Cash Collateral Motion
First Day Hearing Notice
TRX Holdco LLC
|TRX is a fitness lifestyle brand with a flagship and patented product, the Suspension Trainer, which is a portable fitness and training device/workout tool
|Filed after a surge in demand due to the Covid-19 pandemic followed by liquidity troubles due to increased competition plus broader “macroeconomic challenges” and is seeking to reduce debt and adapt to a post-pandemic environment
|Seeks to run a sale process
|Requests the use of cash collateral, but evaluating the need for DIP financing
, a Newport Beach, Calif.-based fitness company, filed for chapter 11 protection on Wednesday, June 8 in the Bankruptcy Court for the Central District of California, along with Fitness Anywhere LLC
(dba TRX and TRX Training), seeking to run a sale process before “inventory falls below operational levels” and the debtors run out of liquidity. The debtors say that they anticipate a sale price of at least $25 million and “hopefully much more.” However, according to a declaration
submitted by Joshua Benn, managing director of Kroll Securities, the debtors’ financial advisor and investment banker, on a “highly expedited timeline this value may likely not be achievable.”
The debtors stress that they would need additional funding to purchase any “significant” inventory going forward. In the “coming days,” the company says it expects to determine whether it needs DIP financing. In the meantime, the debtors seek the use of cash collateral of secured lender Woodforest National Bank, which the debtors are “hopeful” will consent. TRX says it is in discussions with Woodforest, but did not have time to negotiate a cash collateral stipulation prior to filing. The debtors filed a cash collateral motion with the goal of obtaining a consensual interim order and then “hopefully” reaching a long-term agreement with Woodforest, possibly including DIP financing from the bank or a new lender with the bank’s consent.
The first day hearing has been scheduled for Friday, June 10 at 1 p.m. ET.
The company reports $10 million to $50 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Woodforest National Bank: $19.4 million
- Unsecured debt: $17 million
- Equity: TRX Holdco holds a preferential and controlling interest in Fitness Anywhere (which the debtors refer to as “Product Co”), and also wholly owns nondebtor TRXperience LLC. Fitness Anywhere also owns nondebtors Fitness Anywhere International LLC (100%) and Fitness Anywhere Europe Cooperatief U.A. Netherlands (99% by Fitness Anywhere and 1% by Fitness Anywhere International LLC).
Fitness Anywhere is the borrower under the Woodforest credit agreement, which includes a term loan in the principal amount of $10.9 million, a term loan in the principal amount of $1 million and revolving loans in the principal amount of $7.5 million. The loans are secured by substantially all assets of the debtors and guaranteed by TRX Holdco, TRXperience LLC and Fitness Anywhere International LLC. Woodforest agreed to a forbearance on May 16.
The debtors’ assets include $5.1 million in accounts receivable, inventory with a cost basis of $17.8 million, intellectual property and goodwill associated with the debtors’ “well-regarded brand,” and what TRX describes as a “vast domestic and international customer base.”
The debtors are represented by Levene, Neale, Bender, Yoo & Golubchik in Newport Beach and Kroll Securities as investment banker and financial advisor. The case has been assigned to Judge Scott C. Clarkson (jointly administered under case number 22-10948 (TRX Holdco LLC)).
Events Leading to the Bankruptcy Filing
TRX had a “record-breaking” year in 2020 due to rapid growth from the “COVID-19 home fitness boom,” according to the company’s press release. However, the business is now facing increased competition plus broader “macroeconomic challenges.” The debtors also point to competition, purchasing too much inventory when demand did not match expectations in an “unpredictable market,” higher than expected development costs relating to the debtors’ digital training platform and increased marketing expenses.
In 2019, the debtors generated approximately $51 million in revenue, and in 2020, they devised a digital strategy and experienced “COVID-driven revenue growth” to approximately $85 million. In 2021, sales dropped to $62 million in a “rapidly changing macro environment.” In late 2021, the company realized that it would need additional cash and investment to fund long-term operations and growth and satisfy its debt to Woodforest National Bank.
Prepetition efforts run through Kroll and Integrity Square to raise capital to pay down debt or secure a buyer or investor were not fruitful because of timing and “macroeconomic considerations,” though the debtors say that they received various expressions of interest when exploring potential financing. Nonetheless, TRX asserts that its brand is “well regarded” and has “significant demand,” that it has a good business model with growth opportunity and that it is “well-positioned” to capitalize on growth in the fitness industry. The debtors also say that their business is “extremely valuable especially when considering its substantial intellectual property portfolio that enables the Debtors to protect it against imitators of its famous Suspension Trainer™ product and the significant goodwill it has amassed with its consumers and qualified TRX trainers throughout its history.”
Founded in 2004, TRX describes itself as a “world leading functional fitness company.” TRX is a “digitally-enabled, vertically integrated, omni-channel fitness lifestyle brand with global reach powered by a large community of consumer and trainer enthusiasts.” The company’s flagship and patented product is the Suspension Trainer, a portable fitness and training device/workout tool. The company also has training tools and accessories to complement its flagship product, ranging from at-home items to “complete gym installations.” The company also launched a digital subscription-based platform in 2021, including on-demand video and daily live classes.
Through 2013, the company focused on commercializing TRX, growing a loyal community of trainers and achieving market penetration in gyms. From 2014 to 2018, the TRX business matured after receiving a growth capital investment, and in late 2018, an investor group led by Equity 38 LLC acquired the company using the Woodforest credit facility, an equity investment and rollover investments from the previous investors. In March 2020, additional equity capital was invested by existing and new investors in a further recapitalization of the company.
The debtors' largest unsecured creditors are listed below:
|10 Largest Unsecured Creditors
|Core Health & Fitness LLC
|UPS Plan 0386NE
|Stephen Gould Corporation
|Duane Morris LLP
|Buy Box Experts
|MAN Staffing LLC
|Syzygy Digital Marketing Inc.
The case representatives are as follows:
Cash Collateral Motion
||Krikor J. Meshefejian
|Lindsey L. Smith
Banker and Financial
|James S. Feltman
|Counsel to Woodforest
|Marsha A. Houston
|Christopher O. Rivas
|United States Trustee
||Michael J. Hauser
||Office of the
|Santa Ana, Calif.
The debtors are “hopeful” that Woodforest National Bank, the only party with an interest in their cash, will consent to use of cash collateral. The debtors propose to grant Woodforest adequate protection in the form of a replacement lien on their assets (excluding avoidance actions) and an allowed superpriority administrative claim. The debtors assert that Woodforest has an equity cushion, and that their business has value “well in excess” of the amounts owed to Woodforest.
The debtors would use the cash collateral to make payroll, pay key contractors, service providers and vendors, cover logistics costs, and pay insurance premiums and taxes.
In support of the proposed use of cash collateral, the debtors filed the declaration of Brent Leffel
, chairman of the board of managers of the debtors and co-manager of Equity 38, the equity sponsor. According to Leffel, without a sale or additional financing, the debtors will not have enough liquidity to fill inventory, “impairing future customer sales and thereafter negatively impacting the Debtors’ good will.” Without the use of cash collateral, Leffel adds, the business would need to immediately shut down.
The debtors also submitted the declaration of James Feltman
, managing director at Kroll, who says the debtors’ financial situation is “precarious” and warns that the sale process must play out before inventory falls below required operational levels and liquidity runs out. Krikor Meshefejian
, a partner at Levene, Neale, Bender, Yoo & Golubchick, also filed a declaration attaching various UCC search reports.
The proposed budget
for Fitness Anywhere is HERE
, the budget for Holdco is HERE
and a consolidated budget is HERE
The debtors also filed various standard first day motions, including the following: