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June 22, 2022 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order. The bidding procedures order would: (i) approve proposed bidding procedures in respect of the sale of substantially all of the Debtors’ assets (the "Sale"), (ii) authorize the Debtors to enter into stalking horse arrangements with 37 Baking Holdings, LLC (the “Buyer,” $20.0mn credit bid*) including in respect of bidder protections and (iii) approve a proposed auction/sale timetable which culminates in a July 28, 2022 auction and an August 3, 2022 sale hearing [Docket No. 17]. The Stalking Horse APA is attached to the motion as Exhibit A to Exhibit C (p. 58).
* The stalking horse retains the right to "increase the Credit Bid up to the full amount of the First Priority Obligations and/or the DIP Obligations [ie @$75.0mn]; with the Debtors' investment banker noting as to the robustness of the stalking horse's credit bid, "such amount far exceeds any reasonable valuation of the Assets."
On June 22, 2022, Gold Standard Baking LLC and two affiliated debtors (“GSB” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($140.0mn of funded debt).
At filing, the Debtors, “one of the largest industrial bakers in the United States” noted their intention to pursue an asset sale to the Buyer, an entity formed to acquire the Debtors' "First Lien Obligations" (see debt table below) by several investment funds and minority-owned by several current GSB employees. That first lien debt, acquired for undisclosed terms and which will now be used as credit bidding acquisition capital, was purchased on April 26th. the Buyer has also agreed to provide the Debtors with $1.5mn of new money debtor-in-possession financing to see the Debtors through the sale process.
Key Terms of the Stalking Horse APA:
- Seller: Gold Standard Baking, LLC
- Buyer: 37 Baking Holdings, LLC
- Purchase Price: In consideration of the sale of the Assets to Purchaser, and upon the terms and subject to the conditions set forth herein, the aggregate consideration for the sale and transfer hereunder (the “Purchase Price”) shall consist of:
- A credit bid pursuant to section 363(k) of the Bankruptcy Code (the “Credit Bid”) of a portion of the First Priority Obligations held by Purchaser in the amount of Twenty Million Dollars ($20.0mn), provided, however, that Purchaser reserves the right, in its sole discretion, to increase the Credit Bid up to the full amount of the First Priority Obligations and/or the DIP Obligations; and
- The assumption by Purchaser of the Assumed Liabilities; and
- The assumption and assignment to Purchaser of the Assumed Contracts.
- Bid Protections:
- a break-up fee of $250k (the “Break-Up Fee”);
- expense reimbursement of the Stalking Horse Bidder’s actual, outof-pocket legal fees and hard costs incurred after execution of Stalking Horse Agreement of up to $350k (the “Expense Reimbursement”); and
- an initial overbid equal to the Break-Up Fee, plus the Expense Reimbursement, plus $200k (the “Initial Overbid” and, together with the Break-Up Fee and the Expense Reimbursement, the “Bid Protections”).
Proposed Key Dates:
- Bid Deadline: July 25, 2022
- Sale Objection Deadline: July 25, 2022
- Auction: July 28, 2022
- Sale Hearing: August 3, 2022
The bidding procedures motion [Docket No. 17] states, “Houlihan Lokey expended significant efforts prior to the Petition Date marketing the Assets for sale. Houlihan Lokey’s marketing process included significant mailings and calls to targeted, industry specific, potential buyers that Houlihan Lokey and the Debtors believed might be interested in discussing a potential purchase of the Assets. Specifically, on July 6, 2021, Houlihan spearheaded outreach to a broad universe of relevant strategic and financial parties to assess interest in an acquisition of the Company. Houlihan contacted approximately 102 parties, 71 of which negotiated and executed confidentiality agreements and, starting July 13, 2021, were provided with a CIM and access to a virtual data room containing detailed information about the Debtors’ business. Houlihan then held numerous calls with interested parties to respond to diligence and discuss the current situation and process.
The Debtors received six written indications of interest by the July 29, 2021 deadline, with three additional parties submitting a written indication of interest by August 6, 2021. Of these nine parties, four were strategic companies and five were financial investors. After reviewing all nine formal indications of interest and in consultation with their advisors, the Debtors’ management team invited six of the parties to further discuss the possibility of a potential transaction in advance of the deadline to submit a final bid on September 9, 2021. Subsequently, two of those parties submitted a formal letter of intent to purchase substantially all of the Debtors’ assets, one on September 9, 2021 and the other on September 15, 2021. Multiple additional parties indicated a potential interest in a sale transaction but did not submit a formal letter of intent.
As part of evaluating the received letters of intent as well as the formal and informal discussions with potential purchasers, it was apparent to the Debtors that certain potential purchasers were interested in purchasing only a portion of the Debtors’ business. As a result, the Debtors and their advisors determined that a sale of portions of the Debtors’ business to multiple purchasers could potentially maximize value as compared to the distributable value that would inure to the estates from any one purchaser of the Debtors’ full business operations. The Debtors’ advisors consulted with advisors to the Lenders and the holders of the Senior Subordinated Notes and determined to re-contact parties that had previously expressed informal and/or initial indications of interest to gauge interest in a potential purchase of some, but not all, of the Debtors’ business. The Debtors also re-engaged additional parties to further survey potential interest in a sale of all of the Debtors’ business.
While discussions with Arbor remained ongoing, the Debtors and their advisors continued to evaluate value-maximizing paths forward for the Chicago Facility. Over the last twenty-four months, the Debtors engaged in continuous communication with their lenders, entered into several rounds of forbearance negotiations, and evaluated multiple possible sale transactions and other out-of-court deals, including the shutdown of the Chicago Facility and piecemeal liquidation of its assets.
Through March and April of 2022, the Initial Lenders explored the potential for the sale of its First Lien Obligations and the assignment of the First Lien Documents. Ultimately, on April 26, 2022, 37 Baking Holdings, LLC acquired all the rights of the Initial Lenders and the Agent under the First Lien Credit Documents pursuant to that certain Loan and Collateral Purchase Agreement the Agent, Initial Lenders and 37 Baking Holdings, LLC dated as of April 26, 2022.
After the acquisition of the First Lien Obligations and First Lien Documents by 37 Baking Holdings, LLC, discussions with the Company continued with respect to viable options for the Chicago Facility. Ultimately, 37 Baking Holdings, LLC agreed to serve as the stalking horse bidder (the ‘Stalking Horse Bidder’) pursuant to the terms of that certain asset purchase agreement, dated June 17, 2022 (the ‘Stalking Horse Agreement’) attached to the Sale Order as Exhibit A (the ‘Stalking Horse Agreement’) to acquire the Debtors’ remaining assets at the Chicago Facility as a going concern, to expose the staking horse agreement to higher and better offers through a chapter 11 process, and to support the process by agreeing to the Debtors’ use of cash collateral and providing needed debtor-in-possession financing. The culmination of the foregoing marketing process was the execution of the Stalking Horse Agreement.
The timeline for the formal marketing process was driven by parallel negotiations with the Prepetition Secured Party and the DIP Facility Lender as part of the prepetition restructuring process. As part of these negotiations, the Prepetition Secured Party and the DIP Facility Lender, among other things, insisted on the inclusion of ‘milestone’ dates by which the Debtors would be required to have completed certain aspects of the proposed sale process (the ‘Milestones’). These Milestones are intended to preserve the going-concern value of the business through a timely, efficient sale process that culminates in a closing by the middle of August 2022 to maximize value and avoid disruption and harm to the Debtors’ business.
Although the Debtors believe that the Assets were adequately marketed before the Petition Date, pursuant to the terms of the Stalking Horse Agreement, the Debtors and their investment banker have continued, and will continue, to market the Assets to likely potential buyers through and until the Bid Deadline (defined below). The Debtors and their investment banker believe that given the amount of the credit bid available to the Prepetition Secured Party and DIP Facility Lender (which such amount far exceeds any reasonable valuation of the Assets), the significant prepetition marketing effort, the number of parties that already have executed NDAs, the fact that the Assets were already marketed to the most likely bidders for Assets of the type being sold, and that the Debtors entered into a liquidation agreement for the Assets prior to the Stalking Horse Bidder’s willingness to enter into the Stalking Horse Agreement and buy the Assets as a going concern compared with other alternatives explored, the prepetition and postpetition marketing process leading up the Bid Deadline will be robust and adequate to achieve the greatest possible level of interest and consideration for the Assets in the Chapter 11 Cases.”
As of the Petition Date, the Debtors’ capital structure consists of outstanding funded debt obligations in the aggregate principal amount of approximately $140.0mn, including the Revolving Credit Facility, the First Lien Term Loan, the Second Lien Term Loan, and the Senior Subordinated Notes.
About the Debtors
According to the Debtors: “Gold Standard Baking is one of the largest industrial bakers in the United States. We deliver delicious products from laminated dough to a wide variety of finished foods. We’re strategically located in the center of the country with our main bakery in Chicago. GSB produces over 150 varieties of fully-baked croissants, danish and cinnamon rolls, feeding millions of people each week across the US and in Canada. All our finished foods are designed for the thaw and sell programs of our customer-partners in food service, retail, casual dining, health, education, and quick serve restaurants."
The Young Declaration adds: "The Debtors produce over 1.7 million pounds of fully-baked goods per week on average, including approximately 100 varieties of fully-baked croissants, Danishes, and cinnamon rolls. These goods are delivered to approximately 100 retail and other foodservice customers per week through a network of distributors. The Debtors offer fully-finished “thaw and serve” foods designed for ease of use to customers across a wide range of industries, including partners in food service, retail, casual dining, health, education, and quick service restaurants.
As of the Petition Date, the Debtors employ approximately 333 full-time employees. The Debtors also periodically retain temporary workers through various staffing
agencies to fulfill certain duties on a short- and long-term basis. Typically, at any given time the Debtors retain approximately 50 temporary staff."
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