December 14, 2020 – Further to the December 2nd bidding procedures order [Docket No. 148], and absent receipt of other qualified bids, the Debtors canceled the auction scheduled for December 15, 2020 and designated American Freight FFO, LLC (an affiliate of Franchise Group, Inc.; NASDAQ: FRG the “Stalking Horse Purchaser”) as the Successful Bidder for their assets [Docket No. 173]. The relevant APA is attached to the bidding procedure order as Exhibit A.

The Sale hearing is scheduled for December 17, 2020.

As previously reported, the APA notes a purchase price comprised of (i) $7.0mn of first lien prepetition debt held by the Stalking Horse Purchaser ($22.0mn outstanding), (ii) up to the full amount owed the Stalking Horse Purchaser under debtor-in-possession (“DIP”) financing arrangements (proposed borrowings of $6.84mn) and (iii) $739k to cover wind down expenses. 

In a November 5th press release announcing their intention to purchase the Debtors’ assets, Brian Kahn, CEO of Franchise Group Inc. stated, “FFO provides us a great opportunity to expand our store footprint and growth at American Freight.”

The Debtors’ CEO Hank Mullany added: “The planned transaction places FFO with a partner that has strong financial resources, that is dedicated to growth and support of our people.”

Key Terms of the Stalking Horse APA:

• Sellers: Furniture Factory Ultimate Holding, LP
• Purchaser: American Freight FFO, LLC
• Purchase Price (other than Assumed Liabilities and Cure Costs): Consists of (i) credit bid a portion of the Secured Debt in an amount of $7.0mn, (ii) a credit bid up to the amount of all outstanding obligations under the DIP Agreement as of the Closing Date and (iii) a cash payment to Sellers in an amount of $739k to fund the wind-down of the Sellers’ estates and the closure of the Chapter 11 Cases (such amount, the “Wind Down Cash”).

Marketing Efforts

The bidding procedures motion notes, “In June 2020, the Debtors engaged FocalPoint Securities, LLC (‘FocalPoint’) as their proposed investment banker to locate investors and to market their assets for sale, to assist in the evaluation of strategic alternatives, including the sale of the Company or its assets. 

Beginning in July and continuing until the end of October, FocalPoint contacted approximately 121 potential strategic and financial buyers, out of which 24 executed confidentiality agreements and received the confidential information memorandum and requested diligence information and 3 parties participated in management meetings and had access to the full online data room. The Debtors received initial indications of interest from each of the 3 that participated in management presentations and commenced discussions surrounding a potential transaction. Meanwhile, the Debtors continued to suffer a drain on cash flow and lacked a source of long-term additional liquidity. Consequently, it became apparent that the Debtors liquidity position would require that the sale process continue in a chapter 11 process. The Debtors’ pre-petition lender was unwilling to provide the funding for a chapter 11 proceeding. 

In mid-October, the Debtors and its advisors commenced discussions with the American Freight FFO, LLC, who had purchased the Debtors first lien secured loan facility, to serve as a ‘stalking horse’ purchaser. The Debtors were able to conclude these negotiations and, on November 4, 2020, entered into an Asset Purchase Agreement dated November 4, 2020 the ‘Asset Purchase Agreement’)… by and among the Debtors as sellers and American Freight FFO, LLC as buyer (the ‘Stalking Horse Purchaser')…. 

The Debtors believe that the marketing efforts will be sufficient to ensure the highest or otherwise best offer, particularly in light of the Debtors’ limited financing options and ongoing cash needs. Further, the Debtors believe that a delayed sale process likely would lead to substantial deterioration of the operating performance of their businesses and the value of their assets.”

About the Debtors

According to the Roach Declaration: “The Debtors are an everyday low-price provider of fashionable and affordable home furniture in South Central and Midwest United States and were founded in 1984 in Muldrow, Oklahoma around an original concept of providing quality furniture at highly competitive prices with the Company’s ‘lowest price every day’ guarantee, a differentiator from the competition. The Company offers products spanning every need for the home, including living room, dining room and bedroom furniture, mattresses, home decor and other accessories and carries prominent furniture brands, including Serta, Jackson Catnapper and United/Lane, as well as a range of products under its Natural Elements Brand.

Prior to the governmental mandated COVID-19 shutdown, the Debtors operated 68 locations and employed approximately 675 employees. As a consequence of the required shutdowns and the concomitant massive reduction in revenue and available liquidity, the Debtors permanently closed 37 locations and terminated employees at those locations. As of the Petition Date the Debtors are operating 31 retail locations across Arkansas, Missouri, Oklahoma, Kentucky and Indiana, in addition to a bedding manufacturing facility and one distribution facility (the ‘Business’) and the Debtors currently employ 270 employees.

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