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June 1, 2023 – Further to a May 2nd bidding procedures order and an auction held on May 31st, the Debtors notified the Court that they had selected a pair of successful bidders in respect of two asset groupings [Docket No. 290]:
- Midwest Catalog Brands, LLC (“Midwest Catalog,” an affiliate of direct marketing giant Colony Brands, $52.0mn cash bid) was named as the winning bidder in respect of: (a) the Debtors’ private credit accounts receivable portfolio (the “Private Credit Receivables”), (b) Debtor AmeriMark Direct, LLC’s intellectual property and inventory relating to Carol Wright, Dr. Leonard’s, and Essentials (collectively, the “Core AMD Assets”), (c) Debtor AmeriMark Direct LLC’s intellectual property and inventory not included in the Core AMD Assets (collectively, the “Non-Core AMD Assets”), and (d) AmeriMark Direct, LLC’s furniture, fixtures, and equipment
- SLR-AMI Acquisition SPV, LLC, an affiliate of the Debtor's prepetition and debtor-in-possession ("DIP") lender ("SLR," $45.0mn credit bid) was name as winning bidder in respect of the Debtor L.T.D. Commodities LLC's assets, excluding any Private Credit Receivables (the “LTD Purchased Assets”). As discussed further below, on April 21st SLR stepped into the shoes of prepetition and DIP lender PNC Bank, National Association, acquiring the entirety of PNC Bank's positions.
APAs have yet to be filed and a sale hearing is scheduled for June 6th.
On April 11, 2023, privately-held AmeriMark Interactive, LLC and six affiliated debtors (together “AmeriMark Interactive” or the “Debtors”) filed for Chapter 11 protection with estimated assets between $0.0 and $50.0k; and estimated liabilities between $100.0mn and $500.0mn. At filing, the Debtors, "proud to be one of the largest multi-channel retailers [albeit within a purely "digital first," e-commerce context] targeting the mature market*," cited the failure to circulate catalogs in advance of the 2021 holiday season, a failure to anticipate correct inventory levels as COVID evolved, supply chain issues and inflation as precipitating their need to seek Chapter 11 shelter.
* See "About the Debtors," below, including as to owners CSC Generation Holdings, Inc ("CSC," founded as a joint venture between the famously reticent entrepreneur Justin Yoshimura and Chinese private equity firm China Science & Merchants Investment Management Group in 2016) and recent, largely unexplained, corporate governance efforts to establish the "independence" of the Debtors from CSC.
On April 21st, further to the acquisition by Crystal Financial LLC (d/b/a SLR Credit Solutions) of the entirety of positions (prepetition and DIP) held by prepetition turned debtor-in-possession (“DIP”) lender PNC Bank, National Association, the Court hearing the AmeriMark Interactive cases isssued a debtor-requested order amending an existing April 13th interim DIP order. In addition to amending the interim DIP financing order to reflect the change in DIP financing provider, the April 21st order increased the amount of interim financing available from $7.4mn to $15.0mn. Access to the balance of what is in total $48.0mn of new money DIP financing was approved on May 9th.
Bidding Procedures Motion
The motion [Docket No. 14] states, “Debtor AmeriMark Interactive, LLC, formed over five decades through organic growth and acquisitions, is a leading direct seller of general merchandise, including apparel, furniture, home décor and health and beauty products, to customers in the 50-and-older demographic, with sales accomplished through a multi-channel platform across nine catalog titles, ecommerce websites, and third-party marketplaces. Gross revenue exceeded $750 million in each year from 2018 through 2021.
In 2022, revenue and profitability decreased dramatically, based on several factors detailed in the First Day Declaration. Among other steps taken by the Debtors to address these issues, the Debtors, with the assistance of their restructuring advisors and investment bankers, commenced a lengthy prepetition sales process that did not yield any acceptable offers. The Debtors’ continued financial distress made it clear that a restructuring through these chapter 11 cases (the ‘Chapter 11 Cases’) would be necessary.
Prior to filing these Chapter 11 Cases, the Debtors entered into a new senior secured superpriority debtor-in-possession revolving credit facility (the ‘DIP Facility’) with certain members (the ‘DIP Lender’) of their prepetition lender group. As evidenced by the terms of the DIP Facility, the Debtors and the DIP Lender agree that a sale of the Debtors’ Assets, either as a going concern sale or as multiple sales for certain of the Debtors’ Assets, will maximize value of the Debtors’ Assets. In addition, regardless of the form of any Sale, given the extensive prepetition marketing efforts, the Debtors submit there is no need for a lengthy postpetition sale process. Rather, the Debtors and their advisors believe a shorter process will reduce administrative costs, while not impacting the amount or quality of bids they expect to receive.
Accordingly, by this Motion, the Debtors seek approval of the Bidding Procedures, which provides time required to run a successful chapter 11 sale process, while affording all interested parties with notice and opportunity to object. Moreover, the Bidding Procedures includes provisions allowing the Debtors to engage with one or more potential Stalking Horse Bidders that will set a guaranteed floor for the value of the Debtors’ Assets.”
Prepetition Marketing and Sale Process
The motion further provides, “As discussed in detail in the First Day Declaration, in October 2022, the Debtors retained Riveron Management Services, LLC (‘Riveron’) to provide restructuring advisory services, and in November 2022, the Debtors appointed Stuart Noyes of Riveron as their Interim Chief Restructuring Officer. In December 2022, the Debtors retained Consensus Advisory Services LLC and Consensus Securities LLC (together, ‘Consensus’) to provide investment banking services in connection with evaluating and executing strategic and restructuring transactions. Since their engagements, Riveron and Consensus, together with the Debtors, have engaged in a marketing process aimed at identifying strategic and financial buyers, or other value-maximizing strategic alternatives.
More specifically, as set forth in the O’Hara Declaration, Consensus led a prepetition marketing process with potential strategic and financial buyers to solicit interest in the Debtors’ business. Consensus contacted and sent material to nearly 100 potential acquirers (collectively, the ‘Interested Parties’). Fifty-six Interested Parties executed non-disclosure agreements, and 44 requested and gained access to the Debtors’ electronic data room. The Interested Parties canvassed by Consensus included other major direct-to-consumer businesses, private equity firms known to be interested in the direct-to-consumer market as well as funds focused on distressed assets generally, and firms who buy consumer-focused assets in liquidation. Four parties submitted written expressions of interest to acquire all or part of the Debtors’ business or invest in the business. The Debtors hosted two management presentations at their Aurora, Illinois facility and held numerous video meetings with each party to facilitate their respective diligence.
However, as of mid-March 2023, the Debtors had not received any executable offers to purchase the business and continue the Debtors’ operations as a going concern. Thereafter, they began exploring a chapter 11 process under which the Debtors would continue to attempt to sell their business as a going concern, while at the same time marketing their assets in lots, including: (a) accounts receivable; (b) inventory; and (c) intellectual property, including brand names and customer lists. While they have kept an open dialogue with possible going concern buyers, the Debtors and their advisors also contacted or re-contacted parties that might not have had interest in the business as a going concern, but would have interest in some or all of the Debtors’ Assets.”
The motion continues: "The terms of the DIP Facility affords the Debtors limited funds and short milestones with which to conduct their sale process. Regardless, given the length and scope of the prepetition marketing process and the Company’s severe liquidity position, the Debtors agree with the DIP Lender that maximizing value of the Debtors’ estates requires a sale process on a compressed timeframe….Therefore, the Debtors believe that an Auction process culminating in one or more Sales, closing on or around May 30, 2023, will maximize value and allow the Debtors to comply with their obligations under the proposed DIP Facility.
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Noyes Declaration”), Stuart Noyes, the Debtors’ Chief Restructuring Officer, commented: “In October 2021, AmeriMark Interactive purchased the companies that now make up the Debtors for $322.5 million. The timing of the closing was planned so that AmeriMark Interactive could capture 2021 fourth quarter sales and earnings, as the fourth quarter is the most profitable for the Debtors’ business. One of the most critical components of the transaction was the ongoing relationship with a key vendor, LSC Communications US, LLC (‘LSC’), which printed catalogs for the Debtors’ businesses. It was only after the closing that AmeriMark Interactive learned that LSC had given the seller written notice of a ‘Force Majeure’ event that was expected to result in a material diminishment in LSC’s ability to print and mail catalogs for the Debtors in the fourth quarter of 2021. The seller and certain of its officers are alleged to have concealed this information from AmeriMark Interactive, causing damages estimated to be at least $60 million and perhaps permanently damaging the Debtors’ relationships with many customers who did not receive catalogs for that important season. AmeriMark Interactive has initiated litigation in Delaware Chancery Court regarding this matter.
The Debtors have also suffered from the COVID-19 pandemic and macroeconomic forces. The Debtors experienced a surge in orders in 2020 and 2021, in primary part due to COVID-19. The Debtors’ business is catalog and ecommerce driven, which was well-suited to withstand the pandemic, especially for a company with an older clientele that is more susceptible than average to serious illness from the virus. However, with COVID came serious supply chain issues that affected the Company, as happened to many businesses. To meet expected demand, and anticipating continued supply chain concerns, the Company purchased significant quantities of inventory in advance, which negatively impacted availability under its loan facility. When demand was not as high as expected, the Debtors’ liquidity concerns were exacerbated. Recently, inflation has also had an impact on the Debtors, who have a senior customer base, many of who are on a fixed income. Finally, rising interest rates have increased the Debtors’ debt service costs.”
As of the Petition date, the Debtors’ capital structure consists of outstanding secured funded-debt obligations in the aggregate principal amount of approximately $240 million including under the Pre-Petition Secured Loan Facility, associated Pre-Petition Revolving Credit Facility and Pre-Petition Term Loan Facility, and the Pre-Petition Subordinated Note.
The Debtors estimate that approximately $43,868,256.13 in principal and accrued and unpaid interest is outstanding under the Pre-Petition Revolving Credit Facility. The Debtors estimate that approximately $178,631,565.60 in principal and accrued and unpaid interest is outstanding under the Pre-Petition Term Loan Facility. $15,682,355.28 in principal, plus accrued and unpaid interest in the amount of $3,626,724.20, is outstanding under the Pre-Petition Subordinated Note, which matures on April 14, 2027.
About the Debtors
The Debtors are 100% owned by CSC Generation Holdings, Inc ("CSC") of Merrillville, Indiana. CSC, which while placing the Debtors into Chapter 11 with no assets and an impressive collection of trade creditors, notes as to itself: "We are not just savvy investors….We acquire overlooked store and catalog-based retailers and transform them into high performance, “digital first” brands through our proven omni-channel technology platform, operating expertise and scale.”
CSC Generation was founded as a joint venture between the famously reticent entrepreneur Justin Yoshimura (interesting background piece here) and Chinese private equity firm China Science & Merchants Investment Management Group in 2016.
Beginning in 2017, CSC has built up a portfolio of brands largely acquired in the bankruptcy context, including DirectBuy, Z Gallerie, One Kings Lane (from bed Bath & Beyond), Sur La Table and Home Consignment Center. In a slightly unusual "Investors" section on its website, CSC notes, inter alia, Khosla Ventures, Panasonic and Altos Ventures as investors and adds the smiling endorsements of “family office” investors including Niraj Shah of Wayfair; Christian Friedland of Build.com and Zappos's now deceased Tony Hsieh.
As the Noyes Declaration [Docket No. 19] suggests (but leaves unclear), significant issues have arisen recently amongst the Debtors and CSC, issues which have necessitated efforts to separate the entities in the corporate governance context. From Noyes: "AmeriMark Interactive is owned by CSC Generation Holdings, Inc. ('CSC'), which among other things owns other retail and consumer-facing companies. However, in October 2022, to promote independence, the AmeriMark Interactive Board of Directors formed an independent committee and named director Larry Gottlieb to that committee. In addition, since that time, all CSC non-independent directors have resigned, and John Kolleng and Bruce Crain were appointed to the Board. Messrs. Gottlieb, Kolleng, and Crain are all independent and are the only directors of AmeriMark Interactive. Messrs. Gottlieb and Kolleng also serve on the boards of all other Debtors, and Mr. Reese also serves on the boards of certain of the other Debtors." It is unlikely that we have heard the last of the Debtors' "independence" issues.
According to the Debtors: “Amerimark Interactive is proud to be one of the largest multi-channel retailers targeting the mature market, and we are even prouder of our understanding of the needs of that consumer. Our company is passionate about giving our customers the shopping experience they deserve. Age is just a number…and everyone can do it gracefully. With that in mind, we strive to utilize all opportunities towards providing our customers with thoughtfully curated merchandise at the best values, beautifully presented with ease of accessibility and by the most pleasant customer solutions team.
Our fully integrated system offers a multi-channel experience in every visit to our websites, social media outlets, mobile connections, multimedia messaging and customer solutions communication. While we’ve advanced with the times and incorporated technology into our approach, we’ve listened to feedback and maintained production of our very popular print catalogs, making sure they are consistent with every other platform…and this is what sets us apart. Our internal shareholders are aligned in all that they do to give our external clients a seamless message, regardless of the channel they have used to approach us.“
The Debtors' brands include:
1. Debtor AmeriMark Interactive, LLC is 100% owned by CSC Generation Holdings, Inc.
2. Debtor AmeriMark Intermediate Sub, Inc. is 100% owned by Debtor AmeriMark Interactive, LLC.
3. Debtor L.T.D. Commodities LLC is 100% owned by Debtor AmeriMark Interactive, LLC.
4. Debtor AMDRL Holdings is 100% owned by Debtor AmeriMark Intermediate Sub, Inc.
5. Debtor AmeriMark Intermediate Holdings, LLC is 100% owned by Debtor AMDRL Holdings, Inc.
6. Debtor AmeriMark Direct LLC is 100% owned by Debtor AmeriMark Intermediate Holdings, LLC.
7. Debtor Dr. Leonard’s Healthcare, LLC is 100% owned by Debtor AmeriMark Direct LLC
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