🔫New Chapter 11 Filing - Sportco Holdings Inc. (United Sporting Companies Inc.)🔫

SportCo Holdings Inc. (United Sporting Companies Inc.)

June 10, 2019

Callback to four previous PETITION pieces:

The first one — which was a tongue-in-cheek mock First Day Declaration we wrote in advance of Remington Outdoor Company’s chapter 11 bankruptcy — is, if we do say so ourselves, AN ABSOLUTE MUST READ. The same basic narrative could apply to the recent chapter 11 bankruptcy filing of Sportco Holdings Inc., a marketer and distributor of products and accessories for hunting, which filed for bankruptcy on Monday, June 10, 2019. Sportco’s customer base consists of 20k independent retailers covering all 50 states. But back to the “MUST READ.” There are some choice bits there:

Murica!! F*#& Yeah!! 

Remington (f/k/a Freedom Group) is "Freedom Built, American Made." Because nothing says freedom like blowing sh*t up. Cue Lynyrd Skynyrd's "Free Bird." Hell, we may even sing it in court now that Toys R Ushas made that a thing. 

Our company traces its current travails to 2007 when Cerberus Capital Management LP bought Remington for $370mm (cash + assumption of debt) and immediately "loaded" the North Carolina-based company with even more debt. As of today, the company has $950mm of said debt on its balance sheet, including a $150mm asset-backed loan due June '19, a $550mm term loan B due April '19, and 7.875% $250mm 3rd lien notes due '20. Suffice it to say, the capital structure is pretty "jammed." Nothing says America like guns...and leverage

Indeed, this is true of Sportco too. Sportco “sports” $23mm in prepetition ABL obligations and $249.8mm in the form of a term loan. Not too shabby on the debt side, you gun nuts!

More from our mock-up on Remington:

Shortly after Cerberus purchased the company, Barack Obama became president - a fact, on its own, that many perceived as a real "blowback" to gun ownership. Little did they know. But, then, compounding matters, the Sandy Hook incident occurred and it featured Remington's Bushmaster AR-15-style rifle. Subsequently, speeches were made. Tears were shed. Big pension fund investors like CSTRS got skittish AF. And Cerberus pseudo-committed to selling the company. Many thought that this situation was going to spark "change [you] can believe in," lead to more regulation, and curtail gun sales/ownership. But everyone thought wrong. Tears are no match for lobby dollars. Suckers. 

Instead, firearm background checks have risen for at least a decade - a bullish indication for gun sales. In a sick twist of only-in-America fate, Obama's caustic tone towards gunmakers actually helped sell guns. And that is precisely what Remington needed in order to justify its burdensome capital structure and corresponding interest expense. With Hillary Clinton set to win the the election in 2016, Cerberus' convenient inability to sell was set to pay off. 

But then that "dum dum" "ramrod" Donald Trump was elected and he enthusiastically and publicly declared that he would "never, ever infringe on the right of the people to keep and bear arms."  While that's a great policy as far as we, here, at Remington are concerned, we'd rather him say that to us in private and declare in public that he's going to go door-to-door to confiscate your guns. Boom! Sales through the roof! And money money money money for the PE overlords! Who cares if you can't go see a concert in Las Vegas without fearing for your lives. Yield baby. Daddy needs a new house in Emerald Isle. 

Wait? "How would President Trump say he's going to confiscate guns and nevertheless maintain his base?" you ask. Given that he can basically say ANYTHING and maintain his base, we're not too worried about it. #MAGA!! Plus, wink wink nod nod, North Carolina. We'd all have a "barrel" of laughs over that.  

So now what? Well, "shoot." We could "burst mode" this thing, and liquidate it but what's the fun in that. After all, we still made net revenue of $603.4mm and have gross profit margins of 20.9%. Yeah, sure, those numbers are both down from $865.1mm and 27.4%, respectively, but, heck, all it'll take is a midterm election to reverse those trends baby. 

That was a pretty stellar $260mm revenue decline for Remington. Thanks Trump!! So, how did Sportco fare?

Trump seems to be failing to make America great again for those who sell guns.

But don’t take our word for it. Per Sportco:

In the lead up to the 2016 presidential election, the Debtors anticipated an uptick in firearms sales historically attributable to the election of a Democratic presidential nominee. The Debtors increased their inventory to account for anticipated sales increases. In the aftermath of the unexpected Republican victory, the Debtors realized lower than expected sales figures for the 2017 and 2018 fiscal years, with higher than expected carrying costs due to the Debtors’ increased inventory. These factors contributed to the Debtors tightening liquidity and an industry-wide glut of inventory.

Whoops. Shows them for betting against the stable genius. What are these carrying costs they refer to? No gun sales = too much inventory = storage. Long warehousemen.

Compounding matters, the company’s excess inventory butted with industry-wide excess inventory sparked by “the financial distress of certain market participants.” This pressured margins further as Sportco had to discount product to push sales. This “further eroded…slim margins and contributed to…tightening liquidity.” Per the company:

Many of the Debtors’ vendors and manufacturers suffered heavy losses as a result of the Cabela’s-Bass Pro Shop merger, Dick’s Sporting Good’s pull back from the market, and the recent Gander Mountain and AcuSport bankruptcies. Those losses adversely impacted the terms and conditions on which such vendors and manufacturers were willing to extend credit to the Debtors. With respect to the Gander Mountain and AcuSport bankruptcies, the dumping of excess product into the marketplace pushed prices—and margins— even lower. The resulting tightening of credit terms eroded the Debtors’ sales and further contributed to the Debtors’ tightening liquidity.

The company also blames some usual suspects for its chapter 11 filing. First, weather. Weather ALWAYS gets a bad rap. And, of course, the debt.

Riiiiiight. About that debt. When we previously asked “Who is Financing Guns?,” the answer, in the case of Remington, was Bank of America Inc. ($BAC)Wells Fargo Inc. ($WFC) and Regions Bank Inc. ($RF). Likewise here. Those same three institutions make up the company’s ABL lender roster. We’re old enough to remember when banks paid lip service to wanting to do something about guns.

One other issue was the company’s inability to…wait for it…REALIZE CERTAIN SUPPLY CHAIN SYNERGIES after acquiring certain assets from once-bankrupt competitor AcuSport Corporation. Per the company:

The lower than anticipated increase in customer base following the AcuSport Transaction magnified the adverse effects of the market factors discussed above and resulted in a faster than expected tightening of the Debtors’ liquidity and overall deterioration of the Debtors’ financial condition.

The company then ran into issues with its pre-petition lenders and its vendors and the squeeze was on. Recognizing that time was wearing thin, the company hired Houlihan Lokey Inc. ($HLI) to market the assets. No compelling offers came, however, and the company determined that a chapter 11 filing “to pursue an orderly liquidation…was in the best interest of all stakeholders.

R.I.P. Sportco.

*****

But not before you get in one last fight.

The glorious thing about first day papers is that they provide debtors with the opportunity to set the tone in the case. The First Day Declaration, in particular, is a narrative. A narrative told to the judge and other parties-in-interest about what was, what is, and what may be. That narrative often explains why certain other requests for relief are necessary: that is, that without them, there will be immediate and irreparable harm to the estate. The biggest one of these is typically a request for authority to tap a committed DIP credit facility and/or cash collateral to fund operations. On the flip side of that request, however, are the company’s lenders. And they often have something to say about that — objections over, say, the use of cash collateral are common.

But you don’t often see an objector re-write the entire frikken narrative and file it prior to the first hearing in the case.

Shortly after the bankruptcy filing, Prospect Capital Corporation (“PCC”), as the second lien term loan agent, unleashed an objection all over the debtors. Per PCC:

Just a few years ago, the Debtors were the largest distributor of firearms in the United States, with reported annual revenue of in excess of $770 million. Contrary to the First Day Declaration filed in these cases, the Debtors’ demise was not due to outside forces such as the “2016 presidential election,” “disruptions in the industry” and “natural disasters. Rather, as a result of dividend recapitalization transactions in 2012 and 2013, the Debtors’ equity owner, Wellspring Capital, “cashed out” in excess of $183 million. After lining their pockets with over $183 million, fiduciaries appointed by Wellspring Capital to be directors and officers of the Debtors grossly mismanaged the business and depleted all reserves necessary to weather the storms and the headwinds the business would face. In a short time, the business went from being the largest firearms distributor in the United States to being liquidated. As a result of years of mismanagement and the failure of the estates’ fiduciaries to preserve value, the Second Lien Lenders will, in all likelihood, recover only a small fraction of their $249.7 million secured loan claim. Years of mismanagement ultimately placed the Debtors in the position where they are in now….

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This sh*t just got much more interesting: y’all know we love dividend recapitalizations. Anyway, PCC went on to object to the fact that this is an in-court liquidation when an out-of-court process would be, in their view, cheaper and just as effective; they also object to the debtors’ proposed budget and use of cash collateral. The upshot is that they see very little chance of recovery of their second lien loan and want to maximize value.

Of course, the debtors be like:

scoreboard.jpeg

The numbers speak for themselves, they replied. They were $X of revenue between 2012 and 2016 and then, after Trump was elected, they’ve been $X-Y%. Plain and simple.

So where does this leave us? After some concessions from the DIP lenders and the debtors, the court approved the debtors requested DIP credit facility on an interim basis. The order preserves PCC’s rights to come back to the court with an argument related to cash collateral after the first lien lenders (read: the banks) are paid off in full (and any intercreditor agreement-imposed limitations on PCC’s ability to fight fall away).

Ultimately, THIS may sum up this situation best:

It’s genuinely difficult to pick the most villainous company in this story. Is it the company selling guns who made a big bet on people’s deepest fears and insecurities and then shit the bed? The private equity company bleeding the gun distributor dry and then running it straight into the ground? Or the other private equity company that is now mad it likely won’t get anything near what it paid out in the original loan to the distributor? Folks...let them fight.

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure: $23.1mm ABL, $249mm term loan (Prospect Capital, Summit Partners)

  • Professionals:

    • Legal: McDermott Will & Emery LLP (Timothy Walsh, Darren Azman, Riley Orloff) & (local) Polsinelli PC (Christopher Ward, Brenna Dolphin, Lindsey Suprum)

    • Board of Directors: Bradley Johnson, Alexander Carles, Justin Vorwerk

    • Financial Advisor/CRO: Winter Harbor LLC (Dalton Edgecomb)

    • Investment Banker: Houlihan Lokey Inc.

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

  • Other Parties in Interest:

    • DIP Agent: Bank of America NA

      • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland, Carrie Hardman) & (local) Richards Layton & Finger PA (John Knight, Amanda Steele)

    • Agent for Second Lien Lenders: Prospect Capital Corporation

      • Legal: Olshan Frome Wolosky LLP (Adam Friedman, Jonathan Koevary) & (local) Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, John Lucian)

    • Prepetition ABL Lenders: Bank of America NA, Wells Fargo Bank NA, Regions Bank NA

    • Large equityholders: Wellspring Capital Partners, Summit Partners, Prospect Capital Corporation

    • Official Committee of Unsecured Creditors (Vista Outdoor Sales LLC, Magpul Industries Corporation, American Outdoor Brands Corporation, Garmin USA Inc., Fiocchi of America Inc., FN America LLC, Remington Arms Company LLC)

      • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Eric Chafetz, Gabriel Olivera) & (local) Morris James LLP (Eric Monzo)

      • Financial Advisor: Emerald Capital Advisors (John Madden)

Update 7/7/19 #115

🛌New Chapter 11 Bankruptcy & CCAA Filing - Hollander Sleep Products LLC🛌

Hollander Sleep Products LLC

May 19, 2019

Florida-based private equity owned Hollander Sleep Products LLC and six affiliates (including one Canadian affiliate) have filed for chapter 11 bankruptcy in the Southern District of New York. The debtors are “the largest bed pillow and mattress pad manufacturer in North America.” The debtors produce pillows, comforters and mattress pads for the likes of Ralph Lauren, Simmons, Beautyrest, Nautica and Calvin Klein; their products are available at major retailers like Costco Wholesale Corporation ($COST), Kohl’s Corporation ($KSS), Walmart Inc. ($WMT) and Target Inc. ($TGT) and with the Marriott International Inc. ($MAR) chain of hotels; they have a main showroom in New York City, nine manufacturing facilities throughout the US and Canada, and a sourcing, product development and quality control office in China. Speaking of China, 60% of the debtors’ top 10 creditors are Chinese companies.

Why bankruptcy? Interestingly, the debtors colorfully ask, “How Did We Get Here?” And the answer appears to be a combination of (a) “[r]ecent substantial price increases on materials” like fiber, down and feathers, (b) acquisition integration costs, (c) too much competition in a low margin space, (d) employee wage increases “as a result of natural wage inflation and the tight job market” and (e) too much leverage. The debtors burned through $20mm in the last year on material cost increases alone (it opted NOT to pass price increases on to the consumer), straining liquidity to the point that, at the time of filing, the company had less than $1mm of cash on hand.

With the filing, the debtors seek to restructure approximately $166.5mm of term debt, effectuating a debt-for-equity swap in the new reorganized entity (plus participation in a $30mm exit facility). 100% of the debtors’ term lenders support the plan. As does lender and equity sponsor, Sentinel Capital Partners LLC. That doesn’t necessarily mean, however, that they truly want to own the post-reorg company. Indeed, the debtors have indicated that while they march towards plan confirmation (which they say will be in four months), they will also entertain the possibility of a sale of the company to a third-party. These dual-track chapter 11 cases are all the rage these days, see, e.g., Shopko.

If approved by the bankruptcy court, the bankruptcy will be funded by a $118mm DIP credit facility which will infuse the debtors with $28mm in incremental new money and roll-up the debtors’ prepetition asset-backed first priority credit facility.

The debtors note that “the sleep industry as a whole is both healthy and growing. Market trends favor healthy lifestyle sectors, and the basic bedding segment is generally recession resilient.” We have no quibble with either comment. The company believes that by, among other things, (i) delevering its balance sheet, (ii) gaining access to new capital, (iii) engaging in selective price increases, (iv) implementing material efficiencies, (v) streamlining manufacturing, and (vi) building out their e-commerce channel, it will have a more sustainable path forward. Whether that path will be taken at the direction of their lenders or a strategic buyer remains to be seen.

  • Jurisdiction: S.D. of New York (Judge Wiles)

  • Capital Structure: $125mm ABL ($43mm funded), $166.5mm term loan

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Christopher Greco, Joseph Graham, Andrew McGaan, Laura Krucks)

    • Board of Directors: Eric Bommer, Michael Fabian, Steve Cumbow, Chris Baker

    • Disinterested Director: Matthew Kahn

      • Legal: Proskauer Rose LLP

    • Financial Advisor: Carl Marks Advisory Group LLC (Mark Pfefferle)

    • Investment Banker: Houlihan Lokey Capital Inc. (Saul Burian)

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

  • Other Parties in Interest:

    • Prepetition and ($90mm) DIP ABL Agent: Wells Fargo Bank NA

      • Legal: Goldberg Kohn Ltd. (Randall Klein, Prisca Kim) & (local) Orrick Herrington & Sutcliffe LLP (Laura Metzger, Peter Amend)

    • ($28mm) DIP Term Loan Agent:

5/2/19, #2

New Chapter 11 Bankruptcy Filing - New Cotai Holdings LLC

New Cotai Holdings LLC

May 1, 2019

New Cotai Holdings LLC and three affiliated debtors filed for bankruptcy in the Southern District of New York on the basis of New Cotai Ventures LLC, a NY LLC, having cash held in a bank account in White Plains New York (as of when, we wonder). The debtors were formed for the purpose of investing in Studio City International Holdings Limited, have no employees, and are otherwise managed by sponsor, Silver Point Capital LP. The declarant supporting the debtors’ chapter 11 filing is an independent director who was put into place literally 2 days before the filing. Yup, 2 whole days.

Studio City International Holdings Limited is a wretched hive of scum and villany. Sorry, that’s not right. That’s us trying to make this more interesting than it is. In truth, its an “integrated resort comprising entertainment, retail, hotel and gaming facilities” located in Macau (that’s China, people). The project has made it past Phase I of construction but has stalled out there: the rest of the project will require several more years. In October 2018, the company IPO’d 28.75mm American Depository Shares at $12.50/share.

To further capitalize the project, two of the debtors, as co-issuers, issued $380mm of 10.625% PIK Notes in 2013 due May 2019. Curious to know how 10.625% PIK adds up? The current principal balance of the notes is now $856mm.

Now, not to state the obvious, but to paydown Notes on maturity, you kinda need to have some moolah. And considering that the project is only past Phase I with much more work to do…well, you see where we are going here. The company notes:

The Debtors’ ability to satisfy their obligations under the Notes is directly tied to the development and success of the Studio City project. Due to delays in the development of the Studio City project, a reduced allocation of gaming tables from the government, and some unanticipated declines in the Macau gaming market, the Investment has not yet achieved sufficient market value in light of the highly illiquid and unreliable market conditions that have developed following the IPO, making a refinancing impracticable. Therefore, through no fault of their own, the Debtors were unable to satisfy the Notes obligations by their maturity.

Listen guys: you ain’t getting Matt Damon, George Clooney and other whales at your tables if you don’t have VIP tables. Obvi. Second, it sounds like the project hired the quintessential New York City-based general contractor. “Yeah, sure, the project will cost $30mm and take 1 month” only to cost “an additional $300 million” and take literally years. Of course “[c]onstruction costs came in greater than expected.” Isn’t that par for the course in hotel development? The company now has until 2021 to finish Phase II of the project. It sounds like it will need it.

Of course, you have to admire the entrepreneurial enthusiasm:

Notwithstanding the aforementioned challenges, the Debtors believe that the Investment continues to represent a significant economic opportunity—the value of which is not accurately represented in the current market prices of the ADS. Indeed, should the Studio City project continue to develop on its currently anticipated timeframe, the Debtors expect the Investment to generate sufficient value to repay the Notes in full.

The debtors must NOT be expecting a downturn. Gaming usually doesn’t fare too well during one of those. And Chinese growth hasn’t exactly been at levels enjoyed over the last decade or so. But, fingers crossed.

The debtors are negotiating with an Ad Hoc Group of noteholders in an effort to address this state of affairs. They have latitude: Silver Point has committed to a $6.25mm DIP with, among other favorable terms to the debtors, no milestones and a 12-month maturity (with an option to extend a subsequent 12 months). This DIP was not marketed and so the early part of the case will be spent presumably searching for alternatives. Because lenders surely love the idea of providing a DIP, the main purpose of which is to pay Skadden Arps’ and the Ad Hoc Group’s fees.

  • Jurisdiction: S.D. of New York (Judge Drain)

  • Capital Structure: $856mm (Wells Fargo Bank NA)

  • Professionals:

    • Legal: Skadden, Arps, Slate, Meagher & Flom LLP (Jay Goffman, Mark McDermott, Evan Hill)

    • Managing Member: Drivetrain Advisors LLC (John Brecker)

    • Financial Advisor: Houlihan Lokey Capital Inc.

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

  • Other Parties in Interest:

    • Wells Fargo Bank NA

      • Legal: Arent Fox LLP (Andrew Silfen, Beth Brownstein)

    • Sponsor: Silver Point Capital LP

⛽️New Chapter 11 Bankruptcy Filing - Jones Energy Inc.⛽️

Jones Energy Inc.

April 14, 2019

Austin-based independent oil and natural gas E&P company, Jones Energy Inc., filed a prepackaged chapter 11 bankruptcy to restructure its $1.009b of debt ($450mm senior secured first lien notes and $559mm unsecured notes across two tranches). In case you didn’t realize, oil and gas exploration and production is a capital intensive business.

The company operates primarily in the Anadarko Basin in Oklahoma and Texas. Its territory is the aggregation of acreage accumulated over the years, including the 2009 purchase of Crusader Energy Group Inc. out of bankruptcy for $240.5mm in cash.

We’re not going to belabor the point as to why this company is in bankruptcy: the narrative is no different than most other oil and gas companies that have found their way into bankruptcy court over the last several years. Indeed, this chart about sums things up nicely:

Screen Shot 2019-04-05 at 2.29.01 PM.png

It’s really just a miracle that it didn’t file sooner. Why hadn’t it? Per the company:

…the Debtors consummated a series of liquidity enhancing transactions, including equity raises, debt repurchases, strategic acquisitions, non-core asset sales, and modifications of their operations to reduce their workforce and drilling activities. This included a Company-wide headcount reduction in 2016 resulting in the termination of approximately 30% of the Debtors’ total workforce, as well as halting drilling activity spanning several months during the worst of the historic commodity downturn.

But…well…the debt. As in, there’s too much of it.

Screen Shot 2019-04-05 at 2.56.24 PM.png

And debt service costs were too damn high. In turn, the company’s securities traded too damn low:

Source: Disclosure Statement

Source: Disclosure Statement

What’s more interesting here is the process that unfolded. In February 2018, the company issued $450mm of 9.25% ‘23 senior secured first lien notes. The proceeds were used to repay the company’s senior secured reserve-based facility and eliminate the restrictive covenants contained therein. The company also hoped to use the proceeds to repurchase some of its senior unsecured notes at a meaningful discount to par. In a rare — yet increasingly common — show of unity, however, the company’s unsecured lenders thwarted these efforts by binding together pursuant to a “cooperation agreement” and telling the company to take its pathetic offer and pound sand. (PETITION Note: its amazing what lenders can achieve if they can solve for a collective action problem). This initiated a process that ultimately led to the transaction commemorated in the company’s announces restructuring support agreement.

So what now? The senior secured lenders will equitize their debt and come out with 96% of the common stock in the reorganized entity. Holders of unsecured debt will get 4% equity and warrants (exercisable for up to a 15% ownership stake in the reorganized company), both subject to dilution by equity issued to management under a “Management Incentive Plan.” The company has a commitment for $20mm of exit financing lined up (with the option for replacement financing of up to $150mm).

Hopefully the company will have better luck without the albatross of so much debt hanging over it.

  • Jurisdiction: S.D. of Texas (Judge TBD)

  • Capital Structure: $450mm 9.25% ‘23 senior secured first lien notes (UMB Bank NA), $559mm 6.75% ‘22 and 9.25% ‘23 unsecured notes (Wells Fargo Bank NA)

  • Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Christopher Marcus, Brian Schartz, Anthony Grossi, Ana Rotman, Rebecca Blake Chaikin, Mark McKane, Brett Newman, Kevin Chang) & (local) Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz)

    • Independent Directors: Tara Lewis, L. Spencer Wells

    • Financial Advisor: Alvarez & Marsal LLC (Ryan Omohundro)

    • Investment Banker: Evercore Group LLC (Daniel Aronson)

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

  • Other Parties in Interest:

    • Ad Hoc Group of First Lien Noteholders

      • Legal: Milbank LLP (Dennis Dunne, Evan Fleck, Michael Price) & (local) Porter Hedges LLP (John Higgins, Eric English, Genevieve Graham)

      • Financial Advisor: Lazard Freres & Co. LLC

    • Ad Hoc Group of Crossover Holders

      • Legal: Davis Polk & Wardwell LLP (Brian Resnick, Benjamin Schak) & (local) Haynes and Boone LLP (Charlie Beckham, Kelli Norfleet)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Metalmark Capital LLC

      • Legal: Vinson & Elkins LLP (Andrew Geppert, David Meyer, Jessica Peet, Michael Garza)

Updated 4/15/19 2:05 CT

⛽️New Chapter 11 Filing - Southcross Energy Partners LP⛽️

Southcross Energy Partners LP

April 1, 2019

We’ve been noting — in “⛽️Is Oil & Gas Distress Back?⛽️“ (March 6) and “Oil and Gas Continues to Crack (Long Houston-Based Hotels)“ (March 24) that oil and gas was about to rear its ugly head right back into bankruptcy court. Almost on cue, Vanguard Natural Resources Inc. filed for bankruptcy in Texas on the last day of Q1 and, here, Southcross Energy Partners LP kicked off Q2.

Dallas-based Southcross Energy Partners LP is a publicly-traded company ($SXEE) that provides midstream services to nat gas producers/customers, including nat gas gathering, processing, treatment and compression and access to natural gas liquid (“NGL”) fractionation and transportation services; it also purchases and sells nat gas and NGL; its primary assets and operations are located in the Eagle Ford shale region of South Texas, though it also operates in Mississippi (sourcing power plants via its pipelines) and Alabama. It and its debtor affiliates generated $154.8mm in revenues in the three months ended 09/30/18, an 11% YOY decrease.

Why are the debtors in bankruptcy? Because natural gas prices collapsed in 2015 and have yet to really meaningfully recover — though they are up from the $1.49 low of March 4, 2016. As we write this, nat gas prices at $2.70. These prices, combined with too much leverage (particularly in comparison to competitors that flushed their debt through bankruptcy) and facility shutdowns, created strong headwinds the company simply couldn’t surmount. It now seeks to use the bankruptcy process to gain access to much needed capital and sell to a buyer to maximize value. The company does not appear to have a stalking horse bidder lined up.

The debtors have a commitment for $137.5mm of new-money post-petition financing to fund its cases. Use of proceeds? With the agreement of its secured parties, the debtors seek to pay all trade creditors in the ordinary course of business. If approved by the court, this would mean that the debtors will likely avoid having to contend with an official committee of unsecured creditors and that only the secured creditors and holders of unsecured sponsor notes would have lingering pre-petition claims — a strong power move by the debtors.

  • Jurisdiction: D. of Delaware (Judge Walrath)

  • Capital Structure: $81.1mm funded ‘19 RCF (Wells Fargo Bank NA), $430.875mm ‘21 TL (Wilmington Trust NA), $17.4mm unsecured sponsor notes (Wells Fargo NA)

  • Professionals:

    • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Darren Klein, Steven Szanzer, Benjamin Schak) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Joseph Barsalona II, Eric Moats)

    • Financial Advisor: Alvarez & Marsal LLC

    • Investment Banker: Evercore Group LLC

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

  • Other Parties in Interest:

    • Prepetition RCF & Unsecured Agent: Wells Fargo Bank NA

      • Legal: Vinson & Elkins LLP (William Wallander, Brad Foxman, Matt Pyeatt) & (local) Womble Bond Dickinson US LLP (Ericka Johnson)

    • Prepetition TL & DIP Agent ($255mm): Wilmington Trust NA

      • Legal: Arnold & Porter Kaye Scholer LLP (Seth Kleinman, Alan Glantz)

    • Post-Petition Lenders and Ad Hoc Group

      • Legal: Willkie Farr & Gallagher LLP (Joseph Minias, Paul Shalhoub, Leonard Klingbaum, Debra McElligott) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton, Matthew Lunn)

    • Southcross Holdings LP

      • Legal: Debevoise & Plimpton LLP (Natasha Labovitz)

    • Stalking Horse Bidder:

Updated 9:39 CT

New Chapter 11 Bankruptcy Filing - Aceto Corporation

Aceto Corporation

February 19, 2019

In November in “🎬🎥Moviepass Falters; Market Chuckles🎬🎥,” we highlighted how Aceto Corporation ($ACET) had announced that it was pursuing strategic alternatives on the heels of obtaining a waiver of covenant non-compliance. It appears that its pursuit was (somewhat) fruitful.

Yesterday the company filed for bankruptcy in the District of New Jersey with intent to sell its chemicals business assets to New Mountain Capital for $338mm in cash, plus the assumption of certain liabilities (subject to adjustments). It also intends to sell another subsidiary, Rising Pharmaceuticals, while in bankruptcy and prior to the end of its fiscal year on June 30, 2019.

The company’s pre-petition capital structure consists of:

  • an $85mm 9.5%-11.5% secured revolving loan (Wells Fargo Bank NA);

  • a $120mm 11.5% secured term loan (as part of the same A/R Credit Agreement as the above); and

  • $143.75mm of 2% convertible senior notes due 2020 (Citibank NA).

Carry the one, add the two: that’s a total of $348.75mm of debt. Which means that the purchase price of the chemicals business doesn’t even cover the company’s debt. Here’s to hoping the Rising Pharmaceuticals business fetches a good price. To be fair, the company did end its fiscal 2018 with $103.9mm of cash.

Pre-petition lenders led by pre-petition agent, Wells Fargo Bank NA, have committed to providing the company with a $60mm DIP credit facility.

  • Jurisdiction: D. of New Jersey (Judge )

  • Capital Structure: see above.

  • Professionals:

    • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Michael Etkin, Paul Kizel, Jeffrey Cohen, Philip Gross)

    • Financial Advisor/CFO: AlixPartners LLP (Rebecca Roof)

    • Investment Banker: PJT Partners LP

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

  • Other Parties in Interest:

    • DIP Agent and Pre-petition Agent: Wells Fargo Bank NA

      • Legal: McGuireWoods LLP (Kenneth Noble)

🏠New Chapter 11 Bankruptcy Filing - Decor Holdings Inc.🏠

Decor Holdings Inc.

February 12, 2019

Source: https://www.robertallendesign.com

Source: https://www.robertallendesign.com

Privately-owned New York-based Decor Holdings Inc. (d/b/a The RAD Group and The Robert Allen Duralee Group) and certain affiliates companies filed for bankruptcy earlier this week in the Eastern District of New York. The debtors state that they are the second largest supplier of decorative fabrics and furniture to the design industry in the U.S., designing, manufacturing and selling decorative fabrics, wall coverings, trimmings, upholstered furniture, drapery hardware and accessories for both residential and commercial applications. All of which begs the question: do people still actually decorate with this stuff?!? In addition to private label product lines, the company represents six other furnishing companies, providing tens of thousands of sku options to design professionals and commercial customers. The company maintains a presence via showrooms in large metropolitan cities in the US and Canada as well as an agent showroom network in more than 30 countries around the world. In other words, for a company you’ve likely never heard of, they have quite the reach.

The debtors’ problems derive from a 2017 merger between the Duralee business and the Robert Allen business. Why? Well, frankly, it sounds like the merger between the two is akin to a troubled married couple that decides that having a kid will cure all of their ills. Ok, that’s a terrible analogy but in this case, both companies were already struggling when they decided that a merger between the two might be more sustainable. But, “[l]ike many industries, the textile industry has been hard hit by the significant decrease in consumer spending and was severely affected by the global economic downturn. As a result, the Debtors experienced declining sales and profitability over the last several years.” YOU MEAN THE PERCEIVED SYNERGIES AND COMBINED EFFICIENCIES DIDN’T COME TO FRUITION?!? Color us shocked.

Ok, we’re being a little harsh. The debtors were actually able to cut $10-12mm of annual costs out of the business. They could not, however, consolidate their separate redundant showroom spaces outside of bankruptcy (we count approximately 32 leases). Somewhat comically, the showroom spaces are actually located in the same buildings. Compounding matters was the fact that the debtors had to staff these redundant spaces and failed to integrate differing software and hardware systems. In an of themselves, these were challenging problems even without a macro overhang. But there was that too: “…due to a fundamental reduction of market size in the home furnishings market, sales plummeted industry wide and the Debtors were not spared.” Sales declined by 14% in each of the two years post-merger. (Petition Note: we can’t help but to think that this may be the quintessential case of big firm corporate partners failing to — out of concern that management might balk at the mere introduction of the dreaded word ‘bankruptcy’ and the alleged stigma attached thereto — introduce their bankruptcy brethren into the strategy meetings. It just seems, on the surface, at least, that the 2017 merger might have been better accomplished via a double-prepackaged merger of the two companies. If Mattress Firm could shed leases in its prepackaged bankruptcy, why couldn’t these guys? But what do we know?).

To stop the bleeding, the debtors have been performing triage since the end of 2018, shuttering redundant showrooms, stretching payables, and reducing headcount by RIF’ing 315 people. Ultimately, however, the debtors concluded that chapter 11 was necessary to take advantage of the breathing spell afforded by the “automatic stay” and pursue a going concern sale. To finance the cases, the debtors obtained a commitment from Wells Fargo Bank NA, its prepetition lender, for a $30mm DIP revolving credit facility of which approximately $6mm is new money and the remainder is a “roll-up” or prepetition debt (PETITION Note: remember when “roll-ups” were rare and frowned upon?). The use of proceeds will be to pay operating expenses and the costs and expenses of being in chapter 11: interestingly, the debtors noted that they’re administratively insolvent on their petition. 🤔

Here’s to hoping for all involved that a deep-pocked buyer emerges out of the shadows.

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

  • Capital Structure: $23.7mm senior secured loan (Wells Fargo Bank NA), $5.7mm secured junior loan (Corber Corp.)

  • Professionals:

    • Legal: Hahn & Hesson LLP (Mark Power, Janine Figueiredo)

    • Conflicts Counsel: Halperin Battaglia Benzija LLP (Christopher Battaglia)

    • Financial Advisor: RAS Management Advisors LLC (Timothy Boates)

    • Investment Banker: SSG Capital Advisors LLC (J. Scott Victor)

    • Liquidator: Great American Group LLC

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

  • Other Professionals:

    • DIP Agent: Wells Fargo Bank NA

      • Legal: Otterbourg P.C. (Daniel Fiorillo, Jonathan Helfat)

    • Subordinated Noteholder: Corber Corp.

      • Legal: Pachulski Stang Ziehl & Jones LLP (John Morris, John Lucas)

New Chapter 11 Bankruptcy Filing - Specialty Retail Shops Holding Corp. (Shopko)

Specialty Retail Shops Holding Corp. (Shopko)

January 16, 2019

Sun Capital Partners’-owned, Wisconsin-based, Specialty Retail Shops Holding Corp. (“Shopko”) filed for bankruptcy on January 16, 2019 in the District of Nebraska. Yes, the District of Nebraska. Practitioners in Delaware must really be smarting over that one. That said, this is not the first retail chapter 11 bankruptcy case shepherded by Kirkland & Ellis LLP in Nebraska (see, Gordman’s Stores circa 2017). K&E must love the native Kool-Aid. Others, however, aren’t such big fans: the company’s largest unsecured creditor, McKesson Corporation ($MCK), for instance. McKesson is a supplier of the company’s pharmacies and is a large player in the healthcare business, damn it; they spit on Kool-Aid; and they have already filed a motion seeking a change of venue to the Eastern District of Wisconsin. They claim that venue is manufactured here on the basis of an absentee subsidiary. How dare they? Nobody EVER venue shops. EVER!

Anyway, we’ve gotten ahead of our skis here…

The company operates approximately 367 stores (125 bigbox, 235 hometown, and 10 express stores) in 25 states throughout the United States; it employs…

TO READ THE REST OF THIS REPORT, YOU MUST BE A MEMBER. BECOME ONE HERE.

  • Jurisdiction: D. of Nebraska

  • Capital Structure: see report.    

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, Patrick Nash Jr., Jamie Netznik, Travis Bayer, Steven Serajeddini, Daniel Rudewicz) & (local) McGrath North Mullin & Kratz P.C. LLO (James Niemeier, Michael Eversden, Lauren Goodman)

    • Board of Directors: Russell Steinhorst (CEO), Casey Lanza, Donald Roach, Mohsin Meghji, Steve Winograd

    • Financial Advisor: Berkeley Research Group LLC

    • Investment Banker: Houlihan Lokey Capital Inc. (Stephen Spencer)

    • Liquidation Consultant: Gordon Brothers Retail Partners LLC

      • Legal: Riemer & Braunstein LLP (Steven Fox)

    • Real Estate Consultant: Hilco Real Estate LLC

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

  • Special Committee of the Board of Directors

    • Legal: Willkie Farr & Gallagher LLP

    • Financial Advisor: Ducera Partners LLC

  • Other Parties in Interest:

    • Wells Fargo Bank NA

      • Legal: Otterbourg PC (Chad Simon) & (local) Baird Holm LLP (Brandon Tomjack)

    • Official Committee of Unsecured Creditors (HanesBrands Inc., Readerlink Distribution Services LLC, Home Products International NA, McKesson Corp., Notations Inc., LCN SKO OMAHA (MULTI) LLC, Realty Income Corporation)

      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Bradford Sandler, Alan Kornfeld, Robert Feinstein) & (local) Goosmann Law Firm PLC (Joel Carney)

      • Financial Advisor: FTI Consulting Inc. (Conor Tully)

      • Expert Consultant: The Michel-Shaked Group (Israel Shaked)

Updated 3/9/19

Copy of New Chapter 11 Filing - Waypoint Leasing Holdings Ltd.

Waypoint Leasing Holdings Ltd.

November 25, 2018

“Get to the Choppa!” - Arnold Schwarzenegger

It has been a tough couple of years for companies in the helicopter business (see, e.g., Erickson Aircrane and CHG Group, not to mention PHI Inc. and Bristow Group, both of which restructuring professionals continue to watch and salivate over). So tough, in fact, that even Thanksgiving weekend wasn’t sacrosanct and even some big name sponsors couldn’t keep this thing out of court. Over the weekend, helicopter leasing company, Waypoint Leasing Holdings Ltd., “facing imminent liquidity constraints and potential defaults under their secured loan facilities,” filed for bankruptcy with a goal of…

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New Chapter 11 Bankruptcy Filing - Advanced Sports Enterprises Inc.

Advanced Sports Enterprises Inc.

November 16, 2018

Another day, another retailer in bankruptcy court.

Advanced Sports Enterprises Inc. and several affiliated companies filed for bankruptcy on Friday in the District of North Carolina. The debtors are designers, manufacturers and wholesale sellers of bicycles and related equipment. The debtors utilize both online (www.performancebike.com) and brick-and-mortar channels (104 retail stores across 20 states) to sell their bikes.

The debtors blame their capital structure and the seasonal nature of their business for their fall into bankruptcy. Due to lack of liquidity, it sounds as if the debtors engaged in an operational restructuring that included stretching payables to suppliers and creditors. As you might imagine, once payments are delayed, suppliers and creditors get kind of pissed off and start imposing more aggressive payment terms. In other words, they’re not too keen on being creditors. When that happens, a company pushing the envelope is caught in a vicious cycle. Indeed, here, the debtors say that they are on pace to run out of money in January 2019.

So, the debtors intend to market their business to an array of potential purchasers: private equity funds, family offices, strategic parties, and liquidators. While that process plays out, they will close 40 stores. They seek approval of a $45mm DIP credit facility from their prepetition senior secured lender, Wells Fargo Bank NA, to fund the cases.

  • Jurisdiction: D. of North Carolina

  • Capital Structure: $37.9mm first lien credit facility (Wells Fargo NA). $7.375mm term loan (Advanced Holdings Co., Ltd.). Otherwise, see below.

  • Company Professionals:

    • Legal: Flaster/Greenberg P.C. (William Burnett, Richard Dressel, Harry Giacometti, Douglas Stanger, Damien Nicholas Tancredi) & (local) Northern Blue LLP (John Northen, Vicki Parrott, John Paul H. Cournoyer)

    • Financial Advisor: Clear Thinking Group LLC (Joseph Marchese)

    • Investment Banker: D.A. Davidson & Co. (Michael Smith)

    • Liquidator: Gordon Brothers Retail Partners LLC

    • Real Estate Consultant: A&G Realty Partners LLC

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

  • Other Parties in Interest:

    • Senior Secured Lender: Wells Fargo Bank NA

      • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox) & (local) Williams Mullen (Holmes Harden)

    • Unsecured Creditors Committee: none appointed due to lack of creditors.

Screen Shot 2018-11-16 at 1.35.41 PM.png
Source: First Day Declaration.

Source: First Day Declaration.

😷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 Filing - RM Holdco LLC (Real Mex)🌮

In April's piece entitled "🍟Casual Dining is a Hot Mess🍟" and then in a follow-up in July creatively and originally entitled "🍟Casual Dining Continues to = a Hot Mess🍟" we noted that...well...casual dining is a hot mess. As of today…A. Spicy. Hot. Mess. Actually.

Late last night, RM Holdco LLC, the owner of a portfolio of 69 company-operated and 11 franchised restaurants and contemporary taquerías including Chevy's Fresh Mex, Siniqual, El Torito Grill, Las Brisas and Alcapulco filed for bankruptcy to effectuate a "363 sale" of substantially all of its assets to an affiliate of one of its pre-petition equityholders, Z Capital Partners LLC for $46.75mm. Interestingly, this filing also marks the third — that’s right, THIRD — chapter 22 filing in the last week following Home Heritage Group Inc. and Brookstone Inc. This is how we previously described a “Chapter 22”:

For the uninitiated, Chapter 22 in bankruptcy doesn’t actually exist. It is a somewhat snarky term to describe companies that have round-tripped back into chapter 11 after a previous stint in bankruptcy court.

Real Mex previously filed for bankruptcy in October 2011 and sold to Z Capital and Tennenbaum Capital Partners LLC in March 2012. At the time of that previous chapter 11 filing, the company operated approximately 128 restaurants.

This time, the signs of an imminent bankruptcy filing were out there shining for all to see as the company has been sending smoke signals for months. Back in May, Bloombergreported that the company hired Piper Jaffray to pursue a sale — including one that could be consummated in bankruptcy. Thereafter, in June, the company filed a WARN Notice with the Department of Labor indicating that it intends to close its Times Square location and lay off 134 employees. Perhaps the signs were in place even earlier when the company hired the former CFO of Wet Seal, a retailer that, itself, found its way into bankruptcy court twice.

The company highlights various macro factors as reasons for this chapter 11 filing:

For the past six (6) years, the Debtors have struggled with certain industry-wide and company-specific pressures that have negatively impacted their operations. Trends in the greater restaurant industry, including increases to minimum wage and commodity costs, have created substantial pressure on the entire sector, as evidenced by the numerous brands that have filed for bankruptcy in recent years, including Ignite Restaurant Group (Brick House and Joe’s Crab Shack), Macaroni Grill, Garden Fresh, Bertucci’s, Crumbs, Cosi, and Buffets.

And:

In addition, increased competition, especially in the form of available, quality Mexican fast casual options, has had a significant impact on traffic in the Debtors’ restaurants.

For anyone keeping track of the “What Caused Bankruptcy” standings, this would be Amazon Inc. ($AMZN) 282,499,209 and (now) Chipotle Inc. ($CMG) 1.

Compounding matters here is (i) the company’s $200+ million in debt, (ii) an expensive workers’ compensation program, (iii) long-term lease burden (it leases all of its locations, the majority if which are in California), (iv) an expensive-yet-unconsummated-growth-strategy (the company attempted but failed to pursue expensive M&A processes with bankrupted Garden Fresh Restaurant Intermediate Holdings, among others), and (v) poor risk management procedures. On the latter point, it seems the company was a wee bit cavalier about not-at-all-serious matters like alcohol awareness, sexual harassment and food handling safety; therefore, it “experienced higher-than-normal litigation and enforcement-related expenses.” Yikes.

Now, back in October 2016 — in the context of Garden Fresh’s chapter 11 filing — we asked “Are Progressives Bankrupting Restaurants?” Therein we highlighted the following:

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

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

Points for PETITION’s bullseye?

Notably, here, the company also underscores that employee costs were a significant contributor to its liquidity constraints. It states:

While struggling with the specific issues discussed above, the Debtors have also suffered from rising employee wage costs, which are particularly high in California, where the vast majority of the Debtors’ restaurants are located. In an attempt to minimize these costs, the Debtors have implemented a scheduling program that has reduced employee hours and has optimized both front-of-house and back-of-house staffing.

Welcome to the party, Mr. Unintended Consequences.

The company seeks to use the bankruptcy process to effectuate the afore-mentioned sale to Z Capital. While the purchase price is a mere fraction of the debt on balance sheet, Z Capital’s proposed stalking horse asset purchase agreement also provides that it will “offer employment to all Company employees at purchased restaurants who are employed at the closing, and may offer employment to other Company employees as well.” In other words, this may be one of those instances where the funds lose on their investments but the (remaining) employees come out relatively okay. Z Capital and Tennenbaum are also providing the company with a $5.5mm DIP credit facility to finance operations during course of the cases.

  • Jurisdiction: D. of Delaware (Judge [ ])

  • Capital Structure: $41.7mm first lien credit facility (Wells Fargo Bank NA), $195.1mm second lien credit facility (Wells Fargo Bank NA), $17.53mm in secured reimbursement obligation loans (from Letters of Credit), $53.62mm unsecured subordinated convertible debt (Z Capital = large holder)    

  • Company Professionals:

    • Legal: Sidley Austin LLP (Vijay Sekhon, Christina Craige, Ariella Thal Simonds) & (local) Young Conaway Stargatt & Taylor LLP (Robert Brady, Elizabeth Justison, Andrew Magaziner, Edmon Morton, Michael Nestor)

    • Financial Advisor: Alvarez & Marsal LLC (Jonathan Tibus)

    • Investment Banker: Piper Jaffray & Co. (Jean Hosty, Terri Stratton, Michael Sutter) 

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

  • Other Parties in Interest:

    • Stalking Horse Bidder & DIP Lender: Z Capital Group LLC (Legal: Cleary Gottlieb Steen & Hamilton LLP & (local) Morris Nichols Arsht & Tunnell LLP)

    • DIP Lender: Tennenbaum Capital Partners (Legal: Schulte Roth & Zabel LLP & (local) Landis Rath & Cobb LLP)

    • DIP Agent: Wells Fargo Bank NA (Thompson & Hine LLP)

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 - AcuSport Corporation

AcuSport Corporation

5/1/18

AcuSport Corporation, an Ohio-based (i) distributor of outdoor and shooting sports products and (ii) consultant to independent retailers, has filed for bankruptcy. Why? #MAGA!! That's why. 

In the company's words,

At a time when the defense market experienced a downturn in demand, the civilian small arms and ammunition market of the firearms industry was doing well. Consumers were concerned about the possibility of stricter gun control laws, which led to increased sales. Many firearms manufacturers, retailers, and distributors, including AcuSport, understood that consumers anticipated Hillary Clinton would win the presidential election in 2016. The common belief shared by businesses in the firearms industry was that demand would increase if Clinton was elected as President because consumers expected the new administration to seek to implement gun-control legislation. As a result, AcuSport, along with other firearms businesses, prepared for a spike in demand by, among other things, purchasing substantial amounts of inventory.

This should sound familiar. Remington Outdoor Company had a similar narrative when it filed for bankruptcy. Hilary Clinton's election loss has apparently wreaked havoc on the gun industry. To put some numbers around this, AcuSport's revenue decreased 30% in fiscal 2017 YOY. And yet it apparently has substantial inventory -- a fact borne out by its who's who list of top creditors. Gun lovers will recognize some of the names: Sturm Ruger & Company Inc. ($RGR), Glock Inc., Sig Sauer Inc., and others. If you're not a gun lover and happen to be a bankruptcy professional, you should recognize two others: Remington Arms Co. and Colt's Manufacturing Co. The latter two know their way around a bankruptcy court.

This turn of events triggered a default under the company's Wells Fargo-provided credit facility. The company proposes to sell to Ellett Brothers LLC, which has executed a stalking horse asset purchase agreement for a purchase price of $7.75 million plus the value of AcuSport's inventory. Subject to AcuSport's option and an administrative fee, the purchaser will also collect any accounts receivable existing at the time of closing. 

All of the Trump/NRA lovefests in the world can't seem to prevent gun-related companies from going bankrupt. Ironic. #MAGA!!

  • Jurisdiction: S.D. of Ohio (Judge Hoffman)
  • Capital Structure: $17.5mm debt (Wells Fargo Bank NA)      
  • Company Professionals:
    • Legal: Bryan Cave Leighton Paisner LLP (Jason Dejonker, Cullen Kuhn) & (local) Allen Kuehnle Stovall & Neuman LLP (Thomas Allen, Richard Stovall, Erin Gapinski)
    • Financial Advisor: Huron Consulting Services LLC (Daniel Wikel)
    • Investment Banker: Huron Transaction Advisory LLC (Geoffrey Frankel)
    • Claims Agent: Donlin Recano & Company Inc. (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Lender: Wells Fargo Bank NA
      • Legal: Goldberg Kohn Ltd. (Jacob Marshall, Jeremy Downs, Michael Tucker) & (local) Ulmer & Berne LLP (Reuel Ash)
    • Prospective Buyer: Ellett Brothers LLC
      • Legal: McDermott Will & Emery LLP (Timothy Walsh, Megan Preusker) & (local) Hahn Loeser & Parks LLP (Lawrence Oscar, Daniel DeMarco)

Updated 5/4 at 7:05 CT

New Chapter 11 Filing - Nine West Holdings Inc.

Nine West Holdings Inc.

April 6, 2018

Nine West Holdings Inc., the well-known footwear retailer, has finally filed for bankruptcy. The company will sell its Nine West and Bandolino brands to Authentic Brands Group and reorganize around its One Jeanswear Group, The Jewelry Group, the Kasper Group, and Anne Klein business segments. The company has a restructuring support agreement in hand to support this dual-process. 

More on the situation here

  • Jurisdiction: S.D. of New York (Judge Chapman)

  • Capital Structure: See below.

Source: First Day Declaration

Source: First Day Declaration

  • Company Professionals:

    • Legal: Kirkland & Ellis LLP (James Sprayragen, James Stempel, Joseph Graham, Angela Snell, Anna Rotman, Jamie Aycock, Justin Alphonse Mercurio, Alyssa Russell)

    • Financial Advisor: Alvarez & Marsal North America LLC (Ralph Schipani III, Julie Hertzberg, Holden Bixler, Amy Lee, Richard Niemerg, Theodore Langer, Stuart Loop, Thomas Koch, Michael Dvorak)

      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc, Alexander Lees)

    • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Ari Lefkovits, David Hales, Mike Weitz, Nikhil Angelo, Okan Kender, Abigail Gay, Drew Deaton) & Consensus Advisory Services LLC

    • Authorized Officers: Stefan Kaluzny, Peter Morrow, Harvey Tepner, Alan Miller

    • Legal to the Authorized Officers: Munger Tolles & Olson LLP (Seth Goldman, Kevin Allred, Thomas Walper)

    • Financial Advisor to the Authorized Officers: Berkeley Research Group LLC (Jay Borow)

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

  • Other Parties in Interest:

    • Stalking Horse Bidder/Buyer: Authentic Brands Group

      • Legal: DLA Piper LLP (Richard Chesley, Ann Lawrence, Rachel Ehrlich Albanese)

    • Prepetition ABL and FILO Agent: Wells Fargo NA

      • Legal: Morgan Lewis & Bockius LLP (Matthew Ziegler, Julia Frost-Davies, Amelia Joiner)

    • Administrative Agent for the prepetition secured and unsecured Term Loan Facilities: Morgan Stanley Senior Funding Inc.

    • Indenture Trustee for 3 series of Unsecured Notes: US Bank NA

      • Legal: White & Case LLP (J. Christopher Shore, Philip Abelson) & Seward & Kissel LLP (John Ashmead, Arlene Alves)

    • Ad Hoc Group of Secured Lenders (Farmstead Capital Management LLC, KKR Credit Advisors (US) LLC)

      • Legal: Davis Polk & Wardwell LLP (Marshall Huebner, Darren Klein, Adam Shpeen)

      • Financial Advisor: Ducera Partners LLC

    • Ad Hoc Group of Crossover Lenders (Alden Global Capital LLC, Carlson Capital LP, CVC Credit Partners LLC, Silvermine Capital Management LLC, Trimaran Advisors)

      • Legal: King & Spalding LLP (Michael Rupe, Jeffrey Pawlitz, Michael Handler, Bradley Giordano)

      • Financial Advisor: Guggenheim Securities LLC

    • Brigade Capital Management, LP

      • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannel, Rachael Ringer)

      • Financial Advisor: Moelis & Company

    • Ad Hoc Group of 2019 Unsecured Noteholders (Whitebox Advisors LLC, Scoggin Management LP, Old Bellows Partners LP, Wazee Street Opportunities Fund IV)

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

    • Ad Hoc Group of 2034 Unsecured Noteholders

      • Legal: Jones Day

      • Financial Advisor: Houlihan Lokey

    • Administrative Agent for $247.5mm DIP ABL Facility

    • Administrative Agent for $50mm DIP TL Facility

    • Sponsor: Sycamore Partners LP

      • Legal: Proskauer Rose LLP (Mark Thomas, Peter Young, Michael Mervis, Jared Zajac, Chantel Febus, Alyse Stach)

    • KKR Asset Management

      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Andrew Leblanc)

    • Morgan Stanley & Co. LLC and Morgan Stanley Senior Funding Inc.

      • Legal: Ropes & Gray LLP (Gregg Galardi, Gregg Weiner)

    • Official Committee of Unsecured Creditors (Aurelius Capital Master Ltd., GLAS Trust Company LLC, PBGC, Simon Property Group, Stella International Trading (Macao Commercial Offshore) Ltd., Surefield Limited, U.S. Bank NA)

      • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, David Zensky, Deborah Newman, Arik Preis, Jason Rubin, Anthony Loring, Michael Byun, Patrick Chen)

      • Legal Conflicts Counsel: Kasowitz Benson Torres LLP (David Rosner, Howard Schub)

      • Financial Advisor: Protiviti Inc. (Guy Davis, Suzanne Roski, Heather Williams, John Eldred, Justin Koehler, Brian Taylor, Russell Brooks, Matthew Smith, Blake Parker, Lee Slobodien, Omkar Vale, Lok Lam, Sean Sterling) & Province Inc. (Michael Atkinson, Jason Crockett, Eunice Min, Byron Groth)

      • Investment Banker: Houlihan Lokey Capital Inc. (Saul Burian, Surbhi Gupta, Chris Khoury, Tejas Kullarwar, Matt Ender, Brendan Wu)

Updated 11/3/18 at 6:42 am CT

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 - 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 - Augustus Energy Resources LLC

3/16/18

Augustus Energy Resources is a privately-owned natural gas E&P company based in Billings, Montana; its primary assets are operating and non-operating working interests in approximately 1575 natural gas wells in eastern Colorado, the aggregation of which arises out of various acquisitions from Berry Petroleum Company and Rosetta Resources. 

The company filed for bankruptcy because the collapse in the market price of natural gas left it in a position where it couldn't (i) devote the capital necessary to maintain and grow its business, (ii) service its balance sheet and (iii) get access to credit. Indeed, the falling natural gas price led to multiple redeterminations of the borrowing base in the company's Wells Fargo-provided senior secured credit facility. Moreover, the company became the subject of a class action lawsuit accusing it of improperly charging royalty owners of certain post-production processing and transportation costs. This complicated an attempted out-of-court sale process of the company.

The company has filed for bankruptcy, therefore, to pursue a sale to a proposed stalking horse bidder, OWN Resources Inc. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $14.4mm debt (Wells Fargo Bank NA)    
  • Company Professionals:
    • Legal: Davis Graham & Stubbs LLP (Christopher Richardson, Thomas Bell, Kyler Burgi) & (local) Sullivan Hazeltine Allinson LLC (William Sullivan, William Hazeltine)
    • Investment Banker: TenOaks Energy Advisors LLC
    • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Sponsor: Kayne Anderson Capital Advisors LP 
  • Wells Fargo Bank NA
    • Legal: Vinson & Elkins LLP (William Wallander, Matthew Pyeatt) & (local) Womble Bond Dickinson (US) LLP (Ericka Johnson, Morgan Patterson)
  • Stalking Horse Bidder: OWN Resources Inc.
    • Legal: Husch Blackwell LLP (Lynn Butler)

New Chapter 11 Bankruptcy - The Walking Company Holdings Inc.

The Walking Company Holdings Inc.

3/8/18 Recap: Another retailer - this time a repeat offender - will be walking into bankruptcy court (see what we did there?). Here, the California-based once-publicly-traded ($WALK) manufacturer of footwear like Birkenstock and ASICS has filed for bankruptcy with a plan on file and an equity sponsor in tow to the tune of $10mm. 

This is a story of staggered disruption. In the first instance, the company expanded via acquisition and grew from 2005-2008 to over 200 stores. To fund the expansion, the company issued $18.5mm of convertible notes and transferred the proceeds of the liquidation of its Big Dog entity to The Walking Company, the use of proceeds including the buildout of omni-channel distribution and vertical integration. But,

As a result of many factors including- among them, challenging negotiations with landlords which did not provide the Debtors with the rent relief they believe they needed, and the state of the national economy, by late 2008 TWC found that nearly 100 of the newer stores it opened during this expansion period were not generating the sales and profits expected.

Moreover, 

...by 2008, Big Dogs' business had collapsed more rapidly than the Debtors had anticipated. Big Dogs was in the business of selling moderately priced, casual apparel through a chain of specialty retail stores (Big Dogs stores) located around the country. The rapid growth of big-box, mass-market retailers during this period put great pricing pressure on retailers of moderately priced, casual apparel, putting many of them out of business.

Walmart ($WMT). Target ($TGT). Just say it broheims. Never understand the reluctance in these filings. Anyway, the upshot of all of this? Once the Great Recession hit, mall traffic fell off a cliff, revenue declines accelerated, landlords proved obstinate, and the company filed for bankruptcy in December 2009. 

In bankruptcy, the company reached accommodations with certain landlords and received a $10mm capital infusion from Kayne Anderson Capital Advisors LP. 

Subsequent to the bankruptcy, the company apparently thrived from 2013 through 2017. It had a better rent structure, it ceased expansion, and it focused on successful brands (e.g., ABEO) and the wholesaling and international licensing thereof. But then the realities of e-commerce struck. Per the company,

During this period, however, the increasing power of Internet retailers made traditional business of retail stores selling products manufactured by others increasingly difficult, and it also had an increasingly negative impact on customer traffic in shopping malls. 

Indeed, Deckers Outdoor Corporation ($DECK)(the manufacturer of UGG footwear) terminated its relationship with the company. The company couldn't replace those lost sales fast enough - through third party or private label sales - and the dominos started to fall. The company sought rent concessions and landlords, for the most part, told it to pound sand. Holiday sales declined. Appraisers reduced the valuation of inventory and, in turn, the company had diminished access to its bank credit line. Cue the Scarlet 22.

The company intends to use the bankruptcy to obtain "substantial rent relief by conforming their lease portfolio to market rents." Notably, two of the initial 5 leases that the company seeks to reject in the first instance are Simon Property Group locations in Dallas and Oklahoma City and one Taubman location. Other creditors appear to be your standard retail slate: Chinese manufacturers, trade vendors (ECCO, Rockport) and other landlords (General Growth Properties is a prominent one with locations listed as 9 of the top 30 creditors). 

The company otherwise has agreement with its large shareholders (including another $10mm equity infusion) and Wells Fargo to provide DIP and exit credit. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $40.3mm RCF & $7.25mm TL (Wells Fargo Bank NA), $11.74mm 8.375% '19 convertible notes    
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey N Pomerantz, Jeffrey W Dulberg, Victoria A Newmark, James E ONeill) 
    • Financial Advisor: Consensus Advisors LLC
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent, DIP Term Agent, Prepetition Senior Agent: Wells Fargo Bank NA
      • Legal: Choate Hall & Stewart LLP (Kevin Simard) & (local) Womble Bond Dickinston (Matthew Ward)
    • Prepetition Subordinated Noteholders (Simon Property Group, Galleria Mall Investors LP)
      • Legal: Irell & Manella LLP (Jeffrey Reisner)

New Chapter 11 Filing - Hobbico Inc.

Hobbico Inc.

1/10/18

Chicago-based designer, manufacturer and distributor of hobby products like radio-control toys filed for bankruptcy after struggling from (i) too much debt, (ii) lack of investment in product innovation and in its core ecommerce platform, (iii) a systemic shift in the drone market (wherein Asian suppliers started competing by selling direct-to-consumer), (iv) the bankruptcy of a key supplier of racing products, and (v) disruption to its Asian supply chain. The company defaulted on its secured debt and is using the chapter 11 process in order to attempt to sell its business as a going-concern. 

  • Jurisdiction: D. of Delaware
  • Capital Structure: $74.5mm revolver and term loan (Wells Fargo Bank NA), $41.2mm subordinated secured note (Cyprium Investors IV AIV I LP)     
  • Company Professionals:
    • Legal: Neal Gerber & Eisenberg LLP (Mark Berkoff, Nicholas Miller, Thomas Wolford) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller, Matthew Talmo, Andrew Golden)
    • Financial Advisor: CR3 Partners LLC (Tom O'Donoghue, Douglas Flannery, Chris Creger, Layne Deutscher) & Keystone Consulting Group LLC (Louis Brownstone)
    • Investment Banker: Lincoln International LLC (Alexander Stevenson)
    • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent: Wells Fargo Bank NA
      • Legal: Goldberg Kohn Ltd. (Randall Klein, Zachary Garrett, Prisca Kim, Jacob Marshall) & (local) Burr & Forman LLP (J. Cory Falgowski)
    • Lender: Cyprium Investors IV AIV I LP
      • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.)
    • Official Committee of Unsecured Creditors
      • Legal: Cullen and Dykman LLP (S. Jason Teele, Nicole Stefanelli, Michelle McMahon, Bonnie Pollack) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Stephen Gerald, Kevin Shaw)
      • Financial Advisor: Emerald Capital Advisors (John Madden)