Fri 07/15/2022 15:06 PM
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This week’s chapter 11 cases included a filing from asphalt construction company Premier Paving Ltd., extending 2022’s spike in industrials sector filings, stemming primarily from the construction subsector. The wave of cryptocurrency cases also continued this week, with a filing from Celsius Network, following filings earlier in July of the chapter 11 case of Voyager Digital and the chapter 15 of defunct cryptocurrency hedge fund Three Arrows Capital. Also this week, GenapSys, which has developed a “novel method” for DNA sequencing, filed to run a sale process after it stopped selling its DNA benchtop sequencer and offered refunds because of “inherent design flaws.”

Celsius Network, a cryptocurrency finance platform and lender that claims over 1.7 million users worldwide, filed chapter 11 to stabilize its business and consummate a “comprehensive restructuring transaction.” Without an RSA in hand, the company intends to fund postpetition operations using cash on hand, which “will provide ample liquidity to support certain operations during the restructuring process.” The company explained in a press release that it paused customer account withdrawals on June 12 because “without a pause, the acceleration of withdrawals would have allowed certain customers - those who were first to act - to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”

The company says its stabilization and restructuring pursuits would allow Celsius to “emerge from chapter 11 positioned for success in the cryptocurrency industry.” Celsius adds that as a result of the company’s asset-preservation strategies, it holds approximately $4.3 billion in assets and $780 million in “non-user liabilities” as of the petition date.

The debtors say that after “early success,” the “amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy,” causing the company to make “what, in hindsight, proved to be certain poor asset deployment decisions,” some of which the debtors say “took time to unwind” and “left the Company with disproportional liabilities when measured against the unprecedented market declines.” Despite the company’s efforts to unwind these asset deployments, “unfortunately, the damage was done,” the debtors say. In addition, the debtors face “other unanticipated losses,” including a private lender’s inability to return the company’s collateral when Celsius attempted to repay a loan in July 2021. According to the declaration, this resulted in the company holding an uncollateralized claim against its lender in the amount of about $509 million after setting off its own loan obligations.

Celsius is the year’s ninth chapter 11 involving more than $1 billion in liabilities and the month of July’s third. Out of the year’s nine, six have filed in the last 45 days:

Genomic sequencing company GenapSys filed in Delaware on Monday to run a sale process funded by $4 million in DIP financing from prepetition agent Oxford Finance. The company’s prepetition marketing process run through Lazard generated proposals from Farallon Capital Management and an unidentified purchaser, but Farallon’s proposal “came undone” because GenapSys’ founder and former CEO, Hesaam Esfandyarpour, allegedly attempted to thwart the deal. The unidentified bidder made a proposal just prior to the petition date, and the debtor is in negotiations with Oxford Finance and Farallon to act as stalking horse. Despite “proven technology” and interest from investors, the debtor faced litigation that affected liquidity, operations and its reputation. The debtor is defending a lawsuit that Foresite Capital Fund IV LP commenced asserting fraudulent inducement to purchase $50 million of GenapSys’ Series C preferred equity. In addition, Esfandyarpour filed two lawsuits against the debtor in the Chancery Court, seeking advancement of his legal fees and expenses from the Foresite action and, separately, a determination that the GenapSys board was improperly constituted and an order maintaining the status quo pending a trial. A Chancery Court ruling vacating a status quo order paved the way for the chapter 11 filing.

Marine Wholesale & Warehouse, which operates an Alcohol and Tobacco Tax and Trade Bureau, or TTB, bonded tobacco export warehouse and a U.S. Customs and Border Protection-bonded warehouse, filed its case on Tuesday in the Central District of California. The company filed for chapter 11 to resolve the claim of the TTB asserted as a secured claim in the amount of $25.2 million, which the debtor disputes. The case was filed because TTB was “taking actions that would ultimately terminate all of Debtor’s operations,” according to the debtor. The debtor says that the claim arises from a “single contested allegation” that the company’s former owner failed to timely report a 2012 transfer of shares in the company against TTB’s regulations. In particular, the family-owned business had been 100% owned by the Hartry family until 2012, when the late Robert Hartry, the company’s principal shareholder, transferred 15% of the company’s shares to non-family member Jerry Anderson. The debtor asserts that since the Hartry family continued to hold a controlling 85% of the shares, the change did not need to be reported.

In the 53-day period since May 23, when the pace of chapter 11 filings began picking up, the consumer discretionary, financials and healthcare sectors each recorded more chapter 11 filings than the 141-day period of Jan. 1 - May 22:

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


 




















Sales
GenapSys
GenapSys has developed a “novel method” for DNA sequencing.
Seeks to run a sale process.
Has yet to select a stalking horse or file bid procedures, but is negotiating with potential stalking horse bidders including Farallon Capital Management (which owns, directly or indirectly, approximately 71% of GenapSys’ Series D preferred equity and a Farallon-managed vehicle designed a member of GenapSys’ board) and prepetition and proposed DIP lender Oxford Finance.


Below is a recap of filing alerts and case summaries from this review period, all of which can also be found on the First Day website:


 

































































DEBTOR FILING ALERT CASE SUMMARY
Energy
Center Ethanol Co. 7/12 - E.D. Mo.
Financials
Celsius Network 7/13 - S.D. N.Y. CASE SUMMARY: Celsius Network Joins List of Crypto Chapter 11s; Intends to Use Bankruptcy to ‘Stabilize’ Business and Reorganize Through Asset Sale, 3rd-Party Investment; Will Use Internal Mining Ops to ‘Address Current Cryptocurrency Deficit’
Celsius Network Debtors File First Day Declaration of CEO Alex Mashinsky, Aim to Reorganize Funded by Asset Sales or Third Party Investment
Health Care
GenapSys 7/11 - Del. CASE SUMMARY: GenapSys to Run Sale Process; Negotiating With Potential Stalking Horse Bidders Including Farallon, Prepetition/Proposed DIP Agent Oxford Finance
Industrials
Marine Wholesale & Warehouse Co. 7/12 - C.D. Calif. Bonded Warehouse Operator Marine Wholesale and Warehouse Files Chapter 11 Amid Dispute With Alcohol and Tobacco Tax and Trade Bureau
Premier Paving 7/13 - N.D. Texas Asphalt Subcontractor Premier Paving Seeks to Reorganize; Attributes Chapter 11 Filing to ‘Cold Wet and Long Winter Season’
Materials
JT Shannon Lumber Co. 7/11 - N.D. Miss.
Real Estate
Platform II Lawndale 7/11 - N.D. Ill.


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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