NewAge Inc.
CASE SUMMARY: NewAge to Run Sale Process With Independent Sales Rep to Serve as Stalking Horse, DIP Lender
Wed 08/31/2022 17:10 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
NewAge Inc., a Midvale, Utah-based developer, seller and distributor of health and nutritional products sold mostly through a sales network of brand partners, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, setting up a going-concern sale process for substantially all of their assets. John Wadsworth, who has worked as an independent sales representative of the company since 1998, has agreed to serve as stalking horse and DIP lender through DIP Financing LLC, of which he is a principal. Wadsworth owns less than 0.4% of the outstanding shares of NA Inc. and has never been a director or officer of the debtors, according to the first day declaration. The DIP financing would be in the amount of $16 million, and the stalking horse has also agreed to purchase the debtors’ $12 million East West Bank, or EWB, credit facility, with the stalking horse bid designed as a credit bid of the full amount of the DIP and EWB facilities.
The first day hearing has been scheduled for tomorrow, Thursday, Sept. 1, at 3 p.m. ET.
The company reports $310.9 million in assets and $149.4 million in liabilities as of Dec. 31, 2021. The company’s prepetition capital structure includes:
The debtors are represented by Greenberg Traurig as counsel and SierraConstellation Partners as financial advisor. Lawrence Perkins of SierraConstellation Partners is the chief restructuring officer. The case has been assigned to Judge Laurie Selber Silverstein (case No. 22-10819).
Events Leading to the Bankruptcy Filing
The company attributes the bankruptcy filing to the Covid-19 pandemic, supply-chain issues, and problems integrating the company’s two primary lines of business, “Morinda” and “Ariix.” NewAge also points to a challenging regulatory environment in China, which accounts for about 20% of the company’s business.
After NewAge acquired Ariix in 2020, the debtors conducted an independent investigation of international business practices and identified potential violations of the Foreign Corrupt Practices Act, leading to a voluntary self-disclosure in August 2021 to the Department of Justice and Securities Exchange Commission. Though the debtors have yet to be subject to any penalties or fines, the investigation and cooperating with the government have led to “significant” expenses and management changes.
Background
The debtors, along with nondebtor affiliates, develop, sell and distribute health and nutritional products, through a direct sales distribution network across more than 50 countries, primarily in North America, Japan, China and Europe. The company uses more than 400,000 brand partners and sells by e-commerce and through stores. The company’s largest brand is Tahitian Noni, which makes products designed for the purpose of “reducing inflammation and strengthening the body’s protection against viruses, primarily through a consumable beverage derived from the Noni plant, an antioxidant-rich, natural resource found in French Polynesia.” The company’s brands include Lucim, TruAge, Slenderiiz, Nutrifii, and Zennoa.
The company’s corporate organizational structure is HERE.
The debtors’ largest unsecured creditors are listed below:
The case representatives are as follows:
DIP Financing Motion
The debtors request approval of $16 million in DIP financing ($9 million on an interim basis) in the form of a multidraw term loan from DIP Financing LLC, whose principal is Wadsworth. New Age is the DIP borrower, with the remaining debtors as guarantors. The debtors also request the use of cash collateral other than cash held in the debtors accounts with East West Bank (China) Ltd., to which the DIP lender has consented. The prepetition credit facility requires maintenance of the equivalent of at least $13.2 million.
The DIP financing bears interest at 11.5%, with 2% added for the default rate, and matures on the earliest of 90 days after the petition date, the effective date of a plan, closing of a sale, and other customary events.
According to the motion, the DIP lender will “in effect” be priming itself, as the only liens to be primed are those under the existing secured credit facility, which the DIP lender holds as assignee. The debtors propose a lien on avoidance action proceeds subject to the final order.
The facility includes a 2% funding fee.
In support of the proposed DIP financing, the debtors filed the declaration of Jay Weinberger of Houlihan Lokey, who states that the “current outcome (i.e., the Debtors’ engagement with the DIP Lender, as assignee of the Prepetition Credit Facility)” has the benefit of “allowing the Debtors to avoid a costly and distracting fight over potential priming and adequate protection.”
The company proposes as adequate protection to the preposition secured lender “an amount equal to the aggregate diminution in value of the Prepetition Lender’s interests in the Prepetition Collateral from and after the Petition Date.” On account of the adequate protection claims, the proposed order provides for the debtors to maintain their Chinese accounts, over which the prepetition lender holds dominion. The debtors would also make interest payments as set forth in the budget.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).
The carve-out for professional fees consists of budgeted and approved amounts.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
The UCC lien investigation budget is $200,000.
Bid Procedures Motion
The debtors request approval of bid procedures for the sale of substantially all of their assets with Wadsworth’s vehicle, DIP Financing LLC, as the stalking horse for a credit bid of the prepetition EWB debt and DIP financing, with a payment of cash at closing of $16 million less the amount outstanding under the DIP facility. The stalking horse bid also includes the assumption of certain liabilities and payment of all cure costs.
The debtors propose a breakup fee of 2.5% and expense reimbursement up to $375,000. Initial and subsequent overbids are $50,000.
The debtors propose the following sale timeline (which is consistent with the DIP milestones):
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
| Summary |
| NewAge develops, sells and distributes health and nutritional products through a sales network of brand partners |
| Debtors seek to run going-concern sale process for substantially all assets, with a long-standing independent sales representative of the company to serve as stalking horse and DIP lender through DIP Financing LLC, an entity in which he is a principal |
| Case to be funded by $16 million in DIP financing |
NewAge Inc., a Midvale, Utah-based developer, seller and distributor of health and nutritional products sold mostly through a sales network of brand partners, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, setting up a going-concern sale process for substantially all of their assets. John Wadsworth, who has worked as an independent sales representative of the company since 1998, has agreed to serve as stalking horse and DIP lender through DIP Financing LLC, of which he is a principal. Wadsworth owns less than 0.4% of the outstanding shares of NA Inc. and has never been a director or officer of the debtors, according to the first day declaration. The DIP financing would be in the amount of $16 million, and the stalking horse has also agreed to purchase the debtors’ $12 million East West Bank, or EWB, credit facility, with the stalking horse bid designed as a credit bid of the full amount of the DIP and EWB facilities.
The first day hearing has been scheduled for tomorrow, Thursday, Sept. 1, at 3 p.m. ET.
The company reports $310.9 million in assets and $149.4 million in liabilities as of Dec. 31, 2021. The company’s prepetition capital structure includes:
- Secured debt:
- East West Bank revolving loan facility: $12 million.
- Unsecured debt (broken down by debtor below):
- NewAge Inc.: $1 million (notes payable, trade debt, lease liability).
- Morinda Holdings Inc.: $18 million (intercompany debt, employee liabilities, taxes).
- Morinda Inc., dba Noni by NewAge: $34 million (intercompany debt, accounts payable, commissions, employee liabilities).
- Ariix LLC: $235 million (intercompany debt, accounts payable and notes payable).
- Equity: NewAge is a public company that trades on the Nasdaq under the ticker symbol NBEV. Cooper Family Investments LP owns 7% of NA Inc., and no other parties own more than 5% of the stock.
The debtors are represented by Greenberg Traurig as counsel and SierraConstellation Partners as financial advisor. Lawrence Perkins of SierraConstellation Partners is the chief restructuring officer. The case has been assigned to Judge Laurie Selber Silverstein (case No. 22-10819).
Events Leading to the Bankruptcy Filing
The company attributes the bankruptcy filing to the Covid-19 pandemic, supply-chain issues, and problems integrating the company’s two primary lines of business, “Morinda” and “Ariix.” NewAge also points to a challenging regulatory environment in China, which accounts for about 20% of the company’s business.
After NewAge acquired Ariix in 2020, the debtors conducted an independent investigation of international business practices and identified potential violations of the Foreign Corrupt Practices Act, leading to a voluntary self-disclosure in August 2021 to the Department of Justice and Securities Exchange Commission. Though the debtors have yet to be subject to any penalties or fines, the investigation and cooperating with the government have led to “significant” expenses and management changes.
Background
The debtors, along with nondebtor affiliates, develop, sell and distribute health and nutritional products, through a direct sales distribution network across more than 50 countries, primarily in North America, Japan, China and Europe. The company uses more than 400,000 brand partners and sells by e-commerce and through stores. The company’s largest brand is Tahitian Noni, which makes products designed for the purpose of “reducing inflammation and strengthening the body’s protection against viruses, primarily through a consumable beverage derived from the Noni plant, an antioxidant-rich, natural resource found in French Polynesia.” The company’s brands include Lucim, TruAge, Slenderiiz, Nutrifii, and Zennoa.
The company’s corporate organizational structure is HERE.
The debtors’ largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| TCI Biotech LLC | American Fork, Utah | Trade | $ 2,503,155 |
| Zennoa LLC | Island Park, Idaho | Trade | 1,627,271 |
| Miller & Chevalier
Chartered Inc. |
Washington | Professional
Services |
1,429,838 |
| Deloitte & Touche LLP | Salt Lake City | Professional
Services |
1,317,128 |
| Internal Revenue Service | Philadelphia | Tax | 488,961 |
| SelectHealth | Murry, Utah | Health Benefits | 448,944 |
| Ernst & Young U.S. LLP | Chicago | Professional
Services |
283,957 |
| Mavie | Singapore | Trade | 270,623 |
| Barnes & Thornburg LLP | Salt Lake City | Professional
Services |
209,353 |
| 2420 17th St. LLC | Newport Beach, Calif. | Lease | 247,589
(208,849 unsecured) |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Dennis A. Meloro | Greenberg Traurig | Wilmington, Del. |
| Anthony W. Clark | |||
| Annette Jarvis | Salt Lake City | ||
| Michael F. Thomson | |||
| Carson Heninger | |||
| Peggy Hunt | |||
| Alison Elko Franklin | Atlanta | ||
| Debtors' Financial
Advisor |
Lawrence Perkins (CRO) | SierraConstellation
Partners |
Midvale, Utah |
| Carl Moore | |||
| Debtors' Investment
Banker |
Jay Weinberger | Houlihan Lokey | New York |
| David Cumming | |||
| Joe Ebb | |||
| Counsel to the DIP
Lender |
Steven M. Berman | Shumaker, Loop
& Kendrick |
Tampa, Fla. |
| Debtors' Claims
Agent |
Sheryl Betance | Stretto | Irvine, Calif. |
| U.S. Trustee | John Schanne | Office of the
U.S. Trustee |
Wilmington, Del. |
DIP Financing Motion
The debtors request approval of $16 million in DIP financing ($9 million on an interim basis) in the form of a multidraw term loan from DIP Financing LLC, whose principal is Wadsworth. New Age is the DIP borrower, with the remaining debtors as guarantors. The debtors also request the use of cash collateral other than cash held in the debtors accounts with East West Bank (China) Ltd., to which the DIP lender has consented. The prepetition credit facility requires maintenance of the equivalent of at least $13.2 million.
The DIP financing bears interest at 11.5%, with 2% added for the default rate, and matures on the earliest of 90 days after the petition date, the effective date of a plan, closing of a sale, and other customary events.
According to the motion, the DIP lender will “in effect” be priming itself, as the only liens to be primed are those under the existing secured credit facility, which the DIP lender holds as assignee. The debtors propose a lien on avoidance action proceeds subject to the final order.
The facility includes a 2% funding fee.
In support of the proposed DIP financing, the debtors filed the declaration of Jay Weinberger of Houlihan Lokey, who states that the “current outcome (i.e., the Debtors’ engagement with the DIP Lender, as assignee of the Prepetition Credit Facility)” has the benefit of “allowing the Debtors to avoid a costly and distracting fight over potential priming and adequate protection.”
The company proposes as adequate protection to the preposition secured lender “an amount equal to the aggregate diminution in value of the Prepetition Lender’s interests in the Prepetition Collateral from and after the Petition Date.” On account of the adequate protection claims, the proposed order provides for the debtors to maintain their Chinese accounts, over which the prepetition lender holds dominion. The debtors would also make interest payments as set forth in the budget.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c).
The carve-out for professional fees consists of budgeted and approved amounts.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Petition date: Aug. 30;
- Interim DIP order: Entered by Sept. 1;
- Bid procedures hearing / entry of bid procedures order: Sept. 20;
- Final DIP order: Entered by Sept. 29;
- Bid deadline: Oct. 4 (14 days after entry of bid procedures order);
- Auction: Oct. 5 (15 days after entry of bid procedures order);
- Sale hearing: Entered by Oct. 7 (17 days after entry of bid procedures order);
- Sale order: Entered by Oct. 10 (18 days after entry of bid procedures order); and
- Sale consummation: Within three days after entry of sale order (the bid procedures require a sale closing by Oct. 11).
The UCC lien investigation budget is $200,000.
Bid Procedures Motion
The debtors request approval of bid procedures for the sale of substantially all of their assets with Wadsworth’s vehicle, DIP Financing LLC, as the stalking horse for a credit bid of the prepetition EWB debt and DIP financing, with a payment of cash at closing of $16 million less the amount outstanding under the DIP facility. The stalking horse bid also includes the assumption of certain liabilities and payment of all cure costs.
The debtors propose a breakup fee of 2.5% and expense reimbursement up to $375,000. Initial and subsequent overbids are $50,000.
The debtors propose the following sale timeline (which is consistent with the DIP milestones):
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. 22-10819.
- Motion to establish trading procedures
- NewAge seeks to establish trading procedures for its common stock, to be able to object to and prevent transfers if necessary to preserve net operating losses. The debtors have about $138 million in NOLs plus other “valuable” tax attributes such as certain tax credits.
- Motion to pay employee wages and benefits
- The debtors have 320 employees, none of whom are unionized. On an interim basis, the debtors seek to pay up to $934,000 ($1.4 million on a final basis) for employee obligations, $35,000 ($50,000 on a final basis) to independent service providers, $34,200 for reimbursable expenses ($100,000 on final basis), and $54,000 ($107,000 on a final basis) for insurance obligations. In addition, the debtors seek to pay $436,000 on a final basis with respect to health benefits. The company also seeks authority to continue to pay amounts due under a non-insider severance program, which benefits total approximately $790,100 as of the petition date.
- Motion to use cash management system
- The company has bank accounts with HSBC, Wells Fargo, Bank of America, East West Bank, Utah Community Credit Union and Roth Capital Partners (money market account to be closed).
- The debtors’ weekly nondebtor outflows range from $15,000 to $500,000 to sales affiliates (nondebtor affiliates doing business in the place of residence of brand partners, who are a team of more than 400,000 non-employees that run a direct sales network), and “can be as low as only a few dollars” to brand partners.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors owe approximately $320,000 in taxes and fees as of the petition date.
- Motion to provide utilities with adequate assurance
- Motion to waive requirement to file equity lists and modifying the manner for giving notice to equity security holders, file a consolidated list of creditors and redact certain personally identifiable information for individual creditors and parties in interest
- Application to appoint Stretto as claims agent
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.