Filing Alert: Real Mex Files “Chapter 22” Bankruptcy Case

Real Mex Restaurants, a California-based company and one of the nation’s largest full-service Mexican casual dining restaurant chain operators, filed for “Chapter 22” protection on Monday, August 6, 2018.

Who Is Real Mex?

Real Mex operates three restaurant chain brands: El Torito, Chevy’s Fresh Mex, and Acapulco Mexican Restaurant.  It also operates two El Torito Grills, Singual, and Laguna Beach landmark, Las Brisas. From a high of approximately 128 restaurants in 2012, today it operates about 70 restaurants.  Almost all are in California. In addition, Real Mex has 11 franchised restaurants across the US.

The First Chapter 11 Case

The Real Mex debtors purchased the restaurant family in 2012 through a Chapter 11 bankruptcy sale. At that time, Tennenbaum and Z Capital were secured noteholders. They emerged as the new company’s majority owners. Today, the Real Mex debtors include a holding company, RM Holdco LC, and five affiliates.  

Why Has Real Mex Filed a 2nd Bankruptcy Case?

Real Mex cites to many problems leading to its bankruptcy filing:

  • Operational inefficiencies;
  • Losses and shut-down costs associated with an unprofitable centralized food purchasing and distribution service and specialty product manufacturing business;
  • Millions of dollars in costs, and lingering litigation, associated with shuttering underperforming locations;
  • Millions of dollars in costs resulting from failed expansion efforts;
  • Risk-management expenses;
  • Rising employee wages and high rent costs, particularly in California;
  • Deferred maintenance at some locations; and
  • Rising financing costs.

The Sale  Effort

Real Mex has engaged industry-expert Piper Jaffray to market the company for sale. Ultimately, the process resulted in a high bid by one of the company’s current owners, Z Capital.  The “headline” purchase price is $46.75 million. Real Mex has proposed the following sale timeline:

  • Bid deadline: Sept. 21, 2018
  • Auction: Oct. 4, 2018
  • Sale hearing: Early October 2018

Case Information

The case number is 18-11795, and it is pending in the Bankruptcy Court for the District of Delaware. The case has been assigned to Judge Mary F. Walrath. KCC is the claims and noticing agent.  If you are looking for more information, you can view the company’s “first-day” global declaration here.

Mette K.

Filing Alert: ABT Molecular Imaging Files for Chapter 11 Bankruptcy Protection

ABT Molecular Imaging, Inc., a Louisville-based medical imaging company, filed for chapter 11 protection this morning.

ABT’s Business

ABT’s filings state that it designs, manufactures and distributes the world’s first and only smallfootprint Biomarker Generator (“BG-75”) for Fludeoxyglucose (18F) (“FDG”).  What is that, you ask? It is the imaging agent used in positron emission tomography (“PET”).

Still confused? Wikipedia explains. In medicine, a biomarker is something that doctors can use as a measurable indicator of the severity or presence of a particular disease. And PET is a new type of imaging biomarker that they can use to measure where in the body cells take up glucose. Why is that important?  Because glucose is present at inflammation sites, and also because tumors take up a lot of glucose.

So ABT has developed BG-75, which a really efficient way for its customers to use PET biomarkers to locate inflammation sites and tumors.  It developed BG-75 in 2009, delivered its first unit to a well-known medical university in 2011, and has taken orders for 23 additional units to customers across five continents.  The sale of one BG-75 also generates around $175,000 in recurring annual consumables and service revenue streams over the life of the system.  And annual service contracts average revenue of $80,000 per year.  In combination, the company has historically generated approximately $1.3 million of incremental revenue per BG-75 over the five-year period following installation.  Sounds great, right?

The Bankruptcy Filing

Unfortunately, ABT’s finances are deeply troubled. It reports consolidated sales of $5,403,000 for 2017, but a net loss of $5,516,000. Its assets have a net book value of roughly $2.5 million, but it has total liabilities of approximately $30 million.  Consequently, ABT filed its bankruptcy case to adjust its balance sheet, or if that doesn’t work, to sell the company to a qualified purchaser.  SSG Capital Advisors is its investment banker.

ABT’s Capital Structure

ABT’s funded debt consists of two secured term loan facilities agented by SWK Funding LLC and several unsecured loans from two of its shareholders, Intersouth Partners VII, L.P. and Mr. Ronald Nutt.

Its original First Lien Lenders provided ABT with a senior secured term loan facility of up to $4 million. They assigned the credit agreement to SWK, as agent and lender, in 2016, and it has been amended several times since to address defaults.  Today, the aggregate principal outstanding is approximately $9,683,333, including $2,350,000 in amounts that were advanced this year.  ABT proposes to “roll up” this debt as part of a post-petition financing facility.

SWK as agent, and certain lenders, entered into a Second Lien Credit Agreement with ABT in an amount up to $10 million.  Today, the  aggregate principal outstanding under the Second Lien Term Loan is approximately $16,161,455.

ABT also entered into several subordinated unsecured promissory notes with Intersouth totaling $1,136,000. And ABT and Mr. Ronald Nutt entered into two subordinated unsecured promissory notes totaling approximately $1.8 million.

But that’s not all.  ABT also owes roughly $180,000 to some 65 trade vendors.

Customary “First-Day” Motions

To support its transition to bankruptcy, ABT has filed customary first-day motions, including motions to:

  • Continue its cash management system;
  • Pay employee wages, insurance premiums, and taxes;
  • Provide deposits to utlility companies;
  • Limit stock trades; and
  • Pay critical vendors

Case Information

The case number is 18-11398 (LSS). The case has been assigned to Judge Laurie Selber Silverstein and is pending in the Delaware Bankruptcy Court. Garden City Group is acting as claims and noticing agent.  Additional information is available in the company’s “first-day” global declaration, available here.

Mette K.

Sancilio Pharmaceuticals Pursues a Bankruptcy Sale

Sancilio Pharmaceuticals Company filed for chapter 11 bankruptcy protection on Tuesday, June 5th, in Delaware. Sancilio is one of several pharmaceutical companies to file for chapter 11 relief in recent years. Others include Orexigen Therapeutics, Protea Biosciences, and Unilife.

Who Is Sancilio?

A Florida-based pharmaceuticals developer and manufacturer, Sancilio focuses on four business segments.

  • Its lipid technologies platform includes its lead product for treating pediatric sickle cell disease, Altemia.  This soft gelatin capsule has secured “Orphan Drug” status from the U.S. Food and Drug Administration and the European Medicines Agency. Sancilio also has a “deep” advance lipid technology pipeline of other proprietary drug candidates.  SC401 targets severe hypertriglyceridemia.  SC403 targets short bowel syndrome.  SC410 targets non-alcoholic fatty liver disease.  SC4l2 targets retinitis pigmentosa and macular degeneration.  And SC4l3 targets epilepsy.
  • Sancilio’s over the counter supplements and prenatal vitamins segment include its Ocean Blue over-the-counter and behind-the-counter supplements of highly concentrated omega-3 fatty-acid fish oil. Ocean Blue supports cardiovascular and metabolic health. The behind-the-counter supplements in the line are available from pharmacies within national and regional retail stores.  The over-the-counter supplements are nationally distributed and available through retail channels.
  • The company’s prenatal vitamins provide vitamin and nutritional supplementation.  They contain no artificial colors, flavors, sugars or dyes and are gluten and saccharin free. And the debtors’ dental health supplements are fluoride-based and intended for use as a substitute for fluoridated water. Sancilio sells these products through drug wholesalers, and directly to retail pharmacies.

Sancilio also has two non-debtor foreign affiliates based in China and India, Sancilio Medical Technology (Shanghai) Co., Ltd. and Sancilio Pharmaceuticals Private Limited.  Sancilio states that these affiliates have limited assets will dissolve.

Why Are They in Bankruptcy?

The business requires substantial working and investment capital, along with clinical trials that often cause delays, before generating return in a market where pricing and demand of each of its business lines is highly volatile. Sancilio says that its access to capital became increasingly constrained beginning in 2017, culminating with a “liquidity crisis” by the year’s end. The company obtained a $5.5 million equity infusion in early 2018 to pay overdue trade claims and carry it through to a sale, but that sale did not materialize.  Its lenders then refused to continue funding the business and threatened foreclosure if it did not file a Chapter 11 case.

The Bankruptcy Auction.

Sancilio has filed a motion seeking approval of two “stalking horse,” or opening, bids for its business.

  • K.D. Pharma Bexbach GmbH has made a $2.5 million cash offer for the Ocean Blue line of omega-3 fish oil supplements.  KD holds about 12% of Sancilio’s equity, and the bid is a joint venture between KD and a minority group lead by John Licari and Anthony Valetutti, current Sancilio employees, managers, and former board members.
  • MidCap Funding Trust XIII has presented a credit bid of at least $15 million for most of the company’s other assets. MidCap is an affiliate of company’s lenders and holds about 1% of Sancilio’s equity.

Cassel, Salpeter & Co. is the investment banker.  Bids are due on July 16, 2018, and the auction is scheduled for July 18, 2018.

Initial overbids for the MidCap assets must exceed their bid by a 3% breakup fee and $250,000 in cash and must include a $1 million expense reimbursement.  Since the MidCap purchase price is based on a formula, estimated to equal at least $15 million, MidCap must confirm the purchase price within two business days after entry of the bid procedures order.

Initial overbids for the KD assets must exceed their bid by a $75,000 breakup fee, $100,000 expense reimbursement, and $100,000 in cash, for a total minimum overbid of $2.775 million.

All subsequent overbids at auction will be $250,000.

If a bidder offers to buy all of the assets, then the purchase price must be at a minimum the amount of the aggregate of the MidCap and KD minimum overbids. Bids may also be for another combination of assets, in which case the debtors, along with MidCap as lender, would determine whether the bid is qualifying.

How Is Sancilio Paying for This?

Sancilio is funding the sale process with $5.3 million in post-petition financing provided by MidCap Financial Trust, as agent and lender, along with Flexpoint MCLS Holdings, LLC as lender.  The court has already approved $1 million on an interim basis, and it has scheduled the hearing to approve the balance of the funding for June 28, 2018 at 2 pm EST.

To protect the lenders, Sancilio has proposed to grant them consensual, priming liens superior to its prepetition secured lenders. The financing will have superpriority administrative expense status.  And Sancilio has agreed to provide the lenders with a lien on proceeds of avoidance actions—often a source of recovery for unsecured creditors—subject to the final order.  The facility includes a $265,000 origination fee (requested on an interim basis) and a 5% termination fee.

Sancilio’s prepetition lenders have agreed to allow Sancilio to use their cash collateral. In exchange, Sancilio has agreed to provide replacement liens and superpriority administrative expense claims and to pay their professional fees and expenses.  Sancilio has also agreed to its right to seek to surcharge their collateral under Bankruptcy Code section 506(c) and 552(b).

The proposed deadline for creditors to challenge the lenders’ liens is 75 days from entry of the interim financing order.  Or if a creditors committee is formed, it will have 60 days to bring a challenge.

How Much Money Is Available for Unsecured Creditors?

Sancilio reports $10 million to $50 million in assets.  Its debts include roughly $18.1 owed to its prepetition lenders and $5 million of unsecured claims, approximately $3.6 million of which are third party vendor claims.

The company believes it is unlikely that the pending sales will generate enough cash to pay a meaningful dividend, if any, to anyone other than the prepetition lenders.

The carve-out includes $90,000 for professional fees and $40,000 to fund a wind-down.

However, Sancilio has filed a motion to pay up to $580,000 in “critical vendor” claims, $290,000 of which was approved on an interim basis.  Sancilio has also filed the following motions:

  • To pay materialmen claims (granted authority to pay up to $22,000 on a final basis)
  • To pay insurance premiums (granted on an interim basis)
  • To pay certain taxes (granted authority to pay up to $85,000 on a final basis)
  • To satisfy reclamation claims (to be heard at the “second day” hearing)
  • To provide deposits to utility companies (granted on an interim basis).
  • To continue customer programs (granted authority to continue at its discretion)

The second day hearing is scheduled for June 28, 2018 at 2 p.m. EST.

The Bankruptcy Case.

The case has been assigned to Judge Christopher Sontchi (Case No. 18-11333 (CSS)).

Mette K.

Bioamber Seeks Bankruptcy Protection

On May 4, 2018 BioAmber Inc. (OTCPK: BIOA) filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code. Simultaneously, its Canadian subsidiaries, BioAmber Sarnia Inc. and BioAmber Canada Inc., commenced proceedings under the Bankruptcy and Insolvency Act (Canada).

This process will provide BioAmber with the time and stability to restructure its finances. This restructuring, combined with the significantly improved cost structure we anticipate, will position BioAmber to emerge as a much stronger company which will be better positioned to meet the growing global demand we see for our product.

–Richard Eno, Chief Executive Officer of BioAmber.

BioAmber is a Montreal-based renewable materials company. Its technology platform combines biotechnology and catalysis to convert renewable feedstock (e.g., corn syrup) into building-block chemicals used in various everyday products. These include plastics, paints, textiles, food additives, and personal care products.

The company opened its first commercial-scale plant in Sarnia in 2015.  It attracted $52 million in federal and provincial funding to help it build the $140 million plant.  Since then, however, BioAmber’s founding president left the company last year and it was delisted from both the New York and Toronto stock exchanges.

For more information visit www.bio-amber.com.

Mette K.

Bertucci’s: Filing Alert & Committee Formation Meeting Notice

Italian restaurant owner and operator Bertucci’s Corporation filed for Chapter 11 bankruptcy protection on April 15, 2018.  The case is pending in Delaware.

Company Overview

Bertucci Info.jpgBertucci’s  was formerly known as NE Restaurant Company, Inc.  It changed its name to Bertucci’s Corporation in August 2001. Founded in 1981, the company is based in Northborough, MA.  Today Bertucci’s owns and operates a chain of 59 casual dining Italian restaurants in the Northeast and Mid-Atlantic.

A Bankruptcy Sale

The filing sets up a process to sell the company to Right Lane Dough Acquisition, LLC (an affiliate of Right Lane Capital) or an overbidder.  The proposed purchase price is $1.7 million in cash and a “credit bid” of up to $4 million.  In addition, the buyer will provide the company with exit financing in the form of $14 million in new second lien notes.

A Struggling Restaurant Market

Like others before it, Bertucci blames its bankruptcy filing on a proliferation of fast-casual restaurants and market oversaturation.

Bertucci’s, and the casual family dining industry generally, have suffered “a prolonged negative operating trend in an ever increasing competitive price environment.”

Since 2011, the company has experienced year-over-year declines in sales and revenue.

In fact, Reorg. First Day states that Bertucci’s is the third Massachusetts-based restaurant chain it has covered in recent years.  The others were Boston-based fast casual restaurant Cosi and the Sagamore-based restaurant chain Bugaboo Creek Steakhouse.

The Committee Formation Meeting

The company states it owes roughly $9 million to vendors, landlords, and other unsecured creditors.  The U.S. Trustee has scheduled a meeting to form a committee of unsecured creditors in the case.  The meeting will take place at 10:00 a.m. on Friday, April 27, 2018.  It will be held at the Delaware State Bar Association on 405 King Street, 2nd floor, in Wilmington, Delaware.  If you would like a copy of the formation notice, it is available here.

Barn Clouds.jpegThe weather forecast?  A very civilized high of 66 degrees.  With mostly cloudy skies becoming partly cloudy later in the day.  Because it is always partly cloudy in Delaware.  Except when its raining.  Or snowing.

Mette K.

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