June First Month With 30 Cases Since April 2021

Chapter 11 Bankruptcy Filings Update from Reorg's First Day Team

June was the first month since April 2021 to record at least 30 cases (up from the 2022 monthly average of just 18.2) and the first month since March 2021 to tally at least 10 cases with more than $100 million in liabilities (up from the 2022 monthly average of just 3.2). Q2’s last week included a flurry of chapter 11s from from a diverse array of industries, with bedding retailer Corsicana filing to pursue a stalking horse bid amid a “slump” in the mattress industry; Madison Square Boys & Girls Club filing in the wake of Child Victims Act claims; mobile technology retailer Enjoy Technology, which IPO’d in 2021 through a SPAC process, seeking to sell its assets to Asurion as stalking horse, prepetition bridge lender and DIP lender; and First Guaranty Mortgage commencing a free-fall case citing a mortgage market collapse. In addition, raw food products trucking company Hardin Trucking Co. and food products manufacturer FSPH also filed this week.

For cases across all First Day liability ranges, the monthly tallies going back to January 2020 are shown below:

Restricting the dataset to only middle market-and-up chapter 11s, the monthly counts are as follows:

Corsicana Bedding, “one of the mattress industry’s largest manufacturers,” commenced its chapter 11 case “burdened” with more than $145 million of funded debt and declining performance. The company seeks to deleverage, reduce its lease footprint and run a going-concern sale process for substantially all of its assets with a stalking horse bid from prepetition term agent Blue Torch Finance LLC. The debtors filed the initial first day briefing on Saturday, submitting a motion to obtain $58 million of DIP financing across two facilities from Blue Torch and prepetition ABL agent Wingspire to fund the case and previewing the stalking horse bid. The company then filed its bid procedures motion on Wednesday. According to the motion, the stalking horse APA contemplates a purchase consideration of (i) a credit bid of $125 million of the debtors’ prepetition term loan obligations and DIP term loan obligations, (ii) cash in the amount of $200,000; (iii) the assumption of certain assumed liabilities and (iv) assumption or refinancing of the debtors’ obligations under the prepetition ABL facility as of the closing date.

The DIP financing package consists of a $40 million DIP revolver facility with prepetition ABL agent Wingspire Capital LLC as DIP agent and an $18 million DIP term loan facility from Blue Torch. On an interim basis, the debtors propose a rollup of the full amount of the prepetition ABL debt and a rollup of $3 million in June 7 prepetition term loan advances.

Judge Edward L. Morris approved all of the Corsicana debtors’ requested first day relief during a hearing on Monday (at which point the bid procedures motion had yet to file, including interim approval of DIP financing requested), including interim approval of $9.75 million of the term loan, along with a rollup in full of the prepetition ABL obligations and a rollup of $3 million of prepetition bridge loans.

Madison Square Boys & Girls Club Inc., a New York-based provider of educational, recreational and mentorship services with six clubhouses in the Bronx, Brooklyn and Harlem, filed for chapter 11 protection on Wednesday in Bankruptcy Court for the Southern District of New York, seeking to stay litigation of claims against the debtor under New York’s Child Victims Act, or CVA, and resolve them through mediation. The company settled with nine CVA claimants prepetition but says that it would be unable to address the remaining 140 CVA claimants outside of chapter 11. The company has filed mediation and suspension motions seeking orders compelling mediation with the CVA claimants by a bankruptcy judge for a period of 90 days and suspending most proceedings in the chapter 11 case while the mediation is ongoing. As of the petition date, the company has no secured or unsecured funded debt and reports having approximately $1.3 million in cash for restructuring and operating expenses, which is projected to be depleted by September. The company is in advanced discussions with a potential DIP financing source but does not have a commitment to date.

Enjoy Technology Inc., a Palo Alto, Calif.-based publicly traded mobile technology retailer pairing “the convenience of online shopping with the personal touch of an in-store retail experience in the comfort of the end consumers’ homes,” filed for chapter 11 protection on Thursday in Delaware, seeking to sell substantially all of its U.S. assets as a going concern to Asurion LLC as stalking horse. Due to the supply-chain crisis and an inability to retain sufficient personnel, the company faced logistic and manufacturing challenges beginning in 2021, including shortages in inventory, which led to the company initiating a prepetition marketing process. The company executed a letter of intent with a non-Asurion counterparty for an out-of-court transaction, but the counterparty withdrew its offer and the company pivoted to the Asurion 363 sale. Asurion provided the debtors with a small prepetition short-term bridge loan of $2.5 million and has agreed to fund a $55 million DIP facility, including $52.25 million of new money and an interim rollup of the prepetition bridge loan. The company reports approximately $523,000 of cash on hand.

Consumer discretionary filings in Q2 more than doubled their count in Q1, as shown in the chart below:

First Guaranty Mortgage Corp., a mortgage origination and lending company that entered chapter 11 as a result of an unanticipated mortgage market collapse, filed June 20 in the District of Delaware. Without a restructuring agreement and with “minimal cash on hand,” the debtors say they entered this free-fall chapter 11 to “evaluate their restructuring options,” “accommodate their customers” and “maximize and preserve value for all stakeholders.” The debtors filed for chapter 11 citing “significant operating losses” and “cash flow challenges” attributable to “unforeseen adverse market conditions for the mortgage lending industry, including unanticipated market volatility.” As a result, the debtors ceased all their origination activity and terminated nearly 80% of their workforce on June 24, after failing to procure additional financing to ease their liquidity crisis, according to the first day declaration of FGMC CEO Aaron Samples.

The company garnered commitments for two separate DIP facilities: (i) a cash flow DIP that would provide $22 million of new money, roll up certain prepetition bridge financing obligations, and provide certain mortgage loan funding amounts, payment for fees under the separate repo DIP facility, as well as amounts to fund a pipeline sale transaction; and (ii) a DIP repo facility of $125 million, a portion of which would be used to refinance certain prepetition bridge financing obligations.

DIP financing requests are on the rise as chapter 11 filings heat up across the board. Cases requesting DIP financing on a first day basis in June total 11, which is the same number recorded for the entire first quarter.

Below is a recap of the sale-related events for the week’s cases:



 

Case data, such as advisors and DIP financing terms, including for filings discussed above, can be found in the First Day Database, which includes all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.

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