New Chapter 11 Filing - Videology Inc.

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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 - Augustus Energy Resources LLC

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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.

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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)