iPic-Gold Class Entertainment, LLC
CASE SUMMARY (Middle Market): iPic Seeks 90-Day Restructuring Process for Luxury Combined Movie Theater/Dining Business As Cheaper Competition Slows Growth
Mon 08/05/2019 14:10 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
iPic-Gold Class Entertainment, LLC, a Boca Raton, Fla.-based publicly-traded combined movie theater and restaurant company with 16 locations in 9 states that provide a “luxurious movie-going experience at an affordable price,” filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, reporting $100 million to $500 million in both assets and liabilities. The company trades on the Nasdaq under the ticker IPIC. After achieving “double-digit” growth with a unique offering and market position, rising competition from theaters in their operating areas that made upgrades to offer similar amenities as the debtors at a lower price point, iPic’s growth slowed. The debtors say that they believe, however, that their underlying business model remains strong, “bolstered by positive guest experience and loyalty.” To that end, the debtors have reached an agreement with their secured lenders on a budget to provide for a “90-day sale to market and either sell or recapitalize the Company pursuant to a restructuring transaction,” through PJ Solomon as investment banker.
With the assistance of their proposed advisors, the debtors say that they intend to continue their postpetition marketing efforts with prospective purchasers and hopefully structure a recapitalization through a plan or sale. The debtors intend to seek approval of bidding procedures that will facilitate PJ Solomon’s efforts to identify a purchaser or plan proponent to complete the restructuring. Concurrent with the sale process, the debtors say that they intend to continue operating in accordance with terms of an agreed budget with The Teachers’ Retirement System of Alabama, or TRSA, and the Employees’ Retirement System of Alabama, or ERSA, the debtors’ primary prepetition secured lenders, who have also agreed to provide $16 million in revolving DIP financing, with no proposed rollup. The DIP motion contemplates the ability for lenders to credit bid both prepetition and DIP amounts.
The first day hearing has been scheduled for Tuesday, August 6, at 2 p.m. ET.
The company reports $158.7 million in assets and $277.9 million in liabilities as of the year ended Dec. 31, 2018. The company’s prepetition capital structure includes:
The secured facility is secured by substantially all of the debtors’ assets and matures on Sept. 29, 2023.
The debtors say they faced competitive challenges after previously operating “the only theaters in the market” with both “Premium” - offering reserved luxury seating with a small table - and “Premium Plus” seats - offering leather recliners with pillows and blankets and waiter service. After recording double digit same store sales growth, other theaters “took notice” and began remodeling their theaters to add certain of the amenities offered at debtors’ theaters. Competing theaters with reclining seats at a lower consumer price point “proved to be a challenge, especially compared to the Premium seats in the Debtors’ theaters, which did not recline or include tableside service,” leading to slowed anticipated same store sales growth. The company also faced rising construction costs for new locations. Further, though demand for shares following iPic’s 2018 IPO was “strong,” institutional investors could not fund their commitment to the offering, with the total capital raised of $17 million “not sufficient to fund continuing development.” iPic also says that the motion picture and restaurant industry are both “highly competitive and fragmented with no significant barriers to entry.”
The debtors are represented by Pachulski Stang Ziehl & Jones as counsel and Aurora Management Partners as financial advisor. PJ Solomon is the debtors' investment banker. Stretto is the claims agent. The case has been assigned to Judge Laurie Selber Silverstein (case no. 19-11739).
Background
iPic claims it provides high-quality, chef-driven culinary and mixology offerings in unique destinations that include premium movie theaters, restaurants and lounges. The debtors offer several different and distinct restaurant brands at their theater locations through debtor Tuck Hospitality Group, which is the restaurant division of iPic Entertainment. The company also offers two tiers of luxury leather seating in their theaters: “Premium Chaise lounge,” which provides reserved luxury seating with a small table, and “Premium Plus seating,” which includes leather recliners with pillows and blankets with access to waiter service. To date, the debtors have built 16 of their planned 20 to 25 locations. The debtors have approximately 2,000 employees.
The debtors’ predecessor, Gold Class Cinemas, was founded in 2006 and was owned by Village Roadshow Gold Class Cinemas in partnership with the Norman Lear Group. From 2007 to 2010, Gold Class Cinemas opened and operated six theaters nationwide. Separately, Hamid Hashemi founded iPic Holdings LLC and certain affiliates in 2006 and opened one location by 2010. iPic Entertainment Inc., which is now the ultimate parent company of the debtors, was formed in 2017 for the purpose of completing an initial public offering, which occurred in 2018, and pursuant to which iPic Entertainment Inc. became a publicly traded company. For the year ended Dec. 31, 2018, the company reported net losses before income tax of $56.77 million, a net cash balance of $6.03 million and store-level EBITDA of $15.06 million.
The debtors’ restaurant concepts include: (1) The Tuck Room, a “drinking and dining den” with locations in North Miami Beach, Fla., Fulton Market, N,Y., and Houston; (2) The Tuck Room Tavern, which serves “Craveable American Cuisine” in Westwood, Calif.; (3) Tanzy Restaurant, modern Italian dining with locations in Boca Raton, Fla, and Scottsdale, Ariz; and (4) City Perch Kitchen + Bar, seasonal American dining using locally sourced ingredients with locations in Bethesda, Md., Fort Lee, N.J., and Dobbs Ferry, N.Y. In addition to their restaurant service, the debtors provide customers with their iPic Express menu, which is a chef-driven menu from in-house and guest chefs prepared to order.
iPic’s theater locations consist of three different formats: (1) “Generation I locations,” which were built between 2007 and 2010 and have no separate restaurant attached and offer no dining options; (2) “Generation II locations,” which feature the debtors’ Tuck Hospitality Group restaurants and iPic Express in-theater dining and expand the quality and quantity of premium auditorium sections; and (3) “Generation III locations,” which are the latest four locations and represent the “go-forward design for future theaters,” offering a “perfected” auditorium layout consisting of six to eight screens, 500 seats and “predominately if not all Premium Plus POD seating where every 2 seats is encapsulated in a pod.” The debtors also have five remodeled theaters, four of which were upgraded from generation I locations to offer exclusively premium plus seating, and one of which was upgraded from generation II to offer “predominately” premium plus pod seating.
In 2018, generation I locations averaged approximately $4.5 million in revenue (about $0.6 million per screen), generation II locations averaged approximately $12.6 million in revenue (about $1.7 million per screen) and generation III locations averaged approximately $13.6 million of revenue (about $1.7 million per screen). The remodeled locations averaged approximately $6.7 million in revenue in 2018 (about $0.9 million per screen) including “significant” screen closure periods during the 10-12 week remodeling projects.
In addition to the debtors’ operational issues, the company notes its dual-position in both the motion picture industry and restaurant industry. The U.S. motion picture industry has been subject to periodic short-term increases and decreases in attendance and box office revenues and is cyclical, the debtors say, adding that their theaters are subject to varying degrees of competition in the geographic areas in which they operate. For example, The Verge reported in January 2018 that movie theater attendance was at a 25-year low in 2017. The company also stresses that moviegoers “are not as brand conscious as other types of consumers and often choose a theater based on its location, the films showing there, showtimes and theater amenities.” Like the motion picture industry, the debtors compete with numerous forms of restaurants, several of which have operated for longer periods of time and have established more of a market presence, better locations and a greater national name recognition.
The debtors’ corporate organizational structure is as follows:
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The DIP financing motion contemplates a $16 million superpriority secured revolving credit facility from the prepetition lenders, of which $10.5 million would be available on an interim basis. The facility would bear interest at 10.5% per annum, plus a 2% default rate, with accruing interest payable monthly and no amortization, and would mature 90 days after the petition date (the deadline for closing of a sale of the debtors’ assets). The debtors would pay the DIP lenders a 2% commitment fee upon interim approval. The proceeds would be used for “general working capital and liquidity purposes, including the payment of Administrative Expenses” in the bankruptcy case.
To secure the DIP financing, the debtors propose to grant first priority and priming liens on all of each debtor’s prepetition and postpetition real and personal property, with liens attaching to avoidance actions and proceeds upon final approval.
The DIP facility does not contemplate a rollup of prepetition indebtedness. The DIP facility does provide that the prepetition lenders “shall each have the right to credit bid, individually or on a combined basis, up to the full amount of the applicable outstanding DIP Obligations and Pre-Petition Debt” at any sale of the debtors’ assets.
According to the motion, the debtors require the proposed DIP facility because they “do not have sufficient available resources of working capital to operate their businesses in the ordinary course without postpetition financing,” and the debtors’ “ability to maintain business relationships with vendors and customers, to pay employees, and otherwise to fund operations is essential to the Debtors’ viability and to the preservation of the going concern value of their business pending a sale of their assets or other restructuring.”
Adequate Protection
The debtors seek to provide the prepetition lenders with adequate protection liens and superpriority claims junior to the DIP liens for any diminution in the value of their prepetition collateral during the cases. The debtors would also pay the prepetition and postpetition professional fees and expenses of the prepetition lenders.
In addition, the debtors would agree to typical stipulations regarding the amount, extent, validity and priority of the prepetition lenders’ claims and liens, subject to a 60 day committee challenge period (if a committee is appointed) and a 75 day challenge period for other parties in interest. The debtors propose a $25,000 lien investigation budget. Further, upon final approval the debtors would waive the estates’ right to seek to surcharge the prepetition lenders’ 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 $250,000 after an event of default.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
The DIP facility provides that a net cash flow variance of 10% over a four week reporting period would qualify as an event of default.
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
Press Release
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
| Summary |
| iPic is a publicly traded owner and operator of luxury movie theaters that include various dining options, including in-theater waiter service (Nasdaq: IPIC) |
| Attributes bankruptcy to increased competition from competitors with lower price points |
| Seeks to run 90-day sale process to market and sell or recapitalize through a restructuring led by PJ Solomon as investment banker |
| Seeks $16 million in new money DIP financing being provided by prepetition secured lenders |
With the assistance of their proposed advisors, the debtors say that they intend to continue their postpetition marketing efforts with prospective purchasers and hopefully structure a recapitalization through a plan or sale. The debtors intend to seek approval of bidding procedures that will facilitate PJ Solomon’s efforts to identify a purchaser or plan proponent to complete the restructuring. Concurrent with the sale process, the debtors say that they intend to continue operating in accordance with terms of an agreed budget with The Teachers’ Retirement System of Alabama, or TRSA, and the Employees’ Retirement System of Alabama, or ERSA, the debtors’ primary prepetition secured lenders, who have also agreed to provide $16 million in revolving DIP financing, with no proposed rollup. The DIP motion contemplates the ability for lenders to credit bid both prepetition and DIP amounts.
The first day hearing has been scheduled for Tuesday, August 6, at 2 p.m. ET.
The company reports $158.7 million in assets and $277.9 million in liabilities as of the year ended Dec. 31, 2018. The company’s prepetition capital structure includes:
- Secured debt: Teachers’ Retirement System of Alabama and The Employees’ Retirement System of Alabama: $205 million in principal outstanding
- Unsecured debt (vendors, suppliers and other unsecured trade creditors): $13 million to $15 million
- Equity: iPic Entertainment, the ultimate parent company of the debtors, is currently traded on the NASDAQ under the symbol “IPIC.” Village Roadshow Attractions USA, Inc. (24.1634%) and prepetition secured lenders TRSA (16.189%) and ERSA (7.974%) are the largest holders of Class A common stock. The largest holders of Class B common stock include Hashemi Holdings LLC (15.78%) (which is affiliated with the debtors’ CEO); Regal/ATOM Holdings LLC (6.88%); and the Messina Living Trust (4.11%).
The secured facility is secured by substantially all of the debtors’ assets and matures on Sept. 29, 2023.
The debtors say they faced competitive challenges after previously operating “the only theaters in the market” with both “Premium” - offering reserved luxury seating with a small table - and “Premium Plus” seats - offering leather recliners with pillows and blankets and waiter service. After recording double digit same store sales growth, other theaters “took notice” and began remodeling their theaters to add certain of the amenities offered at debtors’ theaters. Competing theaters with reclining seats at a lower consumer price point “proved to be a challenge, especially compared to the Premium seats in the Debtors’ theaters, which did not recline or include tableside service,” leading to slowed anticipated same store sales growth. The company also faced rising construction costs for new locations. Further, though demand for shares following iPic’s 2018 IPO was “strong,” institutional investors could not fund their commitment to the offering, with the total capital raised of $17 million “not sufficient to fund continuing development.” iPic also says that the motion picture and restaurant industry are both “highly competitive and fragmented with no significant barriers to entry.”
The debtors are represented by Pachulski Stang Ziehl & Jones as counsel and Aurora Management Partners as financial advisor. PJ Solomon is the debtors' investment banker. Stretto is the claims agent. The case has been assigned to Judge Laurie Selber Silverstein (case no. 19-11739).
Background
iPic claims it provides high-quality, chef-driven culinary and mixology offerings in unique destinations that include premium movie theaters, restaurants and lounges. The debtors offer several different and distinct restaurant brands at their theater locations through debtor Tuck Hospitality Group, which is the restaurant division of iPic Entertainment. The company also offers two tiers of luxury leather seating in their theaters: “Premium Chaise lounge,” which provides reserved luxury seating with a small table, and “Premium Plus seating,” which includes leather recliners with pillows and blankets with access to waiter service. To date, the debtors have built 16 of their planned 20 to 25 locations. The debtors have approximately 2,000 employees.
The debtors’ predecessor, Gold Class Cinemas, was founded in 2006 and was owned by Village Roadshow Gold Class Cinemas in partnership with the Norman Lear Group. From 2007 to 2010, Gold Class Cinemas opened and operated six theaters nationwide. Separately, Hamid Hashemi founded iPic Holdings LLC and certain affiliates in 2006 and opened one location by 2010. iPic Entertainment Inc., which is now the ultimate parent company of the debtors, was formed in 2017 for the purpose of completing an initial public offering, which occurred in 2018, and pursuant to which iPic Entertainment Inc. became a publicly traded company. For the year ended Dec. 31, 2018, the company reported net losses before income tax of $56.77 million, a net cash balance of $6.03 million and store-level EBITDA of $15.06 million.
The debtors’ restaurant concepts include: (1) The Tuck Room, a “drinking and dining den” with locations in North Miami Beach, Fla., Fulton Market, N,Y., and Houston; (2) The Tuck Room Tavern, which serves “Craveable American Cuisine” in Westwood, Calif.; (3) Tanzy Restaurant, modern Italian dining with locations in Boca Raton, Fla, and Scottsdale, Ariz; and (4) City Perch Kitchen + Bar, seasonal American dining using locally sourced ingredients with locations in Bethesda, Md., Fort Lee, N.J., and Dobbs Ferry, N.Y. In addition to their restaurant service, the debtors provide customers with their iPic Express menu, which is a chef-driven menu from in-house and guest chefs prepared to order.
iPic’s theater locations consist of three different formats: (1) “Generation I locations,” which were built between 2007 and 2010 and have no separate restaurant attached and offer no dining options; (2) “Generation II locations,” which feature the debtors’ Tuck Hospitality Group restaurants and iPic Express in-theater dining and expand the quality and quantity of premium auditorium sections; and (3) “Generation III locations,” which are the latest four locations and represent the “go-forward design for future theaters,” offering a “perfected” auditorium layout consisting of six to eight screens, 500 seats and “predominately if not all Premium Plus POD seating where every 2 seats is encapsulated in a pod.” The debtors also have five remodeled theaters, four of which were upgraded from generation I locations to offer exclusively premium plus seating, and one of which was upgraded from generation II to offer “predominately” premium plus pod seating.
In 2018, generation I locations averaged approximately $4.5 million in revenue (about $0.6 million per screen), generation II locations averaged approximately $12.6 million in revenue (about $1.7 million per screen) and generation III locations averaged approximately $13.6 million of revenue (about $1.7 million per screen). The remodeled locations averaged approximately $6.7 million in revenue in 2018 (about $0.9 million per screen) including “significant” screen closure periods during the 10-12 week remodeling projects.
In addition to the debtors’ operational issues, the company notes its dual-position in both the motion picture industry and restaurant industry. The U.S. motion picture industry has been subject to periodic short-term increases and decreases in attendance and box office revenues and is cyclical, the debtors say, adding that their theaters are subject to varying degrees of competition in the geographic areas in which they operate. For example, The Verge reported in January 2018 that movie theater attendance was at a 25-year low in 2017. The company also stresses that moviegoers “are not as brand conscious as other types of consumers and often choose a theater based on its location, the films showing there, showtimes and theater amenities.” Like the motion picture industry, the debtors compete with numerous forms of restaurants, several of which have operated for longer periods of time and have established more of a market presence, better locations and a greater national name recognition.
The debtors’ corporate organizational structure is as follows:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Yetter Coleman | Houston | Professional Services |
$ 2,839,357 |
| Class Action Claimants | Camarillo, CA | Settlement | 1,500,000 |
| Walt Disney Studio Pictures | Burbank, CA | Trade Debt | 1,339,549 |
| Superl Sequoia Limited | Hong Kong | Trade Debt | 911,595 |
| Sysco | Houston | Trade Debt | 798,457 |
| Sony Pictures | Dallas | Trade Debt | 688,723 |
| TDC Fort Lee | Fort Lee, NJ | Rent | 354,366 |
| Ecostruction | Miami | Trade Debt | 320,614 |
| River Town Square Regency |
Westport, CT | Trade Debt | 302,672 |
| Hodges & Associates | Dallas | Professional Services |
292,831 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Jeffrey N. Pomerantz | Pachulski Stang Ziehl & Jones |
Wilmington, DE |
| Debra I. Grassgreen | |||
| Peter J. Keane | |||
| Debtors' Financial Advisor | N/A | Aurora Management Partners |
N/A |
| Debtors' Investment Banker | N/A | PJ Solomon | N/A |
| Counsel to the Prepetition Agent and DIP Lenders |
Richard A. Robinson | Burr & Forman |
Birmingham, AL |
| J. Cory Falgowski | |||
| Derek F. Meek | |||
| Jeff Baker | |||
| Debtors' Claims Agent | Sheryl R. Betance | Stretto | Irvine, CA |
DIP Financing Motion
The DIP financing motion contemplates a $16 million superpriority secured revolving credit facility from the prepetition lenders, of which $10.5 million would be available on an interim basis. The facility would bear interest at 10.5% per annum, plus a 2% default rate, with accruing interest payable monthly and no amortization, and would mature 90 days after the petition date (the deadline for closing of a sale of the debtors’ assets). The debtors would pay the DIP lenders a 2% commitment fee upon interim approval. The proceeds would be used for “general working capital and liquidity purposes, including the payment of Administrative Expenses” in the bankruptcy case.
To secure the DIP financing, the debtors propose to grant first priority and priming liens on all of each debtor’s prepetition and postpetition real and personal property, with liens attaching to avoidance actions and proceeds upon final approval.
The DIP facility does not contemplate a rollup of prepetition indebtedness. The DIP facility does provide that the prepetition lenders “shall each have the right to credit bid, individually or on a combined basis, up to the full amount of the applicable outstanding DIP Obligations and Pre-Petition Debt” at any sale of the debtors’ assets.
According to the motion, the debtors require the proposed DIP facility because they “do not have sufficient available resources of working capital to operate their businesses in the ordinary course without postpetition financing,” and the debtors’ “ability to maintain business relationships with vendors and customers, to pay employees, and otherwise to fund operations is essential to the Debtors’ viability and to the preservation of the going concern value of their business pending a sale of their assets or other restructuring.”
Adequate Protection
The debtors seek to provide the prepetition lenders with adequate protection liens and superpriority claims junior to the DIP liens for any diminution in the value of their prepetition collateral during the cases. The debtors would also pay the prepetition and postpetition professional fees and expenses of the prepetition lenders.
In addition, the debtors would agree to typical stipulations regarding the amount, extent, validity and priority of the prepetition lenders’ claims and liens, subject to a 60 day committee challenge period (if a committee is appointed) and a 75 day challenge period for other parties in interest. The debtors propose a $25,000 lien investigation budget. Further, upon final approval the debtors would waive the estates’ right to seek to surcharge the prepetition lenders’ 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 $250,000 after an event of default.
DIP Budget
The proposed budget for the use of the DIP facility is HERE.
The DIP facility provides that a net cash flow variance of 10% over a four week reporting period would qualify as an event of default.
DIP Milestones
The DIP financing is subject to the following milestones:
- 30 days after interim DIP order: Order approving bid procedures
- Oct. 11: Bid deadline
- Oct. 17: Auction
- Oct. 25: Sale approval
- Nov. 3 (90 days after the petition date): Sale closing
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. 19-11739.
- Motion to Pay Critical Vendors
- The debtors seek emergency authority to pay up to $3.15 million in prepetition claims of movie distributors and other vendors and service providers.
- According to the debtors, “[e]ven though movie distributors that are Critical Vendors generally operate under formal master agreements, such distributors retain substantial discretion with respect to the distribution of individual titles and there is a significant risk that the flow of new movie titles to the Debtors could be interrupted in the event of non-payment of distributors’ prepetition payables.”
- Motion to Pay PACA/PASA Claims
- The debtors seek emergency authority to pay up to $1.35 million in prepetition claims for delivery of meat, poultry, fresh fruits and vegetables qualifying as “perishable agricultural commodit[ies].”
- Motion to Pay Employee Wages and Benefits
- The debtors seek emergency authority to pay prepetition employee compensation and benefits up to the following amounts:
- Motion to Use Cash Management System
- The debtors’ cash management system currently consists of six active accounts with JP Morgan Chase Bank, including a controlled disbursement account, payroll account, concentration account, vault account for cash receipts, legacy account, and iPic Media LLC account for gift card and sponsorship sales.
- Motion to Maintain Insurance Programs
- Motion to Honor Customer Programs
- According to the motion, the debtors have approximately $1.97 million worth of gift cards outstanding as of the petition date.
- Motion to Pay Taxes and Fees
- The debtors seek emergency authority to pay up to $2 million in prepetition taxes and fees, including the following:
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