Promise Healthcare Files For Bankruptcy, Promises Improved Financial Health

Promise Healthcare Group and numerous affiliates filed for Chapter 11 protection Sunday night in Delaware.

What Ails Promise Healthcare?

Promise Healthcare is a Florida-based specialty post-acute care healthcare provider operating several hospitals and skilled nursing facilities across nine states. It operates two short-term acute care hospitals, 14 long-term acute care hospitals and two skilled nursing facilities. According to the company, Promise Healthcare is one of the largest long-term acute care hospital operators in the U.S.

“While I believe that the Debtors’ overall business is fundamentally strong, [Promise Healthcare has] been operating with an unsustainable balance sheet due to current industry dynamics and certain underperforming facilities within [its] portfolio.”  – Andrew Hinkelman, FTI Consulting, Chief Financial Officer

Like many hospital operators that have filed chapter 11 recently, such as ManorCare Health Services, Promise Healthcare has suffered from significant reductions in reimbursement rates from The Centers for Medicare & Medicaid Services. Average reimbursement rates for non-qualifying patients have dropped roughly $41,000 per stay industry wide. Coupled with Promise’s inability to adjust operating cost structures, this has directly impacted profitability.

What Are the Next Steps on the Road to Recovery?

Step 1: Sell Non-Core Assets.

Promise Healthcare has already received  purchase offers for several non-core assets.  Offers in hand, it hopes to complete sales and use the proceeds to pay down secured loans over the next three months.

  • The Silver Lake Facility:  L.A. Downtown Medical Center has offered to purchase Promise Healthcare’s Silver Lake facility section for $84.15 million. The offer will be subjected to overbids in a bankruptcy auction.  A sale closing is planned for January or February of 2019.
  • The St. Alexius Facility: Promise Healthcare has been looking for a buyer for its facility in St. Louis for the past year-and-a-half to two years. However, it has been hindered by the termination of its Medicare program in November, the need for substantial capital improvements, and heavy operating losses.  Despite these challenges, Promise Healthcare is negotiating a stock sale which it hopes to conclude by year end.
  • San Diego Property: Promise Healthcare is also in final negotiations to sell its San Diego property.  It hopes to conclude this sale as well by year end.

Step 2: Obtain Postpetition Financing.

Promise Healthcare has requested $85 million in postpetition financing, including a rollup of its $65 million prepetition asset-based revolving loan facility and a new money commitment of $20 million, with prepetition revolving lender Wells Fargo Bank as agent.

Step 3: Come Up With an Exit Strategy.

Over the next 6 months, Promise Healthcare will search for an exit. That could be a buyer for the business. Or an equity sponsor who will support a reorganization.  Houlihan has already contacted 77 financial and strategic partners and received “several” indications of interest. Ultimately, Promise Healthcare hopes to file a bid procedures motion by the end of the year, with the intention of closing a sale around April 2019.

Prime Clerk is the claims agent. Additional information about the case is available here.

Mette K.

 

 

Papa Gino’s & D’Angelo Enter Bankruptcy

PGHC Holdings, operator of New England-based Papa Gino’s and D’Angelo, filed for chapter 11 protection on Monday.  Not surprisingly, the case is pending in Delaware.

Reasons for the Bankruptcy? Same Old/Same Old

Also not surprising, the bankruptcy follows performance struggles faced by both Papa Gino’s and D’Angelo as a result of:

  • Evolving consumer dining preferences;
  • Increased labor costs; and
  • Increasing competition among national chains.

Remember Real Mex, for example? Or Bertucci’s? Restaurant growth is continuing to slim down, folks….

In addition to operational factors, Papa Gino’s and D’Angelo have a substantial debt load that they have been unable to service. This includes: $18.5 million in first-lien, secured debt; $34.2 million in second-lien, secured debt; $39.9 million in unsecured mezzanine debt; and $9 million in unsecured trade debt, lease obligations and repair obligations. And Pappa Ginos and D’Angelo are in default under both the first and second lien agreements while the 16% senior subordinated notes matured last June. Ouch.

What Happens to Papa Gino’s and D’Angelo’s Next?

Although Papa Gino’s may be a “New England original,” its bankruptcy plans are not.

The company intends to close roughly 92 locations (47 Papa Gino’s / 45 D’Angelo). In addition, they have secured a $13.8 million in post-petition financing from an existing, secured lender to keep the company afloat. And a credit bid by the lender’s designee, a Wynnchurch Capital portfolio company, serves as the “stalking horse,” opening offer to purchase both the Papa Gino’s and D’Angelo restaurants. The stalking horse credit bid is $20 million plus assumption of certain liabilities.  Ultimately, a bankruptcy auction will determine the highest and best bidder.

The sale timeline is:

  • Bid procedures shall be established by December 17, 2018;
  • The auction is to be held by January 28, 2019;
  • A hearing on the sale shall be held and sale order entered by January 31, 2019; and
  • The sale closing shall take place by January 31, 2019.

Papa Gino's

Papa Gino’s and D’Angelo have issued a press release. The proposed sale transaction, they say, will significantly strengthen their financial resources. This will allow the restaurants to remodel and modernize across MassachusettsNew HampshireRhode Island, and Connecticut. They also plan to open additional restaurants throughout New England.

Hungry? Look forward to enhanced on-line ordering capability as well.

Mette K.

Filing Alert: Samuels Jewelers Files… A “Chapter 44”?!

Texas-based retail jewelry store operator Samuels Jewelers has filed its fourth Chapter 11 bankruptcy case. This time, the beleaguered company is hoping for a going concern sale.

The First Three(!) Chapter 11 Cases

Samuels Jewlers traces its origins to a jewelry chain founded in 1891, Barry’s Jewelers, as a single store in Los Angeles. In the 1980s, Barry’s rapidly expanded into indoor shopping malls.  At the time, it was one of the fastest-growing jewelry chains in the country.  But Barry’s experienced small waves of unprofitability, filing Chapter 11 petitions in 1992 and 1997.  Following the second bankruptcy, it changed its name to Samuels Jewelers, its most recognizable brand.  The company filed its third bankruptcy in 2003, emerging with new owners. It later relocated to Texas.

Who Is Samuels Jewelers?

emerald-1137412_1920Gitanjali Gems, an Indian public company, acquired the company in 2006.  Samuels Jewelers operates over 120 stores across 23 states. Its brand names include Roger Jewelers, Andrews Jewelers, Schubach Jewelers, and Samuels Diamonds. In addition to its retail stores, the company has an e-commerce operation.

Why Has It Filed Another Bankruptcy Case?

The company cites several operational problems leading to its bankruptcy filing:

  • Increased industry competition from discount and e-commerce stores;
  • Operational deficiencies;
  • Climbing expenses;
  • A failure to keep up with customer preferences and build up of stale inventory.

The company has also been hard-hit by negative publicity associated with an investigation by the Indian Central Bureau of Investigation (CBI) into Gitanjali – Samuel Jewelers’ sole equity holder and one of its suppliers and lenders. The CBI has alleged that Gitanjali and others defrauded multiple Indian banks. Samuels’ states that some of its former directors, board members, and executives have been implicated, including its former CFO and president. While Gitanjali is no longer operating, this has disrupted Samuels Jewelers’ product supply and funding sources. And the situation has caused the company to lose standing with vendors, resulting in terminated relationships and more supply chain disruption. Moreover, according to the company new details and allegations continue to surface.

Samuels is at least the second jewelry company to file a chapter 11 case this year in the aftermath of a CBI investigation. In February, Firestar Diamond filed for Chapter 11 bankruptcy protection following news reports in India that its majority shareholder and parent had colluded with Punjab National Bank to obtain over $1 billion in unauthorized loans.

The (Hail Mary) Sale Effort

Although Samuels Jewelers says it is seeking a sale, its filings indicate it has yet entered into a purchase agreement with anyone. In fact, it has not even hired an investment banker. That is “in process,” it says. But the company states optimistically that it has received “some indication of interest” and is “hopeful” that a sale will be possible.

Meanwhile, Samuels Jewelers plans to start selling excess inventory and run store closing sales.  It has enlisted a joint venture of Gordon Brothers Retail Partners and Hilco Merchant Resources as an asset disposition consultant to help with that effort.

Because Samuels Jewelers is pursuing a potential going-concern sale, the consulting agreement includes a fiduciary out provision to allow the  company to terminate the agreement and pursue a partial or full going-concern sale.

The Committee Formation Meeting

girl-1438138_1920.jpgThe committee formation meeting is set for Thursday, August 16, 2018, at 10:00 a.m. It will be held at The Du Pont Hotel in Wilmington, DE. While you’re there, you can check out the “classy nouveau Victorian-inspired” lobby makeover by acclaimed New York architect and interior designer Campion Platt. Or stay in touch with your office with their new, top of the line Wi-Fi.  But definitely stay inside.  The weather forecast?  83 degrees, a downright tropical 65% humidity, and scattered thunderstorms.

Case Information

The case number is 18-11818, and it is pending in the Bankruptcy Court for the District of Delaware. The case has been assigned to Judge Kevin Carey. Prime Clerk is the claims and noticing agent.  For more information, you can view the company’s “first-day” global declaration here.

Mette K.

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.

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.