First Day Declaration
DIP Financing Motion
First Day Hearing Agenda
, a Santa Monica, Calif.-based yoga class provider with studios in Atlanta, Baltimore, Boston, Houston, Los Angeles, Orange County, San Francisco and Washington, filed for chapter 11 protection on Wednesday night in the Bankruptcy Court for the District of Delaware, along with affiliate Yoga Works, Inc. Continue reading for the First Day by Reorg team's comprehensive case summary of the YogaWorks chapter 11 filing, and request a trial to access our coverage of thousands of other chapter 11 filings.
The case is premised on a restructuring support agreement dated Oct. 9 (a copy
of which is attached to the DIP motion) with (a) Serene Investment Management, LLC and its affiliates including Yogaworks Investment Fund, LLC, in its capacity as proposed DIP lender and stalking horse purchaser and (b) Great Hill Equity Partners V, LP as holder of 70% of the debtors’ equity. Pursuant to the RSA, Serene purchased the debtors’ prepetition secured debt from Great Hill on Oct. 14, with a portion of the purchase price being used to fund a $3.4 million DIP facility. The RSA contemplates the effectuation of a sale of substantially all of the debtors’ assets pursuant to a 363 sale to Serene, subject to higher and better bids pursuant to to bidding procedures to be agreed upon by the parties to the RSA and a restructuring through a liquidating chapter 11 plan of reorganization.
The RSA provides for Serene to provide total consideration of $4.15 million for the purchase of the $10 million of the debtors’ prepetition senior secured facility, of which $800,000 (less a $100,000 deposit) would be remitted to Great Hill and $3.35 million would be held by Serene to fund the DIP facility. The DIP facility bears no interest.
Similarly, in another recent case, Brooks Brothers
, the debtors obtained approval of DIP financing with 0% interest, from an entity owned by Authentic Brands and Simon Property Group, which ultimately purchased the company after serving as stalking horse.
The RSA also contemplates a 3% breakup fee. The RSA, the debtors say, is a “major step toward the Debtors’ intended chapter 11 liquidation plan.”
Serene’s stalking horse bid is for substantially all of the debtors’ assets, including the company brand and intellectual property. The debtors say that they intend to maintain current operations during the sale process of providing live streamed classes and through on-demand digital platforms - YogaWorks Live and My YogaWorks. “Their goal is to sell their digital businesses as a going concern, officially shut down all brick and mortar operations (subject to any successful overbidder desiring to keep certain studios open), sell any remaining unsold assets, and wind up their estates,” the debtors add.
In his first day declaration, YogaWorks CEO Brian Cooper says that the debtors will “shortly” file a bid procedures motion, proposing an auction in mid-November with a sale closing by the end of November given the debtors’ “severe liquidity crisis.” The sale process began more than three months ago through Guggenheim Securities and Force Ten Partners.
The first day hearing has been scheduled for Friday, Oct. 16, at 2:30 p.m. ET.
The company reports $1 million to $10 million in assets and $10 million to $50 million in liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Serene Investment Management, LLC: $10 million in principal
- Priority unsecured debt: $800,000 (taxes, wages and other debts “likely entitled to priority status”)
- General unsecured debt:
- Landlords: $5.4 million
- Trade vendors: $2 million
- Settlement claim based on wages: $1 million
- On Aug. 11, 2017, YogaWorks completed its initial public offering, “becoming the first yoga ‘chain’ to be publicly traded.” The company voluntarily de-listed from the NASDAQ in the beginning of 2020, but the shares were not cancelled. GHP owns about 70% of the common stock of YogaWorks and the other 30% is owned by employees and other private shareholders. A list of equityholders is HERE.
- Yoga Works, Inc. is a wholly owned subsidiary of YogaWorks, Inc..
The Serene facility is secured by a senior lien on substantially all of the debtors’ assets. The loan was originally issued by Avidbank. On Sept. 18, Great Hill purchased the facility through an assignment from Avidbank. On Oct. 14, the loan was purchased by Serene.
The debtors have approximately $100,000 in cash on hand, and say that substantially all of their assets are encumbered. The debtors project net cash needs of approximately $2.2 million in the first 13 weeks of the bankruptcy.
The company attributes the bankruptcy filing to: (i) growing pains associated with their expansion efforts, including an excessive focus on new acquisitions at the expense of existing studios, failure to focus on recurring revenue models and failure to property “integrate and unify” new studios; (ii) failed sale efforts in 2019; (iii) Covid-19’s derailment of a 2020 restructuring plan and (iv) the forced closure of all studios due to the pandemic. The debtors say that while some of the locations were allowed to reopen for a short period of time, “attendance was very low and the Debtors decided to close all of their studios indefinitely in September 2020.”
While the company quickly pivoted focus on their digital offerings and immediately developed a platform for teachers to teach from home, over 80% of its revenue was based on in-person studio classes, and the debtors could no longer afford to pay rent and other financial obligations. “With no reasonable options to address its needs out of court and with a declining cash position, the Debtors’ Board of Directors decided to prepare the Company for a potential bankruptcy proceeding,” the debtors say. On Oct. 5, the debtors’ board of directors formed a steering committee of independent directors with distress experience to oversee, manage and advise regarding preparation for a potential bankruptcy proceeding.
“Fortunately,” however, the debtors say that their quick development of a “robust and successful live streaming digital platform” allowed it to survive and find a buyer for substantially all of its assets.
The debtors are represented by Shulman Bastian Friedman & Bui as restructuring counsel, Cozen O’Connor as Delaware counsel and Force 10 Partners as financial advisor. BMC Group is the claims agent. The case has been assigned to Judge Karen B. Owens (case number 20-12599).
YogaWorks operates 60 yoga studios across the United States in Los Angeles, Orange County, Northern California, New York City, Boston, Baltimore, Houston, Atlanta and Washington. The company was founded in 1987 with one studio and continued expanding, at one point operating over 70 studios. The debtors have 205 employees.
Early on in the business, the founders developed a unique style and philosophy of yoga that is now known as the “YogaWorks yoga” style, a “vinyasa-based, carefully-instructed flow that observes a distinct approach to sequencing and breaks down the yoga poses with particular attention to detail.” The debtors say this style “strengthens the body with the use of traditional poses, invigorating vinyasa flows, twisting and balancing sequences, inversions, core engagement and restorative supine postures to slow down and reset.”
In addition to their studio footprint expansion, the debtors also expanded their business model to include an international teaching school for yoga instructors and in 2013 began to offer pre-recorded on-demand yoga videos and workshops through a new service called My YogaWorks Live.
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request approval of $3.35 million in DIP financing ($1 million on an interim basis) from Serene and its affiliates, including Yogaworks Investment Fund, LLC. Upon entry of the final order, $1.2 million would be distributed to the debtors and $1.15 million would be a plan funding advance to be held in an escrow account pending plan confirmation.
The DIP facility bears no interest and is not subject to any fees.
If the DIP lender is not the successful purchaser of the debtors’ assets, then the loan matures on the earlier of closing of a sale to another purchaser, effective date of a chapter 11 plan, conversion of the case to chapter 7, dismissal of the cases or termination or acceleration of the DIP facility.
To secure the DIP financing, the debtors propose grant a priming lien on unencumbered property and a junior lien on encumbered property. The loan would also have superpriority administrative expense status.
The debtors request the use of the cash collateral of Serene, proposing adequate protection in the form of replacement liens. In addition, subject to the final order, 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).
The carveout for professional fees is $50,000.
The proposed budget for the use of the DIP facility is HERE
The DIP financing is subject to the following milestones:
- Sale motion: Filed within five days of petition date
- Interim DIP order: Entered within five days of petition date
- Bid procedures order: Entered within 30 days of petition date
- Final DIP order: Entered within 30 days of petition date
- Sale order: Entered within 60 days of petition date
- Plan / disclosure statement: Filed within 15 days after entry of sale order
- DS order: Entered within 60 days after entry of sale order
- Plan confirmation order: Entered within 90 days after entry of sale order
- Plan effective date: Within 100 days of entry of sale order
The lien challenge deadline is 45 days from formation for an official committee of unsecured creditors or 60 days from entry of the interim order for other parties. The UCC investigation budget is $25,000.
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. 20-12599.
- Motion to pay employee wages and benefits
- The debtors seek to pay approximately $629,993 in employee obligations, including $259,532 for employee compensation and $335,281 for employee vacation and sick leave obligations. The debtors are also seeking to honor the prepetition check made to Robert Settembro in the amount of $15,890 and propose a cap of $650,000 for health benefits, 401(k) obligations, the FSA plan and workers compensation obligations. Additionally, the debtors owe approximately $650,000 in deferred employer payroll taxes and previous employee withholdings, but they do not expect these amounts to be due until early 2021 and are not seeking the authority to pay them at this time.
- Motion to reject unexpired leases
- The debtors seek to reject the unexpired leases for the studio locations listed HERE. The debtors state that the rejection of the leases will reduce operating costs by over $850,000 per month and the leases are unlikely to generate value for their estate in the future. Additionally, the proposed sale to the stalking horse bidder does not include a transfer of these burdensome leases.
- Motion to use cash management system
- The company has bank accounts with Wells Fargo Bank.
- Motion to continue customer programs
- The debtors seek authority to honor approximately $786,776 of outstanding gift card liability. The debtors estimate they owe approximately $5,296 in charitable donations.
- Motion to file consolidated creditors lists
- Application to appoint BMC Group as claims agent