Furniture Factory Ultimate Holding, LP
CASE SUMMARY: Furniture Factory Seeks to Run Sale Process with American Freight FFO as Stalking Horse and DIP Lender Ahead of Anticipated 2021 Q1 Demand ‘Surge’
Thu 11/05/2020 15:48 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Bid Procedures Motion
DIP Financing Motion
Sale Motion
First Day Hearing Agenda
Continue reading for the First Day team's analysis of the Furniture Factory chapter 11 and request a trial to access the above documents as well as reporting and analysis of hundreds of other stressed, distressed and performing credits.
Furniture Factory Ultimate Holding, LP, a Fort Smith, Ark.-based home furniture retailer that operated 68 locations pre-pandemic, filed for chapter 11 protection today, Nov. 5, in the Bankruptcy Court for the District of Delaware, along with seven affiliates. The debtors enter chapter 11 with a stalking horse bid from American Freight FFO for the sale of substantially all of the debtors’ assets. The stalking horse bid consists of (i) a credit bid of $7 million of prepetition first lien debt, (ii) a credit bid of the indebtedness under the DIP facility as of the closing date (iii) a cash payment of $739,000 to fund a wind-down of the chapter 11 cases, along with a commitment from American Freight to maintain existing operations and employ a “substantial” portion of the debtors' existing employees. American Freight has also agreed to provide $6.54 million of DIP financing ($1.8 million on an interim basis) to meet working capital needs and continue operations during the chapter 11 cases.
With the DIP financing allowing the debtors to continue to operate in the normal course, pay landlords and vendors and maintain sufficient liquidity to pay administrative costs, the debtors and FocalPoint, as investment banker, intend to continue to market the debtors' assets for sale to potential purchasers for the next five weeks, says Donal Roach, the debtors say.
The proposed sale timeline - which includes a Dec. 14 bid deadline, a Dec. 12 auction date (with Dec. 15 as the outside deadline to complete the auction) and a sale hearing to be held by Dec. 17 - is necessary in order to allow the transaction to close prior to the end of the year, the debtors say, noting that the industry is experiencing “significant supply chain shortages and disruption.” In order to secure inventory to meet “a surge of demand towards the middle to end of the first quarter of the year, which coincides with anticipated and paid tax refunds,” the debtors say that they will be required to expend “significant” funds in advance for delivery of inventory. Although American Freight is willing to fund the process to get to a transaction, it is “unwilling to fund the significantly increased expenditures that would be needed to build up the inventory for the peak season.”
The first day hearing is set for tomorrow, Friday, Nov. 6, at 2 p.m. ET.
The company reports $10 million to $50 million in both assets and liabilities, and its prepetition capital structure includes:
Prepetition, the first lien lenders sold and assigned all of their respective rights and interests under the loan documents American Freight FFO, the stalking horse. Stellus Capital Investment Corporation is the first lien prepetition agent. Furniture Factory Note Holding, as prepetition agent under the second lien credit agreement, and the debtors executed a subordination and intercreditor agreement dated June 28, 2019, in favor of the first lien agent.
Although the debtors say that they were experiencing “initial success” with certain initiatives to revitalize the business prior to the Covid-19 pandemic, the pandemic sparked the permanent closure of 37 locations. As of the petition date, the debtors are operating 31 retail locations across Arkansas, Missouri, Oklahoma, Kentucky and Indiana, in addition to a bedding manufacturing facility and one distribution facility. These closures dropped the company’s revenue to “nearly zero overnight,” which led to the layoff of approximately 95% of its total workforce.
During the closures, the debtors addressed their lease obligations and attempted to negotiate more favorable terms with their landlords. “However, the continuing impacts of the pandemic and the need to conserve cash ultimately required the Debtors to permanently exit a significant amount of their stores,” the debtors say. After reopening on a limited weekly basis, the debtors are now operating seven days a week as they did pre-pandemic. “Although the Debtors’ business is generally performing in line with expectations for its reduced size, the reduction in the total size of the enterprise, along with the cash pressures as a result of the time the Debtors’ stores were closed, caused the Debtors to explore restructuring alternatives,” the debtors say.
The debtors are represented by Klehr Harrison Harvey Branzburg as counsel, FocalPoint Securities as investment banker and RAS Management Advisors as financial advisor. Stretto is the claims agent. The case has been assigned to Judge John T. Dorsey (20-12816).
Background
The first day declaration of Donald Roach, the debtors’ CFO and COO, describes Furniture Factory, founded in 1984 in Muldrow, Okla., as an everyday low-price provider of fashionable and affordable home furniture in the South Central and Midwest regions of the United States. The company’s business model is based on a “lowest price every day” guarantee, “a differentiator from the competition,” Roach says. The debtors’ products span living room, dining room and bedroom furniture, mattresses, home décor and other accessories from “prominent furniture brands” such as Serta, Jackson Catnapper and United/Lane, among others, as well as its own Natural Elements brand.
In the fiscal year ended 2019, the Furniture Factory earned revenue of approximately $143 million.
Prior to Covid-19-driven shutdowns, the debtors operated 68 locations and had approximately 675 employees. As a result of forced shutdowns and the consequent “massive reduction in revenue and available liquidity,” the debtors permanently closed 37 locations and terminated employees at those locations. As of the petition date the debtors are operating 31 retail locations across Arkansas, Missouri, Oklahoma, Kentucky and Indiana, in addition to a bedding manufacturing facility and one distribution facility, with a total of 270 employees.
In addition to the direct impact of the pandemic-induced closures on the debtors’ business, Furniture Factory’s entire supply chain has faced challenges, including difficulty obtaining raw materials for the manufacture of its goods, pandemic-based safety measures that have lessened the amount of finished goods available and transportation issues stemming from labor force restrictions. As a result, the debtors' revenue continues to be “choked” by the lessened inventory supply chain. Separate from the pandemic, the debtors are also suffering weather-related shortages of raw materials for their mattress manufacturing business. Recent storms have affected the Gulf region, the debtors say, which has impacted both soy-based foam and petroleum-based foam availability.
The debtors are portfolio companies of affiliates of Sun Capital Partners. Furniture Factory’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
Sale Motion / Bid Procedures Motion
In support of the sale process contemplated by the plan, the debtors seek approval of their proposed bid procedures, including stalking horse protection for American Freight. According to the bidding procedures motion, in July, the debtors engaged FocalPoint Securities LLC as an investment banker to market their assets for sale. In the sale process run by FocalPoint, 121 potential strategic and financial buyers were identified, with 24 parties executing confidentiality agreements and three parties participating in management meetings. Those three parties submitted indications of interest at the end of October. In mid-October, the debtors engaged in discussions with American Freight, which had purchased the debtors’ first lien secured loan facility, and on Nov. 4 they entered into a “stalking horse” asset purchase agreement.
The proposed bidding procedures provide for “the requirements for prospective purchasers to participate in the bidding process, the availability and conduct of due diligence by prospective bidders, the deadline and requirements for submitting a bid, the method and criteria for bids to become ‘qualified,’ the manner in which qualified bids will be negotiated, clarified and improved, and the criteria for selecting one or more Prevailing Bidders, including if necessary, through a public auction.” These procedures include customary procedures for entry into confidentiality agreements, diligence processes and requirements to be designated as a qualifying bidder.
According to the bid procedures, a qualified bid must include cash consideration at closing that exceeds the aggregate sum of: (i) amounts eligible to credit bid (the $7 million portion of the prepetition secured debt and the outstanding amount under the debtors’ $6.54 million DIP facility); (ii) a breakup fee (the greater of $360,000 or 3% of the purchase price); (iii) the stalking-horse expense reimbursement (capped at $400,000); (iv) the post-closing wind-down costs of the debtors’ chapter 11 cases (to be agreed between the debtors and the stalking horse purchaser); and (v) a $500,000 minimum bid increment. The procedures also require an earnest money deposit of 10% of the purchase price or value of the bid, evidence of likely prospective regulatory approval and other customary provisions, such as a lack of financing or due diligence contingencies.
The bid procedures also permit a landlord to credit bid for its respective leased location, subject to various conditions.
In support of the bid procedures motion, the debtors filed the declaration of FocalPoint managing director Michael Fixler.
The debtors propose the following timeline for the sale process:
DIP Financing Motion
The debtors seek authority to obtain postpetition financing from American Freight FFO on a secured, priming and superpriority basis, up to a maximum aggregate amount of $6.54 million. The draw schedule on the DIP would be as follows:
The DIP financing bears interest at a per annum floating rate equal to L + 7%, with a LIBOR floor of 0% and additional 2% for the default rate. The loan matures 90 days after the petition date, or Feb. 3, 2021, unless otherwise extended by the parties. The DIP proceeds would be used, after application of all other available cash, to pay the debtors’ postpetition operating expenses and working capital needs; DIP lender interest, fees and expenses; sale transaction fees and expenses; permitted prepetition claims; professional fees; and other chapter 11 administrative costs and expenses.
To secure the DIP financing, the debtors propose to grant first priority senior and priming liens on all of the debtors’ existing and after-acquired property, subject to (i) perfected prepetition liens of any party other than the prepetition lender and (ii) the carveout. The debtors also propose to grant junior perfected security interests on property subject to nonavoidable, valid and perfected prepetition liens, including those perfected postpetition under Bankruptcy Code section 546(b), subject only to the carveout. The debtors also propose to grant superpriority administrative expense claims, subject only to the carveout. The DIP collateral includes, upon entry of the final order, avoidance actions and the proceeds of avoidance actions.
The DIP facility does not contain any roll up or cross-collateralization provisions. The DIP order preserves the lenders’ right to credit bid up to the full amount of their obligations in the event of any sale of the debtors’ assets. The DIP will be subject to mandatory prepayments under the debtors’ prepetition credit agreement.
The facility includes various fees, including an origination fee of 1% of the maximum principal amount of the DIP facility, payable upon entry of the interim order; payment of the DIP lender’s costs and expenses and a termination fee of $200,000, due and payable if the debtors obtain postpetition financing from anyone other than the DIP lender.
In support of the proposed DIP financing, the debtors filed the declaration of Michael Fixler, managing director of investment banking firm FocalPoint Partners. Fixler states that prior to the petition date FocalPoint contacted five potential lenders, none of whom would provide a proposal on an unsecured or junior priority basis, and that the DIP facility from prepetition lender American Freight “represents the best financing option available under the circumstances” and the “only viable option available for the Debtors to obtain postpetition financing.” The debtors stress the need for DIP financing to provide the debtors “with immediate access to liquidity” and to permit the debtors to provide a signal to vendors, employees and customers that the debtors will “continue to meet their commitments and are not likely to languish in bankruptcy.”
Adequate Protection
The company proposes the following adequate protection to its prepetition lender in exchange for the use of the lender’s cash collateral:
The challenge period for nondebtor parties to investigate the enforceability of the prepetition lender liens and security interests will be 60 days from the formation of an official committee of unsecured creditors or, if no committee is appointed, 75 days after entry of the interim DIP order. The committee’s budget is $25,000 and may not be used solely for investigation and not to bring a challenge.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge of the lender’s collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b), in both cases effective upon entry of a final order. The DIP lender would not be subject to the doctrine of marshalling.
The carveout for professional fees is $100,000.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
DIP Milestones
The DIP financing is subject to the following milestones:
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Bid Procedures Motion
DIP Financing Motion
Sale Motion
First Day Hearing Agenda
Continue reading for the First Day team's analysis of the Furniture Factory chapter 11 and request a trial to access the above documents as well as reporting and analysis of hundreds of other stressed, distressed and performing credits.
| Summary |
| Furniture Factory is a home furniture retailer that operated 68 locations pre-pandemic and now operates 31 locations in Arkansas, Missouri, Oklahoma, Kentucky and Indiana |
| Seeks to run a sale process with stalking horse American Freight FFO, whose bid includes a credit bid of prepetition debt totaling $7 million, the amounts owed under the DIP facility at closing, plus a cash payment $739,000 for wind-down expenses |
| American Freight to provide $6.5 million of DIP financing ($1.8 million on an interim basis |
| Debtors intend to continue marketing assets to third party purchasers; proposed sale timeline includes a Dec. 17 sale hearing |
Furniture Factory Ultimate Holding, LP, a Fort Smith, Ark.-based home furniture retailer that operated 68 locations pre-pandemic, filed for chapter 11 protection today, Nov. 5, in the Bankruptcy Court for the District of Delaware, along with seven affiliates. The debtors enter chapter 11 with a stalking horse bid from American Freight FFO for the sale of substantially all of the debtors’ assets. The stalking horse bid consists of (i) a credit bid of $7 million of prepetition first lien debt, (ii) a credit bid of the indebtedness under the DIP facility as of the closing date (iii) a cash payment of $739,000 to fund a wind-down of the chapter 11 cases, along with a commitment from American Freight to maintain existing operations and employ a “substantial” portion of the debtors' existing employees. American Freight has also agreed to provide $6.54 million of DIP financing ($1.8 million on an interim basis) to meet working capital needs and continue operations during the chapter 11 cases.
With the DIP financing allowing the debtors to continue to operate in the normal course, pay landlords and vendors and maintain sufficient liquidity to pay administrative costs, the debtors and FocalPoint, as investment banker, intend to continue to market the debtors' assets for sale to potential purchasers for the next five weeks, says Donal Roach, the debtors say.
The proposed sale timeline - which includes a Dec. 14 bid deadline, a Dec. 12 auction date (with Dec. 15 as the outside deadline to complete the auction) and a sale hearing to be held by Dec. 17 - is necessary in order to allow the transaction to close prior to the end of the year, the debtors say, noting that the industry is experiencing “significant supply chain shortages and disruption.” In order to secure inventory to meet “a surge of demand towards the middle to end of the first quarter of the year, which coincides with anticipated and paid tax refunds,” the debtors say that they will be required to expend “significant” funds in advance for delivery of inventory. Although American Freight is willing to fund the process to get to a transaction, it is “unwilling to fund the significantly increased expenditures that would be needed to build up the inventory for the peak season.”
The first day hearing is set for tomorrow, Friday, Nov. 6, at 2 p.m. ET.
The company reports $10 million to $50 million in both assets and liabilities, and its prepetition capital structure includes:
- Secured debt:
- First lien: $22 million of principal
- Second lien: $12.7 million of aggregate principal
- Unsecured debt
- Grid notes: $14.7 million
- Trade debt: $14.9 million
- Equity: The debtors’ equity is held by Sun Furniture Factory, LP as limited partner and Sun Holding VI, LLC as general partner.
Prepetition, the first lien lenders sold and assigned all of their respective rights and interests under the loan documents American Freight FFO, the stalking horse. Stellus Capital Investment Corporation is the first lien prepetition agent. Furniture Factory Note Holding, as prepetition agent under the second lien credit agreement, and the debtors executed a subordination and intercreditor agreement dated June 28, 2019, in favor of the first lien agent.
Although the debtors say that they were experiencing “initial success” with certain initiatives to revitalize the business prior to the Covid-19 pandemic, the pandemic sparked the permanent closure of 37 locations. As of the petition date, the debtors are operating 31 retail locations across Arkansas, Missouri, Oklahoma, Kentucky and Indiana, in addition to a bedding manufacturing facility and one distribution facility. These closures dropped the company’s revenue to “nearly zero overnight,” which led to the layoff of approximately 95% of its total workforce.
During the closures, the debtors addressed their lease obligations and attempted to negotiate more favorable terms with their landlords. “However, the continuing impacts of the pandemic and the need to conserve cash ultimately required the Debtors to permanently exit a significant amount of their stores,” the debtors say. After reopening on a limited weekly basis, the debtors are now operating seven days a week as they did pre-pandemic. “Although the Debtors’ business is generally performing in line with expectations for its reduced size, the reduction in the total size of the enterprise, along with the cash pressures as a result of the time the Debtors’ stores were closed, caused the Debtors to explore restructuring alternatives,” the debtors say.
The debtors are represented by Klehr Harrison Harvey Branzburg as counsel, FocalPoint Securities as investment banker and RAS Management Advisors as financial advisor. Stretto is the claims agent. The case has been assigned to Judge John T. Dorsey (20-12816).
Background
The first day declaration of Donald Roach, the debtors’ CFO and COO, describes Furniture Factory, founded in 1984 in Muldrow, Okla., as an everyday low-price provider of fashionable and affordable home furniture in the South Central and Midwest regions of the United States. The company’s business model is based on a “lowest price every day” guarantee, “a differentiator from the competition,” Roach says. The debtors’ products span living room, dining room and bedroom furniture, mattresses, home décor and other accessories from “prominent furniture brands” such as Serta, Jackson Catnapper and United/Lane, among others, as well as its own Natural Elements brand.
In the fiscal year ended 2019, the Furniture Factory earned revenue of approximately $143 million.
Prior to Covid-19-driven shutdowns, the debtors operated 68 locations and had approximately 675 employees. As a result of forced shutdowns and the consequent “massive reduction in revenue and available liquidity,” the debtors permanently closed 37 locations and terminated employees at those locations. As of the petition date the debtors are operating 31 retail locations across Arkansas, Missouri, Oklahoma, Kentucky and Indiana, in addition to a bedding manufacturing facility and one distribution facility, with a total of 270 employees.
In addition to the direct impact of the pandemic-induced closures on the debtors’ business, Furniture Factory’s entire supply chain has faced challenges, including difficulty obtaining raw materials for the manufacture of its goods, pandemic-based safety measures that have lessened the amount of finished goods available and transportation issues stemming from labor force restrictions. As a result, the debtors' revenue continues to be “choked” by the lessened inventory supply chain. Separate from the pandemic, the debtors are also suffering weather-related shortages of raw materials for their mattress manufacturing business. Recent storms have affected the Gulf region, the debtors say, which has impacted both soy-based foam and petroleum-based foam availability.
The debtors are portfolio companies of affiliates of Sun Capital Partners. Furniture Factory’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| The Springfield News Leader | Dallas | Trade Payable | $ 1,831,961 |
| Homestretch | Nettleton, Miss. | Trade Payable | 1,739,160 |
| Malouf | Logan, Utah | Trade Payable | 1,067,036 |
| Serta Mattress Company | Oklahoma City, Okla. | Trade Payable | 1,009,281 |
| American Furniture/ Peak Living | Charlotte, N.C. | Trade Payable | 752,985 |
| United Furniture Industries | Verona, Miss. | Trade Payable | 919,792 |
| Carpenter Co | Charlotte, N.C. | Trade Payable | 509,952 |
| GBS Enterprises, LLC | Reno, Nev. | Trade Payable | 323,645 |
| Washington Furniture Sales | Randolph, Miss. | Trade Payable | 287,982 |
| Albany Industries | New Albany, Miss. | Trade Payable | 264,067 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Domenic E. Pacitti | Klehr Harrison
Harvey Branzburg |
Wilmington, Del. |
| Michael W. Yurkewicz | |||
| Sally E. Veghte | |||
| Debtors' Investment
Banker |
Michael Fixler | FocalPoint
Securities |
Chicago |
| Debtors' Financial
Advisor |
N/A | RAS Management
Advisors |
N/A |
| Counsel to American
Freight FFO |
Mattew R. Brooks | Troutman Pepper
Hamilton Sanders |
Atlanta |
| David B. Stratton | Wilmington, Del. | ||
| David M. Fournier | |||
| Kenneth A. Listwak | |||
| United States Trustee | Benjamin Hackman | Office of the
U.S. Trustee |
Wilmington, Del. |
| Debtors' Claims Agent | Sheryl Betance | Stretto | Irvine, Calif. |
Sale Motion / Bid Procedures Motion
In support of the sale process contemplated by the plan, the debtors seek approval of their proposed bid procedures, including stalking horse protection for American Freight. According to the bidding procedures motion, in July, the debtors engaged FocalPoint Securities LLC as an investment banker to market their assets for sale. In the sale process run by FocalPoint, 121 potential strategic and financial buyers were identified, with 24 parties executing confidentiality agreements and three parties participating in management meetings. Those three parties submitted indications of interest at the end of October. In mid-October, the debtors engaged in discussions with American Freight, which had purchased the debtors’ first lien secured loan facility, and on Nov. 4 they entered into a “stalking horse” asset purchase agreement.
The proposed bidding procedures provide for “the requirements for prospective purchasers to participate in the bidding process, the availability and conduct of due diligence by prospective bidders, the deadline and requirements for submitting a bid, the method and criteria for bids to become ‘qualified,’ the manner in which qualified bids will be negotiated, clarified and improved, and the criteria for selecting one or more Prevailing Bidders, including if necessary, through a public auction.” These procedures include customary procedures for entry into confidentiality agreements, diligence processes and requirements to be designated as a qualifying bidder.
According to the bid procedures, a qualified bid must include cash consideration at closing that exceeds the aggregate sum of: (i) amounts eligible to credit bid (the $7 million portion of the prepetition secured debt and the outstanding amount under the debtors’ $6.54 million DIP facility); (ii) a breakup fee (the greater of $360,000 or 3% of the purchase price); (iii) the stalking-horse expense reimbursement (capped at $400,000); (iv) the post-closing wind-down costs of the debtors’ chapter 11 cases (to be agreed between the debtors and the stalking horse purchaser); and (v) a $500,000 minimum bid increment. The procedures also require an earnest money deposit of 10% of the purchase price or value of the bid, evidence of likely prospective regulatory approval and other customary provisions, such as a lack of financing or due diligence contingencies.
The bid procedures also permit a landlord to credit bid for its respective leased location, subject to various conditions.
In support of the bid procedures motion, the debtors filed the declaration of FocalPoint managing director Michael Fixler.
The debtors propose the following timeline for the sale process:
- Dec. 10 at 4 p.m. ET: Cure, adequate assurance and sale objection deadlines;
- Dec. 14 at 4 p.m. ET: Bid deadline;
- Dec. 12 at 10 a.m. ET: Proposed auction date;
- Dec. 15 at 10 a.m ET: Outside date for auction to be held;
- Dec. 16 at 4 p.m. ET: Adequate assurance objection deadline; and
- Dec. 17 (subject to court’s availability): Sale hearing.
DIP Financing Motion
The debtors seek authority to obtain postpetition financing from American Freight FFO on a secured, priming and superpriority basis, up to a maximum aggregate amount of $6.54 million. The draw schedule on the DIP would be as follows:
- Upon entry of the interim order: $1.75 million;
- From Nov. 16 through and Nov. 29: $1.6 million;
- From Nov. 30 through and including Dec. 13: $1.6 milion; and
- From Dec. 14 through and including Dec. 30: $1.59 million.
The DIP financing bears interest at a per annum floating rate equal to L + 7%, with a LIBOR floor of 0% and additional 2% for the default rate. The loan matures 90 days after the petition date, or Feb. 3, 2021, unless otherwise extended by the parties. The DIP proceeds would be used, after application of all other available cash, to pay the debtors’ postpetition operating expenses and working capital needs; DIP lender interest, fees and expenses; sale transaction fees and expenses; permitted prepetition claims; professional fees; and other chapter 11 administrative costs and expenses.
To secure the DIP financing, the debtors propose to grant first priority senior and priming liens on all of the debtors’ existing and after-acquired property, subject to (i) perfected prepetition liens of any party other than the prepetition lender and (ii) the carveout. The debtors also propose to grant junior perfected security interests on property subject to nonavoidable, valid and perfected prepetition liens, including those perfected postpetition under Bankruptcy Code section 546(b), subject only to the carveout. The debtors also propose to grant superpriority administrative expense claims, subject only to the carveout. The DIP collateral includes, upon entry of the final order, avoidance actions and the proceeds of avoidance actions.
The DIP facility does not contain any roll up or cross-collateralization provisions. The DIP order preserves the lenders’ right to credit bid up to the full amount of their obligations in the event of any sale of the debtors’ assets. The DIP will be subject to mandatory prepayments under the debtors’ prepetition credit agreement.
The facility includes various fees, including an origination fee of 1% of the maximum principal amount of the DIP facility, payable upon entry of the interim order; payment of the DIP lender’s costs and expenses and a termination fee of $200,000, due and payable if the debtors obtain postpetition financing from anyone other than the DIP lender.
In support of the proposed DIP financing, the debtors filed the declaration of Michael Fixler, managing director of investment banking firm FocalPoint Partners. Fixler states that prior to the petition date FocalPoint contacted five potential lenders, none of whom would provide a proposal on an unsecured or junior priority basis, and that the DIP facility from prepetition lender American Freight “represents the best financing option available under the circumstances” and the “only viable option available for the Debtors to obtain postpetition financing.” The debtors stress the need for DIP financing to provide the debtors “with immediate access to liquidity” and to permit the debtors to provide a signal to vendors, employees and customers that the debtors will “continue to meet their commitments and are not likely to languish in bankruptcy.”
Adequate Protection
The company proposes the following adequate protection to its prepetition lender in exchange for the use of the lender’s cash collateral:
- Superpriority claims, subject to the carveout and the superpriority administrative claims of the DIP lender under the DIP facility and the existing claims of the prepetition lender on their respective pre-petition collateral;
- Valid, binding, enforceable and perfected liens in all DIP collateral, subject to payment of the carveout, the DIP liens, and any valid, perfected and unavoidable prepetition liens to the extent of the diminution in value of their collateral resulting from the DIP facility, DIP liens, the automatic stay or the sale, use, lease or disposition of the property; and
- reimbursement from the debtors for professional fees and expenses.
The challenge period for nondebtor parties to investigate the enforceability of the prepetition lender liens and security interests will be 60 days from the formation of an official committee of unsecured creditors or, if no committee is appointed, 75 days after entry of the interim DIP order. The committee’s budget is $25,000 and may not be used solely for investigation and not to bring a challenge.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge of the lender’s collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b), in both cases effective upon entry of a final order. The DIP lender would not be subject to the doctrine of marshalling.
The carveout for professional fees is $100,000.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
DIP Milestones
The DIP financing is subject to the following milestones:
- Nov. 25: Deadline for entry of sale procedures order;
- Dec. 14: Deadline for receipt of competing bids;
- Dec. 15: Deadline to conduct action (if more than one qualifying bid received);
- Dec. 17: Deadline for sale hearing;
- Dec. 18: Deadline for entry of order approving sale; and
- Dec. 30: Deadline for closing date of sale.
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. 20-12816.
- Motion to pay critical vendors and other claims
- The debtors seek approval to pay up to $550,000 in shipping charges, import charges, critical vendor claims and 503(b)(9) claims on an interim basis, subject to a $270,000 interim cap for critical vendor claims, with up to $750,000 sought in total payment on a final basis, subject to a $455,000 cap for critical vendor claims. According to the motion, 503(b)(9) claims total approximately $50,000.
- Motion to pay employee wages and benefits
- The company requests authority to pay employee obligations as follows:
- Motion to use cash management system
- The company has bank accounts with Arvest Bank, Community First National Bank, Central Bank of Boone County, Jefferson Bank, Centennial Bank, BancFirst, Equity Bank, Oklahoma Heritage Bank, Regions Bank, Nodaway Valley Bank, Republic Bank, PNC Bank and First Financial Bank .
- Motion to reject unexpired property leases
- Furniture Factory seeks to reject 17 unexpired property leases listed HERE.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors seek to pay taxes and fees up to $500,000 on an interim basis and up to $700,000 on a final basis.
- Motion to honor customer programs
- Motion to provide utilities with adequate assurance
- Application to appoint Stretto as claims agent
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