Thu 06/11/2020 13:34 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
 
Summary
Maines Paper & Food Service is a full-line food distributor
Debtors’ largest secured creditor Lineage Bluebird Debtco, LLC acquired substantially all of company’s assets in a May foreclosure
Lineage to provide $2 million for distribution to general unsecured creditors pursuant to plan of liquidation
 
 
Maines Paper & Food Service Inc., a Conklin, N.Y.-based food distributor, filed for chapter 11 protection on Thursday along with 12 affiliates in the Bankruptcy Court for the District of Delaware. The debtors recently completed a prepetition foreclosure process by which the debtors’ largest secured creditor, Lineage Bluebird Debtco, LLC, acquired substantially all of the company’s assets. The May 17 foreclosure and settlement agreement “provides for the set-aside” of $2 million for distribution to general unsecured creditors upon consummation of a plan of liquidation and the approval of the plan releases in favor of Lineage. Lineage would also fund payment of up to $825,000 in Perishable Agricultural Commodities Act claims against the debtors. “The Debtors either have or will shortly file the proposed plan and related disclosure statement,” according to the declaration. The foreclosure agreement also requires confirmation of the plan within 90 days of the petition date.

The debtors also seek the use of cash collateral, to which Lineage has consented pursuant to the foreclosure agreement, to fund the cases and satisfy certain creditor claims.

The first day hearing has been scheduled for tomorrow, Friday, June 12 at 10 a.m. ET. The case docket is available on Reorg HERE.

The individual debtors report various asset levels and up to $100 million to $500 million in liabilities. The company’s prepetition capital structure includes:
 
  • Secured debt:
     
    • Revolving credit agreement (Lineage): $10.3 million
       
    • Guaranty of Huron Real Estate Associates term loan: $35 million
       
    • Darden Direct Distribution, Inc. promissory note: $10 million
       
    • M&T Bank: $1.7 million
       
  • Unsecured trade debt: more than $100 million
  • Equity: Maines Paper and Food Service, Inc. is the ultimate parent through 100% ownership in each of the debtors.

“Prior to Lineage’s acquisition of the indebtedness under the Revolving Credit Agreement on April 23, 2020, the prior principal amount outstanding under such credit agreement was approximately $41.9 million,” according to the first day declaration. “With the additional funding to the Debtors provided by Lineage under the Foreclosure Agreement, the outstanding amount under the Revolving Credit Agreement was in excess of $90 million,” DiDonato adds. Pursuant to the foreclosure agreement, the revolving agent accepted certain of the collateral in partial satisfaction of the revolving obligations and allowed the debtors to retain certain assets including cash.

The guaranty is by the debtors (other than Maines Paper & Food Service - Maryland, Inc.) of a $35 million term loan secured by substantially all assets of non-debtor Huron Real Estate Associates, LLC.

The debtors say that they “faced several years of significant operating pressures resulting from industry-wide truck driver and warehouse labor shortages,” even before the Covid-19 pandemic. During the summer of 2018, the Maines brothers decided they wanted to divest of the company, but at the “precipice” of a sale closing for substantially all of its assets with buyers of its business units, the Covid-19 pandemic “upended the foodservice distribution business” and the buyer for the majority of the assets withdrew. The company had retained E&Y to explore a sale process. Thereafter, on April 23, Lineage acquired the ABL and FILO debt and subsequently foreclosed on the company’s assets. The foreclosure agreement also provided for the forgiveness of $80 million in senior secured debt that Lineage acquired plus a contribution of $7.5 million in cash to fund wind down in chapter 11.

The debtors are represented by Pachulski Stang Ziehl & Jones as counsel. John DiDonato of Huron Consulting Services is the debtors’ chief restructuring officer. The case has been assigned to Judge Karen B. Owens (case no. 20-11502).

Background

Maines Paper & Food Service - founded in 1919 as a distributor of nickel candy to local grocers before expanding into the foodservice industry in the 1970s - most recently operated as one of the largest independent foodservice distributors in the U.S., according to the company. The company was founded by Floyd L. Maines, Sr., whose sons, David and William, expanded the company into foodservice. The debtors operated through five primary business segments: (a) foodservice supply chain services for multi-unit restaurant chains; (b) foodservice products and distribution for local restaurants and independent, casual dining establishments, such as pizzerias and coffee shops; (c) foodservice products and distribution for large institutions with a few locations, such as universities and hospitals; (d) foodservice products on a smaller scale to local operators, retail clients and event planners; and (e) foodservice products to other distributors.

The primary business had a quick service restaurant component serving national chains including Burger King, Tim Hortons, Wendy’s, Applebee’s, IHOP and Chilis, as well as a foodservice logistics services unit servicing restaurants owned by Darden Restaurants, Inc. (which owns restaurants including Olive Garden, Long Horn Steakhouse, Cheddar’s Scratch Kitchen and the Capital Grille).

Prior to the foreclosure, the debtors had annual revenue that exceeded $2 billion, “which amount would be greater if the value of Darden Foodservice Products were taken into consideration.” Through the end of 2019, the debtors conducted business in more than 30 states, and operated out of 10 distribution centers and three retail stores across the Northeastern, Midwestern and Southern regions of the U.S. Before the foreclosure, the debtors had 870 employees worldwide.

Pursuant to the foreclosure agreement, debtor Maines Paper & Food Service, Inc. and Lineage also entered into a transition services agreement.

The company’s corporate organizational structure follows:
(Click HERE to enlarge)

The debtors' largest unsecured creditors are listed below:
 
10 Largest Unsecured Creditors
Creditor Location Claim Type Claim Amount
Restaurant Services, Inc. Miami Trade $    11,829,889
Coca-Cola North America Atlanta Trade 11,439,502
Tim Hortons USA Inc. Miami Trade 6,878,717
Ernst & Young Capital Advisors, LLC New York Professional
Services
2,501,843
Birchwood Foods Columbus, Ohio Trade 2,487,500
Impossible Foods Inc. Redwood City, Calif. Trade 2,446,179
Sentry Insurance Stevens Point, Wis. Trade 1,868,345
M&T Bank Buffalo, N.Y. Deficiency
Claim
1,680,360
Darden Direct Distribution, Inc. Orlando, Fla. Customer
Prepayment
1,686,801
Associated Milk Producers Inc. Chicago, Ill. Trade 1,640,502

The case representatives are as follows:
Representatives
Role Name Firm Location
Debtors' Counsel Laura Davis Jones Pachulski
Stang Zhiehl
& Jones
Wilmington, Del.
David M. Bertenthal
Timothy P. Cairns
Debtors' Counsel John DiDonato Huron
Consulting
New York
Co-Counsel to
Lineage Logistics
Peter M. Gilhuly Latham
& Watkins
Los Angeles
Nacif Taousse New York
Co-Counsel to
Lineage Logistics
Michael R. Nestor Young
Conaway
Stargatt
& Taylor
Wilmington, Del.
United States
Trustee
Timothy Jay Fox, Jr. Office of the
U.S. Trustee
Wilmington, Del.

Cash Collateral Motion

Prior to the petition date, the company, Lineage Bluebird Debtco, LLC, the company’s prepetition revolving agent, Darden Direct Distribution, and other parties entered into a foreclosure agreement and “accepted certain of the Revolving Collateral in partial satisfaction of the Revolving Obligations [totaling approximately $10.329 million as of the petition date], allowed the Debtors to retain certain assets including cash, and consented to the Debtors’ use of Cash Collateral.” Additionally, prior to the petition date, Huron Real Estate Associates, LLC, a non-debtor entity, entered into a term credit agreement with PNC Bank as term agent secured by a first-priority security interest in the term collateral (which belongs to non-debtor Huron) and a second-priority security interest in the revolving collateral, of which the debtors (aside from debtor Maines Paper & Good Service - Maryland, Inc.) are guarantors.

Pursuant to an intercreditor agreement between Lineage, the revolving agent, as senior agent, and PNC as subordinated agent, PNC agreed that its liens against the revolving collateral are junior to the liens of the Lineage and not to object to the debtors’ use of cash collateral approved by Lineage, as long as there remains a revolving obligation.

The debtors, other than debtor Maines Paper & Good Service - Maryland, Inc., entered into a prepetition secured promissory note with Darden in the original aggregate principal amount of $10 million, which provided a third-priority security interest in the revolving collateral and a second-priority security interest in the term collateral, except for certain real property.

Pursuant to a subordination agreement between PNC as term agent and predecessor revolving agent and Darden as subordinated lender, Darden agreed that its liens against the prepetition collateral are junior to the liens of Lineage and PNC and not to object to the debtors’ use of cash collateral approved by the Lineage and PNC, as long as there remains a revolving obligation.

The company states that pursuant to the foreclosure agreement, Lineage consented to the debtors’ use of cash collateral for general corporate purposes, including the payment of administrative expenses. Lineage agreed “not to request or to require adequate protection in consideration of such consent.” Pursuant to the intercreditor and subordination agreements, PNC and Darden are “deemed to consent to the Debtors’ proposed use of Cash Collateral.”

In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its revolving collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).

The carveout for professional fees is up to $250,000 for allowed professional fees.

The budget is HERE.

The use of cash collateral is subject to the following milestones:
 
  • Final cash collateral order: Entered within 35 days of the petition date;
  • Plan confirmation order: Entered within 90 days of the petition date; and
  • Consummation of plan: Entered within 105 days of the petition date.

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. 20-11502.
  • Motion to reject unexpired leases and executory contracts
    • The company seeks authority to reject certain unexpired leases and executory contracts, including vehicle leases, service contracts and utilities, and to abandon certain furniture, machinery, equipment, fixtures, or other personal property that may be located in the leased premises. The company states that it has ceased business operations and has “no need for the Leases and Contracts that previously supported their businesses.”
  • Motion to pay claims arising under the Perishable Agricultural Commodities Act
    • The company seeks authority to pay claims arising under PACA to those vendors who supplied fresh fruits and vegetables prior to Lineage Bluebird Debtco foreclosing upon the company’s assets. As of the petition date, the company estimates that they owe no more than $750,000 in the aggregate for PACA goods delivered prepetition.
  • Motion to use cash management system
    • The company had a total of 19 prepetition bank accounts with PNC Bank, M&T Bank, Bank of America and Chase Bank, which included operating, funding and concentration accounts. As a result of Lineage’s foreclosure and in light of the company winding down, the company has begun closing those historical accounts and has opened two new accounts at Signature Bank to support their wind down operations and function as postpetition DIP accounts. The company is seeking authority to close the remaining historical accounts and to continue the current cash management system with Signature Bank.
  • Motion to pay taxes and fees
    • The company estimates that there is approximately $200,000 in unremitted sales and use taxes. The company anticipates to collect the funds from Lineage and to remit to the appropriate taxing authority.
  • Motion file consolidated list of creditors
  • Application to appoint Stretto as claims agent
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