On the Auction Block: iPic-Gold Class Entertainment, Inc.

iPic-Gold Class Entertainment, Inc. (IPIC) has filed a Chapter 11 case in Delaware to sell its business through a “363” bankruptcy auction.

iPic’s Rise… and Fall

IMG_7496.jpgiPic is a Florida-based, publicly traded movie theater and restaurant company with 16 locations in 9 states that provide a “luxurious movie-going experience at an affordable price.” iPic touts its high-quality, chef-driven culinary and mixology offerings in unique destinations that include premium movie theaters, restaurants and lounges. The debtors’ restaurant concepts include: (1) The Tuck Room, a “drinking and dining den” with locations in Florida, New York, and Texas; (2) The Tuck Room Tavern, which serves “Craveable American Cuisine” in Los Angeles; (3) Tanzy Restaurant, offering modern Italian dining in Florida and Arizona; and (4) City Perch Kitchen + Bar, with seasonal American dining in Maryland, New Jersey and New York.

After achieving double-digit growth supported by its unique offerings and market position, new market entrants and competitive pricing slowed iPic’s growth.  Although demand for shares following iPic’s 2018 IPO was “strong,” the situation was compounded when institutional investors could not fund their commitment to the offering, with the total capital raised of $17 million insufficient to fund continuing development. But the company believes that its underlying business model remains strong, “bolstered by positive guest experience and loyalty.”

A Fast, “Naked” Auction

iPic is going forward with a “naked” auction at this time, with no stalking-horse bidder in hand.  If a stalking-horse offer (e.g., opening bid) is presented before the auction, it appears that it may be possible to negotiate for typical stalking-horse protections such as expense reimbursements and break-up fees. iPic is seeking approval of a 90-day marketing process, with a proposed bid deadline of October 11, 2019 and a sale closing by the first week of November. No minimum bid has been established. The company reports store-level EBITDA of $15.06 million for the year ended December 31, 2018, and roughly $160 million in assets at book value.

The iPic Bankruptcy Docket

iPic’s claims agent is maintaining a public website with information about the case.

Additional Information

Fox Rothschild is monitoring the situation.  If you are interested in more information about the auction and the bid process, we are available to assist.

Mette H. Kurth

On the Auction Block: NovaSom, Inc.

NovaSom, Inc. has filed a Chapter 11 case in Delaware in order to sell its business through a “363” bankruptcy auction. NovaSom joins other recent healthcare industry filings by companies such as True Health, Avadel Pharma, Argos Therapeutics,

NovaSom’s Business

NovaSom is a Maryland-based home sleep testing company. In 2010-2012, it developed a device, AccuSom, that sends sleep data wirelessly rather than requiring patients to return a device to a lab to download data. It is the only in-home sleep test available in the marketplace that provides patient support and next-day test results. Additional information is available at: https://www.novasom.com/

bed-bedroom-cute-545016.jpgBetween 2013 and 2017, orders for AccuSom grew 500%. The average sales price, however, dropped by nearly 30% due to market conditions and the general availability of home sleep testing providers. The company’s filings indicate that the significant cost of growing sales has thus far prevented NovaSom from reaching profitability.

The Auction Process

At present, one entity, VirtuOx, has expressed interested in buying NovaSom’s assets for an estimated $5.3 million. The bid deadline for competing bidders is September 19, 2019 at 4:00 p.m.  (Certain qualifications must be met to qualify as a bidder).  If the company receives qualified, competing bids, the auction will be held on September 23, 2019 in Philadelphia, PA.  The sale hearing will be held two days later.

The NovaSom Bankruptcy Docket

NovaSom’s claims agent is maintaining a public website with information about the case.

Additional Information

Fox Rothschild is monitoring the situation.  If you are interested in more information about the auction and the bid process, we are available to assist.

Mette H. Kurth

Philadelphia Energy’s Bright Future Goes Up in a Massive Fireball as It Files for Bankruptcy. Again.

Philadelphia Energy Solutions has filed for bankruptcy protection a month after an explosion permanently shut down the East Coast’s oldest and largest refinery. The chaos began on June 21 at 4 a.m. when a butane tank exploded, destroying an alkylation unit using hydrofluoric acid to process refined petroleum. If you’re not sure exactly what that means… it’s bad. The explosion sent fireballs into the air that you could see miles away. And it took two days to completely extinguish the massive fire that resulted. 

The company shut down the refinery less than a week later and announced—by email, and with only 5 days notice—that it would lay off 1,000 employees. Refinery workers were not pleased, responding with a lawsuit arguing that Philadelphia Energy Solutions failed to comply with the WARN Act’s requirement that a company with 100 or more workers give 60 days’ notice when expecting massive job loss. (Fair enough. But the WARN has exceptions for layoffs due to “unforeseeable business circumstances.” Is anyone arguing that Philadelphia Energy Solutions planned the explosion in advance?)

PES Seeks to Reorganize and Rebuild with $100 Million in New Funding

Philadelphia Energy Solutions owns and operates the Point Breeze and Girard Point oil refineries located on an integrated, 1,300-acre refining complex in Philadelphia. The with a combined capacity of 335,000 barrels per day. The company is seeking $100 million in new funding to support existing operations, undertake the work necessary to ensure the refinery complex is safely positioned for rebuilding, and restart and complete its reorganization process.

We will continue our ongoing cooperation with the federal, state and city governmental agencies investigating the June 21 accident and thank them and our employees for their diligent efforts at this difficult time. The success of our plan is critical to energy supply and security for the region, the Commonwealth of Pennsylvania and the City of Philadelphia

Mark Smith, Chief Executive Officer

The 2018 Bankruptcy and Restructuring

Notably, this is the company’s second bankruptcy in under two years. It blamed that first filing largely on the costs of complying with the US Renewable Fuel Standard, which requires refiners to either blend biofuels like ethanol into fuel or purchase credits from competitors who do. Philadelphia Energy Solutions does not have blending capabilities, so it pays for credits. (The withdrawal of over $590 million in dividend-style payments from the company may not have done anything to help the situation.)

During the first bankruptcy case, the EPA waived half of PES’s $350 million in liabilities related to biofuels credits. Philadelphia Energy Solutions then restructured over $635 million of funded debt while securing access to $260 million in new financing and a new $900 million intermediation facility.

Today marks the successful completion of a process that preserves the jobs of 1,100 hard-working Pennsylvanians and ensures the critical flow of energy to the Northeast U.S. . . . . PES has a bright future ahead as the longest continuously operating refinery on the East Coast. We will invest in the refinery, building on the more than $900 million that has been invested in the complex since PES was formed in 2012 to implement world-class refining capabilities.

Greg Gatta, Chief Executive Officer

Lingering Financial Woes

However, Philadelphia Energy Solutions was reportedly facing another financial crisis just months after emerging from that earlier bankruptcy. In February of 2019, Reuters reported that after exiting from bankruptcy in August of 2018, the company saw its cash balance fall to $87.7 million at the end of 2018, down from $148 million three months earlier.

According to Reuters, the company’s weak cash position forced the refiner to significantly scale back a planned $90 million maintenance project planned for last January. Refiners, of course, perform maintenance to keep units operating reliably and safely.

The refinery explosion occurred less than 6 months later.

Mette K.

Restaurants Unlimited on the Bankruptcy Auction Block

Seattle-based Restaurants Unlimited, Inc., operator of 35 restaurants across six states, has filed for Chapter 11 bankruptcy protection in Delaware along with three affiliates. The Bankruptcy Court has scheduled a “first-day” hearing to take place today, July 9th, at 3:00 p.m. The hearing agenda is available here.

Update: The committee formation meeting has been set for July 23rd at 10:00 a.m. at 405 King Street, 2nd Floor Wilmington, Delaware. It promises to be a lovely, muggy, summer day with highs in the 90s and a chance of thunderstorms. I apologize. Seek out air conditioning.

Company Background

Restaurants Unlimited, an eatery chain owned by private-equity firm Sun Capital Partners, Inc, offers both fine dining and polished casual dining in “iconic” locations under the following local brands: 

  • Clinkerdagger
  • Cutters Crabhouse
  • Fondi Pizzeria
  • Henry’s Tavern
  • Kincaid’s
  • Maggie Bluffs
  • Manzana
  • Newport Seafood Grill
  • Palisade
  • Palomino
  • Portland City Grill
  • Portland Seafood Company
  • Scott’s Bar & Grill
  • Simon & Seafort’s
  • Skate’s on the Bay
  • Stanford’s
  • Stanley & Seafort

What Went Wrong?

The filing is the most recent in a spate of restaurant bankruptcies as consumers take advantage of falling grocery prices while restaurants grapple with increasing operating costs and market saturation. In particular, Restaurants Unlimited attributes its filing to steep minimum wage hikes across the Pacific coast—with additional hikes projected for 2020—and the national trend away from casual dining. The company’s unsuccessful, $10 million expansion into two new locations exacerbated these problems. The resulting liquidity crisis saw the company falling behind on rent obligations and vendor payments, defaulting on $40 million in secured debt, and shuttering six locations.

Other recent restaurant filings include Real-Mex, Pappa Ginos, Bertucci, Rock & Brews, Palm Restaurants, Garces Restaurant Group, Joe’s Tavern Brick House, and Taco Bueno.

On the Auction Block

Restaurants Unlimited commenced its bankruptcy case to sell its business through an auction process. The company’s prepetition lenders, Drawbridge Special Opportunities Fund and NXT Capital, and their agent, Fortress Credit Co., are providing $10 million in post-petition financing to support these efforts. In fact, the company first engaged an investment banker to locate to a buyer or secure new financing in 2016. Those efforts failed, and in spring 2019, Restaurants Unlimited hired Configure Partners to run a bankruptcy sale process. Will it have any better luck this time? Although the company does not have a purchase offer in hand, it reportedly has received some initial indications of interest and is “optimistic.”

Financing: At a Price

While post-petition financing will provide the company with much needed liquidity, it comes at a steep price. The financing comes in the form of a senior secured, super-priority, multi-draw term loan with $3.25 to be drawn on an interim basis before final court approval. While there is no roll-up of prepetition debt, the facility includes a 5% closing fee, a 2% commitment fee, and various other fees, as well as a proposed lien on avoidance actions (which would otherwise be available to pay unsecured creditors) and waiver of the debtor’s surcharge rights and the “equities of the case” exception under Bankruptcy Code section 552(b).

The financing is subject to the following proposed milestones, all of which are designed to culminate in a sale by the end of September–despite the fact that the company has not yet located a buyer.

  • July 10: Entry of interim DIP order
  • Aug. 20: Obtain stalking horse bid
  • Aug. 21: Entry of bid procedures order
  • Sept. 13: Bid deadline
  • Sept. 17: Auction
  • Sept. 20: Entry of sale order
  • Sept. 26: Sale consummation

The lien challenge deadline is the earlier of 60 days after selection of counsel to a creditor’s committee or75 days after the petition date. The investigation budget is $25,000.

Critical Vendors

Meanwhile, Restaurants Unlimited is seeking authority to pay up to $3.5 million in “critical vendor” claims consisting of amounts owed to logistics providers, PACA/PASA claimants and an estimated $1.3 million in 503(b)(9) claimants. An initial $500,000 could be paid if approved on an interim basis. Restaurants Unlimited estimates that it owes roughly $8 million to trade vendors, landlords and other unsecured creditors. Of that amount, approximately $4.1 million is owed to its 10 largest unsecured creditors:

Sysco$1.830,000
Pacific Seafood Co.$930,000
Charlies Produce Company$471,000
Microsoft Leasing$180,000
Aramark$160,000
Newport Meat$120,000
LA Specialty Produce Co. d/b/a SF Specialty$120,000
Retail Properties of America$104,000
Baseball Club of Seattle, d/b/a Seattle Mariners$100,000
Attilio Merlino & Assoc., Inc., d/b/a/ Merlino Foods$100,000

Additional Information

Additional information is available free of charge here.

Mette K.

Kitten Heels are Dead. Long Live Kitten Heels.

The retailpocolypose is continuing at full speed, impacting retailers both here in the US and across the pond. Clothing retailer LK Bennett Ltd. is the latest High Street casualty, closing five stores and going into administration in the UK. It is joined by its New York-based subsidiary, L.K. Bennett U.S.A., which has filed for chapter 11 protection in the Delaware Bankruptcy Court.

Company Background

Opening in London in 1990 to bring “a bit of Bond Street luxury to High Street,” LK Bennett quickly established itself as an upmarket retailer. And its founder, Ms Bennett, just as quickly established herself as “the Queen of the Kitten Heel.” Bennett’s “smart” dayware is a favorite of Princess Kate Middleton and other celebrities. And even Prime Minister Theresa May has been knows to step out in LK Bennett kitten heels.

Faltering Steps

Corporate missteps and a challenging retail environment have led to declining sales and, ultimately, bankruptcy.  Many of the elements of the LK Bennett story are all too familiar.

  • The UK clothing and footwear sector are suffering from price deflation, leaving LK Bennett priced beyond the reach of most shoppers.
  • Today’s retail environment is all about authenticity and distinctiveness; LK Bennett has failed to embrace a sense of uniqueness and creativity that would set it apart from more competitively priced competitors in a saturated market.
  • An excessive number of stores at above-market rates – exacerbated by decreasing foot traffic and overdependence on sales at brick & mortar locations – has left the company struggling with excessive lease costs.
  • LK Bennett has also failed to connect with its young consumers via social media and has been overtaken by younger, more-affordable and digitally-savvier brands. (Sorry, Prime Minister.)
  • Ownership changes have left strategies in flux without time to take root and come to fruition.

And by the way…. is an “affordable luxury brand” even a thing?  Are consumers who are willing to invest in a luxury pair of shoes more likely to go all in and aim for a recognized high-fashion shoe brand, such as Jimmy Choo? 

What Comes Next for LK Bennett?

Interested buyers have been actively pursuing the company, at least in the UK. Similarly to (much, much) edgier UK lingerie brand and retailer Agent Provocateur, LK Bennet’s counterpart bankruptcy filing for its US subsidiary has likewise been teed up to pursue a sale.

Case Information

L.K. Bennett U.S.A. is represented by DLA Piper as counsel and Ernst & Young as restructuring advisor. The case number is 19-10760. The case has been assigned to Judge Kevin Gross.

Mette H. Kurth