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April 7, 2023 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 289]. The bidding procedures order would: (i) approve bidding procedures in relation to the sale of the substantially all of the Debtors’ assets (the “Sale”), (ii) authorize the Debtors to select one or more stalking horse bidders (none yet selected), and (iii) adopt a proposed auction/sale timetable culminating in an auction on May 30th and a sale hearing on June 1st. The sale order would approve the Sale.
The motion flags the intent of the Debtors' secured lender to credit bid its recently acquired senior debt even if it does not secure a sought after stalking horse role. The motion notes: "Concurrent with the ongoing marketing of the Acquired Assets, SSCP Restaurant Investors LLC ('SSCP' or the 'Senior Lender') has indicated that the Senior Lender or its designee may enter into negotiations with the Debtors regarding a Stalking Horse Agreement…"
As noted below, there is a lot of bad blood here between the Debtors and SSCP in a battle of Indian-American entrepreneurs. The Debtors are owned by East-coast, cricket loving, Jignesh “Jay” Pandya, and SSCP is owned by the Texas-based, 100 hour-a-week, mechanic turned millionaire Sunil "Chris" Dharod (aka "The Ferrari Guy").
On February 22, 2023, privately held CBC Restaurant Corp. and 2 affiliate debtors (dba “Corner Bakery;” “CBC” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtors, a Dallas-based chain that "specializes in pastries, bread, breakfasts, gourmet sandwiches, soups, salads and pasta," noted that "the company has been plagued the same challenges that have riddled the fast casual restaurant sector since 2020, such as cost increases for ingredients that cannot easily be passed on to customers, inflation, supply chain disruptions, a challenging labor market, and landlords how have been increasingly impatient as COVID relief funds have expired a restaurant business in the post-COVID climate."
Those operational issues led to defaults under the Debtors' senior prepetition credit facility, a difficult situation made worse when the Debtors "on or about January 31, 2023, while it was in the midst of restructuring and payoff negotiations and discussions, [were] notified that SSCP Restaurant Investors, LLC ('SSCP' [ie now the senior DIP lender])—a market competitor—had purchased the Credit Facility….Thereafter, SSCP caused a Notice of Public Sale of Collateral to be issued, setting a sale of collateral to be held on February 23, 2023 at 12 noon (CST)."
The Debtors, who operate an estimated 170 stores across 23 states, are part of the Rohan Group of Companies owned by Jignesh “Jay” Pandya, with the group also including the Boston Market restaurant chain. Pandya bought the Debtors in October 2020 from Roark Capital Group for undisclosed terms. In April 2020, Pandya purchased the Boston Market rotisserie chicken chain from Sun Capital Partners, Inc., again for undisclosed term.
Both restaurant brands were purchased by Pandya, who is also a franchisee of Arby’s, Checkers and Dunkin’ Donuts outlets, after being damaged by the COVID pandemic and store closing mandates.
On April 6th, the Court hearing the CBC Restaurant Corp cases issued a pair of debtor-in-possession ("DIP") financing orders authorizing the Debtors to access: (i) $3.5mn of new money DIP financing under a "Senior DIP New Money Term Financing" being made available by prepetition lender SSCP Restaurant Investors, LLC (“SSCP,” or the “Senior DIP Lender”) [Docket No. 288] and (ii) a further $1.5mn of new money, junior DIP financing under a “Junior DIP Facility” provided by CB DIP LLC (the “Junior DIP Lender”) on an interim basis [Docket No. 287]. In respect of each of the financings, the totality of new money on the table is being offered now, ie with the interim orders, with SSCP also benefitting from a $7.0mn roll-up of (recently acquired) prepetition debt with their interim order.
The hybrid DIP financing arrangements comes after SSCP refused to be primed or otherwise come up with the full amount of the required DIP financing itself, with SSCP making procuration of the junior debt a condition of its own senior DIP funding and the Debtors' right to access cash collateral. The difficult relationship between the Debtors' and SSCP, a competitor in the fast food space, is summed up in an objection to DIP financing filed by the Debtors' Official Committee of Unsecured Creditors:
"The Debtors have been placed in an untenable situation due to the overly aggressive actions of their secured lender, SSCP Restaurant Investors LLC ('SSCP). SSCP is not a traditional lender: rather, SSCP is a market competitor that owns and operates restaurant concepts including the Sonic fast food chain, the Applebee’s casual dining chain, and the upscale Roy’s restaurants. SSCP was not the original lender to the Debtors: SSCP acquired the prepetition secured debt for a purchase price that the Committee believes was a fraction of the total debt. SSCP has taken aggressive actions since almost immediately after acquiring the debt, from moving quickly to foreclosure before these Chapter 11 Cases were filed, to exercising an undue amount of control over the Debtors’ ability to run an effective chapter 11 process, and including insisting upon extremely restrictive controls in connection with both its debtor-in-possession financing package and bid procedures that have not yet been filed.
….In addition, while SSCP has insisted upon a sale process exclusively, it has thus far remained unwilling to fully fund the process on its own, thus necessitating a hybrid debtor in possession financing model that required the Debtors to obtain a junior secured component to supplement the senior piece being provided by SSCP."
So who is the Junior DIP Lender with the eponymous name (CB DIP LLC)? Notice provisions do not provide a separate address for such an entity and no term sheet or agreement has been provided. One likely contender: The Debtors' founder/owner Jignesh “Jay” Pandya.
Bidding Procedures and Sale Motion
The motion [Docket No. 289] provides, “The Debtors believe the proposed Bidding Procedures will best facilitate a value-maximizing sale of the Acquired Assets for the benefit of the Debtors’ estates. The Bidding Procedures likewise will allow the Debtors additional time to continue to market the Acquired Assets, receive and evaluate bids, and hold an auction (if necessary) to determine the highest or otherwise best bid. In addition, the marketing process and the Bidding Procedures proposed herein are aligned with the milestones set forth in the Interim Order…funding these chapter 11 cases.
The Debtors, with the assistance of their advisors, will continue to market the Acquired Assets to potential purchasers. As such, the Debtors believe that prospective bidders will have sufficient time and information to conduct the necessary due diligence to submit binding bids in accordance with the timeline proposed herein.
13. Completion of the sale process in a timely manner will also maximize the value of the Acquired Assets obtained through the proposed Sale. The proposed dates governing the Sale, marketing, and auction process are within the Milestones. Failure to adhere to the Milestones would constitute a default under the Interim DIP Order. Accordingly, it is in the Debtors’ and their stakeholders’ best interests to complete a robust sale process as swiftly as possible to consummate the Sale within the parameters set by the Milestones. In view of the foregoing, the Debtors respectfully submit that the Court should grant the relief requested herein
and approved proposed timeline for completing the sale, marketing, and auction process for the Acquired Assets.
Concurrent with the ongoing marketing of the Acquired Assets, SSCP Restaurant Investors LLC ('SSCP' or the 'Senior Lender') has indicated that the Senior Lender or its designee may enter into negotiations with the Debtors regarding a Stalking Horse Agreement.”
- Bidding Procedures Hearing: April 19, 2023
- Sale Objection Deadline: May 25, 2023
- Bid Deadline: May 25, 2023
- Deadline to select Qualified Bids: May 26, 2023
- Auction (if necessary): May 30, 2023
- Post-Auction Objection Deadline: May 31, 2023
- Sale Hearing: June 1, 2023
- Closing Deadline: June 14, 2023
The motion continues, “As described in the First Day Declaration, like many urban, fast-casual concepts, Corner Bakery struggled during the pandemic, leading its prior owner, Roark Capital Group, to hire restructuring and financial advisors to explore strategic alternatives. In April 2020, Pandya Restaurant Growth Brands, LLC (‘PRGB’) acquired Corner Bakery. Corner Bakery commenced these Chapter 11 cases on the Petition Date.
It is anticipated that the Debtors and the Stalking Horse Bidder will negotiate terms of the Stalking Horse Agreement. The Stalking Horse Agreement will seek to sell the Acquired Assets to the Stalking Horse Bidder, subject to higher and better bids, in consideration of a credit bid as set forth in the Stalking Horse Agreement.
On or about March 27, 2023, the Debtors’ financial advisor and investment banker, Hilco Corporate Finance (‘Hilco’), commenced to broadly market the Debtors’ assets postpetition with the goal of fostering a robust bidding process and a competitive auction for the sale of the Acquired Assets consistent with terms of the proposed Bidding Procedures. The Debtors are seeking and will continue to pursue interest from direct competitors and other investor groups to solicit offers for the sale of the Acquired Assets. The Debtors will send (to the extent not already provided), notice of this Motion to all parties that they believe may be potentially interested in acquiring the Acquired Assets. The Debtors will assist interested parties who either have, or will, execute confidentiality agreements acceptable to the Debtors to conduct diligence on the Acquired Assets, in accordance with the Bidding Procedures. The Debtors believe that the marketing of the Acquired Assets over the period contemplated by the Bidding Procedures, in addition to the marketing activities that have taken place to date, will result in the highest and best purchase price for the Acquired Assets and maximize value for all of the Debtors’ constituents.”
Goals of the Chapter 11 Filings
The Pandya Declaration (defined below) provides: "As a result of the discord with SSCP [see "Events…" below on SSCP's late January acquisition of the Debtors' senior debt from Goldman Sachs and subsequent foreclosure efforts] and the vulnerable state of its financial condition, the Debtors have determined that a substantial deleveraging combined with new capital investment is the best path forward for their business as a going concern and will serve as the foundation of a reorganization plan that will payoff the company's creditors while also preserving stakeholder value. Corner Bakery commenced these Chapter 11 cases on February 28, 2023."
The Debtors are party to a November 2017 credit agreement (the "Credit Agreement") with Goldman Sachs Specialty Lending Group, L.P. initially serving as Administrative Agent and Collateral Agent (the Agent"). The Credit Agreement governed a $177.5mn credit facility (the “Credit Facility”) initially comprised of $155.0mn in Tranche A Term Loans and $22.5mn principal amount of Revolving Commitments (subject to a $9.5mn sublimit for Revolving Loans and a $13.0mn sublimit for Letters of Credit. As of the Petition date, the amount "allegedly due under the Credit Agreement (and disputed by the Debtors) is approximately $33.8mn."
Events Leading to the Chapter 11 Filings
In a declaration in support of first day filings (the “Pandya Declaration”) [Docket No. 22], Jignesh Pandya, the Debtor’s CEO provides: "Since 2020, Corner Bakery has made roughly $7.5 million in principal payment on account of the Credit Facility. During that same period, although Corner Bakery's core business remained strong, the company has been plagued the same challenges that have riddled the fast casual restaurant sector since 2020, such as cost increases for ingredients that cannot easily be passed on to customers, inflation, supply chain disruptions, a challenging labor market, and landlords how have been increasingly impatient as COVID relief funds have expired a restaurant business in the post-COVID climate. While many Corner Bakery locations are profitable, others are underperforming and burdening the company.
By letters dated May 25, 2022, September 25, 202, November 1, 2022, the Agent notified CBC Restaurant Corp. of alleged Events of Default under the Credit Facility. As the Credit Facility's maturity date approached, Corner Bakery engaged with the Lenders and their Agent to discuss a payoff of the loan balance in the range of roughly $20 – $24 million.
However, on or about January 31, 2023, while it was in the midst of restructuring and payoff negotiations and discussions, Corner Bakery was notified that SSCP Restaurant Investors, LLC (“SSCP”)—a market competitor—had purchased the Credit Facility. By letter dated January 31, 2023, the Agent notified CBC Restaurant Corp. of its resignation as agent and the appointment of a successor agent. And, by letter dated February 1, 2023, CBC Restaurant Corp. was notified that each of the Lenders has assigned and transferred all of its rights under the Credit Facility (with certain exceptions), to SSCP Restaurant Investors, LLC. ('SSCP'). By letter dated February 10, 2023, SSCP requested that certain financial and business information be provided to it no later than February 16, 2023. And by letter dated February 17, 2023, CBC Restaurant Corp. was notified by SSCP of alleged additional events of default.
Thereafter, SSCP caused a Notice of Public Sale of Collateral to be issued, setting a sale of collateral to be held on February 23, 2023 at 12 noon (CST)."
As a result of the discord with SSCP and the vulnerable state of its financial condition, the Debtors have determined that a substantial deleveraging combined with new capital investment is the best path forward for their business as a going concern and will serve as the foundation of a reorganization plan that will payoff the company's creditors while also preserving stakeholder value. Corner Bakery commenced these Chapter 11 cases on February 28, 2023."
About the Debtors
According to the Debtors: “Inspired by great fresh ingredients, our small neighborhood bakery on a corner in downtown Chicago began creating artisan breads and freshly baked sweets. And upon a little success, neighbors began to ask us for sandwiches made with that fabulous bread, followed by homemade soups and salads, and even made-to-order scramblers. Our guests’ requests continued to inspire us as our bakery’s menu and business grew.
Today, we continue to fulfill the needs and desires of our neighbors with a menu of ingredient-inspired, prepared-to-order food. When you visit our cafe, you’ll see real kitchens in place of assembly lines. You’ll hear the chopping of over 40 types of fresh herbs, fruits and vegetables, and the sizzle of our real panini grill. You’ll see the stove’s open flame and feel the warmth from our ovens working all day long. They’re the traditions we established years ago that we still passionately follow today.”
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