American Blue Ribbon Holdings, LLC
CASE SUMMARY: American Blue Ribbon Seeks $20M DIP from Ultimate Indirect Majority Owner Cannae Holdings to Avert ‘Liquidity Crisis’ in Wake of Restaurant Industry Woes
Mon 01/27/2020 12:25 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
American Blue Ribbon Holdings and several affiliates comprising a Nashville, Tenn.-based restaurant company operating the Village Inn, Bakers Square and Legendary Baking brands, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, looking to “avert a liquidity crisis and prevent further deterioration of their business, and to explore strategic options.” The debtors’ indirect ultimate majority owner - Cannae Holdings, Inc. - has agreed to provide $20 million in DIP financing. Non-debtor affiliates operate O’Charley’s Restaurant and Bar and Ninety Nine Restaurant and Pub but are not in bankruptcy at this time. The debtors are seeking to continue a number of affiliate transactions with their immediate parent company, non-debtor ABRH. The debtors have no secured debt (other than equipment leases and a factoring arrangement) and $14 million in unsecured debt, but say that claims with respect to rejected leases during the cases could cause the unsecured debt to “increase significantly” (emphasis added).
Village Inn (with 75 debtor operated locations and 84 franchised locations) and Bakers Square (with 22 debtor operated locations) are full service sit-down family dining restaurant concepts, according to the first day declaration of CFO Kurt Schnaubelt. Legendary Baking is the debtors’ manufacturing operation that produces pies in two debtor-owned production facilities. Blue Ribbon closed 33 underperforming restaurants shortly before the petition date and has closed 17 additional restaurants within the past two years. The debtors say that they intend to focus the Family Dining Business on the debtors’ remaining profitable store locations.
The first day hearing has been scheduled for Tuesday, Jan. 28, at 9 a.m. ET.
The company reports $100 million to $500 million in assets and $50 million to $100 million in liabilities. The company’s prepetition capital structure includes:
The debtors also maintain three workers’ compensation-related letters of credit that are their primary obligations, but are cash collateralized by ABRH, in the amount of $1.3 million in total.
The company attributes the bankruptcy filing to (i) increased competition in the restaurant industry, which the debtors pin on new competitors in existing markets, the growth of existing larger dining brands that have stronger marketing capabilities and the expansion of prepared meal offerings at grocery stores; (ii) rising labor costs, including “dramatic increases” in four states representing more than half of the restaurants operated by the debtors (Arizona, Colorado, Illinois and Minnesota), which the debtors blame for a “negative financial impact of approximately $2.0 mllion over the last two years;” (iii) unfavorable trade area locations and above-market rents; (iv) an industry-wide decline in restaurant foot traffic, which the debtors attribute to the increase in convenience of takeout and delivery options; and an (v) “over-expansion” of the Legendary Baking business between 2016 and 2018 that led to a “significant decline in operating efficiencies.”
The debtors have sustained large operating losses over the last two years, including an $11 million loss in fiscal 2018 and approximately $7 million in fiscal 2019. After the debtors’ non-debtor parent ABRH indicated its unwillingness to further fund the debtors’ “money-losing” operations, the debtors projected that they would face a liquidity crisis “on or about the Petition Date.”
The debtor is represented by KTBS Law (formerly Klee, Tuchin, Bogdanoff & Stern) in Los Angeles and Young Conaway in Wilmington. The case has been assigned to Judge Laurie Selber Silverstein (case number 20-10161).
Background
American Blue Ribbon operates and franchises two casual dining restaurant brands - Village Inn (75 operated, 84 franchised), which serves breakfast all day, and Bakers Square (22 operated), which offers “unique” pies that account for 30% of sales - in 13 East, Southeast, Midwest and Rocky Mountain states. The company also owns Legendary Baking, which is the debtors’ manufacturing business that produces pies for sale at Village Inn and Bakers Square restaurants as well third-party restaurants, supermarkets, independent bakers and other food-service companies. The debtors have 4,567 employees, of whom 4,181 support the debtors’ two restaurants.
Blue Ribbon purchased substantially all of the Family Dining Business stores and the Legendary Baking business in 2009 from VICORP Restaurants, Inc., during VICORP’s own bankruptcy case.
The debtors say that their restaurants appeal to “a diverse customer base seeking great-tasting food and affordable prices with an average guest check of about $10 within a comfortable family-friendly environment,” and Legendary Baking’s pies “have the distinction of being the most awarded pies in America, having placed first in the America Pie Council National Pie Championships over 300 times in the last decade.”
Blue Ribbon owns numerous service marks and trademarks, including “Village Inn,” “Legendary Baking” and “Bakers Square,” as well as others, and the debtors say that they view these marks as “playing an important role in the marketing of the Debtors’ restaurants.” The company licenses certain of their marks to franchisees and third parties through franchise agreements and licenses.
The debtors’ revenue is derived primarily from restaurant sales, bakery operations, franchise fees and sales royalties. For fiscal year ending Dec. 29, 2019, revenue was approximately $318 million, down from $354 million for fiscal 2018.
The debtors rely on employees provided by ABRH via a contract staffing arrangement, as well as on numerous support services that are provided by ABRH and shared among the debtors’ three businesses and non-debtor affiliates’ brands (O’Charley’s and Ninety Nine). The debtors have contracted with ABRH for the provision of those services and reimbursement of costs, which the debtors say ABRH provides without any markup or premium. The debtors are seeking court approval to continue those arrangements postpetition. “Without the services provided by ABRH, the Debtors would simply be unable to operate, and their business operations would almost immediately cease,” the debtors say, noting that they lack the contracts, infrastructure or human resources to independently maintain their operations absent the services and staffing provided by ABRH. The Debtors’ payments to ABRH in respect of shared services agreements have averaged $223,487 per week thus far in calendar year 2020. In light of the prepetition store closures, however, the debtors say that they expect these weekly costs to decline during the pendency of the chapter 11 cases, “beginning at approximately $180,000 per week.”
The debtors’ corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request approval of $20 million in DIP financing ($10 million on an interim basis) in the form of a senior secured, superpriority revolving credit facility from Cannae Holdings, Inc., the Debtors’ indirect ultimate majority owner. Because Cannae is an affiliate, the debtors say that each party “had separate business teams and used separate counsel in negotiating the DIP Facility.” The debtors point out that third parties they contacted with respect to providing DIP financing “were not interested notwithstanding that the Debtors had no prepetition secured debt encumbering their assets.”
The DIP financing bears interest at the “Prime Rate” plus 6%, and the “Prime Rate” plus 8% for the default rate, and matures on the earliest of Oct. 27, 2020, the effective date of a plan or the effective date of a dismissal of the case.
The debtors submit that “as a whole, the Debtors’ cost of borrowing under the DIP Facility is at the very low end of financing facilities in similar bankruptcy cases,” pointing to the following comparison of market terms:
To secure the DIP financing, the debtors propose to grant liens on the debtors’ assets (excluding “Receivables” as defined in the Kroger Receivables Financing Agreement, so long as the Kroger Receivables Financing Agreement is in effect and such “Receivables” are purchased by, or granted as collateral to, Citibank), subordinate only to the carveout and “Permitted Prior Liens.” Subject to the final order, the debtors propose a lien on avoidance action proceeds. The DIP superpriority claim would also have recourse to avoidance action proceeds subject to the final order.
The facility includes various fees, including a $200,000 upfront fee, a 0.25% commitment fee, and “certain prepetition and postpetition fees, costs, disbursement and expenses of the DIP Lender in accordance with the DIP Credit Documents and the Interim Order, including fees of the DIP Lender’s professionals.”
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 $400,000, and for an official creditors’ committee is $100,000.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
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
| Summary |
| American Blue Ribbon operates 97 company owned and 84 franchises under the Village Inn and Bakers Square casual dining restaurant brands |
| Attributes filing to competitive pressures from other restaurants, grocers and food delivery services, as well as increased labor costs, expansion difficulties and above market rents |
| Seeks $20 million in DIP financing from Cannae Holdings, Inc., indirect ultimate majority owner of the debtors |
American Blue Ribbon Holdings and several affiliates comprising a Nashville, Tenn.-based restaurant company operating the Village Inn, Bakers Square and Legendary Baking brands, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, looking to “avert a liquidity crisis and prevent further deterioration of their business, and to explore strategic options.” The debtors’ indirect ultimate majority owner - Cannae Holdings, Inc. - has agreed to provide $20 million in DIP financing. Non-debtor affiliates operate O’Charley’s Restaurant and Bar and Ninety Nine Restaurant and Pub but are not in bankruptcy at this time. The debtors are seeking to continue a number of affiliate transactions with their immediate parent company, non-debtor ABRH. The debtors have no secured debt (other than equipment leases and a factoring arrangement) and $14 million in unsecured debt, but say that claims with respect to rejected leases during the cases could cause the unsecured debt to “increase significantly” (emphasis added).
Village Inn (with 75 debtor operated locations and 84 franchised locations) and Bakers Square (with 22 debtor operated locations) are full service sit-down family dining restaurant concepts, according to the first day declaration of CFO Kurt Schnaubelt. Legendary Baking is the debtors’ manufacturing operation that produces pies in two debtor-owned production facilities. Blue Ribbon closed 33 underperforming restaurants shortly before the petition date and has closed 17 additional restaurants within the past two years. The debtors say that they intend to focus the Family Dining Business on the debtors’ remaining profitable store locations.
The first day hearing has been scheduled for Tuesday, Jan. 28, at 9 a.m. ET.
The company reports $100 million to $500 million in assets and $50 million to $100 million in liabilities. The company’s prepetition capital structure includes:
- Secured debt: None, except that the debtors have certain equipment leases and a factoring arrangement with Citibank in respect of Legendary Baking’s receivables from Kroger’s supermarkets.
- Unsecured debt: $14 million (including trade claims, landlord claims and litigation claims) but excluding potential lease rejection claims.
- Equity: Blue Ribbon is wholly-owned by ABRH, LLC, a non-debtor wholly owned by non-debtor Fidelity Newport Holdings, LLC, whose indirect ultimate majority owner is Cannae Holdings, Inc., which is a publicly traded company that manages and operates businesses in multiple industries.
The company attributes the bankruptcy filing to (i) increased competition in the restaurant industry, which the debtors pin on new competitors in existing markets, the growth of existing larger dining brands that have stronger marketing capabilities and the expansion of prepared meal offerings at grocery stores; (ii) rising labor costs, including “dramatic increases” in four states representing more than half of the restaurants operated by the debtors (Arizona, Colorado, Illinois and Minnesota), which the debtors blame for a “negative financial impact of approximately $2.0 mllion over the last two years;” (iii) unfavorable trade area locations and above-market rents; (iv) an industry-wide decline in restaurant foot traffic, which the debtors attribute to the increase in convenience of takeout and delivery options; and an (v) “over-expansion” of the Legendary Baking business between 2016 and 2018 that led to a “significant decline in operating efficiencies.”
The debtors have sustained large operating losses over the last two years, including an $11 million loss in fiscal 2018 and approximately $7 million in fiscal 2019. After the debtors’ non-debtor parent ABRH indicated its unwillingness to further fund the debtors’ “money-losing” operations, the debtors projected that they would face a liquidity crisis “on or about the Petition Date.”
The debtor is represented by KTBS Law (formerly Klee, Tuchin, Bogdanoff & Stern) in Los Angeles and Young Conaway in Wilmington. The case has been assigned to Judge Laurie Selber Silverstein (case number 20-10161).
Background
American Blue Ribbon operates and franchises two casual dining restaurant brands - Village Inn (75 operated, 84 franchised), which serves breakfast all day, and Bakers Square (22 operated), which offers “unique” pies that account for 30% of sales - in 13 East, Southeast, Midwest and Rocky Mountain states. The company also owns Legendary Baking, which is the debtors’ manufacturing business that produces pies for sale at Village Inn and Bakers Square restaurants as well third-party restaurants, supermarkets, independent bakers and other food-service companies. The debtors have 4,567 employees, of whom 4,181 support the debtors’ two restaurants.
Blue Ribbon purchased substantially all of the Family Dining Business stores and the Legendary Baking business in 2009 from VICORP Restaurants, Inc., during VICORP’s own bankruptcy case.
The debtors say that their restaurants appeal to “a diverse customer base seeking great-tasting food and affordable prices with an average guest check of about $10 within a comfortable family-friendly environment,” and Legendary Baking’s pies “have the distinction of being the most awarded pies in America, having placed first in the America Pie Council National Pie Championships over 300 times in the last decade.”
Blue Ribbon owns numerous service marks and trademarks, including “Village Inn,” “Legendary Baking” and “Bakers Square,” as well as others, and the debtors say that they view these marks as “playing an important role in the marketing of the Debtors’ restaurants.” The company licenses certain of their marks to franchisees and third parties through franchise agreements and licenses.
The debtors’ revenue is derived primarily from restaurant sales, bakery operations, franchise fees and sales royalties. For fiscal year ending Dec. 29, 2019, revenue was approximately $318 million, down from $354 million for fiscal 2018.
The debtors rely on employees provided by ABRH via a contract staffing arrangement, as well as on numerous support services that are provided by ABRH and shared among the debtors’ three businesses and non-debtor affiliates’ brands (O’Charley’s and Ninety Nine). The debtors have contracted with ABRH for the provision of those services and reimbursement of costs, which the debtors say ABRH provides without any markup or premium. The debtors are seeking court approval to continue those arrangements postpetition. “Without the services provided by ABRH, the Debtors would simply be unable to operate, and their business operations would almost immediately cease,” the debtors say, noting that they lack the contracts, infrastructure or human resources to independently maintain their operations absent the services and staffing provided by ABRH. The Debtors’ payments to ABRH in respect of shared services agreements have averaged $223,487 per week thus far in calendar year 2020. In light of the prepetition store closures, however, the debtors say that they expect these weekly costs to decline during the pendency of the chapter 11 cases, “beginning at approximately $180,000 per week.”
The debtors’ corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Claim Amount |
|---|---|---|---|
| U.S. Foods, Inc. | Tempe, Ariz. | Trade | $ 382,496 |
| Haworth Marketing & Media LLC | Minneapolis | Trade | 380,522 |
| Sysco Arizona | Tolleson, Ariz. | Trade | 345,779 |
| Sysco Denver | Denver | Trade | 344,507 |
| Sysco Lincoln | Lincoln, Neb. | Trade | 296,075 |
| Darigold, Inc. | Seattle | Trade | 99,417 |
| Malnove Inc of Nebraska | Omaha, Neb. | Trade | 92,396 |
| Black Horse Carriers | Carol Stream, Ill. | Trade | 82,939 |
| Kraft Foods Inc. | Chicago | Trade | 66,252 |
| NFI Interactive Logistics LLC | Camden, N.J. | Trade | 61,722 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | David A. Fidler | KTBS Law (f/k/a Klee, Tuchin, Bogdanoff & Stern) |
Los Angeles |
| Jonathan M. Weiss | |||
| Sasha M. Gurvitz | |||
| Debtors' Co-Counsel | Michael R. Nestor | Young Conaway Stargatt & Taylor |
Wilmington, Del. |
| Robert F. Poppiti, Jr. | |||
| Ian J. Bambrick | |||
| DIP Lender's Counsel | Todd L. Padnos | Sheppard, Mullin, Richter & Hampton |
San Francisco |
| Debtors' Claims Agent | Sid Garabato | Epiq | New York |
DIP Financing Motion
The debtors request approval of $20 million in DIP financing ($10 million on an interim basis) in the form of a senior secured, superpriority revolving credit facility from Cannae Holdings, Inc., the Debtors’ indirect ultimate majority owner. Because Cannae is an affiliate, the debtors say that each party “had separate business teams and used separate counsel in negotiating the DIP Facility.” The debtors point out that third parties they contacted with respect to providing DIP financing “were not interested notwithstanding that the Debtors had no prepetition secured debt encumbering their assets.”
The DIP financing bears interest at the “Prime Rate” plus 6%, and the “Prime Rate” plus 8% for the default rate, and matures on the earliest of Oct. 27, 2020, the effective date of a plan or the effective date of a dismissal of the case.
The debtors submit that “as a whole, the Debtors’ cost of borrowing under the DIP Facility is at the very low end of financing facilities in similar bankruptcy cases,” pointing to the following comparison of market terms:
To secure the DIP financing, the debtors propose to grant liens on the debtors’ assets (excluding “Receivables” as defined in the Kroger Receivables Financing Agreement, so long as the Kroger Receivables Financing Agreement is in effect and such “Receivables” are purchased by, or granted as collateral to, Citibank), subordinate only to the carveout and “Permitted Prior Liens.” Subject to the final order, the debtors propose a lien on avoidance action proceeds. The DIP superpriority claim would also have recourse to avoidance action proceeds subject to the final order.
The facility includes various fees, including a $200,000 upfront fee, a 0.25% commitment fee, and “certain prepetition and postpetition fees, costs, disbursement and expenses of the DIP Lender in accordance with the DIP Credit Documents and the Interim Order, including fees of the DIP Lender’s professionals.”
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 $400,000, and for an official creditors’ committee is $100,000.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
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. 20-10161.
- Motion to Pay Shipping, Delivery and Warehousing Charges
- The debtors estimate that about $350,000 is owed in the aggregate on account of prepetition transporter claims as of the petition date. The debtors request authority to pay “as and when the Debtors determine that payment is necessary or appropriate” an amount not to exceed $450,000 in the aggregate.
- Motion to Pay Claims Asserted Under PACA and PASA
- The debtors seek to pay all prepetition claims asserted under the Perishable Agricultural Commodities Act of 1930 and the Packers and Stockyards Act of 1921, in the following amounts:
- Motion to Confirm Administrative Expense Priority Status of Debtors’ Undisputed Obligations for Postpetition Delivery of Goods Ordered Prepetition
- Motion to Pay Employee Wages and Benefits
- The debtors seek authority to pay the following amounts:
- Motion to Use Cash Management System, Continuation of Intercompany and Affiliate Transactions and Granting Administrative Priority Status to Postpetition Intercompany and Affiliate Claims
- The company has bank accounts with Wells Fargo.
- First Omnibus Lease Rejection Motion
- A list of leases proposed to be rejected is HERE. The leases are 59 leases with respect to 53 restaurant locations, of which 50 were closed prepetition.
- Motion to Pay Taxes and Fees
- The debtors request approval to pay up to $1.7 million in taxes and fees on an interim basis and up to $2.9 million in relief sought on a final basis.
- Motion to Provide Utilities with Adequate Assurance
- Motion to Continue Customer Programs
- Application to Appoint Epiq as Claims Agent
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.