts-based designer, distributor and retailer of comfort footwear has filed for bankruptcy — the latest in a string of footwear retailers that has found its way into chapter 11. Payless Shoesource, Sheikh Shoes, and Nine West Holdings are other recent filings. The current owners of the business — its prepetition lenders — purchased the business from Berkshire Partners LLC and New Balance Holding Inc. in 2017. 

The company operates in what it dubs a “highly competitive” business where “[a]t various times of the year, department store chains, specialty shops, and online retailers offer brand-name merchandise at substantial markdowns which further intensifies the competitive nature of the industry.” The company has (i) a robust wholesale business (57% of all its global sales), (ii) a direct retail business (eight (8) full-price and nineteen (19) outlet stores in the United States and fourteen (14) full-price and nineteen (19) outlet stores in Canada), (iii) e-commerce, and (iv) an international distribution segment. 

This business has suffered from (a) operational challenges (a costly and time consuming separation from the Adidas Networks, with which the company's operations were deeply integrated until late 2017), (b) other negative externalities (i.e., the closure of three supply factories, contract disputes with warehousemen, and (c) the burdens of its brick-and-mortar footprint. The company notes, "[o]ver the last several years the Debtors have faced a highly promotional and competitive retail environment, underscored by a shift in customer preference for online shopping." And it notes further, "[t]he unfavorable performance of the Acquired Stores in the current retail environment has made it difficult for the Debtors to maintain sufficient liquidity and to operate their business outside of Chapter 11."

In light of this, armed with a $20 million new-money DIP credit facility (exclusive of rollup amounts) extended by its prepetition ABL lenders, the company has filed for bankruptcy to consummate a stalking horse-backed asset purchase agreement with CB Marathon Opco, LLC an affiliate of Charlesbank Equity Fund IX, Limited Partnership for the sale of the company's assets - OTHER THAN its North American assets — for, among other things, $150 million in cash. The buyer has a 25-day option to continue considering whether to purchase the North American assets but the company does "not expect there to be any significant interest in the North American Retail Assets." Read: the stores. The company, therefore, also filed a "store closing motion" so that it can expeditiously move to shutter its brick-and-mortar footprint at the expiration of the option. Ah, retail. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $57mm prepetition ABL Facility (Citizens Business Capital), $188.3 million '22 prepetition senior secured notes, $11mm prepetition subordinated notes.  
  • Company Professionals:
    • Legal: Richards Layton & Finger PA (Mark Collins, Michael J. Merchant, Amanda R. Steele, Brendan J. Schlauch, Megan E. Kenney)
    • Financial Advisor: Alvarez & Marsal Private Equity Services Operations Group, LLC (Paul Kosturos)
    • Investment Banker: Houlihan Lokey Inc.
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Noteholders and DIP Note Purchasers
      • Legal: Debevoise & Plimpton LLP (My Chi To, Daniel Stroik) & (local) Pachulski Stang Ziehl & Jones LLP (Bradford Sandler, James O'Neill)
    • Collateral Agent and DIP Note Agent
      • Legal: Holland & Knight LLP (Joshua Spencer) & (local) Pachulski Stang Ziehl & Jones LLP (Bradford Sandler, James O'Neill)
    • ABL Administrative Agent and ABL DIP Agent: Citizens Business Capital
      • Legal: Riemer Braunstein LLP (Donald Rothman, Lon Singer, Jaime Rachel Koff, Jeremy Levesque) & (local) Ashby & Geddes PA (Gregory Taylor)
    • Stalking Horse Bidder: CB Marathon Opco, LLC an affiliate of Charlesbank Equity Fund IX, Limited Partnership
      • Legal: Goodwin Proctor LLP (Jon Herzog, Joseph Bernardi Jr.) & (local) Pepper Hamilton LLP (David Fournier, Evelyn Meltzer)

Updated 5/14/18 at 10:14 am

New Chapter 11 Filing - Videology Inc.

Videology Inc. 

5/10/18

In what could amount to a solid case study in #BustedTech and the up/down nature of entrepreneurship, Videology Inc., a Baltimore based software ad-tech company that generated $143.2 million in revenue in fiscal 2017 has filed for bankruptcy.

The company has two principal business lines: (i) legacy media sales, a demand side (advertisers) platform that Videology would leverage to procure ad inventory to sell to advertising agencies (the supply side); and (ii) its long-tail "core use case," which included "long term planning, management, and execution of a company's entire portfolio of advertising campaigns or advertising inventory with complex, overlapping targets, objections...across multiple delivery channels." We're going to pretend we understand what that means; we think it has something to do with assisting ad agencies target ads effectively. What we do understand is that revenue generation for the more lucrative "core use case" segment involved a long sales pipeline that didn't support timely enough revenues to offset the liquidity draining legacy segment. Ruh roh.

But let's take a step back. This company was founded in February 2007. It raised its $15.1 million Series A round of funding in July 2008, securing Valhalla Partners II as a lead investor. It then secured its $16.4 million Series B round in Q4 2009. Comcast Ventures LP was the lead investor. Thereafter it nailed down its $30.4 million Series C round in May 2011 with New Enterprise Associates 12. Finally, in June of 2013, the company closed its $68.2 million Series D round with Catalyst Investors QP III as lead. Lots of funding. No down rounds. Everything seems to be on the right track.

Except it wasn't. The legacy segment was bleeding cash as early as 2012. The company had to tap the venture debt market in July 2017 to refi-out its bank line of credit. It obtained a $40-45 million 8.5% asset-backed credit facility (secured against virtually everything, including IP) with Fast Pay Partners LLC as agent and Tennenbaum Capital Partners LLC ("TCP"), as documentation agent and investment manager. It also obtained a second $20 million 10% asset-backed "UK" credit facility with FPP Sandbox LLC and TCP, which was secured by the same collateral. Both loans came with exit fees, charge 3% default interest and the larger facility has a 3% end-of-term premium attached to it.

At the same time the company took out the venture debt, it issued $17.1 million of convertible notes from board members and existing major investors (elevating them in the cap table) AND raised an additional $4.7 million in a subsequent rights offering to smaller legacy investors. What do you think will happen to that money? We'll come back to that.

In Q3 2017, the company also sought to find a strategic buyer. It didn't. It then started doing what every distressed company does: it stretched payables while it tried to formulate an out-of-court solution -- in the form of a restructuring or a refinancing. Certain vendors became skittish and withheld payments to the company. The resultant cash squeeze precipitated the prepetition lenders issuance of a notice of default. Thanks to a cash control agreement, they then seized control of the main operating accounts and paid down amounts owing with the company's cash and accounts receivable. And, yes, they applied the default interest rate. This is why they say what they say about possession. Savage. Consequently nothing is due under the larger facility; over $11.2 million remains due on the UK facility. 

The company now has a potential buyer, Amobee Inc., and has filed for bankruptcy to effectuate a sale. The company hasn't yet filed papers indicating the sale price but The Wall Street Journal reports that the purchase price may be $45 million -- or 1/3 of '17 revenues. The WSJ also reports that the company has nailed down a $25 million DIP credit facility which will be used to pay down the UK facility and fund the cases. Presumably the sale price will pay off the DIP and the $20 million that remains will be left for unsecured creditor recoveries. Back of the envelope, that will be about a 25% recovery. 

As for the equity holders? In the absence of bumping up by way of the convertible note, they'll be wiped out. That's venture capital for you. The venture debt providers, however, did well. 

  • Jurisdiction: D. of Delaware (Judge Shannon)
  • Capital Structure: $11.2mm UK Loan Facility (FPP Sandbox LLC and Tennenbaum Capital Partners LLC), $17.1 million convertible promissory note.

  • Company Professionals:
    • Legal: Cole Schotz PC (Irving Walker, Patrick Reilley)
    • Financial Advisor: Berkeley Research Group LLC
    • Claims Agent: Omni Management Group (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prospective Buyer: Amobee Inc.
      • Legal: Goodwin Proctor LLP (Gregory Fox, Alessandra Simons) & (local) Womble Bond Dickinson (US) LLP (Matthew Ward, Morgan Patterson)
    • Secured Lenders: FastPay Partners LLC & FPP Sandbox LLC
      • Legal: Buchalter (William Brody, Ariel Berrios) & (local) Richards Layton & Finger PA (John Knight, Christopher De Lillo)
    • DIP Lender: Draper Lending LLC
      • Legal: Arent Fox LLP (Robert Hirsh, Jordana Renert) & (local) Bayard PA (Justin Alberto, Daniel Brogan)

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 Filing - Southeastern Grocers LLC

Southeastern Grocers LLC

3/27/18

Southeastern Grocers LLC, the Jacksonville Florida-based parent company of grocery chains Bi-Lo, Winn-Dixie and others, has filed a prepackaged bankruptcy in the District of Delaware - mere weeks after Tops Holding II Corporation, another grocer, filed for bankruptcy in the Southern District of New York. The company notes that, as part of the chapter 11 filing, it intends to "close 94 underperforming stores," "emerge from this process likely within the next 90 days," and "continue to thrive with 582 successful stores in operation." Unlike Tops, it helps when you don't have any collective bargaining agreements.

More to come...

  • Jurisdiction: D. of Delaware
  • Capital Structure: $385mm ABL (Deutsche Bank AG New York Branch), $425mm 9.25% '19 secured notes (Wilmington Savings Fund Society, FSB), $522mm 8.625%/9.375% '18 Senior PIK Toggle Notes unsecured notes (Wells Fargo Bank, NA)     
  • Company Professionals:
    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Matthew Barr, Sunny Singh) & (local) Richards Layton & Finger PA (Daniel J. DeFranceschi, Paul N. Heath, Amanda R. Steele) 
    • Financial Advisor: FTI Consulting Inc.
    • Investment Banker: Evercore Group LLC (Stephen Goldstein)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Independent Director: Neal Goldman
  • Other Parties in Interest:
    • Ad Hoc Group of Unsecured Noteholders & 9.25% '19 Senior Secured Noteholders
      • Legal: Morrison & Foerster LLP (Dennis Jenkins, Brett Miller) & (local) Drinker Biddle & Reath LLP (Steven Kortanek)
      • Financial Advisor: Moelis & Company LLC
    • Private Equity Sponsor: Lone Star Funds
      • Legal: King & Spalding LLP (W. Austin Jowers, Paul Ferdinands)
Source: First Day Declaration

Source: First Day Declaration

New Chapter 11 - Remington Outdoor Company

Remington Outdoor Company

3/25/18

Remington Outdoor Company, a gun manufacturer, has finally filed for bankruptcy - a day after Americans took to the streets to #MarchforourLives. Ah, bankruptcy irony. The company's operations are truly national in scope; it has manufacturing facilities in New York and Alabama and a primary ammunition plant in Arkansas. Its "principal customers are various mass market retail chains (e.g., Wal-Mart and Dick's Sporting Goods) and specialty retail stores (e.g., Bass Pro Shops and Cabela's) and wholesale distributors (e.g., Sports South)." Guns! #MAGA!!

Why did the company have to file for bankruptcy? We refer you to our mock "First Day Declaration" from February here. Much of it continues to apply. Indeed, our mockery of the change in tone from President Obama to President Trump was spot on: post Trump's election, the company's inventory supply far exceeded demand. The (fictional) threat of the government going house-to-house to collect guns is a major stimulant to demand, apparently. Here is the change in financial performance,

"At the conclusion of 2017, the Debtors had realized approximately $603.4 million in sales and an adjusted EBITDA of $33.6 million. In comparison, in 2015 and 2016, the Debtors had achieved approximately $808.9 million and $865.1 million in sales and $64 million and $119.8 million in adjusted EBITDA, respectively."

Thanks Trump. 

We'd be remiss, however, if we didn't also note that NOWHERE in the company's bankruptcy filings does it mention the backlash against guns or the company's involvement in shootings...namely, the one that occurred in Las Vegas. 

The company, therefore, negotiated with its various lenders and arrived at a restructuring support agreement. The agreement provides for debtor-in-possession credit ($193mm asset-backed DIP + $100mm term loan DIP + $45mm DIP, the latter of which is a roll-up of a bridge loan provided by lenders prior to the filing). Upon the effective date of a plan of reorganization, the third lien lenders and term lenders will own the reorganized company. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $225mm ABL (Bank of America, $114.5mm funded), $550.5mm term loan (Ankura Trust Company LLC), $226mm 7.875% Senior Secured Notes due 2020 (Wilmington Trust NA), $12.5mm secured Huntsville Note     
  • Company Professionals:
    • Legal: Milbank Tweed Hadley & McCloy LLP (Gregory Bray, Tyson Lomazow, Thomas Kreller, Haig Maghakian) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)
    • Financial Advisor: Alvarez & Marsal LLC (Joseph Sciametta)
    • Investment Banker: Lazard (Ari Lefkovits)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP ABL Agent ($193mm): Bank of America NA (DIP ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank, Branch Banking and Trust Company, Synovus Bank, Fifth Third Bank, Deutsche Bank AG New York Branch)
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, Jason Liberi, Cameron Fee)
    • Admin Agent to the DIP TL: Ankura Trust Company LLC
      • Legal: Davis Polk & Wardwell LLP (Damian Schaible, Darren Klein, Michele McGreal, Dylan Consla) & (local) Richards Layton & Finger LLP (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Ad Hoc Group of TL Lenders 
      • Legal: O'Melveny & Myers LLP (John Rapisardi, Andrew Parlen, Joseph Zujkowski, Amalia Sax-Bolder) & (local) Richards Layton & Finger LLP (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Third Lien Noteholders
      • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland, Joseph Minias, Debra McElligott) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Allison Mielke)
    • Wells Fargo Bank NA
      • Legal: Otterbourg PC (Andrew Kramer)
    • Cerberus Operations and Advisory Company, LLC
      • Legal: Schulte Roth & Zabel LLP (David Hillman)
    • Reorganized Board of Directors (Anthony Acitelli, Chris Brady, George W. Wurtz III, G.M. McCarroll, Gene Davis, Ron Coburn, Ken D'Arcy)
  • Official Committee of Unsecured Creditors
    • Legal: Fox Rothschild LLP (Michael Menkowitz, Paul Labov, Jason Manfrey, Jesse Harris, Seth Niederman)

Updated: 4/27/18

New Chapter 11 Filing - The Weinstein Company Holdings LLC

The Weinstein Company Holdings LLC

3/19/18

The good news is that the company believes that its total exposure to victims (and creditors) is limited to 999 people/entities and its liability exposure is capped at $1 billion - or at least that's what one could glean from the boxes that the company checked on its chapter 11 petition. 

TWC Chapter 11 Petition
TWC Chapter 11 Petition

TWC Chapter 11 Petition

Let's review what's "new" here without regurgitating everything the mainstream media has covered the last several months... 

The Weinstein Company's primary assets fall into three categories: (i) the film library, (ii) the television business, and (iii) the unreleased films portfolio. The library consists of 277 films and thanks to distribution rights sales internationally and to the likes of Netflix and broadcast/cable networks, generates ongoing cash flow. The television business includes the Project Runway franchise and other content like Peaky Blinders, Scream and Six. The latter unreleased portfolio includes five completed films (including Benedict Cumberbatch's "Current War") and other projects in various stages of development. 

The sale effort to a consortium of investors including Yucaipa, Lantern Asset Management and Maria Contreras-Sweet is well documented. As is the Attorney General of New York's complaint against the company. Neither are worth noting in detail here after months of incessant press coverage. Notably, however, Lantern Asset Management stuck with the process after its consortium partners dropped out, agreeing to become the stalking horse bidder for the assets pursuant to a proposed expedited sale process. Why expedited? In the company's words,

"It is an understatement to say that the last six months have been trying for the Company. Intense media scrutiny and various other factors have resulted in, among other things, the Company’s loss of goodwill with employees, contract counterparties, key talent and the entertainment industry at large. In order to preserve the going concern value of the Company’s Assets for the benefit of its stakeholders, the Debtors have determined that a sale of substantially all of their Assets is necessary. Further, the Debtors believe that time is of the essence and that effectuating any such sale as quickly as possible is necessary to maintain operations and preserve value for the benefit of the Debtors’ stakeholders."

Well, also, the company has no cash and the buyer is pushing for speed as a condition to its bid. Lantern has that luxury as the remaining bidder; it is offering $310 million and the assumption of certain project-level non-recourse indebtedness (read: the debt associated with individual projects). Moreover, the company has indicated that Lantern anticipates retaining "most of the Company's employees." That's good: something positive must come out of this for those who had nothing to do with Mr. Weinstein's behavior. Speed is needed, the company argues, to prevent more employees from leaving (25% have already left). 

Some other miscellaneous facts of note:

  1. Top Creditor. The number one creditor is a judgment creditor to the tune of $17.36 million.
  2. It's Hard Out There for a Pimp. Boies Schiller & Flexner LLC is listed twice in the top 25 creditors. Fresh on the heels of the Theranos fraud suit, this has not been a good week for David Boies and company. 
  3. Other Creditors. Other major creditors include Viacom International ($5.6 million), Sony Pictures Entertainment ($3.7 million), Creative Artist Agency ($1.49 million), and Disney ($1.13 million).
  4. It's Hard Out There for a Pimp Part II. Several law firms are listed in the top 25 creditors for accounts payable due and owing for professional services. Notably, O'Melveny & Myers LLP is listed at #10 and $3.1 million; it had long been rumored to be representing the company leading into the bankruptcy filing. This means, more likely than not, that Cravath was hired as an 11th hour replacement, leaving O'Melveny as a creditor. Also, Debevoise & Plimpton LLP has been left hanging after conducting the internal investigation of the charges against Mr. Weinstein. 
  5. The Cumberbatch. "Current War," the feature starring Benedict Cumberbatch is levered up by $7mm under a production-level loan agreement with East West Bank. Nothing unusual here: just a fun fact. We'll see if Cumberbatch's star power can raise this movie above the debt and the Weinstein taint. 
  6. Timing. To the extent any bidder wants to trump Lantern Asset Management, the deadline for bids is April 30 and an auction will occur on May 2 for court approval on May 4. 
  7. #FakeNews. The New York Times and the New Yorker both get credit for taking down Mr. Weinstein and for starting the #metoo movement and Time's Up campaign. 
  8. Ramifications. The company notes that the response to Mr. Weinstein's misconduct was fast and furious including (i) Apple ceasing plans for a 10-part Elvis biopic to be produced by TWC; (ii) Lin Manuel Miranda demanding that TWC release its rights to the movie adaptation of In the Heights, (iii) Amazon ditching TWC, cancelling plans for a David O'Russell series and dropped TWC as co-producer of a Matthew Weiner series; (iv) Channing Tatum halting development of a movie with the company, and (v) Quentin Tarantino seeking a different studio for his next and ninth film, the first time he would use a studio other than TWC. 
  9. Board of Directors. 5 members went running for the exits, including Paul Tudor Jones and Marc Lasry. 
  10. Lawsuits. TWC has been named in at least 9 civil actions by victims of Mr. Weinstein, including a broad federal class action, two civil actions by Mr. Weinstein himself, and 6 civil actions by contract counterparties. 

Lastly, it has been reported that any and all NDAs will be "lifted" and no longer apply. This means that those who aren't as financially able as, say, Uma Thurman and Saima Hayek, may now speak out with impunity. Hopefully this frees various women from the shackles of their memories. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $156.4mm secured debt (ex-accrued and unpaid interest, MUFG Union Bank NA), $15.6mm junior secured debt (UnionBanCal Equities Inc.), $18.1mm secured term loan (Bank of America NA), $45.4mm secured industries debt (AI International Holdings BVI Ltd.), $42.5mm secured production facility (MUFG Union Bank NA), $57.2mm of production level debt (including Spy Kids and Current War), $8.3mm secured debt (Viacom Media Networks)

  • Company Professionals:
    • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Karin DeMasi) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Zachary Shapiro, Brett Haywood, David Queroli)
    • Restructuring Advisor/CRO: FTI Consulting (Robert Del Genio, Luke Schaeffer, Michael Healy, Thomas Ackerman)
    • Investment Banker: Moelis & Company LLC
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Stalking Horse Bidder: Lantern Asset Management
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Stephen Kuhn, Meredith Lahaie) & (local) Pepper Hamilton LLP (David Stratton, David Fournier) 
    • DIP Agent ($25mm): MUFG Union Bank NA (11% minimum)
      • Legal: Sidley Austin LLP (Jennifer Hagle) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (James Stang, Debra Grassgreen, Robert Feinstein, Bradford Sandler)

Updated 3/30/18

New Chapter 11 Filing - Claire's Stores Inc.

Claire's Stores Inc. 

3/19/18

Claire’s® Stores Inc. is the latest in a string of specialty "treasure hunt"-styled retailers to find its way into bankruptcy court. In this case, the debtors, together with their 33 non-debtor affiliates, sell jewelry, accessories, and beauty products to young women/teen/tweens/kids; it has a presence in 45 nations spread throughout 7,500 company-owned stores, concession stands, and franchises. The company proudly states that "[a] Claire's store is located in approximately 99% of major shopping malls through the United States." Moreover, "[e]ach of the Debtors' store locations are leased, and are typically located in traditional shopping malls with, on average, 1,000 square foot of selling space." PETITION NOTE: this explains a lot. Hashtag, retail apocalypse.

First Day Declarations are interesting in that they are the first opportunity for a debtor-company to tell its story to the public, to parties in interest, and, significantly, to the bankruptcy judge. And this declaration is particularly interesting because, unlike many of its bankrupt specialty retail predecessors, Claire’s® makes a concerted effort to delineate why its physical presence is so critical. So what is that critical piece? Apparently, it is ear piercing. Yup, you read that right. Ok, well that and the "treasure hunt" shopping atmosphere which "simply cannot be replicated online." The company boasts about solid operating margins. and notes that, at the time of filing, it only intends to shed 95 leases. 

The company notes that it has established trust with parents and the number of pierced ears is indicative of that; it estimates that it has pierced over 100 million ears worldwide (since 1978) and 3.5 million in fiscal year 2017. While that is gimmicky and cute, the company doesn't not note how much of the reported $212 million of EBITDA (on $1.3 billion of revenue) is related to this phenomenon. Moreover, all of the trust in the world cannot overcome a capital structure with $1.9 billion of funded debt (ex-$245 million more at the non-debtor affiliate level) and $162 million in cash interest expense (see chart below) - especially when $1.4 billion of that funded debt matures in Q1 '19. And particularly when fewer and fewer people tend to frequent the malls that Claire’s® dominate. Notably, the company says ONLY the following about e-commerce: "Finally, the Claire's Group operates a digital sales platform through which new and existing customers can purchase products directly through the Claire’s® and Icing® websites and mobile application." So, as the malls go, Claire’s® goes. Notably, the company makes a point that it "is growing, not shrinking, its business. The Company expects its concessions business to grow by more than 4,000 stores in 2018." Landlords take note: the company highlights its CONCESSIONS BUSINESS, which is essentially a "mini-footpring" utilizing the store-within-a-store model. In other words, this growth won't help the landlords much. 

In addition to its debt, the company notes - as a primary cause for its bankruptcy filing - that the "Debtors operate in a highly competitive market." PETITION NOTE: No effing sh*t. Mall traffic has declined 8% year-over-year and the debtors - ear-piercing demand notwithstanding - aren't impervious to this. Accordingly, revenue is down $200mm since 2014. 

To counteract these trends, the company engaged in exchange transactions back in 2016 that had the effect of stripping out intellectual property collateral, swapping out debt, and deleveraging the company by $400 million. Clearly that was a band-aid rather than a solution. 

Now the company purports to have a restructuring support agreement with the Ad Hoc First Lien Group which, in addition to 72% of the first lien debt, holds 8% of the second lien notes and 83% of the unsecured notes. The members of the Ad Hoc Group of First Lien Creditors have agreed to provide the Company with approximately $575 million of new capital, including financing commitments for a new $75 million asset-based lending facility, a new $250 million first lien term loan, and $250 million as a preferred equity investment. In addition, the company has lined up a Citibank-provided DIP credit facility of $75 million ABL (supported, seemingly, by the consenting ad hoc first lien group) and a $60 million "last out" term loan. Consequently, Claire's expects to complete the chapter 11 process in September 2018, emerge with over $150 million of liquidity, and reduce its overall indebtedness by approximately $1.9 billion. We'll believe it when we see it. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: see below. 
  • Company Professionals:
    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Matthew Barr, Ryan Dahl) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro, Brendan Schlauch, Brett Haywood)
    • Financial Advisor: FTI Consulting Inc.
    • Investment Banker: Lazard Freres & Co. LLC 
    • Real Estate Advisor: Hilco Real Estate LLC 
    • Independent Director: Michael D'Appolonia 
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • PE Sponsor: Apollo Investment Fund VI, L.P. (owns 97.7% of Claire's Inc, the parent)
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Saferstein)
    • DIP Agent: Citibank
      • Legal: Latham & Watkins LLP
    • Prepetition ABL Facility & Revolving Credit Facility Agent: Credit Suisse AG, Cayman Islands Branch
    • Ad Hoc First Lien Group (Initial Consenting Creditors: Diameter Capital Partners LP, Elliott Management Corporation, Monarch Alternative Capital LP, The Cincinnati High Yield Desk of J.P. Morgan Investment Management Inc., The Indianapolis High Yield Desk of J.P. Morgan Investment Management Inc., and Venor Capital Management LP.)
      • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Brian Lennon, Daniel Forman) & (local) Morris Nichols Arsht & Tunnell LLP
      • Financial Advisor: Millstein & Co. 
    • First Lien Note Agent: The Bank of New York Mellon Trust Company N.A.
    • First Lien Term Loan Agent: Wilmington Trust NA
      • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman)
    • Second Lien Note Agent: Bank of New York 
    • Unsecured Note Indenture Trustee: Bank of New York 
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Cathy Hershcopf, Seth Van Aalten, Summer McKee) & (local) Bayard PA (Justin Alberto, Erin Fay, Gregory Flasser)
      • Financial Advisor: Province Inc. 
Source: First Day Declaration

Source: First Day Declaration

Updated 3/30/18

New Chapter 11 Filing - Fallbrook Technologies Inc.

Fallbrook Technologies Inc. 

2/26/18 Recap: Texas-based inventor of and patent-holder in the NuVinci Technology, a potential gear replacement technology, has filed for bankruptcy to implement a balance sheet restructuring. The company's "game changer" NuVinci Technology purportedly "changes the way mechanical power is transmitted to improve the performance and efficiency of transmission systems" and can be incorporated in bicycles, automotive accessory drives, electric vehicles, lawn care equipment and small wind turbines. 

In addition to commercializing its technology, the company deploys a licensing and royalties model. Unfortunately, however, the company's licensees aren't selling product with the NuVinci Technology thus far and, consequently, royalty revenue is non-existent. As such, "the Debtors’ revenue streams do not currently provide sufficient liquidity necessary to satisfy their debt and operating expense obligations." Not quite a game changer, yet, it seems. Due to this, the company fell short of financial covenants protecting its lenders. 

After an attempted but failed prepetition sale process, the company secured a DIP credit facility from Kayne Credit Opportunities Fund (QP) LLP in support of a prearranged bankruptcy agreed to with certain supporting noteholders for the purposes of deleveraging. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: $49.6mm 12% '19 senior secured notes (inclusive of fees and PIK interest), $8.8mm secured bridge notes, $15.3mm '19 senior subordinated convertible notes     
  • Company Professionals:
    • Legal: Shearman & Sterling LLP (Ned Schodek, Jordan Wishnew) & (local) Young Conaway Stargatt & Taylor LLP (Pauline K. Morgan, Kenneth J. Enos, Jaime Luton Chapman, Betsy L. Feldman)
    • Financial Advisor/CRO: Ankura Consulting (Roy Messing)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Lender: Kayne Credit Opportunities Fund (QP) LLP
      • Legal: Willkie Farr & Gallagher LLP (Rachel Strickland, Paul Shalhoub, Richard Choi) & (local) Richards Layton & Finger PA (Mark Collins, Michael Merchant, Joseph Barsalona)
    • Licensee: Dana Holding Corporation
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Aaron David) & (local) Cozen O'Connor (Mark Felger)

New Chapter 11 Filing - The Bon-Ton Stores Inc.

The Bon-Ton Stores Inc.

  • 2/4/18 Recap: See here
  • Jurisdiction: D. of Delaware (Judge Walrath)
    • Capital Structure: $339mm Tranche A RCF (Bank of America), $150 Tranche A-1 Term Loan, $350mm second lien notes (Wells Fargo Bank NA)     
  • Company Professionals:
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Kelley Cornish, Elizabeth McColm, Claudia Tobler, Alexander Woolverton, Michael Colarossi, Diane Meyers, Moses Silverman) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Elizabeth Justison)
    • Financial Advisor: AlixPartners LLC (Holly Etlin, Carrianne Basler, Jim Guglielmo, John Creighton, Ben Chesters, Jamie Strohl, Mitch Chubinsky, Thomas Cole, Daniel Law) 
    • Investment Banker: PJT Partners LP (Steven Zelin, James Baird, Jon Walter, Vinit Kothary, Sartag Aujla)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Intellectual Property Disposition Consultant: Hilco IP Services (David Peress)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Joiner) & Richards Layton & Finger PA (Mark Collins, Joseph Barsalona)
    • Second Lien Noteholders: Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; Cetus Capital LLC; Contrarian Capital Management LLC; and Wolverine Asset Management, LLC
      • Legal: Jones Day (Bruce Bennett, Joshua Mester, Sidney Levinson, Genna Ghaul, Charles Whittman-Todd) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Robert Feinstein, Bradford Sandler)
      • Financial Advisor: Zolfo Cooper LLC (David MacGreevey)
    • Prospective Buyer: DW Partners LP
      • Legal: DLA Piper LLP (Stuart Brown, R. Craig Martin, Jason Angelo, Richard Chesley, John Lyons, Oksana Rosaluk)

Updated 4/10/18