New Chapter 11 Filing - GST AutoLeather Inc.

GST AutoLeather Inc.

  • 10/3/17 Recap: Disruption, illustrated. The automobile industry is at the beginning of a downturn marked by auto price reductions and a drop in new vehicle production. Automobile output is down 4% over the past year as automobile dealers are placing fewer manufacturing orders and dealing with excess supply. Moreover, auto OEMs are decreasing the leather content in certain new vehicles. Finally, automobiles are lasting longer and "the climbing popularity of ride-sharing services, such as Uber and Lyft...diminish consumers' needs for their own cars." Put simply, there is a demand side decline. Consequently, here, the Southfield Michigan-based supplier of leather interiors filed a freefall bankruptcy with the hope of consummating an expedited (approximately 2-month timeframe) 363 asset sale. The company has secured a $40mm DIP credit facility to fund its bankruptcy; it continues talks with its senior lenders about a stalking horse bid to purchase the company. In addition to the aforementioned macro factors, the company blames its deteriorated financial performance on (i) issues associated with certain new customer launches in Europe, (ii) supply chain issues with a critical Chinese supplier who is using leverage to extract out-of-contract economics from the company and (iii) constraints imposed by significant working capital investments to mitigate supply chain disruption to its customers (which include the likes of major auto OEMs, e.g., Audi, BMW/Mini, Daimler, Fiat Chrysler, Ford, General Motors, Hyundai, Honda, Porsche, PSA, Nissan, Kia, Toyota and Volkswagen).
  • Jurisdiction: D. of Delaware (Judge Silverstein)
  • Capital Structure: $24mm '19 RCF, $140mm '20 TL-B (Royal Bank of Canada), $32mm mezz debt (Triangle Capital Corp./Alcentra Capital Corp.)
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Ryan Blaine Bennett, Michael Slade, Alexandra Schwarzman, Timothy Bow, Benjamin Rhode, Luke Ruse) & (local) Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones, Timothy Cairns, Joseph Mulvihill)
    • Financial Advisor/CRO: Alvarez & Marsal North America LLC (Jonathan Hickman, Jay Herriman)
    • Investment Banker: Lazard Middle Market (Jason A. Cohen)
    • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Sponsor: Advantage Partners
    • Lender Group (Royal Bank of Canada, as DIP Admin Agent)
      • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford, Shlomo Maza) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Justin Rucki)
      • Financial Advisors: FTI Consulting
    • Mezzanine Lenders:
      • Legal: McGuireWoods LLP (Anne Croteau, Douglas Foley) & (local) Benesch Friedlander Coplan & Aronoff LLP (Jennifer Hoover, William Alleman Jr.)
    • Official Committee of Unsecured Creditors
      • Legal: Foley & Lardner LLP (Erika Morabito, Brittany Nelson, John Simon, Richard Bernard, Leah Eisenberg) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Kevin Shaw, Christopher Jones, David Gaffey)
      • Financial Advisor: Berkeley Research Group LLC (Christopher Kearns, Peter Chadwick, Michelle Tran, Kevin Beard, Jay Wu)
      • Investment Banker: Configure Partners LLC (Jay Jacquin)

Updated 11/15/17 7:55 am CT

New Chapter 11 Filing - Rent-a-Wreck of America, Inc.

Rent-a-Wreck of America, Inc.

  • 7/24/17 Recap: When we saw that this company filed for bankruptcy, we were practically drooling. We immediately thought: the narrative had to be an Uber-is-to-blame story for a company like Rent-a-Wreck filing for bankruptcy, didn't it? And so we decided to cover it, despite its relatively small size, writing the following: In Silicon Valley, "disruption" is a buzzword that wide-eyed startup founders use to drum up excitement about their new venture, raise funding, and determine product/market fit. 79-90% of the time - depending on which data you rely on - those companies flame out. But sometimes they don't. And in the even rarer case that a startup doesn't just succeed but becomes a unicorn - or maybe even a decacorn a la Uber - that success is usually to the detriment of other incumbent companies. Take Rent-a-Wreck ("RAWA"). RAWA, through its wholly-owned opco, Bundy, sells and administers franchises for the operation of vehicle rental/leasing/sharing, among other automobile business lines. There are 76 RAWA franchises in 28 US states in addition to some international operations. The company makes its money from franchise fees, servicing fees, and insurance underwriting via a non-debtor insurance subsidiary. Or, we should say, MADE its money. EXCEPT, according to the company's First Day Declaration, this isn't an innovation/disruption story. It's a more mundane cash-flow-draining-litigation story. How disappointing. The company filed for bankruptcy to rightsize its franchise network, stop the bleed from litigation/judgments, streamline ops, and try to maximize the value of its intellectual property. It seeks a $750k DIP from its prepetition lender/equityholder to do so. What a waste of a solid Silicon Valley commentary. 
  • Jurisdiction: D. of Delaware 
  • Capital Structure: $2.47mm secured debt     
  • Company Professionals:
    • Legal: Quarles & Brady LLP (Faye Feinstein, Christopher Combest) & (local) Saul Ewing LLP (Mark Minuti, Aaron Applebaum)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest (no UCC appointed):
    • 100% Equity Owner & DIP Lender: JJF Management Services Inc.

Updated 8/26/17