💥Dodge This💥
23andMe + Village Roadshow File; FMI + Franchise Group Updates
On March 23, 2025, 23andMe Holding Co. ($ME) and 11 affiliates (collectively, the “debtors”) gave up the ghost and filed chapter 11 bankruptcy cases in the Eastern District of Missouri (Judge Walsh). When we updated y’all on these now-debtors earlier this month …
… we couldn’t have wrapped more simply:
“As Bloomberg’s Matt Levine recently noted, ‘it will be hard to find another buyer when Wojcicki controls the company,’ so maybe it’s just time for an old-fashioned chapter 11 sale process that’ll put those control rights in their place and other bidders can have an opportunity to drive value in the right direction. Unless the offer gets materially better, that outcome seems inevitable anyway.”
And, hey, that’s exactly what we got for this “leading human genetics and telehealth company” …
… although, truth be told, we didn’t have E.D. Mo. on our bingo card. At least it wasn’t forum shopping, 🤷♀️; these are some long-lived residents of the “Show Me [the Nearest Exit] State.” We dove into the debtors’ business (or lack thereof) back in late February …
… so we’ll be brief here because little has changed. The company derived ~76% (or ~$166.9mm) of its FY24 revenue (~$219.6mm) from Personal Genome Service (“PGS”) offerings – the one-trick pony of hocking a loogie into a test tube, slapping that puppy in the mail, and waiting a few weeks for the debtors to serve up a breakdown of your ancestry. In a nutshell, that’s the problem with the entire business; there’s no recurring demand, and competition from others, along with first-day faves COVID, inflation, and increased costs, only made matters worse. Most of the rest of that revenue ⬆️ comes from the debtors’ plain vanilla telehealth platform Lemonaid, coming in at a sweet ~16% (~$35.1mm), with the ~8% balance (~$17.6mm) deriving from research services, largely through a now-done-and-dusted deal with a GlaxoSmithKline ($GSK) affiliate.*
So what’s new since our prior updates? For one, in a none-too-surprising move, employee count is down yet again, to ~286 as of the petition date, a ~20% fall from November ‘24’s already-decimated headcount of ~359.** For another, on March 21, 2025, the debtors executed settlement agreements addressing various litigation claims stemming from their cyber-security breach for $37.5mm all-in. Just in time for bankruptcy too: the debtors executed the definitive docs on March 21, 2025, three days before the petition date.
On governance, the debtors appointed Thomas Walper, formerly of Munger Tolles & Olson LLP, to their board and special committee, where he rounds out the latter’s membership at four, alongside November ‘24 appointees Mark Jensen, Andre Fernandez, and Jim Frankola, and will undoubtedly provide substantial insight into the committee’s “special review” of claims against directors, officers, equity holders, and “other” company insiders.
And we already said this is a sale case, so turning to that, there’s, lol, no stalking horse. Even though the debtors began soliciting third-party interest back in January ‘25, engaging with 103 potential counterparties and executing 42 NDAs, and only received a single offer – from then-CEO and still-board-member Anne Wojcicki – that provided for an out-of-court solution, they couldn’t line one up. Oh, why “then-CEO”? Because on the petition date, Ms. Wojcicki clocked out from the company’s employ to focus on buying it back.
Her enthusiasm was not shared, lol:
Anyway, CFO Joseph Selsavage replaced Ms. Wojcicki as interim CEO and President, while Alvarez & Marsal North America, LLC’s Matthew Kvarda is serving as CRO.
While we wait to see what Ms. Wojcickis’ next bid looks like, we can’t help but notice her prior offer of 41¢ per share and contingent value rights of up to $2.53 is looking more appealing by the minute. Or not. Really, depends on when you check. After the filing caused the price to plummet from $1.79 per share down to 52¢, it’s since bounced all over the place, hitting a high of $1.20 before slinking back to 61¢ (and beyond after hours).
With respect to the timeline to get to that sale, here’s what the debtors have in mind.
In and out, and in case any of our dear readers’ genetic data is held by the debtors, you’re probably (no promises) going to be okay because “the proposed bidding procedures will require any person or entity who wishes to participate in the Auction to comply, in all respects, with the Debtors’ existing consumer privacy practices and will require an affirmative statement as part of any bid acknowledgment of such compliance.”*** Although that has stopped absolutely no one from sounding the alarms. Here’s US senator Ron Wyden (D-OR), NY Attorney General Letitia James, AZ Attorney General Kris Mayes, security researcher and software engineer Jane Manchun Wong, journalist Jason Koebler, MrsDowJones and the soon-to-be-federally-deleted NPR (what, too soon?):
There are many, many more, but you get the picture.
But either debtors’ counsel Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”)(Paul Basta, Christopher Hopkins, Jessica Choi, Grace Hotz, Justin Simms, Lauren Castillo, William Clareman) and Carmody MacDonald P.C. (Thomas Riske, Nathan Wallace, Jackson Gilkey, Robert Eggmann III) did a good job assuaging concerns at the first day hearing – by pointing government lawyers to publicly-available, free-of-charge, court-filed documents**** – or because there’s already something new and doubtlessly more entertaining on TikTok for the kids to be up in arms about, interest in deleting accounts and data … which was initially so robust that the debtors’ website crashed … is already falling.
In terms of the prepetition cap stack, it couldn’t be much simpler. The debtors filed with no funded debt and $37mm of unrestricted cash on hand,***** which basically requires us to ask what exactly Mr. Kvarda is doing in his officer role because, as far as we can tell, there’s jack sh*t to restructure.
Regardless, having cash and no debt isn't going to stop the debtors from seeking a DIP. Unsurprisingly, Ms. Wojcicki tossed in an undisclosed proposal for that too, but the special committee opted for JMB Capital Partners Lending, LLC’s (“JMB”) term sheet, which provides for a $35mm senior secured term loan.****** But because the debtors aren’t pulling up to St. Louis on fumes (not yet anyway — almost half of the debtors’ cash on hand will be burned on pro fees between the petition date and June 6), they’re not seeking immediate funding. Instead, court approval to flip the term sheet into definitive documentation sufficed. Approval of the term sheet paid out a $100k work fee and $700k commitment fee, equal to 2% of the total commitments, to JMB, while the second-day hearing will bring the definitive docs and, if approved, an immediate injection of $10mm, with the remaining $25mm locked up until the court approves a stalking horse agreement that either pays JMB off in full or has its support. Why that condition? Because Ms. Wojcicki’s 41¢ offer would have paid $12.1mm in current cash, and JMB definitively doesn’t want to get left holding the bag. The DIP will carry a 14% cash-pay interest rate and, in addition to those other fees, a 4% exit fee is doled out at each stage of funding, which should provide a nice return under a budget that forecasts getting (barely) through the sale with cash on hand and, therefore, zero DIP draws.
The debtors’ first-day hearing went forward on March 26, 2025, at which the court granted all requested relief and scheduled a second-day hearing on April 22, 2025. Despite stretching nearly 3.5 hours, the hearing went about as smoothly as it could under the circumstances, with most drawn-out discussion coming from those government lawyers noted above, as well as plaintiffs’ lawyers who didn’t like the debtors’ attempt to make them sub-agents of Kroll by forcing them to forward, through court order, documents to their clients. That got hashed out by removing the language in toto, but can’t blame ‘em for trying.
No doubt an unsecured creditors’ committee will force itself into the conversation before long, and we hear rumblings that an equity committee isn’t out of the question. Given the capital structure, it wouldn’t be at all surprising. And perhaps Brown Rudnick LLP will land one of those roles. We hear they were in attendance at the hearing and are undoubtedly looking forward to providing their well-known “constructive” input on process.
The debtors are represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP (Paul Basta, Christopher Hopkins, Jessica Choi, Grace Hotz, Justin Simms, Lauren Castillo, William Clareman) and Carmody MacDonald P.C. (Thomas Riske, Nathan Wallace, Jackson Gilkey, Robert Eggmann III) as legal counsel, Alvarez & Marsal North America, LLC (Matthew Kvarda) as CRO and financial advisor, and Moelis & Company LLC ($MC) (Barak Klein, Andrew Swift) as investment banker. Mark Jensen, Andre Fernandez, Jim Frankola, and Thomas Walper are independent directors, compose the debtors’ special committee, and are represented by Goodwin Procter LLP (Robert Lemons, Debora Hoehne, Katherine Lynn) and Lewis Rice LLC (Larry Parres) as legal counsel. JMB is represented by Norton Rose Fulbright US LLP (Rob Hirsch, Jamie Copeland, Kristian Gluck, Jeff Kalinowski, Joshua Watts). TTAM 2.0, LLC is represented by Skadden, Arps, Slate, Meagher & Flom LLP (Evan Hill, Ron Meisler, Joe Larkin, Jason Kestecher) and Armstrong Teasdale LLP (Erin Edelman, David Going) as legal counsel.
* GSK also owns a decent slice of the equity, with 7.23%.
** At its peak, the company had 816 employees.
***This👇:
**** You have to wonder what these public servants were doing during their 3 years of law school and post-grad practice. None of them took the time to review anything the debtors put on the docket ahead of the hearing.
***** Otherwise the capital structure is simple AF. The debtors’ unsecured claims relate to ordinary course trade and cyber-security claims.
****** You may recall JMB is the firm that provided the first-day, non-consensual priming DIP in Prospect Health, although this one ought to go a touch easier.
⚡Update: Dynamic Aerostructures LLC⚡
You’ll recall in our first day coverage of the Dynamic Aerostructures LLC cases…
… that there were two identified interested bidders in the debtors’ totally bad-a$$ terrorist-killing assets: (i) one, the proposed stalking horse purchaser, Avem Partners (“Avem”), and (ii) two, a left-in-the-wind alternative suitor, TRM Equity (“TRM”). The latter agitated at the first day hearing to wrestle the debtors’ proposed DIP out from under third-party lender CRG Financial LLC (“CRG”), which, for its part, was consensually(!) priming pre-petition lender BMO Harris Bank NA (“BMO”)(owed $54mm), which, for its part, wanted to f*ck off in the hardest and fastest way imaginable. After some first day combat between TRM and CRG, Judge Silverstein (reminder, this case filed in Delaware) ultimately approved the proposed CRG DIP on an interim basis — but not before curbing some of CRG’s sweet … and we mean sweeeeeeet … economics.
Like a classic bar room brawl, it seems things spilled out onto the street afterwards.
But this wasn’t a battle of the brawn. This was a test of wits as both TRM and Avem simultaneously came to the same epiphany: that is — in case you already forgot — that BMO “…for its part, wanted to f*ck off in the hardest and fastest way imaginable.” BMO, being the blood-sucking capitalist banker pigs that they are (we kid, we kid), open up their doors, threw down some welcome mats and “made a market” to dump the paper and … wait for it … “f*ck off in the hardest and fastest way imaginable.” In walked both potential purchasers.
Out walked only FMI Holdco LLC, an Avem affiliate. On March 14, 2025 Avem announced that it had acquired the entirety of BMO’s prepetition debt (though BMO retained its sole and exclusive right to receive adequate protection payments — nicely done Katten Muchin Rosenman LLP and Womble Bond Dickinson LLP, we 👀 you).
We’re sure you can already guess where this is going:
At this point we ought to remind you that this is a sale case and the marketing process — you know, the one the debtors’ investment banker Configure Partners LLC started literally a year ago — is ongoing. Of course, the potential for a credit bid could chill any potential bids out there, including any bid that TRM might still be entertaining.
And TRM is definitely still entertaining. On March 21, 2025, TRM filed a statement “seeking clarity,” lol, and, maybe we’re just jaded, but it reads whiny AF:
If you’re wondering if the BMO prepetition nut is considered a valid lien, well we can turn to the official committee of unsecured creditors for that right? Right?
Ah sh*ttttttt. So much for a challenge period LOL.
And so TRM, Avem and the debtors convened on March 25, 2025 to hash out the issues. The debtors insisted that the BMO debt is valid. And without a UCC to investigate…
… that was basically that.
So that left the sensitive subject of the credit bid. Did Avem have the ability to credit bid and, from there, did it have to announce its intentions vis-a-vis the credit bid, as TRM insisted, to help give potential bidders more clarity? Could someone theoretically come in, look at the $16mm in cash and the $54mm funded debt, and bid over $70mm for the assets? Here’s Judge Silverstein:
“I assume these assets aren't going to, if these assets were worth more than $70 million, then we wouldn’t be here, right?”
And in response, Ropes & Gray LLP’s Gregg Galardi, on behalf of the debtors:
“Exactly. Why did we file in the first place?”
In the end, Judge Silverstein allowed the credit bid but required Avem to disclose whether it intended to exercise its right. You know, for, like, transparency. Avem filed that notice of intention one day after the hearing:*
All. Or. A. Portion.
Very clarifying, guys, thank you.
The ball is in TRM’s court.
Bidders have until April 2, 2025 to submit a bid which will be promptly followed by an auction (if necessary) on April 4 and a sale hearing on April 7. We’ll keep y’all updated.**
*Since Avem now holds prepetition debt with the intention of credit bidding, the original stalking horse bid protections are waived.
**The debtors got the DIP approved on a final basis without any drama.
⚡️Update: Franchise Group, Inc.⚡️
In case y’all missed it, Judge Silverstein hosted a group therapy session for all the advisors involved in the chapter 11 cases of Franchise Group Inc. (together with 52 affiliates, the “debtors”) on March 17, 2025.* The debtors, now represented by Kirkland & Ellis LLP (Josh Sussberg, Nicole Greenblatt, Mark McKane, Derek Hunter), called the good doctor judge back on March 7, 2025 because, and we quote, the cases are an “absolute litigation festival,” the behavior irresponsible” and “embarrassing,” and the fees are “extraordinary.” How extraordinary? How’s $56mm to $83mm in incremental fee burn sound?
So, suffice it to say, K&E efforts to “settle this the first day we were involved” and corral the ad hoc group of second lien and holdco lenders (the “Freedom Lender Group”), represented by White & Case LLP (Tom Lauria, J. Christopher Shore, Andrew Zatz, Samuel Hershey, Erin Smith, Brett Bakemeyer) haven’t been going to plan.
That isn’t for lack of trying though. K&E is frustrated as sh*t. It was damn near palpable every time Mr. Sussberg and Ms. Greenblatt spoke. They’ve tried every logical approach, including inviting “principals and advisors of both lender groups for an in-person settlement discussion at K&E in New York on February 28, 2025” to no avail. The ad hoc group of first lien lenders (the “ad hoc group”), represented by Paul Hastings LLP (Jayme Goldstein, Daniel Fliman, Jeremy Evans, Isaac Sasson, Nicholas Bassett), showed up. But the Freedom Lender Group? They had better sh*t to do apparently and didn’t make it, although Mr. Lauria tried to explain that away with this:
“There was confusion on our end regarding the logistics and ultimately based on the large gap between the various positions, my clients concluded that it was not worth their time to fly cross country for a meeting that they felt was very unlikely to result in anything constructive.”
So was it confusion? Or that you weren’t going to get to a deal? Because we checked, and confusion aside, there are at least 22 direct flights per day from Los Angeles and Newport Beach, CA (where Freedom Lender Group members Irradiant Partners, LP and Pacific Investment Management Company LLC are based) to NYC, so getting there shouldn’t have been the issue regardless of when that “confusion” cleared up.
Listen y’all, you should listen to the audio — it’s that good and you can find it here. But because you’re going to ignore us, here’s the gist.
📍Fed up with lack of progress, the debtors intend to break the “logjam” by having the OpCo debtors’ independent directors cut a deal directly with the HoldCo independent and file a 9019 motion on an expedited timeline, reserving the right to do the same for the plan voting deadline. As Mr. Sussberg bluntly put it, “It's really not that complicated at the end of the day. The numbers pretty much speak for themselves.”
📍That deal will likely result in the settlement of claims as between the OpCo and HoldCo debtors, with causes of action to be dropped into a single litigation trust and allocations to be resolved at a later time by a trust advisory board, with representation for GUCs and the official committee of unsecured creditors (the “UCC”), whose counsel is Pachulski Stang Ziehl and Jones LLP (Robert Feinstein, Alan Kornfeld, Theodore Heckel, Bradford Sandler, Colin Robinson).
📍The settlement would also provide for all but a sliver of the equity to go to the first lien lenders, with that sliver reserved for the 2Ls (93% of whom are part of the Freedom Lender Group). To boot, the 2Ls would receive warrants based on Greenhill & Co. Inc.’s expert valuation report and a juicy cash payment for peace and to stop the admin burn. And “maybe the first liens would be willing to waive some portion of their deficiency claims.”
You know who likes that deal?
We’ll go down the cap stack. Here’s are some salacious tidbits from Paul Hastings, on behalf of the ad hoc group (through a statement filed ahead of the hearing and Mr. Fliman’s in-court monologue):
“The RSA prevents the debtors from just proceeding with a plan that is not supported by our clients. That RSA also binds the debtors to certain milestones and to certain things that need to be done in connection with the case. I just remind the debtors of that as they set forth to propose something, via 9019, that appears to be contradictory to their contractual obligations.**
…
[T]he Freedom Lender Group’s myriad arguments, claims, and challenges lack any merit and continue to be little more than a thinly veiled attempt to delay their inevitable loss by playing with ‘house money’ in hopes of forcing a settlement at any cost.
The mental gymnastics necessary for the Freedom Lender Group to prevail is astonishing.
…
[T]he litigation barrage launched by the Freedom Lender Group is not a good faith effort to recover on their Second Lien or HoldCo Loans. It is the effort of disgruntled out of the money creditors, whose only hope at a recovery is to make these bankruptcy cases as long and expensive as possible in the hopes that, faced with mounting legal fees and delay, the First Lien Group will pay their ransom to make them go away.
…
We know that the plan retains claims against the Freedom Lender Group and their clients and and their members, right? Barring the potential resolution, they will not be released. And so the party should expect that barring a deal, when we get to confirmation, there will be claims against the Freedom Lender Group and their members, including claims for the payments they received prior to the bankruptcy, including for the conduct undertaken during the bankruptcy, including for the role in the take private transaction. All of these will be retained and will be pursued. So very critically, Your Honor, even though the Freedom Lender Group does not care about the legal fees being expended by the estate, and they probably view this as house money at this point, they should definitely realize that by now, they're exposing themselves not to a free option, but potential risk if this goes forward.
…
With each day that goes by, with each one of these hearings we have, and with each day, you have the debtors working towards trial, you've got the committee, you've got us working towards trial. Each day, we are reviewing documents. We're working on briefs. We're doing research. We're defending on appeal. The fees are mounting. Each day, the utility of a settlement for our clients goes down. The value that we would give goes down.
To summarize the ad hoc group message:
Moving on, here’s Mr. Feinstein for the UCC:***
“There is a claim by Opco against HoldCo for dividend payments that were used then to make interest payments to the HoldCo noteholders… [W]hen the parties, including the HoldCo lenders, put this deal together, everybody knew that the ability of HoldCo to pay interest payments was entirely dependent on getting dividends from OpCo. So we've identified three dividend payments of $18mm each that were used to pay interest to the HoldCo note holders. We think that is a fraudulent transfer … We have a complaint drafted and we hope to be coming before your Honor soon to ask permission to bring that derivatively on behalf of OpCo very soon.
…
While I appreciate the debtors’ good intentions in displaying … something that I guess looks like a mediator proposal, it does a lot of damage to our deal [with the ad hoc group], and so we'll have real concerns about that as well. Obviously we want to be a constructive force in the case, but everybody’s recovery should be based on what their legal position is, not how threatened they can be.”
Finally, Mr. Lauria spoke. Briefly, but still long enough to take a few jabs at other professionals and ensure the preservation of his 38-year-old market reputation. His take?
“We have been, I guess, roundly accused here as being the troublemakers and engaging in what has been characterized as scorched earth litigation.”
Because, let’s be real, that’s exactly what it is. You don’t get called a “terrorist” or “ridiculous” for nothing. Anyway, his group is appealing everything they’ve lost on to date, which is a helluva lot — the lift-stay motion, their objection to the DIP, and their objection to the payment of critical vendors — so he thinks “it might be a little premature for the 1L Group to be running a victory lap.”
To close out, (i) the debtors’ disclosure statement was approved way back on February 19, 2025, with confirmation scheduled for May 12, 2025, which *checks calendar* is already outside the DIP’s May 6 maturity and would be all the motivation a typical debtor would need not to piss off its senior lenders too much if hellbent on saving a business and 12k jobs, (ii) the Freedom Lender Group’s motion for a $158.4mm, full 2L loan admin claim still hasn’t been heard — there’s not even an objection on the docket, so who knows when that’ll be up — and (iii) the 1Ls launched an adversary proceeding against 2L agent Alter Domus (US) LLC on March 23, 2025 to force the 2Ls (and, therefore, the Freedom Lender Group) to comply with the intercreditor agreement for once and, for instance, not seek an absolutely massive, plan-blocking admin claim.
If W&C’s goal was to make Ms. Greenblatt’s life f*cking miserable again, we have no doubt it’s been met. More costs and litigation (and coverage) to come. Somewhere Willkie Farr & Gallagher LLP’s Matt Feldman and Debra Sinclair are lounging looking mighty relaxed.
*The debtors requested that principals be required to attend too, but the court shot that down entirely.
**We think it’s a fair read of the restructuring support agreement (the “RSA”) that an unsupported 9019 motion would constitute an Alternative Restructuring (as defined in the RSA) that would permit the ad hoc group to terminate its support. But thought exercises are irrelevant here because the DIP matures May 6, 2025 and the court ain’t confirming a plan before then.
***The UCC filed that motion for derivative standing on March 28, 2025. As you might expect, it’s pretty straightforward; dividends went upstairs to the HoldCos and out to the lenders the same day, down to the penny.
🎬New Chapter 11 Bankruptcy Filing - Village Roadshow Entertainment Group USA Inc.🎬
On March 17, 2025, West Hollywood-based Village Roadshow Entertainment Group USA Inc. and 33 affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy (sale) cases in the District of Delaware (Judge Horan). Y’all definitely know these down-on-their-luck Tinseltowners. The debtors have, through their history, produced films that have accumulated $19b in worldwide box office receipts, including 34 #1 U.S. box office openings, 19 Academy Awards, and 6 Golden Globes. Their portfolio includes names like The Great Gatsby, The LEGO Movie, Sully, and the original Matrix; it also features some less-than-stellar titles like Ocean’s 8 and The Matrix Resurrections.*
Time to take the red pill and dive in ⬇️.
Here’s the tortured AF org chart. We suggest taking a good gander and committing it to memory because it’s coming back below (PETITION Note: Actually, save yourself the million up-and-down scrolls we did writing this and just print it out now). Only the 5 circle-shaped entities aren’t debtors.
And here’s the cap stack:
But don’t let that chart fool you, it isn’t any more straightforward than the org chart. Wilmington Savings Fund Society, FSB ($WSFS) serves as collateral agent under the senior secured notes, and their November ‘23-formed obligors are those highlighter green-shaded or green-outlined boxes ⬆️.** Meanwhile, U.S. Bank National Association ($USB), represented by Barnes & Thornburg LLP (Aaron Gavant, Kenneth Kansa, Leah Anne O’Farrell, Mark Owens, Amy Tryon), is the trustee under the asset-backed secured (“ABS”) notes facility, and those obligors are the red-shaded or diamond-shaped boxes. So the debt’s all over the place, which is one of the bigger issues in the cases, but we’re not there yet.
Turning to the business, the debtors have three, IP-based primary assets:
📍Library Assets. First, there’s a film library consisting of 108 feature films (the “library assets”) of which 91 were developed through co-financing and co-production agreements between the debtors and Warner Bros. Entertainment Inc. ($WBD) (“WB”). All in, the library assets generate ~$50mm in revenue per year.
📍Derivative Assets. Second, the debtors also own derivative rights attached to their library assets (the “derivative assets”). Essentially, they provide payment rights for derivative productions, like sequels and prequels, based on successful movies, but unlike the library assets, the value is simultaneously “more difficult to concretely ascertain” but “have historically brought monumental value” to the debtors. (PETITION Note: keep that vague phrasing in mind as you make your way down).
📍Studio Business. Third, the debtors’ own a studio business, their newest venture, that launched in ‘18. Since then, it’s developed 99 feature films, 67 unscripted TV series, and 166 scripted TV series for the tidy sum of $47mm. Of those 322 ventures, you wanna take a guess at how many made it to production? It was THIRTEEN: six films, five unscripted TV series, and two scripted TV series. $3.6mm a pop. Damn near impossible to be profitable or sustain a new business in the industry on those numbers, and of course, the debtors didn’t, so we’ll peg the value of that one at nada.
But the failed studio business isn’t the only reason the debtors hopped the redeye from sunny SoCal to Delaware. No, they also have COVID (of course), the ‘23 writers’ and actors’ strikes, and “streaming wars” (i.e., getting beat down by Netflix ($NFLX), Hulu, Disney+ ($DIS), etc.) to blame.
Oh, and recall that WB relationship ⬆️? Yeah, that’s some sour sh*t now. Under the WB co-financing and co-production agreements, the debtors had a right to co-own and co-finance future works derived from shared assets. However, per Accordion Partners LLC’s Keith Maib, the debtors’ first day declarant and CRO, WB froze them out entirely, and it got nasty enough that the debtors filed a complaint on February 7, 2022 to thaw those rights out, which also raised, of all things, a claim relating to the “day-and-date release”*** of The Matrix Resurrections on WB-owned HBO Max. Like, we get it, y’all had rights and all, but you did see the movie, right? It was free to watch, and we still want our money back.
In any event, the court kicked the complaint to a super secret, confi arbitration where it belonged all along under the agreements, so we can’t dish on the drama that unfolded there (😢). But that’s not to say we know nothing because WB wasn’t all-in on Mr. Maib’s dec and sent O’Melveny & Myers LLP’s Steve Warren to the March 18, 2025 first-day hearing to fire some undodgeable truth bullets. Here’s him laying it out for the court:
“The dispute between the parties grows out of the Matrix franchise: Matrix Resurrections. That was a co-financing arrangement. We had understood that Village had committed to co-finance. Based on that reliance on that commitment, Warner spent $200mm to produce the film, $100mm to market it, and then Village did not step forward and provide the co-financing. That’s led to a years’ long arbitration that’s gone on for quite a bit.
…
We very much contest, I know you won’t be surprised to hear, some of the characterizations of the redacted section [of the first day declaration] regarding what happened in the arbitration. And I can share some other facts with you … Liability’s already been determined. The arbitrators have already decided that Village breached its obligations with respect to the Matrix projects. That's done. All that's left is to determine the damages. Again, with respect to the public record, I can tell you Warner took the position at the inception of the dispute that it was approximately $100mm, maybe even more, and that number hasn’t gone down.
LOL, yeah, doesn’t seem like anybody’s being frozen out now, does it? Mr. Warren also didn’t like another thing, the debtors’ ‘24 “bifurcation” of assets. Mr. Maib barely mentions it, and only in connection with the prepetition marketing process. We’ll let him speak for himself first:
“During the first half of 2024, Goldman marketed a sale of the equity in the Company, seeking to sell the business as a going concern. While the Company received meaningful interest and entered exclusivity with a potential purchaser, the unknown outcome of the WB Arbitration ultimately stifled the ability to close the transaction. Thereafter, Goldman continued to market the Company and its assets – in whole or in part – to a broad array of potential purchasers. It became evident following negotiations with potential purchasers that the Company may receive the highest value for its assets by bifurcating them: the Library Assets as a distinct and high value asset, and the Derivative Rights and the Studio Business (together with the Library Assets, the “Business Segments”), which attach to greater liability.”****
That’s it. No other references in the doc. Before we go back to Mr. Warren, we’ll highlight that the entities subject to WB’s arbitration claim are the four outlined in red in the bottom-right quadrant of the chart. You printed it out, right? Okay, have at it, Mr. Warren:
“After Warner Brothers succeeded in establishing liability in the arbitration, the derivative assets were moved out of entities that were obligors, our obligors, part of ours, into newly-created special purpose entities for a dollar, for a dollar a piece. These are rights that Village had taken the position that were worth quite a lot of money, and for a dollar, they transferred them out and then we subsequently found out that those new entities guaranteed and pledged those derivative rights, which could not have been pledged under the agreements with Warner up to the parent’s debt. And we’ve taken the position that the transactions were fraudulent transfers, and we’ve taken the position that the pledges were fraudulent, intentional or constructively fraudulent transfers.”
Hot damn, break out the 🍿; we love first-day fraudulent transfer flicks — we’re already stoked for the second-day sequel. Mr. Warren’s also got thoughts on the debtors’ proposed DIP, which is being provided by the senior noteholders of those newco SPVs, Ontario Teachers’ Pension Plan Board and Falcon Investment Advisors LLC, because it includes an all-debtor roll-up of what was ~$5.8mm in prepetition bridge financing. Debt that his entities are not currently liable on. But that only comes on entry of the final order, so it’ll either be resolved ahead of the April 11, 2025 second day hearing or be the subject of a brawl then.
The DIP’s otherwise a $12.8mm term loan, apropos enough in term sheet form,***** composed of $7mm in new money ($500k interim) and that roll-up ☝️. It carries a delectable 16% interest rate, a 3% commitment fee, earned on the petition date, and a 2% exit fee on the new money, earned on funding, and has priority over everything except the ABS notes with respect to their collateral (ergo, Mr. Warren’s beef). The DIP also had a “novel” feature: a transaction support agreement (“TSA”) attached, which the debtors tried to get the court to bless on the first day.
Who’s it with? LOL, literally no one.
While USB, as ABS trustee, and the debtors met “[o]n several occasions prior to the Petition Date,” USB was quite clear it wasn’t getting itself sued by signing up a TSA without approval from a majority of the noteholders. Here’s debtors’ counsel, Sheppard, Mullin, Richter & Hampton LLP’s Justin Bernbrock, trying to make sense of it all:
“The idea here is we have a facility, we have a securitization facility, where, while we know the holders and we know who the trustee is, were we to have had substantive engagement with those holders in a very limited prepetition window, we would have infected them with material non-public information, restricting their ability to trade. And so, after having many discussions with my new friend, Mr. Gavant at the Barnes & Thornburg firm, we ultimately concluded that it would be best to wait until the petition date the cases had been filed to engage with the holders under that ABS facility.”
The US trustee objected to approval of the TSA because it baked in a postpetition indemnity in favor of the noteholders and, you know, there was no evidence supporting entry into it avoided “immediate and irreparable harm” or that the noteholders would actually want to sign it. The court be like …
… and easily agreed because duh and, with the debtors’ face-saving agreement, kicked the subject to the second day hearing.
Finally, we said this is a sale case, and unlike 23andMe Holding Co ($ME), these debtors have a stalking horse. An honest-to-g-d, third-party one too: CP Ventura LLC (“CVP”), an affiliate of Content Partners LLC, which tossed in a $365mm bid for the library assets — good enough to pay off the DIP (regardless of roll-up) and the ABS notes.****** For serving in that role, CVP is looking for bid protections in the form of a $10mm break-up fee and up-to a $2mm expense reimbursement, and here’s the proposed timeline:
All considered, the first day wasn’t so bad for a filing that easily could have been a total sh*tshow: it clocked in at under two hours (🙏). No one disputes the debtors need to be in bankruptcy, and the fighting can wait for the second-day hearing, which, as we noted above, is slated for April 11, 2025. At it, we’ll be treated to both the traditional second-day relief and also the debtors’ bidding procedures motion. In the interim, the debtors will use the 3.5 weeks to strike up some bargains or, if not, engage in warfare. But hey, Mr. Bernbrock served a decade in the US Navy, so he knows all about that and will be ready either way.
The debtors are represented by Sheppard, Mullin, Richter & Hampton LLP (Justin Bernbrock, Matthew Benz, Jennifer Nassiri, Alyssa Paddock) and Young Conaway Stargatt & Taylor, LLP (Joseph Mulvihill, Benjamin Carver) as legal counsel, Kirkland & Ellis LLP (Mark Holscher, David Klein, Chad Husnick) as special litigation (i.e., arbitration) counsel (because the debtors can’t afford their BK rates and K&E likes to send their trash to stay friendly with former colleagues like Mr. Bernbrock), Accordion Partners LLC (Keith Maib) as financial advisor, and SOLIC Capital Advisors, LLC (George Koutsonicolis) as investment banker. DIP Lenders Ontario Teachers’ Pension Plan Board and Falcon Investment Advisors LLC are represented by Morrison & Foerster LLP (James Newton, Miranda Russell) and Potter Anderson & Corroon LLP (Christopher Samis, Stephen McNeil, Brett Haywood, Shannon Forshay) as legal counsel. Warner Bros. Entertainment Inc. is represented by O’Melveny & Myers LLP (Steve Warren, Matt Kline, Scott Drake, Emma Jones) and Morris, Nichols, Arsht & Tunnell LLP (Curtis Miller, Matthew Harvey) as legal counsel. USB is represented by Barnes & Thornburg LLP (Aaron Gavant, Kenneth Kansa, Leah Anne O’Farrell, Mark Owens, Amy Tryon) as legal counsel. WSFS is represented by Seward & Kissel LLP (John Ashmead, Gregg Bateman, Catherin LoTempio) and Morris James LLP (Eric Monzo, Jason Levin) as legal counsel. CP Ventura LLC (Content Partners LLC) is represented by Latham & Watkins LLP (Liliana Ranger, David Hammerman) as legal counsel.
*The recent unadulterated ensh*ttification of so many beloved entertainment properties is reaching epidemic proportions. Disney Inc. ($DIS) absolutely besmirched their precious Star Wars IP, not to mention the recent wave of completely unnecessary and insufferable Marvel fare. Game of Thrones failed to stick the landing. All of the recent Lord of the Rings fare has been hot trash. And, man, this Matrix movie. Cynical hot garbage designed purely to take advantage of our collective love of nostalgia. The reviews featured above are, frankly, far too kind. The only properties that have stuck the landing are anything with Tom Cruise and Cobra Kai. Convince us otherwise.
**If you saw that formation date, immediately thought “fraudulent transfer,” and skipped down here to confirm, congrats, you’re today’s lucky winner!
***A “day-and-date release” means a flick is released on multiple platforms on the same day, bypassing the typical theater-only process, and is also known as the much-more straightforward “simultaneous release.” Unnecessary industry jargon, 🙄.
****Around early ‘24, the debtors engaged Goldman Sachs Group, Inc. ($GS) to lead a sale process, which ground to a halt by the end of the year on account of the debtors’ “dire” financial distress. Goldman was sacked in favor of SOLIC Capital Advisors, LLC in February ‘25 as the debtors were booking their flights to Wilmington (well, Philly).
*****The whole case may not get a DIP credit agreement. Per the term sheet, “[i]f requested by the DIP Lenders, then the Debtors agree to enter into a credit agreement with the DIP Lenders on substantially the same terms and conditions as set forth in this DIP Term Sheet.”
******That said, WB ain’t keen on letting secured claims creep into its debtor boxes, so they’re going to fight the roll-up all the same. Then, of course, there’s the whole fraudulent transfer litigation about those derivative assets being dumped into newly-formed SPVs.
📚Resources📚
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