💥Lotsa Liquidations💥
Harvest Sherwood Food Distributors Inc. + Rite-Aid = ✌️
🍗New Chapter 11 BK - Harvest Sherwood Food Distributors Inc.🍗
Oh great. Another case where a big law firm is representing a liquidating debtor, 🙄. Thus far ’25 has been so fire!! And by “fire” we don’t mean like the slang term the kids enjoy using, we actually mean “dumpster fire” because so many of this year’s cases are value incinerating sh*t shows that double as a full employment act for the highest priced professionals out there. Seriously, folks: why are these debtors — yes, those of the logo above 👆— going to pay the freight on Sidley Austin LLP’s (“Sidley”) … hang on … give us a second to count em’ up … one … two … three … four … five … flipping to second hand … six … seven … yup seven! …
… high priced attorneys across three different offices to service a full on wind down in bankruptcy?
Including the two most senior attorneys in the RX group?! Why? Seriously asking: why, 🤔?
It turns out this isn’t entirely what it appears to be at first blush. That is, an industry-is-cannabalizing-itself-to-aggrandize-a-few-select-partners kind of chapter 11. Rather, because there are a fair number of moving pieces here, it’s only kind of an industry-is-cannabalizing-itself-to-aggrandize-a-few-select-partners kind of chapter 11. Let’s get into it.
On May 5, 2025, Harvest Sherwood Food Distributors Inc. (“Harvest Sherwood”) and twelve affiliates (together with Harvest Sherwood, with the “debtors”) filed chapter 11 bankruptcy cases in Tom Califano’s fave hangout the Northern District of Texas (Judge Jernigan). The debtors were, once upon a time and on account of a ’17 merger between two large distributors, the largest independent wholesale food distributors in the US with a vast network of (at one point) 14 distribution centers in, among other places, CA, FL, TX, and, at their peak, $4b — yes, that’s a “b” — of revenue; they “…shipped over 32 million pounds of food per week to protein and perishable food producers, independent food retailers, regional and national retail chains, cruise lines, and food service customers throughout the United States.” Serious stuff, folks. The debtors offered “…a wide range of commodities and branded selections such as bakery products, deli, beef, pork, lamb, veal, poultry, seafood, and frozen foods” … to meat (🙄) “…the unique needs of niche markets and food retailers of all sizes.” In other words, these guys were kind of a big deal. Unfortunately, now they’re kind of a big business lesson: don’t over-index to one customer!
Before we go there, let’s take a step back and establish a few things. The debtors have a decent amount of debt on them — and yet not an overwhelming amount given the previously cited peak revenue figure:
You’ll note that there are some pretty large ranges there. Let’s just say that, in the past year or so, this company successfully harvested (😎) quite a number of adversaries (read: litigation). You might also be wondering about that prepetition ABL. What could that possibly have been secured by? If you answered “listeria” “deli meat” or “tray-pack chicken,” please email us for your $10 stipend: off to the local Wegman’s deli counter you go!*
As of the petition date, “substantially all” of the debtors’ inventory has already been liquidated. We certainly hope so: not sure how much months-old deli meat and tray-pack chicken goes for these days in the secondary market! But kudos to the fine folks at Hilco Global (“Hilco”): they were apparently able to monetize the debtors’ existing inventory and A/R over a span of two months, recovering ~$140mm of $154mm of face value inventory (a ~91% recovery rate!). Holy Chicken Saving, Batman!! That’s an impressive monetary result (though perhaps not a great gut health result … where the f*ck did they sell this old a$$ chicken anyway, lol?!).
But let’s get back on track.
According to the first day declaration of Harvest Sherwood’s “Chief Restructuring Officer,” Hilco’s Eric Kaup,** the debtors blame their pivot to a wind down from a possible going concern restructuring on that obstreperousness major customer we alluded to — Sprouts Farmers Market Inc. ($SFM),*** which decided to suddenly withhold tens of millions of dollars owed for goods that had already been shipped for, well, reasons, 🤷♀️. The debtors don’t go into tremendous detail about why exactly — there’s some reference in the Kaup Declaration to SFM having indicated that it intended to migrate to full self-distribution. Luckily there’s enough out there on the inter webs to help fill in some blanks. Like this:
So with the wind down already well underway and largely consummated, what do we have here with these cases? Remember the reference to litigation? Well, yeah, there’s that. There’s a bunch of “litigation assets” to pursue, $87mm of remaining A/R to collect (after taking into account the $140mm of inventory sold prepetition, which increased A/R at one point to $345mm), and a distribution facility in Dallas to assign (after the debtors already disposed of five distribution center operations during the prepetition wind down process). Someone see if Luka Doncic wants to buy it: he’s got time on his hands these days and we hear he’s got a keen interest in food, 😉).
So about that litigation. There’s:
📍An anti-trust suit where Harvest Sherwood is a plaintiff against several pork, chicken and beef producers, asserting $1.1b in damages (with the possibility for more suits against turkey and potato producers);
📍A fraud lawsuit against a former employee worth potentially several millions of dollars; and
📍A breach of contract suit against SFM asserting damages of ~$42mm.
Notably, the anti-trust suit was lit-financed by Burford Capital Limited ($BUR). BUR provided $35mm to the debtors to be used “for operating capital” — this is the “Capital Provision Agreement” referenced in the chart 👆. The Capital Provision Agreement includes an unsecured obligation of the debtors to pay BUR 100% of the first $35mm of proceeds obtained from the anti-trust litigation assets and 50% of the next $70mm of such proceeds (with additional interest accruing after 2025 if the Capital Provision Agreement is still in effect). This is an unsecured obligation of the debtors and so guess who’s the debtors’ top general unsecured creditor?****
So, to summarize, there’s potential beef with BUR, an active bunch of trade creditors inflamed enough to involuntary this thing (see footnotes below), a number of potentially valuable lawsuits, and some assets left to dispose of. Is that Sidley-worthy? You decide.
To finance these cases,***** the debtors have obtained a commitment for a $105mm senior secured super-priority DIP credit facility from prepetition lender JPMorgan Chase Bank NA ($JPM). That top line figure presumes a roll-up and conversion of the ABL amounts into the DIP (at the interim stage) plus approximately $25.9mm of new money ($5mm interim). The DIP ain’t cheap as far as fees are concerned: JPM is taking a (I) $3.375mm “prepetition lender amendment fee,” (ii) a $1.5mm DIP upfront fee, and (iii) a $1.625 “prepetition agent amendment fee.” The loan carries a 5% PIK interest feature and matures on April 30, 2027 (if revolving commitments aren’t otherwise zeroed out by then).
A first day hearing in the cases will be on May 9, 2025 at 9:30am CT.
The debtors are represented by (the entire RX group, 😉, at the aforementioned) Sidley (Stephen Hessler, Thomas Califano, Anthony Grossi, Jason Hufendick, Ryan Fink, Daniela Rakowski, Chelsea McManus) as legal counsel, Meru LLC (Nick Campbell, Samir Saleem) as financial advisor and the previously noted Hilco as restructuring advisor/CRO. JPM is represented by Latham & Watkins LLP (James Ktsanes, Randall Carl Weber-Levine) and Hunton Andrews Kurth LLP (Timothy Davidson II, Ashley Harper, Philip Guffy) as legal counsel and Huron Consulting Group as financial advisor.******
*Side note, do yourself a favor and don’t ever look at the salt content in a Wegman’s pre-made salad. More on point, we’re obviously engaging in our trademarked snark: in addition to the “inventory,” there’s also the distribution centers.
**How about “Chief Wind Down Officer” or something more accurate next time, guys.
***They also cite a “key industry credit rating downgrade” from SEAFAX, a well-known industry credit rating agency. The debtors also blame (i) “…headwinds in the current food transportation and delivery market environment,” e.g., rising costs and volatility of fuel, labor and transportation costs, for contracting margins, and (ii) shifting consumer preferences.
****There’s beef with BUR too. BUR asserted an MAE pursuant to the Capital Provision Agreement and attempted to exercise complete control over the anti-trust litigation assets. The debtors dispute the occurrence of the MAE and insist that BUR, therefore, has no current rights to the assets.
Separately, other creditors involuntaried the debtors on April 18, 2025. The three creditors who initiated that chapter 7 filing have, according to Mr. Kaup, apparently agreed to dismiss that filing and support the 11.
*****Apparently the $210k of cash on hand wasn’t enough to do the trick on its own. Maybe because that only gets you 100 hours of a junior partner at Sidley.
******These cases appear to be littered with the tombstones of RX pros. At one point Houlihan Lokey Capital Inc. ($HLI) was the banker charged with running the mid-’24 strategic alternatives process. Mr. Kaup summarizes how that went here:
“As part of the Marketing Process, Houlihan contacted 63 potentially interested parties, 45 of which executed non-disclosure agreements and received access to confidential diligence information. In mid-October 2024, the Company received indications of interest (“IOIs”) from four potentially interested parties ranging from $175 million to $225 million to purchase a subset of the Company’s distribution centers (the “Perimeter Assets”). Despite these initial IOIs, the SEAFAX downgrade and Sprouts’ decision to begin insourcing resulted in (i) two of the bidders withdrawing from the process and (ii) two bidders revising their IOIs in late January 2025 to $42 million and $125 million, respectively. The Company determined that these bids were materially below the liquidation value of the Company’s assets and were, therefore, unactionable. The Company and Houlihan also encouraged the bidders to submit alternative structures, but those bids were similarly unactionable. With no whole-company bids available, the Company pivoted to individual branch sales.”
Around the same time that commenced, the debtors had Ankura Consulting Group LLC (Andrew Scriven) as Chief Transformation Officer — why this is referenced generally and Mr. Scriven specifically is not entirely clear. You don’t typically see former pros featured with such prominence so, seriously, guys, wtf? We suppose the bright side is that they’re not listed as general unsecured creditors.
Finally, at one point Tim Pohl was on the board of these companies but eventually resigned. He was replaced by Jill Frizzley.
💊New Chapter 22 Bankruptcy Filing - Rite Aid Corporation💊
Keeping up with ‘25’s big-law-dumpster-fire theme, after an eight-month break, on May 5, 2025, Rite Aid Corporation (“Rite Aid”), New Rite Aid, LLC (“New Rite Aid”), and – g*ddamn, y’all – 116 affiliates (collectively, together with Rite Aid and New Rite Aid, the “debtors”)* doubled down on their commitment to the District of New Jersey and Judge Kaplan by filing new bankruptcy cases. We covered Rite Aid’s ‘23 cases extensively, so we’ll skip the details on the pharmacies and busted front-end retailer “business” here and get right into pie-in-the-sky projected vs. actual performance.**
Under the debtors’ prior disclosure statement, they expected to generate $453mm in EBITDA from March ‘24 to February ‘25 after slimming down their debt stack “by more than $2 billion.” Here’s Alvarez & Marsal North America, LLC’s Marc Liebman, who moonlights as the debtors’ chief restructuring transformation officer, telling us how they did:
“Since November 2024, the Company has only generated negative adjusted EBITDA…”
LOL, not even the courtesy of a figure.
Just “negative.”
Great job on those “data-driven projections,” y’all.
The debtors blame their predicament on “certain” lenders, which delayed or walked away “from earlier assurances…” — not binding agreements — “… regarding the terms and timing of replacement facilities,” and front-end vendors for not “return[ing] to their less restrictive prepetition payment terms.” But. COME. ON. You can’t fault the vendors when the debtors “expected to emerge from the 2023 Cases with approximately $166 million in liquidity from letters of credit” and only managed to scrounge up $66.75mm under a single replacement facility. We sure as sh*t wouldn’t have loosened terms either.
In any event, and as if you need us to tell you, “[t]he liquidity benefits that this facility provided were too little and too late for the Company to meet its financial projections.”
So a prescription for a second round of 11 it is.*** And the debtors’ claims agent, Kroll, which thankfully did us all the courtesy of distinguishing between filings …
… summarizes the debtors’ strategy better than we could have:
“Rite Aid is using the Chapter 11 process to pursue a sale of its prescriptions, pharmacy and front-end inventory, and other assets. Any operations or assets the Company does not sell through this process will no longer be owned or operated by Rite Aid.”
So unlike Harvest Sherwood ☝️, this one is exactly what it looks like: a biglaw employment act to wind down the business. And no pussyfooting around either; these debtors are getting sold or chopped up and parted off fast. On an aggressive as f*ck, 51-day timeline.
But at least the jedi-masters of liquidating-11s at Paul, Weiss, Rifkind, Wharton & Garrison LLP (“PW”) have learned a lesson or two from 23andMe because the bidding procedures motion was accompanied by a proactive declaration from special counsel, “Certified Information Privacy Professional” Elise Frejka of Frejka PLLC that digests the debtors’ privacy policies and concludes nothing to see here and no need for a privacy ombudsman.
To fund the sale process, there’s a headline $1.94b DIP, but before we turn to that, let’s take a peek at the cap stack.
And no, the debtors didn’t forget their 2L obligations. Those technically ain’t funded debt and belong to their 20-year-and-99%-dollar-volume-drug-supplier McKesson Corporation (“McKesson”), which agreed to be paid up to $333.8mm under the debtors’ prior, approved plan on account of its claims in that bankruptcy. It received, LOL, $29.2mm in payments, so we’ll chalk that up as a rousing success.
Anyway, back to the DIP, remember we said it was a headline $1.94b facility? Yeah, it’s all headline – there’s a $1.7b DIP revolver, which will interim creep that prepetition ABL before rolling it up entirely on final order and then there’s a $240mm first-in, last-out (FILO) term loan that will replace, on final order, the prepetition FILO facility on final order.****
Not even a cent of new money. Remind us, does an infinite roll-up ratio fall within market these days?
The first-day hearing is scheduled for later today, May 7, 2025, at 2pm ET. We wish the debtors’ ~24,500 employees well.
The debtors are represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Christopher Hopkins, Sean Mitchell, Alice Nofzinger)***** and Cole Schotz P.C. (Michael Sirota, Warren Usatine, Felice Yudkin, Seth Van Aalten) as legal counsel, Alvarez & Marsal North America, LLC (Marc Liebman) as financial advisor and CRO, Guggenheim Securities, LLC as investment banker (Adam Rifkin),****** and A&G Realty Partners, LLC as real estate advisor.******* Bank of America, N.A. ($BAC), as DIP and Prepetition ABL agent, is represented by some law firm and Greenberg Traurig, LLP (Alan Brody, Julia Frost-Davies) as legal counsel and Berkeley Research Group, LLC as financial advisor. An ad hoc group of prepetition secured noteholders is represented by Kramer Levin Naftalis & Frankel LLP (Rachael Ringer, Adam Rogoff, Megan Wasson) as legal counsel. McKesson is represented by Buchalter, P.C. (Daniel Slate, Jeffrey Garfinkle, Brian Harvey), Sidley Austin LLP (Dennis Twomey, John Kuster), and McManimon, Scotland & Baumann, LLC (Anthony Sodono III, Michele Dudas) as legal counsel. Tim Pohl stuck around for this one and, along with Scott Vogel and Michael Wartell, serves as an independent director at the holdco level.
*Somehow still two lighter than the ‘23 cases.
**If you’re interested in our prior coverage, you can find that, in reverse chronological order, here, here, here, here, here, here, and here.
***We also enjoyed ’s characterization:
And this guy’s:
Annd this guy’s:
****For SOFR loans, the revolver carries interest at term SOFR + 0.1% + 3.25% and the TL carries an interest rate of term SOFR + 0.1% + 5.25%. Moreover, there are fees: the revolver has a 1% PIK upfront fee and the TL’s is 1.5% (also PIK). Both also feature a 10% cash-pay exit fee, waived entirely or reduced if the “DIP” is paid off in 9 months or less. Those all accrue on closing of the facility to deprive any committee of unsecured creditors the ability to contest the prudence of paying ~$20.6mm + whatever the exit is in return for zilch.
*****In case you needed reminding that this isn’t a real chapter 11 debtor case and is merely a liquidation, look no farther than the PW partner with top billing in this one – a real company-side powerhouse right there. PW gets the plum assignment as debtors’ counsel here after “successfully” guiding the ad hoc secured noteholder group comprised of JPMorgan Chase & Co. ($JPM), Brigade Capital Management LP and Sixth Street Partners towards equity ownership in this turd in the first spin around the bankruptcy bin. Riddle us this: after how many liquidating 11s does a big law firm have a branding problem, 🤔? Anyway, likewise, Cole Schotz PC gets another go, though this time with PW rather than Kirkland & Ellis LLP.
******Props to B.Hayes and team for the double dip. The fees for this 51-day-postpetition-run aren’t public yet but the post-haircut $17mm or so they got in the first go-around was obviously money well spent, 🙄. At least Guggenheim is already likely to have CVS Health Corporation ($CVS) and Walgreens Boots Alliance Inc. ($WBA) on speed dial. Any execs get $20mm on the eve of filing this time, 🖕?
*******The debtors also entered into a consulting agreement with a JV formed by SB360 Capital Partners, LLC and Hilco Merchant Resources, LLC, “pursuant to which the Consultants provide certain asset divestment and monetization advisory services.” GOB sales, clearly.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.
🍾Congratulations to…🍾
Alex Rich on his promotion to Counsel at Freshfields.
Turnarounds & Workouts’ Outstanding Young Restructuring Lawyers of 2025: James Burbage of Willkie Farr & Gallagher LLP, Clifford Carlson of Weil Gotshal & Manges LLP, Gerard Cicero of Brown Rudnick LLP, Matthew Fagen of Kirkland & Ellis LLP, Jackson Garvey of Sidley Austin LLP, Andriana Georgallas of Weil Gotshal & Manges LLP, Lindsay Henrikson of Paul Hastings LLP, Natasha Hwangpo of Ropes & Gray LLP, Thomas Kessler of Cleary Gottlieb Steen & Hamilton LLP, Zachary Lanier of Akin Gump Strauss Hauer & Feld LLP, Jonah Peppiatt of Davis Polk & Wardwell LLP, and Stephen Silverman of Gibson Dunn & Crutcher LLP.