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November 17, 2022 – The Debtors filed a motion requesting each of a bidding procedures order, a sale order and a dismissal order [Docket No. 179]. The bidding procedures order would: (i) approve bidding procedures in relation to the sale of substantially all of the Debtors’ assets (the “Sale”), (ii) authorize the Debtors to select one or more stalking horse bidders and offer bid protections to any selected stalking horse and (iii) adopt a proposed auction/sale timetable culminating in an auction on December 13th and a sale hearing on December 15th. The sale order would approve the Sale.
Although not currently seeking approval of a specific stalking horse, the Debtors have one in the wings, Restaurant Lending, LLC, an acquisition entity controlled by the Kelly Investment Group which is (as of November 17th) also the Debtors' proposed debtor-in-possession ("DIP") lender (we cover the Debtors' motion requesting access to $2.57mn of new money DIP financing…yes, the acquisition currency in an anticipated credit bid…separately).
The DIP lender, and presumptive stalking horse, is an entity controlled by the Kelly Investment Group (as described just below, one of the two arms of the Kelly Companies) which touts itself as "actively seek[ing] distressed investment opportunities in real estate properties and projects." In respect of these Debtors, also part of the Kelly Companies, the search was not all that complicated.
As proposed, the Debtors would continue an already "robust" marketing process on what is clearly an accelerated auction/sale timetable. Assuming no other bidder emerges, the Debtors will ask the Court to approve a $2.57mn credit bid (or whatever is outstanding under the DIP, NB: only $770k of the DIP to be made available on an interim basis) and then, because "they will not have sufficient assets available to pay all administrative and priority creditors in full," they will seek dismissal of the Debtors' cases. As to why this path is preferable to Chapter 7, the Debtors argue that a "chapter 7 trustee’s fees, commissions and related costs would make any recovery to priority and unsecured creditors similarly unlikely, if not impossible." In further defense of the proposed sale to what appears to be an insider, the Debtors note that there is no break-up fee; they also emphasize that professionals, if no one else, would be paid.
So, is this some sort of modern day claim jumping by the Debtors' existing owners the Kelly Companies? That will likely come down to whether any further bidders appear and whether the Court considers the sales effort sufficiently thorough to ensure its claimed "robustness." That in turn will come down to the operational health of the Debtors who insist that they have never recovered from the COVID pandemic, with the DIP motion noting that: "Despite significant efforts to address the situation, the Debtors have not been able to overcome the difficulties from the COVID-19 pandemic…"
The Debtors are part of the Kelly Restaurant Group ("KRG") which operates "10 restaurant brands with over 60 locations throughout the country including Claim Jumpers Bar & Grill, Champps Kitchen & Bar, Fox & Hound Sports Tavern, Craft Republic, Joe's Crab Shack , Brick House Tavern + Tap, Grady's BBQ, McCormick's & Schmick's, and Kings Family Restaurants."
KRG is one of two branches of "The Kelly Companies," the other being the "Kelly Investment Group." The Kelly Companies provide: "The first of the Kelly Companies was formed over 20 years ago, in 1993 by Michael Kelly. Today, Kelly Investment Group is the primary private equity company handling all M&A activity for the Kelly Companies of Southern California…. Our Real Estate Group [apparently part of the "Investment Group"] actively seeks distressed investment opportunities in real estate properties and projects throughout the U.S."
On October 3, 2022, Claim Jumper Acquisition Company, LLC and seven affiliated debtors (collectively, the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtors, operators of four restaurants under the Claim Jumper Steakhouse & Bar, Joe’s Crab Shack, Brick House Tavern + Tap, and Nashville Hot Chicken Shack, noted (i) that they had "not been able to overcome the difficulties from the COVID19 pandemic, greatly exacerbated by regulatory responses to the pandemic, soaring food costs and a tight labor market" and (ii) that they were "preparing to commence a robust marketing process to seek a plan sponsor or one or more purchasers to maximize value for creditors and to facilitate the Debtors’ emergence from these chapter 11 cases."
The Bidding Procedures Motion
The motion [Docket No. 178] notes, “Prior to the Petition Date, the Debtors engaged Michael Wyse and Wyse Advisors LLC (‘WALLC’). In his capacity as CRO, Mr. Wyse is an officer of the Debtors with the power and authority to, among other things, assist the Debtors in carrying out their duties under the Bankruptcy Code and formulate, oversee, and direct a process for the evaluation and negotiation of any financing, sale, or restructuring transaction. Following the Petition Date, WALLC initiated the steps necessary to conduct a postpetition marketing process, including preparing a teaser, confidential information memorandum, and other marketing and due diligence materials, and compiling a list of potential buyers.
On October 25, 2022, the Debtors and WALLC commenced a robust marketing process to maximize the value of the Debtors’ estates for creditors and other stakeholders and facilitate a going concern sale of the Debtor’ business. Through WALLC, the Debtors have distributed the teaser to 330 prospective purchasers, a number of whom have executed confidentiality agreements and are actively reviewing information in the data room and have requested, scheduled, or received management presentations. WALLC and the Debtors will continue to work with interested parties and any additional parties to provide all necessary diligence and will continue to actively seek potential interested purchasers.
The marketing process and the Bidding Procedures proposed in this Motion provide sufficient time for the Debtors to market the Assets, receive and evaluate bids and proposals and hold an Auction (if necessary) to determine the highest or otherwise best bid. Specifically, the timeline of the Bidding Procedures is aligned with the milestones negotiated for and set forth in that certain Debtor-in-Possession Loan and Security Agreement (as the same may be amended, restated, supplemented, waived or otherwise modified from time to time, the ‘DIP Credit Agreement’), by and among the Debtors and Restaurant Lending, LLC (‘DIP Lender’), which provides a roadmap through the chapter 11 cases supported by DIP Lender.
To foster competitive bidding, the Debtors believe it is important to establish a floor price for their assets and expression of interest as to which of the Debtors’ locations will continue as a going concern, in order to preserve jobs and enable the payment of lease, vendor and other claims related to those locations. To this end, the Debtors have secured a stalking horse bid from the DIP Lender and or its designee (in the capacity as stalking horse bidder, the ‘Stalking Horse Bidder’). The parties anticipate entering into a stalking horse asset purchase agreement (the ‘Stalking Horse Agreement’) providing for, among other things: (i) a credit bid in the amount of the DIP Obligations, currently anticipated to be up to a maximum principal amount of $2.57 million plus interest and fees, and (ii) the assumption of certain liabilities (collectively, the ‘Stalking Horse Bid’). The Stalking Horse Agreement will require the Debtors to pay an expense reimbursement equal to the actual reasonable and documented out-of-pocket third-party expenses actually incurred by the Stalking Horse Bidder in connection with the negotiation of, and transactions contemplated by, the Stalking Horse Agreement but will not require the Debtors to pay a break-up fee or other forms of bid protections. The Debtors believe that this concession from the Stalking Horse Bidder will further foster interest in the Debtors’ assets and aid the Debtors in maximizing value.”
On the unusual addition of a request for dismissal to a bidding procedures/sale motion, the Debtors add: "The Debtors have considered various options to bring these chapter 11 cases to a conclusion following the closing of the Sale and believe, after making appropriate considerations, that a dismissal of these chapter 11 cases is the most expeditious and cost-effective mechanism to wind down the Debtors’ affairs. The Debtors believe that it is unlikely that they will be able to pursue a confirmable chapter 11 plan because they will not have sufficient assets available to pay all administrative and priority creditors in full, nor a credible path to securing a non-insider, impaired consenting class. The Debtors considered exiting the chapter 11 cases through a chapter 7 process but believe that the additional chapter 7 trustee’s fees, commissions and related costs would make any recovery to priority and unsecured creditors similarly unlikely, if not impossible. In seeking approval of the post-closing dismissal of these chapter 11 cases pursuant to the Proposed Dismissal Orders, the Debtors (a) propose making payments to holders of allowed Professional Fee Claims, (b) request the dismissal of the chapter 11 cases and related relief on the terms set forth in the Proposed Dismissal Orders attached hereto, and (c) request certain related relief as set forth herein."
Proposed Key Dates
- Bid Deadline: December 9, 2022
- Auction: December 13, 2022
- Sale Hearing: December 15, 2022
- Sale Closing: On or before December 23, 2022
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