Alamo Drafthouse Cinema
CASE SUMMARY: Facing ‘Unprecedented Industry-Wide Conditions,’ Alamo Drafthouse Cinema Enters Chapter 11 With RSA With Prepetition Lenders, Fortress as DIP Agent
Wed 03/03/2021 19:23 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Alamo Drafthouse Cinema bankruptcy filing Request a Trial here.
Alamo Drafthouse Cinemas Holdings, an Austin, Texas-based privately held dine-in movie theater chain with 18 company-operated locations and 23 franchised locations, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, along with various affiliates. The chapter 11 filing follows the debtors’ entry into a restructuring support agreement with ACP Alamo Finance Inc., an affiliate of Altamont, which owns 40% of Alamo’s class A preferred equity interests), CF Almo UB, Thunderbird Brothers and League Holdings, all of whom purchased the debt under the debtors’ prepetition credit agreement in January 2021. The proposed restructuring includes $20 million of new money DIP financing commitments from CF Almo, ACP Alamo, Thunderbird and League, with Fortress Credit Corp. as DIP agent, which the debtors say would provide the debtors with sufficient runway to operate their business and pursue a sale process. The DIP financing, in the total amount of $60 million, also contemplates a rollup of prepetition debt.
The restructuring support agreement provides for the issuance of preferred equity in the amount of $27.37 million, with investors consisting of Fortress (71.25%) and Altamont Capital Management, certain other existing shareholders (23.75%) and management (as part of a management incentive plan - 5%), with a preferred return of 20% per annum, compounded quarterly. The RSA term sheet also contemplates a senior secured delayed draw first lien term loan in “substantially the same form and substance” as the existing credit agreement, in the amount of $30 million, subject to adjustment. The RSA also includes a stalking horse term sheet providing for the purchase of substantially all of the debtors’ assets by an entity controlled by the DIP lenders through a credit bid of DIP loans "including the deemed term 'roll up' of up to $26,000,000 of Loans under the Credit Agreement."
In August 2020, the company engaged Houlihan, which began a solicitation process to determine interest in a potential sale through “soft inquiries.” However, “given the tumultuous end to the year with their negotiations with the Prepetition Secured Lenders and fearful of the impact a sale process would have on the lease negotiation efforts led by Keen, the Debtors did not conduct a prepetition sale process,” the debtors say.
The first day hearing has been scheduled for tomorrow, Thursday, March 4 at 2 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
In December, ACP Alamo Finance, an affiliate of Altamont, CF Almo, Thunderbird and League began negotiations with the prepetition lenders, leading to these entities purchasing the prepetition secured debt on Jan. 6, in connection with which they increased the amount of term loans by $4 million and an affiliate of CF Almo - Fortress Credit Corp. - replaced Bank of America as the administrative agent. These lenders further agreed to increase the term loan by $2 million in February.
The debtors are represented by Young Conaway Stargatt & Taylor as counsel and Houlihan Lokey as investment banker. Epiq is the claims agent. The case has been assigned to Judge Mary F. Walrath (case number 21-10474).
Events Leading to the Bankruptcy
While noting that the motion picture industry was down 5% from 2018 in 2019 “due to, among other things, the multi-year trend of increasing competition from streaming services and periodic fluctuations in attendance rates,” the debtors say the industry had a “strong” year in 2019, with Alamo experiencing “its strongest performance yet,” outperforming the industry by over 5% “primarily due to its ability to program non ‘tent-pole’ movies.” As a result of the pandemic, however, shuttered theater doors and postponed or straight-to-streaming releases of new movies by studios have hindered Alamo’s operations and liquidity.
“Considering these unprecedented industry-wide conditions,” the debtors say, “Alamo has made the necessary adjustments to operations, which will continue until conditions normalize.” Approximately six of Alamo’s 18 company-owned theaters are currently operating at 50% mandated seating capacity with less than 20% box office sales at these locations. Additionally, approximately 11 of the 23 franchisee-operated theaters are currently operating with Covid-19 relief support of significantly reduced royalty payment plans.
The debtors were engaging with their key stakeholders in the run up to the filing, during which time they say that one of their competitors - Studio Movie Grill - filed for chapter 11 protection and AMC Entertainment Holdings took steps to “fortify its liquidity." When the debtors’ prior prepetition lenders were not willing to infuse more capital, the new lenders purchased the secured debt, along with entry into a “Purchaser RSA” in January on terms of a restructuring including milestones and deferred rent and trade payable reductions and a deadline to enter into the restructuring support agreement. On Feb. 16, the company and the purchasers entered into the RSA, which provides for a potential recapitalization of the company through an out-of-court restructuring or a potential sale through an in-court restructuring, a term sheet for DIP financing and a term sheet for a sale. In the end, the debt purchasers “were unwilling to provide additional liquidity without the protections afforded debtor-in-possession financing under a bankruptcy court order entered pursuant to the Bankruptcy Code, thereby necessitating the filing of these Chapter 11 Cases.”
Because certain members of Alamo’s board of managers are affiliated with the RSA parties that purchased the debt under the debtors’ prepetition credit agreement, the board formed a special restructuring committee and engaged an independent manager to serve on the special committee, which has been authorized to consider, review, negotiate and recommend for approval or rejection of any potential transaction.
Background
According to the debtors, Alamo stands today as the largest privately held movie theater business in North America, located in 22 markets with 18 company-operated theaters encompassing 132 screens and 23 franchisee-operated theaters encompassing 187 screens. In addition, Mondo, an online and print editorial and merchandising business operated by the debtors, serves as a critical revenue stream for the Alamo enterprise. The company says its “movie-going and superior dining experience that Alamo provides its customers is widely acclaimed.”
Alamo was founded by Tim and Karrie League in Austin in 1997. League’s majority stake in the company was sold to investor Dave Kennedy in 2004 to focus on the local Austin market theaters and develop certain related businesses, including Mondo, a collaboration with major artists and studios to produce licensed posters, soundtracks, toys, apparel, books, games and collectibles. Meanwhile, Alamo began expanding outside the Texas market, starting with Virginia in 2009. When League re-acquired a stake in the company and returned as CEO in 2010, he oversaw Alamo’s expansion over the next decade in Arizona, California, Colorado, Minnesota, Missouri, Nebraska, New York, North Carolina and multiple cities in Texas. In January 2018, Alamo purchased all membership interests in Mondo.
In June 2018, the members of debtor Alamo Drafthouse Cinemas LLC, along with members and partners of certain entities under common control, consummated a recapitalization of Alamo and its affiliates, which ultimately resulted in the company being owned by affiliates of Altamont Capital Management, League, Kennedy and other initial investors. In conjunction with the recapitalization, the members and partners of Alamo and its affiliates exchanged their respective interests for limited partnership interests in Catalina Brothers, Ltd. and Major Kong Industries, Ltd., who then contributed their partnership interests in the affiliates to Alamo, such that these entities became wholly owned subsidiaries of Alamo. Subsequently, Catalina and Major Kong contributed their partnership interests in Alamo to debtor Alamo Drafthouse Cinemas Holdings, LLC, of which Alamo became a wholly owned subsidiary.
In connection with the recapitalization, the company acquired debtor Alamo Satown, LLC, which operated four franchise locations and franchise development rights, from BACH Holdings, LLC in exchange for $2.8 million of class B common units in Holdings and $18.9 million in cash, subject to an agreed upon working capital adjustment. Contemporaneous to the recapitalization, Altamont purchased class A preferred units directly from Holdings for $17.4 million and also purchased all the class A preferred Units from Catalina and Major Kong for $48.1 million for an aggregate of $65.5 million.
Today, Alamo is a privately owned company indirectly owned by Altamont, Catalina, Major Kong and BACH.
This past summer, as Alamo theaters began to reopen in very limited capacity in certain markets, the debtors implemented procedures to minimize person-to-person contact with food-and-beverage pre-ordering, frictionless payment and other in-theater safety initiatives, including reconfiguring theater seating to optimize social distancing and sterilizing theaters between showings. In addition, Alamo sought creative ways to generate additional revenue, including renting theaters to individuals and groups for special and private screenings under the “Your Own Private Alamo” program and launching a 100% curated video-on-demand platform, “Alamo On Demand.” Nevertheless, supply of films remained limited as production companies delayed new releases and customer demand dwindled, the debtors say.
The company’s corporate organizational structure is below:
The debtors' largest unsecured creditors are listed below:
Restructuring Support Agreement
The restructuring support agreement includes a restructuring term sheet that includes terms for new preferred equity and new term loan, as described below:
New Preferred Equity
The term sheet provides for preferred equity in the amount of $27.37 million, with investors consisting of Fortress (71.25%) and Altamont Capital Management, certain other existing shareholders (23.75%) and management (as part of a management incentive plan - 5%), with a preferred return of 20% per annum, compounded quarterly on unreturned capital of new preferred equity, paid-in-kind unless cash is available. The preferred equity would be issued upon (a) a resolution and compromise of the company’s deferred rental obligations and accounts payable to a maximum of $7 million and (b) agreements with lessors to reduce the reorganized company’s lease related expenses by not less than a percentage to be agreed upon by lenders that hold at least 85% of the outstanding principal amount of the loans from the company’s lease expenses for 2019; provided that the determination of lease expense reductions would exclude lease expenses for locations that have been closed or opened since Jan. 1, 2019 or locations that will be closed in connection with the restructuring transactions.
The preferred equity would have a liquidation preference equal to the greater of (a) unreturned capital of new preferred equity plus unpaid “Preferred Return” either PIK or cash and (b) 2x original price of new preferred equity (taking into account all prior cash payments with respect to new preferred equity).
New Term Loan
The term sheet also provides for a senior secured delayed draw first lien term loan in “substantially the same form and substance” as the existing credit agreement, in the amount of $30 million, less the aggregate original principal amount of “Additional Loans” and DIP loans. The loan would bear interest at 15% PIK unless cash is available, be subject to a 2% upfront fee, and mature in three years with an 18-month draw period.
Kennedy/League Loans
The term sheet includes provision with respect to personal guarantees of either Kennedy or League regarding leases, and includes:
New Board
The reorganized holdco “which may be an entity formed to acquire HoldCo or Alamo Drafthouse Cinemas LLC” would initially consist of Tim League, Dave Kennedy and representatives of Fortress and Altamont, with the Altamont representatives holding a majority of the voting power. Any committee of the board (including audit and compensation committees) would include at least one manager appointed by each equity investor.
Milestones
Stalking Horse Term Sheet
The proposed stalking horse is a newly formed entity organized and controlled by the DIP lenders, and would purchase substantially all of the debtors’ assets for a credit bid of the DIP loans ("including the deemed term 'roll up' of up to $26,000,000 of Loans under the Credit Agreement"), assumption of certain liabilities, the “value of any liens or claims granted by the Sellers to the DIP Lenders as adequate protection for any diminution in value of the interests of the DIP Lenders in their collateral resulting from the use of cash collateral or otherwise,” and “Excluded Cash,” which is defined as all cash on hand and cash drawn under the DIP facility.
Initial overbids must exceed the stalking horse bid by the breakup fee (2%), an expense reimbursement up to $500,000 and $250,000.
The proposed sale timeline follows:
DIP Financing Motion
The debtors request approval of a multi-draw term loan facility with $20 million in new funds ($7 million on an interim basis) with Fortress Credit Corp. as agent. On a final basis, the DIP agreement provides for a rollup of up to $40 million of obligations under the prepetition secured credit facility on a pro rata basis according to the term loan holdings under the DIP facility.
The rollup term loans and applicable percentages are as follows:
The DIP delayed draw term commitments are as follows:
“Based on a review of the Prepetition Secured Parties’ lien position and the preliminary analysis of the Debtors’ potential enterprise value, the Debtors believed that there was not an equity cushion available for the Debtors to obtain debtor in possession financing based on priming the Prepetition Secured Parties’ liens over their objections, nor would the Debtors’ business be able to sustain its value during a contested priming fight with the Prepetition Secured Parties," the motion says.
The DIP financing bears interest at 15% PIK for the DIP term loan and 4.5% for the rollup loans, with 2% added for the default rate, and matures on the earlier of July 1, 2021 or other customary events.
The prepetition secured lenders have consented to the priming of their prepetition liens and to the use of cash collateral. The debtors propose a lien on avoidance action proceeds subject to the final order.
The facility includes various fees, including a $50,000 closing fee and a 2% upfront fee.
In support of the proposed DIP financing, the debtors said they intend to file the declaration of Russell Mason, director at Houlihan, the debtors’ investment banker.
The company proposes the following adequate protection to its prepetition secured lenders: replacement liens, superpriority administrative expense claims and reimbursement of professional fees.
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carveout for professional fees of the debtors is $300,000 and for an official committee of unsecured creditors is $50,000. In addition, a carve-out for the debtors investment banker, Houlihan, for a transaction fee is included up to $1.5 million.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
The lien challenge deadline is the earlier of (a) the bid deadline, (b) 60 days after formation of an official committee of unsecured creditors and (c) 75 days after entry of the interim DIP order if no committee is appointed. The UCC lien investigation budget is $25,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Alamo Drafthouse Cinema bankruptcy filing Request a Trial here.
| Summary |
| Alamo Drafthouse is a privately held dine-in movie theater chain with 18 company-operated locations and 23 franchised locations |
| Entered into restructuring support agreement with ACP Alamo Finance Inc., an affiliate of Altamont, CF Almo UB, Thunderbird Brothers and League Holdings, all of whom purchased the debt under the debtors’ prepetition credit agreement in January 2021 |
| Affiliate of CF Almo - Fortress Credit Corp. - the prepetition agent would serve as DIP agent under a $60 million DIP financing facility, consisting of $20 million of new money and a rollup of prepetition debt |
Alamo Drafthouse Cinemas Holdings, an Austin, Texas-based privately held dine-in movie theater chain with 18 company-operated locations and 23 franchised locations, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, along with various affiliates. The chapter 11 filing follows the debtors’ entry into a restructuring support agreement with ACP Alamo Finance Inc., an affiliate of Altamont, which owns 40% of Alamo’s class A preferred equity interests), CF Almo UB, Thunderbird Brothers and League Holdings, all of whom purchased the debt under the debtors’ prepetition credit agreement in January 2021. The proposed restructuring includes $20 million of new money DIP financing commitments from CF Almo, ACP Alamo, Thunderbird and League, with Fortress Credit Corp. as DIP agent, which the debtors say would provide the debtors with sufficient runway to operate their business and pursue a sale process. The DIP financing, in the total amount of $60 million, also contemplates a rollup of prepetition debt.
The restructuring support agreement provides for the issuance of preferred equity in the amount of $27.37 million, with investors consisting of Fortress (71.25%) and Altamont Capital Management, certain other existing shareholders (23.75%) and management (as part of a management incentive plan - 5%), with a preferred return of 20% per annum, compounded quarterly. The RSA term sheet also contemplates a senior secured delayed draw first lien term loan in “substantially the same form and substance” as the existing credit agreement, in the amount of $30 million, subject to adjustment. The RSA also includes a stalking horse term sheet providing for the purchase of substantially all of the debtors’ assets by an entity controlled by the DIP lenders through a credit bid of DIP loans "including the deemed term 'roll up' of up to $26,000,000 of Loans under the Credit Agreement."
In August 2020, the company engaged Houlihan, which began a solicitation process to determine interest in a potential sale through “soft inquiries.” However, “given the tumultuous end to the year with their negotiations with the Prepetition Secured Lenders and fearful of the impact a sale process would have on the lease negotiation efforts led by Keen, the Debtors did not conduct a prepetition sale process,” the debtors say.
The first day hearing has been scheduled for tomorrow, Thursday, March 4 at 2 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Prepetition credit agreement:
- Term loan: $78.1 million
- Development loan: $29.6 million
- Revolver: $5 million
- Prepetition credit agreement:
- Unsecured debt:
- PPP loan: $10 million
- Equity: ACP Alamo Holdings, Inc., an affiliate of Altamont Capital Management, owns 40% of Alamo’s preferred class A units; Catalina Brothers Ltd. holds 31.3% of the class B common units; Major Kong Industries Ltd. holds 27% of class B common units; and BACH Holdings LLC holds 1.8% of the class B common units. The equity holdings are as follows:
In December, ACP Alamo Finance, an affiliate of Altamont, CF Almo, Thunderbird and League began negotiations with the prepetition lenders, leading to these entities purchasing the prepetition secured debt on Jan. 6, in connection with which they increased the amount of term loans by $4 million and an affiliate of CF Almo - Fortress Credit Corp. - replaced Bank of America as the administrative agent. These lenders further agreed to increase the term loan by $2 million in February.
The debtors are represented by Young Conaway Stargatt & Taylor as counsel and Houlihan Lokey as investment banker. Epiq is the claims agent. The case has been assigned to Judge Mary F. Walrath (case number 21-10474).
Events Leading to the Bankruptcy
While noting that the motion picture industry was down 5% from 2018 in 2019 “due to, among other things, the multi-year trend of increasing competition from streaming services and periodic fluctuations in attendance rates,” the debtors say the industry had a “strong” year in 2019, with Alamo experiencing “its strongest performance yet,” outperforming the industry by over 5% “primarily due to its ability to program non ‘tent-pole’ movies.” As a result of the pandemic, however, shuttered theater doors and postponed or straight-to-streaming releases of new movies by studios have hindered Alamo’s operations and liquidity.
“Considering these unprecedented industry-wide conditions,” the debtors say, “Alamo has made the necessary adjustments to operations, which will continue until conditions normalize.” Approximately six of Alamo’s 18 company-owned theaters are currently operating at 50% mandated seating capacity with less than 20% box office sales at these locations. Additionally, approximately 11 of the 23 franchisee-operated theaters are currently operating with Covid-19 relief support of significantly reduced royalty payment plans.
The debtors were engaging with their key stakeholders in the run up to the filing, during which time they say that one of their competitors - Studio Movie Grill - filed for chapter 11 protection and AMC Entertainment Holdings took steps to “fortify its liquidity." When the debtors’ prior prepetition lenders were not willing to infuse more capital, the new lenders purchased the secured debt, along with entry into a “Purchaser RSA” in January on terms of a restructuring including milestones and deferred rent and trade payable reductions and a deadline to enter into the restructuring support agreement. On Feb. 16, the company and the purchasers entered into the RSA, which provides for a potential recapitalization of the company through an out-of-court restructuring or a potential sale through an in-court restructuring, a term sheet for DIP financing and a term sheet for a sale. In the end, the debt purchasers “were unwilling to provide additional liquidity without the protections afforded debtor-in-possession financing under a bankruptcy court order entered pursuant to the Bankruptcy Code, thereby necessitating the filing of these Chapter 11 Cases.”
Because certain members of Alamo’s board of managers are affiliated with the RSA parties that purchased the debt under the debtors’ prepetition credit agreement, the board formed a special restructuring committee and engaged an independent manager to serve on the special committee, which has been authorized to consider, review, negotiate and recommend for approval or rejection of any potential transaction.
Background
According to the debtors, Alamo stands today as the largest privately held movie theater business in North America, located in 22 markets with 18 company-operated theaters encompassing 132 screens and 23 franchisee-operated theaters encompassing 187 screens. In addition, Mondo, an online and print editorial and merchandising business operated by the debtors, serves as a critical revenue stream for the Alamo enterprise. The company says its “movie-going and superior dining experience that Alamo provides its customers is widely acclaimed.”
Alamo was founded by Tim and Karrie League in Austin in 1997. League’s majority stake in the company was sold to investor Dave Kennedy in 2004 to focus on the local Austin market theaters and develop certain related businesses, including Mondo, a collaboration with major artists and studios to produce licensed posters, soundtracks, toys, apparel, books, games and collectibles. Meanwhile, Alamo began expanding outside the Texas market, starting with Virginia in 2009. When League re-acquired a stake in the company and returned as CEO in 2010, he oversaw Alamo’s expansion over the next decade in Arizona, California, Colorado, Minnesota, Missouri, Nebraska, New York, North Carolina and multiple cities in Texas. In January 2018, Alamo purchased all membership interests in Mondo.
In June 2018, the members of debtor Alamo Drafthouse Cinemas LLC, along with members and partners of certain entities under common control, consummated a recapitalization of Alamo and its affiliates, which ultimately resulted in the company being owned by affiliates of Altamont Capital Management, League, Kennedy and other initial investors. In conjunction with the recapitalization, the members and partners of Alamo and its affiliates exchanged their respective interests for limited partnership interests in Catalina Brothers, Ltd. and Major Kong Industries, Ltd., who then contributed their partnership interests in the affiliates to Alamo, such that these entities became wholly owned subsidiaries of Alamo. Subsequently, Catalina and Major Kong contributed their partnership interests in Alamo to debtor Alamo Drafthouse Cinemas Holdings, LLC, of which Alamo became a wholly owned subsidiary.
In connection with the recapitalization, the company acquired debtor Alamo Satown, LLC, which operated four franchise locations and franchise development rights, from BACH Holdings, LLC in exchange for $2.8 million of class B common units in Holdings and $18.9 million in cash, subject to an agreed upon working capital adjustment. Contemporaneous to the recapitalization, Altamont purchased class A preferred units directly from Holdings for $17.4 million and also purchased all the class A preferred Units from Catalina and Major Kong for $48.1 million for an aggregate of $65.5 million.
Today, Alamo is a privately owned company indirectly owned by Altamont, Catalina, Major Kong and BACH.
This past summer, as Alamo theaters began to reopen in very limited capacity in certain markets, the debtors implemented procedures to minimize person-to-person contact with food-and-beverage pre-ordering, frictionless payment and other in-theater safety initiatives, including reconfiguring theater seating to optimize social distancing and sterilizing theaters between showings. In addition, Alamo sought creative ways to generate additional revenue, including renting theaters to individuals and groups for special and private screenings under the “Your Own Private Alamo” program and launching a 100% curated video-on-demand platform, “Alamo On Demand.” Nevertheless, supply of films remained limited as production companies delayed new releases and customer demand dwindled, the debtors say.
The company’s corporate organizational structure is below:
(Click HERE to enlarge.)
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Summit Glory Property LLC | New York | Landlord | $ 2,157,255 |
| 30 West Pershing, LLC | Kansas City, Mo. | Landlord | 1,996,626 |
| Albee Development LLC | Rye, N.Y. | Landlord | 1,511,912 |
| Neon | Boulder, Colo. | Trade | 1,052,084 |
| Sloans Lake c/o FCA
Partners, LLC |
Charlotte, N.C. | Landlord | 989,144 |
| FHF I Lamar Union LLC | Austin, Texas | Landlord | 964,905 |
| Gerrity Retail Management
LLC |
Solana Beach, Calif. | Landlord | 880,680 |
| DDR DB Stone Oak LP | Cleveland | Landlord | 795,545 |
| Mueller Aldrich Street, LLC | Austin, Texas | Landlord | 777,783 |
| Westlakes 410
Investments LLC |
Austin, Texas | Landlord | 711,449 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | M. Blake Cleary | Young
Conaway Stargatt & Taylor |
Wilmington, Del. |
| Matthew B. Lunn | |||
| Kenneth J. Enos | |||
| Betsy L. Feldman | |||
| Jared W. Kochenash | |||
| Debtors' Investment
Banker |
Russell Mason | Houlihan
Lokey |
Dallas |
| Debtors' Financial Advisor | N/A | Portage Point Partners | Chicago |
| Counsel to
Altamont |
Gregg M. Galardi | Ropes
& Gray |
New York |
| Howard S. Glazer | |||
| Cristine Pirro Schwarzman | |||
| Co-Counsel to
Fortress |
Charles A. Dale | Proskauer
Rose |
Boston |
| Brooke H. Blackwell | Chicago | ||
| Co-Counsel to
Fortress |
Adam G. Landis | Landis Rath
& Cobb |
Wilmington, Del. |
| Matthew B. McGuire | |||
| Nicolas E. Jenner | |||
| Co-Counsel to the
Minority Lenders |
Jack E. Jacobsen | Locke
Lord |
Dallas |
| Co-Counsel to the
Minority Lenders |
Ed McHorse | McGinnis
Lochridge |
Austin, Texas |
| United States
Trustee |
Timothy Jay Fox, Jr. | Office of the
U.S. Trustee |
Wilmington, Del. |
| Debtors' Claims
Agent |
Sophie Frodsham | Epiq | New York |
Restructuring Support Agreement
The restructuring support agreement includes a restructuring term sheet that includes terms for new preferred equity and new term loan, as described below:
New Preferred Equity
The term sheet provides for preferred equity in the amount of $27.37 million, with investors consisting of Fortress (71.25%) and Altamont Capital Management, certain other existing shareholders (23.75%) and management (as part of a management incentive plan - 5%), with a preferred return of 20% per annum, compounded quarterly on unreturned capital of new preferred equity, paid-in-kind unless cash is available. The preferred equity would be issued upon (a) a resolution and compromise of the company’s deferred rental obligations and accounts payable to a maximum of $7 million and (b) agreements with lessors to reduce the reorganized company’s lease related expenses by not less than a percentage to be agreed upon by lenders that hold at least 85% of the outstanding principal amount of the loans from the company’s lease expenses for 2019; provided that the determination of lease expense reductions would exclude lease expenses for locations that have been closed or opened since Jan. 1, 2019 or locations that will be closed in connection with the restructuring transactions.
The preferred equity would have a liquidation preference equal to the greater of (a) unreturned capital of new preferred equity plus unpaid “Preferred Return” either PIK or cash and (b) 2x original price of new preferred equity (taking into account all prior cash payments with respect to new preferred equity).
New Term Loan
The term sheet also provides for a senior secured delayed draw first lien term loan in “substantially the same form and substance” as the existing credit agreement, in the amount of $30 million, less the aggregate original principal amount of “Additional Loans” and DIP loans. The loan would bear interest at 15% PIK unless cash is available, be subject to a 2% upfront fee, and mature in three years with an 18-month draw period.
Kennedy/League Loans
The term sheet includes provision with respect to personal guarantees of either Kennedy or League regarding leases, and includes:
- The reorganized company would indemnify Kennedy and League for claims that arise from defaults under any leases that occur after the effective date;
- To the extent that Kennedy or League is required to make payments under personal guarantees, then the reorganized company would loan either Kennedy or League, as applicable, the amount of such payments (a) up to $1 million for each of the leases Mueller, Lakeline and Mission (up to $3 million total) for which one or more guarantees were issued, and (b) up to an additional $1 million total for payments made on personal guarantees on leases; provided that Kennedy and League would waive subrogation rights; and
- These loans would be evidenced by recourse promissory notes with a five-year balloon maturity and bear interest at the applicable federal rate, to be forgiven upon the earlier of “(a) the Reorganized Company generating $20 million of trailing twelve month EBITDA during the term of the note(s), or (b) the Liquidation Preference of the preferred equity in the Reorganized Company having been paid in full.”
New Board
The reorganized holdco “which may be an entity formed to acquire HoldCo or Alamo Drafthouse Cinemas LLC” would initially consist of Tim League, Dave Kennedy and representatives of Fortress and Altamont, with the Altamont representatives holding a majority of the voting power. Any committee of the board (including audit and compensation committees) would include at least one manager appointed by each equity investor.
Milestones
- Execution of APA: March 13;
- Commencement of chapter 11 cases: March 14;
- Interim DIP order: Entered within two business days of petition date;
- Final DIP order: Entered within 23 days of the petition date;
- Bid procedures order: Entered within 23 days of petition date;
- Auction: Within 60 days of petition date;
- Sale order: Entered within 63 days of petition date; and
- In-court restructuring: consummation within 75 days of petition date.
Stalking Horse Term Sheet
The proposed stalking horse is a newly formed entity organized and controlled by the DIP lenders, and would purchase substantially all of the debtors’ assets for a credit bid of the DIP loans ("including the deemed term 'roll up' of up to $26,000,000 of Loans under the Credit Agreement"), assumption of certain liabilities, the “value of any liens or claims granted by the Sellers to the DIP Lenders as adequate protection for any diminution in value of the interests of the DIP Lenders in their collateral resulting from the use of cash collateral or otherwise,” and “Excluded Cash,” which is defined as all cash on hand and cash drawn under the DIP facility.
Initial overbids must exceed the stalking horse bid by the breakup fee (2%), an expense reimbursement up to $500,000 and $250,000.
The proposed sale timeline follows:
DIP Financing Motion
The debtors request approval of a multi-draw term loan facility with $20 million in new funds ($7 million on an interim basis) with Fortress Credit Corp. as agent. On a final basis, the DIP agreement provides for a rollup of up to $40 million of obligations under the prepetition secured credit facility on a pro rata basis according to the term loan holdings under the DIP facility.
The rollup term loans and applicable percentages are as follows:
The DIP delayed draw term commitments are as follows:
“Based on a review of the Prepetition Secured Parties’ lien position and the preliminary analysis of the Debtors’ potential enterprise value, the Debtors believed that there was not an equity cushion available for the Debtors to obtain debtor in possession financing based on priming the Prepetition Secured Parties’ liens over their objections, nor would the Debtors’ business be able to sustain its value during a contested priming fight with the Prepetition Secured Parties," the motion says.
The DIP financing bears interest at 15% PIK for the DIP term loan and 4.5% for the rollup loans, with 2% added for the default rate, and matures on the earlier of July 1, 2021 or other customary events.
The prepetition secured lenders have consented to the priming of their prepetition liens and to the use of cash collateral. The debtors propose a lien on avoidance action proceeds subject to the final order.
The facility includes various fees, including a $50,000 closing fee and a 2% upfront fee.
In support of the proposed DIP financing, the debtors said they intend to file the declaration of Russell Mason, director at Houlihan, the debtors’ investment banker.
The company proposes the following adequate protection to its prepetition secured lenders: replacement liens, superpriority administrative expense claims and reimbursement of professional fees.
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carveout for professional fees of the debtors is $300,000 and for an official committee of unsecured creditors is $50,000. In addition, a carve-out for the debtors investment banker, Houlihan, for a transaction fee is included up to $1.5 million.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- March 5: Entry of interim DIP order; execution of stalking horse APA;
- March 26: Entry of bid procedures order and final DIP order;
- May 3: Auction;
- May 5: Entry of sale order; and
- May 17: Sale consummation.
The lien challenge deadline is the earlier of (a) the bid deadline, (b) 60 days after formation of an official committee of unsecured creditors and (c) 75 days after entry of the interim DIP order if no committee is appointed. The UCC lien investigation budget is $25,000.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case no. 21-10474.
- Motion to pay critical vendors
- The company seeks to pay the following in vendor claims:
- Motion to pay employee wages and benefits
- The company seeks to pay the following in prepetition employee obligations:
- Motion to use cash management system
- The company has bank accounts with Texas Capital Bank.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors estimate they owe approximately $104,000 in taxes and fees on an interim basis and approximately $766,500 on a final basis. To the best of the debtors’ knowledge, the outstanding balances comprise current tax and fee obligations and are not in respect of “catch-up” payments.
- Motion to honor customer obligations
- The debtors seek authority to pay customer obligations in the amount of $172,000 on an interim basis and $247,000 on a final basis. Additionally, the debtors estimate $7.4 million in outstanding issued gift cards and approximately $6.7 million in outstanding third-party sale cards. The debtors also estimate that they have collected and hold approximately $147,000 in trust under charitable donation programs.
- Motion to reject leases
- The debtors seek to reject the following leases:
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