Anagram Holdings
CASE SUMMARY: Party City’s Anagram Seeks Sale by Year-End, Ad Hoc Noteholder Group Serving as Stalking Horse Via $168M Credit Bid
Thu 11/09/2023 11:44 AM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
DIP Financing Motion
DIP Financing Declaration
Bidding Procedures Motion
First Day Hearing Agenda
Anagram Holdings LLC, an Eden Prairie, Minn.-based foil balloon business, and two affiliates filed chapter 11 cases on Wednesday, Nov. 8, in the U.S. Bankruptcy Court for the Southern District of Texas. The debtors are wholly owned subsidiaries of Party City Holdings Inc., which emerged in October from its own chapter 11 case in the Southern District of Texas.
Anagram operates independently from Party City, although the two entities have three intercompany contracts that Party City moved to reject in its bankruptcy. The debtors filed chapter 11 to pursue a sale of all assets after negotiations with an ad hoc group holding approximately 60% of the debtors’ first lien notes and more than 50% of the debtors’ second lien notes failed to result in a consensual path forward. Negotiations with other constituencies similarly stalled.
According to the first day declaration of Anagram Chief Restructuring Officer Adrian Frankum of Ankura Consulting, to fund the cases, the debtors have secured commitments from holders of almost 100% of the first lien notes and over 50% of the second lien notes for a $22 million new-money DIP notes facility, which is conditioned upon satisfaction of certain milestones. Additionally, the debtors’ prepetition ABL lender has agreed to allow the debtors to continue accessing their $15 million prepetition ABL facility, subject to certain modifications.
The DIP financing motion states that the DIP ABL facility would be rolled up “gradually” as the debtors pay it down with collections on receivables while continuing to borrow. Upon entry of the proposed interim DIP order, $10 million would become available under the DIP notes facility, with the remainder available upon entry of the final DIP order. The debtors expect that this new financing, along with the use of cash collateral and positive cash flow, will adequately support the business during the bankruptcy.
Frankum says that the debtors and their advisors began a prepetition marketing process five weeks ago for a stalking horse bidder that resulted in the ad hoc group submitting a credit bid through a newly formed entity, Celebration Bidco LLC. The stalking horse bid is supported by holders of almost 100% of first lien notes, the declaration states.
Broadly, pursuant to the stalking horse asset purchase agreement, the stalking horse bidder agrees to:
Competing bids are due Nov. 30 and must provide for full cash consideration. The bidding procedures indicate cash requirements could total $180 million, assuming a Dec. 29 closing date, after accounting for repayment of the $6.2 million outstanding on the ABL facility, $2 million for stalking horse bid protections, $1.5 million for the wind-down of the debtors’ estates and an $1 million overbid amount.
As detailed below, the debtors are parties to certain supply, services and license agreements with Party City. Frankum says that the debtors are “working diligently to establish themselves, as soon as possible, as a standalone business that does not rely on Party City for administrative support services.”
The intercompany agreements “remain critical” to Anagram as it transitions to a stand-alone business, as they ensure uninterrupted business operations and sustain the revenue streams necessary to support the business on a day-to-day basis, he says.
Although the process is “underway,” Frankum says it is not complete. “Until then, the Debtors need to avail themselves of the protections provided by the Bankruptcy Code,” according to Frankum.
The first day hearing has been scheduled for today, Thursday, Nov. 9, at 4:30 p.m. ET.
The company’s prepetition capital structure is shown below:
The debtors’ corporate structure is below:
The case has been assigned to Judge Marvin Isgur (case No. 23-90901). The debtors are represented by Simpson Thacher & Bartlett as legal counsel, Howley Law as local counsel, Ankura Consulting as financial and restructuring advisor, and Robert W. Baird & Co. as investment banker. Kurtzman Carson Consultants LLC is the claims and noticing agent.
Background / Events Leading to Bankruptcy Filing
According to the first day declaration, Anagram is a leading manufacturer of foil balloons and sells its products both domestically and internationally to supply specialty stores, grocers, mass marketers, parks, drugstores and discount variety stores. Anagram services its customers both directly, through retailers such as Walmart, Canadian Tire and Dollar Tree, and through key domestic and international distributors.
Faced with a liquidity crunch following a weak Halloween season in 2019 and the onset of the Covid-19 pandemic, Party City launched an exchange offer in which it designated Anagram subsidiaries as unrestricted to raise new money via Anagram first lien notes and exchange certain of Party City’s unsecured notes into new second lien notes at Anagram.
Upon consummation of the exchange in July 2020, Anagram had $195 million of debt, comprising $110 million of first lien notes and $85 million of second lien notes, implying gross leverage of 8x based on 2019 Anagram adjusted EBITDA of $25 million, or 4x based on 2018 Anagram adjusted EBITDA of $49 million. Results for Anagram in 2019 were adversely affected by a global helium shortage.
After adjusted EBITDA surged to $52 million in 2021 following an increase in demand and the abatement of the helium shortage, it fell to $29 million in 2022 due to the lingering effects of the pandemic and another global helium shortage. Anagram’s liquidity has been further constrained by interest from its unsustainable debt burden and a $22 million cash distribution in the form of an intercompany loan it made to Party City in 2022.
As a result of these challenges, Anagram and its advisors engaged in discussions with the ad hoc group of noteholders regarding restructuring alternatives but were unable to reach consensus on a reorganization transaction. The liquidity issues, combined with the ultimate breakdown of negotiations with the ad hoc group and with Party City (discussed below), created “significant uncertainty” for the debtors.
Without agreement on a comprehensive restructuring transaction or a resolution with Party City, the debtors determined that a sale process was the best path forward. In October, the debtors’ investment banker, Baird, began a marketing process. The ad hoc group made a stalking horse bid - accepted by the debtors - that is now supported by holders of almost 100% of first lien notes.
Party City Relationship
Certain intercompany transactions between the debtors and Party City put additional pressure on the debtors’ liquidity, according to the first day declaration. In August 2022, Party City borrowed $22 million from the debtors through an intercompany loan. This loan has not been repaid and is treated as a general unsecured claim under Party City’s chapter 11 plan, which was confirmed on Sept. 6 and went effective on Oct. 12.
The first day declaration also says that in March, the debtors discovered that Party City overcharged them for reimbursements related to Party City’s group tax payments aggregating approximately $7 million. The first day declaration explains that Party City pays taxes as a consolidated group that includes Anagram, as a wholly owned subsidiary, but that under an “undocumented arrangement,” Anagram would reimburse Party City for its taxes.
The declaration says, however, that on March 23, Party City informed the debtors that it had miscalculated the liability for the 2020, 2021 and 2023 tax years, resulting in the $7 million overpayment. The debtors blame this tax overpayment for their breach of certain covenants under the ABL facility and first lien and second lien notes in March. In April, the debtors obtained waivers of the defaults and potential defaults from the ABL agent and the ad hoc group of first lien noteholders, according to the declaration.
The first day declaration also notes the May 24 notice of rejection filed by Party City in its bankruptcy cases, in which Party City sought to reject its supply, services and license agreements with Anagram. These agreements govern intercompany relationships between the debtors and Anagram and the terms of payment for the services and supplies provided. The parties negotiated potential amendments to the terms of these agreements over the summer of 2023, and even reached an agreement in principle, which “generally maintained” the parties’ relationship, subject to certain contract modifications, while “allowing Party City and Anagram to separate their operations in an organized manner, giving each party assurance that the other would continue to perform key services over an agreed time period.”
However, “soon after” the parties reached this agreement in principle, Party City “unexpectedly reversed course” and has not “meaningfully engaged in a consensual resolution.” The rejection notice is still pending in the Party City chapter 11 cases, and the declaration states that rejection of these agreements would be “incredibly detrimental” to the debtors’ business. The debtors add that they have paid all their obligations under the Anagram-Party City agreements.
The debtors' largest unsecured creditors are as follows:
The case representatives are as follows:
DIP Financing Motion
The debtors have secured DIP financing composed of a $22 million new-money DIP notes facility from “almost 100%” of prepetition 1L notes, and over 50% of the 2L notes, and continued access to a $15 million ABL facility from the prepetition ABL lender to fund these cases. The debtors are also seeking the consensual use of cash collateral. The DIP notes facility is paired with a stalking horse APA, pursuant to which the DIP noteholders will credit-bid the DIP notes obligations and prepetition 1L notes, and repay the DIP ABL facility in cash. Upon entry of the interim DIP order, $10 million would become available to the debtors under the DIP notes facility.
In support of the proposed DIP financing, the debtors filed the declaration of Ajay Bijoor of Robert W. Baird & Co Inc., the debtors’ investment banker. Bijoor explains that “according to the Debtors’ cash flow projections prepared by Ankura, the Debtors commenced these chapter 11 cases with insufficient cash on their balance sheets to pay ongoing business expenses and the cost of administering the Sale Process.” He states that without access to the DIP facilities and cash collateral, the debtors “would likely have to curtail operations, which would be value destructive and … could trigger a default under the stalking horse asset purchase agreement.”
Additionally, Bijoor explains that after the DIP financing terms were finalized, another first lien noteholder agreed to participate in the DIP on equal and ratable terms as the ad hoc group. As a result, almost 100% of the first lien noteholders are funding the DIP and consent to priming liens.
The DIP notes facility bears interest at 13% per annum, payable monthly in cash, and matures on the earliest of (i) six months following the issuance of the DIP notes, (ii) the plan effective date; (iii) the consummation of the contemplated asset sale; (iv) any conversion to chapter 7; and (v) any acceleration of the DIP notes.
The DIP ABL facility bears interest at SOFR+4.5% per annum and matures on the earlier of April 30, 2024, and the date of any default.
To secure the DIP financing, the debtors propose to grant liens on substantially all property, causes of action, rights and claims of the DIP obligors upon entry of the interim DIP order, including unencumbered assets and the proceeds of avoidance actions. Specifically:
The relative rights and priorities of the prepetition 1L noteholders and the prepetition 2L noteholders are governed by an intercreditor agreement, with relative priorities of liens on the prepetition collateral as of the petition date, summarized in the below chart:
The DIP facility would provide adequate protection to its prepetition ABL, 1L and 2L noteholders in the form of replacement security interests in the DIP collateral, to the extent of any diminution in value. The debtors would also provide the prepetition ABL agent, 1L trustee and 2L trustee with: (i) superpriority administrative expense claims against the DIP obligors on a joint and several basis and (ii) reimbursement of reasonable prepetition and postpetition professional fees of financial and legal advisors. The prepetition ABL lenders and 1L noteholders would receive postpetition interest.
The DIP ABL facility includes a “gradual rollup” in that it will be paid down by collections on receivables while the debtors can continue to borrow under the DIP ABL facility.
Both facilities include various fees. The DIP notes facility includes a nonrefundable premium to each DIP notes purchaser of 5% of the purchaser’s total commitments. The DIP ABL facility includes a $200,000 fee payable to the DIP ABL lender within two business days following entry of the interim DIP order.
In addition, and subject to the entry of a final DIP 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 post-termination carve-out 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:
Bidding Procedures
The debtors are seeking a sale of substantially all their assets and have lined up Celebration Bidco LLC as a stalking horse. Under the terms of its bid, the stalking horse has agreed to credit bid all amounts outstanding (including prepetition and postpetition interest and prepayment premiums) under the 1L notes and the DIP notes facility, or approximately $168.4 million, to assume certain liabilities, and to make a cash payment sufficient to repay the ABL DIP facility and fund the wind-down of the debtors’ estates. The bid procedures also provide the stalking horse with bid protections of up to $2 million or up to $750,000, depending on circumstances under which the APA is terminated.
The final bid deadline is Nov. 30 at 6 p.m. ET. Qualified bids must consist of cash consideration sufficient to cover the stalking horse bid, plus $1.5 million to cover the wind-down of the debtors’ estates, plus an overbid amount of at least $1 million. The debtors state that they estimate the total cash requirement for competing bids amounts to $180 million. Bidders must include a good faith deposit of 10% with their bids.
The bid procedures also allow the debtors, with the consent of the successful bidder, to implement a sale under section 363 or through a chapter 11 plan.
The bid procedures motion explains that starting in October, the debtors’ investment banker began a marketing process and approached “more than 107” strategic and financial parties in an effort to sell the debtors’ assets and business. Of those parties, 42 have signed nondisclosure agreements and gained access to the debtors’ data room, the motion says.
The bid procedures motion includes the following sale timeline:
In addition, the first day declaration includes the below proposed bidding procedures timeline, compared with the DIP and stalking horse APA 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
DIP Financing Declaration
Bidding Procedures Motion
First Day Hearing Agenda
| Summary |
| Prepetition lenders are providing $22 million of new money in DIP note financing plus access to a $15 million prepetition ABL facility |
| Anagram aims to complete asset sale “by year end”; DIP milestones require sale to be consummated by Jan. 28, 2024 |
| Stalking horse bid includes credit bid of approximately $168.4 million plus a cash payment |
Anagram Holdings LLC, an Eden Prairie, Minn.-based foil balloon business, and two affiliates filed chapter 11 cases on Wednesday, Nov. 8, in the U.S. Bankruptcy Court for the Southern District of Texas. The debtors are wholly owned subsidiaries of Party City Holdings Inc., which emerged in October from its own chapter 11 case in the Southern District of Texas.
Anagram operates independently from Party City, although the two entities have three intercompany contracts that Party City moved to reject in its bankruptcy. The debtors filed chapter 11 to pursue a sale of all assets after negotiations with an ad hoc group holding approximately 60% of the debtors’ first lien notes and more than 50% of the debtors’ second lien notes failed to result in a consensual path forward. Negotiations with other constituencies similarly stalled.
According to the first day declaration of Anagram Chief Restructuring Officer Adrian Frankum of Ankura Consulting, to fund the cases, the debtors have secured commitments from holders of almost 100% of the first lien notes and over 50% of the second lien notes for a $22 million new-money DIP notes facility, which is conditioned upon satisfaction of certain milestones. Additionally, the debtors’ prepetition ABL lender has agreed to allow the debtors to continue accessing their $15 million prepetition ABL facility, subject to certain modifications.
The DIP financing motion states that the DIP ABL facility would be rolled up “gradually” as the debtors pay it down with collections on receivables while continuing to borrow. Upon entry of the proposed interim DIP order, $10 million would become available under the DIP notes facility, with the remainder available upon entry of the final DIP order. The debtors expect that this new financing, along with the use of cash collateral and positive cash flow, will adequately support the business during the bankruptcy.
Frankum says that the debtors and their advisors began a prepetition marketing process five weeks ago for a stalking horse bidder that resulted in the ad hoc group submitting a credit bid through a newly formed entity, Celebration Bidco LLC. The stalking horse bid is supported by holders of almost 100% of first lien notes, the declaration states.
Broadly, pursuant to the stalking horse asset purchase agreement, the stalking horse bidder agrees to:
- Provide a credit bid totaling $168.4 million, consisting of the full $22 million of the DIP notes facility and $146.4 million of first lien notes claims;
- Pay off or assume the outstanding obligations under the DIP ABL facility;
- Provide a minimum of $1.5 million of cash to wind down the debtors’ estates; and
- Assume all of the debtors’ pre- and postpetition trade payables and operating expenses, pay all cure costs for assumed contracts, and provide employment to all employees on terms no less favorable than their current terms.
Competing bids are due Nov. 30 and must provide for full cash consideration. The bidding procedures indicate cash requirements could total $180 million, assuming a Dec. 29 closing date, after accounting for repayment of the $6.2 million outstanding on the ABL facility, $2 million for stalking horse bid protections, $1.5 million for the wind-down of the debtors’ estates and an $1 million overbid amount.
As detailed below, the debtors are parties to certain supply, services and license agreements with Party City. Frankum says that the debtors are “working diligently to establish themselves, as soon as possible, as a standalone business that does not rely on Party City for administrative support services.”
The intercompany agreements “remain critical” to Anagram as it transitions to a stand-alone business, as they ensure uninterrupted business operations and sustain the revenue streams necessary to support the business on a day-to-day basis, he says.
Although the process is “underway,” Frankum says it is not complete. “Until then, the Debtors need to avail themselves of the protections provided by the Bankruptcy Code,” according to Frankum.
The first day hearing has been scheduled for today, Thursday, Nov. 9, at 4:30 p.m. ET.
The company’s prepetition capital structure is shown below:
The debtors’ corporate structure is below:
The case has been assigned to Judge Marvin Isgur (case No. 23-90901). The debtors are represented by Simpson Thacher & Bartlett as legal counsel, Howley Law as local counsel, Ankura Consulting as financial and restructuring advisor, and Robert W. Baird & Co. as investment banker. Kurtzman Carson Consultants LLC is the claims and noticing agent.
Background / Events Leading to Bankruptcy Filing
According to the first day declaration, Anagram is a leading manufacturer of foil balloons and sells its products both domestically and internationally to supply specialty stores, grocers, mass marketers, parks, drugstores and discount variety stores. Anagram services its customers both directly, through retailers such as Walmart, Canadian Tire and Dollar Tree, and through key domestic and international distributors.
Faced with a liquidity crunch following a weak Halloween season in 2019 and the onset of the Covid-19 pandemic, Party City launched an exchange offer in which it designated Anagram subsidiaries as unrestricted to raise new money via Anagram first lien notes and exchange certain of Party City’s unsecured notes into new second lien notes at Anagram.
Upon consummation of the exchange in July 2020, Anagram had $195 million of debt, comprising $110 million of first lien notes and $85 million of second lien notes, implying gross leverage of 8x based on 2019 Anagram adjusted EBITDA of $25 million, or 4x based on 2018 Anagram adjusted EBITDA of $49 million. Results for Anagram in 2019 were adversely affected by a global helium shortage.
After adjusted EBITDA surged to $52 million in 2021 following an increase in demand and the abatement of the helium shortage, it fell to $29 million in 2022 due to the lingering effects of the pandemic and another global helium shortage. Anagram’s liquidity has been further constrained by interest from its unsustainable debt burden and a $22 million cash distribution in the form of an intercompany loan it made to Party City in 2022.
As a result of these challenges, Anagram and its advisors engaged in discussions with the ad hoc group of noteholders regarding restructuring alternatives but were unable to reach consensus on a reorganization transaction. The liquidity issues, combined with the ultimate breakdown of negotiations with the ad hoc group and with Party City (discussed below), created “significant uncertainty” for the debtors.
Without agreement on a comprehensive restructuring transaction or a resolution with Party City, the debtors determined that a sale process was the best path forward. In October, the debtors’ investment banker, Baird, began a marketing process. The ad hoc group made a stalking horse bid - accepted by the debtors - that is now supported by holders of almost 100% of first lien notes.
Party City Relationship
Certain intercompany transactions between the debtors and Party City put additional pressure on the debtors’ liquidity, according to the first day declaration. In August 2022, Party City borrowed $22 million from the debtors through an intercompany loan. This loan has not been repaid and is treated as a general unsecured claim under Party City’s chapter 11 plan, which was confirmed on Sept. 6 and went effective on Oct. 12.
The first day declaration also says that in March, the debtors discovered that Party City overcharged them for reimbursements related to Party City’s group tax payments aggregating approximately $7 million. The first day declaration explains that Party City pays taxes as a consolidated group that includes Anagram, as a wholly owned subsidiary, but that under an “undocumented arrangement,” Anagram would reimburse Party City for its taxes.
The declaration says, however, that on March 23, Party City informed the debtors that it had miscalculated the liability for the 2020, 2021 and 2023 tax years, resulting in the $7 million overpayment. The debtors blame this tax overpayment for their breach of certain covenants under the ABL facility and first lien and second lien notes in March. In April, the debtors obtained waivers of the defaults and potential defaults from the ABL agent and the ad hoc group of first lien noteholders, according to the declaration.
The first day declaration also notes the May 24 notice of rejection filed by Party City in its bankruptcy cases, in which Party City sought to reject its supply, services and license agreements with Anagram. These agreements govern intercompany relationships between the debtors and Anagram and the terms of payment for the services and supplies provided. The parties negotiated potential amendments to the terms of these agreements over the summer of 2023, and even reached an agreement in principle, which “generally maintained” the parties’ relationship, subject to certain contract modifications, while “allowing Party City and Anagram to separate their operations in an organized manner, giving each party assurance that the other would continue to perform key services over an agreed time period.”
However, “soon after” the parties reached this agreement in principle, Party City “unexpectedly reversed course” and has not “meaningfully engaged in a consensual resolution.” The rejection notice is still pending in the Party City chapter 11 cases, and the declaration states that rejection of these agreements would be “incredibly detrimental” to the debtors’ business. The debtors add that they have paid all their obligations under the Anagram-Party City agreements.
The debtors' largest unsecured creditors are as follows:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| TSG Server & Storage Inc. |
St. Paul, Minn. | Trade | $ 1,083,274 |
| Formerra LLC / Avient Corp. |
Romeoville, Ill. | Trade | 679,612 |
| Party Fashion Co. Ltd. | Hong Kong | Trade | 652,040 |
| Convertidora Industrial |
Guadalajara, Mexico |
Trade | 621,034 |
| Viscofan USA Inc. | Montgomery, Ala. | Trade | 618,644 |
| Minncor Industries | Roseville, Minn. | Trade | 585,889 |
| Siegwerk USA Inc. | Des Moines, Iowa | Trade | 543,036 |
| Advansix Inc. | Parsippany, N.J. | Trade | 364,216 |
| Deacro Industries | Brampton, Canada | Trade | 346,443 |
| Toray Plastics (America) Inc. |
North Kingstown, R.I. |
Trade | 323,049 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel |
Sunny Singh Nicholas E. Baker Moshe A. Fink Ashley M. Gherlone |
Simpson Thacher & Bartlett |
New York |
| Debtors' Co-Counsel |
Tom A. Howley Eric Terry |
Howley Law |
Houston |
| Debtors' Restructuring Advisor |
Christopher Wiles Alan Dalsass |
Ankura Consulting Group |
New York |
| Debtors Investment Banker |
Ajay Bijoor | Robert W. Baird & Co. |
New York |
| Counsel to DIP Noteholders |
Abhilash M. Raval Matthew L. Brod Justin G. Cunningham |
Milbank | New York |
| Financial Advisor to DIP Noteholders |
NA | Houlihan Lokey Capital |
NA |
| Counsel to DIP Notes Trustee |
Geoffrey M. King Kevin E. Manz |
King & Spalding |
Chicago |
| Counsel to Prepetition 1L Trustee |
Andrew I. Silfen Beth M. Brownstein |
ArentFox Schiff |
New York |
| Counsel to Prepetition 2L Trustee |
Todd Meyers | Kilpatrick Townsend |
New York |
| Gianfranco Finizio | Atlanta | ||
| Counsel to DIP ABL Agent and Prepetition ABL Agent |
Jeremy M. Downs Zachary J. Garrett |
Goldberg Kohn |
Chicago |
| Counsel to Barings as Existing Prepeitition 1L Noteholder |
Tyler Nurnberg Alex Hevia |
Arnold & Porter Kaye Scholer |
Chicago |
| U.S. Trustee | Andrew Jimenez Jayson B. Ruff |
Office of the U.S. Trustee |
Houston |
| Debtors’ Claims Agent | Evan Gershbein | KCC | El Segundo, Calif. |
DIP Financing Motion
The debtors have secured DIP financing composed of a $22 million new-money DIP notes facility from “almost 100%” of prepetition 1L notes, and over 50% of the 2L notes, and continued access to a $15 million ABL facility from the prepetition ABL lender to fund these cases. The debtors are also seeking the consensual use of cash collateral. The DIP notes facility is paired with a stalking horse APA, pursuant to which the DIP noteholders will credit-bid the DIP notes obligations and prepetition 1L notes, and repay the DIP ABL facility in cash. Upon entry of the interim DIP order, $10 million would become available to the debtors under the DIP notes facility.
In support of the proposed DIP financing, the debtors filed the declaration of Ajay Bijoor of Robert W. Baird & Co Inc., the debtors’ investment banker. Bijoor explains that “according to the Debtors’ cash flow projections prepared by Ankura, the Debtors commenced these chapter 11 cases with insufficient cash on their balance sheets to pay ongoing business expenses and the cost of administering the Sale Process.” He states that without access to the DIP facilities and cash collateral, the debtors “would likely have to curtail operations, which would be value destructive and … could trigger a default under the stalking horse asset purchase agreement.”
Additionally, Bijoor explains that after the DIP financing terms were finalized, another first lien noteholder agreed to participate in the DIP on equal and ratable terms as the ad hoc group. As a result, almost 100% of the first lien noteholders are funding the DIP and consent to priming liens.
The DIP notes facility bears interest at 13% per annum, payable monthly in cash, and matures on the earliest of (i) six months following the issuance of the DIP notes, (ii) the plan effective date; (iii) the consummation of the contemplated asset sale; (iv) any conversion to chapter 7; and (v) any acceleration of the DIP notes.
The DIP ABL facility bears interest at SOFR+4.5% per annum and matures on the earlier of April 30, 2024, and the date of any default.
To secure the DIP financing, the debtors propose to grant liens on substantially all property, causes of action, rights and claims of the DIP obligors upon entry of the interim DIP order, including unencumbered assets and the proceeds of avoidance actions. Specifically:
- The DIP notes facility would be secured by (i) a first-priority lien on and security interest in the debtors’ unencumbered property; (ii) a senior priming lien on all prepetition and postpetition property that constitutes notes priority collateral; and (iii) a junior lien on all prepetition and postpetition property that constitutes ABL priority collateral. The junior lien on ABL priority collateral would prime the prepetition 1L and 2L notes liens but would be subject to the DIP ABL liens, the ABL adequate protection liens and the prepetition ABL liens on the ABL priority collateral.
- The DIP ABL would be secured by (i) a lien on all unencumbered property - other than the DIP notes account - that would be junior to the DIP notes liens and senior to the adequate protection liens; (ii) a senior priming lien on all prepetition and postpetition property that constitutes ABL priority collateral; and (iii) a junior lien on all prepetition and postpetition property that constitutes notes priority collateral, which would prime the prepetition ABL liens on the notes priority collateral but would be subordinate to the DIP notes liens, the 1L adequate protection liens, the prepetition 1L notes liens, the 2L adequate protection liens and the prepetition 2L notes liens on the notes priority collateral.
The relative rights and priorities of the prepetition 1L noteholders and the prepetition 2L noteholders are governed by an intercreditor agreement, with relative priorities of liens on the prepetition collateral as of the petition date, summarized in the below chart:
The DIP facility would provide adequate protection to its prepetition ABL, 1L and 2L noteholders in the form of replacement security interests in the DIP collateral, to the extent of any diminution in value. The debtors would also provide the prepetition ABL agent, 1L trustee and 2L trustee with: (i) superpriority administrative expense claims against the DIP obligors on a joint and several basis and (ii) reimbursement of reasonable prepetition and postpetition professional fees of financial and legal advisors. The prepetition ABL lenders and 1L noteholders would receive postpetition interest.
The DIP ABL facility includes a “gradual rollup” in that it will be paid down by collections on receivables while the debtors can continue to borrow under the DIP ABL facility.
Both facilities include various fees. The DIP notes facility includes a nonrefundable premium to each DIP notes purchaser of 5% of the purchaser’s total commitments. The DIP ABL facility includes a $200,000 fee payable to the DIP ABL lender within two business days following entry of the interim DIP order.
In addition, and subject to the entry of a final DIP 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 post-termination carve-out 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:
- Wednesday, Nov. 15 (four business days after the petition date): Date by which interim DIP order must be entered;
- Nov. 22 (five business days after entry of the interim DIP order): Deadline for the DIP notes initial issue date to occur;
- Nov. 29 (21 days after the petition date): Date by which order approving bid procedures, satisfactory to DIP noteholders, must be entered;
- Dec. 13 (35 days after the petition date): Date by which final DIP order must be entered;
- Dec. 10: Date by which order approving bid procedures, satisfactory to DIP ABL lenders, must be entered;
- Dec. 20 (five business days after entry of final DIP order): Deadline for the DIP notes second issue date to occur;
- Dec. 15: Date by which final DIP order, acceptable to DIP ABL agent, must be entered;
- Jan. 15, 2024: Date by which an order approving sale of the debtors’ assets, satisfactory to the required DIP noteholders, must be entered; and
- Jan. 28: Date by which sale of the debtors’ assets must be consummated.
Bidding Procedures
The debtors are seeking a sale of substantially all their assets and have lined up Celebration Bidco LLC as a stalking horse. Under the terms of its bid, the stalking horse has agreed to credit bid all amounts outstanding (including prepetition and postpetition interest and prepayment premiums) under the 1L notes and the DIP notes facility, or approximately $168.4 million, to assume certain liabilities, and to make a cash payment sufficient to repay the ABL DIP facility and fund the wind-down of the debtors’ estates. The bid procedures also provide the stalking horse with bid protections of up to $2 million or up to $750,000, depending on circumstances under which the APA is terminated.
The final bid deadline is Nov. 30 at 6 p.m. ET. Qualified bids must consist of cash consideration sufficient to cover the stalking horse bid, plus $1.5 million to cover the wind-down of the debtors’ estates, plus an overbid amount of at least $1 million. The debtors state that they estimate the total cash requirement for competing bids amounts to $180 million. Bidders must include a good faith deposit of 10% with their bids.
The bid procedures also allow the debtors, with the consent of the successful bidder, to implement a sale under section 363 or through a chapter 11 plan.
The bid procedures motion explains that starting in October, the debtors’ investment banker began a marketing process and approached “more than 107” strategic and financial parties in an effort to sell the debtors’ assets and business. Of those parties, 42 have signed nondisclosure agreements and gained access to the debtors’ data room, the motion says.
The bid procedures motion includes the following sale timeline:
In addition, the first day declaration includes the below proposed bidding procedures timeline, compared with the DIP and stalking horse APA milestones:
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration/ Order
- The cases will be jointly administered under case No. 23-90901.
- Motion to pay employee wages and benefits
- The debtors seek to pay wages and benefits amounting to $621,800 in relation to prepetition amounts owed.
- Motion to use cash management system
- The company has eight bank accounts, five of which are with Wells Fargo Bank and three of which are with Bank of America.
- Motion to maintain insurance programs
- The debtors estimate they owe approximately $93,000 to Party City on account of outstanding premiums and administrative fees in relation to insurance policies.
- Motion to pay taxes and fees
- The debtors seek to pay approximately $37,000 in taxes and fees (other than income taxes) that are due and will become due during the first month after the petition date.
- Motion to provide utilities with adequate assurance
- The debtors state they will deposit $90,000 as an adequate assurance deposit to pay utilities within 20 days after the court’s entry of an order approving the debtors’ motion.
- Motion to pay trade claims
- The debtors seek to pay $5.7 million trade claims prior to entry of the final order and $6.3 million in total, which includes the amount they would pay upon approval of the interim order.
- Motion to maintain and administer customer programs
- Motion to file consolidated list of creditors
- Application to appoint KCC LLC as claims agent
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