Knotel, Inc.
CASE SUMMARY: Flex Workspace Provider Knotel to Sell Assets as Going Concern to Newmark Group Sub, Proposed DIP Lender Digiatech Through Stalking Horse Credit Bid
Mon 02/01/2021 14:01 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Press Release
Newmark Press Release
DIP Financing Motion
Bid Procedures Motion
Knotel Inc., a New York City-based customized flexible workspace provider with 4 million square feet of leased workspace and 300 customers as of early 2020, filed for chapter 11 protection on Sunday in the Bankruptcy Court for the District of Delaware, along with several affiliates. Having purchased Knotel’s first and second lien debt in December 2020, Digiatech LLC, a subsidiary of real estate services firm Newmark Group Inc., has agreed to provide DIP financing and serve as stalking horse bidder in the chapter 11 cases. The sale process is expected to take 30 days. Newmark is a minority shareholder of Knotel and “is therefore not an ‘insider,’” according to the debtors. Digiatech’s stalking horse bid consists of a $70 million going-concern credit bid for all or substantially all of the debtors’ assets based on a “deal in principle” subject to definitive documentation. The sale would be followed by liquidation of the estates, “such as through a conversion to chapter 7 or structured dismissal, but will require that any sale assume or otherwise provide payment of all allowed administrative expenses of these chapter 11 cases.”
The DIP financing consists of $20.4 million in new money and a rollup of $20.4 million of outstanding prepetition secured debt. The debtors were operating at a “significant deficit” and were only able to maintain operations by securing pre-bankruptcy financing and the DIP financing, which Knotel says allowed it to avoid liquidation. The debtors stress that the DIP financing is designed to sustain the debtors’ operations and scaled-down workforce through the sale process, and they expect the financing to be fully exhausted within six weeks of the petition date.
The debtors say that the sale would better position the company for the “post-pandemic market for flexible workspace.” Knotel says it hopes that high vacancy and lower rental rates would “drive landlords to seek management deals or other forms of partnership with Knotel,” asserting that its partnership with landlords would allow it to “rapidly expand market share and transform the flexible workspace industry.” Knotel’s goal in the cases is to preserve the value of the business, jobs and to “pursue its business model in some capacity as a going concern.” The debtors say that Newmark’s additional liquidity and consulting services would be helpful to the success of the debtors’ “post-pandemic business model.”
In a press release, Knotel says it has also made the decision to exit “multiple” locations in the United States. Amol Sarva, Knotel co-founder and CEO, said that the “pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco. We must address this now to position our business for sustainable growth and a successful future." He adds, "Our restructuring will enable us to strengthen our balance sheet, focus on a rightsized portfolio of locations, and maintain relationships with our customer base while continuing to build on Knotel's differentiated service offering. We continue to believe in Knotel's potential in the growing flex market."
Newmark issued a separate release, quoting Sarva as saying, “We are optimistic that, through a successful restructuring, we can refocus on our mission of providing state-of-the-art, tailored flex space in key U.S. and international markets. We have engaged Hilco Real Estate, a real estate restructuring specialist, to assist Knotel."
The first day hearing has yet to be scheduled.
The company’s prepetition capital structure includes:
Prior to Digiatech purchasing the first lien debt on Dec. 30, 2020, the prior lender, Western Alliance Bank, declared a default and entered into a forbearance agreement with Knotel. The debtors remained in default after the end of the forbearance, but Digiatech agreed to a modification to the loan agreement, extending $9 million in additional advances subject to budget reporting requirements and restrictions on the use of cash collateral. Digiatech entered into a further amendment on Jan. 19, providing for an approximately $3.3 million additional advance.
Digiatech purchased the second lien debt on Jan. 10 from TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC.
The debtors’ principal assets consist of their rights under real property leases, furniture, fixtures and equipment, equity in foreign nondebtor subsidiaries, and rights to receive payment pursuant to their customer agreements.
While Knotel notes that it has incurred operating and net losses and experienced negative operating cash flows for the “past several years,” the debtors attribute the bankruptcy filing to a significant expansion of operations in 2019, including significant investments into properties with “future revenue-generating potential” in connection with its growth stage ahead of the global pandemic. The damper placed on the revenue-generating potential of these properties by the Covid-19 pandemic has “severely disrupted” business plans and operations and pushed the debtors into a liquidity crisis. The debtors say they have experienced lower demand than anticipated, spurring price cuts for new sales and renewals and placing downward pressure on EBITDA and cash flow. “As the overall economy contracted, the willingness and ability of existing customers to timely pay fees was reduced, and this also had a significant negative impact on the Debtors’ financial position,” the debtors say.
In 2019, the debtors completed various financing transactions, including the closing of a Series C preferred stock financing round for approximately $130 million in September 2019, “along with an additional $50 million in December of 2019 and the execution of loan agreements of approximately $80 million in borrowings and letters of credit.” With these funds, the debtors were able to “significantly” build out operations in 2019, increasing leased properties by more than 150%, customer contracts by more than 200%, revenue by 275% and expanding operations abroad into Brazil, France, India, Ireland, Japan and the Netherlands.
The debtors are represented by Milbank in Los Angeles. Morris Nichols Arsht & Tunnell is local counsel and Moelis has been retained as investment banker. Omni Agent Solutions is the debtors’ claims and noticing agent. The company has also retained Fenwick & West as special corporate counsel and Ernst & Young as tax consultant. The case has been assigned to Judge Mary F. Walrath (case No. 21-10146).
Background
Knotel is a flexible workspace provider in 20 global markets with a customer base that includes Fortune 500 and Global 200 companies. The debtors have approximately 110 employees. The debtors provide flexible workspace in the United States, primarily in the New York and San Francisco areas. Certain nondebtor affiliates provide flexible workspace outside of the U.S. The nondebtor affiliates operate separately from the debtors and are not obligors under the debtors’ secured debt facilities, but certain nondebtors require funds from Knotel Inc. to meet cash needs.
The debtors say that the nondebtor affiliates are critical to the value of the debtors’ operations, because relative to their U.S. counterparts, they have fared better during the pandemic, “and it is important to maintain the foreign non-Debtor operations to preserve the Debtors’ value.”
Knotel’s three-step “Match, Tailor, Manage” process “transforms the workspace from a fixed asset to a competitive advantage,” the debtors say, outlining the process as follows: “(1) Knotel uses its global portfolio to match businesses with prestigious owners around the world, meeting their unique and complex workspace needs in a timely fashion; (2) Knotel tailors holistic workspace offerings at the intersection of workflows and brand identity to design spaces that meet and respond their customers’ needs; and (3) Knotel offers dedicated space management services that evolve as and when their customers’ need change.”
From the outset, Knotel’s approach has focused on capital efficiency on buildout and operations. Knotel has become more asset-light as property owners have doubled the proportion of the portfolio’s revenue-sharing management agreements since 2019.
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
Bid Procedures Motion
Digiatech LLC (or its designee), an affiliate of Newmark Group, has agreed to serve as stalking horse with a $70 million going-concern credit bid.
The stalking horse bid consists of (a) a credit bid of the lesser of $70 million or the amount outstanding under the DIP facility, including any amounts outstanding under the prepetition credit agreements that are combined, consolidated or rolled up into the DIP facility; (b) a credit bid of the outstanding prepetition first lien debt of the lesser of $70 million minus the credit bid in subsection (a) or the amount outstanding under the prepetition first lien agreement, if any, under a credit bid by buyer in its capacity as secured lender under the prepetition first lien agreement and (c) a credit bid of the prepetition second lien facility of the lesser of $70 million minus the amount credit bid under subsections (a) and (b) or the amount outstanding under the prepetition second lien credit agreement, if any, pursuant to a credit bid by buyer in its capacity as secured lender under the prepetition second lien credit agreement. The stalking horse agreement adds that any portion of the prepetition debt that is not rolled up or credit bid would remain a claim in the chapter 11 cases.
The debtors propose a 3% breakup fee ($2.1 million) and an expense reimbursement for up to $500,000. Initial and subsequent overbids must be $500,000 (or such other amount that the debtors may determine which may be less than $500,000 including with respect to a bid for less than all assets) greater than the stalking horse bid plus the breakup fee and expense reimbursement.
The debtors propose the following sale timeline:
The debtors are seeking authority to enter into a $40.8 million superpriority, priming, senior secured, multiple-draw term loan DIP facility with prepetition secured lender Digiatech, consisting of a $20.4 million new-money multi-draw term loan facility and a $20.4 million rollup term loan facility on a dollar-for-dollar basis. On an interim basis, the debtors are requesting authorization to draw an initial amount not to exceed $30 million, consisting of $15 million in new-money DIP loans and $15 million in corresponding rollup loans. On a final basis, the debtors are requesting authority to borrow in a single draw up to $10.8 million, consisting of $5.4 million in new-money DIP loans and $5.4 million in corresponding rollup loans.
The DIP financing bears interest at 12%, with an additional 2% for the default rate. The proposed DIP financing would mature on the earliest of three months following the closing date, the date of consummation of any sale of all or substantially all of the debtors’ assets and the date of acceleration of the DIP loans and the termination of the DIP facility upon the occurrence of a default. The DIP proceeds may be used for the “orderly continuation” of the debtors’ businesses and to maintain business relationships as well as to make payroll, capital expenditures and adequate protection payments.
To secure the DIP financing, the debtors propose to grant first priority, priming liens on all the debtors’ assets, including avoidance actions and any proceeds therefrom upon entry of a final order. Digiatech has agreed to the priming of its liens under the prepetition secured agreements.
The debtors propose indemnifying and providing releases to the DIP lenders and any of its affiliates and professionals.
The facility includes an upfront fee equal to 3% of the new-money DIP loans, payable as an original issue discount at the time, and on the amount, of each new-money DIP loan draw.
In support of the proposed DIP financing, the debtors filed the declaration of Moelis’ Adam Keil, who states that he believes the new-money DIP loans are offered as a protective measure by the DIP lenders to provide enough liquidity to achieve and complete a chapter 11 sale process within 35 days. He says that the DIP “would not be offered but for the obligation to Roll-Up the Prepetition Secured Debt as part of the DIP Facility.” Keil states that the debtors began working with Moelis about two months ago, reaching out to 18 third parties for DIP financing, of which 13 executed confidentiality agreements and none provided a financing proposal. Keil says that at the same time, the debtors were negotiating for a comprehensive financing package from TPC as second lien lender and thereafter with Digiatech after it acquired TPC’s position, leading to the proposed DIP financing.
To the extent any portion of the prepetition secured debt is not rolled up, the company proposes the following adequate protection to Digiatech, as the prepetition first and second lien lender: replacement liens, superpriority administrative expense claims and payment of the professionals’ fees, expenses and interest.
In addition, 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), subject to entry of a final order.
The carve-out for professional fees is $75,000.
The challenge period for any official committee of unsecured creditors is 60 days after the UCC’s formation. For other parties in interest, the challenge period expires no later than 75 days after entry of the DIP interim order. The UCC lien investigation budget is $25,000.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Press Release
Newmark Press Release
DIP Financing Motion
Bid Procedures Motion
| Summary |
| Knotel is a customized flexible workspace provider; debtors operate properties primarily in New York and San Francisco, while nondebtor affiliates operate globally |
| Seeks to sell substantially all assets to Digiatech, a subsidiary of Newmark Group, as stalking horse with a $70 million going-concern credit bid |
| Digiatech purchased the debtors’ first and second lien debt prepetition and also provided bridge financing. It has agreed to provide DIP financing of $20.4 million in new money and a rollup of $20.4 million of outstanding prepetition secured debt |
| Newmark is a minority shareholder of Knotel |
Knotel Inc., a New York City-based customized flexible workspace provider with 4 million square feet of leased workspace and 300 customers as of early 2020, filed for chapter 11 protection on Sunday in the Bankruptcy Court for the District of Delaware, along with several affiliates. Having purchased Knotel’s first and second lien debt in December 2020, Digiatech LLC, a subsidiary of real estate services firm Newmark Group Inc., has agreed to provide DIP financing and serve as stalking horse bidder in the chapter 11 cases. The sale process is expected to take 30 days. Newmark is a minority shareholder of Knotel and “is therefore not an ‘insider,’” according to the debtors. Digiatech’s stalking horse bid consists of a $70 million going-concern credit bid for all or substantially all of the debtors’ assets based on a “deal in principle” subject to definitive documentation. The sale would be followed by liquidation of the estates, “such as through a conversion to chapter 7 or structured dismissal, but will require that any sale assume or otherwise provide payment of all allowed administrative expenses of these chapter 11 cases.”
The DIP financing consists of $20.4 million in new money and a rollup of $20.4 million of outstanding prepetition secured debt. The debtors were operating at a “significant deficit” and were only able to maintain operations by securing pre-bankruptcy financing and the DIP financing, which Knotel says allowed it to avoid liquidation. The debtors stress that the DIP financing is designed to sustain the debtors’ operations and scaled-down workforce through the sale process, and they expect the financing to be fully exhausted within six weeks of the petition date.
The debtors say that the sale would better position the company for the “post-pandemic market for flexible workspace.” Knotel says it hopes that high vacancy and lower rental rates would “drive landlords to seek management deals or other forms of partnership with Knotel,” asserting that its partnership with landlords would allow it to “rapidly expand market share and transform the flexible workspace industry.” Knotel’s goal in the cases is to preserve the value of the business, jobs and to “pursue its business model in some capacity as a going concern.” The debtors say that Newmark’s additional liquidity and consulting services would be helpful to the success of the debtors’ “post-pandemic business model.”
In a press release, Knotel says it has also made the decision to exit “multiple” locations in the United States. Amol Sarva, Knotel co-founder and CEO, said that the “pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco. We must address this now to position our business for sustainable growth and a successful future." He adds, "Our restructuring will enable us to strengthen our balance sheet, focus on a rightsized portfolio of locations, and maintain relationships with our customer base while continuing to build on Knotel's differentiated service offering. We continue to believe in Knotel's potential in the growing flex market."
Newmark issued a separate release, quoting Sarva as saying, “We are optimistic that, through a successful restructuring, we can refocus on our mission of providing state-of-the-art, tailored flex space in key U.S. and international markets. We have engaged Hilco Real Estate, a real estate restructuring specialist, to assist Knotel."
The first day hearing has yet to be scheduled.
The company’s prepetition capital structure includes:
- Secured debt:
- Senior revolving credit facility: $18.55 million (plus $2.4 million of cash collateralized letter of credit).
- Junior revolving credit facility: $50 million.
- Senior revolving credit facility: $18.55 million (plus $2.4 million of cash collateralized letter of credit).
- Unsecured debt:
- 2019 4% convertible notes: $9.6 million.
- 2020 4% convertible notes: $20.5 million.
- PPP loan: $7.2 million.
- 2019 4% convertible notes: $9.6 million.
- Equity: Owners of 10% or more of Knotel Inc.’s equity consist of Essential Media Group LLC, Peak State Ltd. (fka Arvensis Ventures Ltd.) and Sarva TXT LLC.
Prior to Digiatech purchasing the first lien debt on Dec. 30, 2020, the prior lender, Western Alliance Bank, declared a default and entered into a forbearance agreement with Knotel. The debtors remained in default after the end of the forbearance, but Digiatech agreed to a modification to the loan agreement, extending $9 million in additional advances subject to budget reporting requirements and restrictions on the use of cash collateral. Digiatech entered into a further amendment on Jan. 19, providing for an approximately $3.3 million additional advance.
Digiatech purchased the second lien debt on Jan. 10 from TriplePoint Venture Growth BDC Corp. and TriplePoint Capital LLC.
The debtors’ principal assets consist of their rights under real property leases, furniture, fixtures and equipment, equity in foreign nondebtor subsidiaries, and rights to receive payment pursuant to their customer agreements.
While Knotel notes that it has incurred operating and net losses and experienced negative operating cash flows for the “past several years,” the debtors attribute the bankruptcy filing to a significant expansion of operations in 2019, including significant investments into properties with “future revenue-generating potential” in connection with its growth stage ahead of the global pandemic. The damper placed on the revenue-generating potential of these properties by the Covid-19 pandemic has “severely disrupted” business plans and operations and pushed the debtors into a liquidity crisis. The debtors say they have experienced lower demand than anticipated, spurring price cuts for new sales and renewals and placing downward pressure on EBITDA and cash flow. “As the overall economy contracted, the willingness and ability of existing customers to timely pay fees was reduced, and this also had a significant negative impact on the Debtors’ financial position,” the debtors say.
In 2019, the debtors completed various financing transactions, including the closing of a Series C preferred stock financing round for approximately $130 million in September 2019, “along with an additional $50 million in December of 2019 and the execution of loan agreements of approximately $80 million in borrowings and letters of credit.” With these funds, the debtors were able to “significantly” build out operations in 2019, increasing leased properties by more than 150%, customer contracts by more than 200%, revenue by 275% and expanding operations abroad into Brazil, France, India, Ireland, Japan and the Netherlands.
The debtors are represented by Milbank in Los Angeles. Morris Nichols Arsht & Tunnell is local counsel and Moelis has been retained as investment banker. Omni Agent Solutions is the debtors’ claims and noticing agent. The company has also retained Fenwick & West as special corporate counsel and Ernst & Young as tax consultant. The case has been assigned to Judge Mary F. Walrath (case No. 21-10146).
Background
Knotel is a flexible workspace provider in 20 global markets with a customer base that includes Fortune 500 and Global 200 companies. The debtors have approximately 110 employees. The debtors provide flexible workspace in the United States, primarily in the New York and San Francisco areas. Certain nondebtor affiliates provide flexible workspace outside of the U.S. The nondebtor affiliates operate separately from the debtors and are not obligors under the debtors’ secured debt facilities, but certain nondebtors require funds from Knotel Inc. to meet cash needs.
The debtors say that the nondebtor affiliates are critical to the value of the debtors’ operations, because relative to their U.S. counterparts, they have fared better during the pandemic, “and it is important to maintain the foreign non-Debtor operations to preserve the Debtors’ value.”
Knotel’s three-step “Match, Tailor, Manage” process “transforms the workspace from a fixed asset to a competitive advantage,” the debtors say, outlining the process as follows: “(1) Knotel uses its global portfolio to match businesses with prestigious owners around the world, meeting their unique and complex workspace needs in a timely fashion; (2) Knotel tailors holistic workspace offerings at the intersection of workflows and brand identity to design spaces that meet and respond their customers’ needs; and (3) Knotel offers dedicated space management services that evolve as and when their customers’ need change.”
From the outset, Knotel’s approach has focused on capital efficiency on buildout and operations. Knotel has become more asset-light as property owners have doubled the proportion of the portfolio’s revenue-sharing management agreements since 2019.
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| One Workpl L Ferrari LLC dba Two |
Santa Clara, Calif. | Supply Chain | $ 4,985,299 |
| Hudson 901 Market LLC | San Francisco | Rent | 4,042,220 |
| Eden Technologies Inc. | San Francisco | Facilities | 3,108,234 |
| 260-261 Madison Ave LLC | New York | Rent | 2,692,400 |
| 505 Howard SF LLC | Sterling, Va. | Rent | 2,309,974 |
| SourceMedia | New York | Rent | 2,119,571 |
| HRC Corp. | New York | Rent | 2,342,100 (225,000 secured) |
| 29 W 35th Street LLC | New York | Rent | 1,821,516 (779,675 secured) |
| DP 1550 Bryant LLC | San Francisco | Rent | 1,651,156 (566,761 secured) |
| 530 Broadway Owner LLC | New York | Rent | 1,560,786 |
The case representatives are as follows:
| Case Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | Mark Shinderman | Milbank | Los Angeles |
| Daniel B. Denny | |||
| Debtors' Co-Counsel | Robert J. Dehney | Morris, Nichols, Arsht & Tunnell |
Wilmington, Del. |
| Matthew B. Harvey | |||
| Matthew O. Talmo | |||
| Andrew R. Workman | |||
| Debtors' Special Corporate Counsel |
N/A | Fenwick & West | Mountain View, Calif. |
| Debtors' Investment Banker |
Adam B. Keil | Moelis & Co. | New York |
| Debtors' Claims Agent |
Paul H. Deutch | Omni Agent Solutions |
Woodland Hills, Calif. |
| Debtors' Tax Consultant |
N/A | Ernst & Young | New York |
| Co-Counsel to Digiatech |
Jeffrey R. Gleit | Sullivan & Worcester |
New York |
| Allison Weiss | |||
| Amy A. Zuccarello | Boston | ||
| Co-Counsel to Digiatech |
Dennis A. Meloro | Greenberg Traurig | Wilmington, Del. |
| U.S. Trustee | Joseph James McMahon Jr. |
Office of the U.S. Trustee |
Wilmington, Del. |
Bid Procedures Motion
Digiatech LLC (or its designee), an affiliate of Newmark Group, has agreed to serve as stalking horse with a $70 million going-concern credit bid.
The stalking horse bid consists of (a) a credit bid of the lesser of $70 million or the amount outstanding under the DIP facility, including any amounts outstanding under the prepetition credit agreements that are combined, consolidated or rolled up into the DIP facility; (b) a credit bid of the outstanding prepetition first lien debt of the lesser of $70 million minus the credit bid in subsection (a) or the amount outstanding under the prepetition first lien agreement, if any, under a credit bid by buyer in its capacity as secured lender under the prepetition first lien agreement and (c) a credit bid of the prepetition second lien facility of the lesser of $70 million minus the amount credit bid under subsections (a) and (b) or the amount outstanding under the prepetition second lien credit agreement, if any, pursuant to a credit bid by buyer in its capacity as secured lender under the prepetition second lien credit agreement. The stalking horse agreement adds that any portion of the prepetition debt that is not rolled up or credit bid would remain a claim in the chapter 11 cases.
The debtors propose a 3% breakup fee ($2.1 million) and an expense reimbursement for up to $500,000. Initial and subsequent overbids must be $500,000 (or such other amount that the debtors may determine which may be less than $500,000 including with respect to a bid for less than all assets) greater than the stalking horse bid plus the breakup fee and expense reimbursement.
The debtors propose the following sale timeline:
- Sale objection deadline: Feb. 22 at 4 p.m. ET;
- Bid deadline: Feb. 28 at 4 p.m. ET;
- Auction: March 2 at 1 p.m. ET;
- Reply deadline/auction objection deadline: March 3; and
- Sale hearing: March 4 at 1 p.m. ET.
The debtors are seeking authority to enter into a $40.8 million superpriority, priming, senior secured, multiple-draw term loan DIP facility with prepetition secured lender Digiatech, consisting of a $20.4 million new-money multi-draw term loan facility and a $20.4 million rollup term loan facility on a dollar-for-dollar basis. On an interim basis, the debtors are requesting authorization to draw an initial amount not to exceed $30 million, consisting of $15 million in new-money DIP loans and $15 million in corresponding rollup loans. On a final basis, the debtors are requesting authority to borrow in a single draw up to $10.8 million, consisting of $5.4 million in new-money DIP loans and $5.4 million in corresponding rollup loans.
The DIP financing bears interest at 12%, with an additional 2% for the default rate. The proposed DIP financing would mature on the earliest of three months following the closing date, the date of consummation of any sale of all or substantially all of the debtors’ assets and the date of acceleration of the DIP loans and the termination of the DIP facility upon the occurrence of a default. The DIP proceeds may be used for the “orderly continuation” of the debtors’ businesses and to maintain business relationships as well as to make payroll, capital expenditures and adequate protection payments.
To secure the DIP financing, the debtors propose to grant first priority, priming liens on all the debtors’ assets, including avoidance actions and any proceeds therefrom upon entry of a final order. Digiatech has agreed to the priming of its liens under the prepetition secured agreements.
The debtors propose indemnifying and providing releases to the DIP lenders and any of its affiliates and professionals.
The facility includes an upfront fee equal to 3% of the new-money DIP loans, payable as an original issue discount at the time, and on the amount, of each new-money DIP loan draw.
In support of the proposed DIP financing, the debtors filed the declaration of Moelis’ Adam Keil, who states that he believes the new-money DIP loans are offered as a protective measure by the DIP lenders to provide enough liquidity to achieve and complete a chapter 11 sale process within 35 days. He says that the DIP “would not be offered but for the obligation to Roll-Up the Prepetition Secured Debt as part of the DIP Facility.” Keil states that the debtors began working with Moelis about two months ago, reaching out to 18 third parties for DIP financing, of which 13 executed confidentiality agreements and none provided a financing proposal. Keil says that at the same time, the debtors were negotiating for a comprehensive financing package from TPC as second lien lender and thereafter with Digiatech after it acquired TPC’s position, leading to the proposed DIP financing.
To the extent any portion of the prepetition secured debt is not rolled up, the company proposes the following adequate protection to Digiatech, as the prepetition first and second lien lender: replacement liens, superpriority administrative expense claims and payment of the professionals’ fees, expenses and interest.
In addition, 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), subject to entry of a final order.
The carve-out for professional fees is $75,000.
The challenge period for any official committee of unsecured creditors is 60 days after the UCC’s formation. For other parties in interest, the challenge period expires no later than 75 days after entry of the DIP interim order. The UCC lien investigation budget is $25,000.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Interim DIP order: Entered within three business days of petition date;
- Final DIP order: Entered within 25 days of petition date (but debtors must use “best efforts” to obtain order within 15 days of petition date); and
- Sale order: Entered within 35 days of petition date.
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. 21-10146.
- First, second and third omnibus lease rejection motions
- Motion to pay critical vendors
- The debtors request approval to pay up to $1.8 million in claims on a final basis.
- Motion to pay employee wages and benefits
- The company seeks to pay the following in employee wages and benefits:
- The company seeks to pay the following in employee wages and benefits:
- Motion to use cash management system
- The company has bank accounts with JPMorgan Chase, Wells Fargo, HSBC and Western Alliance Bank.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors seek to pay approximately $20,000 on an interim basis and $435,000 on a final basis in prepetition taxes and fees.
- Motion to provide utilities with adequate assurance
- Application to appoint Omni Agent Solutions as claims agent
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