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July 18, 2022 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) filed a combined objection to the Debtors’ proposed debtor-in-possession ("DIP") financing and bidding procedures citing that an APA and DIP Credit Agreement must be finalized before their approval [Docket No. 142].
The recently formed Committee, noting that it has only just engaged professionals, objects to "proposed DIP milestones and sale timeline [as] overly aggressive and potentially prejudicial to the estates" and tools designed to "advance the DIP Lender’s loan-to-own strategy to the potential detriment of creditors." In asking the Court to adjourn a July 21st hearing at which the pair of motions are to be considered, the Committee continues, "It is premature to seek bidding protections and set critical case milestones when the most critical first step of the process [finalizing an APA] has not been completed."
On July 15, 2022, the U.S. Trustee assigned to the Debtors’ cases (the “U.S. Trustee”) objected to proposed bidding procedures [Docket No. 137, see also our separate coverage] arguing that the Debtors’ presumptive stalking horse Asurion, LLC (“Asurion,” also the Debtors’ DIP lender) should not be the beneficiary of bidder protections until an executed asset purchase agreement has been filed with the Court and interested parties afforded an opportunity to review that APA. Even then, the U.S. Trustee continued, (i) bidder protections should exclude any reimbursement for diligence already performed by Asurion prepetition and (ii) the Court should holistically review the proposed protections to assess their net benefit to the Debtors’ estates.
On June 30, 2022, Enjoy Technology, Inc. and two affiliated debtors (NASDAQ: ENJY; “Enjoy” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $111.7mn and estimated liabilities of $70.0mn. At filing, the Debtors cited "larger-than-expected [SPAC/Merger] redemptions," the supply chain crisis and tightening equity markets as compelling them to seek bankruptcy shelter.
* The Debtors’ most recent 10-K provides the following as to the business model/markets/key partnerships: “We have contractual partnerships, commercial relationships and/or authorized dealer agreements with leading telecommunications and technology companies (such arrangements, ‘Business Partnerships’), including AT&T in the US, BT-EE (British Telecom) in the UK, Rogers in Canada and Apple in select US cities (such companies, ‘Customers’ or ‘Business Partners’). We provide the commerce-at-home experience to our Business Partners’ Consumers. Enjoy delivers a broad assortment of telecommunications and technology products and accessories for our Business Partners. As of December 31, 2021, our top two Business Partners in the U.S. and the U.K. accounted for 62% and 15% of our revenue, respectively.”
Also on June 30th, the Debtors filed a DIP motion [Docket No. 11] requesting Court authority to enter into a $55.0mn of debtor-in-possession (“DIP”) financing facility to be provided by stalking horse Asurion, LLC ("Asurion" or the “DIP Lender”) and consisting of $52.5mn of new money and a roll-up of an emergency $2.5mn bridge loan made available by Asurion in the run up to the Petition date. $20.0mn of the new money was made available (and the roll-up occurred) upon issuance of July 1st interim DIP order.
On July 3rd, the Debtors filed a motion seeking approval for proposed bidding procedures in relation to the sale of substantially all of their assets; with the expectation that Asurion would serve as stalking horse** and that their sale process would conclude at an August 12th hearing [Docket No. 86]. That motion also sought bidder protections that included a 3.0% break-up fee and a 0.5% expense reimbursement.
** As it stands, the Debtors have a non-binding letter of intent with Asurion and had flagged their expectation that an asset purchase agreement would be filed by July 14th. That did not happen.
The Commitee Objection
The Committee’s objection states, “[t]he Committee has been in existence for only eight (8) days, and the Committee’s proposed counsel and financial advisor, have been engaged for only five (5) and six (6) days, respectively. By contrast, many of the Debtors’ professionals have been involved in these matters for months. Against this backdrop, and for the reasons discussed herein, the Committee objects to the DIP Motion and the Bidding Procedures Motion because the terms, including proposed DIP milestones and sale timeline, are overly aggressive and potentially prejudicial to the estates, especially because an asset purchase agreement (‘APA’) is still being negotiated, and the Committee has not received a draft of a DIP Credit Agreement.
It is no secret that the success of these chapter 11 cases hinges on the sale of the Debtors’ assets. Indeed, the Debtors have advertised the expectation of a sale that pays creditors in full. However, the Debtors have yet to finalize an APA, and the delay associated with ongoing contract negotiations has further diminished the timeline for any type of competitive bidding process. In the meantime, the Debtors seek approval of a final DIP Order and bidding procedures that serve to advance the DIP Lender’s loan-to-own strategy to the potential detriment of creditors. In short, the APA must be finalized and the Court, the Committee, and other parties in interest must have a reasonable opportunity to review it before the Bidding Procedures can be approved. It is premature to seek bidding protections and set critical case milestones when the most critical first step of the process has not been completed.
The Committee requests that the Court adjourn the DIP Motion and the Bidding Procedures Motion until after the stalking horse APA is signed and filed with the Court. This adjournment will permit the Committee to engage in a meaningful dialogue with the Debtors and the DIP Lender regarding the relief requested in the DIP Motion and the Bidding Procedures Motion and, hopefully, reach a consensus on, among other major issues, the proposed case milestones, termination fee, and bid protections. The request for more time is not driven by a tactical desire to delay, but rather, a critical need to understand, investigate, and engage with the parties to reach a consensual resolution.”
About the Debtors
According to the Debtors: “Enjoy is a technology-powered platform reinventing "Commerce at Home" to bring the best of the store directly to customers. Enjoy operates a Smart Last Mile™ solution, which includes a network of Mobile Stores with significant inventory and trained Experts that bring greater speed, convenience and personalized experiences to customers. Co-founded by Apple retail strategist Ron Johnson, Enjoy has pioneered a new retail channel that can do everything that a traditional retail experience offers, but better. Enjoy has formed multi-year partnerships with the world’s leading consumer brands to bring the products, services and subscriptions that customers love through the door of their homes with superior comfort and convenience. Headquartered in Palo Alto, CA, Enjoy currently operates in the United States, Canada and the United Kingdom. ”
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