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May 4, 2020 – The Debtors requested Court authority to (i) access $20.0mn of debtor-in-possession (“DIP”) financing, $9.0mn on an interim basis, and (ii) use cash collateral [Docket No. 21].
The DIP financing is to be provided by TRT Holdings, Inc. ("TRT") which acquired Gold's Gym from private equity firm Brockway Moran & Partners in 2004 for a reported $158.0mn and currently holds 69.2% of the Debtors' equity. The Debtors have stated that current negotiations among key stakeholders envisage a sale of the Debtors' assets to Irving, Texas-based TRT which also owns, inter alia, Omni Hotels, Tana Exploration (oil & gas exploration) and Waldo's Dollar Mart (a Mexican retailer).
The Debtors' DIP motion states, “The Debtors have gone without substantial revenues since mid-March and cannot continue to operate without temporary financing. To continue their operations in an orderly manner on a post-petition basis, the Debtors need immediate authority to use the collateral, including cash collateral, of the Prepetition Lenders and to borrow funds pursuant to a loan agreement negotiated with TRT Holdings, Inc. (‘TRT Holdings’) or its affiliate TRT Debt Funding, LLC (in its capacity as debtor-in-possession financing lender, the ‘DIP Lender’). TRT Holdings is the majority owner of GGI Holdings and has indicated that it is willing to advance the funds needed to maintain the Debtors as a going concern, but only on the terms described herein. The Debtors intend to borrow funds needed to operate in the ordinary course of business during these Cases, with the goal of achieving a sale or similar restructuring transaction through a chapter 11 plan of reorganization.”
Key Terms of the DIP Financing
- Borrowers: GGI Holdings, LLC
- Guarantors: GGI Holdings and all affiliate Debtors whose Chapter 11 Cases have been proposed to be jointly administered herein.
- Advances for Operations: The DIP Lender will agree to advance up to $9.0mn on an interim basis, and up to $20.0mn on a final basis, subject to submission and approval by the Prepetition Lender and the DIP Lender of regular budgets and additional reporting requirements as set forth in the DIP Order.
- Type and Amount of the DIP Facility: A debtor-in-possession delayed draw term loan facility (the “DIP Facility”, and the term loans thereunder, the “DIP Loans”) in an aggregate principal amount not to exceed $20.0mn (net of the 2.0% original issue discount) (the aggregate principal amount of the DIP Lenders’ commitments under the DIP Facility, the “Total DIP Commitments”). DIP Loans shall…be made in one initial draw (the “Initial DIP Draw”) on the Closing Date, in an aggregate principal amount not to exceed $3.5mn (net of the original issue discount); such additional draws following entry of the Final DIP Order on the dates and not to exceed the amounts as set forth in the Budget as approved by the Prepetition Lenders and the DIP Lenders (each net of the original issue discount) (the “Additional DIP Draws” and together with the Interim DIP Draw, collectively, the “DIP Draws”), in an aggregate amount not to exceed the remaining principal balance of the Total DIP Commitments.
- DIP Interest Rate; Default Rate: At all times prior to the occurrence of an Event of Default, interest on the DIP Loans shall accrue at a rate per annum equal to the LIBOR Rate plus 1000 basis points per annum (the “Interest Rate”). Upon the occurrence and during the continuation of an Event of Default, interest on the DIP Loans shall accrue at the Interest Rate plus an additional 500 basis points per annum (the “Default Interest”), which shall be payable in cash on demand.
- DIP Lender’s Fees and Expenses: The DIP Lender shall receive from the Debtors, current cash payments of all reasonable and documented prepetition and post-petition fees and expenses payable to the DIP Lender under the DIP Note, including, but not limited to, the reasonable and documented prepetition and post-petition fees and disbursements of legal counsel, financial advisors and other consultants (the “DIP Lender Fees and Expenses”).
- Events of Default/Termination:As detailed more fully in the DIP Order, the earliest of the following:
- August 1, 2020; provided, however, if the Debtors obtain entry of an order confirming a plan under section 1121 of the Bankruptcy Code (the “Plan”) as provided for in Paragraph 13(iii)(f) below, this milestone shall be extended to permit occurrence of the effective date as provided for in Paragraph 13(iii)(g)
- the effective date of a confirmed chapter 11 plan in these Chapter 11 Cases;
- the failure to meet or satisfy any of the Milestones; and
- the date of any other Event of Default listed in the DIP Order.
- Credit Agreement: The Debtors are party to a $90.0mn credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), Bank of America, N.A. (“BOA”), and Wells Fargo Bank, N.A. (“Wells” and, collectively with JPMorgan and BOA, the “Prepetition Lenders”) with JPMorgan serving as the lead lender, administrative agent (the “Agent”), and sole bookrunner for the Prepetition Lenders. As of the Petition Date, the borrowings totaled approximately $51.3mn under the credit revolver and outstanding letters of credit allowed under the Credit Agreement.
- Landlord Claims: In all, the Debtors believe they owe their landlords approximately $7.0mn in prepetition rental obligations. The Debtors intend to cure or otherwise resolve those obligations as part of these bankruptcy cases. Apart from outstanding rental obligations, the Debtors are also indebted to various landlords for lease rejection and guaranteed rejection damage claims. Contemporaneously with the filing of this Motion, the Debtors will be seeking authority to reject approximately 32 leases where the Debtors have decided not to reopen operations. Those landlords will have the ability to assert rejection damage claims against the Debtors. On information and belief, the Debtors anticipate landlords’ cure claims will be no more than $7.0mn. The Debtors further anticipate that the total allowable claims asserted by landlords in these cases, whether based on rejection damages, indemnification agreements and other liabilities, will range from $30.0–55.0mn.
- Trade Debt: The Debtors have also incurred approximately $10.0mn, approximately $2.3mn of which is owed to critical vendors.
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