🧻New Chapter 11 Bankruptcy Filing - Royal Interco, LLC🧻
Toiler paper manufacturer sh*ts the bed, files to pursue a sale to Sofidel America Corp.
On April 8, 2025, Phoenix-based Royal Interco, LLC (“Interco”) and three affiliates (with Interco, the “debtors” and together with non-debtor parent RP Holdco, LLC, the “company”) rolled into chapter 11 in the District of Delaware (Judge Horan). Even if you’ve never heard of this company, there’s a solid chance their products have graced your backside because they are a “manufacturer and national supplier of high-quality paper products,” corporate lingo for saying they make TP, as well as paper towels, facial tissues, and napkins.
The debtors do most of their business making private label products for large retail customers. You know, Aldi, Whole Foods ($AMZN), Trader Joe’s, Kroger ($KR), and Meijer. They dub this the “at-home” market, and it comprises about 70% of what they’re pushing out (😎). Their #2 business, accounting for the rest, is the “away-from-home” market, where they dump an assortment of paper products on hotels, restaurants, schools, hospitals, and the like.
Indeed, the debtors are a one-stop shop for all your paper needs, owning and operating (i) a paper mill in Gila Bend, AZ, which converts various grades of wood pulp arriving from Canada, the US, and South America into raw paper, (ii) a converting facility (which transforms that raw paper into finished products) and distribution warehouses in Phoenix, AZ, and (iii) another converting facility in Duncan, SC for East Coast customers.
Based on the docs, this is a surprisingly decent business, even though it’s been in “distress for a couple of years now and has not had robust CapEx” and currently doesn’t have “the ability to commit to long lead times for customers.” Those issues, as well as labor shortages, a fire at one of their distribution centers in February ‘24,* and a then-pending December ‘24 debt maturity, caused them to skid. In particular, the maturity left a mark on suppliers, which began reducing the debtors’ credit as time trickled on. But by all accounts, the demand is there, and prior to the fire, the debtors anticipated FY24 revenue of $220mm from a tidy 105 customers (~$2.1mm each!).
On the debt side, the debtors owe ~$205.1mm under an NXT Capital, LLC (“NXT”)-agented credit agreement (the “credit agreement”) that, as we noted, had been set to mature on December 31, 2024. But the lenders appear to either be eminently reasonable or incredibly soft, and, in November ‘24, agreed to kick it out another 6.5 months to July 15, 2025 while the debtors’ plan percolated. To raise interim liquidity, in late September ‘24, the debtors also sold some of their equipment to Clarus Capital Funding I, LLC for $8.5mm and leased it back for ~$178.2k per month on a four-year term. And sinking to the bottom of the creditor cap stack, the debtors estimate they owe ~$24.9mm to various trade and other unsecured creditors as of the petition date.**
In connection with the plan-brewing process, the debtors brought in Craig Dean to serve as Interco and RP Holdco LLC’s independent manager and granted him carte blanche authority to run the restructuring, whether that meant an out-of-court sale (as originally envisioned) or an in-court process. In January ‘24, Novo Advisors, LLC’s Michael Ragano and Livingstone Partners LLC (“Livingstone”) plopped onto the scene to serve as CRO and investment banker, respectively. And they didn’t make a mess of it; they got right to work, commencing outreach to 159 potential buyers on January 31, 2025. Of that lot, 70 executed NDAs, and the debtors’ initial efforts resulted in the submission of 14 non-binding indications of interest as of March 12, 2025. However, an out-of-court solution wasn’t in the cards because the highest-value potential bids required “that the Debtors consummate the sale through a chapter 11 sale process …”
After “several” weeks of negotiations, Sofidel America Corp. (“Sofidel”), an American subsidiary of Italian TP manufacturer Sofidel Group, emerged as the debtors’ stalking horse bidder, and the debtors squeezed out an asset purchase agreement (the “APA”) in the moments before plopping petitions on Delaware. The APA provides for a headline sale of substantially all of the debtors’ assets for $126mm in cash (subject to sale-leaseback and cure cost adjustments) plus the assumption of agreed liabilities (which technically includes cure costs, but that adjustment ☝️ means it’s not economically coming solely out of Sofidel’s derrière). For Sofidel’s service, the debtors are proposing to provide bid protections composed of a $3.78mm break-up fee and an up-to $1.26mm expense reimbursement, and here’s the contemplated pitstop of a timeline:
That’s 42 days from the petition date to the sale hearing, although we wouldn’t be surprised to see that extended as a committee gets up and running, especially on account of the fact that Sofidel’s bid is anticipated to receive antitrust scrutiny under the Hart–Scott–Rodino Antitrust Improvements Act (more commonly known as “HSR”). However, as Judge Horan aptly noted, “frankly, I have no idea what the regulatory landscape looks like right now.” 😔, you’re not alone, Your Honor.***
To finance the process, the credit agreement’s lenders forced out a $10mm term loan ($5mm interim), which has absolutely zero roll-up whatsoever. It carries a couple of borrowing options with SOFR loans locked in at SOFR plus 8.50% plus …, why not, 0.11448%.**** The DIP also floats a $3mm closing fee, payable in kind and earned as of closing the facility, and a $5mm exit fee, payable in cash and earned on the DIP’s July 7, 2025 termination date at the latest.*****
The court held a refreshingly pleasant first-day hearing on April 10, 2025, at which all requested relief was granted in a quick and efficient 🙌 FORTY-EIGHT 🙌 minutes because the debtors and their advisors had resolved all issues before even stepping foot in Judge Horan’s courtroom, which made riffing on a literal toilet-paper-company all the more challenging. Judge Horan scheduled a second-day and bidding procedures hearing for May 2, 2025, and we look forward to seeing the debtors’ sale process play out because, unlike other (figurative) sh*tshows, we think this one actually has real potential to drive incremental value.
The debtors are represented by Morris, Nichols, Arsht & Tunnell LLP (Robert Dehney, Sr., Matthew Talmo, Scott Jones, Clint Carlisle, Grace Venit, Brianna Turner******) as legal counsel, Novo Advisors, LLC (Michael Ragano, Dustin Bernstein) as financial advisor and CRO, and Livingstone Partners LLC (Joseph Greenwood, Adam Green) as investment banker. Craig Dean is Royal Interco’s independent manager. NXT, as DIP and prepetition agent, is represented by Goldberg Kohn Ltd. (Randall Klein, Prisca Kim, Eva Gadzheva) and Richards, Layton & Finger, P.A. (John Knight, Paul Heath, James McCauley). Sofidel, as stalking horse bidder, is represented by Cleary Gottlieb Steen & Hamilton LLP (Sean O‘Neal, Thomas Kessler, Richard Minott) and Young Conaway Stargatt & Taylor, LLP (Sean Greecher, Elizabeth Justison, S. Alexander Faris).
*The debtors didn’t get into the nitty gritty on the fire, but it was a warehouse full of paper products — draw your own conclusions. Hopefully it wasn’t because someone lit a match to cover up activity in the bathroom … that would be … hilarious!
**Despite the quantum of trade debt, the debtors only requested relief to pay $1.2mm ($800k interim) to critical vendors and shippers.
***Hopefully Judge Horan’s fans don’t deem that comment too “political” or … gulp … “jingoistic.”
****Why do y’all bury these wild, “bonus” bps in DIP credit agreement definitions? They’re not hard to find, so if “obfuscation” is the point, let us be the first to say it ain’t working.
*****Okay, fine – a majority of lenders (aka req. lenders) can agree to extend the termination date by up to another 30 days, so if you want to be pedant, the debtors can technically get to August 6, 2025 before the exit fee’s payable, but that’s out of their control.
******Congrats on the strong first-time first-day presentation and your, as the court put it, “perfect record.”
Company Professionals:
Legal: Morris, Nichols, Arsht & Tunnell LLP (Robert Dehney, Sr., Matthew Talmo, Scott Jones, Clint Carlisle, Grace Venit, Brianna Turner)
Financial Advisor and CRO: Novo Advisors, LLC (Michael Ragano, Dustin Bernstein)
Investment Banker: Livingstone Partners LLC (Joseph Greenwood, Adam Green)
Independent Manager: Craig Dean
Claims Agent: Epiq (Click here for free docket access)
Other Parties in Interest:
DIP and Prepetition Agent: NXT Capital, LLC
Goldberg Kohn Ltd. (Randall Klein, Prisca Kim, Eva Gadzheva) and Richards, Layton & Finger, P.A. (John Knight, Paul Heath, James McCauley)
Stalking Horse Bidder: Sofidel America Corp.
Legal: Cleary Gottlieb Steen & Hamilton LLP (Sean O‘Neal, Thomas Kessler, Richard Minott) and Young Conaway Stargatt & Taylor, LLP (Sean Greecher, Elizabeth Justison, S. Alexander Faris)